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CII IF7 practice questions

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Question 1Insurance claims handling

Under the principle of indemnity, what is the primary measure of the amount payable on a domestic buildings claim following a fire?

  1. The outstanding mortgage balance secured on the property at the date of loss
  2. The cost of restoring the insured to the same financial position as immediately before the loss Correct answer.
  3. The original purchase price paid by the policyholder for the property
  4. The full reinstatement cost of the property regardless of its pre-loss condition

Explanation

Indemnity aims to place the insured in the same financial position after the loss as before it, no better and no worse. For buildings this is normally assessed as the cost of repair or reinstatement less any betterment, subject to the sum insured and policy terms.

Question 2Insurance claims handling

A householder discovers a burst pipe has damaged flooring over several weeks before anyone noticed. Which policy condition most directly determines whether the claim is paid?

  1. The reasonable precautions condition Correct answer.
  2. The subrogation condition
  3. The contribution condition
  4. The average condition

Explanation

Reasonable precautions conditions require the insured to take care to prevent loss or damage, and insurers examine whether neglect allowed the escape of water to continue. Subrogation, average and contribution deal with recovery, underinsurance and multiple policies rather than the insured's standard of care.

Question 3Insurance claims handling

An insurer pays a total loss claim on a commercial vehicle and then recovers the amount from the negligent third-party driver. Which doctrine underpins the insurer's right to do so?

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

Explanation

Subrogation allows the insurer, having indemnified the insured, to step into the insured's shoes and pursue recovery from the party responsible. The insured cannot recover twice, and any recovery belongs to the insurer up to the amount paid.

Question 4Insurance claims handling

A claim is notified two years after a domestic burglary, and the policy requires notification as soon as reasonably practicable. What is the most appropriate first step for the handler?

  1. Decline the claim automatically because late notification voids all cover
  2. Investigate the reason for delay and consider whether the insurer has been prejudiced Correct answer.
  3. Pay the claim in full because burglary is a covered peril
  4. Refer the matter to the Financial Ombudsman Service immediately

Explanation

Late notification is a breach of a claims condition, but the insurer must show prejudice before it can rely on that breach to deny liability. The handler should establish the reason for delay and whether investigation or recovery has been hampered.

Question 5Insurance claims handling

Which document must a claims handler review first to confirm whether a peril is covered and what excess applies?

  1. The Financial Conduct Authority handbook
  2. The loss adjuster's interim report
  3. The insurer's complaints procedure
  4. The policy schedule and wording Correct answer.

Explanation

The policy schedule and wording set out the insured property, sum insured, perils covered, exclusions and excess. Adjuster reports and regulatory material are relevant later but cannot establish the contractual scope of cover.

Question 6Insurance claims handling

A loss adjuster reports that a fire was started deliberately by the policyholder's adult son who lived at the property and paid no rent. How should the handler approach liability?

  1. Investigate whether the son was a person whose acts bind the insured under the policy's fraud or intentional acts provisions Correct answer.
  2. Decline the claim solely because arson is always excluded
  3. Pay in full because the policyholder did not start the fire personally
  4. Refer the claim to the police and close the file without further action

Explanation

Most household policies exclude deliberate acts by the insured and by persons living at the premises or acting with the insured's authority. The handler must establish the son's status and whether his conduct is attributed to the insured before deciding liability.

Question 7Insurance claims handling

What is the purpose of an excess on a household policy?

  1. To increase the sum insured automatically after a claim
  2. To require the policyholder to bear a first amount of each loss, reducing small claims and moral hazard Correct answer.
  3. To transfer the whole risk of a claim to the policyholder
  4. To provide cover for accidental damage only

Explanation

The excess is the first portion of each loss that the insured bears, and it keeps small claims out of the system while giving the insured a stake in loss prevention. It does not transfer the entire risk and does not alter the sum insured.

Question 8Insurance claims handling

A building is insured for £300,000 but the correct reinstatement cost at the date of loss is £400,000. A repair claim of £40,000 arises and the policy contains a standard average condition. What is the likely settlement before any excess?

  1. £20,000
  2. £40,000
  3. £10,000
  4. £30,000 Correct answer.

