I85PREP
⌘ K
IFMP Non-Life Insurance Agents Certification (NLIAC), Pakistan study materials
IFMP Non-Life Insurance Agents Certification (NLIAC), Pakistan study resources

IFMP Non-Life Insurance Agents Certification (NLIAC), Pakistan practice questions

One question at a time. Build your IFMP Non-Life Insurance Agents Certification (NLIAC), Pakistan 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 1Non-Life (General) Insurance Fundamentals and Practice

Under the principle of indemnity, what is the maximum amount an insurer will normally pay on a fire claim for a building insured for PKR 5 million that suffers damage assessed at PKR 3 million?

  1. PKR 8 million, being loss plus sum insured
  2. PKR 5 million, being the full sum insured
  3. PKR 3 million, being the actual loss suffered Correct answer.
  4. PKR 1.5 million, being half of the loss

Explanation

Indemnity restores the insured to the same financial position as before the loss, so payment is limited to the actual amount of loss, not the full sum insured. The sum insured is only a ceiling; here the loss of PKR 3 million is below it and is therefore the payable amount.

Question 2Non-Life (General) Insurance Fundamentals and Practice

Which insurable interest must exist at the time of the loss for a marine cargo policy to respond?

  1. The insured must hold an interest only when the premium is paid
  2. The insured must hold an interest when the claim arises Correct answer.
  3. The insured must hold an interest only when the policy is signed
  4. The insured must hold an interest only when the vessel sails

Explanation

In marine cargo insurance the insured need not have an insurable interest when the policy is effected, but must acquire one before the loss occurs. The claim is payable only if the interest exists at the time of the loss.

Question 3Non-Life (General) Insurance Fundamentals and Practice

An insured deliberately burns down his own insured warehouse to claim the money. How should the insurer treat the claim?

  1. Pay the claim less the excess and refer the matter to the regulator
  2. Pay half the claim as a goodwill gesture and increase the premium
  3. Pay the claim but cancel the policy at renewal
  4. Decline the claim and consider recovering amounts already paid Correct answer.

Explanation

Deliberate damage caused by the insured is an excluded peril, and the insurer may also avoid the contract for breach of the duty of good faith. The insurer is entitled to decline liability and to seek recovery of any sums already paid.

Question 4Non-Life (General) Insurance Fundamentals and Practice

What does the principle of subrogation allow an insurer to do after paying a claim?

  1. Stand in the insured's place and pursue the third party who caused the loss Correct answer.
  2. Increase the sum insured without charging extra premium
  3. Recover the loss from the insured's other insurers automatically
  4. Cancel the policy without returning any premium

Explanation

Subrogation transfers to the paying insurer the insured's right of recovery against the party legally responsible for the loss. It prevents the insured from recovering twice and lets the insurer recoup its outlay.

Question 5Non-Life (General) Insurance Fundamentals and Practice

A property is insured for PKR 10 million under Policy A and PKR 10 million under Policy B, and suffers a loss of PKR 4 million. How does the principle of contribution apply?

  1. Policy A pays the full PKR 4 million as it was issued first
  2. Each insurer pays PKR 2 million, sharing the loss rateably Correct answer.
  3. Neither policy pays because double insurance voids both contracts
  4. Policy B pays the full PKR 4 million as it was issued later

Explanation

Contribution requires insurers covering the same interest against the same peril to share the loss rateably, so that the insured recovers no more than the indemnity. With equal sums insured, each insurer bears half of the PKR 4 million loss.

Question 6Non-Life (General) Insurance Fundamentals and Practice

In a reinsurance arrangement, which party is the reinsurer's direct counterparty?

  1. The regulator of the ceding insurer
  2. The ceding insurer Correct answer.
  3. The original insured
  4. The insurance broker of the original insured

Explanation

Reinsurance is a contract between the ceding insurer and the reinsurer, and the original insured has no direct contractual relationship with the reinsurer. The ceding insurer remains fully liable to its own policyholder.

Question 7Non-Life (General) Insurance Fundamentals and Practice

Which statement best describes a proportional facultative reinsurance arrangement?

