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Insurance Commission Insurance Broker Licensure Exam (Philippines) study materials
Insurance Commission Insurance Broker Licensure Exam (Philippines) study resources

Insurance Commission Insurance Broker Licensure Exam (Philippines) practice questions

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Question 1Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Under the Insurance Code, how many days does a person transacting insurance business without a certificate of authority have to cease operations after notice from the Commissioner?

  1. Immediately upon receipt of notice
  2. Within 90 days from receipt of notice
  3. Within one year from receipt of notice
  4. Within 30 days from receipt of notice Correct answer.

Explanation

The Insurance Code gives the Commissioner power to order unlicensed persons to stop transacting insurance, and the recipient is allowed 30 days from receipt of the notice to cease operations. Continuing after that period exposes the person to the statutory penalties for unauthorized insurance business.

Question 2Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A broker's license issued by the Insurance Commission authorizes the licensee to act on behalf of which party?

  1. The Insurance Commission as its agent
  2. The insured only
  3. The insurer only
  4. Either the insurer or the insured, as the appointment specifies Correct answer.

Explanation

A broker represents the insured in negotiating insurance, but the Code also allows a licensed broker to be appointed by an insurer to solicit and transact its business. The distinction from an agent is that an agent acts for the insurer, while a broker's ordinary role is to serve the insured.

Question 3Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Which of the following must an applicant for an insurance broker's license generally satisfy?

  1. Own paid-up capital stock in a domestic insurer
  2. Have at least five years of prior employment with an insurer
  3. Pass the written broker examination and post the required bond Correct answer.
  4. Hold a college degree in commerce or law

Explanation

Broker licensing requires passing the written examination administered under Commission rules and filing a bond as a condition of licensing. Educational, employment, and capital-ownership conditions are not statutory prerequisites for an individual broker's license.

Question 4Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

What is the primary purpose of the compulsory motor vehicle liability insurance required under the Insurance Code?

  1. To indemnify the insured for damage to his own vehicle
  2. To guarantee payment of vehicle registration fees
  3. To provide bodily injury and death benefits to third parties injured by the insured vehicle Correct answer.
  4. To cover cargo transported by commercial vehicles

Explanation

Compulsory motor vehicle liability insurance exists to protect members of the public who are injured or killed by the operation of a motor vehicle. It responds to third-party bodily injury and death claims, not to the insured's own property damage.

Question 5Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Under the Insurance Code, an insurable interest in property must exist at what time for the policy to be valid?

  1. Only at the time the loss occurs
  2. Only at the time the policy is issued
  3. Both when the policy takes effect and when the loss occurs Correct answer.
  4. At any time within the policy period

Explanation

For property insurance, insurable interest must exist both when the insurance takes effect and when the loss happens. This rule prevents recovery by a person who had no interest at inception or who had already parted with the interest before the loss.

Question 6Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A policy provision that shortens the period for filing suit below the statutory limit is best described as:

  1. Valid if printed in bold
  2. Void and unenforceable Correct answer.
  3. Enforceable once approved by the Commissioner
  4. Effective only against commercial insureds

Explanation

The Insurance Code fixes the period within which an insured may sue on a policy, and clauses that reduce it are void. Approval of policy forms by the Commissioner does not cure a provision that contravenes the Code.

Question 7Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Which body has the power to suspend or revoke the certificate of authority of an insurance company under the Insurance Code?

  1. The Securities and Exchange Commission
  2. The Insurance Commission Correct answer.
  3. The Bangko Sentral ng Pilipinas
  4. The Department of Finance

Explanation

The Insurance Commission is the regulator that issues, suspends, and revokes certificates of authority for insurers and licenses for intermediaries. The other agencies regulate securities, banking, and fiscal policy respectively.

Question 8Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insurer must maintain a minimum paid-up capital and net worth as prescribed by law primarily to:

  1. Maximize dividends to stockholders
  2. Limit the number of policies it may issue
  3. Ensure the insurer can meet its obligations to policyholders Correct answer.
  4. Standardize premium rates across the industry

Explanation

Capital and net worth requirements are solvency measures that protect policyholders against the risk of insurer insolvency. They are not designed to cap business volume or to equalize rates.

Question 9Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insurance agent places a fire policy for a client but fails to remit the premium to the insurer while representing to the client that the policy is in force. Which statement best describes the agent's position under the Insurance Code?

