w01 Examination Guide for Exams Up to 30 April 2015

Examination GuideTHE CHARTERED INSURANCE INSTITUTE W01 Award in General Insurance Based on the syllabus examined until 30 April 2015 Examination Guide Award in General Insurance Based on the syllabus examined until 30 April 2015 Contents Introduction to Examination Guide W01 Syllabus Specimen Examination Specimen Examination Answers and Learning Outcomes Covered 3 6 9 23 Published in February 2014 by: The Chartered Insurance Institute 42-48 High Road, South Woodford, London E18 2JP Telephone: 020 8989 8464 Fax: 020 8530 3052 [email protected] Email: © The Chartered Insurance Institute 2014 W01 Examination Guide 2014/2015 2 Although the specimen examination in this guide is typical of a W01 examination.Examination Guide Award in General Insurance Based on the syllabus examined until 30 April 2015 Introduction This examination guide has been produced by the Examinations Department at the Chartered Insurance Institute to assist students in their preparation for the W01 examination. To prepare properly for the examination. They should then review their performance to identify areas of weakness on which to concentrate the remainder of their study time.co. As a final check. it should be noted that it is not possible to test every single aspect of the syllabus in any one particular examination. but the CII recommends that students consult other reference materials to supplement their studies. Background Information CII examination questions undergo a rigorous writing and editing process before reaching an examination. Of course. Questions are very carefully worded to ensure that all the information required to answer the question is provided in a clear and concise manner.uk.co. They are then edited by an independent panel of experienced practitioners who have been specifically trained to ensure that questions are technically correct. the revised question will be published on the CII website: 1) Visit www. rather than on any particular tuition material.co. It contains a specimen examination with answer key.cii. Occasionally a question will require amendment after the examination guide is first published. The questions are written to strict guidelines by practitioners with relevant technical knowledge and experience. candidates should make full use of the tuition options available and read as widely as possible to ensure that the whole syllabus has been covered. Students should allow themselves two hours to complete the examination.uk. students should have completed the majority of their studies before attempting the specimen examination. Ideally. W01 Examination Guide 2014/2015 3 . which is located on the syllabus in this examination guide and on the CII website at www. Syllabus The W01 syllabus is published on the CII website at www.cii. each examination is scrutinised by the Senior Examiner and a CII assessment expert. the tuition material will provide the vast majority of the information required to perform well in the examination. clear and unambiguous.uk/qualifications 2) Select the appropriate qualification 3) Select your unit on the right hand side of the page Candidates should also refer here for the latest information on changes to law and practice and when they will be examined. Candidates should note that the examination is based on the syllabus. In such an event.cii. They should also endeavour to keep as up-to-date as possible with developments in the industry by reading the periodicals listed in the W01 reading list. Typically questions may ask ‘What’. While no questions involve complex calculations. C and D. No marks are deducted for candidates choosing an incorrect response. The general rule is that legislative and industry changes will not be examined earlier than 3 months after they come into effect. A multiple choice question consists of a problem followed by four options. Examination Information The method of assessment for the W01 examination is 100 multiple choice questions (MCQs). it must be a silent battery or solar-powered non-programmable calculator. Understand - To answer questions based on understanding.Examination Guide Skill Specification The skill level tested in each examination question is determined by the syllabus. chooses more than one response or fails to choose any response. from which the candidate is asked to choose the correct response. the candidate must be able to link pieces of information together in cause-and-effect relationships. labelled A. candidates are permitted to use calculators during the examination. B. W01 Examination Guide 2014/2015 4 . Candidates are not permitted. examples of which follow. to remove any papers relating to the examination from the examination room. The W01 syllabus provided in this examination guide will be examined until 30 April 2015. If you bring a calculator into the examination room. Learning outcomes for W01 begin with know or understand. ‘When’ or ‘Who’. 