IF3

Question 1

The principle of ‘caveat emptor’ applies to:

a. all contracts.
b. contracts in general but not insurance contracts.
c. insurance contracts but not contracts in general.
d. contracts in general but not contracts with consumers.

Answer 1

B. Contracts in general but not insurance contracts.

Chapter ref; 1A

Most contracts are dealt with under a legal principal known by a Latin term, ‘caveat emptor’ (Buyer beware). There are some statutes which also apply, giving protection to consumers against unfair practices.

Question 2

Under the Insurance Act 2015, what type of breach allows the insurer to proportionately reduce the amount paid for a claim?

a. A deliberate breach.
b. A reckless breach .
c. A careless breach.
d. A breach that is neither deliberate nor reckless.

Answer 2

D. A breach that is neither deliberate or reckless.

Chapter ref; 1D4

Under the insurance act 2015, insurers only have remedy where:

• The insured has breached their duty of fair presentation.
• The insurer can show that the breach resulted in their entering into the contract, or entering it on terms they would not have done, had the duty of fair presentation been met by the insured.

This takes the provisions of the marine insurance act 1906 and subsequent case law establishing that not only must there be a breach of duty, but that the breach must be material.

providing the two criteria above are met, the insurer has a qualifying breach. The remedy available to the insurer depends on whether the breach was deliberate or reckless.

if deliberate/reckless: the insurer may void the policy and refuse to pay claims. A breach can only be deliberate or reckless if the insured was aware that it was in breach of its duty, or did nor care whether it was in breach of its duty. - Proving recklessness is said by the law commissioner to be left to the courts.

if the breach is neither deliberate or reckless, the remedy depends on what the insurer would have done had the insured fulfilled their duty of fair presentation.

• If the insurer would not have entered into the contract, they may avoid all claims.
• the insurer may alter their terms and deal with the breach in the same way they would have had there been no breach.
• They may reduce the amount of the claim proportionately. or they may charge an additional premium had they have charged a higher premium if there had been no breach.

You should note that the act does not adopt the term ‘careless’ as used under the consumer insurance act 2012 (CIDRA) it is left undefined.

Question 3

The principle of ‘Caveat Emptor’ Applies to:

a. all contracts.
b. contracts in general but not insurance contracts.
c. insurance contracts but not contracts in general.
d. contracts in general but not contracts with consumers.

Answer 3

B) Contracts in general but not insurance contracts

Ref: 1A

Question 4

Which risk would be most suited to an internet based solution to their insurance needs?

a. An architect’s practice seeking professional indemnity insurance.
b. A local charity seeking office insurance.

c. A haulier seeking goods in transit
insurance.

d. A large warehousing risk seeking property damage insurance.

Answer 4

B ) A local charity seeking professional Indemnity insurance

Ref; 1F6

Question 5

Which type of hazard causes insurers the greatest difficulty when quoting for a new risk?

a. Good moral hazard.
b. Poor physical hazard.
c. Good physical hazard.
d. Poor moral hazard

Answer 5

D) Poor Moral Hazard

Question 6

For a commercial customer, the meaning of the term ‘material circumstance’ is defined in:

a. The Rehabilitation of Offenders Act 1974.
b. The Insurance Act 2015.
c. The Marine Insurance Act 1906.
d. The Consumer Insurance (Disclosure and Representations) Act 2012.

Answer 6

B) The insurance act 2015.

Ref: 1B

Question 7

Under the Consumer Insurance (Disclosure and Representations) Act 2012, when assessing whether a consumer has taken reasonable care, insurers must consider:

a. the legal requirement for insurable interest.
b. how clear the insurer’s questions are.
c. when the misrepresentation was made.
d. what a prudent insurer would deem material.

Answer 7

B) How clear the questions are

Ref: 1C1

Question 8

Where non-disclosure or misrepresentation is fraudulent, this is known as:

a. concealment.
b. consideration.
c. warranting.
d. material non disclosure.

Answer 8

A) Concealment

Ref: 1D5

Question 9

Misrepresentation on the part of the insured involves:

a. failing to tell insurers something they know about the risk.
b. failing to tell insurers about previous claim.
c. making a statement about the risk to be insured which is substantially false.
d. making a statement about the risk to be insured which is false in any way

Answer 9

C)Making a statement about the risk to be insured which substantially false.

