MODEL QUESTION PAPER

SUBJECT CODE : MF0018 SUBJECT : Insurance and Risk Management

SECTION A

1. Which of the following strategy reduces the chance of loss to zero? a. Risk reduction b. Risk retention c. Risk avoidance d. Risk transfer

2. _______________ arises when there is a possibility of an unintentional damage caused by a person to another person because of negligence. a. Dynamic risk b. Personal risk c. Liability risk d. Fundamental risk

3. _______________ is measured by the probability of adverse deviation. a. Degree of risk b. Chance of loss c. Severity of loss d. Probability of loss

4. Which one of the following is defined as the funding of losses either by using the internal reserves or by purchasing insurance? a. Risk management b. Risk retention c. Risk financing d. Risk transfer

5. _____________offers the rights to buy a specified asset like stocks at a particular price during a specified period. a. Call option b. Put option c. Stock option d. Currency option

6. The act of selling the option is known as_____________. a. Editing an option b. Writing an option c. Reading an option d. Selling an option

7. ___________insurance is an optional insurance which is taken by an individual or a company by their own wish. a. Public sector b. General c. Voluntary d. Social

8. Which among the following was formed in the year 1999 to control and enhance the insurance industry standards? a. Malhotra committee b. Insurance Regulatory and Development Authority c. The LIC (Amendment) bill d. Insurance (Laws) Amendment Bill

9. Which among the following are the insurance professionals have the right to accept or reject insurance applications based on some basic criteria of individual companies? a. Loss adjusters b. Brokers c. Agents d. Underwriters

10. Which of the following Accounting Standard should the insurance company use to prepare its receipts and payment accounts according to IRDA regulations of 2000? a. Accounting Standard 13

b. Accounting Standard 3 c. Accounting Standard 4 d. Accounting Standard 17

11. Which of the following act was passed in 1999 to amend the Insurance Act of 1938? a. IRDA Act b. Life insurance Act c. Companies Act d. General insurance business Act

12. The IRDA under the IRDA Investment and Amendment Regulations issued detailed guidelines to _______________ for making investments. a. Insurers b. Insured c. Coinsurer d. Reinsurer

13. Minimum age for money back policy is ____ years. a. 30 years b. 20 years c. 15 years d. 10 years

14. A person can apply for a surrender amount only if the premium has been paid for minimum of _______ years. a. Three b. Two c. Five d. Nine

15. Assignment of a policy means the _______________ of the policy to a third party. a. Notification b. Nomination c. Transfer d. Authentication

16. _______________ is given for a period of four and half months. a. Inland fish insurance b. Horticulture insurance c. Aqua culture insurance d. Farmers' insurance

17. In ______________policy, assets are insured for a certain sum irrespective of its value. a. Valued b. Unvalued c. Average d. Specific

18. _______________covers the construction risk, when the vessel is under construction. a. Marine cargo insurance b. Marine hull insurance c. Inland marine insurance d. Inland fish insurance

19. Which one of the following automobile insurance covers the damage caused from missiles or any falling object, thefts, earthquakes, windstorms or floods? a. Liability coverage b. Medical payment coverage c. Comprehensive coverage d. Collision coverage

20. In ______________,the insurer accepts to compensate the insured such as the employers against the losses suffered due to the employees. a. Credit insurance b. Fidelity insurance c. Motor vehicle insurance d. Workmen's compensation insurance

21. ______________for older persons is a plan that offers fiscal assistance to develop old age homes, day care centres, and Medicare centres that offer non-institutional services to elderly persons. a. Integrated program b. National policy

c. National mental health program d. Low cost family health insurance plan

22. LIAFI has an ______________ meeting every six months where the issues of L.I.C. management are discussed. a. Agency Management Forum b. Actuaries Consultative Forum c. Agents Consultative Forum d. Actuaries Management Forum

23. ______________ is the product of rate and the number of units of protection purchased. a. Insurance face value b. Insurance premium c. Insurance exposures d. Insurance loading

