IC 45-1.pdf

Q 1. Why does a pricing divergence (from what is required) happen ? 1. When the product is new 2. When there are technological changes in the market 3. Due to execution errors Only 1 Only 2 Only 3 Both 1 and 2 Both 2 and 3...

Q 1. Why does a pricing divergence (from what is required) happen ? 1. When the product is new 2. When there are technological changes in the market 3. Due to execution errors Only 1 Only 2 Only 3 Both 1 and 2 Both 2 and 3 UnAttempted CORRECT ANSWER: Both 1 and 2 Explanation: New challenges in the field of underwriting emerge due to technological changes and whenever the product is new, unforeseen catastrophic and new losses may occur. Q 2. The exposure rating aims at a premium rate or price based on ______. Past loss experience Present loss experience Portfolio analysis Future loss estimate Rating manual UnAttempted CORRECT ANSWER:  Future loss estimate Explanation: Overall, exposure rating aims at a premium rate or price based on future loss estimates on mathematical basis using probabilities of loss occurrence & expected values of loss amounts. Q 3. Identify the correct statement with respect to customized insurance policies - These are class rated product Registered insurance agents can also provide customized policies The policy design for customized insurance policy is mostly reserved for the insurer’s senior underwriters Available on a group basis only A customized insurance policy is an All Risk Policy UnAttempted CORRECT ANSWER: The policy design for customized insurance policy is mostly reserved for the insurer’s senior underwriters Explanation: The customized insurance policy requires high level of experience & knowledge. Therefore its design is reserved for the senior underwriters of an insurer. Q 4. Which one of the below options is an Express Warranty in case of Marine insurance?  The ship should take lawful goods and commodities There should be no deviation of the ship from its normal course The ship must be sea worthy at the beginning of the voyage The sailing time of the ship should be strictly followed The voyage should be a legal one UnAttempted CORRECT ANSWER: The sailing time of the ship should be strictly followed Explanation: Warranties are of two type’s i.e. express warranties and implied warranties. Express warranty denotes to those undertakings which are explicitly expressed on the face of the insurance policy. Implied warranty denotes a type of warranty which is not explicitly expressed in the policy but is understood by the implication of the law. Option 2 to 3 falls under implied warranties. Q 5. The amount calculated by using actuarial techniques with the aim that the Insurer earns profit even after payment of all claims is called __________. Profits Surplus Premium Loading Reserve UnAttempted CORRECT ANSWER: Premium Q 6. The correct abbreviation for CRM is _______. Class and country mechanism Class rating mechanism Country rate management Customer rate master Customer relationship management UnAttempted CORRECT ANSWER: Customer relationship management Q 7. Why do the rating pattern for general insurance products differ across products or portfolios ? 1. Due to Renewability 2. Due to availability of historical data for premium and claims statistics 3. Due to the term Only 1 Only 2 Only 3 Both 1 and 2 All 1, 2 and 3 UnAttempted CORRECT ANSWER: Only 2 Explanation: The rating pattern for general insurance products can vary across products or portfolios for insurance companies due to availability of  historical data concerning premium and claims statistics. Q 8. The re-insurance slip is prepared by _______. The Insurance Agent The Insurer The Re-insurer The insured The Re-insurance broker UnAttempted CORRECT ANSWER: The Re-insurance broker Explanation: Re-insurance slip is a very important document essential for the risks which are reinsured on facultative basis. This slip is prepared by re- insurance broker. Q 9. Which two sides of the risk will be looked into by the rating plan while assessing the risk? Frequency and the Location Frequency and the Severity Frequency and the Probability Severity and the Timing Severity and the Probability UnAttempted CORRECT ANSWER:  Frequency and the Severity Explanation: The loss potential of a risk can be determined by methodological approach of determining its frequency & severity. It denotes how frequent & how severe the risk would happen over a period of time. Q Which is a good method for monitoring compliance with 10. respect to underwriting policies ? Brainstorming Internal audit Group discussions Fish bone analysis SWOT analysis UnAttempted CORRECT ANSWER: Internal audit Explanation: The risk management framework typically consists of various elements such as willingness & capacity to accept risk. It also calls for monitoring compliance with respect to underwriting policies and procedure such as internal audit. Q _______ refers to Package policy. 