  1. The reinsurer pays a fixed sum regardless of the loss amount
  2. The reinsurer covers only one specified peril across the whole portfolio
  3. The reinsurer shares an agreed percentage of every risk ceded and of its premiums and losses Correct answer.
  4. The reinsurer pays only losses exceeding a stated retention

Explanation

Facultative reinsurance is arranged risk by risk, and in a proportional arrangement the reinsurer accepts a fixed share of the risk, receiving the same share of premium and bearing the same share of losses.

Question 8Non-Life (General) Insurance Fundamentals and Practice

A fire policy covers the building but is silent on the stock stored inside. What is the correct treatment of stock damaged in the same fire?

  1. Stock is covered only if the fire started inside the building
  2. Stock is covered because fire is a covered peril
  3. Stock is covered up to half the building sum insured
  4. Stock is not covered because the policy insures only the building Correct answer.

Explanation

A property policy responds only for the property described in the schedule, so property not insured is not covered even if the same peril caused the damage. The insured would need separate or extended cover for stock.

Question 9Non-Life (General) Insurance Fundamentals and Practice

What is the main purpose of an average (underinsurance) clause in a fire policy?

  1. To average the excess across all claims made in a year
  2. To average the loss between the insurer and the insured equally
  3. To average the premium over the policy period in equal instalments
  4. To reduce the claim in proportion to the shortfall between sum insured and value at risk Correct answer.

Explanation

The average clause applies where the sum insured is less than the value of the property at risk, reducing the payout in the same proportion as the underinsurance. It encourages insureds to declare adequate values.

Question 10Non-Life (General) Insurance Fundamentals and Practice

An insured's factory is insured for PKR 8 million while its actual value at risk is PKR 10 million. A fire causes a loss of PKR 5 million. Applying an 80% average condition, what amount is payable before any excess?

  1. PKR 8 million
  2. PKR 2.5 million
  3. PKR 5 million
  4. PKR 4 million Correct answer.

Explanation

Under an 80% average condition the insured must insure at least 80% of the value, that is PKR 8 million, which is exactly met here, so the claim is paid in full at PKR 5 million. Wait-since the requirement is satisfied, the payable amount is the actual loss, so the proportionate reduction does not apply.

Question 11Non-Life (General) Insurance Fundamentals and Practice

Which of the following is a fundamental feature that distinguishes insurance contracts from ordinary commercial contracts?

  1. Free negotiation of every wording by both parties
  2. Absence of any duty of disclosure on the insured
  3. Utmost good faith, insurable interest and indemnity Correct answer.
  4. Guaranteed profit for the insurer on every policy

Explanation

Insurance contracts carry distinctive legal principles, notably utmost good faith, insurable interest and indemnity, which shape the rights and duties of the parties. These principles are not features of ordinary sale or service contracts.

Question 12Non-Life (General) Insurance Fundamentals and Practice

What is the effect of a warranty in a non-life insurance policy?

  1. A term whose breach may entitle the insurer to treat the contract as discharged Correct answer.
  2. A clause that automatically increases the sum insured each year
  3. A non-binding statement of the insured's future intentions
  4. A promise by the insurer to renew at the same premium

Explanation

A warranty is a term of the contract that the insured promises to comply with, and breach may discharge the insurer from liability. This makes warranties significantly stronger than mere representations.

Question 13Non-Life (General) Insurance Fundamentals and Practice

What does the duty of disclosure require of a proposer for non-life insurance?

  1. To disclose only facts the insurer specifically asks about
  2. To disclose all material facts the proposer knows or ought to know Correct answer.
  3. To disclose facts only after the policy is issued
  4. To disclose only facts that are already public knowledge

Explanation

The proposer must volunteer all facts that would influence a prudent underwriter's decision on acceptance, terms or premium, whether or not a question is asked. The duty extends to facts the proposer ought to know.

Question 14Non-Life (General) Insurance Fundamentals and Practice

Which document provides temporary evidence of cover before the formal policy is issued?

  1. A renewal notice
  2. A debit note
  3. A cover note Correct answer.
  4. A claims register

Explanation

A cover note is issued to confirm that cover has commenced while the policy is being prepared, and it binds the insurer on the agreed terms. The formal policy later replaces it as the full contract document.

Question 15Non-Life (General) Insurance Fundamentals and Practice

What is the function of the excess (deductible) in a non-life policy?

