S-08- Loss of Profits Insurance Mock Test 19
Underwriting is a key insurance function involving risk assessment, pricing, classification, and selection of risks. Business interruption insurance covers consequential losses arising from interruption after insured physical damage. DSU/ALOP insurance protects project revenue against delays in start-up and may cover reasonable increased costs to reduce loss of turnover. Reinsurance provides additional security and solvency support, with facultative reinsurance used for risks outside treaty capacity. Pre-insurance inspections assist in identifying difficult risks. Variable expenses, standing charges, indemnity periods, and maximum liability are important in claim assessment. Material damage insurance supports restoration, helping reduce prolonged business interruption. Historical developments have significantly shaped modern consequential loss insurance.
1. Under the Increased Cost of Working provision in a DSU policy, what does the insurer pay for and what is the limit?
A) All additional expenses incurred during the indemnity period
B) The DSU policy shall pay the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in turnover which, without such expenditure, would have occurred after the time excess. The indemnity, however, shall not exceed the amount of loss of interest insured thereby avoided
C) Only the direct repair costs of physical damage
D) Only the salaries of additional staff hired during delays
E) Increased costs of raw materials during the delay period
2. In Case Study 13, what was the Maximum Liability of the Insurers?
A) Rs. 4,00,00,000
B) Rs. 4,50,00,000
C) Rs. 5,00,00,000
D) Rs. 5,32,58,630.14
E) Rs. 6,00,00,000
3. What is the overall significance of underwriting to the insurance industry according to Chapter 3?
A) Underwriting continues as a key function in the financial world in general and insurance industry in particular - it involves risk assessment and pricing to maintain a profitable book of business while ensuring claims are paid
B) Underwriting is only important for profitability
C) Underwriting is only important for claims management
D) Underwriting is only important for marketing
E) Underwriting is only important for regulatory compliance
4. Which company was the first insurance company in India to offer Delay in Start-up Insurance or ALOP Insurance to customers?
A) Life Insurance Corporation of India
B) New India Assurance Company
C) United India Insurance Company
D) Oriental Insurance Company
E) National Insurance Company
5. What does the pre-insurance risk inspection help underwriters accomplish?
A) Pre-insurance inspection is mandatory for all properties
B) Pre-insurance inspection only applies to very large risks
C) Pre-insurance inspection only applies to industrial risks
D) Pre-insurance inspection is conducted by the government only
E) In cases where nature of business is difficult to determine underwriters depend upon Pre Insurance Risk inspection to identify the nature of business and risk involved - although this aspect is very unexplored and unexploited by Indian insurers
6. Approximately how many years ago did the concept of covering Consequential Losses start in Europe?
A) 100 years ago
B) 150 years ago
C) 200 years ago
D) 250 years ago
E) 50 years ago
7. When would facultative reinsurance be used as a modification?
A) When the applicant requests additional coverage
B) When the premium is too low to be profitable
C) When the claims history is poor
D) If the applicant is in a class of business not covered by the underwriters reinsurance treaty or if the amount of insurance needed exceeds net treaty capacity the underwriter might be able to transfer a portion of the liability to a facultative reinsurer
E) When the policy needs to be renewed early
8. Who is known as the UK model developer for Business Interruption Insurance, described as one of the most innovative and influential insurance brokers of his day?
A) Ludovio MacLellan Mann
B) John Hay Lloyd
C) Cuthbert Eden Heath
D) Dalton
E) Steve Haase
9. In Case Study 9, what treatment applies to Variable Expenses in the Hydro power generation claim?
A) Variable expenses are a major portion and must be deducted
B) In Hydro power generation there are no major variable expenses incurred by the insured for obtaining the generation. Hence the claim of the insured would mainly consist of loss of turnover less variable expense, if any, less excess as per the policy for 7 days of gross profit
C) Variable expenses include fuel and maintenance costs
D) Water charges are the primary variable expense
E) Labour charges are variable and must be separately calculated
10. What is the THIRD reason for including the Material Damage Proviso?
A) To allow subrogation rights to the consequential loss insurer
B) The existence of the material damage insurance ensures that the damaged property will be restored with the amount of loss paid there under - in the absence of such material damage insurance the restoration of the damaged property will be delayed prolonging the business interruption
C) To give the insurer right to cancel the policy at any time
D) To allow the insurer to appoint a loss assessor
E) To ensure the premium is sufficient for the coverage
