IF1 past exam questions and answers Flashcards
When assessing a property risk, the building Materials used for construction would be considered which key risk component?
Hazard.
Why is risk Management important to underwriters?
It reduces the potential for loss and assists in quantifying risks.
Which Category of risk has the three possible outcomes of a loss, a break even or a gain?
A speculative risk.
In relation to general insurance, to be insured a risk must be?
Fortuitous.
In terms of frequency and severity, the risk of an explosion aboard an oil rig is classed as ?
Low Frequency high severity.
A hazard is defined as something which ?
Can adversely affect the risk to be insured.
from an insurers point of view, risk can be defined as the ?
Possibility of loss.
In relation to insurance a peril is ?
An event which may give rise to a loss.
What is the presence of flammable panels in a construction of a factory building best described as ?
A hazard.
In terms of frequency and severity, the accidental damage of a windscreen is typically classified as ?
High frequency low severity.
Which part of the world usually has the highest premium rate for travel insurance including medical and liability?
North America.
Kita is choosing a European Holiday and is considering a city break, a beach holiday, a cruise or a scuba diving course. in respect of travel insurance cover, which is usually the highest risk?
The Scuba Diving course.
A building has a thatched roof, a sprinkler system and an Intruder alarm. Which if any of these would be classed as a physical hazard?
The Thatched roof.
A large company has decided to set aside money to settle frequent small losses that occur. this is known as ?
Self - Insurance
In financial terms, why is insurance a means of risk transfer, attractive to a policy holder?
The policy holder is able to swap an unknown loss with a specified cost now.
Lloyds syndicate A underwrites 60% of a risk, syndicate B underwrites 25% and syndicate C underwrites the remaining 15%. collectively the syndicates are acting as ?
Co-insurers.
Dual Insurance exists when?
More than 1 policy covers the same risk.
What are the 2 rates used when calculating IPT ( Insurance premium tax ) for general insurance?
12% and 20%
Policies that refer to cover on a comprehensive or third party basis are most commonly examples of which class of insurance?
Motor Insurance
The type of insurance that provides cover in the event of the misappropriation of goods by an employee is ?
A Fidelity Guarantee insurance policy.
The Main Benefit to an individual when insuring her house is that?
The risk of loss is transferred.
Insurance Premium Tax applies to ?
Some general insurance premiums.
When a solicitor acts Negligently in their professional capacity, which type of insurance policy will protect an individual, if they are impacted or suffer a loss from advice received?
Professional indemnity.
What are public limited companies who carry risk within the Lloyds market otherwise known as?
Corporate members
Helen works for an Insurer providing financial and statistical theories to management, including suggested premium rating and the calculation of the companies financial status.
Helen is most likely to be a member of the ?
International Underwriting Association of London
A mutual insurer is owned by?
Policy Holders
Direct insurance companies operate via the telephone or internet directly to?
Consumers
A policyholder will employ a loss assessor primarily to?
Prepare and present an insurance claim.
An insurer who has accepted a risk too large to retain can choose to insure part of the risk with?
A reinsurer
What is the Chartered Insurance Institute?
A professional body.
After investigating a liability claim for injury, from whom does the loss adjuster usually receive
payment of fees?
The Insurer.
Who is specifically responsible for identifying areas within a business where potential losses could
be controlled or eliminated?
A risk manager
Which type of insurer does NOT provide insurance to the general public?
A mutual insurer.
Which type of insurer is wholly and directly owned by its shareholders?
A Proprietary insurer.
From whom could an individual obtain assistance in determining the best provider of the insurance
required?
An Insurance Broker
The main distinguishing feature of a tied agent is that they
Represent only one insurer.
Protection and Indemnity clubs within the London market underwrite which class of insurance?
Marine
An insurance broker recommends and arranges a policy for his client and collects the premium on
behalf of the insurer. The broker subsequently advises the client on how to make a claim. At what
point in this scenario is the insurer the broker’s principal?
When the premium is collected.
Afonso is a registered insurance broker working for a large broking company. When he advises
Tony on insurance for his new car, Afonso is acting as the agent of
Tony
If a principal agrees to be bound by the actions of an agent who has acted outside the terms of the
agency agreement, what type of agency has been created?
Agency by ratification
Who, if anyone, may terminate a household insurance policy?
Both the insurer and the insured.
An agent, acting within the terms of the agency agreement, enters his principal into a contract with
a client. How, if at all, can the principal avoid the contract?
The Principal can not avoid the contract as he is bound by it.
