Chapter 5 Flashcards
What does an insurer’s risk appetite refer to?
A) The insurer’s total annual profit target
B) The insurer’s willingness to accept specific types and levels of risk
C) The insurer’s marketing and advertising strategy
D) The insurer’s claims handling procedures
B) The insurer’s willingness to accept specific types and levels of risk
How does the concept of pooling of risks benefit an insurer?
A) It allows insurers to charge the same premium to all policyholders
B) It spreads individual losses across a large group, making claims more predictable
C) It ensures that only low-risk individuals are accepted into the insurance pool
D) It eliminates the need for underwriting and pricing adjustments
B) It spreads individual losses across a large group, making claims more predictable
Which of the following is not a key component of motor insurance premium pricing?
A) Anticipated claims cost
B) Reinsurance costs and levies
C) The vehicle’s resale value
D) Fixed and variable operating expenses
C) The vehicle’s resale value
Which of the following is considered a fixed cost in motor insurance operations?
A) Handling claims and policy alterations
B) Commission payments to brokers
C) Office rent and salaries of senior specialists
D) Processing policy renewals
C) Office rent and salaries of senior specialists
Explanation:
Fixed costs remain constant regardless of the volume of business written, such as office rent and salaries of underwriting, actuarial, and HR specialists. Variable costs (A, B, D) fluctuate with business activity.
What is considered the most difficult factor to assess when pricing motor insurance?
A) Fixed operating costs
B) Claims cost (frequency and severity)
C) Marketing and advertising expenses
D) Reinsurance charges
B) Claims cost (frequency and severity)
Explanation:
Claims cost is the hardest to predict because it depends on multiple variables, such as accident rates, fraud, repair costs, and bodily injury claims. Insurers rely on historical data and actuarial analysis to estimate it.
Why is motor insurance pricing particularly competitive in the UK?
A) The government regulates all motor insurance premiums
B) Motor insurance accounts for over 35% of total UK general insurance premium income
C) Vehicles in the UK have lower repair costs than other countries
D) Most motor insurers operate as non-profit organizations
B) Motor insurance accounts for over 35% of total UK general insurance premium income
Explanation:
Because motor insurance is such a large part of the UK insurance market, insurers compete aggressively through pricing, marketing, and technology (e.g., price comparison websites).
Why are profit margins in motor insurance typically low?
A) Insurers do not include profit margins in pricing
B) Motor insurance is a highly competitive market
C) Investment income always offsets underwriting losses
D) Insurance premium tax (IPT) eliminates most profit
B) Motor insurance is a highly competitive market
Explanation:
Due to intense competition, insurers must price policies aggressively, often resulting in low profit margins. They rely on investment and ancillary income to maintain overall profitability.
What can cause an insurer to experience a trading loss in motor insurance?
A) A reduction in the number of policyholders
B) Lower-than-expected claims frequency
C) Investment and ancillary income exceeding claims costs
D) High claims costs and operating expenses exceeding premiums
D) High claims costs and operating expenses exceeding premiums
Explanation:
Even with investment and ancillary income, unexpectedly high claims and expenses can lead to trading losses in certain years.
How does investment income impact an insurer’s motor insurance profitability?
A) It guarantees a profit, regardless of underwriting losses
B) It helps offset underwriting losses in bad years
C) It directly reduces claims costs
D) It eliminates the need for pricing adjustments
B) It helps offset underwriting losses in bad years
Explanation:
Insurers invest premiums to generate income, which can help cover losses from underwriting, though it does not guarantee profitability every year.
Which of the following is an example of ancillary income for a motor insurer?
A) Investment returns on premiums
B) Earnings from additional products like breakdown cover
C) Reinsurance payments from reinsurers
D) Reduced claims due to safer driving habits
Answer: B) Earnings from additional products like breakdown cover
Explanation:
Ancillary income comes from add-on products, admin fees, and commissions, providing insurers with extra revenue beyond premiums.
