EXAMS OFFICE 3:30 | jadholes Flowee lau USE ONLY University of the Witwatersrand, Johannesburg Course or topic numbers. Course or topic name(s) Paper Number and title Examination/Test" to be held during month(s) of (‘delete as applicable) Years of Study (Arts & Science leave blank) Degrees/Diplomas for which this course is prescribed (BSc (Eng) should indicate which branch) Facultylies presenting candidates Internal examiner(s) and telephone extension number(s) External examiner(s) Special materials required (graph/music/ drawing paper) maps, diagrams, tables, ‘computer cards, etc) Time allowance Instructions to candidates (Examiners may wish to use this space to indicate, inter alia, the contribution made by this examination or test towards the year mark, if appropriate) Buse2008/9 Insurance and Risk Management IIB October 2008 First and Second BCom Commerce Law & Management Prof B Benfield Mr A Mushai 717 8092 Prof G Du Toit: University of South Africa MCQ Cards and Examination Books Calculators Course No. | Buse2008/9 |Hours | 3 Part A: Life insurance Section A: Answer 2 out of any 3 essay questions. Section B: Can attempt all 30 MCQ questions 60% Part B: Short-term insurance Can attempt all 60 MCQ questions 40% 100% Negative marking applies to MCQ questionsBuse2008/9 Insurance and Risk Management IIB Page 1 of 27 October 2008 PART A - 60% OF THE MARKS COME FROM THIS PART OF THE PAPER Answer any two questions from Section A and you may attempt all 30 MCQ questions. TOTAL MARKS FOR PART A - 60% Section A - Essay questions: Write an essay of approximately 300 words (2-3 Ad pages) on any 2 of the following 3 questions (each question counts 20 per cent): Question 1 Describe the principal pieces of information that should be checked at the time of a life assurance claim and state the effect of non-disclosure of material information at application stage. (20) Question 2 Discuss the distribution of life assurance products in South Africa today. Describe each method in use and the advantages and disadvantages of each with regard to both consumers and insurers, (20) Question 3 Describe the role of the life assurance industry in the national economy, (20) (40) Section B - Life insurance MCQ questions: (Section B counts 20 per cent of the examination) 20) (60) 1. Which is not a possible source of life office "surplus"? (a) Premium persistency (b) Investment portfolio fees (©) Bank debit orders (@) Expense savings (©) Mortality experience 2. The factor most likely to affect premium persistency experience: ) Client age ) Marital status (©) Method of premium payment ) Type of policy ) Size of premiumBuse2008/9 Insurance and Risk Management IIB Page 2 of 27 October 2008 ————— ee (a) (b) (©) (d) ©) (a) (b) © @ © (a) (b) () @ © (@) ) (c) @ (e) {a) (b) () (d) (e) The risk underwriting decision depends on: Health, occupation and recreation ‘Sum insured Premium size ‘Type of policy None of these Which of these is not a form of life insurance? Term insurance Whole life insurance Endowment insurance Universal life insurance Builders’ indemnity Terminal illness benefits pay in the event of: Accidental death Suicide Incurable sickness Permanent disability None of these Which of these is not a type of re-insurance treaty? Automatic Facultative Fac-Ob Risk averse Proportional Which of the following can be used to reduce investment risk? Diversification ‘Top-down analysis Churning Carry trade Trade optimisationBuse2008/9 Insurance and Risk Management IIB Page 3 of 27 October 2008 (@) () 1) @ (e) (a) (b) (c) (d) ©) 10. (a) (b) ) (d) (e) i. (a) (b) (c) (d) © 12. (a) (b) ©) @ ©) 13. (a) (b) ‘The "Life Fund" has been referred to as: Actuarial reserve An Accounting artifice Actuarial liability Investment surplus Guarantee fund The Numerical Rating System is a method for: ‘Measuring investment results Valuing a life office Selecting investments Rating life risks Distributing insurance profits Bailey's Canons referred to: The protection of ships from pirates Rules for investment of funds War-time technology Underwriting profits None of these For life insurance “insurable interest” must exist: When a claim arises At policy inception On more than one life In the event of death only Between spouses ‘The term "Assurance" is used only in relation to: Motor policies Household cover Psychological events Limited term policy Life cover The structure of a linked endowment does not include: Decreasing term assurance Investment allocation amountsBuse2008/9 Insurance and Risk Management ITB Page 4 of 27 October 2008 ———_———————— (©) (d) ©) 14, (a) (b) (c) @ © (a) (b) (©) @ ) 16. (a) (b) (c) (d) (e) 17, (a) (b) (c) (d) (e) 18, (a) (b) © @ © Investment allocation growth Disability benefits Death claim benefits "Universal Life" is: An “unbundled” linked product A “surplus” product A whole life contract only A philosophy of life ‘A claims assessment method Capitalism is the opposite of: Business Freedom "Capital formation" is the process of: Saving part of this year's production Borrowing Loans Foreign investment Employment retrenchment How many insurance Acts of Parliament were in force immediately after Union in 1910:7 One: Two ‘Three Four Five The basis of life office taxation in SA is: (+d (¥+2) (tx 30%) (-E) (40%)Buse2008/9 Insurance and Risk Management IB Page 5 of 27 October 2008 19, @ () (© @) ) 20. (a) (b) (©) @ © (a) (b) (©) (d@) (e) 22, (a) (b) © @ (©) (a) (b) ©) @) © Disability Insurance can be designed to pay when you are unable to follow your: Own occupation Own or a similar occupation ‘Any occupation Chosen avocation All of the above ‘The main purpose of reinsurance is to: Increase profits Reduce profits Spread risk Offload bad risks Share profits with the reinsurer Life assurance is purchased to protect against: Living too long Dying too soon