11. Policies which are subsidized A Policy which has more than one benefit  Policies that cover more than 1 subject matter of insurance A Policy which combines two or more types of insurance covers Policies that cover more than 1 risk UnAttempted CORRECT ANSWER: A Policy which combines two or more types of insurance covers Explanation: A policy which combines two or more types of insurance covers into one policy is called packed policy. The policy may be customized according to the specific need of the customer as per the risk profile. Q Select which of those listed is the rating factor in case of 12. motor insurance - 1. Claims history 2. Annual Income 3. Lingual preference Only 1 Only 2 Only 3 Both 1 and 2 Both 2 and 3 UnAttempted CORRECT ANSWER: Only 1 Explanation: There are various rating factors in case of motor insurance. The risk factors for the customer sharing the same risk are categorised under one group & then based upon their accident behavior, they are  separated & rated accordingly. Q _____ factor(s) is taken into account in case of EXPERIENCE 13. RATING. 1. Pool Size 2. Claim Frequency 3. Claim size Only 1 Only 2 Only 3 Both 2 and 3 All 1, 2 and 3 UnAttempted CORRECT ANSWER: Both 2 and 3 Explanation: Experience rating is a type of merit rating method where class rate or schedule rates are further adjusted upwards or downwards depending upon both past Claim frequency and Claim size. Q The contents of the Proposal Form and personal statement 14. contain information which is relevant to determine ______. 1. The personal ambitions 2. The behavioral tendencies 3. The Moral hazards Only 1 Only 2 Only 3 Both 2 and 3 Both 1 and 2  UnAttempted CORRECT ANSWER: Only 3 Explanation: Proposal form is a very important document & based on the details mentioned therein, the risk is accepted by an insurer of the principle of utmost good faith. Any misstatement or incorrect information is construed as the violation of the principle of utmost good faith. It depicts the moral hazard of the proposer. Q Which among the following is a result of failure to consider 15. adverse features of a risk? 1. Moral hazard 2. Premiums that are low 3. Adverse selection Only 1 Only 2 Only 3 Both 2 and 3 All 1, 2 and 3 UnAttempted CORRECT ANSWER: Only 2 Explanation: If an insurer charges too little premium, it could become insolvent when large claim on account of frequency or severity of claim are filed. Q What are the major sources of challenges faced by an 16. underwriter ? Servicing the policies Sales New and upcoming profile of losses Society Training UnAttempted CORRECT ANSWER: New and upcoming profile of losses Explanation: The non-life insurance is a challenging field where dynamic changes are occurring in the risks being offered for insurance. Proper underwriting & rating is essential for survival. The more challenging area in this regard is newer & ever emerging profile of losses. Q Which of the below is / are good strategies to reduce 17. underwriting costs ? 1. Using class rating for all types of scenarios 2. Integration of systems with the sales force and sales force automation tools 3. There should be good underwriting manuals Only 1 Only 2 Only 3 Both 1 and 2 Both 2 and 3 UnAttempted CORRECT ANSWER:  Only 2 Explanation: There are certain emerging technologies/ strategies which can help the insurers to reduce underwriting costs include integration of systems with the sales force and sales force automation tools. Q In order to sell any general insurance product in the Indian 18. market , it is essential to comply with the requirements of ________ , which provide leverage to the Regulator to review the policy forms,wordings and rates. IRDA Special contingencies Prior approval File and use Use and file UnAttempted CORRECT ANSWER: File and use Explanation: Under F&U system, the insurers are required to file their rates with the regulator before affecting them. Prior approval is not necessary but the regulator has authority to comment or disapprove rates. Q Name the process in which the profitability of a portfolio is 19. controlled and the claims are examined for identifying the loss exposures and taking necessary correction for  implementation. Exposure management