Examination Guide

IF3
Certificate in Insurance

Unit 3 – Insurance underwriting process

Based on the 2019 syllabus

examined from 1 January 2019 until 31 December 2019
 Examination Guide

Unit 3 – Insurance underwriting process

Based on the 2019 syllabus examined from 1 January 2019 until 31 December 2019

Contents
Introduction to Examination Guide 3
IF3 Syllabus 6
Specimen Examination 11
Specimen Examination Answers and Learning Outcomes Covered 23

Published in March 2019 by:

The Chartered Insurance Institute
42-48 High Road, South Woodford, London E18 2JP
Telephone: 020 8989 8464
Fax: 020 8530 3052
Email: customer.serv@cii.co.uk

Copyright © 2018 The Chartered Insurance Institute. All rights reserved.

IF3 Examination Guide 2019 2

 Examination Guide

Unit 3 – Insurance underwriting process

Based on the 2019 syllabus examined from 1 January 2019 until 31 December 2019

Introduction
This examination guide has been produced by the Examinations Department at the Chartered Insurance
Institute to assist students in their preparation for the IF3 examination. It contains a specimen
examination with answer key.

Ideally, students should have completed the majority of their studies before attempting the specimen
examination. Students should allow themselves two hours to complete the examination. They should
then review their performance to identify areas of weakness on which to concentrate the remainder of
their study time.

Although the specimen examination in this guide is typical of an IF3 examination, it should be noted
that it is not possible to test every single aspect of the syllabus in any one particular examination. To
prepare properly for the examination, candidates should make full use of the tuition options available
and read as widely as possible to ensure that the whole syllabus has been covered. They should also
endeavour to keep as up-to-date as possible with developments in the industry by reading the
periodicals listed in the IF3 reading list, which is located on the syllabus in this examination guide and
on the CII website at www.cii.co.uk.

Background Information
CII examination questions undergo a rigorous writing and editing process before reaching an
examination. The questions are written to strict guidelines by practitioners with relevant technical
knowledge and experience. Questions are very carefully worded to ensure that all the information
required to answer the question is provided in a clear and concise manner. They are then edited by an
independent panel of experienced practitioners who have been specifically trained to ensure that
questions are technically correct, clear and unambiguous. As a final check, each examination is
scrutinised by the Senior Examiner and a CII assessment expert.

Occasionally a question will require amendment after the examination guide is first published. In such
an event, the revised question will be published on the CII website:

1) Visit www.cii.co.uk/qualifications
2) Select the appropriate qualification
3) Select your unit on the right hand side of the page

Candidates should also refer here for the latest information on changes to law and practice and when
they will be examined.

Syllabus
The IF3 syllabus is published on the CII website at www.cii.co.uk. Candidates should note that the
examination is based on the syllabus, rather than on any particular tuition material. Of course, the
tuition material will provide the vast majority of the information required to perform well in the
examination, but the CII recommends that students consult other reference materials to supplement
their studies.

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 Examination Guide

Skill Specification
The skill level tested in each examination question is determined by the syllabus. Each learning
outcome specifies the level of skill required of candidates and thus the level at which candidates may
be tested. Learning outcomes for IF3 begin with understand.

Understand To answer questions based on understanding, the candidate must be able to link
pieces of information together in cause-and-effect relationships. Typically
questions may ask ‘Why’. Questions set on an understand learning outcome can
test either knowledge or understanding or both.

Examination Information
The method of assessment for the IF3 examination is 75 multiple choice questions (MCQs). 2 hours are
allowed for this examination.

The IF3 syllabus provided in this examination guide will be examined from 1 January 2019 until
31 December 2019.

Candidates will be examined on the basis of English law and practice unless otherwise stated.

The general rule is that legislative and industry changes will not be examined earlier than 3 months
after they come into effect.

A multiple choice question consists of a problem followed by four options, labelled A, B, C and D, from
which the candidate is asked to choose the correct response. Each question will contain only one
correct response to the problem posed.

One mark is awarded for each correct response identified by the candidate. No mark is awarded if the
candidate either chooses an incorrect response, chooses more than one response or fails to choose any
response. No marks are deducted for candidates choosing an incorrect response.

While no questions involve complex calculations, candidates are permitted to use calculators during the
examination. If you bring a calculator into the examination room, it must be a silent battery or
solar-powered non-programmable calculator. The use of electronic equipment capable of being
programmed to hold alphabetic or numerical data and/or formulae is prohibited. You may use a
financial or scientific calculator, provided it meets these requirements.

