C11 Principles and Practice of Insurance Questions and Answers(A+ Solution guide)

Areas of regulation for Intermediaries - Q-ualifaction (must pass test) O-peration of business (must follow requirements) L- Icences - Must have license L- icence Renewal - Renewed annual The Categories of insurance: - 1) Social -Workers Compensation 2) Life and Health Life, accident and sickness, and disability. 3) General property/casualty insurance Personal Property Boiler and Machinery Automobile Commercial property Crime Business interruption Liability Aviation Marine Inland Transport Main functions of insurance - 1.) Spread of risk - volume, diversity of risk, location 2.) Security - Peace of mind 3.) Credit - Individuals, banks 4.) Capital - Premium investments 5.) Employment - Insurance creates jobs6.) Loss prevention - Research Reasons of reinsuring: - 1.) Increase the insurer's capacity to write business 2.) Maintain a proper reserve 3.) Reduce the effect of a catastrophic loss 4.) Provide stability in a fluctuating market 5.) Enable an insurer to cease operations Steps of Rate Determination - 1.) Classification of risks - Broad categories work way down 2.) Gather statistics - Better for longer period 3.) Determine the pure premium - Required to pay the losses that occur 4.) Determine Total premium Pure premium + trendsand expense 5.) Determine rate per 100$ Things required for insurance contracts - 1.) Insurable interest 2.) A risk of promise and indemnity 3.) Utmost good faith Risk Management steps: - Identify: You would have to identify the risks. Measure: Once you have found which risks pose a threat you need to measure the loss frequency and severity. Control: The three ways of controlling risk are: Reduce Assume TransferNecessary elements of a legally binding contract under common law: - Agreement (offer and acceptance) Capacity to contract Consideration Genuine Intent Legality of an object