Becoming disabled Provide peace of mind All of the these The liabilities on the balance sheet of a life office are usually divided into: Shareholder and policyholder liabilities The Life Fund and policyholder funds Capital and shareholders funds Shareholder capital and distributable reserves None of the above ‘Common life insurance exclusion clauses usually include: Self-inflicted injuries Acts in violation of the law Military service Private aviation All of the aboveBuse2008/9 Insurance and Risk Management IIB Page 6 of 27 October 2008 ——————————— 24, (a) (b) © (d) © 25. (a) (b) © (@) © @) () (c) (d) ©) 27. (a) b) ©) @) © (a) (b) © @ © Accident benefits usually cover the loss of: Hands Feet Eyes Death by accident All of the above Currently, insurance supervision is the responsibility of: The Financial Services Board (FSB). The Registrar of Banks. The South African Reserve Bank. The Johannesburg Stock Exchange. ‘The South African Insurance Association (SAIA). Reinsurance premiums may be calculated on the following bases: Original terms Risk premium rates Quota share Pro rata All of the above Critical factors for assessing the financial progress of a Life Office include: New business production levels Premium persistency experience Expenses as compared to budget Number of sales personnel All of the above Actuarial liabilities may loosely be described as: Surplus due to policyholders Net present value of future claims Mortality reserves Morbidity reserves With-profit bonus reserveBuse2008/9 Insurance and Risk Management IIB Page 7 of 27 October 2008 29, A person who seeks only to insure his life for the value of the outstanding bond on his house should: (a) Purchase level term insurance (b) Increasing term insurance (©) Decreasing term insurance (@) Purchase fire insurance (©) Purchase a retirement annuity 30. Which country in the world has the highest per capita expenditure devoted to life insurance? (a) — South Africa (b) United Kingdom (©) America (@) France (©) Germany PART B - 40% OF THE MARKS COME FROM THIS PART OF THE PAPER 31. The famous English case of Priestly v Fowler (1837) established that: (@) employers are vicariously liable for the torts (delicts) of their employees which are committed against their fellow employees. (b) the common-employment (fellow employee) defence. (©) the contributory negligence defence (@) the assumption of risk defence. (e) that the employer can be liable for the negligent acts of vice-employers. 32. Vicarious liability of employers for the torts of vice-employers was introduced in England:~ (a) by the court in the case of Priestley v Fowler (1837); (b) by the British Parliament; (©) __ bythe court in the case of Smith v Baker and Sons (1891); (@)__ by the courts over a long period of time; (@) was never introduced in England; it is confined to South AfricaBuse2008/9 Insurance and Risk Management IIB Page 8 of 27 October 2008 ee 33. @ (b) (a) (by (©) @) © (a) (b) © @ (©) 36. @ oo) © @ © Church XYZ employs the Rev B Davie, a minister of religion. The church does not pay the worker's compensation levy to the Compensation Commissioner. While conducting a wedding, the Right Reverend Bruce Davie trips over the microphone cord, and is seriously injured, The minister: is not entitled to worker's compensation because ministers of religion do not fall under the purview of the worker’s compensation legislation. is not entitled to compensation because the church did not pay the levy. is not entitled to compensation because he is not a worker. is not entitled to compensation because a wedding is not an employment type of activity. is entitled to compensation. Mr X works for the government and his official working hours are from 08:00 to 16:30. At 16:31 he leaves his office building to go home and as he leaves he is severely injured bya car bomb: Mr X is entitled to worker's compensation. Mr X is not entitled to worker’s compensation, Mr X is entitled to normal and additional compensation, Mr X, as a government official, is not entitled to worker's compensation. Since Mr X has been injured as a result of a criminal act, the police will provide compensation. Mr X, an employee, while working in the course and scope of his employment bends down and strains his back. He consults a specialist who advises that the injury is internal, that is to say, was not caused by any external force. He wishes to submit a claim to the Compensation Commissioner: the claim will not succeed since a back injury is not an accident. to succeed he must also prove that his employer was negligent. the claim may succeed since a back injury can be an accident. an accident is an event caused by the application of an external force. he must show that his employer caused the back injury. Mr X, while at work, accidentally falls into a stream, He catches pneumonia and as a consequence three weeks later dies. His wife submits a worker's compensation claim. ‘The claim will: not succeed because to die from pneumonia is to die from a natural cause and not an accidental cause. succeed but only if pneumonia is classified as an occupational disease. not succeed; Mr X did not die as a consequence of accident. succeed since Mr X died as a result of an accident. not succeed; only Mr X or his estate may make claims for worker's compensation.Buse2008/9 Insurance and Risk Management IIB Page 9 of 27 October 2008, —————— 37. @) ) © (d) © 38. (a) (b) (©) @ © 39. (a) (b) © @ ©) Mr X is employed by a large mine. The mine sends a mine-bus to convey its employees to and from the mine. Mr X boards the bus, but on the way to the mine the bus is involved in an accident and Mr X is seriously injured: Mr X is not entitled to worker’s compensation since driving to work ‘is not in the course of employment’. Mr X is entitled to compensation since