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CIIG Certificate - independent subject foundations study materials
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CIIG Certificate - independent subject foundations practice questions

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Question 1Risk transfer, policy analysis, underwriting and claims

Which of the following is the most accurate definition of pure risk in insurance terms?

  1. A situation that offers the possibility of either a loss or a gain
  2. A situation that involves only the possibility of loss or no loss, with no chance of gain Correct answer.
  3. A risk that can be completely eliminated through business diversification
  4. A risk associated solely with speculative trading in capital markets

Explanation

Pure risk refers to situations where the only outcomes are loss or no loss. Examples include damage to property from fire or injury from an accident. Speculative risk, on the other hand, involves the possibility of both profit and loss (such as gambling or investing in shares) and is generally uninsurable.

Question 2Risk transfer, policy analysis, underwriting and claims

In insurance terminology, what is the distinction between a peril and a hazard?

  1. A peril is the cause of a loss, whereas a hazard is a condition that increases the likelihood or severity of that loss Correct answer.
  2. A peril is an insurable event, whereas a hazard is an uninsurable event under any circumstances
  3. A peril relates to property damage, whereas a hazard relates to human bodily injury
  4. A peril is a subjective risk, whereas a hazard is an objective risk measured by statistics

Explanation

A peril is the active, direct cause of a loss, such as fire, flood, or collision. A hazard is a background condition or circumstance that makes the occurrence of a peril more likely or makes the resulting loss more severe (such as dry brush near a house increasing the risk of fire). Both terms are critical in underwriting assessment.

Question 3Risk transfer, policy analysis, underwriting and claims

A factory owner installs a state-of-the-art automatic sprinkler system. Which risk management technique does this action represent?

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

Explanation

Installing a sprinkler system is a form of risk reduction (or loss control), which aims to minimize the severity of a loss if a fire occurs. Risk avoidance would involve stopping the factory operations entirely. Risk transfer involves shifting the financial burden to an insurer, while risk retention means absorbing the loss internally.

Question 4Risk transfer, policy analysis, underwriting and claims

Which of the following describes a moral hazard in insurance?

  1. An insurance agent misrepresenting policy terms to a client during a sales pitch
  2. An insured showing a lack of care or honesty because they know a loss will be paid by the insurer Correct answer.
  3. A physical characteristic of a property that makes a fire more likely to occur
  4. The regulatory risk of an insurance company failing to meet its solvency requirements

Explanation

Moral hazard arises from the attitude, behavior, or character of the insured, where the existence of insurance coverage reduces the incentive to prevent loss or encourages dishonesty (such as deliberately setting fire to property). It is distinct from physical hazards, which are physical features of the risk.

Question 5Risk transfer, policy analysis, underwriting and claims

What is the primary function of insurance?

  1. To provide investment capital to local microfinance institutions
  2. To transfer risk from an individual to a pool, distributing the financial loss among many Correct answer.
  3. To eliminate all physical hazards associated with commercial operations
  4. To act as a government-subsidized social welfare fund for low-income citizens

Explanation

The primary function of insurance is risk transfer. It allows individuals and businesses to transfer the financial consequences of uncertain losses to a professional insurer, who pools the premiums to compensate the few who suffer losses. Other benefits, like capital investment and loss prevention, are secondary functions.

Question 6Risk transfer, policy analysis, underwriting and claims

How does insurance serve as a secondary function in releasing capital for business investment?

  1. By forcing businesses to deposit their profits into compulsory insurance trust funds
  2. By providing indemnity, which reduces the need for businesses to hold large reserves of cash for unexpected losses Correct answer.
  3. By directly subsidizing corporate expansion programs using premium income
  4. By guaranteeing that business ventures will always be profitable

Explanation

Because businesses can transfer their pure risks to insurance companies, they do not need to keep substantial liquid cash reserves to cover potential disasters like fires or lawsuits. This allows them to invest their capital more productively into expanding their business activities, stimulating economic growth.

Question 7Risk transfer, policy analysis, underwriting and claims

Which of the following is considered an economic benefit of insurance to society?