Explanation

Average applies the ratio of the sum insured to the required sum insured: £300,000 divided by £400,000 is 75 per cent. Applying 75 per cent to the £40,000 loss gives £30,000, leaving the insured to bear the shortfall.

Question 9Insurance claims handling

Which statement best describes the role of a loss adjuster appointed by the insurer?

  1. To investigate the circumstances and quantum of the claim and report to the insurer Correct answer.
  2. To decide finally whether the claim is covered under the policy
  3. To sell additional cover to the policyholder during the claim
  4. To act as the policyholder's advocate in negotiations with the insurer

Explanation

A loss adjuster investigates the cause, circumstances and value of the claim and advises the insurer, but the decision on liability and settlement rests with the insurer. The adjuster owes duties of impartiality and professionalism rather than acting as an advocate for either party.

Question 10Insurance claims handling

A policyholder's kitchen is damaged by water escaping from a neighbouring flat. The neighbour's insurer accepts liability. What action should the handler take to preserve the insurer's position?

  1. Refuse the claim because the escape originated outside the insured property
  2. Advise the insured to claim only from the neighbour and close the file
  3. Deduct the neighbour's excess from the insured's settlement
  4. Settle the claim under the policy and then pursue recovery from the neighbour's insurer through subrogation Correct answer.

Explanation

Where a third party is legally liable, the insurer should indemnify its own insured promptly and then exercise subrogation rights against the responsible party. Closing the file or refusing cover would leave the insured without the benefit of their policy.

Question 11Insurance claims handling

What does the principle of proximate cause require a claims handler to identify?

  1. The cause that the policyholder believes is most likely
  2. The most expensive element of the damage
  3. The dominant and effective cause of the loss Correct answer.
  4. The last event in the chain before the damage was discovered

Explanation

Proximate cause is the dominant, effective cause that sets the loss in motion, and it determines whether an insured peril or an exclusion applies. It is not simply the last event or the largest cost component.

Question 12Insurance claims handling

Storm damage causes a chimney to collapse into a roof. The policy excludes damage caused by faulty workmanship, and the chimney had been poorly repointed years earlier. How should the handler analyse the claim?

  1. Apply average because the property was not maintained
  2. Decline the claim because poor maintenance contributed to the damage
  3. Identify the dominant cause, noting that storm is the operative peril and that wear and tear is not the proximate cause Correct answer.
  4. Pay only the cost of repointing the chimney

Explanation

Where an insured peril such as storm is the dominant and effective cause, the claim may be payable even if pre-existing wear or poor maintenance made the property more vulnerable. The handler must weigh the evidence of causation rather than assume that any maintenance issue defeats cover.

Question 13Insurance claims handling

Which of the following best describes the duty of utmost good faith as it applies at the claims stage?

  1. It applies only to the insurer and never to the policyholder
  2. It is discharged once the first premium is paid
  3. It applies only when the policy is first taken out
  4. It continues throughout the relationship and requires honesty and fair presentation in claims dealings Correct answer.

Explanation

Utmost good faith is a continuing duty that applies to both parties and is especially relevant when a claim is presented. Dishonest or exaggerated claims can entitle the insurer to refuse the claim and, under the policy terms, to recover payments already made.

Question 14Insurance claims handling

A policyholder submits a claim for a camera allegedly stolen on holiday but cannot produce a receipt or any evidence of ownership. What is the most appropriate handling approach?

  1. Reject the claim outright because no receipt exists
  2. Ask for alternative evidence of ownership and value, such as bank statements, photographs or warranty documents, before deciding Correct answer.
  3. Pay a nominal sum without further investigation
  4. Pay the full amount claimed to avoid a complaint

Explanation

The burden of proving a loss and its value rests with the insured, but the absence of a receipt is not conclusive. The handler should consider alternative evidence and assess credibility before reaching a decision.

Question 15Insurance claims handling

What is the principal purpose of the contribution principle between insurers?

