I85PREP
⌘ K
BIBF Award for Certified Insurance Practitioner study materials
BIBF Award for Certified Insurance Practitioner study resources

BIBF Award for Certified Insurance Practitioner practice questions

One question at a time. Build your BIBF Award for Certified Insurance Practitioner understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Insurance Principles and Risk Management

Which term describes the possibility of loss or injury that creates the need for insurance?

  1. Premium
  2. Indemnity
  3. Warranty
  4. Risk Correct answer.

Explanation

Risk refers to uncertainty about outcomes that may produce loss, and it is the underlying reason individuals and businesses seek insurance protection. Insurance does not eliminate risk but transfers specified financial consequences to an insurer in exchange for a premium.

Question 2Insurance Principles and Risk Management

A homeowner faces the chance of fire damage, while an insurer pools thousands of similar homes. Which characteristic of insurable risk does this pooling primarily rely on?

  1. There must be a large number of similar exposure units Correct answer.
  2. The loss must be catastrophic to many at once
  3. Losses must be accidental and measurable
  4. The premium must exceed the loss every year

Explanation

Insurability depends on having many independent exposure units so that actual losses approach expected losses through the law of large numbers. Pooling similar risks makes future losses more predictable and supports stable pricing.

Question 3Insurance Principles and Risk Management

Which action is an example of risk avoidance?

  1. Installing sprinklers in a factory
  2. Deciding not to manufacture a hazardous chemical at all Correct answer.
  3. Buying a fire policy for a warehouse
  4. Accepting a small deductible on a policy

Explanation

Avoidance means eliminating the exposure entirely by not undertaking the activity that creates it. Refusing to manufacture a hazardous chemical removes the associated liability and property exposure rather than transferring or reducing it.

Question 4Insurance Principles and Risk Management

What is the primary purpose of a deductible in a property insurance policy?

  1. To share small losses with the insured and reduce moral hazard Correct answer.
  2. To increase the maximum limit payable
  3. To extend coverage to excluded perils
  4. To guarantee renewal of the policy

Explanation

A deductible makes the insured bear a specified initial amount of each loss, which removes small claims and encourages loss prevention. It also reduces moral hazard and morale hazard by keeping the insured financially interested in protecting the property.

Question 5Insurance Principles and Risk Management

Which principle prevents an insured from profiting from a loss by collecting more than the actual financial loss?

  1. Subrogation
  2. Proximate cause
  3. Utmost good faith
  4. Indemnity Correct answer.

Explanation

The indemnity principle holds that insurance should restore the insured to approximately the pre-loss financial position, no better and no worse. It is why actual cash value and replacement cost limits exist and why over-insurance does not yield a profit.

Question 6Insurance Principles and Risk Management

An applicant deliberately conceals a material fact that would have changed the insurer's decision to issue the policy. Which principle is most directly breached?

  1. Contribution
  2. Insurable interest
  3. Average clause
  4. Utmost good faith Correct answer.

Explanation

Utmost good faith requires both parties to disclose material facts honestly, and concealment or misrepresentation can render a policy voidable. The insurer relies on accurate information to assess and price the risk.

Question 7Insurance Principles and Risk Management

Which party must hold an insurable interest in a life insurance policy at the time the policy is taken out?

  1. The insurer
  2. The policyholder Correct answer.
  3. The attending physician
  4. The beneficiary only

Explanation

For life insurance, the applicant must have an insurable interest in the life insured when the contract is formed, such as a family or financial relationship. The interest need not continue at the time of death, which is why a policy remains valid after divorce in many jurisdictions.

Question 8Insurance Principles and Risk Management

What does reinsurance accomplish for a primary insurer?

  1. It replaces the insurer's obligation to its policyholders
  2. It eliminates the need for underwriting guidelines
  3. It guarantees that the insurer will never incur a loss
  4. It transfers part of the insurer's assumed risk to another insurer Correct answer.