The essential components of a valid contract of insurance are
offer , acceptance and consideration.
Under a Terms of Business agreement, an insurer and intermediary would NOT be deemed to be in
default for failure to perform an action if the failure is caused by
force majeure
Alex, a web designer, is asked by Lukas for a quotation. Alex provides the quotation with full terms
and conditions and Lukas accepts. This is known as
Unconditional acceptance,
A promise to pay and provide a service is known as what to support the contract?
Consideration.
John borrows Vinu’s car on the condition that he arranges comprehensive insurance cover on the
vehicle for himself. John’s broker informs him that he is unable to do so as he has no financial
relationship with the vehicle. This is an example of the application of the
Principle of insured interest.
When must insurable interest first exist in order for a private motor insurance policy to be
enforceable by law?
At the time the policy goes on risk.
If a condition under a tenancy agreement states that the tenant is responsible for damage to the
building, the tenant therefore has insurable interest as a result of
Contract.
What is insurable interest?
The financial interest which a person has in an item.
Prior to the inception of a motor insurance policy, an insurer provided the policyholder with a list of
exclusions but failed to warn of an additional exclusion which subsequently appeared in the policy
document. What principle of insurance has the insurer breached?
Good Faith
When Norman applied for a theft insurance policy, he advised the insurer that he only had a single
Yale lock on the main entrance to the property to be insured. This information is an example of
Material Circumstances.
Paul has been banned for driving whilst under the influence of illegal drugs. Following the
completion of his ban he has applied for new motor insurance cover. Underwriters are likely to
regard this information as
A poor moral hazard
In connection with an insurance policy, at what point does the duty of disclosure first arise?
at the beginning of negotiations
In what circumstances may an insurer have the right to avoid paying a claim and to void a
household contents insurance policy from inception?
When a deliberately undisclosed circumstance has been discovered.
An insurer is in the process of settling a claim and has already made three interim payments of
£300,000 each. Prior to payment of the final amount of £300,000, the loss adjuster discovers that
the insured deliberately withheld material circumstance relevant to the claim. What, if anything, is
the maximum amount the insurer can recover from the insured?
£900,000
An insurer is deemed to have waived its rights regarding the disclosure of information on a
proposal form when the proposer has neglected to
fully complete the form and the insurer has not requested further details.
Why does passing an advanced driving test NOT need to be disclosed as a material circumstance?
It lessons the risk proposed by the driver.
In terms of the duty of fair presentation, what is the difference, if any, between a non‐life policy
and a life policy?
It only applies at inception for a life policy.
The insurance principle which imposes a duty on the parties of a contract ‘not to misrepresent any
matter relating to the insurance’ is known as
Good Faith.
Following a football match, 200 rival fans riot in the street setting fire to cars and breaking shop
windows. The window of a boutique is broken and smoke from a burning car outside damages the
stock. What is the proximate cause of the stock damage?
The riot.
The proximate cause of a loss will always be the
Dominant cause
Under a household insurance policy, the reinstatement basis of cover is more commonly known as
New For Old Cover.
A farmer loses a building containing livestock feed during a lightning strike. The loss adjuster
advises the insurer that the building is adequately insured, however the livestock feed is only
insured for 80% of market value. The claim is paid with no deduction for underinsurance. This is an
example of the application of the
Special condition of average
Which insurance principle seeks to place the insured in the same position after an insured loss as
existed immediately before?
Indemnity.
Hiroshi effects two personal accident insurance policies. In respect of loss of limb cover, the first
policy provides £25,000 and the second policy provides £30,000. What is the total amount that
Hiroshi will receive in the event of a valid loss of limb claim?
£55,000
Assuming that the sum insured is adequate, what is the measure of indemnity used in the case of
the total loss of a building?
The cost of reconstruction at the time of the loss.
If an insured suffers a loss covered under her insurance policy, the measure of indemnity will
ensure that she will be
Placed in the same financial position as she was before the loss.
What type of insurance contract is a personal accident policy?
Benefit
Which insurance principle gives an insurer the right to call upon other insurers to share in the
settling of a claim?
Contribution
A building valued at £250,000 is jointly owned by Karen and Delsin, who each individually arrange
insurance on it. Karen insures the building for £100,000, whilst Delsin insures it for £150,000. How
much of the valid claim is each insurer liable to pay if a loss of £55,000 occurs?
Karen’s insurer is liable for £22,000 and Delsin’s for £33,000.
