Paper 1

Question 1

What is the relationship between a peril and a hazard?

A. A peril gives rise to a loss and a hazard influences the operation of the peril.
B. A peril is an insured loss and a hazard is an uninsured loss.
C. A peril is the end cause of a loss and a hazard is the proximate cause of a loss.
D. A peril is the physical nature of a risk and a hazard is the moral nature of a risk

Answer 1

A peril gives rise to a loss and a hazard influences the operation of the peril

Question 2

A material circumstance is best described as a circumstance that
A. has no bearing on physical hazard.
B. has no bearing on moral hazard.
C. may influence an underwriting decision.
D. must be on the Association of British Insurers’ approved list

Answer 2

C. may influence an underwriting decision

Question 3

An insurer may occasionally delegate underwriting in order to
A. speed up the process and reduce administrative costs.
B. reduce the risk of non-disclosure.
C. comply with the requirements of the Association of British Insurers.
D. ensure that only good quality risks are accepted

Answer 3

A. speed up the process and reduce administrative costs

Question 4

At the renewal of an insurance policy, policyholders are always obliged under common law to
A. renew the policy with the same insurer.
B. increase the sum insured in line with inflation.
C. disclose any changes to material circumstances.
D. complete a new proposal form

Answer 4

C. disclose any changes to material circumstances

Question 5

In relation to fire insurance and the consideration of hazard, metal fire doors and fire resistant walls 
are considered to be
A. good moral hazards.
B. good physical hazards.
C. poor moral hazards.
D. poor physical hazards

Answer 5

B. good physical hazards

Question 6

During the period that a quotation was valid, the proposer accepted the quoted terms in writing. In
what circumstances, if any, is the insurer legally permitted to withdraw these terms?
A. Only if the basis of the risk has changed.
B. Only if the insurer decided to withdraw from this section of the market.
C. Only if this type of cover is widely available in the marketplace.
D. In no circumstances

Answer 6

A. Only if the basis of the risk has changed.

Question 7

When the annual premium for a motor insurance policy is payable by instalments using direct debit,
what payment frequency is most likely to be involved?
A. Weekly.
B. Monthly.
C. Quarterly.
D. Half-yearly

Answer 7

B. Monthly.

Question 8

In a proposal form, risk specific questions are those
A. that are common to most general insurance risks.
B. that pertain to the particular details of a proposed risk.
C. that relate to matters evaluating whether information is material or not.
D. where the proposer warrants the answer to be correct

Answer 8

B. that pertain to the particular details of a proposed risk.

Question 9

What is the main consequence of an insurer offering a high standard sum insured under a
household contents insurance policy?
A. It reduces the possibility of underinsurance.
B. It increases reliance on the average clause.
C. It reduces the number of claims that are handled.
D. It increases the incidence of subrogation

Answer 9

A. It reduces the possibility of underinsurance.

Question 10

What is the usual premium base for an employers’ liability policy?
A. The limit of indemnity.
B. The sum insured.
C. The turnover.
D. The wage roll.

Answer 10

D. The wage roll.

Question 11

What is the most common basis of premium calculation for public liability insurance and products 
liability insurance?
A. Business value.
B. Limit of indemnity.
C. Profit.
D. Turnover.

Answer 11

D. Turnover.

Question 12

Michael has a household contents policy and makes a claim early in the period of insurance. Why is
it NOT necessary that he has received a copy of the policy to make a claim?
A. Consumer Insurance (Disclosure & Representations) Act 2012 specifies that it is not necessary.
B. A cover note would have been issued.
C. The policy is only evidence of the contract, not the contract itself.
D. This is not a requirement with compulsory insurances

Answer 12

C. The policy is only evidence of the contract, not the contract itself.

Question 13

When a premium is paid by monthly direct debit why is an additional charge usually levied by the
insurer?
A. To cover the loss of interest.
B. To cover the risk of non-payment.
C. The Consumer Credit Act 1974 requires it.
D. The Insurance Act 2015 requires it

Answer 13

A. To cover the loss of interest.

Question 14

A valid employers’ liability insurance certificate must contain the insured’s
A. address.
B. name.
C. number of employees.
D. occupation

Answer 14

B. name.

Question 15

For a contract of insurance to be valid the premium must
A. be quoted.
B. be paid or agreed to be paid.
C. be shown on the certificate.
D. include Insurance Premium Tax

Answer 15

B. be paid or agreed to be paid.

Question 16

Who pays Insurance Premium Tax?
A. Both the insurer and the insured.
B. The insured only.
C. The insured’s intermediary.
D. The insurer only.

