CII IF1 Chapter 1

Question 1

What does insurance act as in regards to risk?

Answer 1

Risk Transfer Mechanism

Question 2

If someone is keen to carry risk themselves they are known as what?

Answer 2

Risk seeking

Question 3

Which one of these terms describes someone who is keen to remove risk where possible? Risk-Unhappy / Risk-Seeking / Risk Adverse

Answer 3

Risk Adverse

Question 4

What are the three controls when managing risk

Answer 4

Detective controls, corrective controls and preventative controls

Question 5

What is the ABI

Answer 5

Association of British Insurers

Question 6

What body helps control the amount of motor fraudulent claims

Answer 6

Motor Insurance Anti-Fraud and Theft Register (MIAFTR)

Question 7

What are the 3 steps in the risk management process?

Answer 7

Risk Identification, Risk Analysis, Risk Control

Question 8

What is a peril?

Answer 8

Something that gives rise to a loss (fire, theft, storm)

Question 9

What is a hazard?

Answer 9

Something that influences the peril. (smoking within a property, ice on roads)

Question 10

What are the 2 categories of hazard. Give an example of both.

Answer 10

Physical - Security (or lack of), property construction (flat, thatch), Type of car, age of policyholder
Moral - Careless driving, Non-disclosure

Question 11

A risk must be what 3 things to be insurable? And what do each mean?

Answer 11

Financial - must be measurable in financial terms. The compensation has a monetary value against it. (Value of a car, Cost of repairs)

Pure - Where there is a possibility of loss but no gain.

Particular - Localised or personal risks such as a fire, flood, car crash. In comparison to fundamental risks which are outside any controls and are far spreading and are less physical. Example: War, Recession, political

Question 12

What does it mean for a risk to be Fortuitous?

Answer 12

An Accidental or unexpected event

Question 13

Which 2 ways is CO-Insurance used within the insurance market

Answer 13

Risk sharing between insurers - The insurers split the responsibility of pay out. (Flood re).
Risk sharing with the insured.

Question 14

Homogeneous exposures are…?

Answer 14

Similar risks which help determine a pattern

Question 15

The pool of insurance premiums must be large enough to meet the losses in any one year plus the what?

Answer 15

cost of operating and an element of profit.

Question 16

A business has property insurance of £2m. If it chooses to cover the first £250,000 from its own resources, this amount is known as the insured’s what?

Answer 16

Retention

Question 17

Insurers typically accumulate money due to the delay between premiums being collected and when claims are made. What is this known as?

Answer 17

Premium Reserve

Question 18

Risk can best be defined in terms of:

Answer 18

uncertainty and unpredictability.

Question 19

Why is insurance most likely to be purchased?

Answer 19

It provides peace of mind

Question 20

What does it mean to buy insurance direct?

Answer 20

Means the consumer goes straight to the insurance company to purchase their insurance.

Question 21

What is an intermediary and how do they work with direct insurers?

Answer 21

Intermediaries are companies like Pen and Iprism who have most of the insurance risk delegated to them to manage. They can transact business on behalf of the insurer via the phone or online facilities.

Question 22

What is Bancassurance?

Answer 22

Insurance policies offered through your bank. They can either be tied to 1 insurer or have access to multiple insurers

Question 23

What is Peer-to-Peer insurance.

Answer 23

Where a small group of people come together to insure their combination of things. This could be sports clubs, friends or tenants from a flat. It is usually a cost saving as there is no administration fees and people are less likely to claim.

Question 24

What is Takaful insurance

Answer 24

Takaful insurance works on the basis of insuring items based on Islamic Law.