Short Answer questions

Question 1

List the five elements which constitute a legally valid contract and briefly write some notes on each item you have listed

Answer 1

Consensus – The parties involved must communicate with each other and a contract will
come into existence as a result of an offer being made by one side and its acceptance by the
other.
Capacity - Certain people do not have full
legal contractual liability because they might not understand the contract they are
entering. These are people under 21 (minors), mentally ill, bankrupt, and therefore insolvent.
Physical and Legal Possibility – The obligation in the contract must be physically possible
to be completed. The item involved in the contract must exist at the time of the
contract being agreed.
Reasonable Cause – The parties to the contract must intend at the outset to come to an
agreement over the contract. When entering an agreement they must intend for a
proper legal situation to come about as a result of the contract.
Formalities – In insurance, the contract is the initial agreement between the insurer,
which can be in writing, a proposal form, or verbal. The policy is the EVIDENCE of the
contract.

Question 2

Briefly explain utmost good faith.

Answer 2

insurance contracts are based on utmost good faith, which means that the parties to these contracts-insured and insurer-must tell each other everything that could influence their decision as to whether to enter the contract or not, if all the facts are not revealed then the contract is not in force

Question 3

List four examples of material facts

Answer 3

A fact that in the opinion of a reasonable man could influence the reasonable insurer in
deciding whether or not to accept the risk and decide on the premium to be charged.

-The construction of the building and the business that is carried on inside.
-The types of stock and the security measures in operation
-The age and experience of the most frequent user of the car who sometimes is not insured.
-In all insurance, it is essential that details of all previous losses whether or not they were insured
against at the time are disclosed to the insurer.

Question 4

List four activities when a claim has been submitted by a claimant to your company

Answer 4

1. Check on the currency of the insurance, license details, age of the driver and details of the accident.
2. If there were independent witnesses they should be asked for a statement while the
   accident is fresh in their minds.
3. the insured car, how much damage has been done and should an assessor see it? Is the damage so extensive that the vehicle is beyond economic repair and it will be treated as a loss or “Write off”

Question 5

List the four basic methods of claim settlement

Answer 5

a)Cash – With liability claims it is the only practical procedure if payments are to be made to the policyholder in reimbursement of outlays to third parties.
b) Replacement – it is sometimes possible for the insurer to replace an article rather than
pay cash. When speed is important, such as for glass claims, this is the usual method of
settlement.
c) Repair – an adequate repair is indemnity. This is common in motor insurance, where the
insurer settles the repair bill directly with the garage concerned.
d)Reinstatement – This is a term usually found in fire insurance and refers to the
rebuilding of premises to the same condition that it was in before the damage (not
always on the same site).

Question 6

What is the difference between negotiation and litigation with respect to claim disputes?

Answer 6

Negotiation – A dispute can be settled by discussion between the people concerned,
resulting in one point of view prevailing and an amicable compromise being reached.
WHILE
Litigation - If the dispute cannot be resolved by negotiation court proceedings may be
necessary. This is regarded by insurers as a last resort used only when a substantial sum
of money is involved or when an important point of principal is a stake

Question 7

List 5 advantages of the insurance industry to the economy

Answer 7

Any nation which neglects to provide for capital information will find itself susceptible to shortages, inflation, unemployment and a declining standard of living. The insurance industry´s role in putting funds into long-term investments has a major impact on the economy and is not only income-creating but also capacity-creating. This means economic
growth with the accompanying capacity of the country to offer employment and a rising
standard of living to its people

Question 8

Describe the types of policy covered under marine insurance

Answer 8

Time of Policy- This is for a fixed period of up to 12 months.
Voyage Policy -Operative for the period of the voyage, which for cargo is from warehouse to warehouse and may include that part of the journey, which is by road or rail.
Mixed Policy-Covers the subject matter for the time of the voyage and a period of time while in port.
Building Risk - Covers the construction of sea-going vessels.
Open Cover - This is the usual form of policy for insuring cargo. Its purpose is to establish an automatic facility for an insured´s future needs

Question 9

List 5 items covered under marine insurance

Answer 9

loss or damages of goods on terminals, cargos, and ships on water or land during transit

Question 10

List the policy sections under an Asset ALL RISK POLICY

Answer 10

The policy is designed to cover businesses with insurable assets in excess of $5
million. The policy sections are:
* Fire and Perils
* Theft
* Money
* Goods in Transit
* Glass
* Business All Risks
* Business Interruptions
* Accounts Receivable
* Claim Preparation Costs
* Any other Loss

Question 11

List the three basic items covered under a “Standard Fire Policy”

Answer 11

Fire; Lightning & Explosion

Question 12

Define what you understand by business interruption

Answer 12

It the past this type of insurance has been known as “Loss Profit” and “Consequential Loss” but
the term in general use now is Business Interruption because the purpose is to indemnify the insured for loss of turnover and continuing costs as a result of an interruption to the business following the damage by an insured peril.

