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III IC-72 practice questions

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Question 1Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Under a standard fire insurance policy, which principle entitles the insurer, after paying a total loss, to take over the insured's rights of recovery against a negligent third party?

  1. Principle of subrogation Correct answer.
  2. Principle of proximate cause
  3. Principle of contribution
  4. Principle of indemnity

Explanation

Subrogation transfers to the insurer, once it has indemnified the insured, the insured's legal right to recover the loss from the party who caused it. It prevents the insured from recovering twice and supports the indemnity principle. Contribution, by contrast, deals with sharing a loss between several insurers covering the same interest.

Question 2Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A proposal form contains a declaration that the answers given are true and complete and form the basis of the contract. What legal effect does this 'basis clause' have in Indian insurance practice?

  1. It shifts the burden of proving the truth of the answers onto the insurer
  2. It merely reminds the proposer to answer honestly and has no contractual consequence
  3. It converts the answers into warranties, so any inaccuracy allows the insurer to avoid liability Correct answer.
  4. It limits the insurer's right to avoid the policy to fraudulent misrepresentation only

Explanation

A basis-of-contract clause makes every answer in the proposal a warranty, so a material inaccuracy can allow the insurer to avoid the policy even where the misstatement was innocent. Insurers rely on it to protect the accuracy of underwriting information. Courts read such clauses strictly because of their harsh effect.

Question 3Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which of the following best describes the doctrine of proximate cause in insurance claims?

  1. The last event in the chain of events leading to the loss
  2. The cause nearest in time to the reporting of the claim
  3. The dominant, effective and operative cause of the loss, without which the loss would not have occurred Correct answer.
  4. Any cause that is concurrent with the loss, regardless of its effect

Explanation

Proximate cause means the dominant, effective cause that sets in motion the chain of events ending in the loss. It is not necessarily the last event or the nearest in time. Insurers apply it to decide which peril, and therefore which policy or exclusion, governs the claim.

Question 4Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

An insured holds two fire policies covering the same property, each containing a rateable proportion clause. A loss of INR 10 lakh occurs and each policy has a sum insured of INR 15 lakh. Under contribution, how is the loss shared?

  1. The insurer whose policy was issued first pays the whole amount
  2. The insured chooses one insurer, which pays the full INR 10 lakh
  3. Each insurer pays INR 5 lakh, sharing equally because the sums insured are equal Correct answer.
  4. Each insurer pays INR 10 lakh, giving the insured a profit

Explanation

Contribution requires insurers covering the same interest to share the loss in proportion to the sums insured. Where the sums insured are equal, each bears half, so each pays INR 5 lakh. The insured cannot recover more than the actual loss.

Question 5Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In fire insurance, which of the following is treated as a 'special peril' that is normally covered only by specific extension?

  1. Fire (lightning)
  2. Explosion of a boiler used in the insured's trade
  3. Riot, strike and malicious damage Correct answer.
  4. Implosion

Explanation

Standard fire policies list basic perils such as fire, lightning and explosion of domestic appliances, while perils like riot, strike and malicious damage are special perils added by extension on payment of extra premium. Boiler explosion, where the boiler is part of the insured's plant, is generally excluded. Implosion is also outside the basic cover.

Question 6Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A marine cargo policy is issued on a CIF basis. What does the CIF term primarily signify in marine insurance practice?

  1. Cargo Indemnity Fund, indicating the fund from which claims are paid
  2. Cost, Insurance and Freight, indicating that the seller arranges insurance and freight to the destination Correct answer.
  3. Carriage Insurance Free, indicating that the buyer bears all insurance costs
  4. Customs Inspection Fee, indicating the duty payable at the port of entry

Explanation

CIF stands for Cost, Insurance and Freight; the seller bears the cost of goods, insurance and freight up to the named destination port. The buyer therefore benefits from cover arranged by the seller. The term defines the point at which risk and cost pass between the parties.

Question 7Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which of the following losses is typically excluded from a marine cargo policy unless specifically covered?