24. Which among the following institutions was formed in the year 1944? a. Institute of Actuaries of India (IAI) b. Insurance Brokers Association of India (IBAI) c. Life Insurance Agents Federation of India (LIAFI) d. Insurance Regulatory and Development Association (IRDA)

25. Which among the following involves creation of drafts for policy documents? a. Product release b. Prototype development c. Customer requirement analysis d. Business analysis

26. Which one of the following is the third stage in product development process? a. New product development b. Business analysis c. Concept testing d. Commercialisation

27. Which one of the following is an important stage while designing a product? a. Analysis of market b. Rate setting and testing

c. Analysis of data d. Drafting a pricing strategy

28. The premiums fixed for the policies should also support the ______________ model of insurers. a. Profit flow b. Customer flow c. Cash flow d. Investment flow

29. ____________ are the concluding authorities who buy the insurance product. a. Consumers b. Agents c. Underwriters d. Insurers

30. A great deal of negotiation over price takes place between the line underwriter and the agent concerning the proper pricing of a _____________. a. Commercial risk b. Financial risk c. Company risk d. Social risk

31. _____________ is a method, where the laid down principles and measuring methods are utilised to settle the claims. a. Claims management b. Claims processing c. Claims handling d. Claims reserving

32. According to the guidelines set by IRDA, all the decisions and confirmations of the claims settlement should not exceed _____________ from the receipt of proposal by the insurer. a. One month b. Two weeks c. 20 days d. 15 days

33. Which of the following decides the objective of insurance pricing? a. Vendors b. End-users c. Marketing manager d. Policyholder

34. ______________ is a marketing tool used in trade journals, industry publications and periodicals. a. Class rating b. Mark-up pricing c. Online advertisement d. Block line advertisement

35. All the debt assets issued by All India financial institutions are given ___________ rating. a. AA b. AAA c. +A d. BBB

36. Which one of the following bonds are suitable for large scale investments and constitute more than 80 percent of the total bonds in the Indian insurance market? a. Public sector undertaking bonds b. Corporate bonds c. Financial institution and bank bonds d. Emerging markets bonds

37. Which one of the following reinsurances is a part of a single policy or the entire policy after negotiating the terms and conditions? a. Treaty reinsurance b. Facultative reinsurance c. Proportional reinsurance d. Excess-of-Loss reinsurance

38. Securitisation of risk means that an insurable risk is transferred to the __________________ by creating some financial instruments. a. Capital markets b. Insurer

c. Reinsurer d. Co-insurer

39. ______________ is the group of computer software programs used for generating, organising, retrieving, analysing, and sorting information in computer-based databases. a. Database management system b. Decision support system c. Data warehouse d. Group support system

40. Liberalisation and _________________ started allowing international players in the insurance sector. a. Globalisation b. Industrialisation c. Marketisation d. Privatisation

SECTION B

41. Financing the risk method provides the financing needed for the losses either by _____________ the risk or _____________ the risk. a. Combining, Sharing b. Retaining, Transferring c. Hedging, Combining d. Avoiding, Reducing

42. Identify if the following statements are true or false. 1. The stock price is the main aspect that determines the option pricing. 2. Underlying price is the contracted price that is exchanged when the buyer exercises the option. a. 1T, 2T b. 1F, 2T c. 1T, 2F d. 1F, 2F

43. Identify true and false statements. 1. Involuntary insurance comes under private sector. 2. Only 3% of Indias population is covered under voluntary health insurance. a. 1T, 2T b. 1T, 2F c. 1F, 2F d. 1F, 2T

44. _____________and _____________were the two bills introduced as a part of economic reforms in 2008. a. General Insurance Business (Nationalisation) Amendment Bill, LIC (Amendment) Bill b. Insurance (Laws) Amendment Bill, LIC (Amendment) Bill c. Insurance Regulatory and Development Authority Bill, LIC (Amendment) Bill d. Insurance Regulatory and Development Authority Bill, General Insurance Business (Nationalisation) Amendment Bill