  1. To allow the insured to recover more than the loss from several policies
  2. To transfer liability to the insurer with the lowest premium
  3. To prevent the insured recovering more than the loss where more than one policy covers the same interest Correct answer.
  4. To reduce the premium when a second policy is arranged

Explanation

Contribution operates where two or more policies cover the same interest against the same peril, so that each insurer pays its rateable share and the insured receives no more than an indemnity. It prevents double recovery and apportions the burden fairly.

Question 16Insurance claims handling

A household policy includes a 14-day notification condition for theft claims. The insured notifies after 21 days because they were hospitalised and unable to act. Which factor is most relevant to the insurer's decision on liability?

  1. Whether the delay has caused prejudice to the insurer's investigation Correct answer.
  2. Whether the insured has made previous claims
  3. Whether the policy was arranged through a broker
  4. Whether the insured paid the premium annually

Explanation

Breach of a notification condition generally only entitles the insurer to decline where it has suffered prejudice, such as lost evidence or an impaired investigation. The reason for delay is relevant to whether the breach should be excused.

Question 17Insurance claims handling

Which of the following is the best example of betterment being deducted from a settlement?

  1. Replacing a damaged roof with a new roof that also upgrades the insulation to a higher standard Correct answer.
  2. Repairing a broken window with glass of the same type
  3. Replacing a stolen item with an identical second-hand item
  4. Replacing a ten-year-old worn carpet with a new carpet of equivalent quality

Explanation

Betterment arises where the repair or replacement leaves the insured in a better position than before the loss, such as an upgraded roof with improved insulation. A deduction reflects the added value so that the settlement remains an indemnity.

Question 18Insurance claims handling

What is the significance of an insurable interest when a claim is presented?

  1. It must exist at the time of the loss for the insured to recover Correct answer.
  2. It is required only for commercial policies
  3. It only matters when the policy is renewed
  4. It determines the amount of the excess

Explanation

The insured must have a legal or equitable interest in the subject matter at the time of the loss, otherwise there is nothing to indemnify. Insurable interest is a general requirement and is not confined to commercial insurance or to renewal.

Question 19Insurance claims handling

A commercial property policy contains a claims cooperation condition requiring the insured to provide books and records. The insured refuses without explanation. What is the handler's most appropriate course?

  1. Report the insured to the police automatically
  2. Cancel the policy with immediate effect
  3. Warn the insured of the consequence of non-compliance and consider whether prejudice has been caused before deciding liability Correct answer.
  4. Pay the claim and note the breach for future underwriting

Explanation

A cooperation condition enables the insurer to obtain the evidence needed to validate the claim, and breach may entitle the insurer to decline where prejudice results. The handler should explain the requirement and assess the impact of non-compliance before making a decision.

Question 20Insurance claims handling

Which statement correctly describes the effect of a policy excess in relation to a compulsory excess on a motor policy?

  1. A compulsory excess is imposed by the insurer as a condition of cover and is deducted from the settlement in addition to any voluntary excess Correct answer.
  2. A compulsory excess is paid only when the insured is at fault
  3. A compulsory excess replaces the voluntary excess
  4. A compulsory excess is set by the insurer and can be varied at will

Explanation

A compulsory excess is a fixed amount the insurer requires the insured to bear, often reflecting the risk profile, and it applies alongside any voluntary excess chosen by the insured. Both are deducted from the loss before settlement.

Question 21Insurance claims handling

A policyholder reports a theft but later withdraws the claim after the insurer requests a proof-of-loss statement and an interview. What should the handler consider?

  1. Automatically cancelling the policy and recovering all previous claims payments
  2. Whether the circumstances suggest a fraudulent claim and whether the policy's fraud provisions should be invoked Correct answer.
  3. Paying the claim because withdrawal implies the loss was genuine
  4. Closing the file without further enquiry because the claim has been withdrawn

Explanation

Withdrawal after a request for evidence can indicate that the claim was not genuine, and the handler should assess the evidence against the policy's fraud provisions. A fraudulent claim may entitle the insurer to refuse it and recover sums already paid under the terms.

Question 22Insurance claims handling

What is the usual effect of a policy being written on a 'new for old' basis for contents?

