mf0018 b1816 answer key

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SIKKIM MANIPAL UNIVERSITY DDE

Master of Business Administration MBA Semester IV

MF0018 Insurance and Risk Management 4 Credits

BookID B1816

Time: 3 hours Max.Marks:140

Section A

ESSAY TYPE QUESTIONS (10 Marks each)[Please answer Any Fouressay type questions in a separate page answer sheet especially

provided for the purpose]

1. What do you understand by the term risk and uncertainty? Explain different types of risk

facing business and individuals. (Refer 1)

2. Identify the role of insurance in managing risk financing. Explain the importance of

insurance transaction. Discuss in different perspectives of insured and insurer.(Refer unit

2)

3. Explain the reasons that have been responsible for the privatization of the insurance

industry in the country. Identify the problems and prospects of public insurance

enterprises.(Refer unit 3)

4. Explain the creation and application of insurable interest. Give the differences between

wagering and insurance. (Refer unit 5)

Case Study

Cost-Focused Insurers Stop Renewing Group Life Covers

You just cant bank on your employer entirely to provide you a life insurance cover.

If the premium collection data released by the Insurance Regulatory and

Development Authority (IRDA) is any indication, corporates are pulling out of

group life insurance plans in a bid to contain costs, given the economic slowdown.

For the first half of this fiscal, total premium collection has come in at `46,963 crore

during the April-September period, down 4.2% from `49,046 crore last year. TheLife Insurance Corporation of India (LIC), which underwrites the biggest

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proportion of group business in the life space, saw a huge drop in premium

collection under group non-single premium categoryfrom `6,322 crore last year

to `765 crore. This pulled down the total industry group non-single premium

collection by a whopping 68% to `2,552 crore. Most companies are not renewing

their group policies due to cost constraints from general economic downtrend, said

a senior insurance industry official. Individual policies though are finding traction,

said a senior LIC official. Still, LICs overall premium collection was down 3.75%

at `35,342 crore. For private insurers, total premium collection was down 5.7%.

Private insurers are gaining from the non-single regular premium policies. Sales

from single premium policies have been deliberately lowered in the

last couple of quarters, said the chief actuary, Future Generali Life, hinting at

recent regulatory changes.Going forward, life insurers feel there will be a surge in

sales of individual non-single plans.

Questions

5. What are the primary reasons for the insurers having a negative opinion about

the group life insurance plans?

6. Why are private insurers giving a priority to non-single regular premium

policies?

Source: Adapted from a news item appearing in Daily News and Analysis , available at

http://www.dnaindia.com/money/report_cost-focused-insurers- stop-renewing-group-life-

covers_1759100 (Retrieved on 3 November 2012)

Section B

Multiple Choice Questions (MCQ)

[Please answer allthe following questions]

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.

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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

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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

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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. Nominationc. Transfer

d. Authentication

16. _______________ is given for a period of four and half months.

a. Inland fish insurance

b. Horticulture insurance

c. Aqua culture insuranced. Farmers' insurance

17. In ______________policy, assets are insured for a certain sum irrespective of its value.

a. Valued

b. Unvalued

c. Average

d. Specific

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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 coveraged. 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 policyc. 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

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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 testingc. 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

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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 weeksc. 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

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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 bondsd. 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. Insurerc. Reinsurer

d. Co-insurer

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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

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.

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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


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

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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 actd. 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


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1. Pricing new products is an important phase in product developmentprocess.

2. Competitionbased pricing is useful while pricing insurance products.

a. 1T, 2T

b. 1T, 2Fc. 1F, 2F

d. 1F, 2T

53. The GIC together with its _____________ subsidiaries has developed ___________

new products.

a. Four, 150

b. Six, 150c. 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

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57. The _____________ and _______________ advertisements are very expensive forms

of insurance marketing.

a. Television, Print

b. Block line , Onlinec. Television, Block lined. 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, 1990sc. 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

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.

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

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


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


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 1999D. The LIC (Amendment) bill 2009

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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 withoutunnecessary 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:

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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


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


First set:

A. Protects individuals or groups against personal accident or illness

B. Covers physicians visits, medical procedures etc.

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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 insurance2. Personal Accident insurance

3. Police records

4. Accident and health insurancea. 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


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 product4. Requires a formal market research

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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 f ield underwriting.

2. Taking and underwriting decisions. Confirmation3. 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


First set:

A. Claims settlement

B. Claims preparation

C. Claims philosophy

D. Claims processingSecond 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


First set

A. Schedule rating

B. Merit rating

C. Class rating

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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-4c. 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 f inancial 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


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.

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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


First set

A. Imaging and work-flow technologies

B. Data warehouseC. 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

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mf0018 b1816 answer key

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