Answer 16

B. The insured only.

Question 17

What is the current rate of Insurance Premium Tax, if any, for the majority of insurance policies?
A. Nil.
B. 6%
C. 12%
D. 20%

Answer 17

C. 12%

Question 18

In a proposal form, what type of questions would a proposer’s name, address and occupation be 
classified as?
A. Express.
B. General.
C. Objective.
D. Specific

Answer 18

B. General.

Question 19

Which Act regulates the payment of insurance premiums by instalments?
A. The Consumer Credit Act 1974.
B. The Financial Services and Markets Act 2000.
C. The Sale and Supply of Goods to Consumers Regulations 2002.
D. The Sale of Goods Act 1979

Answer 19

A. The Consumer Credit Act 1974.

Question 20

Chris is completing a proposal form and has been advised that he is legally obliged to declare all
material circumstances. If he is unsure whether information is material or not, he should
A. disclose it fully.
B. not disclose it.
C. only disclose it if it is specifically addressed by one of the questions.
D. only disclose it if it relates to a criminal offence

Answer 20

A. disclose it fully.

Question 21

What can an insurer of frozen food apply to exclude a loss arising from a short failure of the
electricity supply lasting 30 minutes or less, but which will cover the whole loss if the supply failure
exceeds 30 minutes?
A. An aggregate.
B. A deductible.
C. An excess.
D. A franchise

Answer 21

D. A franchise

Question 22

Which component of a policy is personal and specific to an insured?
A. The operative clause.
B. The policy conditions.
C. The policy schedule.
D. The recital clause

Answer 22

C. The policy schedule.

Question 23

The main purpose of the recital clause in a household insurance policy is to
A. list all of the general exclusions of the contract.
B. make the proposal form the basis of the contract.
C. show the details of cover provided by the contract.
D. state the renewal date of the contract

Answer 23

B. make the proposal form the basis of the contract.

Question 24

Conditions that are covered by common law and therefore do NOT need to appear in an insurance 
policy are known as
A. express conditions.
B. general conditions.
C. implied conditions.
D. legal conditions

Answer 24

C. implied conditions.

Question 25

An exclusion in an insurer’s household insurance policy is deemed a general exclusion, but NOT a market exclusion. This means the exclusion A. applies to a particular section of the policy, but does not apply across the entire policy. B. applies to all sections of the policy, but has not generally been adopted by other insurers. C. relates to a pure risk rather than to a speculative risk. D. operates under case law precedent rather than under the provision of statute

Answer 25

B. applies to all sections of the policy, but has not generally been adopted by other insurers.

Question 26

An insurer is advised that a break-in has occurred but the insured has failed to report the incident to the police. What part of the insurance policy has been breached? A. The conditions. B. The exclusions. C. The preamble. D. The schedule.

Answer 26

A. The conditions.

Question 27

An insured property suffers extensive water damage. A claims handler notes that the insured has NOT complied with the minimum security requirement. What action would be taken? A. The claim would be paid but the policy would be cancelled. B. The claim would be avoided and the policy would be cancelled. C. The claim would be paid and the policy would remain in force. D. The claim would be avoided but the policy would remain in force.

Answer 27

would be cancelled. | C. The claim would be paid and the policy would remain in force.