  1. The policy is automatically void because the premium was unremitted
  2. The agent is liable for the unremitted premium and may face license suspension or revocation Correct answer.
  3. The client must pay the premium twice to keep the policy alive
  4. The agent commits no violation because the insurer bears the risk

Explanation

An agent who collects premiums holds them in a fiduciary capacity and must remit them to the insurer. Misappropriation or failure to remit is a ground for disciplinary action, including suspension or revocation of the agent's license, and the agent is personally accountable for the amount.

Question 10Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A broker prepares an application for a life policy and knowingly omits the applicant's history of a serious illness. The insurer later discovers the omission. What is the most accurate statement?

  1. The insurer must pay because the broker, not the insured, prepared the form
  2. The insurer may rescind the policy for concealment if the omission was material and fraudulent Correct answer.
  3. The policy is incontestable from the first day regardless of fraud
  4. The broker's license is unaffected because the insurer approved the application

Explanation

Material concealment or misrepresentation in the application entitles the insurer to rescind, subject to the incontestability period. Because the broker knowingly participated in the omission, the broker also exposes himself to disciplinary action by the Commission.

Question 11Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A person holds a broker's license but wishes to act as an agent for a particular insurer. Under the Insurance Code, what is required?

  1. The broker must form a domestic corporation
  2. The broker must be appointed by the insurer and licensed as an agent Correct answer.
  3. The broker must surrender the broker's license permanently
  4. No additional step; a broker's license automatically covers agency work

Explanation

Acting as an agent requires an agent's license and an appointment from the insurer, even if the person already holds a broker's license. The two licenses cover distinct roles, and the Code treats them separately.

Question 12Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insurer denies a claim on the ground that the insured failed to give notice of loss within the period stated in the policy, although the insurer suffered no prejudice from the delay. How should the denial be evaluated?

  1. The denial is valid only if the insured signed a waiver
  2. The denial is automatically void because notice clauses are prohibited
  3. The denial is valid because policy notice periods are strictly enforced
  4. The denial is questionable because a notice condition is generally construed liberally where the insurer is not prejudiced Correct answer.

Explanation

Notice-of-loss clauses are conditions the insured must substantially comply with, but courts and the Commission generally require the insurer to show prejudice before denying on delay alone. A technical forfeiture without prejudice is disfavored.

Question 13Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Which of the following best describes the concept of "doing business" in the Philippines for purposes of insurance regulation?

  1. Advertising an insurer's name in a foreign publication
  2. Transacting insurance business through solicitation, negotiation, or effecting contracts in the country Correct answer.
  3. Maintaining a bank account in a Philippine bank
  4. Any single isolated transaction involving an insurance contract

Explanation

Doing insurance business means transacting insurance in the Philippines, including soliciting, negotiating, and effecting insurance contracts. Isolated or incidental acts and purely foreign activities generally fall outside this definition.

Question 14Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A life insurance policy has been in force for more than two years. The insurer discovers that the insured innocently misstated his age in the application. What is the usual consequence?

  1. The insurer may rescind the policy entirely
  2. The insurer may adjust the benefits to what the premium would have purchased at the correct age Correct answer.
  3. The insurer must pay the full face amount without adjustment
  4. The insurer may cancel the policy and retain all premiums

Explanation

Where the misstatement of age is innocent and the policy has passed the contestability period, the insurer does not rescind but adjusts the benefit to the amount the premium would have bought at the true age. Rescission is available for fraudulent misrepresentation within the contestable period.

Question 15Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insurance broker receives a premium from a client and commingles it with personal funds before remitting to the insurer. What regulatory issue does this raise?

  1. An issue only if the broker earns interest on the funds
  2. A violation only if the insurer files a criminal complaint
  3. A breach of the fiduciary handling of premiums, which is a ground for disciplinary action Correct answer.
  4. None, provided the premium is eventually remitted

Explanation

Premiums collected by intermediaries are trust funds that must be handled in a fiduciary capacity and kept separate from personal funds. Commingling is a breach of that duty and can support suspension or revocation of the license even if the premium is later remitted.

Question 16Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A policy contains a clause requiring the insured to submit to examination under oath during a claim investigation. The insured refuses without justification. What is the likely effect?

