PART ONE DIRECT QUESTIONS (ANSWER ONLY THREE)

1. Explain each of the following characteristics of a typical insurance plan.

A. Pooling of losses
B. Payment of fortuitous losses
C. Risk transfer
D. Indemnification
2. Compare the risks of (i) fire with (ii) war in terms of how well they meet the requirements of an ideally
insurable risk.
3. Describe briefly the following distribution systems in the marketing of property and casualty insurance.
A. Independent agency system
B. Exclusive agency system
C. Direct writer
D. Direct response system
4. What is the difference between peril and hazard? Define physical hazard, moral hazard, attitudinal
hazard, and legal hazard.

PART TWO APPLICATION QUESTIONS ANSWER ( TWO ONLY)

1. Ali owns a gun shop in a high crime area. The store does not have a camera surveillance system. The
high cost of burglary and theft insurance has substantially reduced his profits. A risk management
consultant points out that several methods other than insurance can be used to handle the burglary and
theft exposure.
a) Identify and explain two noninsurance methods that could be used to deal with the
burglary and theft exposure.
2. Private insurance provides numerous coverages that can be used to meet specific loss situations. For
each of the following situations, identify a private insurance coverage that would provide the desired
protection.
a) Amina, age 28, is a single parent with two dependent children. She wants to make certain
that funds are available for her children’s education if she dies before her youngest child
finishes college.
b) Hawa, age 16, recently obtained her driver’s license. Her parents want to make certain they
are protected if Danielle negligently injures another motorist while driving a family car.
c) Ahmed , age 30, is married with two dependents. He wants his income to continue if he
becomes totally disabled and unable to work.
 d) Raage, age 35, recently purchased a house for $200,000 that is located in an area where
tornadoes frequently occur. He wants to make certain that funds are available if the house is
damaged or destroyed by a tornado.
e) Ali , age 40, owns an upscale furniture store. Nathan wants to be protected if a customer is
injured while shopping in the store and sues him for the bodily injury.

3. Delta Insurance is a property insurer that entered into a surplus-share reinsurance treaty with Eversafe
Re. Delta has a retention limit of $200,000 on any single building, and up to nine lines of insurance
may be ceded to Eversafe Re. A building valued at $1,600,000 is insured with Delta. Shortly after the
policy was issued, a severe windstorm caused a $800,000 loss to the building.
a) How much of the loss will Delta pay?
b) How much of the loss will Eversafe Re pay?

PART THREE MULTIPLE CHOCE

1) A Pure Risk is defined as:

a) an event that offer no opportunity for financial gain
b) the chance a loss will occur
c) a diversifiable risk
d) a contingency that increases the chance of a loss
2) All the following are direct losses except:
a) a house is burglarized
b) a store loses $200,000 in sales because a fire closes it down for two weeks
c) a corporation must pay $1 million in ransom when its CEO is kidnapped
d) an delivery truck needs $15,000 in repairs after a collision
3) The function of an actuary is to
a) adjust claims.
b) determine premium rates.
c) negotiate reinsurance treaties.
d) invest insurance company assets.
4) Insurers obtain data which can be used to determine rates from
a) pricing pools
b) insurance advisory organizations.
c) banks.
d) reciprocal exchanges
5) Why is a large number of exposure units generally required for a risk to be insurable?
A) It prevents the insurer from losing money.
B) It guarantees that losses will be unintentional and measurable.
C) It enables the insurer to better predict the frequency and severity of losses (moderate).
D) It minimizes physical hazards.
6) Which of the following would not normally be identified in the risk management process?
A) Property exposures
B) Speculative exposures
 C) Indirect loss exposures
D) Operations exposures
7) The primary reason the insurance mechanism functions successfully is the:
A) existence of hazard risks
B) ease with which losses can be measured
C) predictability of losses via the law of large numbers
D) existence of many non-industrial nations
8) Which of the following statements about mutual insurers is true?
A) They are legally organized as partnerships.
B) They have a board of directors which is selected by state insurance departments.
C) They are owned by their stockholders.
D) They may pay dividends to their policyowners.
9) Why are some mutual insurers referred to as "assessment mutuals"?
A) They charge low premiums because the loss exposures of their insureds are thoroughly assessed
before a policy is written.
B) They are noted for being very thorough in their assessment of investment opportunities.
C) They are assessed for state premium taxes only if they make a profit.
D) They can assess policyowners if premiums are insufficient to pay losses and expenses
10) The underwriting process begins with the
a) agent.
b) desk underwriter.
c) inspection report.
d) acceptance of the application
11) Which of the following is not an example of a Catastrophic Loss Event?
a) tsunami of 26 December 2004 in Somalia
b) Death of Halimo Khalif Omar (Magool)
c) 14 October 2017, Zobe truck bomb took place in Mogadishu
d) 2019 massive floods that hit  in Baladwayne
12) Which of the following types of risks best meets the requirements for being insurable by private
insurers?
a) market risks
b) property risks
c) financial risks
d) political risks