  1. The insurer pays the original purchase price of the item
  2. The insurer pays only the second-hand value of the item
  3. The insurer replaces the item with a new equivalent without deducting for wear and tear, subject to the sum insured Correct answer.
  4. The insurer pays nothing if the item is more than five years old

Explanation

New for old cover replaces damaged or stolen items with new equivalents without a deduction for depreciation, provided the sum insured is adequate. It is a contractual extension of indemnity and remains subject to policy limits and conditions.

Question 23Insurance claims handling

A liability claim is notified under a household policy where a visitor tripped on a loose stair carpet. Which factor is most important in assessing the insured's legal liability?

  1. Whether the visitor was invited or a trespasser
  2. Whether the insured breached the duty of care owed to the visitor and whether that breach caused the injury Correct answer.
  3. Whether the visitor was insured elsewhere
  4. Whether the insured had previously warned visitors about the carpet

Explanation

Occupiers' liability depends on whether the occupier failed to take reasonable care in the circumstances and whether that failure caused the injury. The visitor's status may affect the standard of care but the core test is breach of duty and causation.

Question 24Insurance claims handling

What does the term 'quantum' refer to in claims handling?

  1. The legal liability of the insured
  2. The cause of the loss
  3. The number of policies covering the risk
  4. The amount of the loss or the value of the claim Correct answer.

Explanation

Quantum concerns the measurement of the loss, including repair costs, replacement values and any deductions such as excess or betterment. It is distinct from liability, which addresses whether the policy responds at all.

Question 25Insurance claims handling

An insurer suspects a claim is exaggerated because the invoice appears to have been altered. What is the most appropriate action under the policy's fraud provisions?

  1. Decline the entire claim without any investigation
  2. Investigate the document's authenticity, consider the insurer's remedies for fraudulent claims and document the decision Correct answer.
  3. Refer the matter to the Financial Ombudsman Service before deciding
  4. Pay the undisputed portion immediately and take no further action

Explanation

Where fraud is suspected, the insurer should investigate the evidence and then apply the policy's fraud provisions, which may allow it to refuse the claim and recover payments. The decision and its basis should be documented so that it can be defended if challenged.

Question 26Insurance claims handling

Under a household contents policy, which item is normally treated as a 'high risk' item requiring the item to be specified and valued separately on the schedule?

  1. A set of kitchen saucepans
  2. A gold necklace valued at £4,500 Correct answer.
  3. A garden hose reel
  4. A paperback book collection

Explanation

Insurers commonly apply single-article and valuables limits to contents policies, so jewellery above the stated limit must be specified with a valuation before it is fully covered. Ordinary household goods such as pans, books and garden equipment fall within the general contents sum insured.

Question 27Insurance claims handling

A motor policyholder's car is damaged in a collision and the repairer's estimate is £2,400, while the vehicle's pre-accident market value is £2,100. How should the claims handler normally settle the claim?

  1. Decline the claim because repair exceeds value
  2. Pay the repair estimate of £2,400 so the car is restored
  3. Pay £300, being the difference between the two figures
  4. Pay the market value of £2,100 and treat the car as a total loss Correct answer.

Explanation

Where the cost of repair exceeds the pre-accident market value, the vehicle is uneconomic to repair and is treated as a constructive total loss. Settlement is then based on the market value, with the salvage usually retained by the insurer.

Question 28Insurance claims handling

Which statement best explains why an insurer may seek recovery from a third party after paying a claim to its own policyholder?

  1. Because the insured loses all legal rights once a claim is paid
  2. Because the insurer is subrogated to the insured's rights of recovery once it has indemnified the loss Correct answer.
  3. Because the insurer must always recover the excess from the third party
  4. Because the third party's policy automatically transfers liability to the insurer

Explanation

Subrogation allows the insurer, having indemnified the insured, to stand in the insured's shoes and pursue any legal remedy the insured had against the responsible third party. Recovery cannot exceed the amount paid and the insured's remaining uninsured loss takes priority.

Question 29Insurance claims handling

A claims handler receives a property claim for damage to stock. Which document is most directly relevant to verifying the quantity and value of the stock lost?

