Paper 2 Flashcards

1
Q
A peril can be defined as
A. a combination of hazards.
B. something which gives rise to a loss.
C. something which influences the outcome of a loss.
D. the subject matter of the insurance
A

B. something which gives rise to a loss.

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2
Q

In order to confirm the material circumstances relating to a complicated commercial insurance risk,
the underwriter will enlist the services of
A. an actuary.
B. a compliance officer.
C. a loss adjuster.
D. a risk surveyor

A

D. a risk surveyor

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3
Q

Why are material circumstances important to an insurer?
A. Declaration of material circumstances makes the contract binding.
B. Material circumstances are the sole basis of the premium calculation.
C. Material circumstances determine which perils are covered.
D. Material circumstances may influence the insurer’s judgement

A

D. Material circumstances may influence the insurer’s judgement

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4
Q

Maurice submits a motor insurance proposal form to an insurer for a quotation. In the proposal
form, he discloses three previous convictions for motoring offences; two for speeding and one for
reckless driving. In terms of hazard, these convictions indicate that Maurice is a
A. good moral hazard.
B. good physical hazard.
C. poor moral hazard.
D. poor physical hazard.

A

C. poor moral hazard.

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5
Q

When applying for household contents insurance, why might the address of the property be
particularly relevant?
A. The address is likely to form part of the rating process.
B. The insurer may wish to check the electoral register.
C. The property may be close to the insurer’s branch office.
D. The property may be subject to a mortgage.

A

A. The address is likely to form part of the rating process.

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6
Q

Janie has completed a household insurance proposal form to insure the property she has just
purchased. In respect of the insurance contract, apart from Janie, who else has a duty of
disclosure?
A. The estate agent.
B. The insurer.
C. The mortgage lender.
D. The solicitor

A

B. The insurer.

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7
Q

An employers’ liability insurance policy is rated at £2.50% on declared wages of £100,000. What is
the annual premium for the policy before the application of Insurance Premium Tax?
A. £250
B. £2,500
C. £25,000
D. £250,000

A

B. £2,500

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8
Q

An insurer provides Anna with a motor insurance quotation which states that it is valid for 14 days.
When is the latest that Anna can accept the quotation?
A. During the 14-day period only.
B. After the 14-day period only.
C. After the 14-day period, for as long as the material circumstances remain unchanged.
D. After the 14-day period, until the quotation is specifically withdrawn by the insurer

A

A. During the 14-day period only.

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9
Q

The declaration on a proposal form states that
A. all disputes in respect of cover will be referred to mediation.
B. the information provided is correct to the best of the proposer’s knowledge and belief.
C. the proposer and the insurer are forming a contract for cover in return for a premium.
D. the proposer has an insurable interest in the property to be insured

A

B. the information provided is correct to the best of the proposer’s knowledge and belief.

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10
Q

Insurance Premium Tax applies to most general insurances when the insured risk is located
A. in the UK, excluding Northern Ireland.
B. anywhere in the UK, excluding the Channel Islands and the Isle of Man.
C. anywhere in the EU.
D. anywhere in the world

A

B anywhere in the uk excluding the channel island and Isle of Man

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11
Q

Insurance premium payment, or a promise to pay the insurance premium, forms which part of an
insurance contract?
A. The acceptance made by the insured.
B. The agreement made by the insured.
C. The consideration made by the insured.
D. The offer made by the insured

A

c. The consideration made by the insured

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12
Q

Luke has arranged a household contents insurance policy with a direct insurer and paid the
premium, but has NOT received the policy documentation. In the event of a claim, what is Luke’s
legal position?
A. A copy of the proposal form will be required before the claim will be considered.
B. He cannot make a claim without producing the policy documentation.
C. Proof of premium payment will be required.
D. The claim will be met subject to the usual claims processes

A

D. The claim will be met subject to the usual claims process

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13
Q
When requesting a quotation for standard motor insurance, an individual will usually be asked for
A. a copy of his driving licence.
B. a copy of the log book.
C. his previous claims history.
D. proof of the vehicle’s value.
A