Explanation

Reinsurance is insurance for insurers: the ceding insurer transfers part of its risk portfolio to a reinsurer in exchange for a share of premium. This protects solvency, increases capacity, and stabilizes results, but the original insurer remains liable to its policyholders.

Question 9Insurance Principles and Risk Management

A factory's machinery is damaged when a fire causes the sprinkler system to activate and water ruins the equipment. The fire is best described as which of the following?

  1. The proximate cause of the damage Correct answer.
  2. An intervening negligent act
  3. The proximate result of the water damage
  4. A remote cause excluded from cover

Explanation

Proximate cause is the dominant, efficient cause that sets in motion an unbroken chain of events leading to loss. Because fire started the sequence and water damage was a natural consequence, the fire is the proximate cause and a fire policy responds.

Question 10Insurance Principles and Risk Management

A building with actual cash value of 400,000 is insured for 300,000 under a policy with an 80 percent coinsurance clause. A covered loss of 80,000 occurs. Ignoring any deductible, what amount is payable?

  1. 80,000
  2. 60,000
  3. 64,000
  4. 75,000 Correct answer.

Explanation

The coinsurance requirement is 80 percent of 400,000, or 320,000. The insured carried 300,000, so the claim is reduced by the ratio 300,000 divided by 320,000, giving 0.9375 times 80,000, which equals 75,000.

Question 11Insurance Principles and Risk Management

An insured holds two property policies covering the same building: Policy A for 60,000 and Policy B for 40,000. A covered loss of 30,000 occurs, and both policies contain a rateable contribution clause. How much does Policy A pay?

  1. 18,000 Correct answer.
  2. 30,000
  3. 15,000
  4. 12,000

Explanation

Under rateable contribution, each insurer pays its proportion of the total insurance. Policy A's share is 60,000 divided by 100,000, or 60 percent, so it pays 60 percent of the 30,000 loss, which is 18,000.

Question 12Insurance Principles and Risk Management

After paying an insured's claim for collision damage caused by another driver, an insurer pursues the at-fault driver for reimbursement. Which principle supports this action?

  1. Coinsurance
  2. Average
  3. Warranty
  4. Subrogation Correct answer.

Explanation

Subrogation gives the insurer the right to step into the insured's legal position and recover from the party responsible for the loss after settling the claim. It supports the indemnity principle by preventing the insured from recovering twice.

Question 13Insurance Principles and Risk Management

An insured intentionally burns down a worthless warehouse to collect insurance money. Which hazard does this behavior illustrate?

  1. Moral hazard Correct answer.
  2. Physical hazard
  3. Speculative risk
  4. Morale hazard

Explanation

Moral hazard arises when dishonest conduct, such as deliberately causing a loss, is motivated by the prospect of insurance recovery. Insurers counter it through underwriting, claim investigation, and policy conditions.

Question 14Insurance Principles and Risk Management

Which situation best demonstrates the law of large numbers in insurance?

  1. A broker places a risk with several insurers
  2. An insurer raises premiums after one large claim
  3. A single homeowner's claim is paid in full
  4. An insurer's actual loss ratio approaches its expected loss ratio as its book of similar risks grows Correct answer.

Explanation

The law of large numbers holds that as the number of independent, similar exposure units increases, actual outcomes converge toward expected outcomes. This greater predictability allows insurers to set rates with confidence.

Question 15Insurance Principles and Risk Management

A manufacturing firm retains the first 50,000 of each liability loss and buys insurance above that amount. Which risk management technique does the retention represent?

  1. Risk retention Correct answer.
  2. Risk avoidance
  3. Risk transfer
  4. Risk elimination

Explanation

Retention means the organization deliberately keeps a portion of the financial consequences of risk. A deductible or self-insured retention is a planned retention used because the cost of transferring small losses may exceed the benefit.

Question 16Insurance Principles and Risk Management

Why does an insurer require a completed proposal form and medical or financial evidence before issuing a life policy?