Candidates are permitted to make rough notes. Candidates are not permitted, under any
circumstances, to remove any papers relating to the examination from the examination room.

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 Examination Guide

Examination Technique: Multiple Choice Questions

The best approach to multiple choice examinations is to work methodically through the questions.

The questions are worded very carefully to ensure that all the information required is presented in a
concise and clear manner. It cannot be emphasised too strongly that understanding the precise
meaning of the question is vital. If candidates miss a crucial point when reading the question it could
result in choosing the wrong option. Candidates should read carefully through the question and all the
options before attempting to answer.

Candidates should pay particular attention to any words in the question which are emphasised in bold
type, for example, maximum, minimum, main, most, normally and usually. Negative wording is
further emphasised by the use of capital letters, for example NOT, CANNOT.

Candidates should not spend too much time on any one question. If they cannot make up their mind,
they should leave the question and come back to it later.

When all of the questions have been answered, it is prudent to use any remaining time to go through
each question again, carefully, to double-check that nothing has been missed. Altering just one
incorrect response to a correct response could make the difference between passing and failing.

After the Examination

Rigorous checks are made to ensure the correctness of the results issued. A pre-defined quota of
passes to be awarded does not exist. If all candidates achieve a score of at least the pass mark, then all
candidates will be awarded a pass grade. Individual feedback on the candidate’s examination
performance is automatically provided and will indicate the result achieved and, for each syllabus
learning outcome, the percentage of questions in the examination that were answered correctly.

IF3 Examination Guide 2019 5

 Insurance underwriting
process
Objective
To provide knowledge and understanding of the role of underwriting including
identification, assessment and acceptance of risk, rating and relevant financial factors.

Summary of learning outcomes Number of

questions in the
examination*
1. Understand the material circumstances relating to the insurance 5
underwriting process
2. Understand underwriting procedures relating to the insurance underwriting 15
process
3. Understand insurance policies in relation to the insurance underwriting 10
process
4. Understand renewals and cancellation in relation to the insurance 3
underwriting process
5. Understand personal insurances in relation to the insurance underwriting 3
process
6. Understand commercial insurances in relation to the insurance underwriting 3
process
7. Understand the main ‘support’ type insurance services available 2
8. Understand underwriting considerations in relation to the insurance 13
underwriting process
9. Understand the principles and practices of pricing 10
10. Understand pricing factors within the context of the insurance underwriting
5
process
11. Understand managing exposure within the context of the insurance 6
underwriting process
*The test specification has an in-built element of flexibility. It is designed to be used as a guide for study and is not a
statement of actual number of questions that will appear in every exam. However, the number of questions testing each
learning outcome will generally be within the range plus or minus 2 of the number indicated.

Important notes
• Method of assessment: 75 multiple choice questions (MCQs). 2 hours are allowed for this examination.
• This syllabus will be examined from 1 January 2019 until 31 December 2019.
• Candidates will be examined on the basis of English law and practice unless otherwise stated.
• Candidates should refer to the CII website for the latest information on changes to law and practice
and when they will be examined:
1. Visit www.cii.co.uk/updates
2. Select the appropriate qualification
3. Select your unit on the right hand side of the page