C. his previous claims history.

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14
Q

An insurer provides a quotation for motor insurance, which is valid for 14 days, on a vehicle with a
1.4 litre engine. On day 10, the proposer changes the vehicle to one with a 1.6 litre engine and
accepts the original quotation the following day. What is the insurer’s legal position?
A. The insurer is bound to honour the original quotation.
B. The insurer is bound to honour the original quotation, but may charge an additional premium.
C. The insurer is not bound to honour the original quotation, unless the proposer submits a new
proposal form.
D. The insurer is not bound to honour the original quotation

A

D. The insurer is not bound to honour the original quotation

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15
Q
Which document forms the legal basis of a motor insurance contract?
A. The certificate of insurance.
B. The policy.
C. The proposal form.
D. The quotation.
A

C. The proposal form.

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16
Q

An insurer calculates household insurance premiums on the basis of 2% for the initial £100,000 of
the sum insured and £1.30 per mille for any additional sum insured above £100,000. Excluding
Insurance Premium Tax, what will be the premium for a sum insured of £150,000?
A. £2,065
B. £2,650
C. £4,950
D. £6,700

A

A. £2,065

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17
Q

If an insured is allowed to pay his insurance policy premium by instalments, what is the method
that is normally used by an insurer to collect the agreed premium?
A. Direct debit.
B. Postdated cheques.
C. Regular credit card payments.
D. Standing order

A

A. Direct debit.

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18
Q
When calculating the premium for a large manufacturer’s products liability insurance policy, which 
factor is most relevant?
A. The number of employees.
B. The sum insured.
C. The turnover.
D. The wage roll.
A

C. The turnover.

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19
Q
Which part of an insurance policy contains a detailed account of the extent of cover?
A. The heading.
B. The operative clause.
C. The recital clause.
D. The schedule
A

B. The operative clause.

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20
Q

Under a general insurance policy, why are war and its consequences excluded?
A. It is beyond the capacity of an individual insurer.
B. It is considered to be a speculative risk.
C. It is considered to be the responsibility of the State.
D. It would be against public policy to cover it

A

C. It is considered to be the responsibility of the State.

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21
Q

A clothes manufacturer has a theft insurance policy which contains a requirement from the insurer
that the manufacturer will keep a security guard at the premises from 6pm to 6am, 7 days a week.
This undertaking is known as
A. a condition precedent to the contract.
B. an express warranty.
C. an implied warranty.
D. a representation.

A

B. an express warranty.

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22
Q

A company obtains a quotation for engineering insurance which states that cover is subject to a
deductible of £50,000. This means that
A. a deposit premium of £50,000 is required.
B. any claim over £50,000 would be paid in full.
C. all claims are subject to a maximum payment of £50,000.
D. the company would be liable for the first £50,000 of any claim.

A

D. the company would be liable for the first £50,000 of any claim.

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23
Q
An exclusion that applies to only part of an insurance policy is known as a
A. general exception.
B. market exception.
C. market specific exception.
D. specific exception.
A

D. specific exception.

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24
Q

What policy condition allows the insurer to take over and deal with the recovery of monies from a
negligent third party, prior to the settlement of any claim, in the name of the policyholder?
A. Cancellation.
B. Contribution.
C. Notification.
D. Subrogation

A

D. Subrogation

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25
Q

Samantha has a personal accident insurance policy that provides a temporary total disablement
benefit of £200 per week. The policy has a compulsory one week excess. If Samantha breaks her
ankle in a riding accident and is disabled for six weeks, how much benefit, if any, will she receive?
A. None.
B. £200
C. £1,000
D. £1,200

A

C. £1,000

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26
Q
In which part of the UK will insurers NOT cover damage caused by a riot?
A. England.
B. Northern Ireland.
C. Scotland.
D. Wales
A

B. Northern Ireland.

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27
Q
Under a contract of insurance, good faith is an example of
A. an arbitration condition.
B. an express warranty.
C. an implied condition.
D. a written representation.
A

C. an implied condition.

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28
Q

Why is there a contractual liability exclusion under all general insurance policies?
A. Contractual liability extends an insured’s position beyond the common law position.
B. Contractual liability should be specifically insured elsewhere.
C. The exclusion limits an insurer’s liability to a proportion of any claim with any other insurer that
also excludes the risk.
D. The exclusion provides an insurer with recovery rights against its own insured

A

A. Contractual liability extends an insured’s position beyond the common law position.

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29
Q
In which part of a standard household insurance policy will details of the risk address be found?
A. The operative clause.
B. The policy conditions.
C. The policy schedule.
D. The recital clause.
A

