CYPRUS INSURANCE
INSTITUTE PVAK
PRACTICE EXAM 24
QUESTIONS
Question 1: A warehouse keeps �ammable cleaning solvents beside an unguarded space heater. Which insurance concept best describes the increased chance of loss created by this physical condition?
Choices:
1) Moral hazard 2) Physical hazard 3) Speculative risk 4) Fundamental risk
Correct Answer: Physical hazard
Explanation: A physical hazard is a tangible condition that increases the probability or severity of loss. Storing �ammable material beside an ignition source is a physical condition that increases �re risk.Page 1
Question 2: Which exposure most closely meets the characteristics of a risk that is normally suitable for insurance?
Choices:
1) A trader's chance of earning or losing money from currency speculation 2) A deliberate loss that the policyholder can cause whenever desired 3) Accidental �re losses a�ecting many similar homes and capable of being measured �nancially 4) A loss whose occurrence and �nancial size cannot be estimated at all Correct Answer: Accidental �re losses a�ecting many similar homes and capable of being measured �nancially Explanation: Insurable risks are generally fortuitous, capable of �nancial measurement, and supported by enough similar exposure units for loss experience to be estimated. Accidental residential �re losses �t those characteristics better than speculative, intentional, or unmeasurable losses.Question 3: An insurer writes a large commercial risk and then transfers part of its accepted liability to another insurer without creating a separate insurance contract between that second insurer and the policyholder. What arrangement is this?
Choices:
1) Self-insurance 2) Contribution 3) Coinsurance 4) Reinsurance
Correct Answer: Reinsurance
Explanation: Reinsurance is insurance purchased by an insurer to transfer part of the risk it has accepted. The original policyholder remains insured by the original insurer and normally has no direct contract with the reinsurer.Page 2
Question 4: A property insurance applicant knows that the building's sprinkler
system has been out of service for several months but fails to disclose this when speci�cally asked about �re protection. Which principle is most directly involved?
Choices:
1) Utmost good faith and disclosure of material facts 2) Contribution 3) Subrogation 4) Abandonment
Correct Answer: Utmost good faith and disclosure of material facts
Explanation: A non-functioning sprinkler system can materially a�ect an insurer's assessment of a property risk. Insurance applicants must answer material questions truthfully and provide required material information; deliberate or material non-disclosure can a�ect the contract and claim outcome.
Question 5: A covered windstorm tears part of a warehouse roof away, and rain
immediately enters through the opening and damages stock. No new independent excluded event intervenes. Which principle is used to identify the e�ective cause of the stock damage?
Choices:
1) Insurable interest 2) Proximate cause 3) Contribution 4) Average
Correct Answer: Proximate cause
Explanation: Proximate cause identi�es the dominant, e�ective cause of a loss. Where the covered windstorm sets an unbroken chain of events in motion and rain damage follows directly through the storm-created opening, the causal analysis focuses on that e�ective cause.Page 3