  1. To create an insurable interest where none exists
  2. To transfer the risk to a reinsurer automatically
  3. To satisfy the principle of contribution
  4. To assess and classify the risk for underwriting and pricing Correct answer.

Explanation

Underwriting gathers material information so the insurer can decide whether to accept the risk and on what terms. Accurate classification allows premiums to reflect the expected cost of each risk group fairly.

Question 17Insurance Principles and Risk Management

An insured fails to maintain a required fire alarm system, and a policy condition states that coverage is suspended while the protection is out of service. What is the likely effect on a fire claim arising during that period?

  1. The claim is paid after applying the coinsurance clause
  2. The insurer must pay but may cancel at the next renewal
  3. The claim may be denied because a policy condition was breached Correct answer.
  4. The claim is paid in full because the fire was accidental

Explanation

Policy conditions set out duties whose breach can affect coverage, and a protective-safeguards condition typically suspends cover while the required protection is not maintained. The insurer may therefore decline a loss that occurs during the period of non-compliance.

Question 18Insurance Principles and Risk Management

Which statement best distinguishes a representation from a warranty in insurance contracting?

  1. A representation guarantees coverage, while a warranty creates insurable interest
  2. A representation is a statement believed true, while a warranty is a promise or condition that must be complied with Correct answer.
  3. A representation is always written, while a warranty is always oral
  4. A representation is made by the insurer, while a warranty is made by the insured

Explanation

A representation is a statement of fact made during negotiations that the insured believes to be true, whereas a warranty is a term of the contract that must be fulfilled or satisfied. Breach of a warranty can affect coverage more severely than an innocent misrepresentation.

Question 19Insurance Principles and Risk Management

An insured's policy has a 500 deductible and a 10,000 limit. A covered loss of 400 occurs. What does the insurer pay?

  1. 9,600
  2. 500
  3. 400
  4. 0 Correct answer.

Explanation

When the loss is less than the deductible, no payment is due because the insured bears losses up to the deductible amount. The deductible applies before the limit and does not create a payable balance.

Question 20Insurance Principles and Risk Management

Which loss is most likely excluded from a standard commercial property policy because it is considered uninsurable or catastrophic in nature?

  1. Loss caused by a war Correct answer.
  2. Damage from a burst pipe
  3. Theft of office equipment
  4. Fire damage to stock

Explanation

War and similar catastrophic perils are commonly excluded because losses can affect vast numbers of policyholders simultaneously, destroying the pooling mechanism. Such risks are often handled by government schemes or specialist markets instead.

Question 21Insurance Principles and Risk Management

An insurer calculates a pure premium for a class of risks. Which component does the pure premium represent?

  1. Commission and premium taxes only
  2. Investment income only
  3. Operating expenses and profit only
  4. Expected losses and loss adjustment expenses only Correct answer.

Explanation

The pure premium covers expected losses plus the expenses of adjusting them, expressed per unit of exposure. Loading for operating expenses, profit, and contingencies is added to the pure premium to produce the gross or office premium.

Question 22Insurance Principles and Risk Management

A broker arranges coverage with several insurers, each accepting a stated percentage of a large property risk under a single policy. This arrangement is known as which type of co-insurance?

  1. Coinsurance clause
  2. Contribution by rateable proportion
  3. Subscription or several liability Correct answer.
  4. Reinsurance treaty

Explanation

In subscription markets, several insurers each subscribe a percentage of the risk and are liable only for their own share, often evidenced by a single policy with multiple signatures. This differs from the coinsurance clause that penalizes underinsurance.

Question 23Insurance Principles and Risk Management

An insured has a policy with a 1,000 excess and an aggregate annual deductible of 3,000. Three separate covered losses of 1,200 each occur during the year. Assuming no other deductions, what total does the insurer pay for the year?

  1. 1,500
  2. 600 Correct answer.
  3. 3,600
  4. 2,600

Explanation

Each loss bears the 1,000 excess, so the insurer pays 200 per loss, totaling 600. The aggregate deductible of 3,000 is not exhausted because total retained losses are 3,000, which equals rather than exceeds the aggregate, so no further recovery arises.

