1 A 24-year-old singer in a rock band wants to insure his sports car for use near his home in a

busy city. Which factor would an insurer consider to be a moral hazard when assessing his
proposal?
A His age.
B His occupation.
C His car.
D His address.

2 A retail trader asks his insurer to cover the risk of a new line of clothing failing to sell. The
insurer would NOT insure this risk because it is
A fundamental.
B particular.
C pure.
D speculative.

3 In terms of frequency and severity, the risk of windscreen damage to a motor vehicle is classed
as
A high frequency, high severity.
B high frequency, low severity.
C low frequency, low severity.
D low frequency, high severity.

4 Which type of insurance policy would an employer effect in order to insure against a monetary
loss arising from the dishonesty of an employee?
A An employers’ liability policy.
B A fidelity guarantee policy.
C A professional indemnity policy.
D A theft policy.

5 A car owner has a typical comprehensive motor insurance policy. She was involved in a car
accident and incurred damage to her personal effects valued at £200, damage costs to her car
valued at £700 and liability costs of £2,000. Subject to any policy terms, what is the maximum
amount of financial responsibility that can be transferred to her insurer?
A £900
B £2,200
C £2,700
D £2,900

6 What is the key factor which distinguishes a pure risk from a speculative risk?
A A pure risk excludes the possibility of a gain.
B A pure risk excludes consequential loss.
C A speculative risk excludes social and economic factors.
D A speculative risk excludes non-financial losses.

7 Why is the risk of being fined for a criminal offence uninsurable?

A It is not fortuitous.
B It is predictable.
C It is inevitable.
D It is against public policy.

8 What is the primary purpose of insurance?

A To avoid risk.
B To identify risk.
C To reduce risk.
D To transfer risk.
9 What is the main benefit to an insurer of pooling risks?
A A large number of risks will be attracted to the pool.
B It always limits the size of losses.
C It provides a guarantee against losses being higher than expected.
D The number of claims is likely to be in line with the underlying probability.

10 An unoccupied house is burgled. What is classed as the hazard and what is classed as the
peril?
A The theft is the hazard and the financial loss is the peril.
B The theft is the hazard and the unoccupancy is the peril.
C The financial loss is the hazard and the theft is the peril.
D The unoccupancy is the hazard and the theft is the peril.

11 Coinsurance describes the situation when a

A company decides to set aside a fund to pay all claims made against it, subject to statutory
minimum fund values.
B policyholder finds that they have inadvertently taken out more than one insurance policy
covering the same risk.
C number of insurers agree to collectively insure a particular risk in agreed proportions.
D policyholder decides to insure their property with different insurers and effects a number of
separate insurance policies to provide the required sum insured.

12 What is the name given to the method of insurance whereby an individual avoids the normal
risk transfer process?
A Reinsurance.
B Coinsurance.
C Dual insurance.
D Self-insurance.

13 In relation to insurance, risk may be defined as a

A moral hazard.
B physical hazard.
C certainty of loss.
D possibility of loss.

14 For what main reason would a liability underwriter want a risk management consultant to visit
the premises of a new policyholder as soon as the risk goes on cover?
A To review the policyholder’s management structure.
B To gain an understanding of the policyholder’s working practices.
C To review the details of previous losses that have occurred at the premises.
D To discuss the correct procedure for making a claim with the policyholder’s staff.

15 By paying premiums rather than holding reserves to meet potential claims, insurance benefits
a company by
A freeing up working capital.
B guaranteeing it against financial failure.
C guaranteeing its profitability.
D reducing its tax liabilities.

16 Cargo on an aeroplane is normally covered by what type of insurance policy?

A An aviation insurance policy.
B An engineering insurance policy.
C A marine insurance policy.
D A products liability insurance policy.
17 Lightning strikes a house and damages a television. What is deemed to be the peril?
A The financial loss.
B The house.
C The lightning.
D The television.

18 What is a particular risk?

A A risk from which a loss or a gain may result.
B A risk from which only a loss may result.
C A risk which affects an individual or a group of individuals.
D A risk which affects society as a whole.

19 In an insurance organisation, the person making the assessment that an insured pays a fair
premium is known as the
A loss assessor.
B claims handler.
C loss adjuster.
D underwriter.

20 The UK insurance industry makes a major contribution to the UK’s economy by

A investing in the stock market and property.
B protecting workers from the long-term effects of redundancy.
C providing funds for potential homeowners.
D underwriting the liabilities of the State Pension scheme.

21 The profit made by a Lloyd’s syndicate belongs to

A the Corporation of Lloyd’s.
B Lloyd’s brokers.
C its members.
D its policyholders.