there is a specific provision in COID which extends the Act to situations where the employer provides transportation to and from work. Mr X is not entitled to worker's compensation since motor accidents are covered by the Road Accident Fund, Mr X is entitled to compensation but only if negligence on the part of the driver is proved; All of the above. South Africa recognizes the general doctrine of vicarious liability. In terms of this doctrine an employer could be liable for negligent acts of fellow employees. Mr X, an employee, is injured as a result of the negligent act of a fellow employee, Mr Y. Mr X works out that his common law damages are R250 000. The Compensation Commissioner does not pay for pain and suffering and Mr X works out that the value of the compensation, excluding pain and suffering, to be received from the Compensation Commissioner is only R150 000. In terms of the general doctrine of vicarious liability, he decides to sue his employer. Which of the following do you believe will be the most, likely outcome? he will not succeed; he will succeed, but only for pain and sufferin; he will only succeed to the extent of R100 000; he will succeed but the Court will subtract R150 000 from his common law award. (a),(b) & (©) above ‘Mr X reports that the machine guarding is missing on a machine on which he is working. ‘The report is made to the responsible engineer appointed in general charge of machinery at the factory where Mr X works. The engineer neglects to repair the machine guarding and Mr X is seriously injured. Mr X is only entitled to normal compensation in terms of s22 of the Act; Mr X is only entitled to additional compensation in terms of s56 of the Act; Mr X is entitled to both normal and additional compensation; Mr X is entitled to recover his common law damages from the Compensation Commissioner; Mr X is entitled to recover compensation from the Commissioner and pain and suffering from his employer.Buse2008/9 Insurance and Risk Management UB Page 10 of 27 October 2008 @ (b) © () @) 41. (a) (b) 1) @) © 42. (a) (b) © @) © Because in the 1800s it was not possible for an employee to successfully sue his employer, the United Kingdom Parliament introduced legislation holding the employer liable towards his employees for very limited reasons. This led to the rise of employer's liability insurance in the United Kingdom: South Africa introduced similar legislation, Employer's liability insurance was not necessary in South Africa since, where negligence is present, the employee can claim additional compensation from the Compensation Commissioner. The position in the United Kingdom is not relevant to the position in South Africa. Employees have always successfully sued employers in the United Kingdom. All of the above. Mechanic A instructs mechanic B to go underneath a motor car, which is being supported by a new jack. The two mechanics are acting in and through the course of their employment. Mechanic A is negligent in failing to determine whether or not the jack which is supporting the car is safe. It is not. The car falls on top of Mechanic B who is seriously injured, Mechanic B has a valid compensation claim: for normal compensation in terms of s22 of COID only? for additional compensation in terms of s56 of COID only? for normal and additional compensation, in terms of 522 of COID and s56 of COID? aclaim against their employer, but only for pain and suffering. (a) and (€). ‘Mr X an employee of company XYZ.is injured when a boiler explodes. The boiler is new but unknown to the company it has a crack. By carrying out a simple maintenance test the crack could be detected. An official inquiry concluded that no-one was negligent. Is MrX: entitled to normal worker’s compensation only. entitled to normal and additional compensation. entitled to compensation and to recover damages from the Responsible Engineer, who was in charge of the boiler. entitled to sue XYZ because it did not carry out the simple test. none of the above.Buse2008/9 Insurance and Risk Management IIB Page 11 of 27 October 2008, (a) (b) () (d) © 44. (a) (b) © (@) © 45. (@) (b) ©) @) © Mr X works with chrome dust which is an irritant to the respiratory system and causes ulceration. This disease is included as an Occupational disease in terms of the Schedule 3 of COID. Mr X joined the company in April 1967. In 1972 he had been diagnosed as having an ulcer which caused irreparable damage. Mr X's condition deteriorates continuously from 1972 to 1985 when Mr X is promoted and is no longer exposed to chrome dust. In 1991 Mr X is retrenched. Mr X submits a worker's compensation claim: Mr X is not entitled to worker's compensation since he did not suffer an accident. If Mr X is entitled to compensation, the date of the accident is April 1967. If Mr X is entitled to compensation, the date of the accident is 1972. If Mr X is entitled to compensation, the date of the accident is 1985. If Mr X is entitled to compensation, the date of the accident is 1991. Mr X is injured when a negligently driven, petrol-engine lawnmower collided with him. ‘The lawnmower is fairly large as the gardener can sit on it and steer it. It has no hooter, lights or indicating lights and has a maximum speed of 1km/hour. Mr X wishes to institute a claim against the RAF because of his injuries. He seeks your advice. What would you advise him:? His action will not succeed because the lawnmower is not a vehicle in terms of the RAF. His action will not succeed because being injured by a lawnmower is not a motor vehicle accident. He may well succeed since the RAF covers accidents negligently caused by lawn mowers just as long as they are petrol driven. He may well succeed because the RAF covers any accident involving mobile items and a lawn mover is a mobile item, (©) and (d) above Mr X is killed through the negligent driving of a motor vehicle. Before his death he was supporting his wife Mrs X. However prior to the accident she had been disabled and in receipt of a government disability pension. As a result of her husband’s death she now sues the Road Accident Fund (RAF) for loss of support she received from her husband. ‘The RAF admits liability but wishes to subtract the amount that she is receiving as a government pension, from the common-law claim she submitted. the RAF may not subtract the amount which Mrs X receives as a pension, the RAF may subtract the amount which she receives as a pension, Mrs X is not allowed to sue for loss of support - this has been abolished. Mrs X cannot sue the fund for loss of support - she must sue the driver who killed her husband. None of the above.Buse2008/9 Insurance and Risk Management ITB Page 12 of 27 October 2008 — 46. (a) (b) © @ @) 47. (@) (b) (© (d) ©) Company XYZhires out their services as transporters of large wooden logs. They provide the driver and the truck, The Log Company “LC” is responsible to load and secure the logs onto the truck, One day the logs are not properly secured and fall off the truck, while the truck is on a public road, killing the driver of a passing car. Neither the driver of the truck nor the driver of the passing car are negligent. The Log Company is negligent. The dependants of the deceased driver will: have a claim against the RAF. have a claim against the motor policy of the XYZ, the truck company. have a claim against the Log Company, which will be indemnified in terms of its motor policy. have a claim against the Log Company, which will be indemnified in terms of its public liability policy. have a claim against the Log Company, which will be indemnified in terms of its employer's liability policy. Mrs X is a passenger in a motor car driven by Mr X, her husband. The motor car is the family car and they are not travelling on business. They are married in community of property. Mrs X is seriously injured when Mr X negligently and wrongfully causes an accident, The court finds that Mr X is totally responsible for the accident. Which of the following amounts can Mrs X claim from the RAF: the extent of damages she has suffered as determined by the common law. R25 000 in total. R25 000 but only for medical costs and loss of earnings. nothing. the extent of compensation set-out in the schedule to the RAP.Buse2008/9 Insurance and Risk Management ITB. Page 13 of 27 October 2008, 48. Mr T owns and drives his own taxi, He has a permit to convey passengers for reward within the Johannesburg municipal area, He unlawfully conveys persons outside of the Johannesburg municipal area for reward, and wrongfully and negligently causes an accident, As a result a passenger, Mr P inside his taxi, is injured. The passenger suffers the following losses :~ lL. Medical expenses R15 000 2. Loss of earnings R 5000 3. Pain and suffering 10.000 R30 000 Assuming his claim succeeds against the RAF, what amount will he receive from the RAF? (a) R30.000 (b) —_ R25.000 (©) — R20000 (@) None of the above, he will receive the amount set out in the Schedule to the Act; (©) R15 000. 49, Mrand Mrs X are travelling in the same motor vehicle. Both work for the same company, XYZ (Pty) Ltd and both are on company business. They are married out of community of property. Mr X is the managing director and Mrs X the sales director. Mr X has the authority to dismiss Mrs X. Mr X negligently causes an accident and Mrs X is badly injured. Mrs X decides to sue the Road Accident Fund (RAF) for her personal injuries. You are the legal adviser for the RAF. Would you: (a) repudiate the claim because the RAF is not liable because Mr and Mrs X are of the same household and Mrs X is a passenger. (b) repudiate the claim because in terms of s35 of the Compensation for Occupational Injuries and Diseases Act, Mr X cannot be liable to Mrs X. (©) pay the claim to a maximum of R25 000 including pain and suffering. (@)__ pay the claim to a maximum of R25 000 excluding pain and suffering, (©) _ none of the above.Buse2008/9 Insurance and Risk Management ITB Page 14 of 27 October 2008 50. @) (b) © (d) ©) 51. @ (b) © @ © (a) (b) ©) @ (©) ‘Mr X lends his car to his girlfriend Ms Y. She recklessly and negligently knocks over and injures a pedestrian, Mr Z. ‘The medical expenses of Mr Z, the pedestrian come to R250 000. The pedestrian indicates that he is going to sue both Mr X and Ms Y. They consult you. What advice would you give them:? Mr Z will not succeed in his action against Mr X as this is precluded in terms of s21 of the RAF, Mr Z will not succeed in his action against Ms Y as this is precluded in terms of s21 of the RAF. (a) and (b) above Mr Z will succeed against Ms Y but not Mr X. Mr Z will succeed against either Mr X or Ms Y. Company XYZ takes its truck to Company R which repairs trucks. After carrying out repairs the employees of R fail to tighten the bolts on the wheel of the truck. ‘The wheel of the truck, while on a public road, comes off killing the driver of a passing car. Neither the driver of the truck or car are negligent. Company R is negligent. The dependants of the deceased driver will: have a claim against company R, which will be indemnified in terms of its motor policy. havea claim against company R, which will be indemnified in terms of its public liability policy. have a claim against company R, which will be indemnified in terms of its employers’ liability policy. have a claim against the RAF. have a claim against XYZ company. Mr X is employed by company XYZ. The company pays hima car allowance from which he buys a motor car. He is thus the owner of the car but he uses the car on company business. One day, while on company business, he negligently