Question 24Insurance Principles and Risk Management

Which situation would most likely be treated as a speculative risk rather than a pure risk?

  1. A vehicle being damaged in a collision
  2. A company investing in a new product line that may succeed or fail Correct answer.
  3. Lightning striking a building
  4. A customer slipping in a store

Explanation

Speculative risk offers the possibility of gain as well as loss, as with a business venture or investment. Pure risks involve only the chance of loss or no loss and are the traditional focus of insurable risk transfer.

Question 25Insurance Principles and Risk Management

What is the main function of a policy schedule within an insurance contract?

  1. It contains the insurer's marketing material
  2. It replaces the need for any policy wording
  3. It sets out the specific details of the insured, cover, limits, and period Correct answer.
  4. It records the insurer's investment portfolio

Explanation

The schedule personalizes the contract by identifying the insured, the subject matter, the sums insured or limits, the period of insurance, and applicable endorsements. The standard wording supplies general terms, while the schedule supplies the specific data for that risk.

Question 26Insurance Principles and Risk Management

Which term describes the cause of a loss, such as a fire or a windstorm, as distinct from the loss itself?

  1. Risk
  2. Exposure
  3. Hazard
  4. Peril Correct answer.

Explanation

A peril is the specific event or cause that produces a loss, such as fire, theft, or windstorm. Hazard, by contrast, refers to a condition that increases the chance or severity of a loss from a peril. Exposure is the state of being subject to loss, while risk is the uncertainty of loss.

Question 27Insurance Principles and Risk Management

An insured's policy has a $1,000 deductible. A covered loss of $2,500 occurs. How much does the insurer pay?

  1. $1,500 Correct answer.
  2. $1,000
  3. $3,500
  4. $2,500

Explanation

A deductible is the amount the insured must bear before the insurer pays. The insurer pays the covered loss minus the deductible: $2,500 − $1,000 = $1,500. The deductible applies once per loss unless stated otherwise.

Question 28Insurance Principles and Risk Management

Which characteristic best distinguishes insurance from gambling?

  1. Insurance pays only for losses caused by negligence, while gambling pays for chance events.
  2. Insurance involves large numbers, while gambling does not.
  3. Insurance transfers an existing pure risk, while gambling creates a new speculative risk. Correct answer.
  4. Insurance is regulated by government, while gambling is not.

Explanation

Insurance deals with pure risks that already exist and can produce only loss or no loss; the insured transfers that risk to the insurer. Gambling creates a new speculative risk that did not previously exist and can produce gain or loss. This distinction is why insurable interest is required in insurance but not in gambling.

Question 29Insurance Principles and Risk Management

Which method of handling risk involves setting aside funds to pay for losses that the organization decides to bear itself?

  1. Transfer
  2. Avoidance
  3. Loss control
  4. Retention Correct answer.

Explanation

Retention means the organization accepts the risk and funds any losses from its own resources, either actively by plan or passively by default. Avoidance eliminates the exposure entirely, transfer shifts it to another party such as an insurer, and loss control reduces frequency or severity.

Question 30Insurance Principles and Risk Management

A building with a replacement cost of $800,000 is insured for $480,000 under a policy with an 80% coinsurance clause. A covered loss of $200,000 occurs. Ignoring any deductible, what amount does the insurer pay?

  1. $120,000
  2. $150,000 Correct answer.
  3. $192,000
  4. $200,000

Explanation

The coinsurance requirement is 80% × $800,000 = $640,000. Because the limit carried ($480,000) is below that requirement, the insurer pays the loss multiplied by the ratio of carried insurance to required insurance: ($480,000 ÷ $640,000) × $200,000 = $150,000. The insured bears the remaining $50,000 as a coinsurance penalty.