Which of the following is not a key component of motor insurance claims costs?
A) Vehicle repairs and replacement costs
B) Costs of alternative transport for third parties
C) Underwriting expenses and staff salaries
D) Third-party bodily injury compensation
C) Underwriting expenses and staff salaries
Explanation:
Claims costs mainly involve vehicle-related costs and third-party claims, whereas underwriting expenses and staff salaries are part of operating expenses.
Purpose of Periodical Payment Orders (PPOs)
Question:
Why were Periodical Payment Orders (PPOs) introduced in motor insurance?
A) To allow claimants to receive structured payments over time instead of a lump sum
B) To reduce insurers’ overall claim costs
C) To prevent claimants from suing for additional compensation
D) To eliminate the need for third-party liability insurance
Answer: A) To allow claimants to receive structured payments over time instead of a lump sum
An insurer is disputing a compensation award, arguing that the discount rate should be based on historical stock market returns rather than government bonds. Which legal framework determines how the discount rate is set?
A) The Civil Liability Act 2018
B) The Damages Act 1996
C) The Insurance Act 2015
D) The Personal Injury Claims Act 2005
B) The Damages Act 1996
A motor insurer notices a sharp increase in third-party injury claims costs. What is the most likely reason for this?
A) A reduction in the Personal Injury Discount Rate
B) A decrease in Ogden Table multipliers
C) A rise in the number of fraudulent claims
D) A change in liability laws making it harder to claim compensation
A) A reduction in the Personal Injury Discount Rate
A legal adviser is explaining to an insurer when the next review of the Personal Injury Discount Rate must take place. What is the legal requirement for reviewing the rate?
A) Every 2 years
B) Every 3 years
C) Every 5 years
D) Only when major changes occur in the investment market
C) Every 5 years
A personal injury lawyer is working on a claim in Northern Ireland and needs to apply the correct discount rate. As of March 2022, what is the discount rate in Northern Ireland?
A) +2.5%
B) -0.25%
C) -0.75%
D) -1.5%
D) -1.5%
A claimant’s solicitor is demanding that the insurer pays the success fee for a no-win, no-fee case. The insurer disputes this, stating that changes in the law prevent them from covering such costs. Which reform supports the insurer’s position?
A) The Compensation Act 2006
B) The Civil Liability Act 2018
C) The Legal Aid, Sentencing and Punishment of Offenders Act 2012
D) The Road Traffic Act 1988
C) The Legal Aid, Sentencing and Punishment of Offenders Act 2012
An insurance broker is offering to refer personal injury claims to a solicitor in exchange for a referral fee. Which legal development prohibits this practice?
A) The Ogden Tables Reform Act
B) The Jackson Reforms
C) The Civil Justice Act 2015
D) The Compensation Recovery Act
B) The Jackson Reforms
A claimant has filed a personal injury claim for £85,000 in October 2023. The solicitor argues that legal costs should be uncapped due to the complexity of the case. Under the new Jackson Reforms, what is the general rule for legal costs?
A) Legal costs are fixed for claims below £100,000, unless deemed complex
B) There are no limits on legal costs for personal injury claims
C) Fixed recoverable costs only apply to claims below £50,000
D) All personal injury claims must go through arbitration
A) Legal costs are fixed for claims below £100,000, unless deemed complex
A claimant has suffered a personal injury and their solicitor explains that they cannot recover the success fee from the defendant. However, the solicitor mentions that compensation for pain and suffering will be higher than before. Why is this?
A) Due to inflation adjustments made every year
B) Because of a 10% uplift in general damages after LASPO 2012
C) As a result of stricter liability laws in the Civil Liability Act 2018
D) Since the claimant has no legal representation, the court awards extra damages
B) Because of a 10% uplift in general damages after LASPO 2012
An insurer is reviewing its claims payment pattern. What percentage of claims are typically paid after two years?