Ref: 1D2

Question 10

Where an insurer uploads details onto the Motor Insurance Database on behalf of policyholders, this is usually done:

a. once a day.
b. once a month.
c. once a week.
d. once a quarter.

Answer 10

C) Once a week

Ref: 2D2

Question 11

The Consumer Rights Act 2015 requires insurers to avoid the use of:

a. adjustable premiums.
b. assumptive answers.
c. subjectivities.
d. temporary cover notes.

Answer 11

B) Assumptive answers

Ref:2B

Question 12

Risk control involves putting into action plans to reduce and/or eliminate risk. Which risk control measure is designed to eliminate property damage risks?

a. Removing flammable waste from the premises on a regular basis.
b. Installing and maintaining a sprinkler system.
c. Prohibiting smoking in workshops containing combustible materials.
d. Ensuring spray painting is carried out in a specially designed booth.

Answer 12

C) Prohibiting smoking in workshops containing combustible materials

Chapter ref: 7C

The risk surveyor (sometimes known as the loss control engineer) is the eyes and ears of the insurer, identifying risks which the insured can either;

• Eliminate; e.g Prohibiting smoking in workshops containing combustible materials; or
• Control; e.g storing combustible waste materials at least ten metres away from buildings to prevent the spread of malicious fires.

Question 13

Which type of organisation is NOT usually involved in recovering uninsured losses?

a. Loss adjusters.
b. Insurance intermediaries.
c. Solicitors.
d. Accident management companies.

Answer 13

A) Loss adjusters

Ref; 7D

There are various situations that arise in connection with motor insurance where the insures may have no cover but potentially has a legal right to recover losses from another person.
e.g if Mr Smith only has TPFT motor cover rather than comprehensive - he will be ‘uninsured’ for his own damage, this is because insurers will not pay for damage repair to the insured to the insured vehicle as this is an exclusion under lower - level insurance i.e not comp cover.
Many insurers adhere to either admitting or denying liability for TP damage. If liable, They will arrange for the third party repairs or payment if written off and the provison of a replacement car at no cost.

it is important to note that increased insurance premiums due to loss of NCD are not recoverable as an uninsured loss. This is because where the insurer, having met the own damage claim, reduces the insureds NCD but subsequently makes a full recovery of its outlay, the insured will be reimbursed the increase in premium due to the initial loss of NCD,

Other organisations such as accident management companies and solicitors, may also offer additional similar services such as replacement vehicle services and the pursuing of personal injury claims. These are often on a ‘no win no fee’ basis.
The most common is the instruction of solicitors under a legal expenses policy that is usually purchased in conjunction to a motor policy. Essentially, these will provide an indemnity for legal expenses in pursuing an uninsured loss claim, where reasonable prospects exist.

Question 14

The helplines available under household policies provide immediate assistance in relation to:

a. emergencies whether or not they are covered by the insured’s policy.
b. emergencies which are not covered by the insured’s policy only.
c. emergencies which are caused by a negligent third party only.
d. emergencies which result in an insured claim only. Incorrect

Answer 14

A) a. emergencies whether or not they are covered by the insured’s policy.

Ref: 7A

Helplines or advice lines are mainly freephone numbers, often operating 24 hours a day, providing emergency assistance and expert advice to insurance policyholders,

Examples;

Private Motor Insurance.
Providing policyholders with 24 hour access to a call centre for assistance in the event of a vehicle breakdown. The insured will usually only pay for labour and parts for assistance provided, depending on the policy terms.

Household Insurance.
Providing legal advice and legal costs services, emergency services which provide immediate assistance in emergencies whether or not they relate to claims.

Travel Insurance.
Most travel insurers provide cover for a medical emergency services which provide a 24 hour multi-lingual helpline facility. They will advice the policy holder, organise treatment and get the policyholder home if necessary.

It is also important to note that following the consumer rights act 2015, the use of premium ate phone numbers is being prohibited, Although the legislation does not apply to financial services, the FCA has confirmed that it is adopting a similar approach for insurers and other financial services providers with a requirement in its handbook that customers should not pay more than a basic rate for telephone calls.

Question 15

The upside of risk relates to:

a. examining past claims data.
b. discovering threats that already exist.
c. the failure to maximise opportunities.
d. identifying what potential threats exist in the future.