  1. It encourages individuals to take unnecessary risks since they are insured
  2. It provides peace of mind and financial stability, facilitating trade and credit arrangements Correct answer.
  3. It guarantees that no inflation will occur within the local construction industry
  4. It eliminates the need for commercial banks to assess the creditworthiness of borrowers

Explanation

Insurance provides security and stability, giving businesses the confidence to take risks and lenders the assurance to extend credit (e.g., mortgage lenders requiring fire insurance). This facilitates trade and economic development. Encouraging careless behavior is a negative effect (moral hazard) rather than a benefit.

Question 8Risk transfer, policy analysis, underwriting and claims

How do insurers contribute to loss prevention as a secondary function of insurance?

  1. By taking over the management of local fire departments and police stations
  2. By charging lower premiums or offering discounts to policyholders who implement safety measures Correct answer.
  3. By legally prosecuting policyholders who fail to clean their premises daily
  4. By prohibiting businesses from operating in high-risk geographic zones

Explanation

Insurers encourage loss prevention by offering premium discounts or lower rates to clients who install safety features (e.g., burglar alarms, smoke detectors, safety guards). They also conduct risk surveys and recommend safety improvements to mitigate risks before issuing policies.

Question 9Risk transfer, policy analysis, underwriting and claims

In what way does insurance pool funds to facilitate national development, particularly in Ghana?

  1. By directly financing political campaigns for the ruling government
  2. By investing accumulated premium reserves in government securities, infrastructure bonds, and local banks Correct answer.
  3. By offering free insurance policies to all state-owned commercial entities
  4. By replacing the national pension system with short-term marine cargo policies

Explanation

Insurers collect premiums in advance and hold them in reserves to pay future claims. These accumulated funds are invested in national development instruments, such as government treasury bills, infrastructure bonds, and corporate investments, providing long-term capital to the Ghanaian economy.

Question 10Risk transfer, policy analysis, underwriting and claims

What is the primary difference between a proprietary insurance company and a mutual insurance company?

  1. Proprietary companies are owned by shareholders to make profit, whereas mutual companies are owned by their policyholders Correct answer.
  2. Proprietary companies only write life insurance, whereas mutual companies only write general insurance
  3. Mutual companies are state-owned enterprises, whereas proprietary companies are private
  4. Proprietary companies do not charge premiums, whereas mutual companies rely on donations

Explanation

Proprietary companies are joint-stock companies owned by shareholders who invest capital to earn profits. Mutual companies are owned by their policyholders, and any profits are typically distributed back to the policyholders in the form of reduced premiums, bonuses, or dividends.

Question 11Risk transfer, policy analysis, underwriting and claims

In the Ghanaian insurance market, whom does an insurance broker primarily represent?

  1. The insurance company (insurer) that pays their commission
  2. The National Insurance Commission (NIC)
  3. The client (insured) who seeks to place the risk Correct answer.
  4. The Ghana Insurance Association (GIA)

Explanation

An insurance broker is an independent intermediary who represents the client (the buyer of insurance) and has a duty to find the most suitable coverage and terms from the market. This is in contrast to an insurance agent, who represents one or more specific insurance companies.

Question 12Risk transfer, policy analysis, underwriting and claims

What is the function of a captive insurance company?

  1. To provide cheap insurance coverage to wild animal parks and zoos
  2. To act as a state-owned insurer that takes over failing private insurance firms
  3. To insure the risks of its parent company or group, acting as an internal risk management tool Correct answer.
  4. To regulate the ethical standards of independent insurance agents

Explanation

A captive insurance company is a subsidiary formed by a non-insurance parent corporation to write the insurance risks of its parent company and affiliates. This allows the corporate group to manage its risks internally and access the reinsurance market directly, reducing overall insurance costs.

Question 13Risk transfer, policy analysis, underwriting and claims

Which of the following bodies in Ghana represents the interests of general and life insurance underwriters?

  1. The Ghana Insurance Brokers Association (GIBA)
  2. The National Insurance Commission (NIC)
  3. The Ghana Insurance Association (GIA) Correct answer.
  4. The Chartered Insurance Institute of Ghana (CIIG)

Explanation

The Ghana Insurance Association (GIA) is the trade association for all registered insurance and reinsurance companies (underwriters) operating in Ghana. GIBA represents brokers, the NIC is the regulator, and the CIIG is the professional body for individual practitioners.