  1. Loss due to inherent vice or nature of the subject matter Correct answer.
  2. Total loss of the vessel due to perils of the sea
  3. Loss caused by fire on board the vessel
  4. Loss caused by the vessel stranding

Explanation

Inherent vice, meaning the natural tendency of the goods to deteriorate or self-destruct, is a standard exclusion in marine cargo cover. Perils of the sea, fire, and stranding are classic insured perils. Excluding inherent vice protects insurers from losses attributable to the quality of the goods themselves.

Question 8Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In a marine hull policy, what does the 'perils of the sea' clause cover?

  1. Losses arising from the negligence of the master only
  2. Losses caused solely by ordinary wear and tear
  3. Fortunes of the sea, including accidental occurrences beyond ordinary action of wind and waves Correct answer.
  4. Only losses occurring in port

Explanation

Perils of the sea cover accidental occurrences of the sea, such as heavy weather, stranding or collision, beyond the ordinary action of wind and waves. Ordinary wear and tear and the normal action of the sea are not covered. The clause is central to hull cover.

Question 9Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A motor insurance policy is issued with a 'no claim bonus' (NCB). What is the effect of the NCB on the premium?

  1. A refund of premium paid regardless of claims
  2. An increase in the sum insured without additional premium
  3. A discount on the own damage premium where no claim has been made in the preceding policy year Correct answer.
  4. A surcharge added when the insured makes a claim

Explanation

No claim bonus is a discount on the own damage premium granted when the insured has not made a claim during the preceding year. It rewards claim-free experience and incentivises careful driving. The discount is applied at renewal and is withdrawn if a claim is made.

Question 10Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Under the Motor Vehicles Act, third-party liability cover for a private car is compulsory. Which of the following best describes the scope of compulsory third-party cover?

  1. It covers damage to the insured's own vehicle
  2. It covers bodily injury and death caused to third parties, and damage to third-party property up to the statutory limit Correct answer.
  3. It covers theft of the insured vehicle
  4. It covers only the driver's own injuries

Explanation

Compulsory third-party cover protects persons other than the insured against bodily injury, death and property damage caused by the insured vehicle, with property damage subject to a statutory limit. It exists to ensure innocent victims are compensated. Own damage and theft are covered only under optional own damage cover.

Question 11Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In a health insurance policy, what does the 'waiting period' typically refer to?

  1. The initial period after policy inception during which specified illnesses or pre-existing conditions are not covered Correct answer.
  2. The grace period for filing a claim after discharge
  3. The period during which the insurer cannot cancel the policy
  4. The period allowed to the insured to pay the renewal premium

Explanation

A waiting period is the initial period after commencement during which certain illnesses or pre-existing conditions are excluded from cover. It protects the insurer against adverse selection by persons who buy cover after illness begins. The period varies by condition and product.

Question 12Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A health insurance policy contains a 'pre-existing disease' clause. Which statement correctly reflects the usual treatment of such diseases?

  1. They are covered only after the specified waiting period if declared in the proposal Correct answer.
  2. They are covered from the first day of the policy without conditions
  3. They are permanently excluded even after the waiting period
  4. They are covered automatically if the insured is hospitalised in an emergency

Explanation

Pre-existing diseases that are declared are typically covered after a specified waiting period, often two to four years depending on the product. Non-disclosure of a known pre-existing condition can lead to claim rejection. The clause balances access to cover with protection against adverse selection.

Question 13Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which of the following best describes the principle of 'average' in property insurance?

  1. The insurer averages the claim with other insurers under contribution
  2. If the sum insured is less than the value of the property, the claim is reduced in the proportion that the sum insured bears to the value Correct answer.
  3. The insured averages the loss over the policy period
  4. The insurer averages the premium across a group of insureds

Explanation

The average clause reduces a claim where the sum insured is less than the value of the property, applying the ratio of sum insured to value. It penalises under-insurance and protects the insurer's premium base. The insured then bears a proportionate share of the loss.

Question 14Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A property valued at INR 20 lakh is insured for INR 10 lakh under a policy containing an average clause. A loss of INR 8 lakh occurs. What amount is payable?