Published October 2018 IF3

Copyright © 2018 The Chartered Insurance Institute. All rights reserved.
 1. Understand the material 5. Understand personal insurances in
circumstances relating to the relation to the insurance
insurance underwriting process underwriting process
1.1 Explain why an underwriter needs to be 5.1 Describe the basic features and typical
aware of material circumstances in policy cover of motor insurance, health
assessing a risk insurance, household insurance, travel
1.2 Explain the concept of the duty of fair insurance and extended warranties
presentation, to whom it applies and how
the duty may be modified 6. Understand commercial insurances
1.3 Define the words peril and hazard as used in relation to the insurance
in the insurance industry and the underwriting process
relationship between them 6.1 Describe the basic features and typical
1.4 Explain the significance of moral and policy cover of property insurance,
physical hazard for underwriters and how pecuniary insurance and liability insurance
they are manifested
1.5 Describe the methods used by underwriters 7. Understand the main ‘support’ type
to obtain material information insurance services available
7.1 Describe the basic features of additional
2. Understand underwriting ‘support’ type insurance services available
procedures relating to the insurance with specific reference to help lines,
underwriting process authorised repairers and suppliers, risk
control/advice and uninsured loss recovery
2.1 Describe the general and specific questions services
asked of proposers
2.2 Describe the procedure relating to 8. Understand underwriting
quotations considerations in relation to the
2.3 Explain the methods by which underwriters insurance underwriting process
gather material information and their legal
significance 8.1 Describe the key underwriting criteria for
motor insurance, health insurance and
2.4 Describe the different ways in which personal insurances
premiums are calculated
8.2 Describe the key underwriting criteria for
2.5 Explain the legal significance of procedures commercial property insurance, including
relating to the issue of cover notes, policies fire and special perils, theft insurance, glass
and certificates of insurance insurance and money insurance
2.6 Describe the relevance of premium 8.3 Describe the key underwriting criteria for
payment for valid cover pecuniary insurances, including legal
2.7 Describe the methods used by insurers to expense insurance and business
collect premiums including instalment interruption insurance
facilities 8.4 Describe the key underwriting criteria for
2.8 Describe the features of Insurance Premium liability insurance, including employers’
Tax liability, public liability, pollution liability,
products liability and professional
3. Understand insurance policies in indemnity
relation to the insurance 8.5 Describe the key underwriting criteria for
underwriting process extended warranties
3.1 Describe the structure, functions and 8.6 Describe the procedures commonly used to
contents of a policy form, including the discourage individuals from making
policy schedule fraudulent claims
3.2 Explain the meaning and significance of 8.7 Describe the procedures commonly used to
common policy exceptions and conditions detect fraudulent claims
including terrorism cover 8.8 Explain the consequences of fraudulent
3.3 Explain how excesses, deductibles and claims for the insurer, their insureds and
franchises are used the fraudulent claimant
3.4 Explain the distinction between warranties, 8.9 Explain the effect on insurance of the
conditions and representations current Disability Discrimination/Equality
Act 2010 and Data Protection legislation
4. Understand renewals and
cancellation in relation to the
insurance underwriting process
4.1 Describe the legal significance of
procedures relating to renewals
4.2 Explain how cancellation clauses operate

Published October 2018 2 of 4

Copyright © 2018 The Chartered Insurance Institute. All rights reserved.
 9. Understand the principles and Reading list
practices of pricing
9.1 Describe the sources, availability and types The following list provides details of various
of data essential to the underwriting publications which may assist with your studies.
process Note: The examination will test the syllabus
9.2 Explain the importance of claims alone.
information on underwriting terms/
premium rates The reading list is provided for guidance only
and is not in itself the subject of the
9.3 Explain the nature of risk in terms of examination.
frequency and severity of claims
9.4 Explain the significance of the claims loss The publications will help candidates keep up-
ratio on premiums/acceptance of risk to-date with developments and will provide a
wider coverage of syllabus topics.
9.5 Explain the distinction between
underwriting year, policy year, accounting CII/Personal Finance Society members can
year and calendar year borrow most of the additional study materials
below from Knowledge Services.
10. Understand pricing factors within CII study texts can be consulted from within the
the context of the insurance library. For further information on the lending
underwriting process service, please go to www.cii.co.uk/knowledge.
10.1 Define risk premium and its key features
10.2 Describe the reporting factors of expenses, CII study texts
return on capital, investment income, tax Insurance underwriting process. London: CII.
and intermediary remuneration Study text IF3.

11. Understand managing exposure Books (and ebooks)

within the context of the insurance Bird’s modern insurance law. 10th ed. John Birds.
Sweet and Maxwell, 2016.
underwriting process
11.1 Describe the basic factors influencing the Insurance theory and practice. Rob Thoyts.
market cycle Routledge, 2010.*
11.2 Describe the principles of risk ‘Insurance intermediaries: underwriting agents’ in
accumulation Colinvaux’s law of insurance. 11th ed. Prof. Robert
11.3 Describe the basic reinsurance Merkin. London: Sweet & Maxwell, 2016.
considerations including the types of Insurance law in the United Kingdom. 3rd ed. John
reinsurance Birds. The Netherlands: Kluwer Law International,
2015.
Pricing in general insurance. Pietro Parodi. CRC
Press, 2015.