Question 14Risk transfer, policy analysis, underwriting and claims

Why do commercial insurance companies purchase reinsurance?

  1. Because it is legally required for every individual policy they issue to a consumer
  2. To transfer a portion of their risk exposure, protecting their financial stability against large or catastrophic losses Correct answer.
  3. To completely avoid paying corporate taxes to the government of Ghana
  4. To prevent policyholders from filing claims directly with the primary insurer

Explanation

Reinsurance is 'insurance for insurance companies'. It allows primary insurers (ceding companies) to transfer a portion of their risk to a reinsurer, enabling them to write larger risks, stabilize their underwriting results, and protect their balance sheets against catastrophic losses.

Question 15Risk transfer, policy analysis, underwriting and claims

Which of the following is a core legal principle of insurance that distinguishes it from a wager?

  1. The requirement of a written proposal form signed by a notary
  2. The presence of insurable interest, meaning the insured must suffer a financial loss if the insured event occurs Correct answer.
  3. The payment of premium using mobile money channels only
  4. The guarantee of profit for the insured if the loss does not occur

Explanation

Insurable interest is the legal right to insure arising from a financial relationship with the subject matter of insurance. It requires that the insured must benefit from the safety of the item or be prejudiced by its loss. Without insurable interest, an insurance policy would be a mere gamble or wager, which is legally void.

Question 16Risk transfer, policy analysis, underwriting and claims

What does the principle of indemnity seek to achieve in insurance settlements?

  1. To place the insured in the same financial position after a loss as they enjoyed immediately before the loss Correct answer.
  2. To pay the insured double the market value of the damaged item to cover emotional distress
  3. To ensure that the insurer makes a profit on every claim processed
  4. To force the third party who caused the accident to pay the premium retrospectively

Explanation

Indemnity is the financial compensation sufficient to place the insured in the same financial position after a loss as they occupied immediately prior to the loss. It prevents the insured from profiting from a loss, which would create a moral hazard.

Question 17Risk transfer, policy analysis, underwriting and claims

How does the duty of utmost good faith (uberrimae fidei) apply differently in insurance compared to standard commercial contracts?

  1. Insurance contracts do not require any exchange of money
  2. In insurance, both parties must disclose all material facts, whereas standard contracts are generally governed by 'buyer beware' (caveat emptor) Correct answer.
  3. Insurance contracts allow the buyer to change the price after a loss occurs
  4. Standard commercial contracts are legally binding only if written in Latin

Explanation

In standard commercial contracts, parties are generally not required to volunteer information (caveat emptor). However, because the insurer cannot easily know all the details of the risk being proposed (e.g., health status or building safety), insurance contracts require utmost good faith, meaning all material facts must be fully and honestly disclosed.

Question 18Risk transfer, policy analysis, underwriting and claims

Which principle of insurance prevents an insured from claiming compensation from two different insurers for the same loss and keeping both payouts?

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

Explanation

Contribution is a corollary of the principle of indemnity. It states that if an insured has multiple policies covering the same risk, they cannot recover more than their actual loss. The insurers will share the cost of the indemnity proportionately, preventing double recovery.

Question 19Risk transfer, policy analysis, underwriting and claims

How is a No Claim Discount (NCD) earned and applied in motor insurance?

  1. It is granted automatically to every driver who registers their vehicle for the first time
  2. It is a premium discount earned by the policyholder for each consecutive year of claim-free insurance, reducing the renewal premium Correct answer.
  3. It is a penalty fee charged to drivers who make frequent claims
  4. It is paid in cash directly to the driver at the end of every claim-free month

Explanation

The No Claim Discount (NCD) is an incentive mechanism. If a policyholder does not make any claims during the policy year, they receive a percentage discount on their premium at renewal. The NCD increases year-by-year up to a maximum limit (typically 50% or 60% after 4 or 5 claim-free years).

Question 20Risk transfer, policy analysis, underwriting and claims

What is the significance of the 'limitation as to use' clause in a motor insurance policy schedule?