A) 90%
B) 50%
C) 10%
D) 40%
C) 10%
An insurer has been underestimating claim reserves, leading to financial strain. Why is accurate reserving essential?
A) It helps reduce claims frequency.
B) It ensures the insurer remains solvent and premiums are set correctly.
C) It guarantees faster claim settlements.
D) It eliminates fraudulent claims.
B) It ensures the insurer remains solvent and premiums are set correctly.
An insurer is reviewing its reserves for claims that may not yet have been reported but stem from past events. What is this reserve category called?
A) Case reserves
B) Ultimate loss reserves
C) Claims development reserve
D) Incurred But Not Reported (IBNR) claims
D) Incurred But Not Reported (IBNR) claims
A claims handler is reviewing past claims payments and applying an inflation adjustment to reflect the current value of claims. Why is this necessary?
A) To ensure premiums are set based on past pricing models
B) To make older claims appear more expensive
C) To accurately estimate future liabilities and pricing
D) To reduce insurers’ tax liabilities
C) To accurately estimate future liabilities and pricing
An insurer is developing a rating structure and groups similar risks together based on key factors to create standard rates. What is this process called?
A) Risk pooling
B) Homogeneous risk grouping
C) Adverse selection
D) Moral hazard assessment
B) Homogeneous risk grouping
A new insurer is considering entering the motor insurance market but wants to specialize in just one class of vehicle. Which of the following statements is true?
A) Insurers must underwrite all classes of motor business.
B) Most insurers only cover private motor cars.
C) Some insurers specialize in one or two specific classes of motor business.
D) The law requires all insurers to cover hire cars and goods vehicles.
C) Some insurers specialize in one or two specific classes of motor business.
A policyholder has purchased Comprehensive motor insurance. What additional cover does this provide compared to Third Party, Fire and Theft (TPFT)?
A) Third-party liability cover only
B) Cover for fire damage and theft of their vehicle
C) Cover for accidental damage to the policyholder’s vehicle
D) Personal injury protection for the driver
C) Cover for accidental damage to the policyholder’s vehicle
A driver is comparing insurance premiums for the same car under TPO, TPFT, and Comprehensive policies. What trend will they likely observe?
A) TPFT is always the cheapest option
B) Comprehensive is the cheapest due to wider coverage
C) TPO is the cheapest, and Comprehensive is the most expensive
D) All three cover types cost the same for the same car
C) TPO is the cheapest, and Comprehensive is the most expensive
An insurer is reviewing premiums for two policyholders. One lives in a busy urban area with high traffic density and street parking, while the other lives in a rural area with a garage. How will this likely affect premiums?
A) The urban policyholder will have a higher premium due to increased risk.
B) The rural policyholder will have a higher premium because of longer driving distances.
C) Both policyholders will have the same premium.
D) The urban policyholder will have a lower premium because urban roads have lower speed limits.
A) The urban policyholder will have a higher premium due to increased risk.
An insurer previously grouped rating districts by counties and towns, but now uses postcode sectors. What advantage does this provide?
A) It simplifies the underwriting process by reducing the number of districts.
B) It allows for more precise risk pricing based on smaller geographical areas.
C) It increases the number of fraudulent claims processed.
D) It eliminates the need for risk assessment in motor insurance.
B) It allows for more precise risk pricing based on smaller geographical areas.
A logistics company has a fleet of goods-carrying vehicles that travel across the UK daily. How would insurers likely rate these vehicles?
A) They would be assigned to a single rating district based on the home depot.
B) They would be classified under fewer rating districts than private cars.
C) They would not be rated based on district since they travel long distances.
D) They would be given higher premiums because they are on the road more frequently.
B) They would be classified under fewer rating districts than private cars.
An insurer notices a sudden rise in fraudulent claims from a small town with a low crime rate. What is a possible explanation?
A) The town has an underlying high crime rate that has gone undetected.
B) A single individual or organised group could be conducting fraud in that location.
C) Fraudulent claims always come from high-crime urban areas, so this is an error.
