1.

The term pure risk means that

A. the loss must have an identifiable cause.
B. the loss must arise from a natural cause and be widespread in its effect.
C. the loss is not capable of being expressed in financial terms.
D. there is the possibility of a loss, but not of a gain.

2. The main reason insurers pool risks is to

A. charge equitable premiums.
B. facilitate underwriting.
C. increase profits.
D. reduce claims.

3. A commercial combined insurance policy is considered to be coinsured when

A. the insured carries part of the risk through an excess.
B. there are two insureds covered under the policy.
C. a proportion of the risk is carried by a reinsurer.
D. a proportion of the risk is carried by another insurer.

4. One of the main elements of a fundamental risk is that

A. it affects large numbers of people.
B. it can involve a gain.
C. its occurrence is inevitable.
D. it only relates to a natural event.

5. In what main way can a surveyor working for an insurer help to reduce the impact of any
potential fire?
A. By checking on the validity of submitted claims.
B. By encouraging realistic levels of sums insured.
C. By ensuring adequate reinsurance is in place.
D. By recommending improvements to policyholders' work practices.

6. What does the term peril mean in relation to an insurance policy?

A. An event specifically covered or excluded under a policy.
B. An event that will definitely occur during the term of a policy.
C. The degree of risk that an insurer assumes when accepting a proposal.
D. A feature that enhances the risk to an insurer.

7. An underwriter informs the proposer that an investigation into her fire insurance proposal has
led him to question the moral hazard. He therefore has concerns regarding the
A. construction of the risk address.
B. honesty and integrity of the proposer.
C. length of time that the proposer has been in business.
D. work carried out at the risk address.

8. Under a professional indemnity insurance policy, the maximum risk to the insurer will be
determined by the
A. amount claimed.
B. limit of indemnity.
C. historical claims experience.
D. probability of a claim occurring.
9. From which type of premium pool will a composite insurer initially pay out a motor insurance
claim?
A. General insurance policyholders only.
B. Life and general insurance policyholders.
C. Motor insurance policyholders only.
D. Personal lines insurance policyholders only.

10. In the context of insurance, risk is

A. immeasurable.
B. uncontrollable.
C. uninsurable.
D. unpredictable.

11. In terms of frequency and severity, the risk of an explosion in a fireworks factory is most likely
to be
A. high frequency, high severity.
B. high frequency, low severity.
C. low frequency, high severity.
D. low frequency, low severity.

12. What type of insurance policy will typically pay a weekly benefit for up to two years whilst the
insured is temporarily disabled due to illness?
A. A critical illness insurance policy.
B. A medical expenses insurance policy.
C. A personal accident insurance policy.
D. A personal accident and sickness insurance policy.

13. An insurance broker has to use the capacity of four underwriters to place 100% of a risk. This
method of placement is known as
A. coinsurance.
B. dual insurance.
C. facultative reinsurance.
D. treaty reinsurance.

14. Barbara insures her property with an insurer, forgetting that the property is already insured
with her mortgage company. She therefore has
A. coinsurance.
B. dual insurance.
C. self-insurance.
D. reinsurance.

15. When a company takes out insurance to cover its activities, one of the main benefits is that
A. a valuation of assets is always carried out.
B. a disaster recovery plan is always prepared.
C. capital is freed up within the company.
D. the profitability of the company is guaranteed.

16. An essential feature of an insurable risk is that it must be

A. certain.
B. fortuitous.
C. intentional.
D. probable.
17. How would an employee benefit directly from his employer's insurance arrangements if its
factory was forced to close temporarily due to flood damage?
A. By compensation for loss of bonus.
B. By continuation of his wages.
C. By payment of an early retirement pension.
D. By payment of a redundancy lump sum.

18. When a factory owner insures his business, some of the risks are
A. decreased.
B. deferred.
C. eliminated.
D. transferred.

19. Why is effective risk management important to an insurer?

A. It always reduces costs.
B. It increases premium income.
C. It increases an insurer's capacity.
D. It helps to reduce a company's loss exposure.