Factfiles and other online resources

CII fact files are concise, easy to digest but
technically dense resources designed to enrich the
knowledge of members. Written by subject
experts and practitioners, the fact files cover key
industry topics as well as less familiar or specialist
areas of general insurance, life, and pensions and
financial services, with information drawn together
in a way not readily available elsewhere. Available
online via www.cii.co.uk/ciifactfiles (CII/PFS
members only).
The Insurance Institute of London (IIL) podcast
lecture series features leading industry figures and
subject experts speaking on current issues and
trends impacting insurance and financial services.
Available online at www.cii.co.uk/ciifactfiles (CII/
PFS members only).
• Recent developments in general insurance
underwriting. Massimo Vascotto.
• Principles and trends in general insurance
underwriting. Massimo Vascotto.
• Recent developments to Solvency II. Brad
Baker.
• The regulatory framework. Simon Collins.

Published October 2018 3 of 4

Copyright © 2018 The Chartered Insurance Institute. All rights reserved.
 Additional articles and technical bulletins are
available under the Underwriting section of the
website at www.cii.co.uk/knowledge/
underwriting.

Periodicals
The Journal. London: CII. Six issues a year. Archive
available online at http://www.cii.co.uk/
knowledge/journals-and-magazines/the-journal-
archive/ (CII/PFS members only).
Post magazine. London: Incisive Financial
Publishing. Monthly. Available online at
www.postonline.co.uk.

Reference materials
Concise encyclopedia of insurance terms.
Laurence S. Silver, et al. New York: Routledge,
2010.*
Dictionary of insurance. C Bennett. 2nd ed.
London: Pearson Education, 2004.
The insurance manual. Stourbridge, West
Midlands: Insurance Publishing & Printing Co.
Looseleaf, updated.
The insurance manual. Sadler, John. Stourbridge,
Worcs: Insurance Publishing & Printing Co.
Looseleaf updated annually.
* Also available as an ebook through Discovery via
www.cii.co.uk/discovery (CII/PFS members only).

Examination guide
If you have a current study text enrolment, the
current examination guide is included and is
accessible via Revisionmate
(www.revisionmate.com). Details of how to access
Revisionmate are on the first page of your study
text.
It is recommended that you only study from the
most recent version of the examination guide.

Exam technique/study skills

There are many modestly priced guides available
in bookshops. You should choose one which suits
your requirements.
The Insurance Institute of London holds a lecture
on revision techniques for CII exams
approximately three times a year. The slides from
their most recent lectures can be found at
www.cii.co.uk/iilrevision (CII/PFS members only).

Published October 2018 4 of 4

Copyright © 2018 The Chartered Insurance Institute. All rights reserved.
 Examination Guide

1. A material circumstance is best described as a circumstance that

A. has no bearing on physical hazard.
B. has no bearing on moral hazard.
C. may influence an underwriting decision.
D. must be on the Association of British Insurers’ approved list.

2. What is the relationship between a peril and a hazard?

A. A peril gives rise to a loss and a hazard influences the operation of the peril.
B. A peril is an insured loss and a hazard is an uninsured loss.
C. A peril is the end cause of a loss and a hazard is the proximate cause of a loss.
D. A peril is the physical nature of a risk and a hazard is the moral nature of a risk.

3. In relation to fire insurance and the consideration of hazard, metal fire doors and fire resistant walls
are considered to be
A. good moral hazards.
B. good physical hazards.
C. poor moral hazards.
D. poor physical hazards.

4. An insurer may occasionally delegate underwriting in order to

A. speed up the process and reduce administrative costs.
B. reduce the risk of non-disclosure.
C. comply with the requirements of the Association of British Insurers.
D. ensure that only good quality risks are accepted.

5. At the renewal of an insurance policy, policyholders are always obliged under common law to
A. renew the policy with the same insurer.
B. increase the sum insured in line with inflation.
C. disclose any changes to material circumstances.
D. complete a new proposal form.

6. In a proposal form, risk specific questions are those

A. that are common to most general insurance risks.
B. that pertain to the particular details of a proposed risk.
C. that relate to matters evaluating whether information is material or not.
D. where the proposer warrants the answer to be correct.

7. During the period that a quotation was valid, the proposer accepted the quoted terms in writing. In
what circumstances, if any, is the insurer legally permitted to withdraw these terms?
A. Only if the basis of the risk has changed.
B. Only if the insurer decided to withdraw from this section of the market.
C. Only if this type of cover is widely available in the marketplace.
D. In no circumstances.

