Insurance Principles Chapter 6 & 8
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Insurance Principles Chapter 6 & 8

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Questions and Answers

What was the proximate cause of the damage?

  • The Sprinkler System
  • The Storm
  • The Flood (correct)
  • The Fire

    • What insurance principle is illustrated when an insurer pays $1,500 for a flood caused by a plumber and seeks reimbursement from the plumber?

  • Contribution
  • Subrogation (correct)
  • Indemnity
  • Salvage

    • What does the duty of fair representation require the insured to disclose between renewal dates?

  • Information specifically requested by the insurer
  • Information that could increase the risk insured (correct)
  • No disclosure is necessary
  • Information to mitigate a loss

    • Why must a proposer disclose that he uses his car for business purposes when applying for motor insurance?

    <p>It is considered relevant information</p> Signup and view all the answers

    To whom does the duty of fair presentation apply in a private motor insurance policy?

    <p>Insured and the insurer only</p> Signup and view all the answers

    When an insurer pays for repairs due to damage caused by a contractor, who can they seek to recover costs from?

    <p>The contractor responsible for the damage</p> Signup and view all the answers

    What is required from the insured upon application for commercial property insurance regarding their operations?

    <p>Declaration of all business operations</p> Signup and view all the answers

    In motor insurance, why is it important to disclose previous accidents during renewal?

    <p>To ensure policy pricing reflects risk</p> Signup and view all the answers

    Which professional qualification should an insurance manager study to assist with hazard identification and control?

    <p>The Chartered Institute of Loss Adjusters</p> Signup and view all the answers

    What is the term for the event that triggers a claim under an insurance policy?

    <p>Peril</p> Signup and view all the answers

    What aspect may cause moral hazard concerns in an insurance proposal?

    <p>The proposer's honesty and integrity</p> Signup and view all the answers

    Which roofing material poses the highest physical hazard regarding fire risk?

    <p>Thatch</p> Signup and view all the answers

    What two features must be present for a risk to be deemed insurable, aside from not being against public policy?

    <p>Insurable interest and fortuitous insured event</p> Signup and view all the answers

    Which type of risk is always insurable?

    <p>Pure risk</p> Signup and view all the answers

    What is one of the main reasons for purchasing reinsurance?

    <p>To reduce exposure to risk</p> Signup and view all the answers

    Who is responsible for indemnifying the principal when an intermediary fails to carry out their instructions, resulting in an uninsured exposure?

    <p>The independent intermediary</p> Signup and view all the answers

    Why will the actions of an insurer’s agent bind that insurer?

    <p>Because the agent has the implied authority of the insurer</p> Signup and view all the answers

    What is it called when an intermediary acts for an insurer with complete authority?

    <p>Agency by necessity</p> Signup and view all the answers

    When does a court recognize that the insured and the insurer have entered into a legally binding contract for motor insurance?

    <p>When the parties intend to create a legal relationship</p> Signup and view all the answers

    What can an insurer do by implementing the right of subrogation after paying a property claim?

    <p>Recover the amount paid from a third party who is legally responsible</p> Signup and view all the answers

    If Miranda has insured her house with two different insurers, what could arise from this situation?

    <p>A scenario of double coverage leading to conflicts in claims</p> Signup and view all the answers

    What role does an ombudsman play in relation to insurance agents?

    <p>Serves as a mediator for conflicted claims</p> Signup and view all the answers

    In an agency relationship, when is consent necessary for an intermediary to act on behalf of an insurer?

    <p>When the relationship requires mutual agreement</p> Signup and view all the answers

    What determines the maximum risk to the insurer under a professional indemnity insurance policy?

    <p>Limit of indemnity</p> Signup and view all the answers

    Why is it not possible for Nehad to insure against the potential loss of enjoyment on a future holiday?

    <p>It is a non-financial risk</p> Signup and view all the answers

    A particular risk is defined by which characteristic?

    <p>Relates to the stated peril</p> Signup and view all the answers

    In insurance terminology, what does the term peril refer to?

    <p>A specified event covered or excluded by the policy</p> Signup and view all the answers

    How do physical hazards and moral hazards differ?

    <p>Physical hazards relate to the nature of the insured item, moral hazards relate to the insured</p> Signup and view all the answers

    Why do large companies arrange a portfolio of insurance?

    <p>The premium is certain, whereas claims are not</p> Signup and view all the answers

    Which of the following best describes a moral hazard?

