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1. Insurance Management
Examination Paper MM.100
Risk Management and Insurance
Section A: Objective Type (30 marks)
Part One:
Multiple Choices:
1. HMOs charge employers a monthly fee called:
a. A coverage fee
b. The pro rata plan fee
c. The subrogation payment
d. The capitation payment
2. Which of the following alternatives is not a typical dividend option?
a. Cash
b. A lifetime income annuity
c. Reduction of the next premium
d. Accumulation of the next premium
3. Choose the True statement about industrial life insurance.
a. It is less expensive than ordinary life insurance
b. It is more expensive than ordinary life insurance
c. It is also called discount life insurance
d. It is widely used in estate plans
4. Replacement cost at the time of loss less depreciation is the definition of:
a. Actual cash value
b. Fair market value
c. The maximum covered loss
d. The maximum replacement of loss
5. Assets that are readily available to pay claims are called:
a. Admitted assets
b. Accepted assets
c. Real assets
d. Standard operating assets
6. Stare demises means:
a. All things considered
b. Innocent parties prevail
c. It is impolite to stare
d. To stand by decisions
7. In most states the insurance commission is:
a. Impeached

2. b. Elected
c. Appointed by the government
d. Appointed by the governor
8. The federal law that promotes a safe working environment for workers is:
a. OSHA
b. CERCLA
c. Equal Opportunities Act
d. Superfund
9. The organization that collects data on insurance applicants is the:
a. CBS
b. MIB
c. CIA
d. FCAS
10. The percent of uninsured Americans in 2001 was about:
a. 14 percent
b. 2 percent
c. 4 percent
d. 10 percent
Part Two:
1. What are Moral and Morale hazards?
ANS :
Morale hazard:
An attitude that increases the probability of loss from a peril. In insurance context, the
attitude of insured; Attitude of insured to think “Its insured so why should I worry
about safety of my house/property/own health. If anything goes wrong, insurer is there
to indemnify me. So, Why should I worry about safety?” is an example of a morale
hazard. Insured with this kind of attitude tend to act carelessly. Insurance companies
often try to stem the problem of morale hazard by risk reduction measures, such as
insisting on the ownership of fire extinguishers (in the case of fire insurance), or
offering price reductions (for example, if a burglar alarm is installed in a home).
Refers to individual’s Carelessness – Ex ample – Rash driving after getting auto
insurance or keeping doors open after purchasing a insurance for house.
Moral hazard:
A condition of morals or habits that increase the probability of a loss from a peril.
This hazard to an insurance company resulting from uncertainty about the honesty of

3. the insured. Ex ample – Insured giving false information to insurer to get or to purpose
an insurance policy in favour of Insured or raising a claim with exaggerated loss.
2. What do you understand by ‘Subsidization’?
ANS :
Having partial financial support from public funds.
3. What are ‘Waiver’ & ‘Estoppel’?
ANS :
Waiver And Estoppel are Insurance companies.
4. Write a short note on ‘Patient’s bill ofrights.
ANS :
 provide health professionals with full and accurate information relating to
their health and the public health services they have received;
 cooperate with health professionals and to either follow their advice or
indicate when they have not done so; and
 exercise due economy in using health services.
The rights pertaining to the public health care system found in clause 3 of the bill
provide that all Canadians would have the right to “national collaboration between
governments” to assure:
(a) a good-quality, dependable and accessible national system of health care;
(b) a system of health care that is transferable and generally uniform across
Canada;
(c) the minimum amount of overlap and duplication in public health services
between different governments;
(d) consistency in development of public health services between different
governments resulting in consistency in the timing of development of services and
innovation; and

4. (e) regular consultation with the public about public health services in a forum
that is public, open and gives a reasonable opportunity to present views to
representatives of government, the House of Commons or a legislative assembly,
and the medical profession.
Clause 4 of the bill outlines a substantial list of personal (individual) rights for
users of the public health care system, including:
(a) the right to be fully informed about one’s medical condition;
(b) the right to be advised of the available treatment options;
(c) the right to be involved in treatment decisions;
(d) the right to information on the qualifications and experience of the health
professionals from whom services are received;
(e) the right to receive considerate, compassionate and respectful public health
services;
(f) the right to confidential communications with health professionals;
(g) the right to have access to and copies of personal health records and to have
them corrected, if necessary;
(h) the right to have health records kept confidential and not used for any purpose
other than public health services without written consent;
(i) the right to designate a person to exercise rights on the patient’s behalf if the
patient is not able to do so because of a physical or mental incapacity; and
(j) the right to be informed of all rights and responsibilities under the bill and
under other laws of Canada or a province with respect to public health services.
END OF SECTION A
Section B: Caselets (40 marks)
Caselet 1
Vacancy Clause
The Roberts family owned a house in Alabama. It was insured with a fire insurance
policy issued by the Sparkler Mutual Insurance Company. On April 1, the Roberts
moved to Tennessee. Their son, Bob, remained in the Alabama home for an additional
month. Thereafter, the home was rented to a tenant who lived in the home for the

5. month of May. Mr. Roberts returned to the home irregularly, remaining overnight on
July 4 and on a few other occasions. A few pieces of furniture remained in the home
until August. On or about August 4, the home and its contents were destroyed by fire.
Questions:
1. Do you think that Sparkler Mutual should pay for the loss? Explain your reasons.
2. Did the family’s absence affect the chance of loss in this case?
Caselet 2
Case for Discussion
Ed “Bonzo” Jones was a college student. He played outfielder on his fraternity’s
softball team. A home run was hit, and the ball went into an area of electrical
transformers operated by the local utility, Total Power and Light Company. The
electrical transformers were surrounded by a 5-foot wire fence that Jones claimed to
retrieve the ball. Warnings signs were posted by the utility indicating the area was
dangerous. It was later determined the gate to the area was left unlocked, although
Jones did not use it to gain access. In retrieving the ball, Jones made contact with
some equipment and was severely burned by the electrically. He was hospitalized for
three months and suffered permanent disfigurement. His medical bills amounted to
$300,000.
Questions:
1. What arguments would you make if you were planning the legal defense of Total
Power and Light Company?
2. If you were on the jury in this case, would you award a judgment for damages to
Jones? Explain your reasons.
END OF SECTION B
Section C: Applied Theory (30 marks)
1. If you were a large business with $ 10 million of property, would you want your
primary insurer to purchase reinsurance? Explain your reasons. Would you prefer to
deal with a small primary insurer who reinsured your risk or a large primary unsure
who did not purchase reinsurance?
2. Do you think a college education is necessary to perform the following occupations
effectively?
a. Life insurance agent
b. Loss adjuster
c. Property insurance underwriter

6. d. Actuary
END OF SECTION C