I85PREP
⌘ K
III IC-99 study materials
III IC-99 study resources

III IC-99 practice questions

One question at a time. Build your III IC-99 understanding.

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

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

Question 1Insurance Regulation, Licensing, and Market Conduct

In the context of insurance regulation, what is the primary purpose of a market conduct examination?

  1. To verify the financial solvency of the insurer by auditing reserves and investments
  2. To determine the actuarial adequacy of premium rates filed with the regulator
  3. To assess how an insurer treats policyholders and complies with sales, advertising, and claims rules Correct answer.
  4. To review the insurer's reinsurance treaties for credit risk exposure

Explanation

Market conduct examinations focus on the insurer's dealings with consumers, including marketing, underwriting, and claims practices. They are distinct from financial examinations, which test solvency, and from rate adequacy reviews.

Question 2Insurance Regulation, Licensing, and Market Conduct

An insurance producer is licensed in State A but wants to sell a policy to a client who resides in State B. Under the producer licensing model, what is generally required?

  1. The producer must form a business entity in State B
  2. The producer must obtain a nonresident license in State B or qualify for a reciprocity provision Correct answer.
  3. The producer may sell if the insurer is admitted in State B
  4. The producer may sell because the client is temporarily in State A

Explanation

Producers generally must be licensed in the state where the insured risk is located or where the transaction occurs. Nonresident licensing and reciprocity through the NAIC Producer Licensing Model Act allow producers to obtain authority in other states without duplicating full qualification.

Question 3Insurance Regulation, Licensing, and Market Conduct

Which of the following best describes the concept of 'rebating' as prohibited by state insurance laws?

  1. Using misleading advertising to promote an insurance product
  2. Charging a premium rate that is lower than the rate filed with the regulator
  3. Paying a commission to an unlicensed individual
  4. Returning a portion of the commission or offering any inducement not specified in the policy to secure a sale Correct answer.

Explanation

Rebating involves offering something of value, such as commission-sharing or gifts, as an inducement to purchase insurance beyond what the policy specifies. It is prohibited because it can lead to unfair discrimination among policyholders.

Question 4Insurance Regulation, Licensing, and Market Conduct

A regulator is reviewing an insurer's claims practices and finds that the insurer routinely denies valid claims without a reasonable investigation. Which regulatory action is most directly aimed at correcting this behavior?

  1. Referring the matter to the state attorney general for criminal prosecution
  2. Requiring the insurer to increase its capital surplus
  3. Issuing a cease-and-desist order and imposing fines for unfair claims settlement practices Correct answer.
  4. Revoking the insurer's certificate of authority immediately

Explanation

Unfair claims settlement practices are addressed through market conduct enforcement, typically beginning with cease-and-desist orders, fines, and corrective action plans. Capital requirements and license revocation are more severe or less targeted remedies.

Question 5Insurance Regulation, Licensing, and Market Conduct

Under the NAIC Suitability in Annuity Transactions Model Regulation, what must a producer do before recommending an annuity to a consumer?

  1. Obtain the consumer's credit report
  2. Provide a copy of the insurer's financial statements
  3. Require the consumer to sign a waiver of all future claims
  4. Make reasonable efforts to obtain suitability information and ensure the recommendation is suitable Correct answer.

Explanation

The model regulation requires producers to gather suitability information, such as financial situation and needs, and to have a reasonable basis to believe the recommendation is suitable. This is a consumer protection requirement.

Question 6Insurance Regulation, Licensing, and Market Conduct

Which of the following is an example of an unfair trade practice known as 'twisting'?

  1. Using a policy illustration that shows guaranteed and non-guaranteed values
  2. Failing to maintain accurate records of policyholder complaints
  3. Inducing a policyholder to lapse an existing policy and replace it through misrepresentation Correct answer.
  4. Charging different premiums based on actuarially justified risk classes

Explanation

Twisting is a form of replacement involving misrepresentation or incomplete comparison to induce a policyholder to surrender or lapse an existing policy. It is prohibited because it harms consumers and can lead to unsuitable replacements.

Question 7Insurance Regulation, Licensing, and Market Conduct

An insurance company wants to use an assumed name in its advertising. Under state insurance law, what must the insurer generally do first?