  1. The lease of the premises
  2. The fire alarm maintenance contract
  3. The employer's liability certificate
  4. The stock records and purchase invoices for the period Correct answer.

Explanation

Stock records, purchase invoices and sales data allow the handler to verify both the quantity held at the date of loss and its value. These are the primary financial records used to test the quantum of a stock claim.

Question 30Insurance claims handling

A policyholder's home is burgled and, in addition to the stolen items, the intruders caused damage to a door and a window. How should the claim normally be handled under a standard household policy?

  1. Only the building damage is payable because theft cover is limited to money
  2. Theft of contents and the resulting damage to the building are both considered under the appropriate sections Correct answer.
  3. Only the stolen items are payable because damage by intruders is excluded
  4. The claim must be declined because force was not used

Explanation

Standard household policies cover theft of contents and damage caused during the theft, while the buildings section responds to damage to the structure. The handler allocates each element to the correct section, applying any excess once per incident as the policy provides.

Question 31Insurance claims handling

In claims handling, what is meant by 'reserving'?

  1. The payment of the policy excess by the insured
  2. The transfer of a claim to another insurer
  3. The insurer's estimate of the total cost of a claim set aside in its accounts Correct answer.
  4. The refusal of a claim pending further investigation

Explanation

A reserve is the handler's best estimate of the total eventual cost of a notified claim, recorded so that the insurer can report liabilities accurately. Reserves are reviewed and adjusted as more information emerges.

Question 32Insurance claims handling

A commercial policyholder suffers a fire and the insurer appoints an accountant to examine the business's books. What is the main purpose of this appointment?

  1. To determine whether the fire was started deliberately
  2. To verify the insured's loss of gross profit and increased cost of working Correct answer.
  3. To assess the adequacy of the fire detection system
  4. To arrange reinstatement of the damaged building

Explanation

Under a business interruption section, a forensic accountant verifies the insured's trading figures and calculates the loss of gross profit and any increased cost of working. This supports accurate quantification of the financial loss rather than the physical damage.

Question 33Insurance claims handling

Which of the following best describes the 'indemnity' principle as applied to a claim settlement?

  1. The insured should receive a brand-new replacement for every damaged item
  2. The insured should share the cost of every claim equally with the insurer
  3. The insured should be restored to the same financial position as before the loss, no better and no worse Correct answer.
  4. The insurer should pay the sum insured regardless of the actual loss

Explanation

Indemnity means the insured is placed in the financial position held immediately before the loss, subject to the sum insured and policy terms. This is why deductions for wear, tear and betterment may apply to some settlements.

Question 34Insurance claims handling

An insured fails to disclose at proposal that the property has previously been flooded, and a flood claim is later presented. Which statement best reflects how the insurer is likely to treat the claim?

  1. The insurer can only cancel the policy for the following year
  2. The insurer must pay in full because the policy is already in force
  3. The insurer may be entitled to reduce or decline the claim if the non-disclosure was material and induced the cover Correct answer.
  4. The insurer must pay but may increase the premium retrospectively

Explanation

Material non-disclosure or misrepresentation that induced the insurer to accept the risk gives the insurer remedies that can include avoiding the policy or reducing the claim proportionately. The remedy depends on what a prudent underwriter would have done had the truth been disclosed.

Question 35Insurance claims handling

A storm causes a tree to fall onto a garden wall and, as a result, the wall collapses onto a parked car. Which concept is used to determine whether the damage to the car is covered under the household policy?

  1. Salvage
  2. Proximate cause Correct answer.
  3. Contribution
  4. Average

Explanation

Proximate cause identifies the dominant, effective cause of a loss where several events occur in sequence. If the storm is the proximate cause, the loss may fall within the storm peril even though the collapse of the wall was the immediate mechanism of damage.

Question 36Insurance claims handling

A household policyholder is told that their claim will be settled on a 'new for old' basis. What does this mean for a damaged three-year-old television?

  1. The insurer pays nothing because the item is not new
  2. The insurer pays the current cost of an equivalent new television, subject to the sum insured Correct answer.
  3. The insurer pays the second-hand value of the television
  4. The insurer replaces the television only if the original receipt is produced

Explanation

New-for-old settlement replaces the damaged item with a new equivalent without deduction for depreciation or age. The payment remains subject to the sum insured, any single-article limit and the policy excess.