D) The insurer should ignore this trend as it is likely a coincidence.
B) A single individual or organised group could be conducting fraud in that location.
Alice drives her car to visit family, go shopping, and take weekend road trips. She does not use it to drive to work. What class of use applies?
A) Social, Domestic & Pleasure (SDP)
B) Class 1 Business Use
C) SDP (Including commuting)
D) Class 2 Business Use
A) Social, Domestic & Pleasure (SDP)
Tom is a sales representative who regularly drives between different cities to visit clients. What class of use does he need?
A) Social, Domestic & Pleasure (SDP)
B) Class 1 Business Use
C) Class 2 Business Use
D) Class 3 Business Use
D) Class 3 Business Use
John owns a minicab company where drivers operate on a pre-booked basis (e.g., Uber). What class of use applies?
A) Public Hire
B) Private Hire
C) Self-Drive Hire
D) Class 2 Business Use
B) Private Hire
A florist owns a small van to deliver flowers locally. What class of use applies?
A) Table 1 Use (Own Goods)
B) Table 2A Use (Local Haulage)
C) Table 2B Use (Long-Distance Haulage)
D) Class 3 Business Use
A) Table 1 Use (Own Goods)
John owns a luxury sports car and wants to insure it. His insurer offers two options:
A named driver policy (John & his wife).
An open-driving policy (any driver over 21).
Which policy is likely to have a lower premium?
A) The open-driving policy.
B) The named driver policy.
C) Both will have the same premium.
D) It depends on the car’s value.
B) The named driver policy.
A construction company wants all employees to be able to drive their vans. The insurer offers an open-driving policy but excludes drivers under 25. Why?
A) Younger drivers are more likely to have accidents.
B) Younger drivers have better reflexes.
C) The policy only covers employees with at least 10 years of experience.
D) The insurer does not allow open-driving policies.
A) Younger drivers are more likely to have accidents.
Emma owns a high-performance car and wants an open-driving policy. What is the most likely outcome?
A) The insurer will allow open driving without restrictions.
B) The insurer will require a named driver policy or limit drivers by age.
C) The insurer will refuse to insure the car.
D) The insurer will charge no extra premium for open driving.
B) The insurer will require a named driver policy or limit drivers by age.
A sales team needs a company car that multiple employees can use. What type of driving limitation is most appropriate?
A) Insured-only policy.
B) Named driver policy.
C) Open-driving policy with age restrictions.
D) Social, domestic & pleasure (SDP) only policy.
C) Open-driving policy with age restrictions.
At one time, insurers classified vehicles using engine capacity (cc) and value, but this system was replaced. What was the main reason for the change?
A) Engine capacity was no longer a relevant factor in determining risk.
B) The original system had only seven groups, which were too broad.
C) Insurers stopped offering car insurance based on vehicle type.
D) Customers preferred a system that allowed them to choose their own rating.
B) The original system had only seven groups, which were too broad.
A new sports car has a high top speed and rapid acceleration. Based on standard rating principles, what is likely to happen to its insurance group?
A) It will be placed in a higher insurance group.
B) It will be placed in a lower insurance group.
C) Performance does not affect insurance group classification.
D) It will be placed in the same group as a small hatchback.
A) It will be placed in a higher insurance group.
Which of the following is NOT a factor in determining a vehicle’s insurance group?
A) The vehicle’s new price.
B) The vehicle’s top speed & acceleration.
C) The car brand’s reputation.
D) The cost of parts & repair time.
C) The car brand’s reputation.
A manufacturer introduces a new hatchback with advanced anti-theft technology and a five-star safety rating. How might this affect its insurance group?
A) It will likely be placed in a lower insurance group.
B) It will be placed in a higher insurance group.
C) Security and safety do not impact insurance groups.
D) The insurer will refuse to insure the car.
A) It will likely be placed in a lower insurance group.
A policyholder has a 3-year No Claim Discount. If they do not make a claim, what will their discount likely be at their next renewal?