2 hours are allowed for this examination. provided it meets these requirements. The use of electronic equipment capable of being programmed to hold alphabetic or numerical data and/or formulae is prohibited. No mark is awarded if the candidate either chooses an incorrect response. Different skill levels lead to different types of question. Candidates are permitted to make rough notes. One mark is awarded for each correct response identified by the candidate. Know - Knowledge-based questions require the candidate to recall factual information. Candidates will be examined on the basis of English law and practice unless otherwise stated. Questions set on a know learning outcome can only test knowledge. under any circumstances. Each question will contain only one correct response to the problem posed. Questions set on an understand learning outcome can test either knowledge or understanding or both. Typically questions may ask ‘Why’. You may use a financial or scientific calculator. Each learning outcome specifies the level of skill required of candidates and thus the level at which candidates may be tested. It cannot be emphasised too strongly that understanding the precise meaning of the question is vital. Altering just one incorrect response to a correct response could make the difference between passing and failing. Candidates should pay particular attention to any words in the question which are emphasised in bold type. most. they should leave the question and come back to it later. maximum. for each syllabus learning outcome. main. Candidates should not spend too much time on any one question. The questions are worded very carefully to ensure that all the information required is presented in a concise and clear manner. for example. normally and usually. the percentage of questions in the examination that were answered correctly. W01 Examination Guide 2014/2015 5 . If candidates miss a crucial point when reading the question it could result in choosing the wrong option. it is prudent to use any remaining time to go through each question again. When all of the questions have been answered. Negative wording is further emphasised by the use of capital letters. After the Examination Rigorous checks are made to ensure the correctness of the results issued. minimum. Candidates should read carefully through the question and all the options before attempting to answer. If they cannot make up their mind. CANNOT. A pre-defined quota of passes to be awarded does not exist. If all candidates achieve a score of at least the pass mark. for example NOT.Examination Guide Examination Technique: Multiple Choice Questions The best approach to multiple choice examinations is to work methodically through the questions. to double-check that nothing has been missed. carefully. then all candidates will be awarded a pass grade. Individual feedback on the candidate’s examination performance is automatically provided and will indicate the result achieved and. It is designed to be used as a guide for study and is not a statement of actual number of questions that will appear in every exam. Know the structure and main features of the insurance market 22 3.Award in General Insurance At the end of this unit. • Candidates should refer to the CII update website www.co. Published November 2013 © The Chartered Insurance Institute 2013 W01 . Understand the main regulatory and legal principles applicable to the transaction of insurance business 14 5. Summary of learning outcomes Number of Questions in the Examination* 1. However. corporate governance and internal controls 2 *The test specification has an in-built element of flexibility. Important notes • This syllabus will be examined from 1 January 2014 until 30 April 2015. the number of questions testing each learning outcome will generally be within the range plus or minus 2 of the number indicated.uk/qualifications for the latest information on changes to legislation and industry practice and when they will be examined. Know key aspects of ethics. Understand the nature and main features of risk and insurance 20 2. candidates should be able to understand the: • Basic principles of insurance • Main legal principles related to insurance contracts • Main regulatory principles related to insurance business • Key elements to protect consumers. Understand the main legal principles governing insurance contracts 42 4. • Candidates will be examined on the basis of English law and practice unless otherwise stated.cii. 5 The different distribution channels used for the selling of insurance. 2.3 The risk management function and process. Indemnity 3.1 to 1. 2.1. 1. 3.18 The principle of subrogation and why it may or may not be pursued in simple circumstances. 3.9 The main functions of loss adjusters and loss assessors. The nature and main features of insurance 1.6 Suggested content of business agreements or best practice between an insurer and intermediary.14 How the indemnity principle is applied to contracts of insurance. 1. Agency 1. reinstatement and first-loss policies. new for old. 3.6 What is meant by a peril and a hazard and the difference between the two.10 How insurance benefits policyholders and society in general. Utmost good faith 3. 2. 2. 2.17 The principle of contribution and when and how it applies to the sharing of claim payments between insurers in straightforward property cases. 1. 3.13 The definition of indemnity and which types of policy are policies of indemnity.8 The main functions of claims personnel.15 What is meant by agreed value. 3. 3.7 How the principles defined in element 1. 3. 1. 1. Know the structure and main features of the insurance market The insurance market 2. as they relate to insurance.5 The types of risk that can be insured and the types of risk that cannot.4 The relationship between frequency and severity of loss. 1.4 The main features and services of intermediaries in the insurance market.3 The methods of creating an agent/principal relationship. 2. Subrogation 3. The insurance profession Insurable interest 3. dual insurance and self-insurance.3 The unique structure and main features of Lloyd’s.8 The basis of insurance as a risk transfer mechanism.11 The main functions of risk managers. 1. 2.9 How insurance operates by the pooling of risks. 2. 3. Proximate cause 3.10 The main functions of actuaries. Contribution 2. 3. 2.2 The main features of the different types of insurers. 3. 