Question 31Insurance Law, Regulation and Compliance

Under a typical insurable interest requirement, which party must hold an insurable interest in the subject matter at the time the loss occurs for a property indemnity policy?

  1. The loss adjuster handling the claim
  2. The insurance broker placing the risk
  3. The reinsurer behind the policy
  4. The insured claiming indemnity Correct answer.

Explanation

Indemnity insurance requires the person claiming the benefit to have a legally recognised economic relationship with the subject matter at the time of loss, otherwise the contract is a wager. Brokers, adjusters and reinsurers act in professional or contractual roles and do not need ownership-type interest. The requirement protects the principle of indemnity by preventing recovery beyond actual loss.

Question 32Insurance Law, Regulation and Compliance

Which principle prevents an insured from recovering more than the actual financial loss suffered under an indemnity policy?

  1. Indemnity Correct answer.
  2. Subrogation
  3. Contribution
  4. Utmost good faith

Explanation

Indemnity is the principle that restores the insured to the same financial position as before the loss, no better and no worse. Subrogation and contribution are mechanisms that support indemnity but are not the principle itself. Utmost good faith governs disclosure and fair dealing rather than the measure of recovery.

Question 33Insurance Law, Regulation and Compliance

An applicant deliberately omits a material fact that would have changed the insurer's decision to accept the risk. Which concept most directly describes this conduct?

  1. Waiver
  2. Estoppel
  3. Non-disclosure Correct answer.
  4. Innocent misrepresentation

Explanation

Non-disclosure is the failure to reveal a material fact that a prudent insurer would consider relevant to underwriting. Deliberate concealment of such a fact breaches the duty of utmost good faith. Misrepresentation involves a positive inaccurate statement rather than silence, and waiver and estoppel concern giving up or being barred from asserting rights.

Question 34Insurance Law, Regulation and Compliance

What is the primary purpose of a subrogation clause in an indemnity policy?

  1. To extend cover to additional named insureds
  2. To allow the insurer to pursue third parties who caused the loss Correct answer.
  3. To let the insured claim twice for the same loss
  4. To transfer the policy to a new owner automatically

Explanation

Subrogation gives the insurer, after paying a claim, the right to pursue recovery from the party legally responsible for the loss. This supports indemnity by preventing the insured from being over-compensated and by placing the burden on the wrongdoer. It does not create double recovery or change policy ownership.

Question 35Insurance Law, Regulation and Compliance

A broker collects premium from a client and fails to pass it to the insurer before the client suffers a loss. Which regulatory concern is most directly engaged?

  1. Capital adequacy of the insurer
  2. Market conduct of the reinsurer
  3. Actuarial reserving
  4. Handling of client money Correct answer.

Explanation

Intermediaries that hold premium on behalf of clients or insurers are subject to client money rules governing segregation, record-keeping and timely transfer. Failure to pass on premium can create coverage disputes and regulatory breaches. Capital adequacy, reinsurance conduct and reserving are separate prudential matters.

Question 36Insurance Law, Regulation and Compliance

Which term describes the transfer of a policyholder's rights and obligations under an insurance contract to another party?

  1. Endorsement
  2. Cession
  3. Novation
  4. Assignment Correct answer.

Explanation

Assignment transfers the insured's rights under a policy, often subject to insurer consent for liability policies. Cession is the transfer of risk to a reinsurer, while novation replaces a contract with a new one. Endorsement amends terms rather than transferring the policy.

Question 37Insurance Law, Regulation and Compliance

Which of the following best describes the role of a regulator's conduct supervision of insurers?

  1. Setting minimum solvency capital requirements
  2. Auditing insurers' tax returns
  3. Approving individual claim settlements
  4. Monitoring fair treatment of customers and market behaviour Correct answer.

Explanation

Conduct supervision focuses on how firms treat customers and behave in the market, including sales, disclosure and complaints handling. Prudential supervision, by contrast, addresses financial soundness such as solvency capital. Regulators do not approve individual claims or audit tax filings.