  1. It restricts the geographical routes the driver can take within Accra
  2. It defines the permitted purposes for which the vehicle can be driven (such as social/domestic use, or commercial carriage of goods) Correct answer.
  3. It sets a strict limit on the maximum speed the vehicle can travel on highways
  4. It limits the number of times the vehicle can be washed each month

Explanation

The 'limitation as to use' clause specifies the scope of vehicle operations covered by the premium. For example, if a car insured for private social use is involved in an accident while being used as a commercial taxi (hire or reward), the insurer is entitled to reject the claim due to breach of this clause.

Question 21Risk transfer, policy analysis, underwriting and claims

Under a standard Fire Insurance Policy, which of the following perils is covered by default?

  1. Earthquake and volcanic eruption
  2. Fire, lightning, and limited domestic explosion Correct answer.
  3. Riot, strike, and civil commotion
  4. Damage caused by water from burst plumbing pipes

Explanation

A standard fire policy covers losses caused directly by fire (not arising from spontaneous combustion), lightning, and the explosion of domestic gas or boilers. Perils like earthquakes, riots, and water damage from plumbing are excluded but can be added via endorsements for an extra premium.

Question 22Risk transfer, policy analysis, underwriting and claims

How does a Houseowners insurance policy differ from a Householders insurance policy?

  1. Houseowners covers the physical building structure, whereas Householders covers the contents (furniture and personal belongings) inside Correct answer.
  2. Houseowners is for commercial landlords, whereas Householders is only for students
  3. Houseowners covers fire, whereas Householders only covers motor accidents
  4. There is no difference; they are identical terms used interchangeably

Explanation

Under property insurance definitions, a 'Houseowners' policy is designed to cover the physical structure of the private home (walls, roof, fixtures) against damage. A 'Householders' policy covers the contents (furniture, electronics, clothing, and valuables) stored inside the home, typically owned by the tenant or occupier.

Question 23Risk transfer, policy analysis, underwriting and claims

What is the primary function of an 'All Risks' property insurance policy?

  1. It covers every type of risk, including business losses due to price changes
  2. It covers physical loss or damage to property from any accidental cause, unless the cause is specifically excluded in the policy document Correct answer.
  3. It guarantees that the business will never go bankrupt
  4. It provides life insurance cover to all employees in the building

Explanation

An 'All Risks' policy provides broad coverage. Instead of listing covered perils, it covers all accidental physical losses except those specifically excluded (such as wear and tear, rust, war, or deliberate damage). The insurer has the burden of proof to show that a loss falls under an exclusion.

Question 24Risk transfer, policy analysis, underwriting and claims

A commercial property is insured under a fire policy for GHS 500,000. During the policy year, a fire completely destroys the building. The cost to rebuild the structure is GHS 700,000, and the land value remains unchanged. How much will the insurer pay under the policy?

  1. GHS 700,000
  2. GHS 500,000 Correct answer.
  3. GHS 600,000
  4. GHS 1,200,000

Explanation

The sum insured is the maximum limit of liability of the insurer under the policy. Even if the actual loss (rebuilding cost GHS 700,000) exceeds the sum insured, the insurer will never pay more than the sum insured stated in the contract (GHS 500,000). The insured must absorb the shortfall.

Question 25Risk transfer, policy analysis, underwriting and claims

What does a Business Interruption (Consequential Loss) policy primarily cover?

  1. The physical rebuilding of walls and roofs destroyed by fire
  2. Loss of income (turnover), net profit, and standing charges (fixed costs) during the period the business operations are disrupted by an insured property damage event Correct answer.
  3. The medical expenses of workers injured in an industrial accident
  4. The liability of the company for defective products sold to the public

Explanation

While fire policies cover physical property damage, Business Interruption (BI) covers the resulting financial impact. This includes loss of net profit, payment of fixed overheads (standing charges) that continue despite operations stopping, and extra costs incurred to keep the business running (increased cost of working).

Question 26Risk transfer, policy analysis, underwriting and claims

In Business Interruption insurance, what is the 'Maximum Indemnity Period'?

  1. The duration of the insurance contract, which is always 12 months
  2. The maximum time limit selected by the insured (e.g., 12, 18, or 24 months) during which the insurer will pay for loss of profits following a disaster Correct answer.
  3. The time taken by the claims department to check the bank accounts of the company
  4. The time required by the contractor to submit the first building design

Explanation

The maximum indemnity period is the limit of time for which the insurer will pay for financial disruption, starting from the date of the physical damage. Businesses must estimate how long it will take to fully rebuild, replace machinery, and recover their market share to choose an appropriate period (e.g., 12 or 24 months).