2. how it is modified by policy wordings and the contrast with life assurance contracts.12 The main functions of compliance officers.7 The requirements for insurable interest in insurance contracts. 3.6 are applied to a given set of circumstances. Published November 2013 © The Chartered Insurance Institute 2013 2 of 3 .9 How the duty of disclosure operates in non-life insurance contracts. 1. Understand the main legal principles governing insurance contracts The nature and main features of risk Contract 1.11 What is meant by co-insurance.5 The consequences of an agent’s actions on his principal.2 How contracts of insurance can be terminated.13 The functions of the Chartered Insurance Institute (CII). 3.8 How the principle of utmost good faith applies to contracts of insurance.10 The definition of a material fact and examples of such facts in connection with non-life proposals and how insurers may limit their entitlement to information by their wordings.1 The way in which the insurance market is structured on a global and regional basis.4 The duties of an agent to his principal and the duties of a principal to his agent.11 The consequences of non-disclosure or misrepresentation of material facts.12 The main classes of insurance in outline.16 How average is applied to non-complex cases of underinsurance.7 The main functions of underwriters. 2. 3.1 The concept of risk and risk perception.6 The basic purpose of reinsurance.2 How different risks are categorised. Understand the nature and main features of risk and insurance 3. 1. 2.1 The essentials of a valid contract of insurance.12 How the principle of proximate cause is applied to non-complex claims. 2004.8 The different approaches to capital adequacy.co. Stourbridge. Looseleaf.6 Tools used by regulators to supervise the industry. 4. Published November 2013 © The Chartered Insurance Institute 2013 3 of 3 . Award in General Insurance. detailed works which should be used selectively as and when required.13 The different types of fraud faced by insurers.9 The relationship between capital adequacy and solvency controls levels. Post Magazine.co.cii. 2nd ed.4 The role of compliance and audit. Periodicals The Journal. Also available online (CII/Personal Finance Society members only) at www. Reference works Anti money laundering and counter terrorism financing 4.co. 4.cii.3 The international standard setting body in relation to financial crime.uk/knowledge/resources (CII/Personal Finance Society members only).cii.2 You are strongly advised to study these before the examination. 4. Exam technique/study skills There are many modestly priced guides available in bookshops.5 Establishing a customer complaints procedure. You will also find advice at www. 5. Know key aspects of ethics. Weekly. 4. risk-based and prescriptive-based regulation). London: CII. Surrey: Croner. 4. 4.11 The FATF definition of money laundering. 5. Six issues a year. The reading list is provided for guidance only and is not in itself the subject of the examination. the FATF.3 Risk management frameworks outlined. 4. The objectives of ‘fit and proper’ requirements and the risks of unsuitability. Also available online at www. 4. You should choose one which suits your requirements. Suitability Examination guides 5.5 Prudential and market conduct regulation. Internal control system 5. Periodicals and publications will be of value in ensuring candidates keep up to date with developments and in providing a wider coverage of syllabus topics. The insurance manual. Capital adequacy CII/Personal Finance Society members can borrow most of the additional study materials below from Knowledge Services. Fraud 4.cii.4.uk/knowledge/resources. Note: The examination will test the syllabus alone. London: The CII. 4. CCH.1 The scope and operation of the CII ethical code of practice in broad outline.uk/knowledge/resources. 4. For further information on the lending service. Please visit www.12 Know your client: the main principles. the IAIS. Kluwer’s handbook of insurance.10 The regional and global problem. Understand the main regulatory and legal principles applicable to the transaction of insurance business Role of the regulator 4. Any reference materials cited are authoritative. West Midlands: Insurance Publishing & Printing Co.uk to buy online or contact CII Customer Service for further information on +44 (0)20 8989 8464. please go to www. Coursebook W01.14 Fraud management by the insurer. Looseleaf updated. Dictionary of insurance.7 The importance of establishing and maintaining capital adequacy.2 The international standard setting body for the insurance industry. C Bennett.cii.4 The different types of regulatory approaches (including principles-based.co.uk/knowledge/careersupport (CII/Personal Finance Society members only). Reading list The following list provides details of various publications which may assist with your studies. London: Pearson Education. 5. corporate governance and internal controls Ethical standards 5. London: Incisive Media. updated.1 The role of the regulator in the insurance industry. CII study texts can be consulted from within the library. 4.co. Kingston upon Thames. A particular risk. D. It is the best way to assess and quantify the sums insured at risk. high severity. D. D. high frequency. risk can be defined as the A. 8. C. coinsurers. low frequency. D. A fundamental risk. reliable new business predictions. unavoidable. low severity. C. A particular risk. a break even or a gain? A. composite insurers. A fundamental risk. 2. reinsurers. C. In relation to general insurance. 