Module 2

Question 1

What type of risk best fits this description?

Affecting only individuals or communities on a localised basis. Examples include fire and theft.

A. Fundamental
B. Particular

Answer 1

B. Particular

Question 2

What type of risk best fits this description?

These are catastrophic risks (such as war and famine) which can affect whole societies. They are generally outside the scope of insurance and are considered to be the responsibility of governments. Some potentially catastrophic risks, such as earthquakes, which are considered uninsurable in certain parts of the world, can be insured in others.

A. Fundamental
B. Particular

Answer 2

A. Fundamental

Question 3

Which of these types of risks are insurable?

(There is more than one correct answer)

A. Pure
B. Speculative
C. Fundamental
D. Particular

Answer 3

A. Pure
D. Particular

Question 4

What is a physical hazard?

A. A hazard that arises from the attitude and behaviour of people.
B. A hazard that relates to the physical characteristics of the risk.

Answer 4

B. A hazard that relates to the physical characteristics of the risk.

Question 5

What is a moral hazard?

A. A hazard that arises from the attitude and behaviour of people.
B. A hazard that relates to the physical characteristics of the risk.

Answer 5

A. A hazard that arises from the attitude and behaviour of people.

Question 6

Which of the following are examples of physical hazards?

(multiple correct answers)

A. Carelessness of a car driver
B. Security at a warehouse
C. Dishonesty of an office worker
D. Standard of building construction

Answer 6

B. Security at a warehouse
D. Standard of building construction

Question 7

A risk sharing between insurers who share the risk, premium and claims in agreed proportions. The insured has separate contracts with each insurer. This is an example of:

A. Co-insurance
B. Reinsurance
C. Dual insurance
D. Self insurance

Answer 7

A. Co-insurance

Question 8

An insurer can transfer some of their own risk to other insurers.
This is an example of:

A. Co-insurance
B. Reinsurance
C. Dual insurance
D. Self insurance

Answer 8

B. Reinsurance

Question 9

When there are two or more policies in force which cover the same risk.

The insured may have done this accidentally or deliberately.

This is an example of:

A. Co-insurance
B. Reinsurance
C. Dual insurance
D. Self insurance

Answer 9

C. Dual insurance

Question 10

An individual or company has decided not to use insurance as a risk transfer mechanism, but to carry the risk themselves and has set up their own fund to pay for any losses instead. It is not simply a failure to insure.

This is an example of:

A. Co-insurance
B. Reinsurance
C. Dual insurance
D. Self insurance

Answer 10

D. Self insurance

Question 11

‘Exquisite’ is a gift shop chain with a predictable regular pattern of small claims for glass and china breakages. It sets aside a regular sum each month to fund these losses.

Which type of insurance does this describe?

A. Dual insurance
B. Self insurance
C. Co-insurance

Answer 11

B. Self insurance

Question 12

‘Skyscrapers’, a large building contractor, has construction insurance covering all of its sites. ‘Safehands’, a sub-contractor working for ‘Skyscrapers’ on a new office building also has construction insurance covering that site.

Which type of insurance does this describe?

A. Dual insurance
B. Self insurance
C. Co-insurance

Answer 12

A. Dual insurance

Question 13

Insurance company ‘Zebra’ is the lead insurer on a large engineering contract with two other insurers who share the risk, premium and claims on a 40:30:30 basis.

Which type of insurance does this describe?

A. Dual insurance
B. Self insurance
C. Co-insurance

Answer 13

C. Co-insurance

Question 14

How would you describe insurance?

A .risk transfer mechanism
B. as a loss prevention mechanism
C. compulsory
D. cost saving mechanism

Answer 14

A .risk transfer mechanism

Question 15

What are the three main benefits of risk management?

A. It provides a disciplined approach to quantifying risks.
B. It reduces the potential for loss by identifying and managing hazards.
C. It gives shareholders a greater degree of confidence in a company’s ability to manage its risks.
D. It means that you won’t be surprised.
E. It helps our understanding of insurance.

Answer 15

A. It provides a disciplined approach to quantifying risks.
B. It reduces the potential for loss by identifying and managing hazards.
C. It gives shareholders a greater degree of confidence in a company’s ability to manage its risks.

Question 16

Insurance risks are usually either…

A. intentional or unintentional
B. good or bad
C. particular or fundamental

Answer 16

C. particular or fundamental

Question 17

Which one of these options is NOT a benefit of insurance?

A. Helping to keep people in employment
B. Loss control
C. Invisible exports
D. Expansion of business
E. Maintenance costs
F. Improved cash flow

Answer 17

E. Maintenance costs

Question 18

The terms ‘co-insurance’ is used in two distinct ways. What are they?

(2 correct answers)

A. An individual or company that has decided to carry the risk themselves and has set up their own fund to pay for any losses.
B. Risk sharing between insurers who share the risk.
C. The insured retains a percentage of all losses that they must pay for themselves.

Answer 18

B. Risk sharing between insurers who share the risk.
C. The insured retains a percentage of all losses that they must pay for themselves.

Question 19

What does the law of large numbers relate to?

A. The common pool
B. Flood Re
C. The insurance pool

Answer 19

A. The common pool

Question 20

Where does the money for the common pool come from?

A. Claims
B. Premiums paid by policy holders
C. Investors

Answer 20

B. Premiums paid by policy holders