Question 13

Describe five policy benefits payable under the period of interruption

Answer 13

1. Wages for employees the insured needs to keep.
2. Rent or bond repayments while the building is being reinstated.
3. Interest payments on money borrowed before the damage, which must be
   repaid to the lender whether or not the business is running
4. Rent on temporary premises that are leased while the building work is done
5. The business is not making money and this policy will pay for the loss in net
   profit.

Question 14

List five advantages of reinsurance

Answer 14

Sharing of risks
Cover for risks that would have otherwise not been insured due to its level

Question 15

Explain Claims Made Basis with the use of examples

Answer 15

‘Claims made’ basis is for a claim made and reported during the period your insurance policy is live/active.

Question 16

Explain Claims Occurrence Basis with the use of examples

Answer 16

An occurrence policy provides lifetime coverage for incidents that occur during a policy period, regardless of when the claim is reported.

Question 17

Briefly explain the type of cover provided by a public liability policy

Answer 17

This policy is designed to compensate a business for their legal liability for death or injury to anyone other than their employees and for damage to the property of those arising from the insured´s business.

1. The personal representatives of the insured if he dies for any liabilities he may have
   incurred prior to his death.
2. If in addition to the insured´s main business they also provide first aid, canteen and
   sports and social clubs and these could cause injury to other people or damage to their
   property.
3. Damage to vehicles in the insured´s car park, including employees´ vehicles.

Question 18

Explain the cover provided by an Assets All Risks Policy. In your explanation briefly mention cover provided under Sections A and B of the policy

Answer 18

The policy sections are:
* Fire and Perils - basic perils are fire lightning and explosion
* Theft - The standard theft policy is intended to only cover
losses as the different result of a break-in or hold-up and not to cover up such acts as shoplifting or losses discovered at stock take
* Money - 1. The insured´s premises during business hour whether it in a safe, a till or secured
elsewhere on the premises.
2. In a locked safe or strong room when the business is closed for the day
3. In transit to and from the bank
* Goods in Transit - The policies can either be for loss or damage following fire, collision or overturning of the
carrying vehicle or all risks
* Glass
* Business All Risks
* Business Interruptions
* Accounts Receivable
* Claim Preparation Costs
* Any other Loss

Question 19

Mention any three underwriting considerations for the rating of an assets policy

Answer 19

1. Each Fire and Peril Risk is considered individually on the information of construction, business
   occupation, tidiness and security in the building, fire protection management and previous loss
   and insurance history.
2. They will be concerned with the type of goods being
   insured, physical precautions such as burglar alarms, and burglar bars and also the methods used to
   secure the insured goods, particularly when the premises are closed.
3. Previous loss and insurance
   history

Question 20

What are minor perils. Give two examples

Answer 20

Plumbing leaks
Electric fire

Question 21

Write down any three underwriting considerations under a marine policy

Answer 21

amount for freight
Type of goods
Type of transport being used

Question 22

Marine insurance can be divided into three areas. Mention these areas and explain each of them.

Answer 22

Hull
Cargo
Freight

Question 23

What is the difference between a marine policy and goods in transit policy

Answer 23

Goods in transit is a form of all-risk insurance covering breakage and accidental loss or damage during the transporting, loading and unloading of goods. The cover may be restricted to loss or damage to the property due to fire, collision or overturning of the carrying vehicle at a reduced premium.
WHILE
Marine insurance The risks against which
these may be insured are perils of the sea and include fire, theft, and collision. While hull and
cargo are self-explanatory, freight is the sum of money paid for transporting goods for the hire
of a ship. When goods are lost due to perils of the sea, fright, or part of it may also be lost
which is the reason for the basis of valuation of cargo to include an amount for freight

Question 24

Choose any two sections on a motor policy (private or fleet). Describe cover that is provided under those sections.

Answer 24

Third-Party - section of the private motor policy indemnifies the insured
against all sums which he is legally liable to pay in respect of death or bodily injury to any third
party and damage to their property in an accident involving the insured vehicle.
Third Party Fire and Theft - Third Party insurance, cover can be added for damage to the car by fire, self-ignition, lightning or explosion and for loss or damage by theft. Cover is included for spare parts
and accessories in or on the car. If the vehicle is stolen and then recovered in a damaged state,
the cost of repairs is covered as the proximate cause of the damage was theft
Comprehensive - In addition to the third party, fire and theft cover, accident damage to the car itself is insured
under a Comprehensive policy, with other additional benefits. Payment will be made for the
protection and removal of the car to the nearest repairers if it is immobilized in an insured
accident.

