S-08- Loss of Profits Insurance Mock Test 02
Loss of Profits Insurance underwriting focuses on accurately classifying and rating each loss exposure to determine an appropriate premium. Indian insurers generally follow the British model for Loss of Profits Insurance. Important underwriting factors include past claim history, external risks surrounding the insured premises, and government restrictions affecting reconstruction or operations. The policy also contains specific definitions relating to retrenchment, income tax, and standing charges. Underwriters assess the nature and severity of risks before deciding whether to accept, reject, or modify a proposal. Extensions such as Auditor’s Fees have specific premium rates. Proper risk evaluation helps insurers control liability while maintaining fair and appropriate premium pricing.
1. What must underwriters ensure when determining the appropriate premium?
a) That each loss exposure is charged the minimum possible premium
b) That each loss exposure is charged the same flat premium
c) That each loss exposure is properly classified so that it is properly rated - insurance loss costs are typically based on an elaborate classification system
d) That each loss exposure is charged based only on past claims history
e) That each loss exposure is priced by the reinsurer
2. When was the first modern policy for Business Interruption Insurance mostly issued in London?
a) 47119
b) 14246
c) 17899
d) 43466
e) 39814
3. Which insurance model do most Indian insurers follow for Loss of Profits Insurance?
a) The American model
b) The Australian model
c) The British model
d) The German model
e) The French model
4. Which Retrenchment definition is correct under the Industrial Disputes Act as stated in the chapter?
a) Retrenchment is the voluntary resignation of a workman for personal reasons
b) Retrenchment is the failure of the employer to give employment due to breakdown of machinery
c) Retrenchment is the termination by employer of service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include voluntary retirement, superannuation, or termination due to ill health
d) Retrenchment is the lay-off of workers pending replacement of damaged machinery
e) Retrenchment is the temporary suspension of employment during the indemnity period
5. What does the note about Income Tax payable on Profits state in the Definitions?
a) Income Tax is included in standing charges and can be insured separately
b) Income Tax payable on the Profits is included in net profit under this definition and hence need not be insured separately - Property tax can be defined as standing charge
c) Income Tax must be separately insured under an additional policy
d) Income Tax is excluded from all calculations under Loss of Profit policy
e) Income Tax is deducted from the claim payment after settlement
6. What is Past Claim History as an underwriting factor?
a) Past claims history is not relevant to underwriting decisions
b) Past claims history only applies to motor insurance
c) Past claims history is always forgiven after 3 years
d) Past claims history is always covered by government guarantees
e) If the business is known to have an adverse claim history in the past the underwriters may either reject the proposal or make suitable amendments to the policy or charge higher premium to minimise their liability
7. What example of external risk related to a chimney is given in Chapter 3?
a) A chimney at the insured premises is an internal risk
b) A chimney always causes explosions
c) A Unit near Chimney is more at risk of loss on account of chimney falling than the same unit if it was located away from the chimney - demonstrating external risk from surroundings
d) A chimney increases the premium by 50%
e) A chimney is never considered in underwriting
8. Which exclusion under the MLOP policy deals specifically with government restrictions?
a) The policy excludes losses due to government price controls
b) Any restrictions on reconstruction or operation imposed by any public authority are excluded from the MLOP policy coverage
c) Government-mandated shutdowns are covered if they follow a machinery breakdown
d) Regulatory penalties are covered as a standing charge
e) Government import restrictions on spare parts are covered under loss minimization
9. What is the rate of premium charged for the Auditor's Fees extension in the CL policy?
a) 25% of the basic rate
b) 50% of the basic rate
c) 75% of the basic rate
d) Same as the basic rate
e) 100% of the basic rate
10. What are the three underwriting alternatives?
a) Accept Reject or Transfer
b) Reject Modify or Review
c) Accept the submission as is; Reject the submission; Make a counteroffer to accept the submission subject to certain modifications
d) Approve Deny or Defer
e) Accept Renegotiate or Cancel
