Chapter 2

Question 1

What are the two types of directors in an insurance company?

Answer 1

Executive Directors – Work full-time, manage day-to-day operations.

Non-Executive Directors – Work part-time, provide independent oversight.

Question 2

What are the five main responsibilities of a Board of Directors?

Answer 2

Regulating executive directors and senior management.

Approving reports, budgets, and strategy.

Selecting, appraising, and rewarding the CEO.

Overseeing risk management.

Ensuring financial and regulatory compliance.

Question 3

What are the key roles of a Chief Executive Officer (CEO)?

Answer 3

Responsible for overall business strategy.

Leads executive management team.

Reports to the Board.

Question 4

What are the responsibilities of a Chief Actuary?

Answer 4

Pricing insurance products.

Reserving for claims.

Calculating risk-based capital requirements.

Assessing investment risks.

Question 5

What are the four main functions of management?

Answer 5

Planning – Setting objectives and resource allocation.

Organising – Structuring teams and responsibilities.

Leading – Motivating and guiding employees.

Controlling – Monitoring performance and taking corrective actions.

Question 6

How does management style affect company culture?

Answer 6

Open-door approach – Encourages communication and innovation.

Autocratic (militaristic) – Centralized decision-making, strict rules.

Paternalistic – Leaders take a “fatherly” role, prioritizing employee well-being.

Question 7

What are the three types of business resources?

Answer 7

Physical resources – IT systems, offices, vehicles.

Financial resources – Cash flow, capital, loans.

Human resources – Employees, training, outsourced staff.

Question 8

What are the key responsibilities of the company secretary?

Answer 8

Maintaining statutory records.

Filing annual returns.

Organizing Board meetings.

Advising directors on corporate governance.

Question 9

What is the UK Corporate Governance Code?

Answer 9

A framework that sets best practices for company leadership, accountability, and shareholder relations.

Question 10

What are the benefits of agile working in insurance?

Answer 10

Increases flexibility and productivity.

Reduces costs.

Improves work-life balance.

Question 11

The Board of Directors at an insurance company is reviewing financial reports and approving risk management policies. What is their primary role in this scenario?

A) Day-to-day operations
B) Strategic oversight and governance
C) Managing individual claims
D) Sales and marketing decisions

Answer 11

B) Strategic oversight and governance

Question 12

An insurance company’s CEO is implementing a new strategy to expand into international markets. Who is primarily responsible for ensuring this aligns with the company’s overall objectives?
A) The compliance team
B) The Board of Directors
C) The underwriting department
D) The sales team

Answer 12

B) The Board of Directors

Question 13

A company is struggling with compliance issues due to frequent changes in financial regulations. Which senior executive should take the lead in addressing these challenges?
A) Chief Financial Officer (CFO)
B) Chief Compliance Officer (CCO)
C) Chief Marketing Officer (CMO)
D) Chief Technology Officer (CTO)

Answer 13

B) Chief Compliance Officer (CCO)

Question 14

A new Chief Actuary is hired at an insurance firm. What is their most critical responsibility?
A) Managing the HR function
B) Ensuring accurate claims reserving
C) Approving all customer complaints
D) Handling company investments

Answer 14

B) Ensuring accurate claims reserving

Question 15

A department manager notices a drop in productivity due to outdated claims processing software. What is the best first step to address this issue?
A) Wait for employee complaints before acting
B) Implement new software without consulting staff
C) Conduct an internal review and present findings to senior management
D) Ask employees to work overtime to compensate

Answer 15

C) Conduct an internal review and present findings to senior management

Question 16

A regional manager wants to improve team performance but notices high staff turnover. What strategy is likely to be most effective?
A) Increase salaries immediately
B) Implement a structured training and development program
C) Fire underperforming staff
D) Reduce employee benefits to cut costs

Answer 16

B) Implement a structured training and development program

Question 17

A company is setting financial targets for the next five years. What is the main purpose of this process?
A) To increase staff workload
B) To improve company reputation
C) To support long-term business planning
D) To reduce the need for audits

Answer 17

C) To support long-term business planning

Question 18

A claims department supervisor is informed about a sharp rise in fraudulent claims. What should they do first?
A) Implement stricter policies without consulting management
B) Investigate trends and report findings to senior management
C) Reject all claims without review
D) Reduce staffing levels to cut costs

Answer 18

B) Investigate trends and report findings to senior management

Question 19

An insurance company’s Board is discussing executive pay structures. What is the most important principle to follow?
A) Ensuring executives receive the highest possible bonuses
B) Keeping salaries confidential
C) Linking executive pay to company performance
D) Allowing executives to set their own salaries

Answer 19

C) Linking executive pay to company performance

Question 20

A Board member is also a director at a competing insurance company. What should they do?
A) Share confidential information to benefit both companies
B) Declare a conflict of interest and abstain from relevant decisions
C) Use their position to influence decisions in favor of their other company
D) Keep their dual role secret