20. Ryan has a personal accident insurance policy with insurer A, which pays £3,000 for a broken
limb. He also
has a travel insurance policy with insurer B, which pays £1,500 for a broken limb. If he makes a
valid broken
limb claim under both policies, how much will he receive from each insurer?
A. £1,500 from insurer B only.
B. £1,500 from insurer A and £750 from insurer B.
C. £3,000 from insurer A only.
D. £3,000 from insurer A and £1,500 from insurer B.

21. If the regulator issues a new directive affecting a property insurer, which employee is normally
responsible for ensuring that it is correctly implemented?
A. The chief accountant.
B. The company actuary.
C. The compliance officer.
D. The senior loss adjuster.

22. What is the main role of an underwriter?

A. To advise on risk control.
B. To assess insurance proposals and decide terms.
C. To prepare and issue policy documents.
D. To settle valid claims.

23. Who pays the fees of a loss assessor?

A. The insurer only.
B. The insured only.
C. They are shared between the insured and the insurer.
D. A negligent third party.

24. The main function of the Chartered Insurance Institute is to

A. act as a regulator of the financial services industry.
B. promote the services of insurance companies.
C. enhance and improve professional standards in the insurance industry.
D. act as a recruitment and employment agency for its members.
25. An insurer wishes to extend the scope of its commercial insurance policy. Who would it be
most likely to consult on the level of risk rating to apply?
A. An actuary.
B. A broker.
C. A loss adjuster.
D. A loss assessor.

26. Under contract law, the main function of an intermediary is to undertake what key legal role?
A. Agent.
B. Principal.
C. Third party.
D. Witness.

27. An independent intermediary places insurance for one client on a commission basis and on a
fee basis for another client. On whose behalf is the intermediary acting when placing both pieces
of business?
A. The client in both cases.
B. The product provider in both cases.
C. The client for the commission-based business and the product provider for the fee-based
business.
D. The client for the fee-based business and the product provider for the commission-based
business.

28. A manufacturing company wishes to change its procedures with a view to improving safety
and reducing insurance premiums. It is most likely to obtain advice on this from
A. a loss adjuster.
B. a loss assessor.
C. a risk manager.
D. an underwriter.

29. What general rule should staff in the claims department of an insurer normally follow in terms
of the time it takes to process a claim?
A. All claims should be finalised within 28 working days.
B. All claims should be handled as quickly as possible.
C. All claims should be finalised within 120 working days.
D. Processing of claims should be prioritised according to the size of the loss.

30. Which country in particular has been a beneficiary of the trend by UK insurers in recent years
to decentralize various operational functions on a global basis?
A. Brazil.
B. India.
C. Malaysia.
D. Turkey.

31. To whom does a direct insurer usually sell insurance products?

A. Commercial organisations.
B. The general public.
C. Intermediaries.
D. Lloyd's.

32. One of the main reasons for buying reinsurance is to reduce

A. exposure to risk.
B. frequency of losses.
C. risk management requirements.
D. underwriting costs.
33. The key difference between a proprietary and mutual insurer relates to
A. how it is authorised by the regulator.
B. how it is owned.
C. the classes of insurance it is permitted to offer.
D. its solvency margins.

34. What is the term used to describe an insurer which underwrites both general and life risks?
A. A captive insurer.
B. A composite insurer.
C. A mutual insurer.
D. A proprietary insurer.

35. Who normally enters all the information about the risk on a Market Reform Contract (Slip)
when placing insurance at Lloyd’s?
A. A Lloyd’s agent.
B. A Lloyd’s broker.
C. A Lloyd’s Name.
D. A Lloyd’s underwriter.

36. Which type of insurer is wholly and directly owned by its shareholders?
A. A captive insurer.
B. A Lloyd’s syndicate.
C. A mutual insurer.
D. A proprietary insurer.

