< Study Room | 02.01.2019 |

The big ten

The big ten

This set of questions, courtesy of online CII training package Insurance Assess, will test your knowledge of topics. The answers are at the bottom…

Question 1
In the context of insurance, which of these would be considered a financial risk?

A. Loss of earnings due to personal injury
B. Moving house
C. Smoke damage to a work of art
D. No snow on a skiing holiday
E. Damage caused by a storm

A. C, D and E
B. B, C and D
C. A, B and D
D. A, C and E

Question 2
In respect of contract, consideration must be provided by which parties?

A. Either party
B. Both parties
C. The purchaser
D. The seller

Question 3
In general insurance accounting terms, what is the market risk?

A. The risk of the insurer being unable to release funds at the right time to coincide with claims which are due to be paid
B. The risk of the premiums charged by the underwriter being insufficient to meet the claims incurred
C. The risk that the insurer’s total income from premiums and investments will not meet the claims to be paid
D. The risk of the assets in which an insurer’s technical reserves and shareholder’s funds are held falling in value

Question 4 
Why is risk aggregation important when pricing an insurance policy?

A. Because a large number of losses to an individual risk could result in an outsized and unexpected loss for the insure
B. Because it has become a specific requirement for Solvency II compliance
C. Because it is a requirement for all reinsurance submissions
D. Because underwriters prefer to underwrite risks with the same profile to maximise their business

Question 5
Why is auditing conducted for insurance business?

A. On behalf of the Prudential Regulation Authority (PRA) to investigate insurers practices in the adjustment of claim
B. To check that the insurer has sufficient financial funds to meet the requirements of the PRA
C. To ensure that the insurer is compliant with the standards set by the company and that it operates within the rules of regulators
D. To identify procedural failures in the insurer

Question 6
On a group life policy, what is a ‘continuation option’?

A. If the employee becomes seriously ill the cover will continue
B. The employee can carry on working beyond State Pension age
C. The employee can continue cover beyond age 75
D. The employee can take out an individual policy on leaving

Question 7
How many Principles for Businesses does the FCA promote?

A. 10
B. 11
C. 6
D. 8

Question 8
Which of these statements is true of relevant life policies?

A. They can be put in trust at any time
B. They cannot be put in trust
C. They must be written in trust at the outset
D. They must be written in trust before the policy’s first anniversary

Question 9
Maximum age on a group risk policy is usually up to which of these ages?

A. 55
B. 65
C. 75
D. 85

Question 10
Who will usually handle administration on a group scheme?

A. Each employee
B. The broker
C. The group secretary
D. The insurer


ANSWERS

1D. A financial risk is measured in monetary terms, whilst moving home may carry some risks from an insurance perspective they can’t be quantified financially.
2B. There must be consideration from both parties in order to turn and exchange promises into
a contract.
3D. ‘Market risk’ is the label given to the risks associated with holding assets in investment instruments.
4A. When considering individual or single risks for pricing, underwriters need to consider their exposure to the aggregation of risks in the event of an event occurrence.
5C. An audit is a review of work, whether it is a unit or an individual, to ensure that it is compliant with the standards set by the company and within the rules of the relevant regulations.
6D. If a group life policy has a continuation option, if the employee leaves that employer, they have the right to take out an equivalent individual policy with no further underwriting. 7B. The FCA promotes 11 Principles for Businesses and the PRA publishes 8 Fundamental Rules.
8C. Relevant life policies must be put in trust at outset.
9C. Maximum age is typically up to age 75, but may be lower.
10C. Administration on a group scheme is usually handled by the group secretary.

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