Answer 20

B) Declare a conflict of interest and abstain from relevant decisions

Question 21

A financial analyst at an insurance company identifies a misleading report that overstates the company’s profits. What should they do?
A) Ignore it to avoid conflict
B) Report it to the compliance department
C) Publicly expose the issue without consulting management
D) Modify the numbers to make them accurate without telling anyone

Answer 21

B) Report it to the compliance department

Question 22

A new data protection law requires stricter handling of customer information. How should the company respond?
A) Ignore the changes
B) Wait until a fine is issued before acting
C) Implement new policies and train staff on compliance
D) Delete all customer records to avoid penalties

Answer 22

C) Implement new policies and train staff on compliance

Question 23

A policyholder files a complaint about an unfairly rejected claim. Which department should handle the complaint first?
A) The underwriting team
B) The claims department
C) The actuarial team
D) The investment department

Answer 23

B) The claims department

Question 24

An insurance company is launching a new motor insurance product. Which team is responsible for pricing the policy?
A) The sales team
B) The marketing department
C) The actuarial team
D) The claims handling team

Answer 24

C) The actuarial team

Question 25

A company’s HR department is reviewing remote working policies. What is the key factor to consider? A) Employee well-being and productivity B) Reducing salaries for remote workers C) Limiting remote work to executives only D) Discontinuing all remote work options

Answer 25

A) Employee well-being and productivity

Question 26

An insurance company decides to outsource its IT support function. What is the main risk? A) Losing control over service quality B) Increased costs C) Lower customer satisfaction D) Increased staff workload

Answer 26

A) Losing control over service quality

Question 27

A major insurer experiences a cyberattack that compromises customer data. What is the most immediate priority? A) Informing affected customers and regulators B) Deleting all customer records C) Ignoring the issue to protect the company’s reputation D) Blaming a third-party vendor

Answer 27

A) Informing affected customers and regulators

Question 28

A new insurance company is struggling with cash flow issues. What strategy would help improve financial stability? A) Increasing customer refunds B) Implementing stricter claims reserving policies C) Reducing sales efforts D) Cutting all marketing expenses

Answer 28

B) Implementing stricter claims reserving policies

Question 29

A multinational insurance company wants to expand into the Asian market. What is the biggest challenge they may face? A) Understanding local regulations and business culture B) Managing staff in different time zones C) Developing online marketing campaigns D) Hiring additional employees

Answer 29

A) Understanding local regulations and business culture

Question 30

An insurance company’s internal audit finds that a department has been processing fraudulent claims. What should management do? A) Ignore the findings to avoid reputational damage B) Strengthen internal controls and take corrective action C) Fire all employees in the department D) Reduce compliance monitoring to cut costs

Answer 30

B) Strengthen internal controls and take corrective action

Question 31

Identify and explain the role of the two different types of director.

Answer 31

- Executive directors work full time in the company and are given management responsibility for running parts of the business. The Board usually appoints one of the executive directors to be accountable for the running of the company on a day-to-day basis and is known as either the chief executive officer (CEO) or managing director who in turn appoints the company management. - Non-executive directors work part time and are chosen for their particular area of expertise and do not perform an executive management role in the company. They attend Board meetings and may be members of subcommittees in order to provide independent views on matters such as audit, management remuneration and risk management.

Question 32

What are the five main responsibilities of a Board?

Answer 32

- Regulation of the executive directors and other members of the senior management team to ensure they uphold the shareholder interests and the laws governing the conduct of the business. • Approving the report and accounts, annual budgets, strategy and other important plans. • Selecting, appraising and rewarding the CEO and ensuring succession planning is actively addressed. • Overseeing the risk management process and ensuring the necessary actions are adopted to mitigate against identified risks. • Ensuring that the company's integrity and principles are upheld on critical matters such as financial reporting accuracy, legal and regulatory compliance, as well as adherence to the company's stated ethical standards.

Question 33

Describe three potential barriers to effective communication.

Answer 33

Any three from the following: • The problem of size of the organisation. • Natural reserve or lack of confidence. • Knowledge is power. • The language problem. • The problem of time. • Training. • The grapevine. • Failure to recognise the need to tell. • Inability to listen.

Question 34

Describe the 'paternalistic' management style.

Answer 34

The 'paternalistic' management style is where the company looks after its employees in a fatherly way and the employees respect the organisation's managers in the same way that children respect their parents.

Question 35

Identify and explain the three key resources of a business

Answer 35

-Physical resources – these include all the assets used by an insurance organisation that are at the disposal of the business and can be used to help it to achieve its objectives. These include office space, IT, telecoms, websites and perhaps motor vehicles. -Financial resources – these constitute the funds that are available to the managers of the business to allow it to carry out its day-to-day operations. These include cash, bank loans, share capital and other financial instruments against which it can raise money. -Human resources – these are made up of the people who work for the organisation on a permanent, temporary, full-time or part-time basis and those who work directly or indirectly for the company in an outsourced capacity.