37. Which employee normally acts as the point of contact between a motor insurer and its
regulator?
A. The claims manager.
B. The company lawyer.
C. The compliance officer.
D. The group accountant.

38. Who provides the operating capital of a Lloyd’s syndicate?

A. Lloyd’s brokers.
B. Lloyd’s Names.
C. Underwriters.
D. Underwriting agents.

39. Contribution and subrogation issues relate to which part of the insurance process?
A. Cancellation.
B. Claims.
C. Quotation.
D. Renewal.

40. Which distribution channel for household insurance is typically characterised by high
advertising and promotional costs, with no payment of commission?
A. Appointed representatives.
B. Direct insurers.
C. Independent brokers.
D. Lloyd's.

41. What is the main function of a loss adjuster?

A. To assist in settling claims on behalf of the insured.
B. To assist in settling claims on behalf of the insurer.
C. To provide advice on risk reduction on behalf of the insured.
D. To provide advice on risk reduction on behalf of the insurer.
42. A medical expenses insurer employee's role involves applying the principles of probability and
statistical theory in order to calculate the premiums for the insurer's products. What is his
profession?
A. An actuary.
B. A reinsurer.
C. A risk manager.
D. An underwriter.

43. If at the time of a loss there are two or more policies in force covering the same event, each
policy will only pay an appropriate share of the loss. This principle is known as
A. average.
B. contribution.
C. insurable interest.
D. subrogation.

44. What action would an insurer normally take if a policyholder deliberately misrepresents a
material fact?
A. Fine the policyholder.
B. Leave the policy in force, but refuse any claim.
C. Cancel the policy at the next renewal date.
D. Set the whole contract aside.

45. A motor insurance policyholder passes her advanced driving test. Under the principle of
utmost good faith, what is the position regarding the disclosure of this information to her insurer?
A. She must disclose it immediately.
B. She does not have to disclose it until the next renewal.
C. She must disclose it when making a claim.
D. She does not have to disclose it at all.

46. When a person acts to save a third party's property in his possession from being destroyed or
damaged, what type of agency is created?
A. Apparent authority.
B. Consent.
C. Necessity.
D. Ratification.

47. In respect of commercial property insurance, when does insurable interest need to exist?
A. At inception only.
B. At inception and at the time of loss.
C. At the time of loss only.
D. At the time of the claim settlement only.

48. Material facts enable an underwriter to assess whether

A. the cover being sold is the most suitable cover for the proposer.
B. a policy claim is valid and how much should be paid.
C. a risk should be accepted and on what terms.
D. the proximate cause of a loss is an insured peril.

49. The principle of utmost good faith is applied to insurance contracts because the
A. proposer has more knowledge of the risk than the underwriter.
B. underwriter has more knowledge of the risk than the proposer.
C. proposer and the underwriter have equal knowledge of the risk.
D. proposer and the underwriter need to increase their knowledge of the risk.
50. In an agency insurance agreement between an intermediary and an insurer, who is normally
defined as the principal?
A. The insurer.
B. The intermediary.
C. The policyholder.
D. The reinsurer.

51. When Max arranged insurance in respect of his factory, the insurer imposed a warranty that
the alarm system was to be regularly serviced and he failed to do this. The insurer is most likely
to treat the policy as
A. automatically void.
B. cancelled pro rata.
C. void ab initio.
D. voidable at option.

52. The proximate cause of an occurrence is

A. sometimes the dominant cause when there is a direct link between it and the resulting loss.
B. sometimes the dominant cause when there is no link between it and the resulting loss.
C. always the dominant cause when there is a direct link between it and the resulting loss.
D. always the dominant cause when there is no link between it and the resulting loss.

53. A chip pan accidentally catches fire whilst cooking. The fire brigade extinguish the fire. There
is smoke and water damage to the kitchen and adjoining rooms. What is the proximate cause of
the damage to the adjoining rooms?
A. Accidental damage.
B. Fire.
C. Smoke.
D. Water.