  1. Obtain consent from its reinsurers
  2. Notify the NAIC only
  3. Register the assumed name with the federal Securities and Exchange Commission
  4. File the assumed name with the state insurance regulator and obtain approval Correct answer.

Explanation

Insurers must typically file and receive approval for any assumed or fictitious name used in conducting insurance business. This allows the regulator to track the entity and prevent misleading consumers.

Question 8Insurance Regulation, Licensing, and Market Conduct

A producer's license is revoked in State A. What is the likely effect in State B under the NAIC Producer Licensing Model Act?

  1. State B must issue a probationary license pending appeal
  2. State B cannot take any action because licensing is state-specific
  3. State B must automatically revoke the producer's license without a hearing
  4. State B may deny, suspend, or revoke the producer's license based on the State A action Correct answer.

Explanation

The model act allows a state to take action against a producer based on disciplinary action in another state. This promotes uniformity and prevents producers from avoiding consequences by moving to another jurisdiction.

Question 9Insurance Regulation, Licensing, and Market Conduct

What is the primary function of a state guaranty association?

  1. To license insurance producers
  2. To pay covered claims of policyholders of insolvent insurers, subject to statutory limits Correct answer.
  3. To provide insurance coverage to high-risk individuals who cannot obtain it in the voluntary market
  4. To regulate the rates charged by insurers

Explanation

Guaranty associations protect policyholders when an insurer becomes insolvent by paying covered claims up to statutory limits. They are not regulators, nor do they provide coverage for high-risk individuals.

Question 10Insurance Regulation, Licensing, and Market Conduct

A producer receives a commission from an insurer for a policy placed with a client. The producer deposits the commission into a personal checking account. Which statement is correct?

  1. This is permissible if the producer keeps a record of the deposit
  2. This may violate fiduciary duty rules if the funds were received on behalf of the insurer or client Correct answer.
  3. This is permissible because commissions are the producer's property once received
  4. This is prohibited only if the amount exceeds $1,000

Explanation

Producers have a fiduciary duty to handle funds received in a fiduciary capacity, such as premiums, in accordance with state law. Commingling fiduciary funds with personal funds is generally prohibited and can lead to license suspension or revocation.

Question 11Insurance Regulation, Licensing, and Market Conduct

Which of the following best describes the purpose of the NAIC Insurance Data Security Model Law?

  1. To establish minimum standards for cybersecurity programs and incident response for insurers Correct answer.
  2. To require insurers to disclose all policyholder data to the state regulator annually
  3. To set uniform premium rates across all states
  4. To prohibit insurers from using third-party service providers

Explanation

The model law requires insurers to develop and maintain a comprehensive information security program, investigate cybersecurity events, and notify regulators. It aims to protect consumer data and improve resilience.

Question 12Insurance Regulation, Licensing, and Market Conduct

An insurer uses an advertisement that states 'Your claims will be paid within 24 hours' without qualification. In fact, claims are often paid later. This is an example of:

  1. An unfair trade practice involving misleading advertising Correct answer.
  2. A permissible statement of opinion
  3. A rebate
  4. A violation of producer licensing rules

Explanation

Misrepresenting the terms of a policy or the insurer's claims practices in advertising is an unfair trade practice. Advertising must be truthful and not misleading.

Question 13Insurance Regulation, Licensing, and Market Conduct

Under the NAIC Unfair Trade Practices Act, which of the following is considered an unfair claim settlement practice?

  1. Failing to acknowledge and act promptly upon communications with respect to claims Correct answer.
  2. Denying a claim after a thorough investigation
  3. Using an independent adjuster to evaluate a claim
  4. Requesting a police report for an auto theft claim

Explanation

The Unfair Trade Practices Act identifies specific claim practices as unfair, including failure to acknowledge communications promptly and failure to conduct a reasonable investigation. Legitimate investigation steps and denials based on evidence are not unfair practices.

Question 14Insurance Regulation, Licensing, and Market Conduct

A producer is licensed to sell life insurance but not annuities. The producer sells an annuity to a client. What is the most likely consequence?