6. Which category of risk has the three possible outcomes of a loss. 5. B. C. fortuitous. D. It reduces the potential for loss and assists in quantifying risks. It is a fee-earning opportunity and encourages customer loyalty. inevitable. the law of large numbers assists insurers to make A. low frequency. syndicate B underwrites 25% and syndicate C underwrites the remaining 15%. certainty of loss. reliable investment return predictions.Examination Guide 1. In terms of frequency and severity. C. 4. C. reliable claim payment predictions. 7. D. A pure risk. B. the risk of an explosion aboard an oil rig is classed by insurers as A. A speculative risk. high severity. Which type of risk arises from a cause outside the control of any one individual and affects a large number of people? A. frequency of loss. B. dual insurers. B. B. C. C. D. Lloyd’s syndicate A underwrites 60% of a risk. D. B. By operating a pooling of risk system. B. W01 Examination Guide 2014/2015 9 . From an insurer’s point of view. 3. A pure risk. Collectively the syndicates are acting as A. high frequency. a risk to be insured must be A. It is the main way for an insurer to gain an understanding of a policyholder’s business. B. A speculative risk. possibility of loss. avoidable. Why do underwriters regard risk management as being important? A. reliable premium income predictions. measure of loss. low severity. B. 11. D. The main benefit to an individual when insuring his house is that A. is always covered by an insurance policy. C. It provides for the payment of cash if the business makes a trading loss. does not affect the risk to be insured. D. A risk where there is a physical hazard which increases the likelihood of a loss occurring. C. as a means of risk transfer. B. what type of risk CANNOT be insured? A. C. dual insurance. D. In financial terms. A pure risk. The policyholder is able to swap an unknown future loss with a specified cost now. maintenance costs are covered. D. W01 Examination Guide 2014/2015 10 . In relation to insurance. B. B. D. A fundamental risk. It underwrites the debts owed by the business. attractive to a policyholder? A. D. The administrative cost of handling claims is borne entirely by the insurer. B. A peril. B. How does the provision of insurance help the cash flow of a business? A. an event which may give rise to a loss. A hazard is defined as something which A. The policyholder’s premium is generally less than potential future claims. an internal feature that increases the chance of an event which may give rise to a loss. the risk of a loss is transferred. C. A hazard. A risk where the severity of the potential loss is difficult to quantify. is always excluded from an insurance policy. A risk where the potential for a large number of homogeneous exposures is absent. it reduces the chance of damage to the property. an external feature that increases the chance of an event which may give rise to a loss. A large company has decided to set aside money to settle frequent small losses that occur. mortgage or rental costs are lower. C. The policyholder’s cash flow is improved by upfront payment of the premium. can adversely affect the risk to be insured. It prevents losses which could interrupt the business operation from occurring. 16. It lessens the need for the business to keep cash reserves.Examination Guide 9. 13. self-insurance. D. C. 14. coinsurance. In relation to general insurance. B. a peril is A. A risk where no financial measurement of the potential loss can be made. 15. the chance of an event which may give rise to a loss. why is insurance. C. 10. reinsurance. C. This is known as A. 12. What is the presence of flammable composite panels in the construction of a factory building best described as? A. D. B. brokers. A policyholder will employ a loss assessor primarily to A. W01 Examination Guide 2014/2015 11 . advisers. 22.Examination Guide 17. C. B. Pooling. D. Property insurance. Which basic principle ensures the premium payable under a contents insurance policy is equitable and reflects the level of risk brought to the insurer? A. Which type of insurance policy provides cover in the event of the misappropriation of goods by an employee? A. part of the risk is carried by the insured. A loss assessor. B. A theft insurance policy. D. Pecuniary insurance. An underwriter. C. C. 18. 21. agents. 19. Contribution. D. A fidelity guarantee insurance policy. B. D. Complete control by the subsidiary companies. D. B. more than one insurer shares the same risk. D. Control by the parent company over high-risk business and control by the subsidiary companies over low-risk business. B. C. An insurance broker. prepare and present an insurance claim. advise on risk management issues. Direct insurance companies operate via the telephone or mail directly to A. D. negotiate renewal terms. 20. more than one policy covers the same risk. An employers’ liability insurance policy. C. B. Subrogation. A money insurance policy. 24. From whom could an individual obtain assistance in determining the best provider of the insurance required? A. consumers. C. Indemnity. D. part of the risk is carried by a reinsurer. review his insurance cover. What level of underwriting control would normally be put in place by an insurer that operates worldwide through subsidiary companies? A. A risk manager. Control by the parent company over low-risk business and control by the subsidiary companies over high-risk business. A comprehensive policy is an example of which class of insurance? A. 23. Dual insurance exists when A. Motor insurance. C. Travel insurance. B. C. Complete control by the parent company. B. The insured has renewed a policy with the same insurer for a subsequent year. B. Business from individuals who have already insured the risk with an insurer. B. An insurer who has accepted a risk too large to retain can choose to insure part of the risk with A. B. The insured has taken out a second policy with another insurer on the same subject matter. C. D.Examination Guide 25. 