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8. Chris is completing a proposal form and has been advised that he is legally obliged to declare all
material circumstances. If he is unsure whether information is material or not, he should
A. disclose it fully.
B. not disclose it.
C. only disclose it if it is specifically addressed by one of the questions.
D. only disclose it if it relates to a criminal offence.

9. What is the main consequence of an insurer offering a high standard sum insured under a
household contents insurance policy?
A. It reduces the possibility of underinsurance.
B. It increases reliance on the average clause.
C. It reduces the number of claims that are handled.
D. It increases the incidence of subrogation.

10. What is the usual premium base for an employers’ liability policy?
A. The limit of indemnity.
B. The sum insured.
C. The turnover.
D. The wage roll.

11. What is the most common basis of premium calculation for public liability insurance and products
liability insurance?
A. Business value.
B. Limit of indemnity.
C. Profit.
D. Turnover.

12. Michael has a household contents policy and makes a claim early in the period of insurance. Why is
it NOT necessary that he has received a copy of the policy to make a claim?
A. Consumer Insurance (Disclosure & Representations) Act 2012 specifies that it is not necessary.
B. A cover note would have been issued.
C. The policy is only evidence of the contract, not the contract itself.
D. This is not a requirement with compulsory insurances.

13. A valid employers’ liability insurance certificate must contain the insured’s
A. address.
B. name.
C. number of employees.
D. occupation.

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14. For a contract of insurance to be valid the premium must

A. be quoted.
B. be paid or agreed to be paid.
C. be shown on the certificate.
D. include Insurance Premium Tax.

15. When the annual premium for a motor insurance policy is payable by instalments using direct debit,
what payment frequency is most likely to be involved?
A. Weekly.
B. Monthly.
C. Quarterly.
D. Half-yearly.

16. When a premium is paid by monthly direct debit why is an additional charge usually levied by the
insurer?
A. To cover the loss of interest.
B. To cover the risk of non-payment.
C. The Consumer Credit Act 1974 requires it.
D. The Insurance Act 2015 requires it.

17. Which Act regulates the payment of insurance premiums by instalments?

A. The Consumer Credit Act 1974.
B. The Financial Services and Markets Act 2000.
C. The Sale and Supply of Goods to Consumers Regulations 2002.
D. The Sale of Goods Act 1979.

18. Who pays Insurance Premium Tax?

A. Both the insurer and the insured.
B. The insured only.
C. The insured’s intermediary.
D. The insurer only.

19. What is the current rate of Insurance Premium Tax, if any, for the majority of insurance policies?
A. Nil.
B. 6%
C. 12%
D. 20%

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20. In a proposal form, what type of questions would a proposer’s name, address and occupation be
classified as?
A. Express.
B. General.
C. Objective.
D. Specific.

21. What can an insurer of frozen food apply to exclude a loss arising from a short failure of the
electricity supply lasting 30 minutes or less, but which will cover the whole loss if the supply failure
exceeds 30 minutes?
A. An aggregate.
B. A deductible.
C. An excess.
D. A franchise.

22. Which component of a policy is personal and specific to an insured?

A. The operative clause.
B. The policy conditions.
C. The policy schedule.
D. The recital clause.

23. The main purpose of the recital clause in a household insurance policy is to
A. list all of the general exclusions of the contract.
B. make the proposal form the basis of the contract.
C. show the details of cover provided by the contract.
D. state the renewal date of the contract.

24. Conditions that are covered by common law and therefore do NOT need to appear in an insurance
policy are known as
A. express conditions.
B. general conditions.
C. implied conditions.
D. legal conditions.

25. What is the usual length of the notice period, if any, under a standard cancellation clause of a
household policy?
A. There is no notice period.
B. 7 days.
C. 14 days.
D. 28 days.

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26. An exclusion in an insurer’s household insurance policy is deemed a general exclusion, but NOT a
market exclusion. This means the exclusion
A. applies to a particular section of the policy, but does not apply across the entire policy.
B. applies to all sections of the policy, but has not generally been adopted by other insurers.
C. relates to a pure risk rather than to a speculative risk.
D. operates under case law precedent rather than under the provision of statute.

27. An insurer is advised that a break-in has occurred but the insured has failed to report the incident
to the police. What part of the insurance policy has been breached?
A. The conditions.
B. The exclusions.
C. The preamble.
D. The schedule.