  1. INR 8 lakh
  2. INR 5 lakh
  3. INR 10 lakh
  4. INR 4 lakh Correct answer.

Explanation

The average clause applies the ratio of sum insured to value, here 10/20, to the loss. Half of INR 8 lakh is INR 4 lakh. The insured bears the balance for having under-insured.

Question 15Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

What is the primary purpose of reinsurance?

  1. To increase the insurer's marketing reach
  2. To reduce the premium paid by the policyholder
  3. To avoid paying claims to policyholders
  4. To transfer part of the risk assumed by the insurer to another insurer, protecting solvency and capacity Correct answer.

Explanation

Reinsurance transfers a portion of the risk an insurer has accepted to a reinsurer, protecting the ceding insurer's solvency and increasing its underwriting capacity. It does not change the original insured's rights under the policy. The insurer remains liable to the policyholder.

Question 16Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which type of reinsurance arrangement requires the reinsurer to accept all risks ceded within the agreed scope, and the ceding insurer to cede all such risks?

  1. Treaty reinsurance Correct answer.
  2. Retrocession
  3. Facultative reinsurance
  4. Co-insurance

Explanation

Treaty reinsurance is an automatic agreement under which the reinsurer accepts and the ceding insurer cedes all risks falling within the defined class and limits. It avoids case-by-case negotiation. Facultative reinsurance, by contrast, is arranged risk by risk.

Question 17Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In a proportional reinsurance treaty, what does the 'quota share' arrangement mean?

  1. The reinsurer accepts only the largest risks
  2. The reinsurer shares only catastrophe losses
  3. The reinsurer accepts a fixed percentage of every risk and of every loss within the treaty Correct answer.
  4. The reinsurer pays losses only above a stated retention

Explanation

Under a quota share treaty the reinsurer takes a fixed percentage of every risk ceded and bears the same percentage of every loss, receiving the same share of premium. It is a proportional arrangement. Excess of loss, by contrast, applies only above a stated retention.

Question 18Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

What is 'retrocession' in reinsurance practice?

  1. The original insured cancelling the policy and receiving a refund
  2. The ceding insurer recovering claims from the original insured
  3. The reinsurer reinsuring part of the risk it has accepted from a ceding insurer Correct answer.
  4. The transfer of a policy from one insurer to another at renewal

Explanation

Retrocession is the process by which a reinsurer cedes part of the risk it has assumed to another reinsurer. It spreads risk further and protects the reinsurer's capacity. The original insured is unaffected by such arrangements.

Question 19Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Under the principle of 'insurable interest', which of the following persons is most likely to have an insurable interest in a cargo shipment?

  1. A customs officer who inspects the goods
  2. A bystander who happens to see the ship sail
  3. A competitor of the cargo owner
  4. The owner of the cargo who stands to lose financially if it is damaged or lost Correct answer.

Explanation

Insurable interest requires a pecuniary relationship such that the insured benefits from the safety of the subject matter and is prejudiced by its loss. The cargo owner clearly has that relationship. Mere curiosity or official duty does not create insurable interest.

Question 20Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A proposal form asks whether the proposer has ever been convicted of a criminal offence. The proposer leaves it blank, and the insurer issues the policy without noticing. What is the most accurate statement about the insurer's position?

  1. The insurer can only increase the premium retrospectively
  2. The insurer must pay all claims regardless of the non-disclosure
  3. The insurer cannot avoid the policy because the proposal form was incomplete
  4. The insurer can avoid the policy because material facts were not disclosed Correct answer.

Explanation

Insurance is a contract of utmost good faith, and the proposer must disclose all material facts, including answers to specific questions. Leaving a material question blank does not relieve the proposer of the duty. The insurer may avoid the policy on discovering the non-disclosure.

Question 21Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In fire insurance, which of the following describes the 'reinstatement value' basis of claims settlement?