32. The insurer has replaced an insured’s existing policy with a new one. They incur smaller advertising costs. They receive fewer claims. A direct insurer. A composite insurer. B. C. policyholders. 28. B. B. a cedant. A purchaser of a new refrigerator wishes to obtain extended warranty insurance cover for it. shareholders. Business originally underwritten by an insurer. Managing Agents. board of directors. C. 29. A mutual insurer. B. B. An insurer’s representative. C. A captive insurer. a coinsurer. The shop where the purchase was made. C. A local insurance broker. What does it mean when an insurance policy is reinsured? A. W01 Examination Guide 2014/2015 12 . 27. D. D. C. What type of business do reinsurers usually accept? A. D. employees. Business from non-insurance companies which have large insurance needs. They can charge higher premiums because they offer a faster service. 26. Which type of insurer does NOT provide insurance to the general public? A. C. A proprietary insurer. Corporate members. 31. They do not have to pay commission charges. C. an assignee. Business which insurers have refused to underwrite. The surplus funds of a mutual insurer may be distributed to the insurer’s A. What is the main financial advantage for insurers that operate on a direct basis? A. What are public limited companies who underwrite business within the Lloyd’s market otherwise known as? A. Underwriting names. From where is he most likely to obtain the cover? A. a reinsurer. 30. The insurer has passed on all or part of an insured’s risk to another insurer. D. D. D. D. Lloyd’s syndicates. C. What is the main function of a call centre operative dealing with motor claims? A. C. Monitoring of the internal audit department. What are these overpayments known as? A. 37. B. B. Ensuring a firm complies with regulatory requirements.Examination Guide 33. Taking down the initial notification details. Arranging payment in a final settlement. D. What is the Chartered Insurance Institute? A. Who is specifically responsible for identifying areas within a business where potential losses could be controlled or eliminated? A. B. B. an insurance market. C. B. Which insurance professional decides whether a proposed risk is accepted by an insurer? A. D. 38. Lloyd’s is A. Identifying and analysing market trends. Subrogation. D. To apply mathematical techniques to business problems. an insurance syndicate. To manage the insurer’s investment portfolio. One of the main functions of claims personnel is to settle claims with a minimum of wastage or avoidable overpayments. D. An arbitration authority. A risk manager. A regulatory body. A reinsurer. 34. To negotiate claim settlement with the insured on behalf of the insurer. C. D. 39. D. Liaising with accident repairers. B. A risk manager. W01 Examination Guide 2014/2015 13 . C. C. What is the main function of an actuary? A. A professional body. An actuary. a Government body. C. To develop new insurance products based on market research data. B. C. Consideration. D. Approving premium rates. B. A loss assessor. 35. An underwriter. A loss adjuster. 40. Proximate cause. an insurance company. What is a compliance officer’s primary responsibility? A. Leakage. A trade association. Assessing the extent of the damage to the insured’s vehicle. 36. D. An actuary. Under which insurance principle can an insurer assume the rights of the insured against a third party to recover money paid out under a claim? A. The insurer only. C. The insurer only. C. offer. Arbitration. at what point is the acceptance complete? A. After investigating a liability claim for injury.Examination Guide 41. The third party insurer. D. B. Which insurance principle seeks to place the insured in the same position after an insured loss as existed immediately before? A. The negligent third party. Both the insured and the insurer. The proposer only. C. Contribution. B. invitation to treat. The insurer. To assess the risk before cover is provided. B. invitation to treat. Subrogation. When the letter of acceptance is drafted. acceptance and consideration. The essentials of a valid contract of insurance are A. The insured only. D. D. B. B. 42. Both the insurer and the proposer. 44. B. C. C. Utmost good faith. if anyone. When the letter of acceptance is posted. W01 Examination Guide 2014/2015 14 . Contribution. D. acceptance and consideration. The insured. Under contract law. offer and consideration. 47. may terminate a household insurance policy? A. B. What is the main function of an insurance broker? A. To determine the validity and value of a large insurance claim. To whom does the principle of utmost good faith apply in relation to insurance contracts? A. C. C. C. 48. 46. Any interested third party. offer and acceptance. When the letter of acceptance is received by the insurer. Subrogation. Indemnity. Average. D. D. D. To decide on what terms a proposed risk should be accepted by an insurer. 45. When the letter of acceptance is acknowledged by the insurer. 43. B. To place insurance business on behalf of a client. Neither the insured nor the insurer. Who. invitation to treat. if a proposer is accepting an offer of insurance by return of post to the insurer. D. from whom does the loss adjuster usually receive payment of fees? A. At the time the proposal form is completed. B. An agent. an early termination fee. a refund of any tax liability. D. The principal cannot avoid the contract as he is bound by it. The principal may invoke the undisclosed principal rule. can the principal avoid the contract? A. B. Agency by consent.Examination Guide 49. When the policy is recommended. The investment income received from insurance premiums. 