54. An insurer is approached for a household contents insurance quotation. The quotation is
posted to the proposer and he sends a cheque to pay the premium. From when is the proposer's
acceptance of the insurer's offer legally effective?
A. When he writes out the cheque.
B. When he posts the cheque.
C. When the cheque is received by the insurer.
D. When the cheque is paid into the insurer's bank account.

55. A claim is affected by a contribution condition when there is

A. coinsurance.
B. dual insurance.
C. reinsurance.
D. underinsurance.

56. A house starts to have subsidence problems due to the negligence of a cable-laying
company. The owner of the house claims under his household buildings insurance policy. Which
principle allows the insurer to recover from the cable-laying company?
A. Assignment.
B. Contribution.
C. Salvage.
D. Subrogation.

57. At common law, with regard to declarations that do NOT affect policy cover, when does the
insured’s duty of disclosure cease?
A. When the policy contract takes effect.
B. At renewal.
C. When a claim is submitted.
D. When a claim is paid.
58. When applying the principle of indemnity, in what circumstances is an allowance for
betterment made?
A. When a significant level of underinsurance is discovered at the claim stage.
B. When a claim settlement results in an improvement over the pre-loss condition.
C. When the policyholder takes possession of a damaged item in full settlement.
D. When two or more insurers cover the same item claimed for.

59. A shop is totally destroyed by fire. The shop is insured for £30,000 under a standard fire
insurance policy, but it will cost £40,000 to rebuild. How much, if anything, will be paid by the
insurer?
A. Nothing.
B. £22,500
C. £30,000
D. £40,000

60. Lisa's car is written off when Brenda negligently drives into it. Lisa's insurer settles the claim
and sells the written-off car to a salvage dealer. Subrogation rights are pursued by who against
whom?
A. Lisa's insurer against Brenda.
B. Brenda against Lisa's insurer.
C. Brenda against the salvage dealer.
D. The salvage dealer against Brenda.

61. A duty to pay commission has arisen as a result of an insurance transaction involving a
principal, an agent and an insured. Who normally incurs this duty?
A. The agent only.
B. The insured only.
C. The principal.
D. The insured and the agent jointly.

62. If an insured has paid a premium to an agent authorised by the insurer to collect premiums on
its behalf and the agent then fails to pass on the premium to the insurer, what is the legal
situation?
A. The insured is not covered until such time as the premium is paid to the insurer.
B. The insured must pay a pro rata premium directly to the insurer to ensure cover continues.
C. The insurer is deemed to have received the premium and the insured is fully covered.
D. The premium will be paid to the insurer out of a central fund set up for that purpose.

63. Insurable interest is defined as the

A. duty to voluntarily disclose accurately and fully all facts material to the risk proposed.
B. right to insure arising out of a financial relationship between the proposer and the subject
matter of insurance.
C. responsibility of each party to the contract to ensure that they make a good and reasonable
bargain.
D. right of the insurer after indemnifying the insured to take over any rights or remedies against a
third party.

64. Under a standard motor insurance policy, when does the insured have a duty to disclose the
material facts affecting the risk?
A. Only at renewal of the policy.
B. Only at the proposal stage.
C. Throughout the period of the policy.
D. Only when specifically requested.
65. When non-disclosure under a household insurance policy occurs accidentally, what automatic
right of repudiation, if any, will this normally give the insurer?
A. It has the full right to repudiate.
B. It has no right to repudiate.
C. It only has the right to repudiate in respect of the specific area of non-disclosure.
D. It only has the right to repudiate within a limited time period.

66. Indemnity can be defined as the

A. financial relationship recognised at law between the insured and the subject matter of
insurance.
B. insurer placing the insured in the same financial position after a loss as he was prior to the
loss.
C. right of the insurer to avail itself of the rights and remedies open to the insured.
D. right of the insurer to call upon others similarly liable to the insured to share the cost of a
payment.