Question 27Risk transfer, policy analysis, underwriting and claims

Which risk does a Fidelity Guarantee insurance policy cover?

  1. Losses resulting from fraud or dishonesty committed by employees during their employment Correct answer.
  2. The default of a debtor in paying their trade credit invoices
  3. Loss of property due to burglary committed by armed robbers breaking in at night
  4. The financial losses of a business due to a sudden increase in competitor advertising

Explanation

Fidelity Guarantee insurance protects employers against direct financial losses (loss of money or stock) resulting from acts of dishonesty, fraud, embezzlement, or theft committed by their own employees. Burglary by outsiders, trade credit defaults, and competition are excluded.

Question 28Risk transfer, policy analysis, underwriting and claims

Under a Fidelity Guarantee policy, what is the purpose of the 'Discovery Period'?

  1. The period during which the employer conducts background interviews on candidates
  2. The limited period (often 12 months) after policy expiry or employee termination within which any dishonest act must be discovered to be payable Correct answer.
  3. The time required to train the employee on company accounting software
  4. The time the insurer takes to investigate a claim before rejecting it

Explanation

Employee fraud can remain hidden for years. A Fidelity Guarantee policy specifies a discovery period (such as 12 months after the policy terminates or after the employee leaves). If the fraud is discovered within this window, the claim is valid; if discovered later, it is excluded.

Question 29Risk transfer, policy analysis, underwriting and claims

Which of the following represents the standard set of clauses used globally to define coverage levels for marine cargo insurance?

  1. The National Insurance Commission Guidelines (NICG)
  2. The Institute Cargo Clauses (A, B, and C) Correct answer.
  3. The ECOWAS Cross-Border Agreements
  4. The Accra Marine Accord

Explanation

Marine cargo insurance is standardized globally using the Institute Cargo Clauses (ICC), which are jointly drafted and maintained by the Lloyd's Market Association (LMA) and the International Underwriting Association of London (IUA). ICC (A) provides the widest 'all risks' cover, while (B) and (C) provide narrower, named-perils coverages.

Question 30Risk transfer, policy analysis, underwriting and claims

Under Marine Cargo Insurance, what is the difference between General Average and Particular Average?

  1. General Average is a partial loss borne voluntarily by all parties in a maritime venture to save the ship and cargo, whereas Particular Average is an accidental partial loss affecting only a specific property owner Correct answer.
  2. General Average is for air freight, while Particular Average is for sea freight
  3. General Average covers third-party injury, while Particular Average covers hull damage
  4. There is no difference; they are identical terms under the Ghana Shipping Act

Explanation

General Average arises when cargo is intentionally sacrificed or extraordinary expenditure is incurred to protect the ship and remaining cargo from a common danger (e.g., jettisoning cargo to lighten a grounded ship). The loss is shared proportionately by all beneficiaries. Particular Average is an accidental, non-intentional partial loss affecting only the owner of the damaged cargo (e.g., seawater damage to a specific crate).

Question 31Risk transfer, policy analysis, underwriting and claims

In marine hull insurance, what is the subject matter of the insurance?

  1. The cargo, commodities, or goods being transported in the ship
  2. The ship's physical structure (hull), machinery, equipment, and tackle Correct answer.
  3. The wages of the ship's captain and crew
  4. The value of the port facilities where the ship docks

Explanation

Marine hull insurance covers the physical ship itself (including its structural hull, boilers, engines, navigation gear, and onboard machinery) against perils of the sea, fire, collision, and piracy. Cargo is insured under a separate marine cargo policy.

Question 32Risk transfer, policy analysis, underwriting and claims

Why does aviation hull insurance typically require a high level of reinsurance?

  1. Because aircraft are legally required to buy reinsurance in Ghana
  2. Because aviation risks involve extremely high capital values and catastrophic loss potential, exceeding the capacity of a single primary insurer Correct answer.
  3. Because aircraft passengers are exempt from standard liability laws
  4. Because aviation fuel is highly taxed in West Africa

Explanation

Aviation risks involve massive concentrations of risk. The value of a modern passenger jet, combined with potential liability for passenger deaths and ground damage, can run into hundreds of millions of dollars. No single primary insurer in Ghana can hold this risk alone, requiring extensive risk sharing through international reinsurance syndicates.