A) 40%
B) 50%
C) 60%
D) 70%
C) 60%
Alice has a 5-year NCD (70%) but makes one fault claim. If her insurer follows a step-back system, what is her likely NCD after renewal?
A) 0%
B) 50%
C) 60%
D) 30%
B) 50%
Which of the following statements is true regarding Protected NCD?
A) It ensures that NCD remains untouched regardless of the number of claims.
B) It allows a limited number of claims (e.g., 2 in 5 years) before affecting NCD.
C) It eliminates the need for a No Claim Discount.
D) It is available to all drivers, including those under 25.
B) It allows a limited number of claims (e.g., 2 in 5 years) before affecting NCD.
John, aged 30, has just bought his first car. He has never held insurance in his name but has held a full UK licence for five years with no accidents or convictions. Which of the following is most likely?
A) He will be refused NCD as he has no prior insurance history.
B) He will be offered a starter discount and may receive Year 1 or Year 2 NCD at his next renewal.
C) He will receive an immediate full NCD.
D) He must wait at least five years before being eligible for NCD.
B) He will be offered a starter discount and may receive Year 1 or Year 2 NCD at his next renewal.
A company insures 5 vehicles for a full year and 6 vehicles for only 6 months. What is the total number of vehicle years?
A) 8
B) 5.5
C) 6
D) 7
D) 7
An insurer wants to assess the total exposure for policies active between 1 Jan and 31 Dec. They total up the exact durations each policy was in force during this period. What are they calculating?
A) Written Vehicle Years
B) Earned Vehicle Years
C) Premium Exposure
D) Policy Duration
B) Earned Vehicle Years
An insurer had 1,000 new motor insurance policies start between 1 April and 31 March. What does this represent?
A) Earned Vehicle Years
B) Written Vehicle Years
C) Claims Frequency
D) Loss Ratio
B) Written Vehicle Years
An insurer issues a 12-month policy with a £1,200 premium starting 1 July. The review period is from 1 January to 31 December. How much premium is considered earned within the review period?
A) £600
B) £1,200
C) £300
D) £900
A) £600
Explanation:
The policy runs from 1 July to 30 June.
Only 6 months (July–December) fall within the review period.
£1,200 ÷ 12 months × 6 months = £600 earned premium.
Scenario:
An insurer records £500,000 in written premiums for policies incepted between January and December. However, some of these policies extend into the next year. What premium figure should be used for assessing this year’s risk exposure?
A) Written Premium
B) Earned Premium
C) Gross Premium
D) Claims Ratio
B) Earned Premium
A policyholder changes their vehicle mid-term, leading to a premium increase. How does this affect earned premium calculations?
A) The original premium remains unchanged.
B) The earned premium is adjusted to reflect the higher premium for the remaining period.
C) The policy is cancelled and rewritten.
D) The insurer ignores the change for premium calculations.
B) The earned premium is adjusted to reflect the higher premium for the remaining period.
An insurer’s data shows the following for drivers aged 25 with comprehensive cover:
Earned vehicle years (EVY): 10,000
Total claims cost: £5,000,000
What is the CCPVY (claims cost per vehicle year)?
A) £5,000
B) £500
C) £50
D) £5
Correct Answer: B) £500
Calculation: CCPVY = Total Claims Cost ÷ Earned Vehicle Years = £5,000,000 ÷ 10,000 = £500
An insurer uses telematics data (e.g., braking, speed, mileage) alongside traditional rating factors to refine pricing. This is an example of:
A) Risk-based pricing using big data analytics.
B) Standard underwriting with minimal data.
C) Ignoring traditional rating factors.
D) Manual underwriting without automation.
A) Risk-based pricing using big data analytics.
An insurer is reviewing pricing for drivers aged 40 with third-party cover. The data shows:
Total claims cost: £15,000,000
Earned vehicle years (EVY): 50,000
What is the pure risk premium (CCPVY)?