22 What type(s) of claims would a loss adjuster normally deal with?

A Personal accident and sickness claims.
B Private motor claims.
C Property and liability claims.
D Travel claims.

23 A risk manager is a person who is

A employed to decide which risks to insure.
B engaged by an insurer to negotiate and settle claims.
C employed by a policyholder to advise on safety and loss control.
D engaged by a policyholder to negotiate and settle claims.

24 The main feature of a single-tied agent is that he

A may only deal with one class of insurance.
B must offer business to a nominated insurer, who has the first right of refusal.
C may only promote the products of one insurer.
D must be an employee of an insurance company.

25 The main function of an insurance broker is to

A act as the agent of the insurer.
B introduce business to a particular insurer.
C provide independent advice to clients.
D negotiate claims.
26 Once established, which method is likely to be the cheapest way for an insurer to sell
personal lines insurance?
A At a branch office.
B Through an intermediary.
C Through the internet.
D Through a call centre.

27 If an insurer is planning to accept a risk that is too large for its normal portfolio, the most
common method of protecting its financial position is to
A increase its borrowing capacity.
B purchase reinsurance.
C increase its corporate capital.
D use a captive insurance company.

28 In the event of a valid loss under an insurance policy, who usually authorises the disposal of
any salvage?
A Claims personnel.
B A loss assessor.
C A risk manager.
D An underwriter.

29 An individual is employed by a property insurer to undertake actuarial work. What does this
work typically involve?
A Analysing statistical information of actual and predicted losses.
B Assessing the validity of claims as they are submitted.
C Responsibility for credit control issues.
D Identifying methods to control losses.

30 An underwriter arranges a survey for new business primarily to

A ensure that the proposer understands his duty to the underwriter.
B find out whether there are any other policies the insurer can provide.
C obtain details of the proposer’s previous claims history.
D obtain more details of the risk being proposed.

31 A composite insurer is defined as an insurer that conducts what type(s) of insurance

business?
A Only one type of insurance business.
B A variety of types of insurance business.
C Direct insurance business only.
D Insurance business on behalf of other insurers.

32 What is the particular and essential benefit to a policyholder of insuring with a mutual
insurance company?
A All policyholders receive equal profit dividends.
B Distributable profits belong entirely to the policyholders.
C Profits are distributed regularly as dividends.
D Windfall profits will accrue on demutualisation.

33 An insurance broker advises

A clients on which insurance consultants to appoint.
B clients on which insurers to use.
C insurance underwriters on how much premium to charge.
D insurance underwriters on which risks to accept.
34 Which type of insurer is owned solely by its policyholders?
A A captive insurer.
B A composite insurer.
C A mutual insurer.
D A proprietary insurer.

35 What is the primary function of the Chartered Insurance Institute?

A To provide education and training for the insurance industry.
B To provide statistical data for use within the insurance industry.
C To regulate insurance companies.
D To regulate non-broker insurance intermediaries.

36 An insurer is a Bermudan-based subsidiary of a large UK manufacturing company. This type

of insurer is known as a
A captive insurer.
B composite insurer.
C reinsurer.
D specialist insurer.

37 The activities of which insurance professional can often benefit underwriters by helping to
reduce the number of fire-related claims?
A A loss adjuster.
B A loss assessor.
C A reinsurer.
D A surveyor.

38 Within an insurer, who normally has the specific responsibility of ensuring that the insurer
abides by directives implemented by the regulator?
A The compliance officer.
B The finance director.
C The human resources manager.
D The risk manager.

39 Which department of an insurance company is most likely to undertake average calculations?

A The actuarial department.
B The claims department.
C The reinsurance department.
D The underwriting department.

40 One of the main reasons that an insurer uses a reinsurer is to

A improve business retention.
B prevent losses occurring.
C protect policyholders.
D spread risks more widely.

41 With regard to regulation, who is accountable for the outcome when a Compliance Officer
arranges for an external Compliance Consultant to complete tasks related to his role?
A The Compliance Officer.
B The Compliance Consultant.
C The regulator.
D The Chief Financial Officer.
42 What is normally the main role of an underwriter?
A To consider the acceptability of and the terms to be applied to a risk.
B To determine the best market in which to obtain cover.
C To reduce the risk of physical loss occurring.
D To settle valid claims.