45. Identify true and false statements. 1. Protecting customers interest includes keeping prices affordable, having some mandatory products and standardisation of services. 2. It is important for the regulatory authority to make sure that the insured pays the insurer. a. 1T, 2T b. 1T, 2F c. 1F, 2F d. 1F, 2T

46. Which of the following are the elements of Life Insurance? 1. Premium 2. Initial affordability 3. Surrender value 4. Renewal amount a. 2 & 4 b. 2 & 3 c. 1 & 4 d. 1 & 3

47. Universal life insurance addresses the apparent disadvantages of whole life - namely that _________and ___________ are fixed

a. Premiums, Death benefit b. Claims, Penalties c. Paid-up value, Grace period d. Profits, Liabilities

48. ____________and ____________ are covered on payment of extra premium in inland fish insurance. a. Accident, Malicious act b. Accident, Disease c. Pollution, Malicious act d. Flood, Allied risks

49. Credit insurance by New India Assurance Company Limited offers two fold credit administration supports namely____________ and ________________. a. Credit exporting, Credit control b. Credit supervising, Credit control c. Credit importing, Credit marketing d. Credit marketing, Credit control

50. The _____________ write the underwriting policy and the ________________ applies these terms and conditions to the applications and chooses the best policies. a. Underwriting managers, Local agent b. Underwriting officers, Desk underwriter c. Underwriting officers, Actuary d. Desk underwriters, Actuary

51. Which among the following is the function of IAI? a. Conduct research in life insurance b. Develop the life insurance sector c. Provide guidance for actuarial exams d. Train and educate brokers

52. Identify true and false statements. 1. Pricing new products is an important phase in product development process. 2. Competitionbased pricing is useful while pricing insurance products. a. 1T, 2T b. 1T, 2F

c. 1F, 2F d. 1F, 2T

53. The GIC together with its _____________ subsidiaries has developed ___________ new products. a. Four, 150 b. Six, 150 c. Four 160 d. Five, 150

54. Which of the following are the sources of underwriting information? 1. Application containing the insurers declarations 2. The medical report 3. Information collected by inspection 4. Policy writing a. 2 & 4 b. 2 & 3 c. 1 & 4 d. 1 & 3

55. The apprentice system of underwriting is both _________ and _______. a. Time-consuming, Costly b. Time-saving, Inexpensive c. Cost-saving, Easy d. Time-saving, Reliable

56. _______________and _______________are parts of claim processing. a. Claims preparation, Claims processing b. Evaluating claim cost, Supervising claim payment c. Verification of claim, enhancing efficiency of claims settlement d. Verification of claim, Reviewing claim application

57. The _____________ and _______________ advertisements are very expensive forms of insurance marketing. a. Television, Print b. Block line , Online c. Television, Block line

d. Online, Print

58. All the assets for investment have an investment grade __________ but if the investment committee is fully satisfied, then the investment of the asset is approved for _____________ rating. a. AA, BBB b. AA, +A c. +A, AAA d. BBB, +A

59. As an alternative to the traditional ______________, new risk transfer instruments have emerged since the early ____________. a. Reinsurance contracts, 1990s b. Insurance contracts, 1990s c. Reinsurance contracts, 1980s d. Reinsurance contracts, 1960s

60. The developing areas of Information technology applications in the insurance sector are ____________and _____________. a. Market research, Agent analysis b. World Wide Web, Agent analysis c. Actuarial investigation, Market research d. Agent analysis, CRM

SECTION C

61. Match the following: First set: A. When the risk is being borne by another party other than the one who is primarily exposed to risk. B. A large number of people are involved and hence each bears only a portion of risk that the enterprise faces. C. Future contracts are bought and sold to balance the risk of changing prices in the cash market.

