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IF1 Chapter one and two - 11 Qs with correct answers
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IF1 Chapter one and two - 11 Qs with correct answers
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IF1 Chapter one and two - 11 Qs withcorrect answers
Define risk-averse? - correct answer ✔✔People who prefer to minimize the risks they are exposed to.
4 methods of risk control - correct answer ✔✔Developing a good risk culture, financial control measures,
physical control measures, and elimination.
What does the Motor insurance anti-fraud and theft register do? - correct answer ✔✔Records all details
of vehicles that become total losses arising from any cause, including fire and theft. It also shows all
previous claims.
3 factors to determine if something is insurable - correct answer ✔✔1. Insured event must be fortuitous-
Must happen by chance, not deliberate, planned or inevitable.
2. There must be insurable interest- There must be legally recognised financial interest in the event/risk
being insured from the customer.
3. No conflict with public policy; eg you can not insure speeding tickets.
What terms must a risk be measurable in to be insurable? - correct answer ✔✔Financial terms
What is pure risk? - correct answer ✔✔Risks that involve a potential loss or break even eg fire damage.
These risks are insurable.
What is a speculative risk? - correct answer ✔✔A risk situation that includes a chance of loss and a
potential for gain. Speculative risks are not insurable eg stock market investments.
Whats the difference between particular risks and fundamental risks? - correct answer ✔✔Particular
risks are personal in their effect, and are caused by individual causes. They affect small groups of
people / individuals. Fundamental risks are caused by social, economic, political or natural causes. They
have wide spread effect eg an earthquake. Both can be insured.
, Define a peril? - correct answer ✔✔Cause of a loss e.g. explosion or dishonesty.
Define a hazard in terms of insurance. - correct answer ✔✔Something which influences the operation of
the peril, therefore increasing/decreasing the likelihood of a loss happening. Eg security in a shop.
5 benefits of insurance - correct answer ✔✔1. Cash flow
2. Social benefits eg covering wages when a company fails.
3. Expansion of business
4. Loss control- insurers have it in their interest to reduce loss for an individual/business.
5. Premium is invested.
Define self insurance - correct answer ✔✔When a company/ individual assess risk themselves and retain
the money needed, rather that using an insurance company.
Define dual insurance - correct answer ✔✔Two or more policies in force cover the same risk.
List three reasons why commercial risk management is important. - correct answer ✔✔1. It reduces the
potential for loss by identifying and managing hazards.
2. It gives shareholders a greater degree of confidence in a company's ability to manage its risks.
3. It provides an approach to quantifying risks.
Define homogenous exposures - correct answer ✔✔A sufficient number of exposures to similar risks.
This helps the insurer forecast the expected frequency and likely extent of losses by the law of large
numbers.
Whats another phrase for equitable premiums? - correct answer ✔✔Fair contributions
What is an equitable premium? - correct answer ✔✔A premium price which is decided using
'discrimination factors' (different elements of risk brought to the pool by each policyholder.)
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