1.

The possibility of damage occurring to your own property is known as a

A. certainty.
B. hazard.
C. peril.
D. risk.

2. A pure risk is defined as a risk

A. from which there is the chance of a gain or the possibility of a loss.
B. unique to a person, over which that person has some degree of control.
C. which affects society as a whole, or a sizeable proportion of it and is controllable only by
concerted efforts.
D. from which it is only possible to break even or make a loss.

3. What is the main benefit to an insurer of persuading a policyholder to implement a risk

management programme?
A. The opportunity to justify a higher premium.
B. An improved loss frequency.
C. A closer relationship between the insurer and the policyholder.
D. The ability to assess claims settlement costs more accurately.

4. In terms of frequency and severity, a motor insurer would usually rate its business on the basis of
claims being
A. low frequency, low severity.
B. high frequency, low severity.
C. low frequency, high severity.
D. high frequency, high severity.

5. Which type of risk is uninsurable?

A. A financial risk.
B. A non-financial risk.
C. A particular risk.
D. A pure risk.

6. The risk of a commercial company losing an important contract to a competitor is NOT generally
insurable because the risk is
A. fundamental.
B. particular.
C. pure.
D. speculative.

7. In relation to insurance, a peril is

A. a specified event covered or excluded by the policy.
B. a factor which increases the risk of loss.
C. something always excluded by the policy.
D. the disclosure of relevant information.
8. Which roofing material presents the greatest physical hazard in relation to the risk of fire?
A. Corrugated iron.
B. Thatch.
C. Tile.
D. Timber.

9. An insurer is asked to insure a house on a river bank. The proximity of the house to the river is
known as a
A. hazard.
B. peril.
C. pure risk.
D. speculative risk.

10. An office which is insured against burglary has an inadequate door lock. What is the peril and what
is the hazard?
A. The risk of burglary is the peril and the amount likely to be stolen is the hazard.
B. The risk of burglary is the peril and the inadequate security is the hazard.
C. The inadequate security is the peril and the risk of burglary is the hazard.
D. The inadequate security is the peril and the building is the hazard.

11. What provides a risk transfer mechanism by means of a common pool into which each individual
pays a fair and equitable premium?
A. Contribution.
B. Indemnity.
C. Insurance.
D. Risk management.

12. The primary function of insurance is as a means of risk

A. assessment.
B. elimination.
C. identification.
D. transfer.

13. An insured must pay a premium in relation to the amount of risk he presents to the insurer. This is
essential in order to enable the insurer to
A. comply with the principle of contribution.
B. apply the principle of utmost good faith.
C. operate the pooling of risks.
D. assess the indemnity to be provided.

14. Why is insurance sometimes described as operating on the basis of a common pool?
A. Insurers and reinsurers pool resources to pay claims.
B. Insurers pay a levy into a common fund to meet the cost of uninsured losses.
C. The contributions of the many pay for the losses of the few.
D. Excesses from policyholders are combined to subsidise other claims.
15. A key benefit of insurance to both policyholders and society in general is that it
A. always enhances company security.
B. enables the risk of financial loss to be transferred.
C. encourages risk-taking.
D. removes the possibility of loss.

16. Bernie loses his camera whilst on holiday and claims under his travel insurance policy. He then
realises that cover is also included under the all risks section of his household contents insurance
policy. This is known as
A. coinsurance.
B. dual insurance.
C. excess insurance.
D. mutual insurance.

17. When does self-insurance arise?

A. When a company decides to set aside a fund to pay losses that may occur.
B. When a policyholder finds that he has inadvertently taken out more than one policy covering the
same risk.
C. When a number of insurers agree to collectively insure a particular risk in agreed proportions.
D. When a policyholder decides to insure proportions of his property with different insurers.

18. Which type of insurance policy will protect a manufacturer against bodily injury claims arising from
the correct use of faulty goods by a customer?
A. A fidelity guarantee insurance policy.
B. A products liability insurance policy.
C. A professional indemnity insurance policy.
D. A public liability insurance policy.