D. In order to minimise the overall risk, one risk is added to another existing risk. Second set: 1. Risk hedging 2. Risk transfer 3. Risk combination 4. Risk sharing a. A-2, B-3, C-4, D-1 b. A-2, B-4, C-1, D-3 c. A-3, B-1, C-2, D-4 d. A-1, B-3, C-4, D-2 62. Match the following: First set: A. Assumption of Black and Scholes pricing model B. It is a contractual transfer for risks C. It provides the techniques for funding of losses after their occurrence. D. It is useful for risk management and regulatory purpose. Second set: 1. Stock trading is continuous. 2. Risk financing 3. Insurance 4. VaR approach a. A-1, B-2, C-3, D-4 b. A-1, B-3, C-2, D-4 c. A-2, B-1, C-3, D-4 d. A-4, B-3, C-2, D-1

63. Match the following: First set A. Recommendations of Malhotra committee B. Amendments to the General Insurance Business (Nationalisation) Act 1972 C. Amendment to the Insurance Regulatory and Development Act 1999 D. The LIC (Amendment) bill 2009 Second set 1. The Parliamentary Committee on Public Undertakings suggested to merge the GIC subsidiaries into a single company.

2. This amendment proposed to increase the participation of foreign equity from 26 percent to 49 percent. 3. Provide sovereign guarantee selectively on the amount of the policy and the gratuity from the present 100% government guarantee. 4. Private companies who have initial capital of Rs 1 billion must be permitted to work in the insurance industry. a. A-2, B-3, C-4, D-1 b. A-4, B-3, C-1, D-2 c. A-3, B-1, C-2, D-4 d. A-4, B-1, C-2, D-3

64. Identify true or false statements. 1. Insurance regulation helps in protecting the policyholders from losses when the insurance company undergoes insolvency. 2. Insurance regulation has to make sure that the claims made are settled quickly without unnecessary litigation. 3. IRDA introduced a number of regulations over the last decade they were rejected. 4. The insurers keep the huge funds in their custody and invest them to produce more returns. a. 1T, 2T, 3T, 4T b. 1T, 2T, 3F, 4T c. 1T, 2T, 3F, 4F d. 1F, 2T, 3F, 4T 65. Match the following sets: First set: A. Money back insurance policy B. Endowment insurance C. Variable life D. Level term Second set: 1. With this kind of policy, both the premium and the amount of coverage are expected to stay the same for a specified number of years. 2. Most of the premium amount is invested in one or more investment accounts 3. Basically a whole life policy with a maturity or endowment date which occurs after a certain number of years or at a certain age.

4. Provides periodic payments of partial survival benefits during the period of the policy, as long as the policy holder is alive. a. A-4, B-3, C-2, D-1 b. A-2, B-1, C-4, D-3 c. A-3, B-4, C-1, D-2 d. A-4, B-1, C-2, D-3 66. Match the following: First set A. Stock declaration policy B. Re-instatement policy C. Schedule policy D. Excess policy Second set 1. A type of fire insurance policy which insures many properties under collective terms and conditions 2. Issued for the stock of merchandise whose value is unpredictable? 3. The highest liability of insurance company is specified in the policy. 4. The property is replaced in totality instead of paying compensation for the goods lost by fire. a. A-2, B-3, C-4, D-1 b. A-4, B-1, C-2, D-3 c. A-3, B-1, C-2, D-4 d. A-3, B-4, C-1, D-2 67. Match the following: First set: A. Protects individuals or groups against personal accident or illness B. Covers physicians visits, medical procedures etc. C. A comprehensive insurance that covers accidental loss, permanent disablement due to accident, medical expenses etc. D. One of the essential documents necessary for claiming accident insurance Second set: 1. NRI accident insurance 2. Personal Accident insurance 3. Police records 4. Accident and health insurance

a. A-2, B-1, C-4, D-3 b. A-4, B-3, C-1,D-2 c. A-2, B-4, C-1, D-3 d. A-2, B-4, C-3, D-1