causes a motor car accident in which Mr P, a pedestrian is injured. Mr P decides to sue company XYZ. Company XYZ seeks your advice: Company XYZis liable because itis vicariously liable for the acts of its employees acting in and through the course and scope of their employment. Company XYZ is not liable because it is absolved from liability by virtue of the Road Accident Fund Act. Company XYZ need not worry because in terms of the common-law, it is only its employees who can be liable, not the company, Company XYZ cannot be liable because it did not own the car driven by Mr X. Company XYZ cannot be liable because of s35 of the Compensation for Occupational Injuries and Diseases Act.Buse2008/9 Insurance and Risk Management IB Page 15 of 27 October 2008 53. @) (b) © @ ©) 54, (a) (b) © @ © 55. @) () © @ © Mr X owns a fruit and vegetable shop and employs Mr Y. One day they go to the market to collect some and vegetables for the shop in Mr X’s bakkie. After loading the vegetables Mr X drives away but does not notice Mr Y standing in the path of the bakkie and Mr X accidently and negligently knocks over Mr Y seriously injuring him. While in hospital Mr Y is visited by an attorney who offers to sue the Road Accident Fund for damages for Mr Y. You are the legal adviser to the Road Accident Fund and receive the letter of demand: Mr Y is entitled to compensation from the Road Accident Fund. Mr Y must seek compensation from the worker's compensation fund. Mr Y must sue Mr X who will be indemnified in terms of his motor policy. Mr Y must sue Mr X who will be indemnified in terms of his general liability policy. Mr Y must sue Mr X who will be indemnified in terms of his employer's liability. Mr X allows his son MrSS, to drive the family car. Mr X knows that his son does not have avalid driver’s licence. Mr S negligently causes a motor accident, seriously injuring Mr Pa pedestrian. Mr P lodges a claim against the Road Accident Fund. The Fund is not liable since Mr S did not have a valid driving licence. ‘The Fund may be liable, despite Mr S not having a valid driving licence. ‘The Fund having paid the claim of Mr P may recover the amount it has paid from Mr X. ‘The Fund having paid the claim of Mr P may not recover the amount it has paid from Mr x. (b) and (c) above. Mr X narrowly escapes physical injury in a ‘near-miss’ incident while driving his motor car. He feels that he has suffered emotional distress from the incident. He consults you, his insurance expert, wanting to know if he has a valid claim against his Personal Accident insurer. He is insured in terms of a standard Personal Accident policy. What answer would you give him? No, motor accidents claims are excluded from Personal Accident policies. Yes, the claim clearly falls within the scope of the Personal Accident policy. Yes, but only if he produces a letter from a medical doctor stating that he suffered emotional distress, No, this type of claim is not covered by a Personal Accident policy. Yes, this is a common type of claim settled by Personal Accident insurers.Buse2008/9 Insurance and Risk Management IB Page 16 of 27 October 2008 56. (a) (b) (c) @ © f@) (b) (©) (d) ©) 58. @ () ©) @) © Mr X is an employee, employed in general industry (not the mining industry). He is injured at work due to the negligence of a fellow-employee. He wishes to sue his employer for damages that he has sustained. He plans to base his claim on vicarious liability, He has been advised that his action will not succeed because the worker’s compensation legislation prohibits his claim, He nevertheless decides to pursue a claim in delict against the employer. Which of the following is the most likely to be involved in defending the delictual claim? The Rand Mutual. The employer as an employer individually liable. The Compensation Commissioner. The General Liability insurer. The Employer's Liability insurer. Mr X works for company XYZ. They both know that by virtue of s35 of COID if Mr X is injured at work he cannot sue company XYZ. They enter into a contract that notwithstanding the existence of s35 of COID if Mr X is negligently injured, company XYZ will compensate Mr X. Company XYZ then takes out employer's liability insurance, After a few years Mr X is seriously injured, as a result of the negligence of company XYZ. Mr X then sues company XYZ which refuses to honour its contract but, forwards Mr X’s claim to its employer's liability insurer: The insurer will pay the claim since its insured is contractually legally liable to pay Mr x. The insurer will not pay the claim since despite the contractual agreement, it remains a worker's compensation claim. The insurer will not pay the claim because it is against public morals to do so. ‘The insurer will not pay the claim because it is only liable in statute and not contract. ‘This is not an insurance problem but a contractual problem, SASRIA is arranged: if there is an underlying policy excluding SAIA events. by SASRIA covering, in terms of a coupon policy, some of the events excluded in terms of the SAIA exclusion, by the issue of a separate independent SASRIA policy. by a policy issued by the Government, (a) & (b) above.Buse2008/9 Insurance and Risk Management IIB Page 17 of 27 October 2008 59. @ ) © @ © (a) (>) (c) @ ©) Mr X is employed as a sales representative and in order to carry out his responsibilities his employer provides him with a car. He is covered by worker's compensation and his, employer has also purchased SASRIA cover. One day while carrying out his employment responsibilities he stopped at a robot and he is attacked by a hi-jacker, shot and killed. his widow is not entitled to any compensation. his widow is only entitled to normal compensation from the Compensation Commissioner in terms of 522. his widow is only entitled to