  1. Payment of the sum insured regardless of the loss
  2. Payment of the cost of replacing the damaged property with new property of similar kind, without deduction for depreciation Correct answer.
  3. Payment of the depreciated value of the damaged property
  4. Payment limited to the market value at the time of loss

Explanation

Reinstatement value settlement pays the cost of replacing the damaged property with new property of a similar kind, without deducting depreciation, subject to the sum insured. It differs from the market value or depreciated value basis. It is often used where the insured intends to rebuild or replace.

Question 22Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which of the following statements about 'ex-gratia' payments by an insurer is correct?

  1. They are payments made only after a court order
  2. They are discretionary payments made without admission of legal liability Correct answer.
  3. They are payments made to reinsurers for claims settled
  4. They are legally due under the policy and enforceable in court

Explanation

Ex-gratia payments are voluntary, goodwill payments made without admitting contractual liability. They are not enforceable as of right under the policy. Insurers use them to preserve commercial relationships in doubtful cases.

Question 23Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A claim arises from a loss caused by two concurrent perils, one insured and one excluded, and neither can be shown to be dominant. How is such a situation best analysed under proximate cause principles?

  1. The claim is paid only if the insured obtains a court decree
  2. The excluded peril always prevails, so the claim is rejected entirely
  3. The loss is treated as caused by the insured peril where the insured peril is a proximate cause and the exclusion does not clearly apply Correct answer.
  4. The insured peril always prevails, so the claim is paid in full

Explanation

Where concurrent causes operate and one is an insured peril, the claim is generally admitted if the insured peril can be regarded as a proximate cause and the exclusion does not unambiguously displace it. The analysis depends on the wording of the policy and the facts. Neither peril automatically prevails.

Question 24Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

An insured under a fire policy deliberately sets fire to the premises to claim the sum insured. Which of the following best explains the insurer's position?

  1. The insurer must pay because the peril of fire is covered
  2. The insurer can repudiate the claim because the loss was caused by the wilful act of the insured Correct answer.
  3. The insurer must pay but may later recover from the insured
  4. The insurer can pay only half the claim

Explanation

A loss deliberately caused by the insured is not a fortuitous event and is excluded; the insurer may repudiate the claim. Indemnity and the requirement of an accidental loss both fail here. The insured's wilful act also amounts to a breach of the policy conditions.

Question 25Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In the context of the Insurance Regulatory and Development Authority of India (IRDAI) framework, what is the principal purpose of solvency margin requirements for insurers?

  1. To fix the commission paid to agents
  2. To determine the premium rates for all products
  3. To ensure the insurer maintains sufficient capital relative to its liabilities so that it can meet policyholder obligations Correct answer.
  4. To standardise the wording of all policy documents

Explanation

Solvency margin requirements ensure that an insurer holds adequate capital over and above its liabilities, protecting policyholders against insolvency. IRDAI prescribes a minimum solvency ratio that insurers must maintain. The requirement is a prudential safeguard rather than a pricing or documentation rule.

Question 26Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Under a standard fire insurance policy, what does the 'salvage' condition require the insured to do after a loss?

  1. Abandon the damaged property to the insurer and claim the full sum insured.
  2. Repair the property at own cost before the surveyor inspects it.
  3. Sell all damaged stock immediately and remit the proceeds to the insurer.
  4. Take reasonable steps to protect and preserve whatever remains of the property from further damage. Correct answer.

Explanation

Fire policies impose a duty on the insured to act as a prudent uninsured and mitigate further damage, preserving salvage for the insurer's benefit. Abandonment is not permitted, and the insured cannot simply hand over the wreck to claim the full sum insured.

Question 27Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

An insured holds two fire policies covering the same property and the same interest for the same period. How do the insurers typically settle a loss under the contribution principle?

  1. The loss is shared between the insurers in proportion to the sums insured each bears. Correct answer.
  2. Each insurer pays its full sum insured independently, giving the insured a profit.
  3. The later policy alone pays, because the earlier policy is treated as cancelled.
  4. The insured chooses one insurer to pay the whole loss and the other refunds its premium.

Explanation

Contribution requires insurers covering the same interest against the same peril to share the loss rateably, so that the insured recovers indemnity but not more. The insured cannot profit from double insurance.

