Testing your knowledge of the basic principles of insurance is vital for beginners and the experienced, says Julian Hall
Before any broker can conduct business, he/she must have an understanding of basic operating principles.
While this is imperative for new starters, the imminent FSA regime means we will all have to demonstrate these basic training and competency requirements on a regular basis. It is not enough to insist that you picked up that knowledge as a junior ten years ago.
A good starting point is the Principles of Insurance e-briefing, which forms part of the introduction on the AXA Campus programme. This is useful for starters and as as refresher for existing staff. It includes material on utmost good faith, insurable interest, proximate cause, indemnity, contribution and subrogation.
Using AXA Campus Training, compliance managers are able to plan, direct and monitor all training and competence within their organisation, providing a clear record of competence for their business and the regulator.
' Julian Hall, extranet manager, AXA Insurance
Q1 What determines whether a fact is material?
a)Whether there is a specific question on the proposal form
b)Whether it would influence an insurer's decision to offer cover or the terms offered
c)The Marine Insurance Act 1906.
Q2 When does the duty of disclosure exist
a)At inception, in the event of any alterations and at renewal until cover is again in force
b)While the proposal form is being completed and until cover is put in force
c)Only at inception and in the event of any alterations during the policy term.
Q3 Which of the following facts does not need to be disclosed by the insured?
a)The 19-year-old son will be an occasional driver
b)Insured has modified the car engine
c)The fitting of an alarm and an immobiliser.
Q4 In which of the following situations does valid insurable interest exist?
a) Sam wants to insure the life of his brother, who has promised to give him the money to go to university
b) Karl wants to insure an expensive camera belonging to his mother, but which he uses more regularly
c) Martine wants to insure the potential liability arising from the food she sells in her café.
Q5 What is insurable interest?
a)The insured's right to take out insurance due to his or her financial interest in the subject-matter which is recognised at law
b)The insured's right to take out insurance due to his or her interest in the subject-matter of insurance
c)The insured's right to take out insurance on any subject matter or event.
Q6 Insurable interest can arise at common law, under contract or statute. To which of these does this example relate? David is the owner of a small printing company. He owns the property, machinery and contents for a total sum insured of £500,000
Q7 What is the extent of insurable interest for a mortgagee on the property?
a)The amount of the loan outstanding
b)The sale price of the property
c)The rebuilding cost of the property.
Q8 What is the purpose of proximate cause?
a) In the event of a claim to exclude all payments for uninsured perils
b) In the event of a claim to ensure that an insured peril was the dominant cause and directly related to the loss
c) In the event of a claim to ensure that no payments are made due to excluded and uninsured perils regardless of the original cause of the claim.
Q9 A client submits a claim for a palm-held computer which he bought a couple of months ago for £1,000. He considers its current value to be £800. The insurer's suppliers can provide him with a new identical model at a cost to the insurer of £675. What is the measure of indemnity in this case?
Q10 Which of the following situations will the insurers provide more than full indemnity?
a) Building insurance subject to a £5,000 excess on all claims
b) Home contents insurance subject to new for old cover
c) Buildings insurance where sum insured is based on rebuilding costs.
Q11 How does the subrogation condition in an insurance contract differ from the common law definition?
a) The insurer will be able to pursue other parties before a claim is paid and therefore control the claim proceedings
b) The insurer will pursue the third parties in the insured's name on final completion of the claim
c) The insurer has to have indemnified the insured before pursuing third parties.
Q12 How does contribution support the principle of indemnity?
a) It prevents the insured from recovering from more than one insurance policy in respect of the same loss and thus making a profit
b) It operates to ensure that insurers are provided with all of the relevant information in support of a claim
c) It enables an insured to choose which insurer should meet a claim, if more than one policy of insurance is in force.
Q13 What is the common law position with regard to contribution?
a) All of the insurers pay the claim in line with their proportionate liabilities
b) One insurer must pay the claim in full and then seek contribution from others similarly liable
c) The insurer with the most specific insurance cover would be responsible for paying the claim and would not be able to seek contribution form the others.
Q14 What must be common to all of the policies before contribution can arise?
a) Financial interest, insured peril and subject matter of insurance
b) Subject matter of insurance and sum assured.
c) Limit of liability, sum assured and financial interest.
Q15 If a loss is being apportioned using the independent liabilities method, how would it be divided between two insurers if both of them could have been liable to meet the claim in full?
a) Shared equally between them
b) Apportioned in the same proportion as their independent liabilities bear to the total of all liabilities
c) Apportioned in the same proportion as their sums assured bear to the total of all sums assured