Study 2: Narrative Practice QuestionsQuiz

Question 1

How can the spread of risk be achieved by insurers? (5 marks)

Answer 1

1. Volume—insuring a large # of risks, which supports the mechanism of insurance where the premiums of the many are pooled and then used to pay for the losses suffered by a few members of the pool
2. Diversity of type of risk—writing insurance on as many diff kinds of risk as possible
3. If several types of risk are insured, or several classes of business are transacted, the chance for an underwriting profit is increased because a loss in one class of business may be offset by a better-than-average profit in other classes
4. Diversity of location—writing insurance in as many different locations as practicable
5. The opportunity for profit increases with a greater number of locations insured; in some types of insurance, particular care must be exercised that too many risks in one location are not insured

(5 marks)

Question 2

Identify the five secondary functions of insurance. (5 marks)

Answer 2

1. Aiding security
2. Aiding credit
3. Promoting loss prevention
4. Providing capital
5. Providing employment

Question 3

Identify five of the major types of insurance included under the heading of general insurance. (5 marks)

Answer 3

Five types of general insurance (any five of the following):

• Fire
• Extended coverage (EC)
• Business interruption
• Liability
• Automobile
• Accident
• Crime
• Floater policies
• Inland transportation
• Personal articles
• Homeowners/tenants/condominium unit owners
• Aviation
• Marine
• Real property
• Casualty
• plus any other types of general insurance not listed above