  1. The sale is valid because annuities are a type of life insurance
  2. The insurer must honor the contract and the producer's license is automatically expanded
  3. The client can enforce the annuity contract but the producer is immune from penalties
  4. The producer has engaged in the unauthorized business of insurance and may face penalties Correct answer.

Explanation

Producers must hold the appropriate line of authority for the products they sell. Selling annuities without an annuity license constitutes unauthorized activity and can result in fines, license suspension, or other discipline.

Question 15Insurance Regulation, Licensing, and Market Conduct

What is the role of the state insurance department in rate regulation?

  1. To review filed rates to ensure they are not excessive, inadequate, or unfairly discriminatory Correct answer.
  2. To approve individual policyholder premiums
  3. To guarantee that insurers earn a profit
  4. To set uniform rates for all insurers in the state

Explanation

State rate regulation focuses on ensuring rates are adequate for solvency, not excessive for consumers, and not unfairly discriminatory. Regulators do not set uniform rates or guarantee profits.

Question 16Insurance Regulation, Licensing, and Market Conduct

A producer is convicted of a felony involving dishonesty. Under state insurance law, what is the likely effect on the producer's license?

  1. The license remains valid because the conviction is unrelated to insurance
  2. The producer may continue selling only to family members
  3. The producer must notify the regulator, who may suspend or revoke the license Correct answer.
  4. The license is automatically reinstated after one year

Explanation

Producers are typically required to report criminal convictions to the insurance regulator. A felony involving dishonesty may be grounds for suspension or revocation of the license.

Question 17Insurance Regulation, Licensing, and Market Conduct

Which of the following is an example of a 'controlled business' arrangement that is generally prohibited or restricted for insurance producers?

  1. Selling insurance to a spouse or employer where the producer has a financial interest Correct answer.
  2. Selling insurance to a walk-in customer
  3. Selling insurance to a referral from another licensed producer
  4. Selling insurance to a person who responds to an advertisement

Explanation

Controlled business refers to insurance written on the producer's own life, property, or business, or that of relatives or employers, where the producer has a financial interest. Many states limit or prohibit controlled business to prevent abuse.

Question 18Insurance Regulation, Licensing, and Market Conduct

An insurer's market conduct examination reveals a pattern of failing to provide required notices to policyholders before canceling coverage. Which regulatory response is most appropriate?

  1. Immediate liquidation of the insurer
  2. Criminal prosecution of the CEO
  3. Revocation of the insurer's license without a hearing
  4. A fine and a corrective action plan to revise cancellation procedures Correct answer.

Explanation

Market conduct violations are typically addressed through fines, corrective action plans, and ongoing monitoring. Liquidation, criminal prosecution, and summary revocation are reserved for more severe circumstances and require due process.

Question 19Insurance Regulation, Licensing, and Market Conduct

Which of the following statements about the NAIC's Insurance Regulatory Information System (IRIS) is correct?

  1. IRIS ratios are used to identify insurers that may require further regulatory attention Correct answer.
  2. IRIS ratios are used to set producer commission levels
  3. IRIS ratios determine the exact amount of premium an insurer may write
  4. IRIS ratios replace the need for financial examinations

Explanation

IRIS is an early warning tool that uses financial ratios to flag insurers for further review. It does not set premium limits, replace examinations, or regulate commissions.

Question 20Insurance Regulation, Licensing, and Market Conduct

A producer advertises a policy as 'government-approved' when it is not. This is an example of:

  1. A misrepresentation of policy benefits or approval status Correct answer.
  2. A permissible use of the state seal
  3. An unfair claims practice
  4. A rebate

Explanation

Misrepresenting a policy as government-approved is a false advertisement and an unfair trade practice. It misleads consumers about the policy's endorsement or status.

Question 21Insurance Regulation, Licensing, and Market Conduct

Under the NAIC Producer Licensing Model Act, what is required for a nonresident producer license?

  1. The producer must reside in the state for at least six months
  2. The producer must pass the state's full licensing examination
  3. The producer must maintain a physical office in the state
  4. The producer must be licensed and in good standing in their home state Correct answer.

Explanation

The model act provides for reciprocity, allowing a nonresident license if the producer is licensed and in good standing in their home state. It does not require a physical office, a new exam, or residency.