28. An insured property suffers extensive water damage. A claims handler notes that the insured has
NOT complied with the minimum security requirement. What action would be taken?
A. The claim would be paid but the policy would be cancelled.
B. The claim would be avoided and the policy would be cancelled.
C. The claim would be paid and the policy would remain in force.
D. The claim would be avoided but the policy would remain in force.

29. In which section of an insurance policy does an insurer provide details of the different sums insured
under the policy?
A. The heading.
B. The operative clause.
C. The policy schedule.
D. The preamble.

30. The amount of any claim which is the responsibility of the insured and which the insurer will deduct
from any claim payment is known as
A. a condition.
B. an excess.
C. a franchise.
D. a warranty.

31. Alicia has a household insurance policy that is renewable on 1 July with 15 days of grace. If Alicia
paid the renewal premium on 9 July, from which date would the cover apply?
A. 1 July.
B. 9 July.
C. 16 July.
D. 24 July.

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32. A customer’s buildings insurance policy is due for renewal in three months’ time. In what
circumstances, if any, is the existing insurer legally required to offer renewal terms?
A. In no circumstances.
B. Only if there is an associated mortgage.
C. Only if the insurer is a member of the Association of British Insurers.
D. In all circumstances.

33. Which regulation requires insurers to cancel add-on policies at the same time, if the main policy is
cancelled mid-term?
A. The Consumer Credit Act 1974.
B. The Consumer Rights Act 2015.
C. The General Data Protection Regulation (GDPR).
D. The Insurance Act 2015.

34. What limit, if any, is usually placed on the number of claims that can be made under a motor
insurance policy in any one policy year?
A. A limit that is always agreed at the start of the policy year.
B. A limit that is renegotiated at renewal depending on previous claims experience.
C. There is no limit on the number of claims that can be made.
D. A limit which can vary according to the age of the insured.

35. Under a standard travel insurance policy, what is the minimum level of cover usually provided for
medical treatment and expenses incurred whilst abroad?
A. £50,000
B. £100,000
C. £250,000
D. £1,000,000

36. Which type of insurance policy would cover an insured for the cost of repairs following an electrical
defect in a television?
A. A commercial all risks insurance policy.
B. A personal all risks insurance policy.
C. An extended warranty insurance policy.
D. A products liability insurance policy.

37. What is the implication of writing professional indemnity insurance on a claims made basis?
A. More than one claim is needed for the policy to be effective.
B. New claims must always be submitted to the current insurer.
C. Previous claims are the sole underwriting criteria.
D. New claims must always be submitted to the previous insurer.

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38. Cover for theft under a commercial insurance policy is usually subject to
A. forcible and violent entry only to a secured building.
B. forcible and violent entry to or exit from a secured building.
C. theft notwithstanding forcible and violent entry to or exit from a secured building.
D. forcible and violent exit only from a secured building.

39. What does products liability insurance principally cover?

A. The cost of recalling defective goods.
B. Claims made against the insured as a result of defective goods.
C. Claims made against the insured by employees for injuries received whilst at work.
D. Financial damages incurred as a result of incorrect professional advice.

40. The main advantage to a motor insurer of operating an authorised repairer scheme is that it
A. can charge an additional premium for the scheme.
B. can reduce the liability of any third party who may have caused damage.
C. can refuse to release a vehicle until any excess has been paid.
D. will have more control over the costs incurred.

41. For which class of insurance is an underwriter most likely to request a risk survey?
A. Commercial insurance.
B. Household buildings insurance.
C. Motor insurance.
D. Medical expenses insurance.

42. If an insurer wishes to check the claims history of an individual proposing motor insurance, it would
refer to the
A. Claims and Underwriting Exchange.
B. Financial Conduct Authority.
C. Motor Insurers’ Bureau.
D. Motor Insurers Database.

43. Which factor is usually the most important when an underwriter is determining whether he will
accept a proposal for professional indemnity insurance?
A. The location of the practice.
B. The claims history of the practice.
C. The fees charged by the practice.
D. The number of directors.

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44. When an insurer is considering an income protection insurance proposal, it will usually place the
applicant into a particular premium rating class based on his
A. age.
B. level of earnings.
C. lifestyle.
D. occupation.

45. An 18-year-old individual is applying for motor insurance. In relation to which type(s) of policy
cover is his age likely to influence the premium rating?
A. Third party cover only.
B. Third party, fire and theft cover only.
C. Comprehensive cover only.
D. All types of cover.

