INSURANCE INSTITUTE
FCIP PRACTICE TEST
CANADA 60 QUESTIONS
Question 1: A Canadian P&C insurer is evaluating how new provincial building-code requirements could a�ect property claims severity and underwriting appetite.Which strategic-analysis tool is most directly suited to classifying this external regulatory factor?
Choices:
1) PESTEL analysis 2) VRIO analysis 3) Value-chain analysis 4) BCG growth-share matrix
Correct Answer: PESTEL analysis
Explanation: PESTEL analysis is used to scan political, economic, social, technological, environmental, and legal forces in the external environment. Building-code requirements are primarily a legal/regulatory factor.Page 1
Question 2: An insurer owns a proprietary catastrophe-pricing model that improves risk selection. Competitors cannot easily copy it, but business units rarely use its output in underwriting decisions. Under the VRIO framework, what is the main barrier to sustained competitive advantage?
Choices:
1) The resource is not valuable 2) The �rm is not organized to capture the resource's value 3) The resource is not rare 4) The resource is too costly to imitate Correct Answer: The �rm is not organized to capture the resource's value Explanation: In VRIO, a valuable, rare, and di�cult-to-imitate resource creates sustained advantage only when the organization is structured and managed to exploit it. Poor integration into underwriting means the organization criterion is not met.Question 3: Which item is best classi�ed as intellectual capital for a P&C insurer?
Choices:
1) O�ce furniture at branch locations 2) Short-term government securities 3) A proprietary claims-fraud detection methodology and the employees who know how to use it 4) Unearned premium liabilities Correct Answer: A proprietary claims-fraud detection methodology and the employees who know how to use it Explanation: Intellectual capital includes knowledge-based assets such as employee expertise, processes, relationships, data capabilities, and proprietary methods. Furniture and securities are tangible or �nancial assets, while unearned premium is a liability.Page 2
Question 4: A commercial insurer deliberately narrows its target market to complex renewable-energy risks and competes through specialized underwriting expertise rather than low price. Which generic competitive strategy is it primarily using?
Choices:
1) Backward integration 2) Broad cost leadership 3) Unrelated diversi�cation 4) Focused di�erentiation
Correct Answer: Focused di�erentiation
Explanation: Focused di�erentiation serves a relatively narrow market segment with distinctive value that customers are willing to pay for. Specialized expertise in renewable-energy risks is a di�erentiation advantage within a focused segment.Question 5: A national insurer acquires a roadside-assistance company that serves many of the insurer's existing auto policyholders and can be bundled with current products. What is the strongest strategic rationale for this related diversi�cation?
Choices:
1) Creating economies of scope and cross-selling opportunities 2) Eliminating all underwriting risk 3) Guaranteeing lower regulatory capital 4) Avoiding the need for strategic control
Correct Answer: Creating economies of scope and cross-selling opportunities
Explanation: Related diversi�cation can create value when businesses share customers, capabilities, distribution, data, or activities. Bundling roadside assistance with auto insurance can generate economies of scope and cross-selling bene�ts.Page 3