  1. The insurer must pay the claim because the clause is unenforceable
  2. The insurer may only reduce the claim by half
  3. The insurer may deny the claim for breach of a material policy condition Correct answer.
  4. The insurer must refer the matter to the Insurance Commission before acting

Explanation

Cooperation clauses, including examination-under-oath requirements, are valid conditions of the policy. An unjustified refusal to cooperate can justify denial because it deprives the insurer of information needed to evaluate the claim.

Question 17Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Which statement correctly distinguishes a mutual insurance company from a stock insurance company under the Insurance Code?

  1. A stock company is exempt from capital requirements
  2. A mutual company is regulated by the SEC rather than the Insurance Commission
  3. A mutual company is owned by its policyholders, while a stock company is owned by shareholders Correct answer.
  4. A mutual company may not issue life policies

Explanation

In a mutual insurer, policyholders are the members and owners of the company, whereas a stock insurer is owned by shareholders. Both types are regulated by the Insurance Commission and are subject to capital rules.

Question 18Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A reinsurer assumes a portion of risks ceded by a domestic insurer. Which statement best describes the regulatory treatment of reinsurance under the Insurance Code?

  1. Reinsurance reduces the ceding insurer's risk but does not relieve it of its obligations to its policyholders Correct answer.
  2. Reinsurance is prohibited for domestic insurers
  3. Reinsurance transfers all liability so the ceding insurer has no further duty
  4. Reinsurance requires the consent of every policyholder

Explanation

Reinsurance is a contract between insurers that spreads risk, but the original insured's contract remains with the ceding insurer, which stays liable to the policyholder. The reinsurer's obligation runs to the ceding insurer, not directly to the insured.

Question 19Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An individual applies for a broker's license while a prior license was revoked for fraud two years earlier. How should the Commission treat the application?

  1. It may be denied because a prior revocation for fraud is a ground for refusing a new license Correct answer.
  2. It must be granted because the revocation was more than one year ago
  3. It must be granted if the applicant passes the examination
  4. It must be referred to the SEC for approval

Explanation

A prior revocation for fraud is a disqualifying circumstance that supports denial of a new license application. Passing the examination does not override character and disciplinary considerations.

Question 20Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Which of the following is a ground for suspension or revocation of an insurance broker's license under the Insurance Code?

  1. Misappropriating premiums or engaging in fraudulent practices Correct answer.
  2. Failing to meet a monthly sales quota
  3. Relocating the broker's office without notifying clients
  4. Declining to place a particular risk

Explanation

Fraudulent practices, misappropriation of premiums, and similar dishonest conduct are express grounds for disciplinary action against an intermediary. Business choices such as declining a risk or missing a sales quota are not statutory violations.

Question 21Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insurer issues a policy with a clause providing that the policy is void if the insured assigns it without the insurer's consent. The insured assigns the policy after a loss has already occurred. What is the better analysis?

  1. The insurer may keep the proceeds and pay nothing
  2. The assignment after loss transfers the right to the claim proceeds and does not void coverage for the completed loss Correct answer.
  3. The assignment voids the policy because consent was not obtained
  4. The assignment is a criminal offense under the Code

Explanation

A consent-to-assignment clause governs assignment of the policy before loss; once a loss has occurred, the insured's right to the proceeds becomes a chose in action that may be transferred. The insurer's obligation on the already-accrued claim is not defeated by the later assignment.

Question 22Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A broker negotiates a commercial property policy for a client. The client asks whether the broker may also receive compensation from the insurer placing the risk. What is the correct treatment?

  1. The broker may accept it only if the premium exceeds a fixed threshold
  2. The broker may accept insurer compensation without disclosure because it is customary
  3. The broker is prohibited from receiving any compensation from the insurer under all circumstances
  4. The broker must disclose the arrangement so the client can assess any conflict of interest Correct answer.

Explanation

A broker owes loyalty to the client, so compensation from the insurer creates a conflict that must be disclosed. Undisclosed dual compensation undermines the broker's duty of good faith and can expose the broker to disciplinary action.

Question 23Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insurer's certificate of authority is suspended. Which statement best reflects the legal effect on existing policies?

  1. The insurer may cancel all policies without notice to policyholders
  2. The suspension converts the insurer into a mutual company
  3. All existing policies are automatically void from the date of suspension
  4. The insurer must continue to service existing policies while it may not issue new ones unless authorized Correct answer.