Question 28Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which of the following best describes the role of a 'loss assessor' or surveyor in general insurance claims?

  1. To act as the insured's advocate in negotiating a higher claim amount.
  2. To underwrite the risk and fix the premium before the policy is issued.
  3. To investigate the cause and quantum of loss and recommend settlement to the insurer. Correct answer.
  4. To arbitrate disputes between the insurer and the reinsurer.

Explanation

A surveyor or loss assessor is appointed by the insurer to independently verify the cause, nature and extent of a loss and to advise on the admissible amount. The role is investigative and advisory, not underwriting or advocacy.

Question 29Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A liability policy is written on an 'occurrence' basis. Which loss is covered under such a policy?

  1. Only claims first made against the insured during the policy period.
  2. Only losses discovered and notified during the policy period.
  3. Bodily injury or property damage that occurs during the policy period, whenever the claim is later made. Correct answer.
  4. Claims reported during the policy period regardless of when the injury occurred.

Explanation

An occurrence-basis policy responds to injury or damage that takes place during the policy period, even if the claim is made years later. This contrasts with claims-made cover, which keys to when the claim is first made.

Question 30Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In a professional indemnity policy, what is the purpose of a 'retroactive date'?

  1. It limits cover to acts committed on or after a stated date, excluding earlier work. Correct answer.
  2. It marks the date on which the policy automatically lapses.
  3. It fixes the date after which no further claims may be made.
  4. It sets the date from which premium becomes payable.

Explanation

The retroactive date is the earliest date of professional services that the policy will cover, protecting the insurer from unknown past liabilities. Acts before that date are excluded even if the claim is made during the policy period.

Question 31Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A banker seeks cover for losses arising from forgery of a customer's signature on a cheque. Which policy is designed for this exposure?

  1. Fidelity guarantee insurance
  2. Electronic equipment insurance
  3. Money insurance
  4. Bankers' blanket bond Correct answer.

Explanation

A bankers' blanket bond covers a broad range of banking risks including forgery, fraud and dishonesty by employees. Fidelity guarantee alone covers employee dishonesty, not forged instruments.

Question 32Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In engineering insurance, what does the 'maintenance period' cover under a contractors' all risks (CAR) policy?

  1. Damage to the contractor's plant and machinery during construction.
  2. Defects liability for loss or damage occurring during the maintenance period after completion. Correct answer.
  3. Loss of materials stored off-site before delivery.
  4. Third-party bodily injury during the construction phase.

Explanation

CAR policies often include a maintenance or defects liability extension covering damage arising during the maintenance period after the works are completed. This addresses the contractor's liability for defects during that post-completion window.

Question 33Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which of the following is the primary function of the 'tariff' in Indian motor insurance before detariffing?

  1. To set standard premium rates and policy terms for motor risks. Correct answer.
  2. To regulate the appointment of insurance agents.
  3. To fix the minimum paid-up capital of insurers.
  4. To determine the solvency margin of insurers.

Explanation

Motor tariffs prescribed standard rates, terms and conditions for motor insurance, promoting uniformity across insurers. Solvency, agent licensing and capital requirements are separate regulatory functions.

Question 34Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A marine hull policy is issued on a 'time' basis. What does this mean?

  1. The policy covers a single specified voyage.
  2. The policy is cancelled on each port of call.
  3. The policy covers the vessel for a defined period, typically a year. Correct answer.
  4. The policy covers only cargo carried on deck.

Explanation

A time hull policy runs for a fixed period, usually twelve months, and covers the vessel during that period irrespective of voyages. Voyage policies, by contrast, cover a named trip.

Question 35Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

What is the purpose of a 'general average' contribution in marine insurance?

  1. To distribute claims among reinsurers.
  2. To settle crew wages during a voyage.
  3. To calculate the premium for a hull policy.
  4. To apportion the cost of a voluntary sacrifice or extraordinary expense incurred to save the ship and cargo. Correct answer.

Explanation

General average is a principle of maritime law under which a deliberate sacrifice or extraordinary expenditure to save the adventure is shared proportionately by ship, cargo and freight. Marine policies cover the insured's share of such contribution.