Question 33Risk transfer, policy analysis, underwriting and claims

How is a Personal Accident (PA) insurance policy structured in terms of claim payouts?

  1. It is a benefit policy that pays fixed, pre-determined lump sums for death or specific physical disablements resulting from an accident Correct answer.
  2. It is a strict indemnity policy that pays only the actual cost of repairs to a broken bone
  3. It pays the legal fees of the driver who caused the accident
  4. It reimburses the insured for all grocery purchases made during recovery

Explanation

A Personal Accident policy is a benefit policy, not an indemnity policy. The contract specifies exact amounts to be paid for specific events (e.g., 100% of the capital sum for accidental death or loss of two limbs, and smaller percentages for loss of a finger), regardless of the insured's actual expenses.

Question 34Risk transfer, policy analysis, underwriting and claims

In a Personal Accident policy, which of the following is typically a standard exclusion?

  1. Accidental slip and fall at home resulting in a fractured wrist
  2. Self-inflicted injuries, suicide attempts, and injuries sustained while under the influence of alcohol or drugs Correct answer.
  3. Injuries sustained in a public transport road accident on the highway
  4. Accidental burns occurring while cooking in a private kitchen

Explanation

Standard exclusions in Personal Accident policies include intentional self-inflicted injury, suicide, war risks, childbirth, and accidents occurring while the insured is under the influence of alcohol or non-prescribed drugs. Slips, home accidents, and transport accidents are standard covered risks.

Question 35Risk transfer, policy analysis, underwriting and claims

What is the primary function of Group Health (Medical Expenses) insurance offered by employers in Ghana?

  1. To pay a lump sum of GHS 500,000 to every employee who completes ten years of service
  2. To reimburse employees for actual medical, clinical, and hospitalization expenses incurred due to illness or injury, subject to policy limits Correct answer.
  3. To pay for the employees' travel costs during annual corporate holidays
  4. To replace the mandatory pension contributions of the employer

Explanation

Group health insurance is an indemnity-based medical policy that reimburses employees (and sometimes their dependents) for costs such as hospital admission, consultation fees, surgical costs, and prescription drugs, helping employers attract talent and keep the workforce healthy.

Question 36Risk transfer, policy analysis, underwriting and claims

Under a medical insurance policy, what does a 'Co-insurance' clause require the insured to do?

  1. To purchase a second policy from a competitor insurance company
  2. To pay a specified percentage (e.g., 10% or 20%) of the eligible medical expenses, with the insurer paying the remaining percentage Correct answer.
  3. To share their medical room with another patient to save costs
  4. To recruit their colleagues to join the same health scheme

Explanation

Co-insurance is a cost-sharing mechanism. The insured agrees to pay a fixed percentage of each medical claim (e.g., 20%), while the insurer pays the balance (80%). This discourages over-utilization of medical services and lowers the overall policy premium.

Question 37Risk transfer, policy analysis, underwriting and claims

What is the primary function of an insurance underwriter?

  1. To sell policies door-to-door to individual consumers
  2. To evaluate risks proposed for insurance, decide whether to accept them, and determine appropriate premiums and terms Correct answer.
  3. To investigate car accidents and repair damaged vehicles on-site
  4. To prosecute policyholders who commit traffic offenses

Explanation

An underwriter is responsible for risk selection and pricing. They analyze proposal forms, medical reports, and risk surveys to determine if a risk meets the insurer's criteria. If accepted, the underwriter calculates the premium and defines the terms, conditions, and exclusions.

Question 38Risk transfer, policy analysis, underwriting and claims

In property insurance underwriting, what is the difference between a warranty and a representation?

  1. A warranty is an absolute undertaking that a specific condition must be strictly complied with, whereas a representation is a statement made by the proposer that needs only to be substantially true Correct answer.
  2. A warranty is a promotional guarantee of product quality, while a representation is an illegal claim
  3. Warranties are made by the insurer, while representations are made by the broker
  4. There is no difference; they have the same legal consequences under Ghana law

Explanation

A warranty is a strict condition that must be complied with literally (e.g., 'the building must be fitted with working fire extinguishers'). Any breach of warranty allows the insurer to deny liability from the date of the breach. A representation is a pre-contractual statement of fact that must be substantially accurate, but minor deviations do not automatically void the contract unless they are material.