43 A shop is insured against fire for £60,000 and the rebuilding cost is £100,000. If a fire causes
damage of £70,000, how much will the insurer pay after the application of the average clause?
A £30,000
B £42,000
C £60,000
D £70,000

44 An insurer has paid for repairs to an insured’s building following damage caused by a
contractor working on an adjoining property. From whom, if anyone, can the insurer normally
subrogate the repair costs?
A The owner of the adjoining property.
B The contractor who caused the damage.
C The insurer which insures the contents of the building.
D The insurer cannot seek recovery.

45 When a proposer is applying for fire insurance, moral hazards which must be disclosed as
material facts normally relate to the
A contents within the building.
B fire prevention measures currently in operation.
C history and behaviour of the proposer.
D type of building to be insured.

46 A storm blew down the wall of a timber building. The falling wall broke electrical wiring, which
short-circuited and the resultant sparks caused a fire. The fire brigade used water to put out the
fire and the water caused damage to the unburnt contents. What is the proximate cause of the
damage to the unburnt contents?
A The falling wall.
B The fire.
C The storm.
D The water damage.

47 What does the principle of indemnity mean?

A The insurer places the insured in the same financial position after a claim as he was before it.
B The insurer has a right to recover costs from a third party.
C The insured has a duty to disclose material facts.
D The insured must have an interest in the subject matter of insurance.

48 When does contribution arise?

A When the loss claimed for is more than the actual loss suffered.
B When the loss is covered under more than one policy.
C When the loss is reinsured.
D When the sum insured is underestimated.

49 Within the insurance industry, there is a general agreement to NOT pursue subrogation rights
in which situation?
A Negligence of fellow workers.
B Personal injuries resulting from fire.
C Theft of property.
D Third party liability under buildings insurance.
50 What is the earliest point at which a contract of insurance can come into force?
A When the proposer completes and submits a proposal form to the insurer.
B When the insurer has assessed the risk and sent a quotation to the proposer.
C When the proposer accepts the insurer’s quotation and pays, or promises to pay, the premium.
D When the insurer has produced and sent the policy document to the proposer.

51 When presenting a client’s completed proposal form for third party only motor insurance to an
insurer, the intermediary is acting as the agent of the
A broker.
B insurer.
C proposer.
D third party.

52 A local authority plants some trees along the boundary between its own land and a private
house. After a few years, the trees’ roots cause subsidence to the house. The household insurer
pays for the repair costs and then takes action against the local authority to recover the amount
paid. This action is known as
A subrogation.
B contribution.
C representation.
D indemnity.

53 A merchant has insured marine cargo which he does NOT currently own. What is the
merchant’s position with regard to insurable interest under the insurance policy?
A As insurable interest does not exist at the outset, the policy is void.
B Insurable interest must exist within six months of inception for the policy to continue.
C Insurable interest is not necessary in any circumstances.
D The policy may continue if there is a reasonable expectation that insurable interest will exist in
the future.

54 The measure of indemnity for five-year-old garden furniture destroyed by an insured peril is
the
A original cost in full.
B replacement cost, less wear and tear.
C original cost, less wear and tear.
D replacement cost in full.

55 How does insurable interest arise, if at all, when an insurer arranges reinsurance?
A Insurable interest does not arise.
B The policyholder is considered to have assigned the insurable interest to the insurer.
C The insurer is considered to have insurable interest by virtue of its liability to pay claims.
D Insurable interest is created by statute.

56 Under the principle of utmost good faith, when must an individual effecting an accident and
sickness insurance policy disclose a serious illness to the insurer?
A Before the policy comes into effect.
B During the cancellation period.
C Within the first three months of the policy.
D On submission of the first claim.

57 In relation to a contract of insurance, when does the duty of disclosure exist in common law?
A From commencement of the contract negotiations until the contract is operative, and at
renewal.
B At commencement of the contract negotiations only.
C From acceptance of the contract until the contract terminates.
D At acceptance of the contract only.
58 A claims handler deducts an amount from a claim payment due to the inadequacy of the sum
insured. This is as a result of the application of
A the average clause.
B a deductible.
C an excess.
D the material damage proviso.

59 Which event is always the proximate cause of any loss?

A The concluding event.
B The dominant event.
C The initial event.
D The damaging event.

60 If a household contents insurance policy offers new for old cover, which principle of insurance
is modified?
A Contribution.
B Indemnity.
C Insurable interest.
D Average.

61 What are the consequences of an agent’s actions on his principal when acting within his
remit?
A The principal cannot be held liable for his agent’s actions.
B The principal will always be held jointly liable for his agent’s actions.
C The principal will be held liable for the acts of his agent, but only if agreed at the outset in
writing.
D The principal will normally be held vicariously liable for the acts of his agent.

62 Which legal requirement for a valid contract is satisfied when an insured pays the required
premium to the insurer?
A Consideration.
B Insurable interest.
C Subrogation.
D Utmost good faith.