Underwriting Re-underwriting Retrocession Supercession UnAttempted CORRECT ANSWER: Re-underwriting Explanation: Re-underwriting is the process by which the profitability of a portfolio is controlled and the claims are duly examined for identifying the loss exposures and taking necessary correction for implementation. Q Which of these is an example of Internal Tariff Rated 20. Products ? Fire insurance up to a specific sum insured Bankers blanket insurance Homeowner’s comprehensive insurance Shopkeeper’s comprehensive insurance Public liability insurance UnAttempted CORRECT ANSWER: Fire insurance up to a specific sum insured Explanation:  Any general insurance product which can be sold by an insurance company with rates, terms and conditions as per internal tariff guidelines of the insurance company, is known as Internal Tariff Rated Products. Fire insurance up to a certain sum insured can be sold accordingly. Rests of the products are customized products which are specifically designed to suit the requirements of an individual customer. Q Name the clause in an insurance policy which describes the 21. condition or type of loss which is not covered by the policy ? Express warranty Implied warranty Guarantee Inclusion Exclusion UnAttempted CORRECT ANSWER: Exclusion Explanation: Exclusion is a clause contained in an insurance policy which describes the condition or type of loss that is not covered by the policy. Q The formula for calculating Pure Premium is ________. 22. (Actual Loss * Loss adjustment expenses) / (Number of exposure units) (Actual Loss + Loss adjustment expenses) / (Number of exposure units) (Actual Loss - Loss adjustment expenses) X (Number of exposure units)  (Actual Loss + Loss adjustment expenses) - (Number of exposure units) (Actual Loss * Loss adjustment expenses) +(Number of exposure units) UnAttempted CORRECT ANSWER: (Actual Loss + Loss adjustment expenses) / (Number of exposure units) Explanation: Pure premium is the product of frequency severity of the claim. Therefore the pure premium is calculated by the formula i.e. Actual Loss + Loss adjustment expenses) / Number of exposure units. Q The second step in experience rating is _______. 23. Apply loss development Adjust subject premium to future level Estimate future possibilities Trend and laver losses Assemble rating UnAttempted CORRECT ANSWER: Assemble rating Explanation: The first step in experience rating was to assemble all the data’s available for the proposed risk of the particular client. The next logical  step would be to assemble all rating factors to arrive at the final premium to be charged. Q Identify which of the listed functions is that of an advocate ? 24. To file a complete list of all products falling under categories as defined in the ‘F&U’ guidelines Make sure that the proposal form has information on all matters that are material to the contract To file with IRDAI a list of all new products category wise To file a list of risks underwritten To monitor the business activities of the insurer and to make sure that products sold are in compliance with board approved underwriting policy UnAttempted CORRECT ANSWER: Make sure that the proposal form has information on all matters that are material to the contract Explanation: While filing a product with the IRDA for approval under ‘F & U’ guidelines, different persons like moderator, compliance officer, actuary and an advocate. The advocate also has an important role to play. He has to certify the proposal form & has to ensure that the proposal form secures information on all matters that are material to the contract. Q In case the Rates and Terms are in the Form of an Internal 25. Tariff for Class Rated Risks which of the given statements hold true? In case some rating factors are to be cancelled, the rates should sufficiently reward favourable hazard features  The arbitrary rate changes need not be justified No new rating factors can be introduced The existing rating factors cannot be dropped The rates can be compared with products in different categories UnAttempted CORRECT ANSWER: In case some rating factors are to be cancelled, the rates should sufficiently reward favourable hazard features Explanation: When the Rates and Terms are in the Form of an Internal Tariff for Class Rated Risks are to be dropped, the rates should sufficiently reward favourable hazard features. Even when new rating factors are to be introduced, their relevance should be demonstrated. Q An Indian insurer cannot offer any insurance product for sale 26. until - 1. The IRDAI confirms in writing