Question 37Insurance claims handling

A liability claim is presented against a household policy after a visitor was injured on the insured's premises. Which factor is most important in deciding whether the policy responds?

  1. Whether the insured was legally liable for the injury Correct answer.
  2. Whether the visitor had their own household policy
  3. Whether the visitor was invited or was a trespasser
  4. Whether the injury required hospital treatment

Explanation

Occupiers' liability cover responds where the insured is legally liable for injury to a third party arising from the occupation of the premises. The status of the visitor may affect the standard of care owed but legal liability is the trigger for cover.

Question 38Insurance claims handling

What is the purpose of a claims notification condition in a policy?

  1. To require the insured to tell the insurer of a loss promptly and in the manner specified Correct answer.
  2. To prevent the insured from using a broker
  3. To guarantee that the insurer will pay every notified claim
  4. To fix the amount of the excess for the policy year

Explanation

A notification condition requires the insured to inform the insurer of a loss within a stated time and in a specified way, so the insurer can investigate while evidence is fresh. Breach may entitle the insurer to decline or reduce the claim where it has been prejudiced.

Question 39Insurance claims handling

A loss adjuster suspects that a fire at a commercial warehouse was deliberately started by the insured company's director. Which course of action is most appropriate for the claims handler?

  1. Ask the director to confirm in writing that the fire was accidental
  2. Transfer the claim to another insurer
  3. Settle the claim promptly to avoid a complaint
  4. Suspend settlement, preserve evidence and refer the matter for investigation Correct answer.

Explanation

Where fraud or arson is suspected, the handler should not settle, should preserve evidence and should refer the matter to specialist investigators, and possibly the police, before deciding on cover. Any subsequent denial must be based on evidence and the policy terms.

Question 40Insurance claims handling

Which of the following best describes the role of the Financial Ombudsman Service in relation to a disputed insurance claim?

  1. It decides whether the insurer's handling was fair and reasonable in the circumstances Correct answer.
  2. It acts as the insurer's legal representative
  3. It prosecutes policyholders who commit fraud
  4. It sets the level of premiums insurers may charge

Explanation

The Financial Ombudsman Service resolves disputes between eligible complainants and insurers by deciding what is fair and reasonable in the circumstances, having regard to law, regulation and good practice. Its decisions are binding on the insurer if accepted by the complainant, within specified limits.

Question 41Insurance claims handling

A policyholder claims for water damage after a pipe bursts while the property was left empty for eight weeks. The policy has an unoccupancy condition requiring the water to be turned off and the system drained. What is the likely outcome?

  1. The claim is void because the policy lapsed on the first day of unoccupancy
  2. The insurer may reduce or decline the claim because the unoccupancy condition was not met Correct answer.
  3. The claim is payable in full because a burst pipe is a covered peril
  4. The claim is payable but the excess is doubled automatically

Explanation

Unoccupancy conditions exist because the risk of undetected escape of water increases when a property is empty. Where the insured has not complied with the required precautions, the insurer may reduce or decline the claim in line with the policy wording and any prejudice suffered.

Question 42Insurance claims handling

What does 'quantum' mean in the context of a claim?

  1. The date the policy started
  2. The legal liability of the insured
  3. The cause of the loss
  4. The amount of the loss or the value of the claim Correct answer.

Explanation

Quantum refers to the monetary value of the claim once liability and cover have been established. Handlers assess quantum using invoices, valuations, estimates and loss adjusters' reports.

Question 43Insurance claims handling

An insurer receives a motor claim where the repair invoice appears to have been altered to increase the labour hours. What is the most appropriate first step for the claims handler?

  1. Ask the policyholder to provide a new invoice from a different repairer
  2. Reject the claim outright without further enquiry
  3. Verify the invoice with the repairer and request the original estimate before deciding on payment Correct answer.
  4. Pay the invoice and refer the matter to the insurer's fraud team afterwards

Explanation

A suspected altered invoice should be verified with the repairer and compared with the original estimate before any payment decision. This preserves evidence and allows the insurer to decide whether the claim is valid, exaggerated or fraudulent.