  1. To raise the sum insured automatically each year
  2. To make the insured bear a first portion of each loss Correct answer.
  3. To transfer the whole loss to a third party
  4. To replace the premium with a claims levy

Explanation

The excess is the amount the insured must bear on each claim before the insurer pays, which reduces small claims and aligns the insured's interest with loss prevention. It also lowers the premium compared with a nil-excess policy.

Question 16Non-Life (General) Insurance Fundamentals and Practice

A motor policyholder fails to report an accident to the insurer for eight months, breaching a policy condition requiring prompt notice. What is the insurer's likely position?

  1. It must pay double the loss as a penalty on itself
  2. It must pay in full because the accident itself is covered
  3. It must pay in full because late notice never affects a claim
  4. It may decline or reduce liability if the delay prejudiced its investigation Correct answer.

Explanation

Notice conditions exist so the insurer can investigate while evidence is fresh, and breach that prejudices the insurer can justify declining or reducing the claim. The insurer's remedy depends on the prejudice caused by the delay.

Question 17Non-Life (General) Insurance Fundamentals and Practice

Which peril is normally excluded from a standard fire policy unless specifically extended?

  1. Damage caused by smoke from the insured fire
  2. Damage caused by lightning
  3. Damage caused by a domestic electrical short circuit
  4. Damage caused by war or nuclear explosion Correct answer.

Explanation

War risks and nuclear risks are standard exclusions in fire policies because their scale is uninsurable within ordinary fire rating. They can be reinstated only through special extension and often specialist markets.

Question 18Non-Life (General) Insurance Fundamentals and Practice

What does the reinstatement (new-for-old) basis of settlement provide in a property policy?

  1. Payment to rebuild or replace the property without deduction for depreciation Correct answer.
  2. Payment of the original purchase price of the property
  3. Payment of the market value of the damaged property only
  4. Payment limited to the written-down book value of the property

Explanation

Reinstatement cover pays the cost of rebuilding or replacing the property as new, without deducting for wear and tear, provided the sum insured reflects reinstatement value. It is more generous than indemnity value settlement.

Question 19Non-Life (General) Insurance Fundamentals and Practice

A customer slips on a wet floor in a supermarket and is injured. Which liability policy of the supermarket is designed to respond?

  1. Public liability Correct answer.
  2. Employers' liability
  3. Marine hull liability
  4. Product liability

Explanation

Public liability insurance covers the insured's legal liability for bodily injury or property damage suffered by third parties, such as customers, on the insured's premises. It does not depend on any product or employment relationship.

Question 20Non-Life (General) Insurance Fundamentals and Practice

In employers' liability insurance, whose legal liability is being insured?

  1. The employee's liability to the employer for negligence
  2. The landlord's liability for structural defects
  3. The employer's liability to employees for work-related injury or disease Correct answer.
  4. The manufacturer's liability for defective machinery

Explanation

Employers' liability cover protects the employer against claims by employees for injury or occupational disease arising out of employment. It addresses the statutory and common-law duties owed by the employer.

Question 21Non-Life (General) Insurance Fundamentals and Practice

Which statement correctly describes the basis on which a marine cargo policy is usually rated and underwritten?

  1. A single annual premium covers all risks without any declarations
  2. Each shipment is declared and rated according to the goods, route and packing Correct answer.
  3. The premium depends only on the value of the vessel carrying the goods
  4. The premium is fixed by the regulator for all cargo owners

Explanation

Cargo risks vary widely with the nature of the goods, the route, the mode of carriage and the packing, so cover is rated per shipment or under an open cover with declarations. This allows the underwriter to price each risk appropriately.

Question 22Non-Life (General) Insurance Fundamentals and Practice

What is the purpose of a no-claim discount in motor insurance?

  1. To reward claim-free years with a reduced renewal premium Correct answer.
  2. To guarantee renewal of the policy for life
  3. To increase the sum insured after each claim-free year
  4. To reduce the excess payable on the first claim

Explanation

A no-claim discount rewards policyholders who do not claim by reducing the premium at renewal, reflecting their better claims experience. It is a rating incentive rather than a change to cover or excess.

Question 23Non-Life (General) Insurance Fundamentals and Practice

An insurer applies a policy excess of PKR 25,000 and an assessed motor claim comes to PKR 90,000. How much will the insurer pay?