19. A self-employed plumber needs to insure against the consequences of causing damage to
customers' property whilst working at their homes. What type of insurance policy does he require?
A. An employers' liability insurance policy.
B. An engineering insurance policy.
C. A professional indemnity insurance policy.
D. A public liability insurance policy.

20. An accountant is being sued for financial loss due to alleged negligent business advice. Which type
of insurance is specifically designed to cover the accountant in these circumstances?
A. Employers' liability insurance.
B. Fidelity guarantee insurance.
C. Professional indemnity insurance.
D. Public liability insurance.
21. An insurer decides to allow its overseas offices to undertake their own underwriting, policy drafting
and claims. This is known as
A. centralisation.
B. decentralisation.
C. mutualisation.
D. demutualisation.

22. A multinational company wants to arrange cover in the London market for its worldwide property
interests. Why may it NOT be legally possible to insure 100% of the risk?
A. All risks must be insured in local markets.
B. Currency exchange regulations do not permit this.
C. Some risks may need to be insured in local markets.
D. There are differing Insurance Premium Tax rates for different countries.

23. A proprietary insurance company is owned by its

A. board of directors.
B. management.
C. policyholders.
D. shareholders.

24. What is a captive insurer?

A. An insurer formed by the merger of several smaller companies.
B. An insurer that is owned by another company and used by that company for its own insurance
needs.
C. An insurer that is owned by another insurer.
D. A direct insurer that provides a variety of insurance business in the general market.

25. Which fundamental principle of insurance is embodied in the code of practice for Lloyd’s brokers?
A. Indemnity.
B. Insurable interest.
C. Proximate cause.
D. Utmost good faith.

26. The Council of Lloyd's delegates its regulatory responsibilities to the

A. Association of British Insurers.
B. Financial Conduct Authority.
C. Lloyd's Franchise Board.
D. Lloyd's Market Association.

27. To whom could a private individual normally go for independent advice on an insurance policy?
A. An insurance intermediary.
B. A Lloyd’s Name.
C. A mutual insurance company.
D. A proprietary company.
28. Which type of intermediary can introduce business to only one insurer?
A. A reinsurance intermediary.
B. An in-house broker.
C. An independent intermediary.
D. A tied agent.

29. What is the main advantage to an insurer of operating on a direct marketing basis?
A. Claims costs are reduced.
B. No commission is paid to intermediaries.
C. The number of policyholders might increase.
D. Staff require less training.

30. Reinsurance is primarily effected by the

A. insured.
B. insurer.
C. intermediary.
D. regulator.

31. Reinsurance is mainly used by insurers to

A. increase commission income on specific accounts.
B. protect the insurer’s market share.
C. provide an enhanced claims service.
D. reduce the impact of large losses.

32. One of the main functions of an insurance underwriter is to

A. establish the suitability of a policy to meet a proposer’s needs.
B. decide on the appropriate sums insured.
C. rate a proposed risk.
D. survey a proposed risk.

33. A company wishes to insure a large factory. Who will decide upon the appropriate premium?
A. A Lloyd’s broker.
B. An intermediary.
C. A risk manager.
D. An underwriter.

34. Which department within an insurance company would handle and arrange the routine settlement
of an insured loss?
A. The accounts department.
B. The claims department.
C. The customer services department.
D. The risk control department.
35. Identifying possible customer fraud is a key function of which particular department within an
insurance company?
A. The accounts department.
B. The actuarial department.
C. The claims department.
D. The risk management department.

36. For what purpose would a loss adjuster normally be appointed?

A. To investigate insurance claims on behalf of the insurer.
B. To quote on repair costs.
C. To negotiate insurance claims on behalf of the insured.
D. To arbitrate in disputes between the insurer and the insured.