Question 39Risk transfer, policy analysis, underwriting and claims

Why does an underwriter arrange a physical risk survey for a large commercial factory?

  1. To check if the factory workers are wearing matching uniforms
  2. To inspect the physical hazards, fire safety systems, and overall risk management practices first-hand before writing the policy Correct answer.
  3. To arrest managers who do not have business licenses
  4. To verify that the factory is using local raw materials

Explanation

For large or complex risks, proposal forms are not sufficient. Underwriters send risk surveyors to inspect the premises. The surveyor identifies physical hazards (e.g., poor wiring, blocked exits) and evaluates safety systems (sprinklers, alarms) to help the underwriter set appropriate rates and safety conditions.

Question 40Risk transfer, policy analysis, underwriting and claims

How does an underwriter calculate a premium using a 'per mille' rate?

  1. By charging a flat fee of GHS 1,000 to every policyholder
  2. By applying the rate to every GHS 1,000 of the sum insured (Sum Insured / 1,000 x Rate) Correct answer.
  3. By calculating the premium as a percentage of the policyholder's annual income
  4. By dividing the premium by the number of days in the month

Explanation

In commercial property and marine insurance, rates are often quoted 'per mille' (per thousand). For example, a rate of 2 per mille on a sum insured of GHS 100,000 results in a premium of (100,000 / 1,000) x 2 = GHS 200. This is distinct from percentage rates (per hundred).

Question 41Risk transfer, policy analysis, underwriting and claims

Which underwriting document is a temporary certificate issued to prove that insurance coverage is active before the formal policy document is printed?

  1. A proposal form
  2. A cover note Correct answer.
  3. A claim form
  4. A endorsement

Explanation

A cover note is a temporary document issued by the insurer or broker to confirm that insurance cover is in force. It contains key details of the risk and is valid for a limited period (e.g., 30 days) until the final policy document and schedule are prepared and sent to the insured.

Question 42Risk transfer, policy analysis, underwriting and claims

What is the first step a policyholder must take when an insured loss occurs?

  1. To hire a contractor to rebuild the property immediately without telling the insurer
  2. To notify the insurer or broker as soon as reasonably possible Correct answer.
  3. To file a lawsuit against the National Insurance Commission (NIC)
  4. To cancel the policy to get a premium refund

Explanation

Policies contain conditions requiring immediate or prompt notification of any loss or event that might give rise to a claim. Delay in notification can prejudice the insurer's ability to investigate the loss and may lead to the claim being rejected.

Question 43Risk transfer, policy analysis, underwriting and claims

Whom does an independent loss adjuster represent during the settlement of a large property claim?

  1. The policyholder exclusively
  2. Neither party exclusively; they are independent experts hired by the insurer to investigate the loss and recommend a fair settlement based on the policy terms Correct answer.
  3. The National Insurance Commission (NIC)
  4. The police department

Explanation

Loss adjusters are independent professionals. Although they are appointed and paid by the insurance company, their duty is to act impartially to investigate the cause of the loss, evaluate the extent of the damage, and calculate the correct claim payout according to the policy terms.

Question 44Risk transfer, policy analysis, underwriting and claims

In general insurance claims, what is 'salvage'?

  1. A penalty fee charged to policyholders who fail to file claims on time
  2. The damaged property that remains after a loss, which the insurer may take ownership of after paying a total loss claim Correct answer.
  3. The cash bribe paid to police officers to get an accident report
  4. The process of renewing a policy after it has lapsed

Explanation

When an insurer pays a total loss claim (e.g., for a completely burnt car), they are entitled to take ownership of the remains of the property (salvage). The insurer can sell the salvage to recover some of the claim payout, reflecting the principle of indemnity (preventing the insured from keeping both the payout and the scrap value).

Question 45Risk transfer, policy analysis, underwriting and claims

What is the difference between a total loss and a partial loss in claims adjustment?

