BCP General Insurance Principles 1 — Questions and Answers
Question 1: What is the principle of indemnity in general insurance?
- The insured profits from an insurance claim
- The insured is restored to the same financial position as before the loss (Correct answer)
- The insurer always pays the full sum insured
- The insured receives double the loss amount
Correct answer: The insured is restored to the same financial position as before the loss
The principle of indemnity ensures the insured is restored to the same financial position they were in immediately before the loss — no better, no worse. This prevents profiting from insurance.
Question 2: What is subrogation in insurance?
- The transfer of a policy to another person
- The insurer's right to pursue a third party after paying a claim (Correct answer)
- The substitution of one insurer for another
- The cancellation of a policy mid-term
Correct answer: The insurer's right to pursue a third party after paying a claim
Subrogation is the insurer's right, after paying a claim, to step into the insured's shoes and pursue recovery from any third party legally responsible for the loss.
Question 3: What does 'proximate cause' mean in insurance claims assessment?
- The most distant cause of a loss
- The dominant and most effective cause of a loss (Correct answer)
- The first cause in a chain of events
- The last event before a loss
Correct answer: The dominant and most effective cause of a loss
Proximate cause is the dominant, effective, or real cause of a loss — not necessarily the first or last in a chain of events. Insurers use this principle to determine whether a loss is covered.
Question 4: Which principle prevents an insured from claiming more than the actual loss suffered?
- Subrogation
- Indemnity (Correct answer)
- Contribution
- Utmost good faith
Correct answer: Indemnity
The principle of indemnity prevents an insured from profiting from an insurance claim by limiting recovery to the actual financial loss suffered, no more.
Question 5: When two or more insurers cover the same risk, the principle of contribution ensures:
- The insured collects from all policies fully
- Each insurer pays a rateable proportion of the loss (Correct answer)
- Only the first insurer to be notified pays
- The insurer with the highest limit pays first
Correct answer: Each insurer pays a rateable proportion of the loss
The principle of contribution ensures that when multiple policies cover the same risk, each insurer pays a rateable proportion of the loss, preventing the insured from recovering more than the actual loss.
Question 6: What is an 'excess' (also called deductible) in a general insurance policy?
- The additional premium charged for high-risk items
- The first portion of a claim the insured must bear themselves (Correct answer)
- The maximum amount the insurer will pay
- The amount refunded if no claims are made
Correct answer: The first portion of a claim the insured must bear themselves
An excess or deductible is the first portion of each claim that the insured must bear. It reduces the insurer's payout and encourages the insured to take care to avoid losses.
BCP General Insurance Principles 1
What is the principle of indemnity in general insurance?