  1. PKR 25,000
  2. PKR 90,000
  3. PKR 65,000 Correct answer.
  4. PKR 115,000

Explanation

The excess is deducted from the assessed loss before payment, so the insurer pays the loss less the excess. Here PKR 90,000 minus PKR 25,000 gives PKR 65,000.

Question 24Non-Life (General) Insurance Fundamentals and Practice

Which of the following best describes the role of an underwriter in non-life insurance?

  1. Investigating and settling claims after a loss
  2. Selling policies to the public on behalf of the insurer
  3. Assessing and pricing the risk and deciding the terms of acceptance Correct answer.
  4. Auditing the insurer's financial statements

Explanation

Underwriting is the process of evaluating a proposed risk, deciding whether to accept it and on what terms, and setting a premium that reflects the risk. Claims handling and distribution are separate functions.

Question 25Non-Life (General) Insurance Fundamentals and Practice

What is the primary purpose of the tariff and regulatory framework administered for non-life insurance in Pakistan?

  1. To eliminate the need for reinsurance
  2. To guarantee profits for all insurers in the market
  3. To protect policyholders and ensure solvency and fair market conduct Correct answer.
  4. To fix the salary levels of insurance agents

Explanation

Insurance regulation focuses on policyholder protection, insurer solvency and fair conduct, supported by tariff and reporting requirements where applicable. It is not designed to guarantee commercial results for insurers.

Question 26Non-Life (General) Insurance Fundamentals and Practice

Under the principle of indemnity, what is the maximum amount an insurer will normally pay for a partial loss under a non-life policy?

  1. Twice the premium paid for the current policy year
  2. The actual amount of the loss, subject to the sum insured and policy terms Correct answer.
  3. The market value of the entire insured property at the date of loss
  4. The full sum insured regardless of the actual loss suffered

Explanation

Indemnity places the insured back in the same financial position as before the loss, no better and no worse. Payment is therefore limited to the measured loss, capped by the sum insured and any excess or average clause. Paying the full sum insured for a small loss would breach indemnity.

Question 27Non-Life (General) Insurance Fundamentals and Practice

Which insurable interest must a proposer for property insurance be able to demonstrate at the time of taking out the policy?

  1. A moral duty to protect the property from harm
  2. A financial relationship with the property such that its loss would cause pecuniary loss Correct answer.
  3. Physical possession of the property at the proposal date
  4. A written power of attorney from the owner of the property

Explanation

Insurable interest in property insurance means a pecuniary relationship with the subject matter, such as ownership, mortgage or custody, so that damage causes financial loss. Moral concern or mere possession without legal or financial stake is insufficient. This prevents insurance being used as a wager.

Question 28Non-Life (General) Insurance Fundamentals and Practice

What is the main function of the proposal form in non-life insurance?

  1. To authorise the agent to collect premium on the insurer's behalf
  2. To record the information the insurer needs to assess and rate the risk Correct answer.
  3. To confirm that the policy has already been cancelled
  4. To serve as the legal contract once the insurer accepts the risk

Explanation

The proposal form captures the facts an underwriter needs, such as the subject matter, perils, sums insured and claims history. It also forms the basis of the contract and supports the duty of disclosure. It is not itself the policy document.

Question 29Non-Life (General) Insurance Fundamentals and Practice

Which peril is typically covered by a standard marine cargo policy under the Institute Cargo Clauses (C) but not under the more limited cover?

  1. Loss or damage caused by the vessel sinking Correct answer.
  2. Wear and tear of the goods during normal transit
  3. Inherent vice of the cargo
  4. Delay in delivery of the cargo

Explanation

Institute Cargo Clauses (C) cover specified major perils including sinking, stranding, burning and collision of the carrying vessel. Wear and tear, inherent vice and delay are standard exclusions in all three clause sets. Clause (C) is the narrowest named-perils cover.

Question 30Non-Life (General) Insurance Fundamentals and Practice

Which type of policy is designed to cover a business against claims from members of the public injured on its premises?

  1. Professional indemnity insurance
  2. Product liability insurance
  3. Public liability insurance Correct answer.
  4. Employers' liability insurance

Explanation

Public liability insurance responds to third-party bodily injury or property damage arising from the insured's premises or operations. Employers' liability covers employees, product liability covers goods supplied, and professional indemnity covers negligent advice.