A) £300
B) £200
C) £500
D) £150
A) £300
Calculation: CCPVY = £15,000,000 ÷ 50,000 = £300
An insurer calculates the pure risk premium for a driver profile at £250. They add:
Expenses: £50
Reinsurance & levies: £30
Profit: £20
What is the final standard (book) premium?
A) £250
B) £300
C) £350
D) £400
C) £350
Calculation: Final premium = £250 + £50 + £30 + £20 = £350
An insurer refines its risk pricing by considering:
Driver age (50 groups)
Car group (50 categories)
Postcode (1,000 areas)
Annual mileage (5 bands)
Why might this level of detail be problematic?
A) It ensures 100% accurate pricing.
B) It produces too many small data groups, reducing statistical reliability.
C) It makes pricing faster and easier.
D) It prevents fraud completely.
B) It produces too many small data groups, reducing statistical reliability.
An insurer wants to calculate the expected claims cost for a 30-year-old driver, living in London, with a 5-year-old car. They do not have historical claims data for this specific group.
How can the insurer estimate the risk?
A) Use parameters from similar groups, such as other 30-year-old drivers.
B) Ignore the missing data and set an arbitrary premium.
C) Use data from a completely unrelated group, such as 50-year-olds.
D) Refuse to insure the driver due to lack of claims history.
A) Use parameters from similar groups, such as other 30-year-old drivers.
Explanation: Statistical modelling allows insurers to estimate risk using past data from similar profiles.
An insurer makes a significant profit from investing its collected premiums before claims are paid.
How does this impact pricing?
A) Investment income directly reduces motor insurance premiums.
B) Investment income is considered separately and does not directly influence premium pricing.
C) The insurer increases premiums to account for investment returns.
D) Insurers stop pricing policies based on claims experience.
Correct Answer: B) Investment income is considered separately and does not directly influence premium pricing.
Explanation: Premiums are based on claims cost and expenses, while investment income supports overall profitability.
Which of the following is not an example of an insurer’s ancillary income?
A) Charging a policyholder a fee for changing their policy.
B) Selling standalone legal expenses cover.
C) Setting higher premiums for high-risk drivers.
D) Earning commission from selling additional products.
C) Setting higher premiums for high-risk drivers.
Explanation: Premium adjustments based on risk are part of underwriting, not ancillary income.
An insurer collects £1,000,000 in premium and has £700,000 in incurred claims cost.
What is the incurred claims ratio?
A) 30%
B) 70%
C) 130%
D) 100%
B) 70%
Explanation: £700,000 ÷ £1,000,000 × 100 = 70%.
An insurer wants to set premiums for a new risk category but has no prior claims data for it.
Which pricing method is best suited for this situation?
A) Claims Ratio Method
B) Pure Loss Method
C) Random Pricing
D) Fixed Premium for All Drivers
B) Pure Loss Method
Explanation: The Pure Loss Method estimates premiums based on expected claims cost, making it suitable for new risk categories.
A motor insurer is looking to improve the accuracy of its pricing model.
Which of the following best describes how AI and machine learning help insurers?
A) AI replaces underwriters, removing the need for human pricing decisions.
B) AI helps pull in external data sources to refine pricing decisions.
C) AI guarantees that premiums will always be lower than competitors.
D) AI sets a fixed premium for every driver regardless of risk factors.
B) AI helps pull in external data sources to refine pricing decisions.
Explanation: AI analyses external data (e.g., credit ratings, ADAS features, cancellation history) to improve pricing accuracy.
An insurer reduces premiums by 10%, expecting a 20% increase in new policies.
Which term best describes this situation?
A) Inelastic Demand
B) Elastic Demand
C) No Demand Change
D) Static Pricing
B) Elastic Demand
Explanation: Demand increases by more than the price reduction, meaning the product has elastic demand.
A long-term policyholder stays with their insurer despite a 10% premium increase because they trust the brand.