C. The policy schedule.

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30
Q

Ahmed has a private motor insurance policy that is due for renewal in two months’ time. He sold
his car three weeks ago, but forgot to notify his insurer. If he telephones his insurer today, when
will the cancellation take effect?
A. From the date of the sale of the car.
B. From the time Ahmed telephones the insurer.
C. From the time that Ahmed receives payment from the purchaser of the vehicle.
D. From the date the current certificate of motor insurance expires

A

B. From the time Ahmed telephones the insurer.

31
Q

What is an insurer’s obligation, if any, with regard to the issue of renewal notices?
A. An insurer is not legally required to issue renewal notices.
B. An insurer has a statutory duty to issue renewal notices for all insurance policies.
C. An insurer has a statutory duty to issue renewal notices only for compulsory insurance.
D. An insurer must issue renewal notices within one month of the renewal date

A

A. An insurer is not legally required to issue renewal notices.

32
Q

Policy renewal is more cost-effective for an insurer than new insurance business because
A. discounts can be offered.
B. it can be conducted over the telephone.
C. premiums will always be increased annually.
D. there are no marketing costs involved.

A

D. there are no marketing costs involved.

33
Q

An amateur football team wants to insure its players in case they are injured in one of its football
matches. What type of insurance policy will be required?
A. An employers’ liability insurance policy.
B. A group income protection insurance policy.
C. A group personal accident insurance policy.
D. A public liability insurance policy.

A

C. A group personal accident insurance policy.

34
Q
What is the minimum level of insurance cover that is required to protect an insured’s car against 
malicious damage?
A. Road Traffic Act only.
B. Third party only.
C. Third party, fire and theft.
D. Comprehensive
A

D. Comprehensive

35
Q
From whom would an insurer specialising in extended warranty insurance obtain the majority of its 
new business?
A. Independent financial advisers.
B. Insurance brokers.
C. Lloyd’s underwriters.
D. Retailers
A

D. Retailers

36
Q
A standard all risks insurance policy covers all perils that are insurable under a standard fire and 
special perils policy and
A. accidental damage.
B. earthquake.
C. malicious damage.
D. riot
A

A. accidental damage.

37
Q

A farmer specifically wants cover for loss of income should a fire destroy his grain store. Which
insurance policy would meet his needs?
A. A business interruption insurance policy.
B. A creditor insurance policy.
C. A fidelity guarantee insurance policy.
D. A money insurance policy.

A

A. A business interruption insurance policy.

38
Q

Steve is a solicitor who could be sued for damages if he gives wrongful advice to a client. What
compulsory insurance must he have in order to protect himself against such claims?
A. Fidelity guarantee insurance.
B. Legal expenses insurance.
C. Professional indemnity insurance.
D. Public liability insurance

A

C. Professional indemnity insurance.

39
Q

The main function of an uninsured loss recovery service is to recover
A. motor vehicles that have been involved in an accident on behalf of the insured.
B. uninsured losses from a third party on behalf of the insured.
C. uninsured losses from an insurer on behalf of another insurer.
D. unpaid insurance premiums on behalf of an insurer

A

B. uninsured losses from a third party on behalf of the insured.

40
Q
Identification, evaluation and control are the three stages involved in risk
A. eradication.
B. management.
C. premium.
D. transfer
A

B. management.

41
Q
For which class of insurance is the premium calculation most influenced by the risk of an electrical 
breakdown?
A. Business interruption insurance.
B. Commercial theft insurance.
C. Extended warranty insurance.
D. Property all risks insurance.
A

C. Extended warranty insurance.

42
Q

An insurer realises that a receipt, submitted in connection with a claim, has been tampered with by
the insured to increase the amount shown. In this situation the insurer is most likely to
A. pay the original amount and ignore the tampering by the insured.
B. report the matter to the Financial Conduct Authority.
C. take no action and pay the amount claimed.
D. void the insurance policy and refuse to make any payments.

A

D. void the insurance policy and refuse to make any payments.

43
Q

What is the Claims and Underwriting Exchange?
A. A call centre that provides claim forms and proposal forms.
B. A committee through which insurers exchange claims and underwriting information.
C. A database that contains information on personal lines claims.
D. A register of stolen artefacts

A

C. A database that contains information on personal lines claims.

44
Q

An insurer is handling a substantial fire claim. Who would be appointed to make initial enquiries
about the loss and then to ensure that an accurate claims settlement is achieved?
A. An insurance broker.
B. A loss adjuster.
C. A loss assessor.
D. A surveyor.