that it has no further queries in respect of that product 2. All the queries relating to the product have been satisfactorily resolved after filing 3. Similar products are available in global markets for comparison Only 1 Only 2 Only 3 Only 1 and 2 Only 2 and 3 UnAttempted CORRECT ANSWER: Only 1 and 2  Explanation: The insurer is not permitted to offer any product for sale until all queries pertaining to the product have been satisfactorily resolved after filing & IRDAI confirms in writing that it has no further queries in respect of that product. Q Which of those listed below focuses on the ‘life-time-value’ of 27. a customer and addresses various subjects like customer acquisition, loyalty, cross-selling etc. CRM SWOT Cross selling Target marketing Soft selling UnAttempted CORRECT ANSWER: CRM Explanation: CRM or Customer relationship management focuses on the ‘life-time- value’ of a customer and addresses various topics such as customer acquisition, loyalty, cross-selling etc. Q While filing a class rated product with IRDAI which documents 28. need to be attached? 1. The Prospectus 2. Profit & Loss statement of the last 3 years 3. The history of planned underwriting losses  Only 1 Only 2 Only 3 Both 1 and 2 Both 2 and 3 UnAttempted CORRECT ANSWER: Only 1 Explanation: Various documents and certificates are required to be filed or attached for filing a product with the IRDA consists of prospectus along other documents like proposal form, claim form etc. Q Within how many days should the communication related to 29. financial interest of a bank be responded ? 5 days 10 days 20 days 15 days 30 days UnAttempted CORRECT ANSWER: 10 days Explanation: The insurance regulator has prescribed various requirements relating to  policyholders servicing & the insurer has to respond within the prescribed time frame. Any communication related to financial interest of a bank should be responded within 10 days of its receipt. Q Which is the 1st step in the selection of risks process? 1. 30. Classification of the risk 2. Getting factual information from the proposer via the proposal form 3. Calculation of a price to cover the risk Only 1 Only 2 Only 3 Both 1 and 2 Both 2 and 3 UnAttempted CORRECT ANSWER: Only 2 Explanation: The process of underwriting involves selection of risk, classification & rating, policy form & retention & reinsurance. However the 1st step in the selection of risks process is securing factual information from the proposer via the proposal form. Q From the listed duties the only function of an Appointed 31. Actuary is - To file a list of the various risks underwritten To check the activities of the insurer and to make sure that the products are sold as per the approved underwritten policy Decide the requirements for compilation and analysis of data To file with insurance regulator IRDAI at the end of every calendar quarter a list of all new products  To file a list of all products under categories as defined in the F and U guidelines UnAttempted CORRECT ANSWER: Decide the requirements for compilation and analysis of data Explanation: The skills & expertise of an actuary are utilized by the insurers by using the data’s compiled by them. It is then used to validate the rates to suggest the optimum rating practices. Q Of those listed below which of the following category of risks 32. can be the subject matter of General Insurance ? 1. Volatility in the Stock Markets 2. Property Risks 3. Life Only 1 Only 2 Only 3 Both 2 and 3 All 1, 2 and 3 UnAttempted CORRECT ANSWER: Only 2 Explanation: As per IRDA, insurance other than life insurance falls under the category of general insurance. General insurance covers property risks against fire, theft etc. besides other consequential losses associated with property. Life & stock market volatility is not a subject matter of  general insurance. Q _______ is an evidence of an insurance contract. 33. Proposal Premium payment Acceptance of proposal Cover note Promissory note UnAttempted CORRECT ANSWER: Cover note Explanation: Cover note is an evidence of an insurance contract. It’s a temporary document which is usually issued for a period of 30 days. Q As per IRDA regulations, _________ need to be clearly 34. mentioned in a general insurance policy. 