additional compensation in terms of 56. his widow is entitled to claim her full common law damages from SASRIA. his widow is entitled to claim compensation from the Compensation Commissioner and the difference between the Worker's Compensation and her common law damages from SASRIA. Mr X is employed as an articled clerk for a firm of attorneys, Mr X’s official working hours are from am-Spm. During working hours he goes to the public library to do some research for his firm. He is injured in the library when a bomb goes off. He submits a worker's compensation claim; Mr X has a valid worker's compensation claim. Mr X does not have a valid claim because he was injured outside his place of employment. Mr X does not have a valid worker's compensation claim because injuries due to bombs are not covered by the worker's compensation legislation, Mr X has a valid SASRIA claim, Mr X’s employer should not send him on dangerous assignments therefore Mr X has a valid employer's liability claim.Buse2008/9 Insurance and Risk Management IIB Page 18 of 27 October 2008, 61. (a) (b) ©) @ © 62. (@) (b) © @ © Company X is concerned about loss or damage to their assets caused by persons who are politically motivated. The company purchases (1) conventional fire and perils insurance and (2) SASRIA cover. Both policies have attached to them cover for consequential losses. It is announced that a political march will take place down the street where company X’s business is situated. The South African Police Service (SAPS) advises businesses to close down during the period of the political march. Company X decides todo so. Despite the lack of income, all the normal standing charges (salaries, rental, interest charges etc.) continue to be paid. As a consequence of the loss of income, Company X suffers a loss of gross profit. Will an insurance claim for consequential losses : succeed against both policies, subject to contribution between insurers? succeed against the consequential loss policy attached to the fire & perils policy? succeed against the SASRIA policy? succeed against the SASRIA policy but only for the standing charges? not succeed against either policy? Mr X is driving along a motor-way when robbers using an AK47 fire upon an armoured car, in an attempt to rob the armoured ear. Mr X’s car is hit in the crossfire and he loses control of his car. As a result his car is damaged to the extent that it cannot be repaired. Mr X has a normal comprehensive motor policy which is subject to the SAIA exclusion which has a reverse onus of proof clause. Mr X has not purchased SASRIA cover, the comprehensive motor insurer repudiates the claim alleging the robbers were politically motivated. For: Mr X to succeed he must prove that the robbers were not politically motivated. the insurer to rely on the SAIA exclusion it must show the robbers were politically motivated. the insurer to rely on the SAIA exclusion the insurer need not show anything but can simply rely on the reverse onus of proof clause. Mr X to succeed he need only show that the insured car was damaged and hence the claim falls within the operative clause of the policy. the insurer to rely on the SAIA exclusion, the insurer must show reasonable grounds that the robbers were politically motivated, before it can rely on the reverse onus of proof clause.Buse2008/9 Insurance and Risk Management IIB Page 19 of 27 October 2008 63. (b) (>) @ ‘Mr Y appoints broker X as his insurance broker. Without consulting Mr Y, broker X ‘correctly fills in the proposal form. After a claim arises the insurer repudiates the claim on the basis of a misrepresentation made in the proposal form. Which of the following is the most correct? The insurer cannot repudiate the claim since the insured did not fill-in the proposal form ie the insured did not make the representation The insurer can repudiate the claim unless Mr Y can prove that broker X did not consult him when filling in the proposal form. The insurer cannot repudiate the claim, because the insurer could see from the signatures that the proposal form was not signed by Mr Y. Mr Y is bound by that which his agent did, ‘The insurer can rely on the information in the proposal form, ‘The broker is the agent of the insurer not insured, hence the insurer cannot repudiate the claim. In general the breach of duty by a broker can come from: breach of a specific contractual duty; breach of an implied contractual duty; breach of a duty which can arise independently of the contract; delict or contract; all of the above. A broker advises a client to invest in a company which goes insolvent. The broker assures his client that the investment is sound and that he has personally checked the financial statements of the company. He has done nothing of the sort. ‘The broker cannot be liable to the client, because there is no liability for an omission which causes a pure economic loss; The broker may be liable for breach of contract which places a duty upon him to act with reasonable care; ‘The broker may be liable in delict; ‘The broker cannot be liable because he is a broker and not an agent, hence no contract exists. Without this contract there cannot be a breach of contract; (b) and or (C) ‘The difference between an insurance agent and an insurance broker is: there is no difference. that an agent has authority to bind his principal whereas a broker has no such authority. agent is an English term whereas broker is an American term, an agent acts for the insurer whereas the broker acts for the insured, an agent is the term used in the life market, whereas broker is the term used in the short-Buse2008/9 Insurance and Risk Management IIB Page 20 of 27 October 2008. 