Question 28

``` In which section of an insurance policy does an insurer provide details of the different sums insured under the policy? A. The heading. B. The operative clause. C. The policy schedule. D. The preamble ```

Answer 28

C. The policy schedule.

Question 29

``` The amount of any claim which is the responsibility of the insured and which the insurer will deduct from any claim payment is known as A. a condition. B. an excess. C. a franchise. D. a warranty ```

Answer 29

B. an excess.

Question 30

``` What is the usual length of the notice period, if any, under a standard cancellation clause of a household policy? A. There is no notice period. B. 7 days. C. 14 days. D. 28 days ```

Answer 30

B. 7 days.

Question 31

Alicia has a household insurance policy that is renewable on 1 July with 15 days of grace. If Alicia paid the renewal premium on 9 July, from which date would the cover apply? A. 1 July. B. 9 July. C. 16 July. D. 24 July

Answer 31

A. 1 July.

Question 32

A customer’s buildings insurance policy is due for renewal in three months’ time. In what circumstances, if any, is the existing insurer legally required to offer renewal terms? A. In no circumstances. B. Only if there is an associated mortgage. C. Only if the insurer is a member of the Association of British Insurers. D. In all circumstances

Answer 32

A. In no circumstances.

Question 33

Which regulation requires insurers to cancel add-on policies at the same time, if the main policy is cancelled mid-term? A. The Consumer Credit Act 1974. B. The Consumer Rights Act 2015. C. The General Data Protection Regulation (GDPR). D. The Insurance Act 2015

Answer 33

B. The Consumer Rights Act 2015.

Question 34

What limit, if any, is usually placed on the number of claims that can be made under a motor insurance policy in any one policy year? A. A limit that is always agreed at the start of the policy year. B. A limit that is renegotiated at renewal depending on previous claims experience. C. There is no limit on the number of claims that can be made. D. A limit which can vary according to the age of the insured

Answer 34

C. There is no limit on the number of claims that can be made.

Question 35

Under a standard travel insurance policy, what is the minimum level of cover usually provided for medical treatment and expenses incurred whilst abroad? A. £50,000 B. £100,000 C. £250,000 D. £1,000,000

Answer 35

D. £1,000,000

Question 36

Which type of insurance policy would cover an insured for the cost of repairs following an electrical defect in a television? A. A commercial all risks insurance policy. B. A personal all risks insurance policy. C. An extended warranty insurance policy. D. A products liability insurance policy.

Answer 36

C. An extended warranty insurance policy.

Question 37

What is the implication of writing professional indemnity insurance on a claims made basis? A. More than one claim is needed for the policy to be effective. B. New claims must always be submitted to the current insurer. C. Previous claims are the sole underwriting criteria. D. New claims must always be submitted to the previous insurer

Answer 37

B. New claims must always be submitted to the current insurer.

Question 38

Cover for theft under a commercial insurance policy is usually subject to A. forcible and violent entry only to a secured building. B. forcible and violent entry to or exit from a secured building. C. theft notwithstanding forcible and violent entry to or exit from a secured building. D. forcible and violent exit only from a secured building

Answer 38

B. forcible and violent entry to or exit from a secured building.

Question 39

What does products liability insurance principally cover? A. The cost of recalling defective goods. B. Claims made against the insured as a result of defective goods. C. Claims made against the insured by employees for injuries received whilst at work. D. Financial damages incurred as a result of incorrect professional advice

Answer 39

B. Claims made against the insured as a result of defective goods.

Question 40

The main advantage to a motor insurer of operating an authorised repairer scheme is that it A. can charge an additional premium for the scheme. B. can reduce the liability of any third party who may have caused damage. C. can refuse to release a vehicle until any excess has been paid. D. will have more control over the costs incurred

Answer 40

D. will have more control over the costs incurred

Question 41

``` For which class of insurance is an underwriter most likely to request a risk survey? A. Commercial insurance. B. Household buildings insurance. C. Motor insurance. D. Medical expenses insurance ```

Answer 41

A. Commercial insurance.

Question 42

``` If an insurer wishes to check the claims history of an individual proposing motor insurance, it would refer to the A. Claims and Underwriting Exchange. B. Financial Conduct Authority. C. Motor Insurers’ Bureau. D. Motor Insurers Database ```

Answer 42

A. Claims and Underwriting Exchange.

Question 43

Which factor is usually the most important when an underwriter is determining whether he will accept a proposal for professional indemnity insurance? A. The location of the practice. B. The claims history of the practice. C. The fees charged by the practice. D. The number of directors.

Answer 43

B. The claims history of the practice.

Question 44

When an insurer is considering an income protection insurance proposal, it will usually place the applicant into a particular premium rating class based on his A. age. B. level of earnings. C. lifestyle. D. occupation

Answer 44

D. occupation

Question 45

An 18-year-old individual is applying for motor insurance. In relation to which type(s) of policy cover is his age likely to influence the premium rating? A. Third party cover only. B. Third party, fire and theft cover only. C. Comprehensive cover only. D. All types of cover

Answer 45

D. All types of cover

Question 46