53. When advising on how to make a claim. The interest from an investment. This is an example of the application of the A. Under the cancellation of risks section of an agency agreement. B. Agency by necessity. 50. contra proferentem rule. 54. The financial interest which a person has in an item. if at all. C. C. The broker subsequently advises the client on how to make a claim. D. D. Agency by apparent authority. the loss of which can be insured against. C. an unexpired premium charge. When the premium is collected. If a principal agrees to be bound by the actions of an agent who has acted outside the terms of the agency agreement. At the time the policy goes on risk. The interest payable on insurance instalments. At what point in this scenario is the insurer the broker’s principal? A. C. C. enters his principal into a contract with a client. D. principle of insurable interest. What is insurable interest? A. C. The principal can terminate the agency retrospectively. At the time of the quotation. a statement is usually included requiring the intermediary to pay the insurer A. 52. 55. B. C. material damage proviso. acting within the terms of the agency agreement. 51. At the time of a claim. Agency by ratification. When must insurable interest first exist in order for a private motor insurance policy to be enforceable by law? A. what type of agency has been created? A. B. How. D. D. An insurance broker recommends and arranges a policy for his client and collects the premium on behalf of the insurer. any unearned commission. D. The principal can refuse to ratify the contract. principle of utmost good faith. An individual borrows his friend’s car on the condition that he arranges comprehensive insurance cover on the vehicle for himself. The individual’s broker informs him that he is unable to do so as he has no financial relationship with the vehicle. B. B. When the policy is arranged. W01 Examination Guide 2014/2015 15 . C. This information is an example of A. insurable interest. statute or warranty. 59. W01 Examination Guide 2014/2015 16 . At policy inception. legal personality. C. a material fact. B. When the value of contents is mistakenly underestimated by the insured. assignment. D. Financial details upon which ability to pay the premium can be assessed. change of risk clause. C. the proposer advised the insurer that he only had a single Yale lock on the main entrance to the property to be insured. C. Under the duty of disclosure. what is required to be disclosed by the proposer in relation to an insurance policy? A. D. reinstatement memorandum. B.Examination Guide 56. In what three ways can insurable interest arise? A. Facts of law which affect the assessment of the risk. Common law. At the beginning of negotiations. Under a typical fire insurance policy. contract or mediation. B. contribution clause. 62. B. contract consideration. D. C. B. subrogation clause. In connection with an insurance policy. On the acceptance of an offer. When a premium instalment is not paid. D. mediation or reinstatement. contract or statute. On an application for a theft insurance policy. 60. The insurance principle which imposes a duty on the parties of a contract ‘not to misrepresent any matter relating to the insurance’ is known as A. 58. Conciliation. utmost good faith. 57. In what circumstances may an insurer have the right to avoid paying a claim and to void a household contents insurance policy from inception? A. the principle of utmost good faith is modified by the A. D. C. On the making of an offer. 61. at what point does the duty of disclosure first arise? A. B. When an undisclosed material fact is discovered. Indemnity. C. B. Material facts upon which the risk is to be assessed. When a second insurer is used by the insured. common interest. D. D. Common law. Personal requirements upon which the suitability of the policy can be assessed. best advice. Two personal accident insurance policies are effected. An individual falls from his horse and is injured. Following a football match. The next day. In respect of loss of limb cover. £55. C. The cost of reconstruction at the time of the loss.000 D. What is the total amount that the insured will receive in the event of a valid loss of limb claim? A. B. C. 67. a gale blows it over onto a house. The cost of reconstruction at the time of policy inception.200. £25. What is the proximate cause of his death? A. D.000. £900. The fire from the cars. the loss adjuster discovers that the insured deliberately withheld material facts relevant to the claim. last cause. 66.Examination Guide 63. causing the tree to be deemed unsafe. C. The original purchase price. the first policy provides £25. £300. The fall from his horse. £27. The road traffic accident. £600. The proximate cause of a loss will always be the A. The breakage of the boutique window.000 B.000 D.000 C. The infection.000 and the second policy provides £30. Assuming that the sum insured is adequate. What is the maximum amount the insurer can recover from the insured? A. His stay in hospital. An insurer is in the process of settling a claim and has already made three interim payments of £300. B. B. C. The football match. He is taken to hospital where he dies due to an infection caught at the hospital. 65. 