Question 36Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In a personal accident policy, what does the 'capital sum insured' typically represent?

  1. The amount payable for a permanent total disablement or death claim. Correct answer.
  2. The maximum weekly benefit payable during temporary disablement.
  3. The premium payable at inception.
  4. The medical expenses limit per accident.

Explanation

The capital sum insured is the principal sum on which benefits for death or permanent total disablement are calculated. Temporary total disablement is usually paid as a weekly percentage of that sum, not the sum itself.

Question 37Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which of the following correctly describes 'cash before cover' in insurance practice?

  1. The insurer pays the claim before the premium is received.
  2. The policy is issued only after a survey of the risk.
  3. The premium must be received by the insurer before the policy becomes effective. Correct answer.
  4. The insured must deposit a security with the broker.

Explanation

Cash before cover means the insurer's liability does not commence until the premium has been received. This protects the insurer from exposure on policies for which no premium has been paid.

Question 38Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A policyholder fails to disclose a material fact that would have influenced the insurer's acceptance of the risk. What is the usual legal consequence?

  1. The claim is paid but the premium is doubled.
  2. The policy remains fully valid because the insurer had a duty to investigate.
  3. The insurer may avoid the policy and repudiate the claim. Correct answer.
  4. The policy is automatically renewed on the same terms.

Explanation

Insurance contracts are uberrimae fidei, requiring disclosure of material facts; breach entitles the insurer to avoid the contract. The insurer is not obliged to investigate facts within the proposer's knowledge.

Question 39Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

What does the 'principle of indemnity' mean in the context of a fire insurance claim on a building?

  1. The insured receives a brand-new building regardless of the age of the old one.
  2. The insured receives the sum insured irrespective of the actual loss.
  3. The insured is restored to the financial position held immediately before the loss, subject to the sum insured. Correct answer.
  4. The insured may recover more than the actual loss if the premium was high.

Explanation

Indemnity aims to place the insured financially where they stood before the loss, no better and no worse. This is why depreciation and the sum insured both constrain recovery.

Question 40Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A liability insurer receives a claim that is likely to exceed the policy limit. What is the insurer's duty regarding defence of the insured?

  1. The insurer must pay the excess over the limit out of its own funds.
  2. The insurer may abandon the defence once the limit is exhausted.
  3. The insurer must transfer the defence to the reinsurer.
  4. The insurer must defend the insured, and defence costs may be payable in addition to or within the limit as the policy provides. Correct answer.

Explanation

Liability policies impose a duty to defend covered claims, and the treatment of defence costs (inside or outside the limit) depends on the policy wording. The insurer does not become liable for amounts above the limit merely because it defends.

Question 41Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which of the following best describes 'co-insurance' in large property risks?

  1. The insured shares the loss by paying a deductible.
  2. The insured insures with two insurers without disclosing either policy.
  3. The reinsurer takes a share of the insurer's premium.
  4. Two or more insurers each accept a stated share of the same risk under one policy. Correct answer.

Explanation

Co-insurance involves several insurers subscribing to agreed percentages of the same risk, often led by one insurer. It differs from reinsurance and from non-disclosure of double insurance.

Question 42Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In a group health insurance scheme, what does 'experience rating' at renewal mean?

  1. Premium is set by the regulator for all groups.
  2. Premium is adjusted based on the claims experience of the group during the preceding period. Correct answer.
  3. Premium is fixed solely by the age of the oldest member.
  4. Premium is reduced each year regardless of claims.

Explanation

Experience rating links the renewal premium to the actual claims record of the group, rewarding good experience and penalising poor experience. It is a common feature of group health and group life renewals.

Question 43Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

What is the purpose of a 'claims-made' policy in professional indemnity insurance?

  1. To cover only acts committed during the policy period, regardless of when claims are made.
  2. To cover claims notified after the policy expires without any extension.
  3. To cover only claims arising from fraudulent acts of the insured.
  4. To cover claims first made and notified during the policy period, regardless of when the act occurred, subject to any retroactive date. Correct answer.