Under which insurance principle can an insurer assume the rights of the insured against a negligent
third party to recover money paid out under a claim?
Subrogation.
When a claim is made under a standard fire insurance policy, at what stage can an insurer begin to
exercise subrogation rights?
As soon as a valid claim is notified.
A factory owner needs to take out employers’ liability insurance because it is a
Statutory requirement.
The Insurance: Conduct of Business sourcebook (ICOBS) is issued and regulated by the
Financial Conduct Authority
A Norwegian insurer wants to set up an office in the City of London. In order for the insurer to be
authorised to transact insurance business, approval must be obtained from the
Prudential Regulation Authority.
What financial indicator does the Prudential Regulation Authority monitor to determine the
continued viability of an insurer?
The Solvency Margin.
For which type of establishment is public liability insurance compulsory by statute?
A horse-riding school.
Which type of insurance is compulsory by statute for a manufacturing company that employs
salaried staff?
Employers’ Liability insurance.
An intermediary gives advice on employers’ liability, public liability and professional indemnity
insurance. Which of these areas are regulated by the Financial Conduct Authority?
Employers’ liability, public liability and professional indemnity insurance.
The Prudential Regulation Authority’s Principles for Businesses states that a firm must maintain
financial resources that are
Adequate.
The Financial Services Act 2012 allows for financial penalties, public censure, civil remedies and
criminal prosecutions for non‐compliance in certain circumstances by the
Financial Conduct Authority.
Under the Financial Conduct Authority’s regulations for training and competence, an individual in
the front office of an intermediary that deals with private customers can only carry out
unsupervised work once
They have been assessed as competent.
When considering an insurance contract, the Consumer Rights Act 2015 applies to individuals and
Insurers.
Which concept is reformed by the Contracts (Right of Third Parties) Act 1999?
Privity of contract.
The three Solvency II pillars are
capital adequacy, systems of governance and supervisory reporting.
At which stage of a policy’s lifecycle does the Financial Conduct Authority expect an insurer to treat
the customer fairly?
During the whole lifecycle.
An insurer wishes to use a motor policyholder’s personal data in connection with a proposed direct
marketing campaign. Under the Data Protection Act 2018, it CANNOT proceed with the mailing
unless it
Gives the policyholder permission to opt in or out of the mailing.
A transaction which is suspected of involving money laundering has been reported to and validated
by a firm’s Money Laundering Reporting Officer (MLRO). To which organisation should the MLRO
report this matter?
The National Crime Agency.
What is the principle purpose of the Proceeds of Crime Act (2002)?
To empower authorities to confiscate funds where it is believed that such funds have been
obtained unlawfully.
Which of the recognised stages of money laundering are covered by the current Money Laundering
Regulations?
Placement, layering and integration.
Under the Financial Conduct Authority’s complaints‐handling requirements, eligible complainants
are defined as any
Consumers or micro businesses.
Under the general insurance compensation arrangements of the Financial Services Compensation
Scheme, for what total percentage of a compulsory third party motor insurance claim may
compensation be provided?
100%
The Financial Ombudsman Service was set up to assist insurance
Policyholders.
John has a complaint against his insurer and has received the insurer’s final response letter
upholding their original decision. How long does he have to refer his complaint to the Financial
Ombudsman Service?
6 Months.
An insurer’s underwriting manager is proposing to introduce a new household insurance scheme
for civil servants which will NOT be available to individuals of a particular religious or political
belief. What is the significance of this proposal, if any, in the context of the Chartered Insurance
Institute’s Code of Ethics?
It is a negative indicator of compliance with the Code of Ethics.
What are the main elements covered in the Chartered Insurance Institutes Code of Ethics relating
to provision of a high standard of service?
Accuracy, transparency and suitability.
What are the key elements of the Chartered Insurance Institute’s Code of Ethics relating to treating
people fairly?
Discrimination based on race, sex, religion, age or disability should be prevented.
An insurance broker’s administration manager has discovered that the firm has no
complaints‐handling system in place. What, if anything, is he required to do to comply with the
Chartered Insurance Institute’s Code of Ethics?
He should establish a written complaints‐handling system applicable to all complaints, however
submitted, and ensure that it is followed.
A claims handler is investigating a major fire claim at a policyholder’s warehouse. He unexpectedly
receives the offer of a foreign holiday as a goodwill gesture from the policyholder who is grateful
for his efforts. What should the claims handler do to comply with the Chartered Insurance
Institute’s Code of Ethics?
Reject the offer entirely.