Question 31Non-Life (General) Insurance Fundamentals and Practice

What does a coinsurance clause in a commercial property policy require when the sum insured falls below the stated percentage of value?

  1. The insurer shares the premium with other insurers on the risk
  2. The insurer pays the claim in full but cancels the policy
  3. The insured must immediately increase the sum insured or forfeit all cover
  4. The insured bears a proportionate share of each partial loss Correct answer.

Explanation

A coinsurance clause imposes a proportionate penalty when the insured declares less than the required percentage of value. The claim is reduced in the ratio of sum insured to the required amount. This encourages accurate declaration of values.

Question 32Non-Life (General) Insurance Fundamentals and Practice

In non-life insurance, what is the purpose of the free look period?

  1. To give the policyholder a short period to review the policy and cancel it if unsuitable Correct answer.
  2. To extend the policy automatically at renewal
  3. To suspend cover while premium is being collected
  4. To allow the insurer to cancel cover without notice

Explanation

The free look period gives the policyholder a limited window after receiving the policy to cancel and obtain a refund of premium, usually less any risk charges. It protects consumers who may have misunderstood the cover. It is a consumer protection feature, not an insurer cancellation right.

Question 33Non-Life (General) Insurance Fundamentals and Practice

An agent is completing a motor proposal and the client says the vehicle is used only for private purposes, although the agent knows it is used as a taxi. What should the agent do?

  1. Decline to submit the proposal and refer the client to another insurer
  2. Record the true use and explain that the premium will reflect the higher risk Correct answer.
  3. Record the private use as stated and let the underwriter decide later
  4. Record private use but advise the client to avoid claims while carrying passengers

Explanation

The agent must pass accurate information to the insurer so the risk can be rated properly. Recording a false use would misrepresent the risk and could void the policy at claim time. The agent should correct the information and explain the premium effect to the client.

Question 34Non-Life (General) Insurance Fundamentals and Practice

A commercial fire policy has a sum insured of PKR 6 million, a 75% coinsurance requirement, and the property value at risk is PKR 10 million. A partial loss of PKR 400,000 occurs. Ignoring any excess, how much is payable?

  1. PKR 240,000
  2. PKR 400,000
  3. PKR 320,000 Correct answer.
  4. PKR 300,000

Explanation

The required amount is 75% of PKR 10 million, i.e. PKR 7.5 million. The sum insured of PKR 6 million is 80% of that requirement, so the claim is reduced to 80% of PKR 400,000, which is PKR 320,000. This proportionate reduction is the standard coinsurance penalty.

Question 35Non-Life (General) Insurance Fundamentals and Practice

A homeowner's policy excludes damage caused by earthquake. The insured wants protection against this peril. What is the correct approach?

  1. The insured can request a specific extension or endorsement covering earthquake for an additional premium Correct answer.
  2. The insurer must automatically pay earthquake claims because the exclusion is unfair
  3. The insured should claim under a motor policy instead
  4. The exclusion can be ignored because exclusions are only advisory

Explanation

Excluded perils can often be brought back into cover by a specific extension or endorsement at an agreed additional premium. Without that extension the insurer is not liable for earthquake damage. Exclusions are binding terms, not advisory notes.

Question 36Non-Life (General) Insurance Fundamentals and Practice

An insured holds two separate fire policies on the same building, each with a sum insured of PKR 5 million, and suffers a PKR 2 million loss. How do the insurers normally respond?

  1. The insured may choose one insurer and ignore the other policy
  2. The insurers share the loss, commonly in proportion to the sums insured, so the insured recovers PKR 2 million in total Correct answer.
  3. Both insurers may avoid the policies for non-disclosure of the other cover
  4. Each insurer pays PKR 2 million, giving the insured PKR 4 million

Explanation

Where the same interest is insured twice, the insured cannot recover more than the loss because of indemnity. Insurers typically contribute rateably, often under a contribution condition. Each policy usually requires disclosure of other insurance.

Question 37Non-Life (General) Insurance Fundamentals and Practice

A retail shop takes out a business interruption policy. Which loss does this cover primarily address?

  1. Damage to the shop building from fire
  2. Theft of stock by employees
  3. Loss of trading profit and increased cost of working following insured physical damage Correct answer.
  4. Liability to customers injured in the shop

Explanation

Business interruption cover responds to the financial consequence of insured physical damage, such as lost gross profit and additional costs to maintain operations. It follows a material damage policy and does not itself pay for the physical damage. Liability and theft are separate covers.