Answer 15

C) The failure to maximise opportunities

Ref: 7C -

The identification of risk involves analysis of both the upside and the downside of risk . The upside relates to the failure to maximise opportunities while the downside involves discovering what risks already exist and what potential threats may exist in the future. the initial assessment of the risk by underwriters is often carried out by examining the proposal form and, if necessary, through a physical examination or survey to assist in the identifying the existing and potential risks

Question 16

Which measure is being introduced by the Financial Conduct Authority which mirrors one of the requirements of the Consumer Rights Act 2015?

a. A prohibition on the use of premium rate phone numbers.
b. A ban on the mandatory use of approved repairers.

c. A requirement to give consumers 24 hour access to
helplines.

d. The banning of ‘no win, no fee’ uninsured loss recovery services.

Answer 16

A) A prohibition on the use of premium rate phone numbers

Ref; 7A

It is also important to note that following the consumer rights act 2015, the use of premium ate phone numbers is being prohibited, Although the legislation does not apply to financial services, the FCA has confirmed that it is adopting a similar approach for insurers and other financial services providers with a requirement in its handbook that customers should not pay more than a basic rate for telephone calls.

Question 17

The core service offered by an accident management company includes:

a. pursuing claims for personal injuries sustained at work.
b. providing risk control advice.
c. assisting in recovering the cost of increased premiums due to loss of NCD.
d. a replacement vehicle service.

Answer 17

D) A replacement vehicle service

Ref; 7D

Question 18

A legal expenses policy provides cover for pursuing an uninsured loss claim only where:

a. it is necessary to issue legal proceedings as all other avenues of negotiation have been exhausted.
b. the other party has admitted liability.
c. there is conflicting evidence concerning liability.
d. reasonable prospects exist.

Answer 18

D) Reasonable prospects exist.

Ref; 7D

Question 19

Risk surveyors employed by insurers are also known as:

a. risk identification engineers.
b. risk analysis consultants.
c. loss assessors.
d. loss control engineers.

Answer 19

D) Loss control engineers

Question 20

The control of risk by the insured must be:

a. economic.
b. absolute.
c. profitable.
d. efficient.

Answer 20

A) Economic

Ref; 7C

Risk management can be described as; The identification, analysis and economic control of those risks which can threaten the assets or earning capacity of an enterprise.

Question 21

The assistance offered by a helpline under a travel policy includes:

a. assistance in the event of a hire car breakdown whilst abroad.
b. assistance in an emergency situation affecting a holiday home.
c. help with the repatriation of the insured.
d. assistance in recovering uninsured losses incurred whilst abroad

Answer 21

C) Help with the repatriation of the insured.

Ref; 7A

Question 22

Brown and Company want to take out a Property Damage policy with the XYZ Insurance Company for their large sportswear factory. Insurers are LEAST likely to gather information about the risk to be insured through:

a. a survey.
b. a questionnaire.
c. a face to face meeting.
d. a proposal form.

Answer 22

D) Proposal form

ref: 2B

for large and complex risks, presentations are supplemented by surveys, fact finders, questionnaires and even face to face meetings with the proposer, intermediary and insurer.

Question 23

One of the reasons why insurers issue a policy document is because:

a. it is a legal requirement to issue a policy document for all types of insurance.
b. it is useful as proof in the event of a dispute over the terms agreed.
c. the policy document can be used to promote other products to customers.
d. contractually a policy document must be issued for cover to be valid.

Answer 23

B) It is useful as proof in the event of a dispute over the terms agreed

Ref; 2D1

Policies; The insured and the insurer need to be absolutely clear as to the terms and conditions agreed between them, and for this reason, a policy is issued. The policy contains all the details of the item/exposure insured, the operative perils, period of cover, exceptions, conditions, the premium and other relevant information. the policy is effectively evidence of the contract and not the contract of insurance itself.

the contract of insurance of insurance comes into effect once the insurer has accepted the insurance proposal, terms have been agreed and the premium has been paid or agreed to be paid. therefore the contract exists irrespective of the existence of an actual policy document. The policy is useful as proof in the event of a dispute over the terms agree, but in absence of the policy document does not invalidate the contract

Question 24

One of the reasons for the growth in aggregators is:

a. greater manual underwriting of risks.
b. changes in legislation which allow the use of assumptive statements.
c. the development of automated electronic systems and rules.
d. the availability of e-Trade quotation systems on insurer websites.