37. Why would a loss assessor be employed?

A. To negotiate an insurance claim on behalf of the insured.
B. To investigate an insurance claim on behalf of the insurer.
C. To arrange for damaged property to be repaired.
D. To arbitrate in disputes between the insurer and the insured.

38. An employee's main responsibility for a motor insurer is to estimate future claim levels. What
recognised industry role does she perform in this capacity?
A. Actuary.
B. Loss adjuster.
C. Risk manager.
D. Underwriter.

C. identify, evaluate and reduce potential causes of loss.

D. identify new types of risk and design policies to cover these.

40. Which insurance role typically involves examining a company's historical claims in order to improve
the control measures which are in place?
A. An actuary.
B. A loss adjuster.
C. A loss assessor.
D. A risk manager.

41. Why is it important for a compliance officer to ensure processes are reviewed regularly?
A. To ensure a competitive advantage is maintained.
B. To ensure they reflect current regulation.
C. To review cost effectiveness.
D. To review efficiency.
42. Who is eligible to become a member of the Chartered Insurance Institute?
A. Insurance companies.
B. Insurance employees.
C. Insurance networks.
D. Insurance policyholders.

43. In order for a contract to be legally enforceable, what further action is required after offer and
acceptance?
A. Delivery of goods or services concerned.
B. Exchange of consideration between the two parties.
C. Provision of written terms and conditions.
D. Witnessing by a third party.

44. It has been established that insurable interest did NOT exist at the outset under Gareth's motor
insurance policy. Consequently, this policy is treated by law as
A. expired.
B. terminated.
C. void.
D. voidable.

45. What notification method is normally required when an insurer uses the cancellation condition of
an insurance policy to give notice to cancel the policy?
A. An email to the policyholder.
B. A fax to the policyholder's broker.
C. A letter to the policyholder's last known address.
D. A recorded telephone call with the policyholder.

46. Despite there being no emergency, an agent acts outside the terms of the agency agreement he has
with the principal. The principal nevertheless agrees to be bound by these actions. This is an
example of agency created by
A. apparent authority.
B. consent.
C. necessity.
D. ratification.

47. An agent has received a letter of appointment in respect of his agency with an insurer, which
outlines the extent of his authority and full terms and conditions. Which method of creating agency
has been used?
A. Apparent authority.
B. Consent.
C. Necessity.
D. Ratification.
48. In an emergency, a person acts to prevent someone else’s property in his care being destroyed by
fire. What type of agency agreement has been created?
A. Apparent authority.
B. Consent.
C. Necessity.
D. Ratification.

49. At what point in the life cycle of an insurance policy is an agent first deemed to have earned
remuneration from the principal?
A. On the principal formally accepting the product recommendation.
B. On the principal renewing his policy.
C. On the principal receiving the policy document.
D. On the principal signing the contract and paying the premium.

50. When must insurable interest exist in commercial motor insurance for a valid claim to be
considered?
A. At policy inception only.
B. At the time of loss only.
C. At policy inception and at the time of loss.
D. At the time when the vehicle is purchased.

51. In order for the principle of contribution to apply, each insurance policy must
A. have the same period of insurance.
B. be the same class of policy.
C. cover the same subject matter.
D. have the same level of cover.

52. A factory owner leases the plant and machinery for which he is responsible. He now wishes to
include this equipment under his commercial all risks insurance policy. What principle of insurance
has been fulfilled which enables him to effect this cover?
A. Coinsurance.
B. Indemnity.
C. Insurable interest.
D. Subrogation.

53. The main purpose of insurable interest is to formally establish the financial relationship between
the insured and the
A. claimant.
B. insured item.
C. insurer.
D. third party.
54. In connection with a private motor insurance policy, to whom does the principle of utmost good
faith apply?
A. The insurer only.
B. The insured only.
C. The insured and the insurer only.
D. The insured, the insurer and any third party claimant.

55. When applying for motor insurance, the proposer forgets to advise the insurer about an unspent
driving conviction. This is classed as a breach of which principle?
A. Buyer beware.
B. Duty of agent to principal.
C. Proximate cause.
D. Utmost good faith.

