BCP General Insurance Principles 1

Question 1

What is the principle of indemnity in general insurance?

Accepted Answer

The insured is restored to the same financial position as before the loss

Answer

The principle of indemnity ensures the insured is restored to the same financial position they were in immediately before the loss — no better, no worse. This prevents profiting from insurance.

Question 2

What is subrogation in insurance?

Accepted Answer

The insurer's right to pursue a third party after paying a claim

Answer

Subrogation is the insurer's right, after paying a claim, to step into the insured's shoes and pursue recovery from any third party legally responsible for the loss.

Question 3

What does 'proximate cause' mean in insurance claims assessment?

Accepted Answer

The dominant and most effective cause of a loss

Answer

Proximate cause is the dominant, effective, or real cause of a loss — not necessarily the first or last in a chain of events. Insurers use this principle to determine whether a loss is covered.

Question 4

Which principle prevents an insured from claiming more than the actual loss suffered?

Accepted Answer

Indemnity

Answer

The principle of indemnity prevents an insured from profiting from an insurance claim by limiting recovery to the actual financial loss suffered, no more.

Question 5

When two or more insurers cover the same risk, the principle of contribution ensures:

Accepted Answer

Each insurer pays a rateable proportion of the loss

Answer

The principle of contribution ensures that when multiple policies cover the same risk, each insurer pays a rateable proportion of the loss, preventing the insured from recovering more than the actual loss.

BCP Insurance Practice Test

BCP Insurance Practice Test

BCP General Insurance Principles 1