Question 22Insurance Regulation, Licensing, and Market Conduct

Which of the following is a key element of a state's insurance fraud prevention statute?

  1. Eliminating the need for a criminal intent element
  2. Requiring insurers to report suspected fraudulent claims to a fraud bureau Correct answer.
  3. Making all claim denials automatically fraudulent
  4. Prohibiting insurers from using special investigation units

Explanation

Insurance fraud statutes often require insurers to report suspected fraud to a state fraud bureau and may mandate anti-fraud plans. They do not prohibit investigation units or eliminate intent requirements.

Question 23Insurance Regulation, Licensing, and Market Conduct

A regulator finds that an insurer has charged rates that are inadequate to cover expected losses. What is the most likely regulatory concern?

  1. The insurer is earning excessive profits
  2. The insurer may become insolvent and unable to pay claims Correct answer.
  3. The insurer is violating producer licensing rules
  4. The insurer is engaging in unfair discrimination

Explanation

Inadequate rates threaten insurer solvency because they may not generate enough funds to cover claims. Rate regulation aims to ensure adequacy, not just prevent excessiveness.

Question 24Insurance Regulation, Licensing, and Market Conduct

Which of the following best describes the purpose of a state's 'market conduct annual statement' (MCAS) filing?

  1. To apply for a certificate of authority
  2. To report the insurer's quarterly financial statements
  3. To register insurance products with the SEC
  4. To provide regulators with standardized data on claims and marketing practices for analysis Correct answer.

Explanation

MCAS collects standardized market conduct data from insurers, such as claims and complaint statistics, to help regulators identify trends and target examinations. It is not a financial statement or product registration.

Question 25Insurance Regulation, Licensing, and Market Conduct

A producer uses a policy illustration that shows only non-guaranteed values and omits guaranteed values. This practice is:

  1. Required for all annuity sales
  2. Potentially misleading and a violation of illustration regulations Correct answer.
  3. Permissible if the producer verbally explains the difference
  4. Allowed for term life insurance only

Explanation

Life insurance illustrations must comply with model regulations that require disclosure of both guaranteed and non-guaranteed elements. Omitting guaranteed values can mislead consumers about policy performance.

Question 26Insurance Regulation, Licensing, and Market Conduct

A producer licensed in one state moves permanently to another state and wants to continue selling insurance there. Under the NAIC Producer Licensing Model Act framework, which requirement most directly applies to the producer's existing resident license in the former home state?

  1. The former home state must terminate the resident license once the producer becomes a resident of and is licensed in the new state Correct answer.
  2. The former home state may keep the resident license active indefinitely as long as continuing education is completed
  3. The producer must surrender the former resident license only after passing the new state's full licensing examination
  4. The former home state automatically converts the resident license into a nonresident license without any application

Explanation

Under the NAIC Producer Licensing Model Act, a producer who moves to another state must become licensed as a resident of the new state, and the prior home state is expected to terminate the old resident license upon receiving notification of the new resident license. This prevents a producer from holding resident licenses in more than one state at the same time. The change is handled through reciprocity and notification rather than by keeping the old resident license alive.

Question 27Insurance Regulation, Licensing, and Market Conduct

An insurer domiciled in State A is examined by State A's insurance department, which shares the examination report with State B where the insurer also does business. Which regulatory concept best explains State B's authority to act on findings in that report?

  1. Federal preemption of state solvency oversight
  2. Guaranty association coordination
  3. Rate filing reciprocity
  4. Interstate comity in financial examinations Correct answer.

Explanation

State insurance regulators routinely share examination findings and other financial information with other states under comity and cooperative examination arrangements, and a state may rely on another state's examination in supervising an insurer doing business there. This cooperation supports efficient solvency oversight without duplicating every examination. Guaranty associations, rate filings, and federal preemption address different regulatory functions.

Question 28Insurance Regulation, Licensing, and Market Conduct

A claims adjuster repeatedly requests documentation already provided by the claimant, delaying payment for several months without any reasonable basis. The state insurance department treats this pattern as a market conduct violation. Which characterization best fits this conduct under the NAIC Unfair Trade Practices Act?