63 An individual does NOT wish to insure her flat, so her father has effected a policy in his own
name instead. Which insurance principle does this contravene?
A Indemnity.
B Insurable interest.
C Subrogation.
D Utmost good faith.

64 The insured’s duty to disclose material facts is based on the principle of

A indemnity.
B insurable interest.
C subrogation.
D utmost good faith.

65 If a misrepresentation relating to opinion rather than fact is made by the proposer of an

insurance policy, what automatic repudiation rights, if any, does the insurer have?
A It has no repudiation rights.
B It has repudiation rights at the outset only.
C It has repudiation rights at renewal only.
D It has full repudiation rights.
66 What constitutes a fraudulent claim from the viewpoint of an insurer?
A Deliberate intention of the policyholder to deceive the insurer.
B Innocent exaggeration of a loss notified by the policyholder.
C Negligent notification of a loss by the policyholder.
D Unintentional misrepresentation by the policyholder.

67 A vagrant forces entry into a furniture shop intending to steal cash, but he finds none on the
premises and decides to sleep there overnight. As there is no heating, he starts a fire in a waste
bin which activates the sprinklers and damages the stock. What is the proximate cause of the
damage?
A The burglary.
B The fire.
C The malicious damage.
D The sprinkler leakage.

68 The agreed value approach to applying the principle of indemnity is designed to ignore the
impact of
A future premium increases.
B market price fluctuations.
C non-standard exclusions.
D policy franchises and excesses.

69 Under a household insurance policy, the reinstatement basis of cover is more commonly
known as
A agreed value.
B first loss.
C new for old.
D coinsurance.

70 A company has stock worth £500,000 insured on a first loss basis of £50,000. If a theft of
£75,000 occurs, how much, if anything, will the insurer pay the company?
A Nothing.
B £25,000
C £50,000
D £75,000

71 If an intermediary acts for an insurer in connection with a class of business for which it has no
authority and the insurer agrees to be bound by its actions, this is known as agency by
A apparent authority.
B consent.
C necessity.
D ratification.

72 An underinsurance limit of 15% always operates in connection with which condition?

A Contribution condition.
B Reinstatement memorandum.
C Special condition of average.
D Two conditions of average.

73 Following a fraudulent claim, a policyholder has been given written notice of the cancellation of
his motor insurance policy. The insurer will usually send this notice to the
A policyholder’s last known address.
B policyholder’s solicitor.
C policyholder’s broker.
D Financial Action Task Force.
74 An owner of a building reduces its sum insured from £1,000,000 to £500,000 to save
premiums. A fire causes £300,000 damage to the building. If the building has a reinstatement
value of £750,000 and average is applied, how much will the insured receive in settlement?
A £150,000
B £200,000
C £300,000
D £500,000

75 Under a standard motor insurance policy, how is the common law position of the duty of
disclosure usually amended by policy modification?
A It will cease to apply for the first year.
B It will cease to apply at renewal.
C It will be extended to apply continuously during the policy term.
D It will be extended to apply at inception and renewal.

76 When applying for motor insurance, why was the proposer required to disclose to the insurer
that he uses his car for business purposes?
A It is considered a material fact.
B To prevent the creation of any subrogation rights.
C It is a requirement of the Road Traffic Act.
D To satisfy the principle of indemnity.

77 A customer’s property is valued at £100,000 and is covered by two insurance policies, both with sums
insured of £100,000. If a loss of £60,000 occurs, what is the first policy’s share of the claim, assuming the
principle of contribution applies on a rateable proportion by sum insured basis?
A £30,000
B £40,000
C £50,000
D £60,000

78 A policyholder wishes to change his household buildings insurer and mistakenly effects cover
with the new insurer a month before his existing policy expires. During that time, his chimney
blows down in a gale. The new insurer calls upon the old insurer to bear a proportion of the loss.
This is known as
A coinsurance.
B contribution.
C double indemnity.
D reinsurance.

79 The principle of utmost good faith requires that the insured

A complies with the duty of disclosure.
B does not profit from a claim.
C has a financial interest in insurance.
D has no other policy on the same risk.

80 What distinguishes a first loss theft insurance policy from an ordinary theft insurance policy?
A Claim payments are always less than the value of the loss.
B The need for a valuation of the property insured is eliminated.
C Only the first claim which occurs during the policy term is paid.
D The sum insured is restricted to less than the full value of the property.