Explanation

Suspension of the certificate of authority generally bars the insurer from transacting new business, but the insurer remains bound to honor and service policies already issued. Policyholders retain their rights, and the Commission may impose further conditions to protect them.

Question 24Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A broker places coverage with an unauthorized foreign insurer for a Philippine client. Which statement best describes the regulatory position?

  1. The placement is lawful if the client signs a waiver
  2. The broker may be subject to disciplinary action for placing business with an unauthorized insurer Correct answer.
  3. The unauthorized insurer automatically becomes authorized by the placement
  4. The policy is enforceable only if the insurer has a Philippine bank account

Explanation

Placing insurance with an insurer not authorized to transact business in the Philippines exposes the broker to disciplinary action and may affect the enforceability of the placement. A client waiver does not cure the absence of a certificate of authority.

Question 25Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insured files a claim shortly before the policy lapses for nonpayment of premium. The insurer had accepted a late premium but had not yet reinstated the policy when the loss occurred. What is the most accurate analysis?

  1. The policy is automatically reinstated upon the insurer's acceptance of the late premium
  2. The policy lapses only if the insured receives a court order
  3. The insurer must pay because it accepted the premium
  4. Reinstatement generally requires the insurer's approval and payment of overdue premiums, so coverage may not attach until reinstatement is effective Correct answer.

Explanation

Reinstatement of a lapsed policy is not automatic; it typically requires payment of overdue premiums and the insurer's approval, and the reinstated coverage takes effect only when those conditions are satisfied. A late premium accepted without completed reinstatement does not necessarily restore coverage for a loss occurring before reinstatement.

Question 26Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Under the Insurance Code, which of the following is the primary consequence when an insurance broker fails to pay the premium collected from an insured to the insurer within the period prescribed by the Code?

  1. The insured's policy is automatically void from inception.
  2. The broker's license is automatically renewed without penalty.
  3. The insurer must absorb the loss and may not recover from the broker.
  4. The broker becomes personally liable for the premium and may face license suspension or revocation. Correct answer.

Explanation

The Insurance Code treats premiums received by a broker as trust funds, and failure to remit them within the prescribed period makes the broker personally liable and exposes the license to suspension or revocation. The insured's coverage is not automatically voided, and the insurer retains a right to recover.

Question 27Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Which of the following best describes the requirement for an insurance broker to maintain a surety bond under the Insurance Code and its implementing rules?

  1. The bond must be filed with the Securities and Exchange Commission before license issuance.
  2. The bond is required only for brokers handling life insurance policies.
  3. The bond is optional and may be replaced by a personal guarantee from the broker.
  4. The bond is a condition for licensing and must be maintained in the amount prescribed by the Commissioner to protect insureds and insurers. Correct answer.

Explanation

The Insurance Code requires brokers to post a surety bond as a condition for obtaining and maintaining a license, in an amount set by the Insurance Commissioner. The bond serves to protect insureds and insurers from broker misconduct, and it must be kept in force.

Question 28Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insurance broker licensed in the Philippines wants to place a policy with an insurer that is not authorized to do business in the country. Under the Insurance Code, which statement is correct?

  1. The broker may place the risk only for marine cargo policies.
  2. The broker may place the risk freely because brokers are not regulated as to the insurers they use.
  3. The broker may place the risk only if the unauthorized insurer is listed in the Insurance Commission's approved list and the broker complies with the applicable rules on unauthorized insurers. Correct answer.
  4. The broker may place the risk with the unauthorized insurer if the insured signs a waiver.

Explanation

The Insurance Code regulates placement with unauthorized insurers and generally requires that the insurer be authorized or that the transaction fall within a permitted exception, such as those administered through the Insurance Commission's rules. A broker cannot avoid the requirement by obtaining a waiver from the insured.

Question 29Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A broker's license was previously revoked by the Insurance Commissioner for misappropriation. Which statement best reflects the Code's treatment of a subsequent application for a new broker's license by the same person?

  1. The Commissioner may not consider the prior revocation if the applicant passes the licensure examination.
  2. The prior revocation is a ground for denial, and the Commissioner may refuse the application within the period prescribed by the Code. Correct answer.
  3. The applicant may obtain a new license only if a surety company agrees to assume all liabilities.
  4. The applicant may automatically obtain a new license after paying the prescribed fees.