67. Under a livestock insurance policy, the principle of indemnity is used to settle claims based on
what usual value?
A. The carcass value.
B. The current replacement value, less the profit element.
C. The local market price.
D. The retail price, less selling expenses.

68. If a building is covered by an insurance policy with a first loss sum insured of £50,000 against
a full value of £100,000, how much would be paid following an insured loss of £60,000?
A. £10,000
B. £30,000
C. £50,000
D. £60,000

69. The two conditions of average are likely to apply to the contents of premises which are at
more than one location when the premises are insured
A. by a captive insurer.
B. by more than one insurer.
C. on a first loss basis.
D. specifically.

70. A farmer loses livestock feed during a storm and the loss adjuster advises the insurer that the
feed is only insured for 80% of the market value. The claim is paid in full with no deduction for
underinsurance. This is an example of the
A. doctrine of contribution.
B. first loss basis of cover.
C. special condition of average.
D. subrogation waiver.

71. 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.

72. If an insured signs an agreement waiving any rights against a negligent third party, this
prevents the insurer from
A. applying average to a claim.
B. avoiding a contract on the grounds of misrepresentation.
C. obtaining payment under the principle of contribution.
D. pursuing a subrogation claim.
73. A shopowner's smashed window was completely replaced in accordance with the terms of his
glass insurance cover. This method of settling the claim is an example of which insurance
principle?
A. Average.
B. Contribution.
C. Reinstatement.
D. Subrogation.

74. On hearing that a heavy storm is forecast in a nearby coastal town, an individual plans to take
out insurance on properties on the seafront, although he would suffer no loss if the properties are
damaged. This intention
is a breach of the
A. doctrine of contribution.
B. doctrine of subrogation.
C. principle of insurable interest.
D. principle of utmost good faith.

75. After paying a claim, an insurer could exercise its subrogation rights in order to
A. obtain a contribution from a coinsurer.
B. obtain a refund from an insured who received an overpayment in error.
C. recover the amount paid to an insured from a negligent third party.
D. recover an insured’s policy excess.

76. During a storm, lightning strikes a tree and sets it alight. The subsequent fire triggers off the
sprinkler system at an adjacent factory, causing water damage to stock. What was the proximate
cause of the loss?
A. The fire.
B. The lightning.
C. The sprinkler system.
D. The water damage.

77. When an insurer is aware that the total value of the property is more than the sum insured
and issues a policy on this basis, this is known as
A. an agreed value policy.
B. a first loss policy.
C. an indemnity policy.
D. a new for old policy.

78. If changes in the law materially affect an insured risk, when, if at all, must an insured inform
the insurer of the change?
A. Immediately the change becomes material.
B. The insured does not need to inform the insurer.
C. When the contract is renewed.
D. When the insured makes a claim under the policy.

79. A garage is insured on a first loss basis for £10,000. Six months after inception the garage
suffers £18,000 of damage. The loss adjuster informs the insurer that the value at risk is £20,000.
What is the settlement figure
of the claim?
A. £9,000
B. £10,000
C. £18,000
D. £20,000
80. What is meant by utmost good faith as it applies to insurance contracts?
A. The duty of both parties to disclose fully all relevant information.
B. The insured's duty to pay premiums when due.
C. The insurer's promise to pay all valid claims.
D. The insured’s duty to ensure that the sum insured is sufficient to cover the risk.

81. Insurable interest arises out of what type of relationship between the insured and the subject
matter of insurance?
A. Common law.
B. Contractual.
C. Financial.
D. Statutory.

82. What is the term given to the dominant event leading to a loss?
A. Insurable interest.
B. Insured peril.
C. Physical hazard.
D. Proximate cause.

83. A policyholder wishes to cancel his motor insurance halfway through the policy term. Under
current legislation, what initial action must he take before cancellation can take place?
A. Complete a cooling-off declaration.
B. Pay a pro rata premium.
C. Provide proof that alternative cover exists.
D. Return his existing insurance certificate to the insurer.