Answer 24

C) The development of automated electronic systems and rules.

ref: 2B

Question 25

For which type of policy is a flat premium MOST likely to be charged by insurers?

a. Exhibition liability insurance.
b. Business interruption insurance.
c. Commercial all risks insurance.
d. Household insurance.

Answer 25

A) Exhibition liability insurance

ref; 2C2

In other cases , it is practice to charge a flat premium rather than apply a rate to a premium base. i.e motor insurance, where a premium is arrived at by consulting rating tables which take into account the hazard associated with, among other things, the individual insured and the insureds vehicle.

many intermediaries have a computerised system which provides quotes from various insurers according to the rating factors. The advantages of this method is that it is easy to update for insurers, the ability to provide a range of accurate quotations quickly and easily and overall it reduces the possibility of manual calculation errors.

Other risks which may be flat rated include one off events. i.e an insured may attend an exhibition and require public liability insurance. For such exposure, the insurer may charge a flat premium.

Question 26

When calculating a premium by applying a premium rate to a premium base, the premium base represents:

a. a measure of the exposure.
b. the likelihood of a claim being made.
c. the hazards associated with the insured’s activities.
d. the hazards associated with the insured.

Answer 26

A) A measure of exposure

Question 27

Insurers do NOT usually offer the facility to pay:

a. by cheque.
b. using a credit card.
c. by direct debit.
d. via a finance house.

Answer 27

D) By finance house

ref; 2F1A

Methods of payment;

common; Single upfront payment, by credit, monthly direct debit.

Question 28

A condition subsequent to the contract:

a. must be complied with prior to the formation of the contract.
b. must be complied with after a policy is cancelled.
c. must be complied with when a claim is made.
d. must be complied with once the contract is in force.

Answer 28

D) must be complied with once the contract is in force.

ref; 3E2

Policy conditions are terms, which although they are not warranties, impose important obligations upon the insured.

The effect of breach of condition is very serious and will vary depending on which of the following type of condition group the condition falls under:

• condition precedent to the contract
• condition subsequent to contract
• condition precedent to liability (or to recovery)

Conditions precedent to contract; must be forfilled prior to the formation of the contract itself. the implied condions, e.g insurable interest, utmost good faith etc fall into this category, non compliance raises doubts as to the entire contracts validity.

Conditions subsequent to contract must be complied with once the contract is in force. e.g notificatio of alteration of risk

Condition precedent to liability; must be complied with for there to be a valid claim. i.e the claims conditions saying that a claim should be notified promptly. if not complied with the insurer may avoid all liability for a particular loss, but need not repudiate the contract as a whole.

As with warranties, under the insurance act 2015 a breach of condition is suspensive.

Question 29

The express policy conditions in a policy include:

a. Duties of the Insured and Utmost Good Faith.
b. Reasonable Precautions and Duties of the Insured.
c. Reasonable Precautions and Utmost Good Faith.
d. Duties of the Insured and Insurable Interest.

Answer 29

B) reasonable precautions and duties of the insured.

Ref; 3A6/3C

A condition is essentially a contractual term that the insured agrees to comply with during the period of cover.

conditions are expressed or implied.

implied conditions are implied by common law and practice and do not need to appear in the policy, i.e
- An insured must act as if uninsured and not use the insurance as an alternative to acting carefully. the insured may be required to advise the appropriate authorities depending on the circumstances, e.g a police in the event of damage suffered during a riot or a serious motor accident.
- insured must take reasonable care to minimise a loss. eg to attempt to extinguish a fire (but not if it endangers the insured)
the insured must not hinder the insurers investigation of a claim.

in practice; these are often stated in the policy for clarification.

in addition, many fundamental principles of insurance are implied conditions, for example - utmost good faith & that the insured must have an interest in the subject matter e.g owning the item or being a tenant of a building)

Express conditions are always stated in the policy.

Question 30

The terms and conditions attaching to an insurance quotation are known as:

a. representations.
b. material facts.
c. subjectivities.
d. statements of fact.

Answer 30

C) Subjectives.

