BCP General Insurance Principles 2

Question 1

What is meant by 'material fact' in the context of insurance disclosure?

Accepted Answer

Any fact that would influence a prudent insurer's decision to accept the risk or set the premium

Answer

A material fact is any information that would influence a prudent insurer in deciding whether to accept a risk and on what terms. All material facts must be disclosed at inception and renewal.

Question 2

What is 'average' in the context of property insurance?

Accepted Answer

A condition that reduces claims proportionally when underinsurance exists

Answer

The 'average' condition (or pro-rata condition of average) applies when property is underinsured. The claim payment is reduced proportionally: (sum insured / actual value) × loss amount.

Question 3

Which of the following best describes 'moral hazard' in insurance?

Accepted Answer

The tendency of insured persons to be less careful because they are covered

Answer

Moral hazard refers to the tendency of insured persons to take less care to avoid or minimize losses because they know they are covered by insurance, increasing the likelihood of claims.

Question 4

What is 'reinstatement' as a basis of settlement in property insurance?

Accepted Answer

Restoring or replacing damaged property with new equivalent property

Answer

Reinstatement as a basis of settlement means the insurer pays the cost of repairing or replacing the damaged property with new equivalent property, without deduction for depreciation.

Question 5

What does 'sum insured' represent in a general insurance policy?

Accepted Answer

The maximum amount the insurer will pay in the event of a total loss

Answer

The sum insured is the maximum amount the insurer will pay in the event of a total loss under the policy. It should represent the full value of the insured item at risk.

BCP Insurance Practice Test

BCP Insurance Practice Test

BCP General Insurance Principles 2