Question 38Insurance Law, Regulation and Compliance

A policyholder misrepresents their claims history when renewing a motor policy. The insurer later discovers the truth. Which remedy is most consistent with general insurance law?

  1. The insurer may be entitled to avoid the policy or reduce the claim Correct answer.
  2. The insurer must return all premiums without adjustment
  3. The insurer must honour the claim in full regardless
  4. The insurer must refer the matter to the police

Explanation

A material misrepresentation in general insurance can entitle the insurer to remedies ranging from avoidance to a proportionate reduction of the claim, depending on the governing regime and the nature of the misstatement. Automatic full payment would undermine the duty of fair presentation. Returning all premiums and police referral are not standard automatic consequences.

Question 39Insurance Law, Regulation and Compliance

Two property insurers cover the same building for the same interest and period. Following a loss, how does the principle of contribution generally operate?

  1. Insurers share the loss in proportion to their respective covers Correct answer.
  2. The insured chooses one insurer to pay the whole loss
  3. Each insurer pays its full policy limit independently
  4. The loss is paid only by the insurer with the earliest inception date

Explanation

Contribution requires insurers covering the same interest against the same peril to share the loss, typically in proportion to the amounts they are liable for. This preserves indemnity by preventing the insured from recovering twice. Independent full payment or single-insurer payment would over-compensate or unfairly burden one party.

Question 40Insurance Law, Regulation and Compliance

An insurer wishes to deny liability for a claim because the insured breached a policy condition requiring prompt notification. Which factor is most relevant to whether the insurer can rely on that breach?

  1. Whether the insured paid premium annually
  2. Whether the breach was causally connected to the loss suffered Correct answer.
  3. Whether the broker earned commission
  4. Whether the policy was sold online

Explanation

For many conditions, the insurer's ability to decline depends on whether the breach prejudiced its position or was connected to the loss. Payment frequency, commission arrangements and distribution channel do not affect the legal effect of a condition breach. This reflects the general principle that remedies should be proportionate to the prejudice caused.

Question 41Insurance Law, Regulation and Compliance

What is the main legal effect of a warranty in an insurance contract?

  1. It is a promise whose breach may discharge the insurer's liability Correct answer.
  2. It is a non-binding marketing statement
  3. It automatically increases the sum insured
  4. It transfers the policy to a third party

Explanation

A warranty is a promise by the insured that forms part of the contract, and breach may discharge the insurer from liability, subject to any statutory modification. It is not mere marketing language and does not alter sums insured or ownership. Modern regimes often require a causal link between breach and loss before the insurer can rely on it.

Question 42Insurance Law, Regulation and Compliance

A reinsurer agrees to indemnify an insurer for losses above a stated retention. Which regulatory classification best fits this arrangement?

  1. Consumer complaint scheme
  2. Tax reporting standard
  3. Prudential risk transfer Correct answer.
  4. Retail conduct rule

Explanation

Reinsurance is a risk transfer between insurers that supports the cedent's financial strength and is therefore a prudential matter. It does not directly govern retail customer conduct or complaints. Tax reporting is a separate fiscal obligation.

Question 43Insurance Law, Regulation and Compliance

An insurer uses an outsourced claims-handling provider. Which statement best reflects the insurer's regulatory responsibility?

  1. The regulator supervises the provider directly instead of the insurer
  2. Responsibility transfers entirely to the provider
  3. The provider must obtain a separate insurance licence
  4. The insurer remains accountable for outsourced activities Correct answer.

Explanation

Outsourcing does not transfer regulatory accountability; the insurer remains responsible for ensuring outsourced functions comply with applicable rules. Providers act on the insurer's behalf and are not normally required to hold an insurance licence. The regulator supervises the regulated insurer.

Question 44Insurance Law, Regulation and Compliance

Which of the following is the clearest example of a conflict of interest that an intermediary should disclose?