Question 25

List any three general exceptions on a motor policy

Answer 25

a) Any loss or liability related to nuclear or radioactive materials.
b) War, and the like
c) Any loss or liability occurring outside the territorial limits which are usually Zimbabwe,
South Africa, Botswana, Lesotho, Namibia, Swaziland, Zambia and Mozambique.
d) Loss or liability incurred while an insured motor car is:
* Being used otherwise than in accordance with the use stated in the policy
* Being driven by anyone who does not hold a license to drive the car where a
license is required
* Being driven by someone under the influence of drugs or alcohol, including the
insured and anyone else who to his knowledge is “under the influence”

Question 26

Explain with the aid of an example each of the following
a) Proportional Treaty
b) Non-Proportional treaty
c) Quota Share treaty
d) Excess of Loss

Answer 26

a)proportional reinsurance, the value at risk (sum insured ), premium and claims are
distributed among the insurer and reinsurers in direct proportion depending on the nature of
the reinsurance contract in place
c) Quota Share - A reinsurer accepts an agreed share of all risks written by the insurer in a specific class of
business to which the treaty applies and also takes the same proportion of all premium and
claims
d) Excess Loss - Here the insurer is concerned with the maximum amount he wishes to pay in the event of a
loss. Where a claim exceed this amount it is paid by the reinsurers. The insurer carries 100% of all losses up to the excess point and reinsurer pays all the losses afterwards up to the treaty
limit

Question 27

List 5 general conditions you would expect to find on most insurance policies

Answer 27

1. A condition stating that insured will comply with all the terms of policy.
2. The requirement that the insured must notify the insurer of any changes in the
   risk.
3. The procedure to be followed in the event of a loss. This will vary for each type
   of insurance but will include reference to the time within which a loss is to be
   notified for carelessness;
4. The effect of fraud
5. Reference to the fact that the insured is to take all reasonable care to minimize
   the risk, of loss or damage of incurring liability. ;
6. A condition will outline what is to happen if there are other policies in force
   covering the same loss. This concerns contribution.
7. A condition allowing the insurer or the insured to cancel the policy at any time
   and saying how this is to be done.

Question 28

What is risk management and how does it benefit the insurance industry

Answer 28

Risk management takes a broader view and starts by asking, “To what risks is the organization exposed”? it then analyses the
frequency and severity of the risks individually and evaluates their likely impact on that
business it does not differentiate between insurable and uninsurable risks.
Second stage ,then the way in which the risks can be
controlled is considered. Insurance becomes involved as part of this process because it is the
medium by which risks can be transferred from the area of uncertainty (will there be a loss?) to
the area of known cost (the premium)

Question 29

What is a performance bond and when is it required

Answer 29

A Performance Guarantee is issued by an insurance company or bank to an employer on behalf of the contractor to guarantee the full and due performance of the works by the contractor as set out in the contract data.

Question 30

What is the cover provided under a householders (contents) policy

Answer 30

1. Loss or damage to the contents caused by
   a) Fire, lightning, explosion, earthquake
   b) Storm, wind, hail, or flood excluding loss or damage to the property in the open
   c) Impact by animals, vehicles or falling trees.
   d) Theft of any attempt thereat. Theft when the dwelling is lent, or sub-let,
   theft from outbuildings and loss of money, for a limited amount only, is only
   covered when there is forcible and violent entry to the building.
   e) Aircraft or aerial
   f) The bursting or overflowing of water tanks, apparatus or pipes.
2. Accidental breakage of mirrors, plate glass, and tops to furniture.
3. Accidental damage to television sets videos and aerials by external means
4. Policy covers the property of guests for a limited amount unless insured by the
   owner
5. Policy loss or damage to the property of domestic workers.
6. Compensation for the death of the insured or spouse or spouse if fatally injured
   by fire or thieves on the premises.
7. Medical expenses (not otherwise insured) incurred as a result of accidental
   bodily injury sustained by
   a) Any person other than the insured, a member of his family or an
   employee caused by a pet owned by the insured and kept on the premises
   b) Any guest or visitor caused by a defect in the premises
   c) Any domestic worker arising out of his premises.
8. Loss of rent and additional expenses incurred by the insured for alternative
   accommodation when the dwelling in rendered uninhabitable by an insured peril (for a limited
   amount of time and money)
9. Liabilities
   a) Tenants’ liability for damage to the building and landlords fixtures and fittings caused by the perils listed one above and these liabilities will be specified in the lease: b) Occupiers’ liability to third parties C) The insureds common law liability to his domestic workers

Question 31

Name four exclusions under a houseowners policy

Answer 31

Property more specifically insured.
b) Motor vehicles, caravans, trailers, watercraft, and livestock
c) Deeds, bonds, bills, documents, medals unless specified.

Question 32

Explain when household contents are covered away from home

Answer 32

a) For all the main perils, in any hotel, private home, nursing home, club or school in which
the insured or member of his household is temporarily staying.
b) For fire, lighting, explosion, and theft accompanied by forcible and violent entry or exit
in any laundry or other premises for purposes for purposes of making up, repairing,
cleaning or dyeing or in any business premises where the insured or a member of his
the family normally living with him is employed

Question 33

Solvency Margin

Answer 33

minimum size of shareholders’ funds required by the supervisory authorities