67. (a) (b) © @ © 68, (a) (b) © @) ©) 69. @) ) © @ © term market. Mr X bought a new BMW from a motor dealer. Having done so, he went to see Mr B, his insurance broker to arrange insurance cover for the new car. Mr B has been his broker for many years and is familiar with Mr X’s business activities. Mr X and Mr B g0 to inspect the new BMW and Mr X takes Mr B for a test drive in the BMW. Mr B arranges insurance cover for the BMW on behalf of Mr X. Mr X then goes to Mocambique on a business trip and while in Mocambique is involved in a motor vehicle accident in which the new BMW is totally destroyed - it is a write off. When Mr X returns, he submits aclaim to his motor insurer through his broker. The insurer repudiates the claim on the basis that the accident fell outside of the insured territorial area. The motor vehicle was not covered while in Mocambique. Such cover could have been arranged, at an additional cost. Mr B was aware that Mr X often drove up to Mocambique. Mr X consults you his insurance expert seeking advice if Mr B is liable because he did not arrange cover for the vehicle while in Mocambique. What advice would you give? MrB cannot be liable, he is not th MrB can be liable in contract. He has a contractual duty to Mr X to act with reasonable skill and care, a duty which he has breached. Mr Bis liable in delict to Mr X for omitting to insure the vehicle while in Mocambique. MrB could be liable but only if Mr X had specifically requested that he arrange the cover and he failed to do so. Mr B cannot be liable in delict for the pure economic loss Mr X suffered. urer. Generally, for which of the following types of risks would a funded risk retention programme be considered: where there are a substantial number of independent exposure units which display a well defined loss distribution. where the estimated aggregated losses cannot be determined with any degree of certainty. where it is not possible to enter into a valid contract of insurance. where commercial insurance is readily available. (a) & (@) above. The following are reasons for forming a captive insurance company: investment income accrues to the captive. it may not be possible to obtain appropriate insurance cover in the commercial market, the transaction costs of captive insurance companies are lower than that of commercial insurance, a captive has access to reinsurance. all of the above,Buse2008/9 Insurance and Risk Management ITB Page 21 of 27 October 2008 70. (a) (b) © (@) @ 71. (a) (b) (d) @) © @ © 73. (@) () © @) © Which is the most appropriate reason for a large industrial company to establish a retention programme? the costs are lower than other forms of risk financing. the risk manager feels more important if he controls a large fund. insurers are more willing to offer insurance to companies which have large retention funds. it sends a signal of good management to potential investors. there is no logical reason, it is a modern management fad. An industrial company wishes to establish a captive insurance company. It approaches an insurance company which agrees to establish a cell captive for the industrial company: the cell captive is a subsidiary of the industrial company, the cell captive can also be called a ‘rent-a-captive’. the insurer will deal with claims in the same manner that generally deals with claims. premiums paid to the cell captive are tax deductible, (b), (© and (@) above. ‘A company decides to establish a fund out of which it will pay for losses which arise during the year from pure risks. It establishes the fund by paying a fixed amount into a separate bank account. Losses are then paid out of this account: Amounts paid into the account for losses are tax deductible in terms of the general deduction formula. Amounts paid into the account for losses are not tax deductible. Amounts paid into the account for losses are tax deductible since these amounts serve the same purpose as insurance premiums. ‘The company can elect to claim either the amounts paid into the account or the losses as a tax deduction, ‘The amounts paid into the account are tax deductible if the company calls these amounts premiums, In England an Act of Parliament dated 1720: granted a monopoly to two companies: The Royal Exchange Assurance and the London Assurance, did not prevent private persons from underwriting marine insurance. was the indirect cause of the establishment of Hull Clubs and hence P&I Clubs; (a), (b) and (c) above. (a) and (b) above.Buse2008/9 Insurance and Risk Management IIB Page 22 of 27 October 2008 —— 74. (a) (b) (©) @) © 7. (a) (b) © @ ©) 16. (a) () © @ © 7. (a) (b) © @) ©) The need for additional marine insurance which is provided by P&I Clubs became apparent as a consequence of: the courts interpretation that ‘peril of the sea’ does not cover liability claims arising out of collisions. the exception clause in a bill of lading not protecting the shipowner against liability to the cargo owner. the passing of the English Fatal Accidents Act of 1846; (a), (b) and (c) above.; (a) and (b) above. ‘Mutual Insurance: can be traced back to ancient and mediaeval times. is the basis upon which P&I Clubs operate. is the basis upon which the general liability risk in the marine market is arranged. has no owners in the form of shareholders. all of the above, In marine insurance, if a ship collides into a wharf resulting in the owners of the wharf submitting a third party claim against the owners of the ship, this is: a ‘peril of the sea’ in terms of the Hull policy? covered by the ordinary Hull policy? excluded by a bill of lading? covered by the ordinary Cargo policy? covered by the P&I Club? ‘The marine liability insurance provided by P & I Clubs: is indemnity insurance. could permit a third party to acquire rights against the P&I Club in terms of s156 of the Insolvency Act, upon the insolvency of the Club Member. is non-indemnity insurance. gives