200 rival fans riot in the street setting fire to cars and breaking shop windows. D. B. only cause. B. C. The window of a boutique is broken and smoke from a burning car outside damages the stock. D. Prior to payment of the final amount of £300. D. The original purchase price less an allowance for wear and tear. The delay in tree removal.000 64. dominant cause. What is the proximate cause of the stock damage? A. £1.000 each. The location of the tree.000. Riding his horse. W01 Examination Guide 2014/2015 17 . The gale. What is the proximate cause of the damage to the house? A. D.000 B. The riot. before action can be taken to remove the tree. first cause. 68.000 69. £30. In a road traffic accident a truck hits a tree. what is the measure of indemnity used in the case of the total loss of a building? A.500 C. 000 73.000 D.500 D. If a £50.000 which then increases to £21. Under a household insurance policy.000 B. £1.000 of stock and a fire destroys £12.000. is destroyed by an insured peril. by the insurer? A. £37. £40. How much is the airline entitled to receive for the loss? A. is insured against theft on a first loss basis with a sum insured of £20. if any. agreed value cover. 74.000. A supplier’s total stock. A farmer loses a building containing livestock feed during a lightning strike. Under the standard fire insurance policy. A new machine costs £1.000. £12.000 under an insurance policy which is subject to average.000. D.000. £800 C. C.000 and insured for £150. Garage buildings are valued at £200. C.000. £20. £10.000. However. £20. underinsurance cover. first loss basis of cover.000 76.Examination Guide 70. D. £6.500 B. The loss adjuster advises the insurer that the building is adequately insured. £700 B.000 D.000 72. In both cases the cost of transport and installation is £100. however the livestock feed is only insured for 80% of market value. which has a sum insured on stock of £10. the reinstatement basis of cover is more commonly known as A. principle of contribution. what is the maximum amount payable. £1.000 D.000 C.100 71. new for old cover.000 B.000.000 on the day the aircraft crashes and is a total loss. first loss cover. will the insured receive after the application of average? A. If stock valued at £40. £33. which is adequately insured on an indemnity basis. A factory contains £20.000 75. if any. B. £8. when the claim is agreed it has fallen to £19.000 and a second-hand machine £700.000. B. how much will the insurer pay? A. what maximum amount.000 C.000. £21. £10. A machine.000 is stolen. B.000. £18. £19.000. How much will the insured receive? A. subrogation waiver. £50.000 C.000. At policy inception the market value is £18. This is an example of the application of the A.000 D. W01 Examination Guide 2014/2015 18 . The claim is paid in full with no deduction for underinsurance. An aircraft is insured on an agreed value basis of £20.000 insured loss is incurred.333 C. special condition of average. valued at £100. £12.000 of it. Nil. D. Utmost good faith. who is later identified. B. Average. what maximum payment will the insured receive from the first policy if a fire causes damage costing £60. whilst Company B insures it for £150. The contribution condition. Caveat emptor. £25. D. £1. 82. but failed to warn of one extra exclusion which subsequently appeared in the policy document. B.Examination Guide 77.000 and Company B’s for £55. The arbitration clause.000 C. Company A’s insurer is liable for £33. Company A insures the building for £100. As soon as a valid claim is notified.000 D. £9. £20. 79.000. Which insurance principle gives an insurer the right to call upon other insurers to share in the settling of a claim? A. D. Utmost good faith. C.000 and Company B’s for £33.000. Subrogation.000 occurs? A. £50. at what stage can an insurer begin to exercise subrogation rights? A. Company A’s insurer is liable for £22. 78. What option can the insurer exercise to recover the claim paid? A. in settlement of a claim for damage caused by a negligent third party.000 and is covered by two fire insurance policies. Subrogation. C. C. What principle of insurance has the insurer breached? A. B. An insurer pays a policyholder to repair the damage to his car caused by a vandal.000 and in addition allows the insured to retain the salvage.000. An insurer pays £10.000 83. D.000 D.000 is jointly owned by Companies A and B. who each individually arrange insurance on it. A building valued at £250. £11. As soon as settlement has been agreed.000.000 to repair? A.000 and the other with a sum insured of £100. B. The average clause.000 C. £30. Contribution.500. B.000 B. worth £1.000.000. one with a sum insured of £50. Under the principle of contribution. W01 Examination Guide 2014/2015 19 . How much can the insurer claim from the third party when exercising its subrogation rights? A. Company A’s insurer is liable for £27.500 and Company B’s for £27.000. Company A’s insurer is liable for £55. Prior to the inception of a motor insurance policy an insurer provided the policyholder with a list of exclusions. As soon as the insured has been paid. When a claim is made under a standard fire insurance policy.000 B. Proximate cause. C. A cottage is valued at £100. D. C. 81.000 and Company B’s for £22. Its subrogation rights. £10. As soon as any third party admits liability.000 80. How much of the valid claim is each insurer liable to pay if a loss of £55. compensating relevant victims. 85. D. C. B. Authorisation. Consumer education. 