    <p>A hidden risk that has not been disclosed to the insurer</p> Signup and view all the answers

    Which of the following factors is least relevant to determining a particular type of insurance?

    <p>The applicant's credit score</p> Signup and view all the answers

    What is the primary advantage of using diagnostic tools over remedial tools in the supervision of the general insurance industry?

    <p>It allows potential problems to be addressed before they arise</p> Signup and view all the answers

    If an insurance intermediary engages in misleading practices to gain customers, what classification does this misconduct fall under?

    <p>Fraud</p> Signup and view all the answers

    In the context of a shift towards a disclosure-based regulatory framework, which area has seen a rise in importance?

    <p>Consumer education</p> Signup and view all the answers

    How is Good Faith characterized in the insurance context?

    <p>A duty to disclose all relevant information about risk transparently</p> Signup and view all the answers

    What type of insurance is specifically designed to protect accountants against claims of negligent business advice?

    <p>Professional indemnity insurance</p> Signup and view all the answers

    Which of the following tools is less dependent on third parties when used by regulators in the general insurance industry?

    <p>Diagnostic tools</p> Signup and view all the answers

    What is a key focus of the regulatory role with the move towards a disclosure-based regime?

    <p>Strengthening market competition</p> Signup and view all the answers

    In terms of cost, which type of tool is generally more favorable for regulators supervising the insurance sector?

    <p>Diagnostic tools</p> Signup and view all the answers

    Study Notes

    Proximate Causes of Damage

    • Common proximate causes of damage include flood, fire, storm, and issues with the sprinkler system.

    Principles of Insurance

    • Subrogation occurs when an insurer pays a claim and then seeks reimbursement from a third party (e.g., a plumber causing a flood).
    • The duty of fair representation mandates the disclosure of information that increases risk or mitigates loss, but not general information between renewal dates.
    • Relevant information includes any use of the insured property beyond its specified purpose, such as using a car for business.
    • The duty of fair presentation applies to the insured alone, requiring them to disclose pertinent risk information.
    • Agents bind insurers through implied authority, acting on behalf of the insurer during transactions.
    • Agency by necessity occurs when an intermediary has complete authority in a business matter.

    Contract Formation

    • A legally binding contract in insurance is established when the insured indicates acceptance, intends to create a legal relationship, or completes a proposal form.

    Subrogation Rights

    • Insurers can recover costs through subrogation from parties deemed legally responsible for a claim, particularly in cases involving third-party liability.

    Risk Assessment and Morality

    • Moral hazard refers to the proposer’s honesty and integrity in disclosing relevant information during risk underwriting.
    • Certain roofing materials, such as thatch, present greater fire risks than others.

    Insurability Criteria

    • A risk must not contradict public policy; it must also involve insurable interest and be fortuitous to be considered insurable.
    • Pure risks, which often entail loss without a chance of gain, are consistently insurable compared to speculative risks.

    Reinsurance and Risk Management

    • Reinsurance is primarily utilized to reduce exposure to risk and manage overall risk, rather than merely for underwriting costs or frequency of losses.

    Professional Indemnity Insurance

    • The maximum insurer liability under a professional indemnity policy is determined by the limit of indemnity rather than the historical claims experience or amounts claimed.

    Non-Insurable Events

    • Loss of enjoyment related to future holidays is typically not insurable as it pertains to non-financial risks.

    Definitions in Insurance

    • A peril signifies an event that triggers a claim under an insurance policy.
    • Physical hazards relate to the insured item while moral hazards pertain to behavior or risk behavior related to the insured.

    Company Insurance Practices

    • Large companies secure portfolios of insurance as a strategy to manage business risks, balancing certain premiums against uncertain claim outcomes.

    Regulatory Practices

    • Diagnostic tools in regulatory oversight preemptively address potential issues in the insurance sector, distinguishing them from remedial measures.
    • Misrepresentation by intermediaries, aimed at attracting customers through deceptive practices, qualifies as fraud.

    Importance of Good Faith

    • Good faith in insurance involves the obligation to fully disclose all relevant risk information, whether requested or not, signifying a fundamental principle of transparency.

    Professional Coverage

    • Professional indemnity insurance specifically safeguards professionals, like accountants, against claims of negligence or improper advice.

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    Description

    This quiz covers key concepts from Chapters 6 and 8 related to insurance principles, including causes of damage and recovery actions. Test your knowledge on how damage arises and the insurance practices applied in different scenarios. Understanding these principles is crucial for anyone studying insurance and risk management.

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