Explanation

Claims-made cover is triggered by the making and notification of the claim during the policy period, provided the act is not earlier than any retroactive date. This allows insurers to price long-tail professional exposures.

Question 44Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which of the following is a characteristic of a 'valued policy' in marine insurance?

  1. The sum insured is always equal to the market value at the date of loss.
  2. The policy pays only a proportion of the loss based on average.
  3. The value of the subject matter is agreed in advance and is conclusive in the absence of fraud. Correct answer.
  4. The insured must prove the actual value at the time of loss.

Explanation

In a valued policy the agreed value is stated in the policy and is treated as conclusive between the parties, subject to fraud. This avoids disputes over value when a total loss occurs.

Question 45Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In the context of insurance regulation, what is the main purpose of prescribing 'solvency margin' requirements for insurers?

  1. To fix the maximum premium an insurer may charge.
  2. To regulate the number of branches an insurer may open.
  3. To ensure insurers maintain sufficient capital to meet their liabilities with a margin of safety. Correct answer.
  4. To determine the commission payable to agents.

Explanation

Solvency margin requirements ensure that an insurer holds assets in excess of liabilities so that it can absorb unexpected losses and pay claims. They are a prudential safeguard for policyholders.

Question 46Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

A customer's jewellery is insured under a householder's policy. Which condition is most likely to apply to such high-value items?

  1. The items are covered only while worn by the insured.
  2. The items must be separately specified with their values in the policy schedule. Correct answer.
  3. The items are excluded entirely from householder's policies.
  4. Cover is automatically limited to a fixed percentage of the building sum insured.

Explanation

High-value items such as jewellery are normally covered only when separately specified with agreed values, often subject to a single-article limit. This allows the insurer to assess and rate the exposure.

Question 47Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

What does 'subrogation' entitle an insurer to do after paying a claim?

  1. Recover the claim amount from the insured's other policies.
  2. Increase the premium at the next renewal.
  3. Step into the insured's legal rights against the third party responsible for the loss. Correct answer.
  4. Cancel the policy without refund of premium.

Explanation

Subrogation allows the insurer, having indemnified the insured, to pursue the insured's legal remedies against the party who caused the loss. It supports the principle of indemnity by preventing double recovery.

Question 48Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

An insured deliberately misrepresents the value of stock to obtain a higher sum insured and then claims for a fire loss. What is the likely outcome?

  1. The insurer pays only the premium paid.
  2. The insurer must pay the claim but report the insured to the police.
  3. The insurer must pay the claim because the loss was accidental.
  4. The insurer may repudiate the claim and avoid the policy for fraudulent misrepresentation. Correct answer.

Explanation

Fraudulent misrepresentation or exaggeration of a claim is a fundamental breach entitling the insurer to repudiate liability and avoid the policy. The insured's own dishonesty removes the basis of the indemnity.

Question 49Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

Which of the following best explains why reinsurance improves an insurer's capacity to write large risks?

  1. It transfers all underwriting decisions to the reinsurer.
  2. It guarantees that no claims will arise on the ceded business.
  3. It allows the insurer to cede part of the risk, reducing net retention and freeing capital for further business. Correct answer.
  4. It eliminates the need for the insurer to hold any capital.

Explanation

By ceding part of large or volatile risks, the insurer limits its net exposure and can deploy capital to underwrite more business. Reinsurance supports capacity and stability rather than removing risk entirely.

Question 50Insurance Institute of India professional examination subject IC-72 (domain breakdown not published in source)

In the context of insurance, what does 'moral hazard' refer to?

  1. The risk of a natural catastrophe occurring.
  2. The risk that the insured's behaviour or attitude increases the likelihood or severity of loss. Correct answer.
  3. The risk of loss arising from the physical condition of the property.
  4. The risk of changes in interest rates affecting investments.

Explanation

Moral hazard concerns intangible factors such as dishonesty, carelessness or indifference that may increase loss frequency or severity. It is distinct from physical hazards and from financial or catastrophe risks.