Ref: 2A

the procedure relating to quotations can be summarised as follows;

• The quotation will state how long the quotation is valid. (usually a set number of days, i.e 30)
  -When the quotation is issued, cover is not effective (there must be offer and acceptance)
  -unless the insurer has withdrawn the quotation, if the proposer accepts the quotation, the insurer is legally bound to honour it on the terms quoted.
  However if the circumstances upon which the quotation was based changes; the insurer is not bound ny the quotation any longer.
  Effectively, if the risk characteristics have altered, the quotation is likely to differ.
• during the number of days stipulated, the proposer must accept to decline the quotation.
• when the period has expired and the proposer has not accepted the quotation, the quotation is no longer valid and the insurer is not bound to honour it. The insurer may, however, elect to do so after the expiry date,
• If no time is stipulated, the quote remains valid for reasonable time As per the general rules For the interpretation of contracts. The insurer can withdraw the quotation at any time prior to acceptance from a proposer.

Question 31

The Consumer Rights Act 2015 requires insurers to avoid the use of:

a. temporary cover notes.
b. subjectivities.
c. adjustable premiums.
d. assumptive answers.

Answer 31

D) assumptive answers

Ref; 2B

Question 32

Where included, the signature clause in a general insurance policy document contains:

a. the pre-printed signature of the person issuing the policy document.
b. the original signature of an official from the insurance company.
c. the original signature of the person issuing the policy document.
d. the pre-printed signature of an official from the insurance company.

Answer 32

d. the pre-printed signature of an official from the insurance company.

Ref; 3A3

Below the preamble, or close to it, there will be a pre printed signiture of an official from the company. This dates back to the times where policies were prepared by hand. It is not strictly necessary nowadays and many policy documents omit a signature.

order of policy;

heading 
preamble 
signiture 
operative clause
exceptions
conditions
schedule
information and facilities

Question 33

Section 6 of the Consumer Insurance (Disclosure and Representations) Act 2012 no longer allows:

a. representations to be made orally by consumers during the negotiations for a contract.
b. representations to be made orally by commercial customers during the negotiations for a contract.
c. representations made by consumers to be converted into warranties.
d. representations made by a commercial customer to be converted into warranties.

Answer 33

C) Representations made by consumers to be converted into warranties

ref; 3E3

Representations;

These are written or oral statements made during negotiations for a contract. Some may contain material facts. Some may not.
Historically, representations made by consumers and non consumers could be converted into warranties in the policy by using a BASIS OF CONTRACT clause. This has the effect of allowing an insurer to discharge themselves of any liability In the event a claim, regardless of whether the representation was material to the loss.
Such clauses have historically been viewed as catch-alls and disapproved of in the law. The reason for the disapproval is clear - such methods can effectively remove consideration from the insurer. The proposer provides consideration If payment is made. The insurer though; does not have to provide consideration by way of warranty that, if breached would allow them to repudiate the loss and retain the premium.
Section 6 of the consumer (Disclosure and representations) act 2012 has abolished basis of contract clauses.
Section 9 of the Insurance 2015 has abolished the basis of contract clauses.

This is a much better position for insurers and for customers as it ensures that both sides are aware of their rights and responsibilities before entering into the insurance contract. This is important as it should lead to fewer disputes.

Question 34

Cover for which market exclusion to a general insurance policy is instead available through specialist market pools?

a. Contractual liability.
b. Terrorism.
c. War and related perils.
d. Radio active contamination and explosive nuclear assemblies.

Answer 34

D) Radioactive contamination and explosive nuclear assemblies.

Ref; 3B2

This is regarded as another form of fundamental risk. It falls into two categories:

• Contamination as a result of a nuclear accident
• Liability for nuclear insulations

Potential losses were seen as beyond the capacity of individual insurers and cover is instead according to their underwriting capacity.

Question 35

An insurer may occasionally delegate underwriting in order to;

A) Speed up processes and reduce administrative costs
B) Reduce the risk of non-disclosure
C) Comply with the requirements of the association of British insurers.
D) Ensure that only good quality risks are accepted

Answer 35

A) Speed up the processes and reduce administrative costs,

Ref; 1B + 1F

Question 36

In a proposal form, risk specific questions are those:

A) that are common to most general insurance risks
B) That pertain to the particular details of a proposed risk
C) That relate to maters evaluating whether information is material or not
D) where the proposer warrants the answer to be correct.

Answer 36

B) that pertain to the particular details of a risk.

ref; 1F, 2B

These questions are specific, they relate to particluar details of a risk such as flood, subsidence, thefy, malicious damage etc.

• Proposers risk address
• proposers age
• discription of the subject matter
• business details
• sum insured