56. Under common law, when does the duty of disclosure apply under a household contents insurance
policy?
A. At inception only.
B. At renewal only.
C. On submission of a claim.
D. At inception and at renewal.

57. Under the policy conditions of a typical motor insurance policy, when does the duty of the insured
to disclose any material changes exist?
A. At the renewal date only.
B. During the 14 days before and after the renewal date.
C. During the first year only.
D. Throughout the duration of the policy.

58. Something which could influence the judgement of a prudent underwriter in setting the premium
and terms or determining whether to take the risk is known as a
A. coinsured exposure.
B. homogeneous exposure.
C. material fact.
D. regulated fact.

59. A proposer is legally obliged to disclose his extensive claims history when applying for motor
insurance. What term is used to describe the facts he discloses?
A. Facts of law.
B. Facts of public knowledge.
C. Material facts.
D. Relevant facts.
60. Following a claim covered by an insurance policy, what action should the insurer take on discovery
of an undisclosed criminal conviction which was spent prior to inception?
A. Repudiate the claim on grounds of non-disclosure.
B. Cancel the policy and refuse the claim.
C. Pay the claim, but impose special terms on the policy.
D. Pay the claim and take no further action.

61. An insurer has refused to pay a claim and voided the insurance policy from inception. In what
circumstances is this action permitted?
A. If the claim was made during a temporary extension of the policy.
B. If the claim results from a loss caused by a peril not covered under the policy.
C. If the insurer discovers that the insured deliberately failed to disclose a relevant material fact.
D. If the insurer discovers that the insured is unknowingly substantially underinsured.

62. A motor insurance proposer fails to tell the insurer about a recent conviction for driving without
due care and attention. What is the legal status of the insurance policy?
A. It is automatically void.
B. It is binding.
C. It is unenforceable.
D. It is voidable at the option of the insurer.

63. During a fire, the sprinkler system operated but could NOT save the building’s roof from
destruction. A sudden storm extinguished the fire but a combination of the sprinklers, rain water
and blocked drains resulted in stock suffering severe damage. What was the proximate cause of the
damage?
A. The fire.
B. The flood.
C. The sprinkler leakage.
D. The storm.

64. Heavy rain causes an inadequate drain to overflow into the basement storeroom of a nearby grocer
shop. The perishable goods in the storeroom, which were NOT raised off the floor, have been
written off. What is the proximate cause of the loss?
A. The heavy rain.
B. The inadequate drain.
C. The storage of the stock.
D. The perishable nature of the stock.

65. Following a football match, 200 rival fans started rioting in the street, setting fire to cars and
breaking shop windows. The window of a boutique is broken and smoke from a burning car outside
damages the stock. What is the proximate cause of the stock loss?
A. The breakage of the window.
B. The burning car.
C. The football match.
D. The riot.
66. When there is more than a single cause in a chain of events leading to a claim, insurers will apply
the doctrine of
A. contribution.
B. last cause.
C. proximate cause.
D. subrogation.

67. The principle of indemnity is the

A. placing of the insured, after a loss, in the same financial position as was enjoyed immediately
before the loss.
B. placing of the insured, at expiry of a policy, in the same financial position as was enjoyed at
inception.
C. obligation of the insurer to pay all valid claims according to the terms and conditions of the
policy.
D. obligation of the insurer to provide a maximum sum insured or limit of liability.

68. What form of indemnity is most likely to be used in the settlement of a claim for minor damage
under a comprehensive private motor insurance policy?
A. Cash payment.
B. Reinstatement.
C. Repair.
D. Replacement.

69. Which insurance principle is modified by a household insurer if contents are insured on a new for
old basis?
A. Contribution.
B. Indemnity.
C. Subrogation.
D. Utmost good faith.