89. Risk-based regulation. C. the measure of indemnity will ensure that he will be A. If an insured suffers a loss covered under his insurance policy. D. What type of regulation requires the completion of tasks within a stated maximum number of days? A. C. This is most likely to relate to which specific aspect of its regulatory role? A. D. Principles-based regulation. B. Investigation of cause. D. Once action has been taken by an institution as a direct result of the regulator utilising a remedial tool. implementing standards. C. Report on progress. improving consumer awareness. able to make a profit from the loss. Compensation. Trade bodies. C. maximise the professional knowledge of sales advisers. D. D. D. 87. Enforcement action. C. C. recommending legislative changes. help maintain confidence in the industry. dealing with new threats and A. provided with replacement items. B. Reinsurers. The four stated objectives of the Financial Action Task Force relate to clarifying standards. Public censure. what is typically the next step in this process? A.Examination Guide 84. in a worse financial position than before the loss. W01 Examination Guide 2014/2015 20 . B. The regulator is about to carry out a fit and proper assessment. Who holds majority representation within the International Association of Insurance Supervisors? A. Regulators. 88. Prescriptive-based regulation. Market discipline. B. Insurance consultants. The two overriding objectives of the market conduct regulations in the general insurance market are to provide policyholders with a high level of security and to A. Conduct-based regulation. engaging with others internationally. deter any attempts at money laundering activity. ensure the capital adequacy of intermediaries. 90. B. B. placed in the same financial position as he was before the loss. 86. C. When the regulator carries out an inspection at an intermediary’s premises in order to identify any problems. It is simple to calculate and apply. 97. Its origin. 95. C. what is generally considered to be the main advantage of using the fixed ratio model method of determining capital adequacy levels? A. It focuses on the severity rather than the likelihood of loss. The regulator will intervene by imposing a fine. Minimise the risk of an underwriting loss. Prescriptive. 96. D. It is relatively tax-efficient. Corporate stakeholders. Only the majority shareholder. If an insurer’s capital falls slightly below the prescribed capital requirements level. C. It focuses on the future rather than the present. B. must normally be confirmed? A. The insurer will cease to underwrite immediately. What key objective should an insurer satisfy to support the regulator’s capital adequacy requirements? A. Avoid the need for reinsurance cover. B. D. Its future destination. B. Policyholders. C. W01 Examination Guide 2014/2015 21 . operational risk manager. In the general insurance market. According to the Financial Action Task Force’s definition of money laundering. Only the top three shareholders. Compared to other approaches. The identity(ies) of which shareholders. C. Diagnostic. what type of tool is this action normally described as? A. An insurer is going through customer due diligence procedures for a customer who is a public company. B. the aim of money laundering is to disguise what in relation to the criminally obtained proceeds? A. All of the shareholders. board of directors. Directors or employees of the insurer. B. C. D. if any. Meet its obligations to policyholders. 98. Address the reasonable expectations of its shareholders. 92. 94. D.Examination Guide 91. 93. what action will be taken? A. D. appointed actuary. D. Its current location. compliance department. internal fraud normally means fraud committed by whom? A. B. D. The regulator will temporarily intervene by taking control of some of the insurer’s assets. C. The insurer will take some corrective action whilst continuing to underwrite. Directors or employees of the intermediary. D. B. Quantitative. None of the shareholders. Its size. B. C. Best practice states that the head of an insurer’s internal audit department should be ultimately accountable to the A. Remedial. All of the complaints except the ones which cannot be resolved. C. W01 Examination Guide 2014/2015 22 . C. Only the written complaints. Soundness of judgement. Sufficient degree of knowledge. which complaints received should be logged? A. D. experience and professional qualifications. Only the complaints classed as serious or significant. Financial soundness. D. B. B. 100. All of the complaints.Examination Guide 99. Which fit and proper requirement applies to key functionaries but NOT to significant owners? A. Integrity demonstrated in personal behaviour and business conduct. As part of an insurer’s complaints handling procedures. 8 2.6 4.4 1.12 1.1 2.18 3.11 1.1 3.13 3.4 W01 Examination Guide 2014/2015 Question Answer Learning Outcome 3 43 B 44 C 45 D 46 D 47 B 48 C 49 D 50 C 51 A 52 D 53 C 54 C 55 C 56 A 57 D 58 A 59 A 60 C 61 D 62 C 63 C 64 A 65 B 66 B 67 B 68 D 69 A 70 B 71 C 72 C 73 C 74 C 75 A 76 C 77 B 78 A 79 A 80 A 81 D 82 C 83 D 84 C 42 Questions Learning Outcome 3.10 3.18 3.12 3.5 3.10 2.3 4.4 3.9 4.16 3.15 3.13 Question Answer Learning Outcome 4 85 A 86 B 87 B 88 B 89 C 90 D 91 A 92 C 93 D 94 B 95 C 96 A 97 B 98 B 14 Questions Learning Outcome 4.9 3.8 3.Examination Guide Specimen Examination Answers and Learning Outcomes Covered Question Answer Learning Outcome Learning Outcome 1 1 A 2 A 3 D 4 D 5 A 6 A 7 D 8 B 9 C 10 A 11 A 12 B 13 B 14 A 15 D 16 D 17 A 18 B 19 B 20 C 20 Questions 1.1 2.15 3.5 2.5 2.14 3.7 1.8 3.13 4.3 2.14 3.12 1.1 4.10 3.7 3.6 3.2 1.3 1.10 1.9 2.14 Learning Outcome 5 99 D 5.6 1.13 2.7 4.11 2.9 1.2 2.7 3.1 3.17 3.8 1.16 3.9 3.12 2.2 3.6 2.18 3.2 100 D 5.17 3.9 Learning Outcome 2 21 A 22 C 23 D 24 B 25 C 26 A 27 A 28 A 29 B 30 D 31 D 32 C 33 D 34 C 35 A 36 B 37 A 38 D 39 B 40 B 41 B 42 D 22 Questions 2.8 2.5 4.11 4.3 3.6 4.12 3.17 3.9 2.5 2.14 3.18 3.8 4.10 1.12 3.2 4.5 1.11 3.6 1.11 1.7 2.4 2.15 3.5 1.4 4.12 3.8 3.7 3.7 3.11 3.2 1.6 2.1 1.5 2 Questions 23 .2 2.3 2.11 1.12 4.16 3.