81 An agency agreement is being drafted in accordance with best practice. In what ircumstances,
if any, should the actual commission rates payable be included within this agreement?
A In all circumstances.
B Only if they are based on a non-standard scale.
C Only if they are based on a standard scale.
D In no circumstances.
82 During an earthquake, the gas main to a factory is ruptured and the gas is ignited by a
portable heater. The resulting explosion causes a fire in the factory. What is the proximate cause
of the resulting loss?
A The earthquake.
B The fire.
C The ignition of the released gas.
D The rupture of the gas main.

83 What is insurable interest?

A The legal right to insure arising out of a financial relationship, recognised in law, between the
insured and the subject matter of insurance.
B The placing of the insured in the same financial position after a loss as he was immediately
before it occurred.
C The right of an insurer to call upon others similarly, but not necessarily equally, liable to the
same insured to share the cost of an indemnity payment.
D The right of an insurer to stand in the place of an insured and avail itself of all the rights and
remedies of that insured.

84 Which principle allows an insurer to stand in the place of the insured for the purpose of
recovering a claim settlement from a negligent third party?
A Compensation.
B Contribution.
C Restitution.
D Subrogation.

85 What is normally considered to be the overriding function of an insurance regulator?

A To ensure value for money.
B To maximise competition.
C To protect the public.
D To recommend new legislation.

86 Insurers usually hold what status within the International Association of Insurance Supervisors?
A Associate member.
B Executive.
C Honorary member.
D Observer.

87 Which organisation published the ‘40 + 9 recommendations’ in an attempt to combat money

laundering and other related activities?
A The Financial Action Task Force.
B The International Association of Insurance Supervisors.
C The Organisation for Economic Co-operation and Development.
D The World Bank.

88 When the rules set out by the regulator are worded in very general high-level terms and
backed up by a set of desired outcomes, this is usually described generically as
A prescriptive-based regulation.
B principles-based regulation.
C prudential-based regulation.
D risk-based regulation.

89 In order to achieve appropriate market conduct, to whom should the principle of treating
customers fairly apply in the general insurance market?
A Insurers and advice-giving intermediaries only.
B Insurers and non advice-giving intermediaries only.
C Insurers and all intermediaries.
D Insurers only.
90 The main reason why it is preferable for the regulator to use diagnostic tools rather than
remedial tools when supervising the general insurance industry, is because it
A is a less expensive option.
B is less dependent on third parties.
C is a quicker option.
D allows potential problems to be addressed before they arise.

91 Remedial action tools are primarily used by the regulator in order to

A ensure the independence of the regulator.
B establish compliance rules and guidance.
C impose financial sanctions to act as a deterrent for non-compliant activities.
D provide the basis of corrective action by the regulator for breaches of compliance rules and
guidance.

92 Apart from the regulator, who is ultimately responsible for ensuring that an insurer maintains
adequate capital resources?
A The board of directors.
B The policyholders.
C The reinsurers.
D The underwriters.

93 The main problem with the standard model approach to capital adequacy is that it relies on
A historical data.
B risk management.
C scenario testing.
D stress testing.

94 What is generally accepted as the main purpose of solvency control levels?

A To alert shareholders to the possibility of a cash call.
B To measure capital adequacy against peer insurers.
C To prompt early corrective action of a potential problem.
D To trigger an internal re-examination of a risk profile.

95 Which body, if any, produces reliable estimates of the annual worldwide amount of money
which is laundered?
A The Financial Action Task Force.
B The International Association of Insurance Supervisors.
C Reliable estimates are not available.
D The World Bank.

96 When a customer is acting on behalf of another customer, what extra measure should the
insurer take in accordance with customer due diligence requirements?
A Complete a proposal form.
B Conduct a risk assessment of the relationship between the two customers.
C Obtain an indemnity statement from both customers.
D Verify the identity of the other customer.

97 Intermediary fraud in the general insurance market can be committed against

A insurers only.
B insurance brokers only.
C insurers and policyholders.
D policyholders only.
98 Where the insured and the intermediary are represented by the same person, the insurer
should treat this as a warning of the possibility that
A capital adequacy needs reviewing.
B fraudulent activity may be involved.
C indemnity principles have been breached.
D subrogation is necessary.

99 To whom does the Chartered Insurance Institute’s (CII) ethical code of practice apply?
A All Chartered members only.
B All members of the CII in the UK only.
C All insurance brokers only.
D All members of the CII only.

100 What is the main purpose of a feedback loop as part of an insurer’s risk management
framework?
A To compare its strategy with those operated by other insurers within the industry.
B To ensure all areas of the organisation understand the importance of strategy.
C To incorporate market issues into future strategy.
D To update its approach in the light of changing circumstances.