rise to subrogation rights, (a), (b) and (d) above.Buse2008/9 Insurance and Risk Management IIB Page 23 of 27 October 2008, ———————— 78. (a) (b) (c) @ © 79. (a) (b) (o) @ ©) 80. (a) (b) © @) © 81. (a) (b) © @ @ 82. @ (b) ©) @ ) P&l Insurance covers liability claims for: marine average liability costs. marine salvage liability costs. oil pollution liability. damage to the insured ship. liability claims for running down other ships, providing the value of the other ship is less than three quarters of the value of the insured ship, A seaman, employed by PortNet is seriously injured while off-loading ships in the Cape Town Harbour. His injuries are as a result of the negligence of an independent contractor. His own employer, PortNet is not negligent and hence is not liable in delict. He institutes a R5m claim against his employer. Which is the most correct? ‘The marine hull policy will respond to the claim. The P&I Club will respond to the claim. His employer is not liable with regard to the seaman because of COID. His employer is not liable because, he is not liable in delict. (©) and or (@) Which of the following is most correct? Lloyd’s is an insurance company. Lloyd’s is an insurance market, ‘The Corporation of Lloyd's transacts insurance business. Lloyd's only transacts marine insurance business. Names are the shareholders of Lloyd's. Choose the most correct answer: Because of financial problems Lloyd’s is not paying claims Lloyd's has never faced financial difficulties in its history; Members of the public may purchase insurance directly from Lloyd’s; There is no South African legislation dealing with the placing of insurance at Lloyd's; ‘The premium income that a syndicate may accept is a function of the amount of funds the Names of the syndicate hold at Lloyd’s; Insurance companies buy reinsurance in order to: Stabilize their loss experiences Increase underwriting capacity Get protection against catastrophe losses that may endanger the insurer's solvency Comply with legislation (a), (b) and (¢) aboveBuse2008/9 Insurance and Risk Management ITB Page 24 of 27 October 2008 83. (b) © @ (@) 84. (a) (b) © @ (@) 85. (a) (b) © @ (e) Company X buys fire insurance on its factory for R1m from insurer Y. Insurer Y in turn reinsures 70% of the risk with reinsurer Z. ‘The factory is completely destroyed by fire and Company X leams that insurer Y has since gone insolvent. However Company X is, aware that insurer Y had reinsured 70% of the risk with reinsurer Z and immediately claims R700 000 from reinsurer Z, As the claims manager of reinsurer Z would you: Pay the R700 000 since it is your share of the loss in terms of your agreement with insurer Y? Reject the claim because there is no contract between your company and Company X? Ask Company X to submit the policy document that was issued to them by insurer Y and other supporting documents before paying the claim? Wait for insurer Y to be liquidated before paying the claim? Refer the matter to your superiors? ‘The fundamental difference between a Quota Share and a Surplus treaty is: The quota share treaty sets the insurer’s retention in monetary terms whereas under a surplus treaty the retention is set as a fixed percentage of every risk reinsured, ‘The surplus treaty is a non-proportional treaty whereas a quota share is a proportional one. Under a fixed proportion quota share treaty it is compulsory for the insurer to reinsure 25% of each policy whereas under a surplus arrangement the insurer is free to choose how much it wishes to reinsure. ‘The retention under a quota share treaty is a fixed percentage of every risk falling within the terms of the treaty but under a surplus treaty, the retention is expressed as a maximum Rand amount per risk There is not much of a difference between the two, both are proportional treaties and can be used interchangeably. Quota Share treaties and Surplus treaties are similar in that: Once a risk falls within the terms of the treaty, the insurer is obliged to share it with the reinsurer. The two treaties are very different, there is no similarity between them other than that they are both proportional treaties. (a) and (b) above Both treaties are not ideally suitable for providing protection against catastrophe losses.Buse2008/9 Insurance and Risk Management IIB Page 25 of 27 October 2008. 86. @ () © @ © 87. (@) (b) © (d) ©) Hint: |__ 88. (@) ) © @ ©) 89. (a) (b) (©) (d) (e) Table 1 represents the claims history for a motor fleet over a three year period, adjusted for inflation. What is the average claim size over this three year period? R3 362 R2818 R2542 R1 898 R1325 From the table what is the standard deviation? R815 R621 R525 R417 R352 Assuming that you wish to be 84% confident, what is the pure premium per vehicle: R3 632 R2929 R2 209 R1953 R1 382, Assuming the loss ratio is 80%, what commercial premium per vehicle would you charge: R3 698 R3 208 R2659 R2253 R1876Buse2008/9 Insurance and Risk Management IIB Page 26 of 27 October 2008, 90. (@) (b) © @ ©) Assuming the fleet size does not change and not making any further adjustments for inflation, what is the size of the fund which will be required to pay for the losses, if you are to be 84% confident that you will have sufficient funds. R15.51m R13.39m R 10.82 m R99Tm R892mBuse2008/9 Insurance and Risk Management ITB. Page 27 of 27 October 2008 Claims interval ‘Number of claims (Rands) 2005 2006 2007 Claims Claims Claims 0 2860 2958 3100] 1 2000 98 98 95 2001 3000 2 10s 192 3001 000 85 3 58 soa 15000 38 a7 15001 2000] 28 0 65 25001 50000 18 24 2 50001 75000 9 4 "7 73001 100000 16 10 4 100001 4900001 7 2 4 400001 8000001 3 5 1 Totals Ed 3337 3620] Mean ‘Standard Deviation pre premium commercial premium| Fund sie| (Space is left in the table o allow you to carry out any calculations.)