Diploma P01

Question 1

State and Explain any 5 types of annuities (10)

Answer 1

An annuity is a contract to pay a set annual sum during the life of the annuitant in return for a single premium.

*Immediate Annuity
is the simplest form of contract, compromising a single premium in return for annual payments for the rest of the annuitant’s life.
*Deferred Annuity
with this type of annuity contract the date on which the installments will become payable is deferred until some future date.The period between the date of the contract and the date on which the annuity is to commence is often called the deferred period.
*Temporary Annuity
Under a temporary annuity, payments will not continue indefinitely until the annuitant’s death instead the contract has a fixed date at which time the annuity installments will cease automatically, unless death has already occurred.
*Guaranteed Annuity
A guaranteed annuity is an immediate annuity which is guaranteed for a minimum period regardless of when the annuitant dies.
*Joint life and last survivor annuity
Where retirement provision is required, joint life and last survivor annuities have been developed to ensure the annuity payments continue to the surviving partner after the death of their spouse

Question 2

List and explain any three sources of data which can be used in risk identification (6)

Answer 2

*Survey
Surveys comprise of risk description, risk assessment, how risk is dealt with as well as the recommendations of how to reduce the impacts of loss
*Questionnaires
Sending a ‘round robin’ to managers, supervisors, technicians, trade union representative or other relevant groups of the staff throughout an organisation is a good way of collating the perceptions of those individuals as to risks that may exist within the premises or processes used by their employer
*Check lists
purpose 1- to verify that equipment and resources that need to be at set points are there(eg fire extinguishers)
purpose 2 - to verify that routine tasks are being performed (eg lavatories with sheets that display a schedule for cleaning)
purpose 3 - warranties given to insurers are being maintained.
purpose 4 - to verify that all requisite tests are being carried out, both on sample of the work that is going through the office or factor and on buildings.

Question 3

Name the four functions of the International Union of Aviation Insurers

Answer 3

• To present members interests to the governments and regulators worldwide
  *To recommend good technical and underwriting practice, with its clauses committees continuing to work on standardization of clauses across the London market
  *To promote education and training , through liaison with relevant professional bodies and supporting organisations
  *To organise seminars, conferences and monthly forum meetings; to commission and publish research info

Question 4

Briefly describe any 5 points that are covered in a marketing plan.

Answer 4

• A summary of the prime objectives and of the priority in which the objectives are ranked, with the implications for the business as a whole for each market segment.
• Overall marketing objectives. Providing a broad framework, governing the detailed plans by segment.
  *The resources and development expenditure that is necessary to achieve your plans.
  *The related communication plans, both internal and external.
  *Organisational implications, including review of appraisal systems
• Success/ failure criteria, together with details of review points, methods of monitoring and possible contingency action

Question 5

The core task of an underwriter is to calculate suitable premium. Discuss the elements which a suitable premium must be sufficient enough to cover.

Answer 5

• Cover expected claims during the period of insurance The insurer is in a position to estimate the level of claims which they expect. It is not possible to say exactly how much is to be paid in claims but because of the numbers involved the insurer can make a reasonable accurate assessment of he likely cost.
• Create an estimate for outstanding claims Not all claims will be settled during the year for which the premium has been paid and hence the premium must take into account those claims still to be settled at the end of the year.
• Provide a reserve The insurer must also take into account the fact that there can be contingencies, beyond their control, which may involve a liability to meet claims at some time in the future.
• Meet all expenses The insurer has a number of operational expenses to meet in the running of business (Eg Salaries to staff)
• Provide for profit The insurer must ensure that there is provision for a reasonable profit. The majority of insurers are answerable to shareholders and must provide a reasonable return on the investment which these shareholders have made in the company

Question 6

State and explain three main ways or methods of presenting data and discuss the circumstances under which each method can be suitably used.

Answer 6

Bar Graphs
These are a helpful way of displaying information where there are perhaps ‘peaks and troughs’

Line graph
The graph is a particularly useful way of displaying cumulative figures in, say, a sales area.

Pie chart
This method is helpful is highlighting things which may not be apparent at first sight from the figures alone.

Question 7

Explain how the principle of contribution is applied in insurance and state the five legal requirements which need to be met before contribution may arise.