  1. Rebating
  2. Twisting
  3. Illegal inducement
  4. Unfair claim settlement practice Correct answer.

Explanation

The NAIC Unfair Trade Practices Act identifies unfair claim settlement practices, which include failing to act promptly on claims and compelling claimants to institute litigation to recover amounts due under the policy by offering substantially less than the amounts ultimately recovered. Repeated, baseless requests for duplicate documentation that delay payment fit this category. Rebating, twisting, and inducements concern sales conduct rather than claims handling.

Question 29Insurance Regulation, Licensing, and Market Conduct

An insurer plans to use an affiliate's established brand name in policyholder communications and signage, even though the insurer is not licensed under that name. Under state insurance law governing assumed names, what must the insurer generally do first?

  1. Register the name with the state securities regulator
  2. Obtain approval from the state insurance department before using the assumed name Correct answer.
  3. File the name with the state guaranty association
  4. Notify the NAIC only and begin use immediately

Explanation

States generally require an insurer or producer to obtain approval from the insurance department before transacting business under an assumed or fictitious name, so the public and the regulator can identify the licensed entity behind the brand. Approval protects against misleading identity and confusion with other licensees. Securities regulators, the NAIC alone, and guaranty associations do not grant that authority.

Question 30Insurance Regulation, Licensing, and Market Conduct

A state insurance department discovers that a licensed producer has been placing coverage for relatives and for a business the producer owns, and that this business constitutes most of the producer's premium volume. Which regulatory concern is most directly raised by this pattern?

  1. Unfair discrimination in underwriting
  2. Premium tax evasion
  3. Illegal rebating
  4. Controlled business restrictions Correct answer.

Explanation

Controlled business rules limit the share of an agent's or producer's business that comes from the producer, family members, or entities the producer controls, because such placements create conflicts and can be used to circumvent licensing and solvency safeguards. A producer whose volume is dominated by self-placed or family coverage may exceed those limits. The pattern does not, by itself, establish premium tax evasion, unfair discrimination, or rebating.

Question 31General Insurance Principles and Policy Contract Provisions

In insurance terminology, which party is the insurer that accepts the risk and promises to pay covered claims?

  1. The beneficiary
  2. The assured
  3. The broker
  4. The underwriter Correct answer.

Explanation

The insurer, often called the underwriter, is the party that accepts the transferred risk in exchange for premium and is bound to indemnify the assured under the policy. The assured is the party transferring risk, and the broker is an intermediary rather than a risk carrier.

Question 32General Insurance Principles and Policy Contract Provisions

Which principle requires that an insured with a marine cargo policy should not recover more than the actual financial loss suffered?

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

Explanation

Indemnity means the insured is restored to the pre-loss financial position, no better and no worse, so recovery cannot exceed the actual loss. Insurable interest concerns the legal relationship to the subject matter, while contribution deals with sharing a loss among insurers.

Question 33General Insurance Principles and Policy Contract Provisions

An applicant for property insurance deliberately conceals a recent fire at the premises. Under the principle of utmost good faith, what is the insurer's usual remedy?

  1. The insurer may only cancel cover prospectively at the next renewal
  2. The insurer must refer the matter to the broker for arbitration
  3. The insurer must pay the claim but may increase the next premium
  4. The insurer may avoid the policy from inception and refuse the claim Correct answer.

Explanation

Utmost good faith requires disclosure of all material facts the applicant knows or ought to know. Deliberate non-disclosure of a material fact such as a prior fire allows the insurer to avoid the contract, treating it as though it never existed.

Question 34General Insurance Principles and Policy Contract Provisions

Which feature distinguishes a warranty in an insurance contract from a mere representation?

  1. A warranty must be strictly complied with, and breach may discharge the insurer Correct answer.
  2. A warranty is always written, whereas a representation may be oral
  3. A warranty applies only to life policies and a representation only to property
  4. A warranty is given after the loss and a representation before it

Explanation

A warranty is a term of the contract that the insured promises to fulfil, and breach can entitle the insurer to repudiate liability, subject to any applicable statutory reform. A representation is a statement made during negotiations that induces the contract but is not itself a promissory term.