A

B. A loss adjuster

45
Q

Under a household insurance policy, the insurer generally dissuades the insured from making a
claim for an item that does NOT exist by
A. asking for proof of purchase of the item.
B. insisting on photographic evidence of the item.
C. stipulating that a loss adjuster will always be appointed.
D. stipulating that a loss assessor will always be appointed

A

A. asking for proof of purchase of the item.

46
Q

How do fraudulent claims have an adverse affect on an insurer?
A. Fines can be imposed by the Financial Ombudsman Service if it has made insufficient effort to
combat fraud.
B. Its claims costs will rise, impacting on its premiums and making it less competitive.
C. It will be blacklisted by the Financial Conduct Authority.
D. It will be subject to time-consuming investigations by the Financial Action Task Force

A

B. Its claims costs will rise, impacting on its premiums and making it less competitive.

47
Q

. When considering a proposal for fire insurance, the two most important underwriting factors are
the
A. age and design of the building.
B. construction and use of the building.
C. geographical location and size of the building.
D. occupation and previous claims history of the proposer.

A

B. construction and use of the building.

48
Q

Carl is completing a proposal form for insurance for his laundrette. The proposal includes a
question requesting details of whether the laundrette could operate from another site in the event
of an insured peril occurring. To which type of insurance is the proposal form referring?
A. Business interruption insurance.
B. Extended warranty insurance.
C. Money insurance.
D. Professional indemnity insurance.

A

A. Business interruption insurance.

49
Q

The Equality Act 2010 stipulates that insurers are only able to impose special underwriting terms or
decline an insurance risk when
A. agreed individually with the Financial Conduct Authority.
B. data or information provided by a reliable source justifies the action taken.
C. the insured has incurred a claim during the period of insurance as a direct result of a disability.
D. the previous insurer provided restricted cover to reflect a disability

A

B. data or information provided by a reliable source justifies the action taken.

50
Q

Apart from the destination, what is the most important underwriting factor when considering
annual travel insurance?
A. The cost of the anticipated travel.
B. Any pre-existing medical conditions.
C. The travel agency used.
D. The value of the personal items to be taken on the trip.

A

B. Any pre-existing medical conditions.

51
Q

What is the principal consideration when underwriting employers’ liability insurance for a
company?
A. The company’s degree of contact with the public.
B. The number of employees working for the company.
C. The trade of the company.
D. The turnover of the company.

A

C. The trade of the company.

52
Q

Other than the use of the building, what is the main underwriting consideration for glass insurance?
A. The construction of the building.
B. The geographical area.
C. The level of security in the building.
D. The previous claims history of the proposer

A

B. The geographical area.

53
Q

An insurer calculates a claims loss ratio by dividing the
A. claims incurred by the premium received and converting the result to a percentage.
B. claims incurred by the sum insured and converting the result to a percentage.
C. premium received by the claims incurred and converting the result to a percentage.
D. sum insured by the claims incurred and converting the result to a percentage.

A

A. claims incurred by the premium received and converting the result to a percentage.

54
Q

Patrick has an insurance policy with a renewal date of 1 July each year. In 2018, the renewal
premium was £1,500 and in 2019 the renewal premium was £2,000. What was the total premium
paid during the 2019 underwriting year?
A. £1,500
B. £1,750
C. £2,000
D. £3,500

A

B. £1,750

55
Q
The period of cover for a single insurance policy from its inception through to its first renewal date 
is called
A. an accounting year.
B. a calendar year.
C. a policy year.
D. an underwriting year
A

C. a policy year.

56
Q

A ship travelling across the Atlantic Ocean suffers an explosion on board and sinks. In terms of
frequency and severity, how would the risk be described?
A. High frequency, high severity.
B. High frequency, low severity.
C. Low frequency, high severity.
D. Low frequency, low severity

A

C. Low frequency, high severity.

57
Q
If an insurance policy has a loss ratio of 103%, how much will be paid out in claims by the insurer for 
every £100 of premium received?
A. £3
B. £30
C. £97
D. £103
A