Answer 7

Contribution is the right of an insurer to call upon others similarly but not necessarily

two or more policies of insurance must exist.
the policies cover a common insurable interest
the policies cover a common peril giving rise to the loss.
the policies cover a common subject matter
Each policy must be liable for the loss.
NB policies do not have to cover the same interests or perils or subject matter or insurance provided that there is an overlap between one policy and another. For example, a policy covering the insured stock in one premise will also contribute with one covering its stock in all its premises

Question 8

State and explain five structures of companies that participate in the aviation insurance market

Answer 8

Reinsurance pools
Reinsurance companies
Direct insurance companies

Question 9

List five general conditions under a motor insurance policy

Answer 9

1. Policy Commencement:
   
   • This condition specifies when the insurance coverage begins and may include details about the effective date and time of the policy.
2. Premium Payment:
   
   • This condition outlines the obligations of the policyholder to pay the insurance premium within the specified time frame to maintain coverage. It may also detail accepted payment methods and consequences of non-payment, such as policy cancellation.
3. Duty of Disclosure:
   
   • The insured is typically required to provide accurate and complete information to the insurer when applying for the policy and throughout the policy term. Failure to disclose relevant information may invalidate the policy or affect the insurer’s ability to assess claims.
4. Use of Vehicle:
   
   • This condition specifies the permitted use of the insured vehicle, such as personal or commercial use, and may include restrictions on where and how the vehicle can be driven (e.g., geographical limits).
5. Safety and Maintenance:
   
   • The insured is usually required to maintain the vehicle in a safe and roadworthy condition and comply with applicable laws and regulations regarding vehicle maintenance and operation.
6. Claims Handling:
   
   • This condition outlines the procedures and requirements for filing a claim, including reporting deadlines, documentation needed, and cooperation with the insurer’s investigation.
7. Subrogation:
   
   • Subrogation allows the insurer to recover costs from third parties responsible for causing the insured’s loss or damage. This condition may detail the insured’s cooperation in pursuing subrogation rights.
8. Cancellation and Termination:
   
   • This condition specifies the circumstances under which the insurer or the insured can cancel or terminate the policy, including notice requirements and any applicable fees or penalties.
9. Modification of Terms:
   
   • The insurer reserves the right to modify the terms and conditions of the policy, usually with prior notice to the insured. This may include changes to coverage, premium rates, or policy limits.
10. Fraudulent Acts:
    
    • The policy typically includes provisions regarding fraudulent acts, such as providing false information or making fraudulent claims, which may result in policy cancellation and legal consequences.

Question 9

State the benefits offered by a with-profit policy in life assurance

Question 9

List any five aspects that an insurer must check for before paying a valid claim

Question 9

Explain the term “Deferred Period” as used in Disability Insurance

Question 10

Under personal health care Insurance, state the cover provided under comprehensive policies

Question 11

Write brief notes on the following treaty arrangements

Question 12

Briefly describe the cover granted under a trader’s package policy

Question 13

State and explain the four criteria which have to be met if a market segment is to useful for marketing purposes

Question 14

State and explain the three basic levels of motor policy cover

Question 15

Outline the cover given under a professional indemnity policy and state any four professional who may need this cover clearly outlining the reasons why

Question 16

State any four main users of a company’s financial statements and give reasons why each user would be interested in the company’s financial statements

Question 17

Define Indemnity and briefly explain the four main ways through which indemnity is provided

Question 18

Briefly explain the term Surrender Value

Question 19

List three advantages of having occupational pension scheme underwritten by an insurance company

Question 20

With the aid of an example, explain what is moral hazard?

Question 21

Outline three key features that must be covered in a survey report

Answer 21

Description of risk - This will include the plan of the premises in the case of a property risk, the process being carried on the premises, details of the insured etc.

Assessment of the level of risk - This will take into account all relevant hazards factors, both moral and physical, and provide the underwriter with some idea of the degree of risk which they are being asked to accept.

Measure of maximum probable loss (MPL) - Generally, the surveyor and the underwriter discus negative and positive feature and jointly agree on the appropriate EML or MPL. This MPL or Estimated Maximum Loss (EML) is the maximum that the surveyor believes will be the subject of loss. The MPL takes no account of any good features which may be present.

Recommendation and loss prevention - The surveyor will also make known to the insured what steps should be taken to protect the risk.

Surveyor’s view on the adequacy of insurance being requested. Adequacy in many classes of insurance will mean the sum insured. The adequacy of cover is an extremely important issue for the insured and the underwriter will want to ensure that the insured is not under-insuring the risk.

Question 22

Distinguish between Pure Risks and Speculative Risks

Question 23

Using examples briefly explain the following terms:
* “Days of Grace”
* Ex gratia payment
* Ombudusman office

Question 24

What are the benefits of insurance?

Question 25

State and briefly explain any five business structures that can deal in the insurance business.

Question 26

Briefly exlpain the main purpose of the following financial statements for an insurance company
* Profit and loss account
* Cash flow statement

Question 27

Discuss the main methods used by insurers to distribute profits/surplus to policyholders under Life Assurance and Pensions Business