This is an example of:
A) Elastic Demand
B) Brand Affinity
C) Price Sensitivity
D) Impulse Buying
B) Brand Affinity
Explanation: Loyal customers may tolerate price increases due to trust in the brand.
An insurer wants to target low-risk drivers who are willing to pay higher premiums for a trusted brand with strong customer service.
Which pricing strategy is most suitable?
A) Offer the lowest premiums to compete with budget insurers.
B) Focus on strong branding and value-added services.
C) Ignore brand loyalty and rely only on price competition.
D) Reduce underwriting criteria to attract as many customers as possible.
B) Focus on strong branding and value-added services.
Explanation: Customers who value service and brand loyalty will be less price-sensitive, making branding more effective than price competition.
An insurer adjusts its motor insurance premium rates after analyzing competitors’ quotes for similar risks.
Which method allows insurers to estimate a competitor’s pricing structure?
A) Risk Pooling
B) Reverse Engineering
C) Price Collaring
D) Market Segmentation
B) Reverse Engineering
Explanation: By obtaining multiple quotes for the same risk, insurers can infer the competitor’s rating approach.
A motor insurer wants to introduce a 5% premium increase but is unsure how customers will react.
Which is the best strategy to minimize risk?
A) Apply the increase to all policies immediately.
B) Test the increase on a small portion of policies first.
C) Introduce a flat-rate increase across all risk profiles.
D) Wait for competitors to change prices before acting.
B) Test the increase on a small portion of policies first.
Explanation: A ‘test and learn’ approach helps insurers gauge customer reactions and adjust pricing if needed.
An insurer introduces a new pricing model but wants to avoid extreme price fluctuations for individual customers.
Which strategy should they use?
A) Loss Reserving
B) Price Elasticity Modelling
C) Cap and Collar Pricing
D) Premium Rebates
C) Cap and Collar Pricing
Explanation: This strategy ensures no customer faces an excessively high increase or an overly large discount.
A 20-year-old female driver applies for motor insurance and asks why she is being charged the same premium as a male driver, despite statistical evidence that young men have higher accident rates.
What legal ruling explains this?
A) The EU Driving Licence Directive.
B) The Equality Act 2010.
C) The ECJ ‘Test Achats’ ruling (2011).
D) The Motor Insurers’ Bureau Act.
C) The ECJ ‘Test Achats’ ruling (2011).
Explanation: This ruling banned gender-based premium differences in motor insurance across the EU from December 2012.
An underwriter is assessing a motor insurance application and notices that the proposer has had multiple ‘non-fault’ claims in the last three years. How should the underwriter interpret this information?
A) Non-fault claims are irrelevant since the proposer was not responsible, and they should not affect the underwriting decision.
B) Some insurers may consider non-fault claims as an indicator of increased future risk, as statistical models suggest a correlation with future fault claims.
C) The proposer should automatically be declined insurance due to the high claims frequency.
D) The cost of past claims should be the primary factor in assessing future risk, as higher claim costs indicate a worse driver.
B) Some insurers may consider non-fault claims as an indicator of increased future risk, as statistical models suggest a correlation with future fault claims.
Mark was convicted of careless driving at the age of 17. He was given a fine, three penalty points, and an endorsement. How long will it take for his conviction to become spent under the Rehabilitation of Offenders Act 1974?
A) 1 year
B) 2.5 years
C) 3 years
D) 5 years
C) 3 years – Since Mark was under 18, the rehabilitation period for fines and endorsements is halved. His fine would be spent after six months, his endorsement after 2.5 years, but his penalty points remain for 3 years. The longest period (3 years) applies.
How are vehicles generally classified for underwriting purposes?
A) By engine size only.
B) By group rating.
C) By brand and model.
D) By the age of the driver.
B) By group rating.
For high-performance vehicles, insurers often use additional parameters such as:
A) Vehicle color and condition.
B) Driver’s age, driving experience, accident, and conviction history.