``` The buildings sum insured for a fire insurance policy should ideally be linked to the A. purchase price only. B. purchase price plus inflation. C. rebuilding costs. D. current market value ```

Answer 46

C. rebuilding costs.

Question 47

For which class of insurance is it an underwriting requirement to know the length of the indemnity period and the potential loss of revenue? A. Business interruption insurance. B. Products liability insurance. C. Public liability insurance. D. Theft insurance

Answer 47

A. Business interruption insurance.

Question 48

``` What is the main criteria for underwriting extended warranty insurance for domestic electrical appliances? A. Age of insured appliance. B. Country of manufacture. C. Postal code of insured. D. Type and value of appliance ```

Answer 48

D. Type and value of appliance

Question 49

``` What method of settlement does an insurer typically use to deter fraudulent household goods claims? A. Agreed value. B. Cash reimbursement. C. First loss. D. Replacement ```

Answer 49

D. requested cover extends beyond EU limits

Question 50

Under the Disability Discrimination Act 1995, an insurer is permitted to decline a travel insurance application due to the proposer’s disability, but only if the A. proposer is over State Pension age. B. proposer is travelling alone. C. decision is supported by appropriate risk-related data. D. requested cover extends beyond EU limits

Answer 50

C. decision is supported by appropriate risk-related data.

Question 51

For what reason will an insurance company appoint a data controller? A. To enable the insurance company to use the various registers of claims. B. To monitor the amount of data input by each employee. C. To oversee the information technology department. D. To satisfy the requirements of data protection legislation.

Answer 51

D. To satisfy the requirements of data protection legislation.

Question 52

A firm of solicitors is applying for professional indemnity insurance. When rating the risk, what information is the underwriter most likely to find useful? A. The age of the senior partner. B. The location of the office. C. The number of support staff. D. The fees earned by the practice

Answer 52

D. The fees earned by the practice

Question 53

``` An insurer will usually make an insurance policy void without refunding the premium if the policyholder A. arranges identical cover elsewhere. B. loses insurable interest. C. submits a fraudulent claim. D. receives a criminal conviction ```

Answer 53

C. submits a fraudulent claim.

Question 54

What main source of information is used by motor insurers to discourage fraudulent claims? A. The Claims and Underwriting Exchange. B. The Driver and Vehicle Licensing Agency (DVLA). C. The Motor Insurance Repair Research Centre. D. The Motor Insurers’ Bureau

Answer 54

A. The Claims and Underwriting Exchange.

Question 55

What factor would contribute to two different companies with identical wage rolls paying significantly different premiums for employers’ liability insurance? A. The geographical location. B. Any no claims discounts. C. The number of directors. D. The type of business

Answer 55

D. The type of business

Question 56

An insurance policy shows a gross premium of £1,000, settled claims of £300 and outstanding claims of £200. What is the incurred loss ratio? A. 25% B. 30% C. 33% D. 50%

Answer 56

D. 50%

Question 57

``` . Regarding a risk profile that is high frequency and low severity, an insurer will expect A. many high value claims. B. many small value claims. C. only a few high value claims. D. only a few small value claims ```

Answer 57

B. many small value claims.

Question 58

Claims data for a particular insurance policy is being grouped according to the date of loss, with losses occurring in 2017 grouped separately from those occurring in 2016. What main type of monitoring period is most likely to be in operation? A. Accounting year. B. Calendar year. C. Policy year. D. Underwriting year

Answer 58

B. Calendar year.

Question 59

Operational data is mainly used by insurers to monitor the A. organisation’s overall business performance. B. success of different departments within the organisation. C. effectiveness of general procedures and practices. D. control of the insurance risk