68. Identify true or false statements. 1. Underwriting differs for life and property insurance. 2. The underwriters should consider only those applicants whose actual loss rating is less than the expected loss rating. 3. The underwriters should ensure that there is a balance in rates between the aboveaverage applicants and below-average average applicants. 4. Apart from the rate balancing, the underwriter should make sure that one set of policy holders should subsidise some other set. a. 1T, 2F, 3T, 4F b. 1T, 2T, 3T, 4F c. 1F, 2F, 3F, 4F d. 1F, 2F, 3T, 4T

69. Match the following: First set: A. New products that arise from technological innovations B. Generating ideas C. New products that arise from marketing oriented modifications D. Screening ideas Second set: 1. New versions of the existing products 2. Have new functional value. 3. Analyses need for the new product 4. Requires a formal market research a. A-2, B-1, C-4, D-3 b. A-4, B-3, C-1, D-2 c. A-2, B-4, C-1, D-3 d. A-2, B-4, C-3, D-1

70. Identify the correct sequence of steps involved in underwriting process 1. Execution of field underwriting. 2. Taking and underwriting decisions. Confirmation

3. Gathering additional information, if required. 4. Renewing the application in the office a. 1, 2, 4 & 3 b. 1, 4, 3 & 2 c. 3, 4, 1 & 2 d. 1, 2, 3 & 4 71. Match the following: First set: A. Claims settlement B. Claims preparation C. Claims philosophy D. Claims processing Second set 1. This process is used for reporting the damages with documentary proof of the assessment of loss and details of the loss. 2. It contains the guidelines required to prepare the receipt of claims from the insurers. 3. This is a process of negotiation between the insured person and insurance provider. 4. It has two procedures, for the insurer and insured to pursue. a. A-2, B-3, C-4, D-1 b. A-4, B-1, C-2, D-3 c. A-3, B-1, C-2, D-4 d. A-3, B-4, C-1, D-2

72. Match the following: First set A. Schedule rating B. Merit rating C. Class rating D. Experience rating Second set 1. In this method, the risks are classified based on some important characteristics. 2. In this plan, all insurance coverage is rated separately. 3. It alters the class rate of a particular class insured based on individual loss experience. 4. This plan modifies the class rate based on the claim experience of a particular coverage. a. A-2, B-3, C-1, D-4 b. A-1, B-3, C-2, D-4

c. A-4, B-2, C-3, D-1 d. A-1, B-4, C-2, D-3

73. Identify true and false statements. 1. Solvency is defined as the capability to meet the financial requirements arising out of obligations. 2. The financial goals of insurers are to maximise profits and maintain solvency. 3. The investor can sell the government bonds in a secondary market only if the bond maturity date is reached. 4. Risks involved in corporate bonds depend upon the marketing conditions and investment rates. a. 1T, 2T, 3F, 4T b. 1F, 2F, 3T, 4T c. 1T, 2F, 3T, 4F d. 1F, 2F, 3F, 4F 74. Match the following: First set: A. Quotashare treaty B. Surplusshare treaty C. Excessofloss treaty D. Reinsurance pool Second set: 1. It is largely designed for providing protection against the catastrophic losses. 2. It divides the expenses, incomes and losses in the same proportion. 3. It is an organisation of insurers that underwrites insurance on a joint basis. 4. The loss and premium are shared among the primary insurer and the reinsurer in the same proportion. a. A-2, B-1, C-4, D-3 b. A-4, B-3, C-1, D-2 c. A-2, B-4, C-1, D-3 d. A-2, B-4, C-3, D-1

75. Match the following: First set A. Imaging and work-flow technologies B. Data warehouse

C. Consumer service D. Front end operations Second set 1. This includes products customisation. 2. These give financial service organisations a distinct platform for managing customer transactions across multiple products. 3. This makes it easier for companies to analyse, and store information. 4. This uses CRM packages to integrate different functional processes of the insurance company. a. A-2, B-3, C-1, D-4 b. A-1, B-3, C-2, D-4 c. A-4, B-2, C-3, D-1 d. A-1, B-4, C-2, D-3