Question 36

Name the three factors that make up an organisation's corporate culture.

Answer 36

An organisation's corporate culture is made up of a number of related factors, the principal ones being: • norms; • beliefs and values; and • management style.

Question 37

What is the main responsibility of the Board of Directors? A) Oversee daily claims handling B) Execute underwriting decisions C) Provide strategic direction D) Handle customer complaints

Answer 37

Answer: C) Provide strategic direction Explanation: The board sets long-term strategy and ensures governance and regulatory compliance.

Question 38

Who is responsible for implementing the strategy set by the board? A) Claims handlers B) Senior executives C) Brokers D) Auditors

Answer 38

Answer: B) Senior executives Explanation: Senior executives translate board strategy into operational plans and oversee company performance.

Question 39

What is the main responsibility of the Board of Directors? A) Oversee daily claims handling B) Execute underwriting decisions C) Provide strategic direction D) Handle customer complaints

Answer 39

Answer: C) Provide strategic direction Explanation: The board sets long-term strategy and ensures governance and regulatory compliance.

Question 40

What is one key role of non-managerial staff in insurance businesses? A) Determining capital allocation B) Managing reinsurance programs C) Processing claims and policies D) Creating marketing strategy

Answer 40

Answer: C) Processing claims and policies Explanation: Non-managerial staff perform administrative tasks such as policy issuance and claims handling.

Question 41

Which of the following is most associated with setting department-level objectives? A) Board of Directors B) Senior Executives C) Middle Managers D) Non-managerial Staff

Answer 41

Answer: C) Middle Managers Explanation: Middle managers align departmental targets with the overall business strategy.

Question 42

Why is performance monitoring essential in an insurance business? A) To ensure compliance with GDPR B) To reward customers C) To identify areas needing improvement D) To cancel underperforming policies

Answer 42

Answer: C) To identify areas needing improvement Explanation: Performance monitoring helps organisations refine processes and improve outcomes.

Question 43

Which level of staff is directly responsible for ensuring day-to-day team output? A) Senior executives B) Brokers C) Supervisors D) Internal auditors

Answer 43

Answer: C) Supervisors Explanation: Supervisors manage small teams and ensure operational efficiency on the front line.

Question 44

What is the purpose of budgetary planning in an insurance firm? A) To measure customer satisfaction B) To control expenses and allocate resources C) To analyse risk exposures D) To calculate solvency margins

Answer 44

B) To control expenses and allocate resources Explanation: Budgets help firms plan how money is spent and ensure efficient use of resources.

Question 45

What tool is most used to assist senior management in making evidence-based decisions? A) Customer surveys B) Management Information (MI) C) Insurance premiums D) Actuarial reports

Answer 45

Answer: B) Management Information (MI) Explanation: MI provides data on performance, trends, and helps in decision-making.

Question 46

Business planning helps insurance firms to: A) Avoid legal liability B) Comply with solvency rules C) Set clear operational objectives D) Eliminate underwriting risk

Answer 46

Answer: C) Set clear operational objectives Explanation: Business planning outlines goals and how to achieve them.

Question 47

Which of the following is a benefit of effective decision-making frameworks? A) Increased tax liability B) Slower claims settlement C) Improved allocation of resources D) Elimination of underwriting loss

Answer 47

Answer: C) Improved allocation of resources Explanation: Good decision-making supports strategic priorities and efficient operations.

Question 48

Which staff category typically reviews and signs off risk management frameworks? A) Non-managerial staff B) Board of Directors C) Team leaders D) Brokers

Answer 48

Answer: B) Board of Directors Explanation: The board is accountable for governance and risk oversight.

Question 49

Why is accurate MI reporting important in insurance businesses? A) It reduces policy lapses B) It increases customer loyalty C) It enhances forecasting and planning D) It sets interest rates

Answer 49

Answer: C) It enhances forecasting and planning Explanation: MI helps insurers make accurate forecasts and strategic decisions.

Question 50

What is the key outcome of poor management reporting? A) Lower premiums B) Increased claims C) Poor decision-making D) Higher solvency

Answer 50

Answer: C) Poor decision-making Explanation: Without accurate data, managers may make misguided decisions.

Question 51

What is a key function of budgetary control? A) Setting inflation targets B) Monitoring actual vs planned expenditure C) Approving shareholder dividends D) Changing insurance regulations

Answer 51

Answer: B) Monitoring actual vs planned expenditure Explanation: Budgetary control compares actual performance with planned figures to track financial performance.

Question 52

What is the relationship between business planning and performance monitoring? A) They are unrelated functions B) Planning follows performance monitoring C) Performance monitoring helps assess whether plans are being met D) Performance monitoring replaces the need for business planning

Answer 52

Answer: C) Performance monitoring helps assess whether plans are being met Explanation: Monitoring allows businesses to evaluate progress against their objectives and adjust plans accordingly.