Explanation

The Insurance Code allows the Commissioner to deny a license to an applicant whose prior license was revoked for cause, and the disqualification may persist for a period set by law or rules. Passing the examination or paying fees does not erase the prior revocation.

Question 30Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Which of the following is a ground for the Insurance Commissioner to suspend or revoke an insurance broker's license under the Insurance Code?

  1. Charging a commission rate lower than that charged by other brokers.
  2. Failing to maintain a separate trust account for premiums collected.
  3. Failing to meet the annual continuing education requirement.
  4. Using fraudulent, coercive, or dishonest practices in the conduct of insurance business. Correct answer.

Explanation

The Insurance Code lists fraudulent, coercive, or dishonest practices, among other grounds, as bases for suspension or revocation of a broker's license. The other choices are either not statutory grounds or are not prohibited by the Code.

Question 31Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A broker receives a premium from a client and deposits it in the broker's general operating account, using part of it for office expenses before remitting the balance to the insurer. Under the Insurance Code, how is this conduct best characterized?

  1. It is permissible because the broker is an agent of the insured, not the insurer.
  2. It is a criminal offense only if the insurer suffers a loss.
  3. It is permitted if the broker maintains a surety bond covering the amount.
  4. It is a violation because premiums received by a broker are held in trust and must not be commingled with personal or general funds. Correct answer.

Explanation

The Insurance Code imposes a trust relationship on brokers with respect to premiums collected, requiring that such funds be kept separate and remitted to the insurer. Commingling with general funds is a breach of that trust and can lead to license suspension or revocation and personal liability.

Question 32Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insurer incorporated in the Philippines wants to increase its paid-up capital. Which statement best describes the regulatory requirement under the Insurance Code and Insurance Commission issuances?

  1. The increase is required only for insurers writing life policies.
  2. The increase must be approved by the Insurance Commissioner, and the insurer must maintain the minimum paid-up capital and net worth prescribed for its license. Correct answer.
  3. The increase may be made without regulatory approval because capital matters are internal to the corporation.
  4. The insurer may satisfy the requirement by posting a surety bond in lieu of paid-up capital.

Explanation

The Insurance Code and Insurance Commission circulars set minimum paid-up capital and net worth requirements that insurers must maintain, and increases in capital are subject to regulatory approval. A surety bond cannot substitute for paid-up capital.

Question 33Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A broker negotiates a policy for a client and, in addition to the commission from the insurer, accepts a separate fee from the client for the same placement. Under the Insurance Code, which statement is correct?

  1. The broker may keep both the commission and the fee without disclosure.
  2. The broker may accept the fee only if the insurer is authorized to do business in the Philippines.
  3. The broker may never accept any compensation from the client.
  4. The broker may accept the fee only if it is disclosed to and approved by the insurer and the client. Correct answer.

Explanation

The Insurance Code regulates broker compensation and requires disclosure and consent when a broker receives compensation from both the insurer and the insured. Undisclosed dual compensation is a conflict of interest and may be a ground for disciplinary action.

Question 34Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insurance broker is also licensed as an agent for a particular insurer. Which statement best describes the Code's treatment of this dual licensing?

  1. Dual licensing is permitted if the broker discloses the relationship and complies with the Code's requirements on conflicts of interest. Correct answer.
  2. Dual licensing is allowed only for life insurance products.
  3. Dual licensing is automatically approved upon payment of an additional fee.
  4. Dual licensing is prohibited without exception.

Explanation

The Insurance Code does not absolutely prohibit a person from holding both an agent's and a broker's license, but the person must manage conflicts of interest and comply with disclosure and regulatory requirements. Automatic approval and product-specific exceptions are not provided by the Code.

Question 35Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A broker's client suffers a loss and the insurer denies the claim based on a policy condition. The broker wishes to assist the client. Which statement best reflects the broker's role under the Insurance Code?

  1. The broker may adjust the claim and bind the insurer to a settlement.
  2. The broker may assist the client in presenting the claim and in communicating with the insurer, but cannot act as counsel or adjust the claim unless separately licensed. Correct answer.
  3. The broker may act as the client's legal counsel in litigation against the insurer.
  4. The broker has no role after the policy is issued.