  1. Recording a client's instructions in a file note
  2. Providing a written summary of policy terms
  3. Receiving a volume-based commission from an insurer whose products it recommends Correct answer.
  4. Charging a disclosed fixed fee to the client

Explanation

A commission arrangement linked to recommending a particular insurer's products can bias advice and must be disclosed or managed. A disclosed fixed fee is transparent, and written summaries and file notes are ordinary good-practice steps. Identifying and managing such conflicts is a core conduct obligation.

Question 45Insurance Law, Regulation and Compliance

A customer complains that an insurer declined a claim without explaining the policy basis. Which regulatory expectation is most directly engaged?

  1. Fair treatment of customers and clear communication of decisions Correct answer.
  2. Immediate cancellation of the policy
  3. Automatic referral to a court
  4. Prompt payment of all claims regardless of terms

Explanation

Conduct standards require firms to treat customers fairly, communicate decisions clearly and explain the basis for a decline with reference to policy terms. Automatic payment regardless of terms would ignore the contract. Court referral and cancellation are not automatic regulatory expectations.

Question 46Insurance Law, Regulation and Compliance

Which document typically sets out the scope of an insurer's authority to transact business in a jurisdiction?

  1. The claims register
  2. The reinsurance treaty
  3. The policy schedule
  4. The licence or authorisation granted by the regulator Correct answer.

Explanation

A licence or authorisation from the regulator defines the classes of business an insurer may write and the conditions attached. The policy schedule records individual cover, while claims registers and reinsurance treaties are operational documents. Operating without the required authorisation is a regulatory breach.

Question 47Insurance Law, Regulation and Compliance

An insured intentionally sets fire to their own insured property to claim the sum insured. What is the most likely legal outcome?

  1. The claim may be refused and the policy avoided for fraud Correct answer.
  2. The insurer must pay but may increase future premiums
  3. The claim is payable only if a third party was involved
  4. The claim is payable because the peril of fire is covered

Explanation

Deliberate damage by the insured is fraud that breaches the policy and the duty of good faith, allowing the insurer to refuse the claim and potentially avoid the contract. The fact that fire is a covered peril does not extend to losses the insured caused intentionally. Premium adjustment is far too mild a response.

Question 48Insurance Law, Regulation and Compliance

Which statement best describes the effect of a policy exclusion clause?

  1. It extends cover to additional perils
  2. It removes specified perils or circumstances from the scope of cover Correct answer.
  3. It appoints the loss adjuster
  4. It sets the premium instalment schedule

Explanation

An exclusion narrows the cover by removing specified perils, circumstances or losses from the insurer's liability. Extending cover is done by endorsement or extension clause. Premium schedules and adjuster appointments are administrative matters.

Question 49Insurance Law, Regulation and Compliance

An insurer discovers that a policyholder has a prior criminal conviction for insurance fraud that was not disclosed and would have altered underwriting. Which action is most consistent with the duty of fair presentation?

  1. The insurer must pay the claim and then cancel the policy
  2. The insurer may treat the policy as voidable and consider proportionate remedies Correct answer.
  3. The insurer must ignore the conviction because it is spent
  4. The insurer must report the policyholder to the regulator before acting

Explanation

A material non-disclosure that would have changed the underwriting decision allows the insurer to consider remedies such as avoidance or proportionate adjustment. The insurer is not obliged to ignore the information or to pay first. Reporting to the regulator is not a precondition to exercising contractual remedies.

Question 50Insurance Law, Regulation and Compliance

An insurer relies on a standard-form clause that is ambiguous. Under general principles of contract interpretation applied to insurance, how is such ambiguity typically resolved?

  1. By referring the wording to the reinsurer
  2. By deleting the clause entirely
  3. In favour of the insured as the non-drafting party Correct answer.
  4. In favour of the insurer that drafted the wording

Explanation

The contra proferentem principle resolves ambiguity against the party that drafted the wording, usually the insurer. This protects the reasonable expectations of the insured, who had no hand in drafting. Deleting the clause or deferring to a reinsurer is not the standard interpretive approach.