84. An individual has two personal accident insurance policies in force, each with a capital sum
insured of £20,000 for the loss of a limb. What amount will he receive in total if he loses an arm?
A. £10,000
B. £20,000
C. £30,000
D. £40,000

85. 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.

86. Where a function within an insurance company is susceptible to conflicts of interest, the
recommended way of dealing with this in order to minimise the risk of internal fraud, is to
A. add an additional management reporting layer.
B. divide the process into separate components.
C. introduce a fast track method of decision making.
D. make individual job descriptions more prescriptive.

87. What type of international organisation is the Financial Action Task Force?
A. A co-ordinating regulator.
B. An industry association.
C. A law enforcement agency.
D. A policy-making body.
88. With risk-based regulation, what primary method is normally used to determine the degree of
ongoing regulatory investigation used for each firm?
A. The level of the firm's annual turnover.
B. The level of control over the firm's sales force.
C. The nature of the firm's core products.
D. The results of the firm's performance against key indicators.

89. What do the general principles for market conduct state regarding a general insurer’s dealings
with the regulator?
A. The communication must be treated as confidential at all times.
B. The contact must operate on a Chief Executive Officer to Chief Executive Officer basis.
C. The insurer must operate on a direct basis and not via a third party.
D. The regulator must be dealt with in an open and co-operative way.

90. The main advantage of the regulator using diagnostic tools instead of remedial tools is it
enables
A. conflicts of interest to be avoided.
B. preventative action to be taken.
C. redress to be applied.
D. rules to be endorsed.

91. In what circumstances is remedial action undertaken by the regulator?

A. Following a supervision or onsite visit.
B. When a financial institution has undertaken a gap analysis of its systems and controls.
C. When regulatory and financial risks have been crystallised.
D. When there have been substantial changes in the activities of a regulated institution.

92. Who is normally responsible for setting minimum capital requirements?

A. Actuaries.
B. Claims managers.
C. Regulators.
D. Shareholders.

93. What is the main difference between capital adequacy and solvency control levels?
A. There is no difference.
B. Capital adequacy levels are variable.
C. Solvency control levels are set higher.
D. Solvency control levels are set lower.

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

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 spent on.
D. The return of funds to the economy for later extraction.

95. What is meant by 'integration' as a stage of money laundering?

A. A criminal act designed to generate a profit for whoever carries out the act.
B. The initial attempt to obscure the links between the entry point of funds and the end of the
cycle.
C. The initial introduction of funds derived from a criminal activity.
D. The return of funds to a legitimate economy for later extraction.
96. In order to perform 'customer due diligence' satisfactorily on a company, what should primarily
be identified?
A. The legal status of the company.
B. The length of time the company has been in existence.
C. The natural persons with controlling interest.
D. The nature of the business.

97. An insurance broker collects a premium of £1,500 from a customer and intentionally does
NOT pay this over
to the insurer. What type of fraud would this be classified as?
A. Fraud by misrepresentation.
B. Intermediary fraud.
C. Internal fraud.
D. Policyholder fraud.

98. Where an insurer uses voice analysis techniques, the most likely reason for doing this is to
A. combat money laundering.
B. detect fraud.
C. establish proximate cause.
D. identify underinsurance.

99. A Lloyd's broker, who is a member of the Chartered Insurance Institute (CII), acts unethically
in the course of his broking business and a report of his actions is passed to the CII by an
aggrieved client. What action, if any, is likely to be taken?
A. The CII Disciplinary Committee may consider the matter following investigation.
B. The CII will automatically pass the information to the Financial Conduct Authority.
C. The CII will refer the matter to Lloyd's for investigation.
D. None, the CII does not involve itself in such issues.

100. A policyholder who received a claims rejection letter subsequently contacted the insurer to
express unhappiness and challenge the decision. In what circumstances, if any, would this
contact fall into the generally accepted definition of a complaint?
A. In all circumstances.
B. Only if the challenge is received within 30 days.
C. Only if the challenge is made in writing.
D. In no circumstances.