Question 44Insurance claims handling

What is the effect of a policy excess on the settlement of a claim?

  1. The first part of any loss, up to the excess amount, is borne by the insured Correct answer.
  2. The excess reduces the sum insured for future claims
  3. The insurer pays the full loss and then invoices the insured for the excess
  4. The excess applies only to liability claims

Explanation

An excess is the amount the insured must bear on each claim, so the insurer pays the loss less the excess. It keeps small claims out of the system and gives the insured a financial incentive to manage risk.

Question 45Insurance claims handling

A building insured for £600,000 is damaged by fire. The correct reinstatement cost at the date of loss is £800,000 and the policy contains an average condition. A repair claim of £80,000 is presented. What is the likely settlement before any excess?

  1. £0
  2. £80,000
  3. £60,000 Correct answer.
  4. £40,000

Explanation

The average condition reduces the claim in proportion to the underinsurance: £600,000 divided by £800,000 gives 75%, and 75% of £80,000 is £60,000. The insured bears the remaining £20,000 as the consequence of underinsurance.

Question 46Insurance claims handling

A policyholder reports a theft but later withdraws the claim before any payment is made. What is the most likely reason an insurer would still record and review the matter?

  1. The insurer must inform the police in every case
  2. Withdrawn claims may indicate fraud and are relevant to future underwriting and fraud databases Correct answer.
  3. The insurer must refund the premium for the period
  4. The insurer is required to pay the claim once it is reported

Explanation

A claim that is reported and then withdrawn, especially after requests for evidence, can be an indicator of attempted fraud. Insurers record such matters and may share information with fraud prevention databases, which can affect future applications.

Question 47Insurance claims handling

Which statement best describes the purpose of a proof-of-loss statement in claims handling?

  1. It transfers ownership of damaged property to the insurer
  2. It confirms that the insurer accepts liability
  3. It is a formal declaration by the insured setting out the details and amount of the claim Correct answer.
  4. It replaces the need for any supporting documents

Explanation

A proof-of-loss statement is a formal declaration in which the insured sets out the circumstances, items and amount claimed, often supported by documents. It assists the insurer in verifying the claim and can be a condition of payment under some policies.

Question 48Insurance claims handling

A commercial policyholder has a liability claim brought against it by a customer. The policy requires the insured to notify the insurer immediately and not to admit liability. Why is this condition important?

  1. It guarantees that the insurer will indemnify the insured in full
  2. It automatically increases the limit of indemnity
  3. It allows the insurer to investigate, control the defence and protect its right to repudiate liability if the claim is outside cover Correct answer.
  4. It prevents the customer from suing the insured

Explanation

Prompt notification and a prohibition on admissions allow the insurer to investigate the claim, appoint solicitors and control settlement negotiations. An admission of liability by the insured can prejudice the insurer's position and may breach a policy condition.

Question 49Insurance claims handling

What is the usual purpose of a salvage sale following a total loss?

  1. To recover some value from the damaged property and reduce the net cost of the claim Correct answer.
  2. To punish the insured for the loss
  3. To satisfy the policy excess
  4. To establish the cause of the loss

Explanation

Where damaged property has residual value, the insurer may sell it as salvage and credit the proceeds against the claim, reducing the net cost. The insured cannot recover more than the indemnity, so salvage proceeds are taken into account.

Question 50Insurance claims handling

A household policyholder's claim for a stolen bicycle is supported by a receipt, a police crime reference number and photographs. The insurer nonetheless wishes to confirm that the bicycle was at the insured address. Which action is most appropriate?

  1. Pay the claim immediately without further checks
  2. Decline the claim because the bicycle was not specified on the schedule
  3. Request further evidence of ownership and use, such as a bank statement or maintenance records Correct answer.
  4. Refer the matter directly to the Financial Ombudsman Service

Explanation

Where ownership or presence at the risk address is in doubt, the handler may seek further corroborating evidence such as payment records or maintenance history. This supports a fair decision without automatically declining a claim that may well be genuine.