Question 35General Insurance Principles and Policy Contract Provisions

A homeowner insures a house for 200,000 when its full reinstatement value is 400,000, and the policy contains average (underinsurance) conditions. A fire causes 100,000 of damage. What will the insurer typically pay?

  1. 100,000, the full amount of the loss
  2. 200,000, the full sum insured
  3. 0, because the property was underinsured
  4. 50,000, applying the proportion of sum insured to value Correct answer.

Explanation

Under an average condition the insurer pays the same proportion of the loss as the sum insured bears to the full value. Here 200,000 divided by 400,000 is one half, so half of the 100,000 loss, namely 50,000, is payable.

Question 36General Insurance Principles and Policy Contract Provisions

Which statement best describes the doctrine of subrogation after an insurer has paid a claim?

  1. The insurer takes over the insured's rights of recovery against a third party responsible for the loss Correct answer.
  2. The insured must repay the premium for the unexpired period
  3. The insurer may recover the claim amount from other insurers covering the same risk
  4. The insurer becomes the owner of the damaged property in every case

Explanation

Subrogation allows the insurer, having indemnified the insured, to step into the insured's shoes and pursue any third party who caused the loss. It supports indemnity by preventing the insured from recovering twice, and it does not transfer ownership of salvage automatically.

Question 37General Insurance Principles and Policy Contract Provisions

Two property policies cover the same building on the same risk for the same period. After a covered loss, how does the principle of contribution operate?

  1. The insured may claim the full amount from either insurer and keep both payments
  2. Only the policy issued first in time responds to the claim
  3. Each insurer pays its rateable share so that total recovery equals the loss Correct answer.
  4. The insurers split the loss equally regardless of their sums insured

Explanation

Contribution allows insurers covering the same interest to share the loss rateably, usually in proportion to their sums insured, so the insured is indemnified once. The insured cannot recover twice for the same loss.

Question 38General Insurance Principles and Policy Contract Provisions

What is the purpose of the insurable interest requirement at the time a property policy is effected?

  1. To establish that the insurer has reinsured the risk
  2. To confirm the policyholder can afford the premium
  3. To ensure the policyholder has a legal or equitable relationship to the subject matter that would be harmed by loss Correct answer.
  4. To prove the property has been professionally valued

Explanation

Insurable interest requires a financial relationship recognised in law such that the insured benefits from the subject matter's safety and is prejudiced by its loss. This distinguishes insurance from a wager and supports the indemnity principle.

Question 39General Insurance Principles and Policy Contract Provisions

Which element is essential for a valid contract of insurance to exist?

  1. Approval of the policy wording by the regulator
  2. A written policy document signed by both parties
  3. Offer, acceptance, consideration and intention to create legal relations Correct answer.
  4. Payment of the full annual premium before inception

Explanation

Insurance is a contract and needs the ordinary elements: offer and acceptance, consideration (the premium and the promise to pay claims), and intention to create legal relations. A formal policy document is evidence of the contract but is not required for validity.

Question 40General Insurance Principles and Policy Contract Provisions

An insured fails to disclose a medical condition when completing a life insurance application, and the insurer would have declined cover had it known. What does the insurer's right to avoid the policy depend on?

  1. Whether the premium was paid by direct debit
  2. Whether the insured had previously held another policy
  3. Whether the non-disclosure was material to the insurer's decision to accept the risk Correct answer.
  4. Whether the condition was diagnosed after the policy started

Explanation

The test is materiality: a fact is material if it would influence a prudent insurer's decision on acceptance, terms or premium. Non-disclosure of a condition that would have led to declinature is material and can justify avoidance.

Question 41General Insurance Principles and Policy Contract Provisions

Which clause in a policy defines the events for which the insurer will not provide cover?

  1. The schedule
  2. The conditions clause
  3. The exclusions clause Correct answer.
  4. The insuring clause

Explanation

The exclusions clause removes specified perils, property or circumstances from the cover granted. The insuring clause grants cover, conditions set out obligations, and the schedule records the particular details of the risk.

Question 42General Insurance Principles and Policy Contract Provisions

A policy contains a condition precedent to liability requiring the insured to notify claims within 30 days. What is the effect of breaching such a condition where the wording makes it a condition precedent?