Answer 59

C. effectiveness of general procedures and practices.

Question 60

What is the main source of data that will determine the rate for an insurer’s private car portfolio? A. Its own past claims history across similar risks. B. Competitors’ terms, rates and excesses. C. Driver and Vehicle Licensing Authority (DVLA) statistical information. D. Motor Insurers’ Bureau claims experience

Answer 60

A. Its own past claims history across similar risks.

Question 61

Why is the accurate analysis of an insurer’s past claims so important? A. It is essential for the profitability of the underwriting account. B. It provides an analysis of the efficiency of claims service levels. C. It provides indications of excessive risk accumulation. D. The claims history guides coinsurance considerations

Answer 61

A. It is essential for the profitability of the underwriting account.

Question 62

``` What main factor influences the risk premium element of a set of insurance premium rates? A. Claims costs. B. Taxation liabilities. C. Administrative expenses. D. Investment return ```

Answer 62

A. Claims costs.

Question 63

How are claims allocated when monitored on a calendar year basis? A. Proportionately depending on the time of year. B. They are based on the date of loss. C. They are based on unearned premium income. D. To the next full year starting 1 January

Answer 63

B. They are based on the date of loss.

Question 64

``` In terms of the frequency and severity of risk, an accident involving an aircraft carrier would be classified as A. high frequency, high severity. B. high frequency, low severity. C. low frequency, high severity. D. low frequency, low severity ```

Answer 64

C. low frequency, high severity.

Question 65

Actual loss ratios relate to values that A. have been adjusted for inflation. B. have not had any adjustments factored in. C. measure average losses over a given period. D. take into account reinsurance costs

Answer 65

B. have not had any adjustments factored in.

Question 66

``` The ultimate cost in claims of a risk being accepted is defined as a A. loss ratio. B. material fact. C. reinsurance. D. risk premium ```

Answer 66

D. risk premium

Question 67

``` An insurer transacting which class of insurance will need to account for Insurance Premium Tax at the rate of 20%? A. Health insurance. B. Motor insurance. C. Personal travel insurance. D. Extended warranty insurance ```

Answer 67

C. Personal travel insurance.

Question 68

Which organisation makes a charge to insurers to pay the claims from victims of uninsured drivers? A. The Claims and Underwriting Exchange. B. The Financial Conduct Authority. C. The Financial Services Compensation Scheme. D. The Motor Insurers’ Bureau

Answer 68

D. The Motor Insurers’ Bureau

Question 69

``` In relation to the premium, costs that alter depending on the nature of each risk are known as A. calculated expenses. B. fluctuating expenses. C. proportioned expenses. D. variable expenses. ```

Answer 69

D. variable expenses.

Question 70

``` Which key method is used by an insurer to protect itself against loss exposures arising from a single event? A. Premium reviews. B. Policy endorsements. C. Reinsurance cover. D. External risk surveillance ```

Answer 70

C. Reinsurance cover.

Question 71

``` A reduction in the availability of a particular type of insurance cover will generally cause A. a fall in premiums. B. an increase in premiums. C. a limit on reinsurance options. D. a reduction in the insurer’s profits ```

Answer 71

B. an increase in premiums.

Question 72

The underwriting cycle refers to the A. administration process from proposal to policy issue. B. training of underwriters to assess higher risks. C. movement of underwriters between different roles in the company. D. changes in market capacity and its bearing on underwriting acceptance criteria

Answer 72

D. changes in market capacity and its bearing on underwriting acceptance criteria

Question 73

``` When assessing the maximum exposure for any one risk relating to fire damage, a surveyor will calculate the A. estimated maximum loss. B. estimated minimum loss. C. expected maximum loss. D. expected minimum loss ```

Answer 73

A. estimated maximum loss.

Question 74

XYZ Insurance Ltd wants to protect its fire insurance account against the impact of large one-off losses. What form of reinsurance should it purchase? A. Excess of loss. B. Loss ratio coverage. C. Quota share. D. Stop loss

Answer 74

A. Excess of loss.

Question 75

An insurer wishing to accept a risk which exceeds its normal underwriting limits is most likely to A. exclude cover for catastrophic risks. B. insist on a large excess. C. make use of a reinsurance facility. D. place special conditions on the policy

Answer 75

C. make use of a reinsurance facility.