C) The number of passengers.
D) The vehicle’s fuel type.
B) Driver’s age, driving experience, accident, and conviction history.
What is rare for high-performance vehicles regarding coverage?
A) Having coverage for damage to the vehicle only.
B) Offering “any driver” cover.
C) Offering full coverage without exclusions.
D) Restricting coverage to named drivers only.
B) Offering “any driver” cover.
What does the age of a vehicle primarily influence in motor insurance?
A) Claims cost and repair costs.
B) Mileage limits.
C) The type of coverage offered.
D) The vehicle’s registration process.
A) Claims cost and repair costs.
Why is the garaging address important in motor insurance?
A) To determine the vehicle’s fuel efficiency.
B) To establish the rating district and assess risk.
C) To track the vehicle’s usage.
D) To identify the vehicle’s value.
B) To establish the rating district and assess risk.
How do insurers validate vehicle information during the quotation process?
A) By asking the proposer for a detailed vehicle history.
B) By linking to databases like the DVLA and SMMT.
C) By reviewing the vehicle’s maintenance records.
D) By conducting an in-person inspection.
B) By linking to databases like the DVLA and SMMT.
Which organizations are involved in the development of the Insurance Industry Access to Driver Database (IIADD)?
Answer Options:
A) DVLA, MIB, DfT, ABI
B) DVLA, MIB, HMRC, FCA
C) DfT, ABI, HMRC, DVLA
D) MIB, DfT, ABI, FCA
A) DVLA, MIB, DfT, ABI
What is the Insurance Industry Access to Driver Database (IIADD) system?
A) A system that provides insurers with driver education materials.
B) A database where insurers can access accurate driving licence details from the DVLA.
C) A directory of approved driving instructors.
D) A database that tracks car ownership.
B) A database where insurers can access accurate driving licence details from the DVLA.
When extensive modifications are made to a vehicle, such as engine upgrades, what might an insurer request?
Answer Options:
A) Additional photos
B) Proof of vehicle purchase
C) A qualified engineer’s report
D) A copy of the vehicle’s warranty
C) A qualified engineer’s report
What system do insurers commonly use to verify a proposer’s accident and loss history?
Answer Options:
A) DVLA
B) Claims and Underwriting Exchange (CUE)
C) Insurance Fraud Database
D) Motor Vehicle Safety Database
B) Claims and Underwriting Exchange (CUE)
What is a premium “loading” typically applied for?
Answer Options:
A) High risk of theft
B) Driver’s claims or conviction history
C) Age of the vehicle
D) Number of vehicles in a policy
B) Driver’s claims or conviction history
What is the term used to describe business where a premium loading has been applied to the normal book rate due to unique risk features?
Answer Options:
A) Standard business
B) Commercial business
C) Non-standard business
D) Fleet-rated business
C) Non-standard business
What is a common exclusion in motorcycle insurance policies?
Answer Options:
A) Loss of accessories not attached to the vehicle
B) Damage to helmets and protective clothing
C) Theft of the vehicle in non-secure buildings
D) Coverage for the passenger’s personal effects
B) Damage to helmets and protective clothing
How do insurers typically rate motorcycles?
Answer Options:
A) By driver age and experience
B) By engine capacity and value
C) By the number of passengers carried
D) By weight and fuel type
B) By engine capacity and value
Which of the following is included in the RTA definition of a motorcycle?
Answer Options:
A) Vehicle weight exceeding 410 kilograms
B) Vehicle with more than two wheels
C) Electric scooters
D) Mechanically propelled vehicles with fewer than four wheels
D) Mechanically propelled vehicles with fewer than four wheels
What is typically excluded from motorcycle policies related to “driving other motorcycles”?
Answer Options:
A) Coverage for younger riders
B) Coverage for passengers for hire or reward
C) Coverage for motorcycles under 100cc
D) Coverage for motorcycles older than 5 years
B) Coverage for passengers for hire or reward