Explanation

A broker's license authorizes solicitation and negotiation of insurance, not the practice of law or independent claims adjusting. The broker may assist the client in claim presentation and communication but must not exceed the scope of the license.

Question 36Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Which of the following statements about the Insurance Commission's power to examine insurance brokers is correct under the Insurance Code?

  1. The Commission has no examination authority over brokers; it regulates only insurers.
  2. The Commission may examine brokers only upon a written complaint from an insured.
  3. The Commission may examine the books and records of a broker at any time to verify compliance with the Code and its rules. Correct answer.
  4. The Commission may examine brokers only after a license has been revoked.

Explanation

The Insurance Code grants the Insurance Commissioner authority to examine the books, records, and affairs of brokers to ensure compliance with the law and regulations. This power is not limited to cases involving complaints or revoked licenses.

Question 37Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A broker places a policy with an insurer that subsequently becomes insolvent. Which statement best describes the role of the Insurance Commission in protecting policyholders under the Insurance Code?

  1. The Commission automatically guarantees all policy obligations from government funds.
  2. The Commission may take over the insurer's business and administer its assets for the benefit of policyholders and creditors. Correct answer.
  3. The Commission may order the broker to pay all policy claims from the broker's own funds.
  4. The Commission has no role once the insurer is declared insolvent by a court.

Explanation

The Insurance Code empowers the Insurance Commissioner to take over an insurer's business and administer its assets when it becomes insolvent or unable to meet its obligations, for the protection of policyholders and creditors. The Commission does not guarantee policy obligations from government funds, and the broker is not personally liable for the insurer's obligations.

Question 38Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

An insurance broker licensed in the Philippines wishes to open a branch office in another region. Under the Insurance Code and Insurance Commission rules, which statement is correct?

  1. The broker must notify the Commission and comply with the requirements for branch offices, including payment of applicable fees. Correct answer.
  2. The broker must obtain a separate license for each branch and pay the corresponding fees.
  3. The broker may open a branch without notifying the Commission because the license is national in scope.
  4. The broker may open a branch only if it posts an additional surety bond equal to the original bond.

Explanation

The Insurance Code and implementing rules require brokers to notify the Insurance Commission and comply with the requirements for establishing branch offices, which may include fees and other conditions. A separate license for each branch is not the general rule, and an additional bond equal to the original is not required.

Question 39Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

A broker collects premium from a client but fails to remit it to the insurer within the period prescribed by the Insurance Code. Which statement best describes the legal effect on the insured's coverage?

  1. The insured is deemed to have paid the premium, and the insurer remains liable under the policy. Correct answer.
  2. The policy is void because the insurer did not receive the premium.
  3. The insured must pay the premium again directly to the insurer to keep the policy in force.
  4. The broker becomes the insurer's agent for all purposes.

Explanation

Under the Insurance Code, payment of premium to a licensed broker is deemed payment to the insurer, and the insured is protected even if the broker fails to remit. The insurer remains liable under the policy, and the broker is personally accountable for the unremitted amount.

Question 40Insurance Law and Regulation (Insurance Code, as amended; IC circulars and issuances)

Which of the following statements about the confidentiality of information obtained by the Insurance Commission during examination of a broker is correct under the Insurance Code?

  1. All information obtained is public record and must be published.
  2. The Commission must keep information confidential except when disclosure is required by law or necessary for enforcement. Correct answer.
  3. The Commission may disclose information freely to competitors of the broker.
  4. The Commission may disclose information only to the broker's clients upon request.

Explanation

The Insurance Code imposes confidentiality on information obtained by the Commission in the course of examination, subject to exceptions such as legal requirements or enforcement actions. The information is not a public record, and disclosure to competitors is prohibited.

Question 41Principles of Insurance and Risk Management

In insurance terminology, which term refers to the person or entity whose life, health, or property is the subject of the insurance contract?

  1. The insured Correct answer.
  2. The underwriter
  3. The beneficiary
  4. The agent

Explanation

The insured is the person or entity whose life, property, or liability is covered by the policy and who is generally the party to whom indemnity is owed. The beneficiary receives proceeds, the agent solicits the contract, and the underwriter evaluates and accepts the risk.

Question 42Principles of Insurance and Risk Management

Which characteristic of insurable risk requires that the loss be accidental or unintended from the standpoint of the insured?

