BCP Claims and Underwriting 2 — Questions and Answers
Question 1: What is 'co-insurance' in the Singapore insurance market?
- When one insurer covers all the risk
- When two or more insurers share the same risk, each covering a specified percentage (Correct answer)
- When the insured pays double the premium
- When the government provides insurance
Correct answer: When two or more insurers share the same risk, each covering a specified percentage
Co-insurance involves multiple insurers sharing a single risk, with each taking a specified percentage. One insurer acts as the lead, issuing the policy and handling claims on behalf of all.
Question 2: What is 'reinsurance' as practised in Singapore's insurance market?
- Selling insurance to individuals twice
- Insurance purchased by an insurer from another insurer to spread its risk (Correct answer)
- Renewing an expired policy
- A type of investment product
Correct answer: Insurance purchased by an insurer from another insurer to spread its risk
Reinsurance allows primary insurers to transfer portions of their risk to reinsurers, reducing their exposure to large or catastrophic losses. Singapore is a major reinsurance hub in Asia.
Question 3: What is 'moral hazard' in insurance underwriting in Singapore?
- The risk that natural disasters will occur
- The risk that the insured may act dishonestly or take greater risks because they have insurance (Correct answer)
- The risk of premium default
- The risk of regulatory changes
Correct answer: The risk that the insured may act dishonestly or take greater risks because they have insurance
Moral hazard refers to the tendency of insured individuals to be less careful or even dishonest because they know they are protected by insurance. Underwriters assess this risk during evaluation.
Question 4: In Singapore, what is the Financial Industry Disputes Resolution Centre (FIDReC)?
- A government department that sells insurance
- An independent body that resolves disputes between consumers and financial institutions including insurers (Correct answer)
- An insurance training academy
- A premium collection agency
Correct answer: An independent body that resolves disputes between consumers and financial institutions including insurers
FIDReC is Singapore's independent dispute resolution scheme that handles complaints from consumers against financial institutions, including insurance companies, through mediation and adjudication.
Question 5: What does 'average clause' mean in a Singapore property insurance policy?
- The claim is paid in full regardless of sum insured
- If the property is underinsured, the claim payout is proportionally reduced (Correct answer)
- The premium is calculated as an average of all policies
- The insurer pays the average market value
Correct answer: If the property is underinsured, the claim payout is proportionally reduced
The average clause penalises underinsurance. If the sum insured is less than the actual value of the property, the claim payout is reduced in proportion to the degree of underinsurance.
Question 6: What is a 'condition precedent to liability' in a Singapore insurance policy?
- A condition that must be met before the insurer is liable to pay a claim (Correct answer)
- A condition that only applies after the policy expires
- A voluntary disclosure by the insurer
- A marketing obligation
Correct answer: A condition that must be met before the insurer is liable to pay a claim
A condition precedent to liability is a policy term that must be fulfilled before the insurer is obligated to pay any claim. For example, giving timely notice of a claim is often such a condition.
BCP Claims and Underwriting 2
What is 'co-insurance' in the Singapore insurance market?