46. The buildings sum insured for a fire insurance policy should ideally be linked to the
A. purchase price only.
B. purchase price plus inflation.
C. rebuilding costs.
D. current market value.

47. For which class of insurance is it an underwriting requirement to know the length of the indemnity
period and the potential loss of revenue?
A. Business interruption insurance.
B. Products liability insurance.
C. Public liability insurance.
D. Theft insurance.

48. What is the main criteria for underwriting extended warranty insurance for domestic electrical
appliances?
A. Age of insured appliance.
B. Country of manufacture.
C. Postal code of insured.
D. Type and value of appliance.

49. What method of settlement does an insurer typically use to deter fraudulent household goods
claims?
A. Agreed value.
B. Cash reimbursement.
C. First loss.
D. Replacement.

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50. Under the Disability Discrimination Act 1995, an insurer is permitted to decline a travel insurance
application due to the proposer’s disability, but only if the
A. proposer is over State Pension age.
B. proposer is travelling alone.
C. decision is supported by appropriate risk-related data.
D. requested cover extends beyond EU limits.

51. For what reason will an insurance company appoint a data controller?
A. To enable the insurance company to use the various registers of claims.
B. To monitor the amount of data input by each employee.
C. To oversee the information technology department.
D. To satisfy the requirements of data protection legislation.

52. A firm of solicitors is applying for professional indemnity insurance. When rating the risk, what
information is the underwriter most likely to find useful?
A. The age of the senior partner.
B. The location of the office.
C. The number of support staff.
D. The fees earned by the practice.

53. An insurer will usually make an insurance policy void without refunding the premium if the
policyholder
A. arranges identical cover elsewhere.
B. loses insurable interest.
C. submits a fraudulent claim.
D. receives a criminal conviction.

54. What main source of information is used by motor insurers to discourage fraudulent claims?
A. The Claims and Underwriting Exchange.
B. The Driver and Vehicle Licensing Agency (DVLA).
C. The Motor Insurance Repair Research Centre.
D. The Motor Insurers’ Bureau.

55. Regarding a risk profile that is high frequency and low severity, an insurer will expect
A. many high value claims.
B. many small value claims.
C. only a few high value claims.
D. only a few small value claims.

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56. Claims data for a particular insurance policy is being grouped according to the date of loss, with
losses occurring in 2017 grouped separately from those occurring in 2016. What main type of
monitoring period is most likely to be in operation?
A. Accounting year.
B. Calendar year.
C. Policy year.
D. Underwriting year.

57. Operational data is mainly used by insurers to monitor the

A. organisation’s overall business performance.
B. success of different departments within the organisation.
C. effectiveness of general procedures and practices.
D. control of the insurance risk.

58. What is the main source of data that will determine the rate for an insurer’s private car portfolio?
A. Its own past claims history across similar risks.
B. Competitors’ terms, rates and excesses.
C. Driver and Vehicle Licensing Authority (DVLA) statistical information.
D. Motor Insurers’ Bureau claims experience.

59. Why is the accurate analysis of an insurer’s past claims so important?

A. It is essential for the profitability of the underwriting account.
B. It provides an analysis of the efficiency of claims service levels.
C. It provides indications of excessive risk accumulation.
D. The claims history guides coinsurance considerations.

60. What main factor influences the risk premium element of a set of insurance premium rates?
A. Claims costs.
B. Taxation liabilities.
C. Administrative expenses.
D. Investment return.

61. An insurance policy shows a gross premium of £1,000, settled claims of £300 and outstanding
claims of £200. What is the incurred loss ratio?
A. 25%
B. 30%
C. 33%
D. 50%

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62. Actual loss ratios relate to values that

A. have been adjusted for inflation.
B. have not had any adjustments factored in.
C. measure average losses over a given period.
D. take into account reinsurance costs.

63. How are claims allocated when monitored on a calendar year basis?
A. Proportionately depending on the time of year.
B. They are based on the date of loss.
C. They are based on unearned premium income.
D. To the next full year starting 1 January.

64. In terms of the frequency and severity of risk, an accident involving an aircraft carrier would be
classified as
A. high frequency, high severity.
B. high frequency, low severity.
C. low frequency, high severity.
D. low frequency, low severity.