  1. A total loss occurs when the subject matter is completely destroyed or damaged beyond economic repair, whereas a partial loss involves damage that can be repaired for less than the value of the item Correct answer.
  2. Total loss applies to marine cargo only, while partial loss applies to motor vehicles
  3. Total loss claims are paid to the broker, while partial loss claims are paid to the police
  4. There is no difference; both are settled by replacing the entire building structure

Explanation

A total loss occurs when the property is destroyed, lost, or damaged so severely that the cost of repair or recovery exceeds its insured or market value (constructive total loss). A partial loss occurs when the damage is minor enough that repairing the item is economically feasible.

Question 46Risk transfer, policy analysis, underwriting and claims

Under a standard property policy, what obligation does the insured have immediately after a loss to mitigate the damage?

  1. They have no obligations; they can leave the building open to rain and theft
  2. They must take reasonable steps to prevent further loss or damage to the property (such as covering a broken roof or securing the premises) Correct answer.
  3. They must immediately sell the remaining property to a scrap dealer before the adjuster arrives
  4. They must hire their own security guard company at the insurer's expense without approval

Explanation

The insured has a duty to mitigate loss. This means they must act as if they were uninsured, taking reasonable precautions to protect the property from further damage (e.g., turning off the main water valve after a pipe burst). Failure to mitigate can lead to the insurer refusing to cover the additional damage.

Question 47Risk transfer, policy analysis, underwriting and claims

In general insurance claims, what does the term 'abandonment' mean, particularly in marine insurance?

  1. Leaving a damaged vehicle in a garage and refusing to pay the repair bill
  2. The act of surrendering all rights and ownership of the damaged subject matter to the insurer in exchange for a total loss claim payment Correct answer.
  3. Failing to renew a policy when it expires
  4. The insurer refusing to respond to the policyholder's claims notifications

Explanation

Abandonment is a formal process in marine and property insurance. If the insured claims a constructive total loss, they must issue a 'notice of abandonment' to the insurer, offering to transfer all remaining interest and salvage rights in the cargo or vessel to the insurer in exchange for the full sum insured payout.

Question 48Risk transfer, policy analysis, underwriting and claims

If an insurer suspects that a policyholder has intentionally started a fire to claim insurance money, who has the burden of proof to show that arson occurred?

  1. The policyholder must prove they did not start the fire
  2. The insurer must prove on the balance of probabilities (or the relevant legal standard) that the insured deliberately caused the fire Correct answer.
  3. The National Insurance Commission (NIC) must prove the arson
  4. No proof is required; the insurer can simply refuse to pay based on suspicion alone

Explanation

The burden of proof is on the party asserting the claim or exclusion. Because the insurer is seeking to deny liability based on an exclusion (willful act or arson), the insurer must prove that the fire was started deliberately by or with the collusion of the insured. Mere suspicion is not sufficient to deny a claim.

Question 49Risk transfer, policy analysis, underwriting and claims

What is the primary difference between facultative reinsurance and treaty reinsurance?

  1. Facultative reinsurance is optional for both parties on an individual case-by-case basis, whereas treaty reinsurance is an obligatory agreement covering a defined portfolio of risks Correct answer.
  2. Facultative is for general insurance, while treaty is for life insurance
  3. Facultative is free of charge, while treaty requires premium payments
  4. Facultative is only used in Ghana, while treaty is used globally

Explanation

Facultative reinsurance is negotiated case-by-case. The primary insurer has the option to offer the risk, and the reinsurer has the option to accept or reject it. Treaty reinsurance is an standing contract where the reinsurer is obligated to accept all risks that fall within the defined treaty terms, and the primary insurer is obligated to cede them.

Question 50Risk transfer, policy analysis, underwriting and claims

In reinsurance terminology, what is the 'retention limit'?

  1. The percentage of policyholders who renew their contracts each year
  2. The maximum amount of risk that a primary insurance company decides to keep for its own account, ceding any excess to reinsurers Correct answer.
  3. The time limit allowed for a client to pay their premium before cancellation
  4. The fee charged by brokers to keep client records

Explanation

The retention limit (or net retention) is the maximum financial exposure an insurer is willing to keep on a single risk or event. Any liability above this retention limit is transferred (ceded) to reinsurers. The retention limit is determined by the insurer's financial strength and risk appetite.