  1. The claim is automatically payable with interest
  2. The policy is void from inception
  3. The insurer may deny liability for that claim Correct answer.
  4. The insured may simply pay a small administration fee

Explanation

A condition precedent to liability must be satisfied before the insurer's obligation to pay arises. Breach therefore entitles the insurer to decline the particular claim, though it does not automatically void the whole policy from inception.

Question 43General Insurance Principles and Policy Contract Provisions

Which term describes the clause that entitles the insurer to take over and sell damaged property to reduce the claim cost?

  1. Abandonment
  2. Average
  3. Salvage Correct answer.
  4. Subrogation

Explanation

Salvage refers to the residual value of damaged property that the insurer may take over and realise to reduce the net cost of the claim. Subrogation concerns recovery rights against third parties, and abandonment concerns the insured surrendering property to the insurer.

Question 44General Insurance Principles and Policy Contract Provisions

An insured deliberately sets fire to the insured premises to claim the money. What is the insurer's position?

  1. The insurer must pay because the fire peril is covered
  2. The insurer may pay only the salvage value
  3. The insurer must pay but may report the matter to the police
  4. The insurer may repudiate the claim and avoid the policy for fraudulent conduct Correct answer.

Explanation

Deliberate loss caused by the insured is not a fortuitous event and breaches the duty of good faith. The insurer may decline the claim and avoid the policy, and may also seek recovery of any sums already paid.

Question 45General Insurance Principles and Policy Contract Provisions

What does the principle of proximate cause require when determining whether a loss is covered?

  1. The cause with the highest monetary value
  2. The most recent event in time before the loss
  3. The dominant, effective cause that sets the chain of events in motion Correct answer.
  4. The cause agreed between the insured and the broker

Explanation

Proximate cause is the dominant and effective cause of the loss, not necessarily the last event in time. If the proximate cause is an insured peril the claim succeeds, and if it is excluded the claim fails even where other factors contributed.

Question 46General Insurance Principles and Policy Contract Provisions

A fire damages a building, and while the building is open to the weather thieves steal fittings. Which doctrine helps decide whether the theft loss is covered under a fire policy?

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

Explanation

Proximate cause asks whether the fire, an insured peril, is the dominant cause of the subsequent theft loss or whether the theft is a new and independent cause. This determines whether the loss flows from the insured peril.

Question 47General Insurance Principles and Policy Contract Provisions

Which document issued by an insurer provides temporary evidence of cover before the formal policy is prepared?

  1. The cover note Correct answer.
  2. The certificate of insurance
  3. The schedule
  4. The endorsement

Explanation

A cover note provides temporary evidence that insurance is in force until the full policy is issued. An endorsement varies an existing policy, a schedule records details, and a certificate evidences cover under a master or group policy.

Question 48General Insurance Principles and Policy Contract Provisions

An insurer wishes to change the policy mid-term to add a new location. What document records this change?

  1. A cover note
  2. A renewal notice
  3. A proposal form
  4. An endorsement Correct answer.

Explanation

An endorsement is the document that formally records a variation to the policy terms or details during the policy period. It is attached to and read together with the policy.

Question 49General Insurance Principles and Policy Contract Provisions

Under the duty of disclosure, which fact is generally regarded as material for a commercial property risk?

  1. The insured's preferred trading name
  2. The insured's intention to install a large quantity of flammable solvent in the warehouse Correct answer.
  3. The colour of the office furniture
  4. The number of years the broker has been in business

Explanation

Material facts are those that would influence a prudent underwriter's decision or terms, and storing large quantities of flammable solvent substantially increases fire risk. Trivial or purely personal details are not material.

Question 50General Insurance Principles and Policy Contract Provisions

What is the effect of a policy condition requiring the insured to take reasonable steps to mitigate a loss after an incident?

  1. The condition applies only to liability policies
  2. The insurer must reimburse all costs regardless of benefit
  3. The insured must act as though uninsured to prevent further damage, and failure may reduce or defeat recovery Correct answer.
  4. The insured may leave the property untouched until the loss adjuster arrives

Explanation

Mitigation conditions require the insured to take reasonable precautions to limit further loss, and unnecessary costs are not recoverable. Failure to mitigate can entitle the insurer to reduce or decline the claim.