D. £103

58
Q
What information will an underwriter usually require to assess profitability for a specific class of 
business?
A. The geographical spread of claims.
B. The loss ratio of his portfolio.
C. The number of claims.
D. The investment income accounts
A

B. The loss ratio of his portfolio.

59
Q
. Before quoting for a motor insurance policy, the underwriter is most likely to research the database 
of the
A. Association of British Insurers.
B. Financial Conduct Authority.
C. MIAFTR2.
D. Motor Insurers’ Bureau
A

C. MIAFTR2.

60
Q

Why is it important that an insurer accurately reserves for claims?
A. To ensure that future premiums are paid.
B. To ensure that future claims costs are met by the premiums.
C. To prevent fraudulent claims.
D. To reduce the number of claims.

A

B. To ensure that future claims costs are met by the premiums.

61
Q
What document would an underwriter use to obtain key information during the underwriting 
process?
A. A certificate of insurance.
B. A cover note.
C. A policy document.
D. A proposal form
A

D. A proposal form

62
Q
An insurer may examine a company’s financial accounts when considering a proposal for which 
class of business?
A. Business interruption insurance.
B. Fire insurance.
C. Medical expenses insurance.
D. Motor fleet insurance
A

A. Business interruption insurance.

63
Q
Lapse flow analysis relates to
A. business that has been lost.
B. declined proposals.
C. policies renewed after the renewal date.
D. proposals currently being processed.
A

A. business that has been lost.

64
Q

An insurer has a return on capital employed of 10%. What does this mean?
A. Claims are 10% of the capital employed.
B. Investment income is 10% of the capital employed.
C. Premiums are 10% of the capital employed.
D. Profit is 10% of the capital employed

A

D. Profit is 10% of the capital employed

65
Q

With regard to the risk premium, to what does frequency refer?
A. The average time between claims.
B. The number of claims which are forecast.
C. The number of instalments in which the premium is paid.
D. The number of policies written

A

B. The number of claims which are forecast

66
Q

An insurer has a premium income of £250,000 and claims totalling £100,000. If the capital
employed by the insurer is £1,000,000, what is the return on capital employed?
A. 10%
B. 15%
C. 25%
D. 40%

A

B. 15%

67
Q
Under which main class of insurance is the risk premium most likely to be adjusted to allow for the 
cost of latent claims?
A. Business interruption insurance.
B. Fire insurance.
C. Health insurance.
D. Liability insurance
A

D. Liability insurance

68
Q

An insurer expects premium income of £1,000,000 for a class of insurance. Future claims are
expected to be £250,000 with an incurred but not reported (IBNR) of 10%. Based on this
information, what is the risk premium?
A. £275,000
B. £350,000
C. £725,000
D. £1,000,000

A

A. £275,000

69
Q
If an insurer wishes to protect its insurance portfolio from the effects of a large claim, the insurer 
should
A. aggregate.
B. reinsure.
C. retrocede.
D. self-insure
A

B. reinsure.

70
Q

A large factory complex is insured against fire with a total sum insured of £1,000,000. The complex
comprises of factory A and factory B, which are half a mile apart. Factory A is insured for £600,000
and factory B is insured for £400,000. In percentage terms, what is the insurer’s estimated
maximum loss for any one fire?
A. 40%
B. 50%
C. 60%
D. 100%

A

C. 60%

71
Q
In the event of an increased capacity for underwriting risks, the price of insurance would be 
expected to
A. fall.
B. remain the same.
C. fluctuate.
D. rise.
A

A. fall.

72
Q

If an insurer’s maximum retention is based on the estimated maximum loss of a risk, and if a risk is
valued at £500,000 with an estimated maximum loss of 60%, what amount of the risk would the
insurer be able to retain?
A. £100,000
B. £300,000
C. £500,000
D. £800,000

A

B. £300,000

73
Q

What is the earliest stage that an insurer can claim under a reinsurance contract?
A. After dealing with all third party liability claims.
B. Following payments made for losses.
C. Once a loss adjuster has been appointed.
D. Prior to payments made for losses.

A

B. Following payments made for losses.

74
Q

An insurer has arranged reinsurance on a risk. This means that the insurer has
A. issued an excess of loss.
B. reinstated a lapsed policy.
C. renewed a policy.
D. transferred part of its risk exposure.

A

D. transferred part of its risk exposure.