III S-01 Practice Questions and Answers

Risk and Principles of Insurance

1. Principles of insurance

   1. When several insurers cover the same loss, how does the principle of contribution share it?

   1. A.In proportion to their cover
   2. B.Entirely by the insurer with the largest premium
   3. C.Equally, regardless of cover
   4. D.Entirely by the first insurer
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   Answer: A. In proportion to their cover

   Under contribution, insurers covering the same loss share it in proportion to their cover. Subrogation is different: it concerns recovery from a third party.

2. Principles of insurance

   2. Under uberrima fides, what must all parties to an insurance contract do?

   1. A.Rely on the other party to ask the right questions
   2. B.Deal in good faith and declare all material facts in the proposal
   3. C.Disclose only facts favourable to their own position
   4. D.Verify each other's statements independently before signing
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   Answer: B. Deal in good faith and declare all material facts in the proposal

   Utmost good faith requires every party to act honestly and declare all material facts. Leaving it to the other side to ask is caveat emptor, the opposite rule.

3. Proximate cause

   3. Where an unbroken chain of events is started by an insured peril, the claim is:

   1. A.Payable only after deducting damage from later uninsured perils
   2. B.Denied unless every later peril is also insured
   3. C.Payable even if later perils in the chain are not covered
   4. D.Repudiated, because the proximate cause is always the final event
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   Answer: C. Payable even if later perils in the chain are not covered

   If an insured peril sets off an unbroken chain, the whole resulting loss is covered, even where later events in that chain are not insured perils. The proximate cause is the dominant, effective cause, not the last event.

4. Indemnity and its corollaries

   4. At common law, when does the insurer's right of subrogation against a third party arise?

   1. A.As soon as the loss occurs
   2. B.When the insured first notifies the loss
   3. C.Only after the insured has sued the wrongdoer
   4. D.Only after the insurer has admitted and paid the claim
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   Answer: D. Only after the insurer has admitted and paid the claim

   Subrogation follows payment: the insurer steps into the insured's shoes only once it has indemnified them. Policy conditions can secure the right earlier, but recovery still waits for payment.

Underwriting, Types of Loss and Hazards

1. Types of loss

   1. Besides destruction, an actual total loss also occurs when property is damaged to what extent?

   1. A.It ceases to be a thing of the kind insured
   2. B.It is jettisoned to save the ship
   3. C.The repair cost is below its value
   4. D.It is delayed beyond the named voyage
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   Answer: A. It ceases to be a thing of the kind insured

   Property damaged so badly that it is no longer a thing of the kind insured is an actual total loss. Jettison to save the ship is a general average sacrifice.

2. Hazards

   2. Which of the following best describes a hazard?

   1. A.The financial loss paid out after an insured event
   2. B.A potential source of harm to health, life or property
   3. C.The probability that harm happens in an incident
   4. D.A disruption beyond a community's ability to cope
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   Answer: B. A potential source of harm to health, life or property

   A hazard is a potential source of harm. The probability of harm describes risk, and a disruption beyond a community's coping capacity describes a disaster.

Legal Framework

1. Surveyor regulations

   1. Which entities can get a fresh licence as a corporate surveyor?

   1. A.A Hindu undivided family or proprietorship
   2. B.An unincorporated joint venture or society
   3. C.A company or a limited liability partnership
   4. D.A cooperative society or a trust
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   Answer: C. A company or a limited liability partnership

   Since the 2020 amendment, a corporate surveyor must be a company under the Companies Act, 2013 or an LLP. Partnership firms licensed before the amendment may continue, but no new ones are licensed.

2. Fire insurance

   2. How does the Standard Fire and Special Perils Policy treat damage to electrical machines from over-running?

   1. A.As a sue and labour expense
   2. B.As a policy warranty
   3. C.As a covered fire risk
   4. D.As an excluded peril
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   Answer: D. As an excluded peril

   The SFSP excludes loss or damage to electrical or electronic machines from over-running, excessive pressure or short-circuiting. That is breakdown, not fire.

The Survey Profession

1. Survey profession

   1. Which set of activities must a licensed surveyor and loss assessor carry out in respect of losses?

   1. A.Investigate, manage, quantify, validate and deal with them
   2. B.Settle, pay, reinsure and recover them
   3. C.Underwrite, price, issue and renew them
   4. D.Advertise, solicit, collect premium and endorse them
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   Answer: A. Investigate, manage, quantify, validate and deal with them

   The regulations describe the surveyor's work as investigating, managing, quantifying, validating and dealing with losses, whether insured or not. Underwriting, paying and reinsuring are insurer functions.

Claims, Loss Assessment and Reporting

1. Reporting

   1. A report is pending because the insured has not sent documents. How many written reminders must the surveyor give before issuing the final report on the documents on record?

   1. A.One
   2. B.At least three
   3. C.At least five
   4. D.Two
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   Answer: B. At least three

   The regulations allow a final report on the documents on record after at least three written reminders to the insured.

2. Reporting

   2. Within what period of receiving the original report may an insurer ask the surveyor for an additional report?

   1. A.30 days
   2. B.Three weeks
   3. C.15 days
   4. D.Six months
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   Answer: C. 15 days

   The insurer may call for an additional report within 15 days of receiving the original, and only once per claim. Three weeks is the surveyor's time to furnish it.

3. Loss assessment

   3. Which surveyor duty covers commenting on whether depreciation applies, with its percentage and amount?

   1. A.Advising on loss minimisation
   2. B.Pointing out discrepancies in policy wording
   3. C.Commenting on salvage disposal
   4. D.Recommending depreciation
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   Answer: D. Recommending depreciation

   One of the listed duties is to recommend whether depreciation applies and its percentage and quantum. Salvage and wording discrepancies are separate duties.

Accounting and Loss of Profits

1. Loss of profits

   1. In a consequential loss (fire) policy, Gross Profit is defined as Net Profit plus which amount?

   1. A.Insured standing charges
   2. B.Depreciation on plant only
   3. C.Total standing charges of every kind
   4. D.Tax on profits
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   Answer: A. Insured standing charges

   Gross Profit is Net Profit plus the insured standing charges. Uninsured standing charges are not added.

2. Loss of profits

   2. Standard Turnover is the turnover in which period?

   1. A.The policy's period of insurance
   2. B.The part of the preceding twelve months that corresponds with the indemnity period
   3. C.The full twelve months before the damage
   4. D.The indemnity period itself
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   Answer: B. The part of the preceding twelve months that corresponds with the indemnity period

   Standard Turnover is the comparison base: the part of the twelve months before the damage that matches the indemnity period. The full twelve months is Annual Turnover.

Lines of Business

1. Marine insurance

   1. Marine insurance is often written on a subscription basis by several underwriters. Their liability is best described as:

   1. A.Joint and equal among all underwriters
   2. B.Joint, with the lead underwriter bearing all
   3. C.Several, each for their own share only
   4. D.Borne by the others if one defaults
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   Answer: C. Several, each for their own share only

   Each underwriter binds itself for its own share and not for the others, so liability is several, not joint. If one defaults, the rest do not pay its share.

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