1. All previous policies purchased by the insured 2. The franchise or deductible applicable 3. All the records of the claims made by the insured Only 1 Only 2 Only 3 Both 1 and 2 Both 2 and 3 UnAttempted  CORRECT ANSWER: Only 2 Explanation: Franchise or deductible limits the liability of insurers. The insured would not get the full amount of loss/ claim due to its application. The insured therefore must know the limitations of his policy at the time of taking the policy & hence it should be clearly mentioned on the policy itself. Q In order to account for any risk the company can encounter, 35. the amount of retention maintained depends on factors like -- 1. The Class of business 2. The Paid up capital and free reserve of the company 3. Expected gross premium Only 1 Only 2 Only 3 Both 2 and 3 All 1, 2 and 3 UnAttempted CORRECT ANSWER: All 1, 2 and 3 Explanation: The primary insurer requires transferring a part of the risk assumed & wishes to retain the residual risk (retention). The amount of retention depends upon various factors including ‘Paid up capital and free reserve’, ‘Expected gross premium’ and ‘Class of businesses’ Q How is LOSS RATIO calculated ? 36. Incurred losses + Earned premium Incurred losses / Earned premium (Incurred losses / Earned premium) * 100 Incurred losses – Earned premium (Incurred losses * Earned premium) * 100 UnAttempted CORRECT ANSWER: (Incurred losses / Earned premium) * 100 Explanation: The ratio is indicated by incurred losses divided with earned premium for the desired period. Q List the main benefits that computers provide to an 37. underwriter to underwrite more properly and accurately - 1. It reduces the cost of insurance 2. It reduces all possible risks 3. One can adjust the premium rate according to the risk Only 1 Only 2 Only 3 Both 1 and 3 Both 1 and 3 UnAttempted CORRECT ANSWER: Only 3 Explanation:  The computer enables the underwriter to manage the risk more efficiently and accurately by various systems including adjusting the premium rate in accordance with the risk. Q Insurance can be classified as a form of ______. 38. Risk supervision Risk reduction Risk avoidance Risk transfer Risk elimination UnAttempted CORRECT ANSWER: Risk transfer Explanation: As per the requirements of IRDAI relating to design and rating of insurance products, the product should be genuine insurance product offering a real risk transfer. It refers to risk transfer cum-sharing mechanism where the risk of an individual is transferred to another by way of pooling of risk to other individuals exposed to similar risks. Q With respect to Policy Prospectus, which of the following 39. statements is TRUE ? 1. The Prospectus shall show the profit margin for the insurer 2. The Prospectus will explain warranties and conditions associated with the policy 3. The Prospectus shall clearly specify who can avail of the policy Only 1 Only 2  Only 3 Both 1 and 3 Both 2 and 3 UnAttempted CORRECT ANSWER: Only 2 Explanation: Policy prospectus shall explain warranties and conditions associated with the policy. Other two points are not required in the prospectus. Q Which of the rating factor(s) associated with Homeowners 40. insurance ? 1. Type of construction 2. Occupational class code 3. Accident history Only 1 Only 2 Only 3 Both 1 and 2 Both 2 and 3 UnAttempted CORRECT ANSWER: Only 1 Explanation: All risks are not equal and the underwriting process requires classifying the risk based upon the risk characteristics. Under homeowners insurance, wooden structures are at greater risk of burning than stone  structure & thus higher premium is required to cover the risk. Q With regards to 'Named Peril' policies which of the listed 41. statements hold true ? The Policy should covers all risks possible The burden of proof always is on the insurer The policy provides coverage for all direct loss caused by specific perils mentioned in the policy It is not compulsory to name the insured perils in the policy There policies are expensive than All Risk policies UnAttempted CORRECT ANSWER: The policy provides coverage for all direct loss caused by specific perils mentioned in the policy Explanation: Named peril policy provides coverage for all direct loss or damage caused by specific perils mentioned in the policy. It can be either a single peril or a multi-peril policy. Q Which party agrees to compensate the other person against 42. possible losses? IRDA The Assurer The Insurer The Insured The Agent  UnAttempted CORRECT ANSWER: The Insurer Explanation: Insurers refers to a company which promises to pay, compensate or provides a defined service against the coverage of possible fortuitous losses. Q The formula for Pure premium method is : R = (P+F) / (I – V – 43. Q). In this what does 'V' stand for ? Value of sum insured Variable expense factor Pure premium Rate per unit exposure Profit and contingencies factor UnAttempted CORRECT ANSWER: Variable expense factor Q Which important factor has to be used for getting the Target 44. Loss Ratio in case of Loss Ratio method ? Balance of P/L account Previous years claims Profit and contingencies factor Projected claims Pool size  UnAttempted CORRECT ANSWER: Previous years claims Explanation: Under loss ratio method, target loss ratio can be obtained on the basis of actual loss experience (previous year’s claims) of the insurance company. Q In cases where the tariff is used only as a guide & the 45. underwriter has authority to depart from such tariff, _________. the authority to change the rates should be with persons who are responsible for underwriting and not with persons who are responsible for business development its not possible to introduce new rating factors the arbitrary changes in rates need not be justified its not possible to drop existing rating factors the rates can be compared with those products in different categories UnAttempted CORRECT ANSWER: the authority to change the rates should be with persons who are responsible for underwriting and not with persons who are responsible for business development Explanation: Where the tariff is used only as a guide & the underwriter has authority to depart from the tariff, the authority to vary the rates should rest with  persons responsible for underwriting and not with persons responsible for business development. Q The process of classifying subject matter according to their 46. degree of insurability is known as _______. Forecasting Rating Regulating Underwriting Seeding UnAttempted CORRECT ANSWER: Underwriting Explanation: Underwriting is the process of classifying subject matter according to their degree of insurability. The premium charged must be sufficient to cover losses & generate adequate profit to the insurers within the boundaries of the necessary regulations. Each risk is classified according to their degree of insurability. Q In case of BURGLARY INSURANCE policy on a first loss basis, 47. which is/are the prime underwriting safeguards ? Policy can be issued for as low as 10% of total value Damage to premises by burglars is excluded Policy is also available for small sum insured Cover is available to all locations where the goods are stored Property damage is also covered  UnAttempted CORRECT ANSWER: Damage to premises by burglars is excluded Explanation: There are various underwriting safeguards in case of burglary insurance policy on a first loss basis. One of them is damage to premises by burglars is excluded. Q As per IRDA, which of the following can be classified as a large 48. risk ? The total sum insured is of Rs 1000 crore or more at one location for material damage, property insurance and business interruption together combined The total sum insured is of Rs 300 crore or more at one location for material damage, property insurance and business interruption together combined The total sum insured is of Rs 3000 crore or more at one location for material damage, property insurance and business interruption together combined The total sum insured is of Rs 200 crore or more at one location for material damage, property insurance and business interruption together combined The total sum insured is of Rs 2500 crore or more at one location for material damage, property insurance and business interruption together combined UnAttempted CORRECT ANSWER: The total sum insured is of Rs 2500 crore or more at one location for material damage, property insurance and business interruption together combined Q Why do underwriting errors generally occur ? 49. Due to regulatory changes Due to lack of reinsurance Due to legal changes Due to faulty information collection Due to stiff competition UnAttempted CORRECT ANSWER: Due to faulty information collection Explanation: Underwriting activity faces intense pressure in a deregulated market for various reasons. Due to various pressures and variety of other reason including collection of faulty information, there could be underwriting errors committed by an underwriter. Q Select which of the below listed statements is/are TRUE : 1. 50. Rate making is prospective 2. Rate making is retrospective 3. Balance should be attained at the aggregate and individual level Only 1 Only 2 Only 3 Both 1 and 2 Both 1 and 3 UnAttempted CORRECT ANSWER: Both 1 and 2 Explanation: Rate making can either be Prospective or Retrospective. Prospective system analysis the past experience whereas Retrospective system does it by actual experience to determine the cost of coverage. Out of 50 questions 50 are un attempted.