Question 38Non-Life (General) Insurance Fundamentals and Practice

Which statement best describes the difference between a peril and a hazard in non-life insurance?

  1. A peril is the cause of loss, while a hazard is a condition that increases the chance or severity of loss Correct answer.
  2. A hazard is always a physical object, while a peril is always a legal liability
  3. Perils and hazards are identical terms used interchangeably
  4. A peril is a condition that increases risk, while a hazard is the actual loss event

Explanation

A peril is the event that causes loss, such as fire or collision. A hazard is a circumstance that makes that peril more likely or more severe, such as poor wiring or careless storage. Distinguishing the two helps underwriters assess and price risk.

Question 39Non-Life (General) Insurance Fundamentals and Practice

A motor insurer discovers that a policyholder failed to disclose two prior at-fault accidents at proposal. The insurer would not have accepted the risk on the same terms had it known. What is the insurer's usual remedy?

  1. The insurer must pay half the claim as a compromise
  2. The insurer may avoid the policy and decline the claim, subject to the applicable law and policy terms Correct answer.
  3. The insurer must pay the claim and simply charge extra premium next year
  4. The insurer can only cancel cover from the next renewal date

Explanation

Non-disclosure of material facts that would have influenced the underwriter entitles the insurer to avoid the contract. The usual consequence is that the claim is declined and the policy is treated as never having existed. Statutory and regulatory rules may modify how this operates in practice.

Question 40Non-Life (General) Insurance Fundamentals and Practice

What is the role of a loss adjuster in the claims process?

  1. To investigate the claim, verify the loss and recommend settlement to the insurer Correct answer.
  2. To defend the insured in a court case brought by a third party
  3. To set the premium for the following year
  4. To sell policies to the insured after a loss

Explanation

A loss adjuster is appointed by the insurer to investigate the circumstances and quantum of a claim and to recommend a settlement. The adjuster acts for the insurer, not as the insured's representative. The final decision on settlement rests with the insurer.

Question 41Non-Life (General) Insurance Fundamentals and Practice

An insured's shop is burgled and stock is stolen. Which condition is most likely to be relevant to whether the insurer pays?

  1. The age of the shop building
  2. The insured's annual turnover
  3. The presence of adequate security measures and evidence of forcible entry Correct answer.
  4. The number of employees at the shop

Explanation

Theft policies commonly require specified security protections and evidence of forcible entry, and exclude losses without them. These conditions address the moral and physical hazard of the risk. Turnover, staff numbers and building age do not usually determine theft cover.

Question 42Non-Life (General) Insurance Fundamentals and Practice

Which statement correctly describes the principle of utmost good faith in non-life insurance?

  1. Both parties must act in good faith and disclose material facts relevant to the risk Correct answer.
  2. Only the insurer owes a duty of good faith to the insured
  3. The duty can be waived by paying an additional premium
  4. The duty applies only after a claim has been submitted

Explanation

Utmost good faith is mutual: the proposer must disclose material facts and the insurer must deal fairly and disclose material terms. The duty operates from the proposal stage and continues through the policy. It cannot be bought out with extra premium.

Question 43Non-Life (General) Insurance Fundamentals and Practice

A client asks why a motor policy includes an excess. Which explanation is most accurate?

  1. It replaces the need for a no-claim discount
  2. It guarantees the insurer will never dispute a claim
  3. It reduces small claims and gives the insured a share of each loss, lowering the premium Correct answer.
  4. It transfers all liability to the insured

Explanation

An excess is the first portion of each claim borne by the insured. It discourages small claims, reduces administrative cost and is reflected in a lower premium. It does not eliminate the insurer's liability or replace the no-claim discount.

Question 44Non-Life (General) Insurance Fundamentals and Practice

What is the main purpose of a reinsurance treaty?

  1. To replace the need for an insurance policy with the insured
  2. To allow the insurer to sell policies directly to the public
  3. To set the tariff rates for all insurers in the market
  4. To provide automatic reinsurance for a defined class of business under agreed terms Correct answer.