70. Under which classes of general insurance is it NOT possible to apply the principle of indemnity?
A. Accident and sickness insurance.
B. Buildings and contents insurance.
C. Private and commercial motor insurance.
D. Public and employers' liability insurance.

71. A car dealer keeps 50 cars, valued at £10,000 each, in a secure pound. He buys first loss theft
insurance for a sum insured of £100,000 on a declared full value of £500,000. If thieves steal 20
cars, how much will the policy pay out?
A. £10,000
B. £40,000
C. £100,000
D. £200,000
72. A car is insured under a comprehensive agreed value motor insurance policy for £2,000. If the car is
destroyed by accidental fire, the insurer will settle the claim by payment of
A. the sum insured.
B. the trade market value.
C. the retail market value.
D. a sum agreed by an independent engineer.

73. Robin bought a TV for £600 five years ago and insured it on a new for old basis. It was recently
damaged beyond repair, halfway through its useful life. An equivalent replacement would cost
£450. How much would his insurer pay in the event of a valid claim?
A. £225
B. £300
C. £450
D. £600

74. What is the amount payable under a new for old insurance policy if an insured item is stolen?
A. The original cost in full.
B. The original cost, less wear and tear.
C. The replacement cost in full.
D. The replacement cost, less wear and tear.

75. What policy condition does an insurer apply when it reduces the amount paid in settlement of a
claim due to underinsurance?
A. Average.
B. Contribution.
C. Insurable interest.
D. Subrogation.

76. A factory owner has a standard fire and perils insurance policy with a sum insured for the buildings
of £150,000. During a storm, the building suffers major structural damage costing £100,000 to
repair. The loss adjuster notes that the rebuilding cost of the building just prior to the loss was
£250,000. What amount will be payable under the policy?
A. £50,000
B. £60,000
C. £66,667
D. £100,000

77. Joe has a commercial property insurance policy with a pro rata average clause. The policy sum
insured is £30,000 and the property’s value is £50,000. There is a policy excess of £1,000. How
much would the settlement be for a claim of £10,000?
A. £5,000
B. £5,400
C. £6,000
D. £9,000
78. A house is insured for £60,000 with insurer A and for £40,000 with insurer B. If a valid claim is made
for fire damage of £10,000, how much will be paid by each insurer if contribution is applied?
A. Each insurer will pay £5,000.
B. Insurer A will pay £6,000 and insurer B will pay £4,000.
C. Insurer A will pay £4,000 and insurer B will pay £6,000.
D. Each insurer will pay £10,000.

79. A fire causes £10,000 of damage to a property. The property is insured against fire with two
separate insurers, insurer A and insurer B. The sum insured under insurer A's policy is £24,000 and
it pays £3,000 in settlement. Insurer B pays £7,000 in settlement. What is the sum insured under
insurer B's policy?
A. £24,000
B. £48,000
C. £56,000
D. £80,000

80. Martin has insurance policies with insurer A and insurer B for the respective sums insured of
£20,000 and £30,000. If he successfully claims £400 from insurer A for a loss also covered by insurer
B, how much can insurer A claim from insurer B under the rateable proportion by sum insured
method of contribution?
A. £160
B. £200
C. £240
D. £400

81. A house is damaged by an explosion in its gas central heating system. The household insurer pays
for the cost of repairs in full, but in the course of an investigation it is found that the explosion was
caused by the negligence of the company which installed the system. The insurer sues the
installation company for the amount of the claim paid. This is known as
A. coinsurance.
B. contribution.
C. indemnity.
D. subrogation.

82. Subrogation is an insurer's right to

A. receive payment from another insurer which covers the same interest in the property.
B. defer payment of a claim until the premium has been paid.
C. settle a claim with a deduction to reflect underinsurance.
D. take on the rights and remedies of the insured against a third party.