65. What factor would contribute to two different companies with identical wage rolls paying
significantly different premiums for employers’ liability insurance?
A. The geographical location.
B. Any no claims discounts.
C. The number of directors.
D. The type of business.

66. The ultimate cost in claims of a risk being accepted is defined as a

A. loss ratio.
B. material fact.
C. reinsurance.
D. risk premium.

67. An insurer transacting which class of insurance will need to account for Insurance Premium Tax at
the rate of 20%?
A. Health insurance.
B. Motor insurance.
C. Travel insurance.
D. Extended warranty insurance.

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68. Which organisation makes a charge to insurers to pay the claims from victims of uninsured drivers?
A. The Claims and Underwriting Exchange.
B. The Financial Conduct Authority.
C. The Financial Services Compensation Scheme.
D. The Motor Insurers’ Bureau.

69. In relation to the premium, costs that alter depending on the nature of each risk are known as
A. calculated expenses.
B. fluctuating expenses.
C. proportioned expenses.
D. variable expenses.

70. Which key method is used by an insurer to protect itself against loss exposures arising from a single
event?
A. Premium reviews.
B. Policy endorsements.
C. Reinsurance cover.
D. External risk surveillance.

71. A reduction in the availability of a particular type of insurance cover will generally cause
A. a fall in premiums.
B. an increase in premiums.
C. a limit on reinsurance options.
D. a reduction in the insurer’s profits.

72. The underwriting cycle refers to the

A. administration process from proposal to policy issue.
B. training of underwriters to assess higher risks.
C. movement of underwriters between different roles in the company.
D. changes in market capacity and its bearing on underwriting acceptance criteria.

73. When assessing the maximum exposure for any one risk relating to fire damage, a surveyor will
calculate the
A. estimated maximum loss.
B. estimated minimum loss.
C. expected maximum loss.
D. expected minimum loss.

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74. XYZ Insurance Ltd wants to protect its fire insurance account against the impact of large one-off
losses. What form of reinsurance should it purchase?
A. Excess of loss.
B. Loss ratio coverage.
C. Quota share.
D. Stop loss.

75. An insurer wishing to accept a risk which exceeds its normal underwriting limits is most likely to
A. exclude cover for catastrophic risks.
B. insist on a large excess.
C. make use of a reinsurance facility.
D. place special conditions on the policy.

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Specimen Examination Answers and Learning Outcomes Covered

Learning Learning Learning

Question Answer Question Answer Question Answer
Outcome Outcome Outcome
Learning Outcome 1 Learning Outcome 4 Learning Outcome 9
1 C 1.1 31 A 4.1 55 B 9.3
2 A 1.3 32 A 4.1 56 B 9.5
3 B 1.4 33 B 4.2 57 C 9.1
4 A 1.5 3 Questions 58 A 9.1
5 C 1.2 59 A 9.2
5 Questions Learning Outcome 5 60 A 9.2
34 C 5.1 61 D 9.4
Learning Outcome 2 35 D 5.1 62 B 9.4
6 B 2.1 36 C 5.1 63 B 9.5
7 A 2.2 3 Questions 64 C 9.3
8 A 2.3 10 Questions
9 A 2.4 Learning Outcome 6
10 D 2.4 37 B 6.1 Learning Outcome 10
11 D 2.4 38 B 6.1 65 D 10.1
12 C 2.5 39 B 6.1 66 D 10.1
13 B 2.5 3 Questions 67 C 10.2
14 B 2.6 68 D 10.2
15 B 2.7 Learning Outcome 7 69 D 10.2
16 A 2.7 40 D 7.1 5 Questions
17 A 2.7 41 A 7.1
18 B 2.8 2 Questions Learning Outcome 11
19 C 2.8 70 C 11.2
20 B 2.1 Learning Outcome 8 71 B 11.1
15 Questions 42 A 8.7 72 D 11.1
43 B 8.4 73 A 11.2
Learning Outcome 3 44 D 8.1 74 A 11.3
21 D 3.3 45 D 8.1 75 C 11.3
22 C 3.1 46 C 8.2 6 Questions
23 B 3.1 47 A 8.3
24 C 3.2 48 D 8.5
25 B 3.2 49 D 8.6
26 B 3.2 50 C 8.9
27 A 3.4 51 D 8.9
28 C 3.4 52 D 8.4
29 C 3.1 53 C 8.8
30 B 3.3 54 A 8.6
10 Questions 13 Questions

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