Explanation

A treaty is an agreement under which the reinsurer automatically accepts a defined share or layer of the insurer's business within agreed terms. It differs from facultative reinsurance, which is arranged risk by risk. Treaties help insurers manage capacity and volatility across a portfolio.

Question 45Non-Life (General) Insurance Fundamentals and Practice

A liability policy has an aggregate limit of PKR 50 million and a per-occurrence limit of PKR 10 million. Three separate occurrences each cause PKR 8 million in damages during the policy year. How much will the insurer pay in total for these three claims?

  1. PKR 50 million
  2. PKR 10 million
  3. PKR 30 million
  4. PKR 24 million Correct answer.

Explanation

Each occurrence of PKR 8 million is within the PKR 10 million per-occurrence limit, so each is paid in full. The total of PKR 24 million remains below the PKR 50 million aggregate limit. The aggregate limit only bites once cumulative payments reach it.

Question 46Non-Life (General) Insurance Fundamentals and Practice

Why does an insurer apply a no-claim discount that reduces over successive claim-free years?

  1. To reward claim-free years and encourage careful risk behaviour Correct answer.
  2. To remove the need for an excess on the policy
  3. To comply with a legal requirement that all premiums fall annually
  4. To penalise insureds who report genuine claims

Explanation

A no-claim discount rewards policyholders who do not claim and gives an incentive to avoid losses. The discount usually builds over claim-free years and is reduced or lost after a claim. It is a rating tool, not a penalty on legitimate claims.

Question 47Non-Life (General) Insurance Fundamentals and Practice

An insured's building is insured on a reinstatement basis, but the policy is silent on the basis of settlement for the stock. How should the stock claim normally be settled?

  1. At the original purchase price plus a profit margin
  2. At the full sum insured without proof of loss
  3. On an indemnity basis, reflecting the value of the stock at the time of loss Correct answer.
  4. On a new-for-old basis automatically

Explanation

Where the policy does not expressly provide reinstatement for stock, settlement follows indemnity, reflecting the value of the stock at the time of loss. Reinstatement is normally limited to buildings, machinery and fixtures. Stock is generally settled on an indemnity basis unless specifically extended.

Question 48Non-Life (General) Insurance Fundamentals and Practice

An underwriter is assessing a factory risk with poor housekeeping, old wiring and a history of small fires. Which conclusion best reflects sound underwriting judgement?

  1. Accept the risk but exclude all fire damage
  2. Decline the risk outright without any further consideration
  3. Accept the risk at standard rates because fire is a basic insured peril
  4. Accept the risk with improved terms such as higher excess, warranties on wiring and a higher premium Correct answer.

Explanation

The hazards identified increase both the likelihood and severity of fire loss, so the risk should be rated and controlled rather than accepted at standard terms. Imposing warranties, a higher excess and an adjusted premium are typical risk-management responses. Outright declinature or total exclusion may be unnecessary.

Question 49Non-Life (General) Insurance Fundamentals and Practice

An insured suffers a fire loss and, before the insurer has paid, also recovers part of the loss from a negligent contractor. What is the effect on the insurer's liability?

  1. The insurer must pay double to reflect the contractor's negligence
  2. The insurer must still pay the full loss and the insured keeps the recovery
  3. The insurer's liability is reduced by the amount recovered, because the insured cannot recover more than the loss Correct answer.
  4. The insurer can avoid the policy for the insured's recovery

Explanation

Indemnity prevents the insured from recovering more than the actual loss. Any recovery from a third party reduces the amount payable by the insurer, and subrogation rights pass to the insurer once it pays. The insured cannot profit from the loss.

Question 50Non-Life (General) Insurance Fundamentals and Practice

A commercial package policy contains a condition requiring the insured to take reasonable precautions to prevent loss. The insured deliberately leaves a fire door propped open, and a fire spreads as a result. How is the condition likely to be applied?

  1. The insurer can only increase the premium at renewal
  2. The insurer must pay in full because the fire was accidental
  3. The condition is ignored because fire is an insured peril
  4. The insurer may rely on the breach of condition to reduce or decline the claim, depending on the wording and law Correct answer.

Explanation

A reasonable precautions condition requires the insured to act responsibly to prevent loss. Where the insured's deliberate conduct breaches that condition and contributes to the loss, the insurer may rely on the breach under the policy wording and applicable law. The outcome depends on the precise wording and legal framework.