  1. Measurability
  2. Fortuitousness Correct answer.
  3. Catastrophic potential
  4. Adverse selection

Explanation

Fortuitousness means the loss must be accidental, unexpected, and outside the insured's control; deliberate acts are generally excluded to prevent moral hazard. Measurability concerns quantifiable loss, catastrophic potential concerns concentration of risk, and adverse selection concerns risk-pool composition.

Question 43Principles of Insurance and Risk Management

A broker collects premiums from clients and remits them to the insurer. Under Philippine insurance regulation, premiums collected by a licensed broker are generally treated as held in what capacity?

  1. As commission earned upon collection
  2. As a loan from the client
  3. As the broker's own working capital
  4. In trust for the insurer Correct answer.

Explanation

Premiums collected on behalf of an insurer are held in a fiduciary capacity and must be remitted promptly; they are not the broker's funds. Treating them as working capital or as commission before remittance would constitute a misappropriation of fiduciary money.

Question 44Principles of Insurance and Risk Management

Which principle prevents an insured from recovering more than the actual value of the loss suffered on a property policy?

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

Explanation

The principle of indemnity restores the insured to approximately the same financial position as before the loss, no better and no worse. Subrogation, contribution, and utmost good faith are related doctrines that support or operate alongside indemnity but do not themselves define the measure of recovery.

Question 45Principles of Insurance and Risk Management

An applicant for a life policy fails to disclose a known heart condition. The insurer later discovers this and rescinds the policy. Which principle most directly supports the insurer's action?

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

Explanation

Insurance contracts are contracts of utmost good faith, imposing on the applicant a duty to disclose all material facts within knowledge. Non-disclosure of a known heart condition is material and can entitle the insurer to rescind or avoid the contract.

Question 46Principles of Insurance and Risk Management

Which of the following best describes the concept of insurable interest in a life insurance policy?

  1. A guarantee that the policy will pay a dividend
  2. A rule that the policy must be assigned to a bank
  3. A financial or legal relationship such that the insured benefits from the continued life of the person insured Correct answer.
  4. A requirement that the beneficiary be a relative of the insured

Explanation

Insurable interest in life insurance exists where the policyholder has a legitimate financial or legal relationship with the life insured, such as self, spouse, or a key employee. It prevents the use of insurance as a wagering contract and must exist at inception of the policy.

Question 47Principles of Insurance and Risk Management

Which method of handling risk involves avoiding the activity that creates the exposure altogether?

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

Explanation

Risk avoidance eliminates the exposure by not undertaking the activity that generates it. Retention keeps the risk, transfer shifts it (for example, to an insurer), and reduction lowers frequency or severity without eliminating the exposure.

Question 48Principles of Insurance and Risk Management

Which of the following is a pure risk rather than a speculative risk?

  1. Fire damage to a warehouse Correct answer.
  2. Expansion into a new export market
  3. Launch of a new product line
  4. Purchase of shares expecting a price increase

Explanation

Pure risks involve only the possibility of loss or no loss and are generally insurable, such as fire damage. Speculative risks involve the possibility of gain or loss and are typically not insurable.

Question 49Principles of Insurance and Risk Management

In fire insurance, which doctrine determines whether a loss is covered when multiple perils contribute to it by identifying the dominant, effective cause?

  1. Proximate cause Correct answer.
  2. Subrogation
  3. Average clause
  4. Contribution

Explanation

Proximate cause identifies the dominant and effective cause of a loss, even if other perils contributed, to determine coverage under the policy. Subrogation and contribution concern recovery rights and apportionment among insurers, while the average clause addresses underinsurance.

Question 50Principles of Insurance and Risk Management

A property is insured for PHP 1,000,000 with Insurer A and PHP 1,000,000 with Insurer B, both covering the same interest on the same terms. A loss of PHP 800,000 occurs. Under the principle of contribution, how is the loss generally shared?

  1. Entirely by the insurer first notified
  2. Entirely by Insurer A because its policy was issued first
  3. Not at all, because double insurance voids both policies
  4. Equally between the two insurers, PHP 400,000 each Correct answer.

Explanation

Contribution requires insurers covering the same interest to share the loss, typically in proportion to their independent liability. With equal sums insured and identical terms, each insurer bears half of the loss, and the insured cannot recover more than the actual loss.