83. If an insured signs an agreement with a hold harmless clause, this may prevent the insurer from
A. disclosing details to a third party.
B. increasing the premium.
C. pursuing subrogation rights.
D. reinsuring the risk.
84. Under which type of general insurance policy does the nature of claim payments mean that
subrogation rights CANNOT normally be exercised?
A. A marine insurance policy.
B. A personal accident and sickness insurance policy.
C. A products liability insurance policy.
D. A travel insurance policy.

85. In broad terms, what do prudential regulations issued by the regulator generally cover?
A. Accounting standards in relation to a company’s annual returns.
B. The provision of best possible advice and guidance to customers.
C. Financial integrity and soundness of a company’s assets and liabilities.
D. The use of financial services products as a vehicle for money laundering activities.

86. What subject is covered by the Insurance Concordat, which is used to support one of the
International Association of Insurance Supervisors' main principles?
A. Accounting procedures.
B. Capital adequacy.
C. Cross-border operations.
D. Reinsurance procedures.

87. What type of documents are used by the International Association of Insurance Supervisors to
improve the effectiveness of supervision?
A. Codes of best practice.
B. General protocols.
C. Guidance papers.
D. Procedure manuals.

88. Ultimate responsibility for deciding how to design an insurer’s processes in order to comply with
principles-based regulation is intended to rest with
A. the compliance officer.
B. individual unit managers.
C. the internal auditor.
D. senior management.

89. The prudence requirements, as set out in the market conduct general principles, should apply to
A. intermediaries only.
B. intermediaries and established insurers only.
C. intermediaries and newly-authorised insurers only.
D. intermediaries and all insurers.

90. Diagnostic tools are used by the regulator in order to

A. identify potential problems at an early stage.
B. obtain progress reports from regulated firms in order to review regulatory enforcement action.
C. remedy the shortcomings of financial institutions.
D. review the adequacy of a firm's systems and controls.
91. Which key regulatory rule attempts to ensure that an insurer’s assets bear an appropriate
relationship with its liabilities?
A. Capital adequacy.
B. Conflicts of interest.
C. Due diligence.
D. Insurable interest.

92. An insurer's capital adequacy is an important indicator of their ability to

A. pay claims.
B. provide a quote.
C. provide contract certainty.
D. provide wide cover.

93. An insurer's internal modelling techniques, used for capital adequacy assessment purposes, involve
modelling the effect of a 20% fall in equity prices. This type of approach is generally known as
A. fixed ratio testing.
B. standard formula testing.
C. stress testing.
D. vertical testing.

94. In relation to global and regional money laundering, what is placement?

A. The creation of complex transactions to conceal funds.
B. The initial point of entry for funds into the economy.
C. The items laundered funds are placed on.
D. The return of funds to the economy for later extraction.

95. What documentary evidence is normally preferred to confirm a customer’s identity?

A. Bank statement.
B. Birth certificate.
C. Passport.
D. Utility bill.

96. If an insurance intermediary significantly misrepresents the nature of insurance cover in order to
attract customers, this is best classed as
A. bad practice.
B. a civil offence.
C. fraud.
D. voidable activity.

97. The primary reason for insurers to carry out risk-based internal audits at regular intervals is to
A. detect internal fraud.
B. ensure adequate training.
C. establish clear reporting lines and communication procedures.
D. keep complaints to a minimum.
98. What is the main reason for the relationship between capital adequacy and solvency controls?
A. To protect insurers from financial exposure.
B. To protect policyholders from company failure.
C. To provide regulatory framework.
D. To regulate insurers.

99. An insurance broker, who is a member of the Chartered Insurance Institute (CII), finds that she has a
conflicting interest when dealing with a client's claim. Under the CII code of ethics, what, if
anything, should she do?
A. Advise the client to contact another broker.
B. Ensure that the client's interest is always primary.
C. Introduce the client to an independent loss assessor.
D. There is nothing in the code of ethics relating to conflict of interest.

100. When an insurer conducts a periodic risk and solvency assessment to present to the board, a
major aspect of this process should be to report on the relationship between risk management and
A. competitive position.
B. corporate strategy.
C. financial resources.
D. product development.