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Cms 200 Risk Management And Insurance Question Paper
Cms 200 Risk Management And Insurance
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
UNIVERSITY EXAMINATIONS: 2011/2012
YEAR 2 EXAMINATION FOR THE BACHELOR OF COMMERCE
CMS 200 RISK MANAGEMENT AND INSURANCE (SATURDAY)
DATE: APRIL 2012 TIME: 2 HOURS
INSTRUCTIONS: Answer Question One and Any other Two Questions
QUESTION ONE
a) Olum has a fire policy covering the contents of his warehouse. One day, the warehouse is broken
into and considerable damage is suffered while a large amount of stock is stolen. Shortly
afterwards a storm occurs. More damage is caused as rain water is able to penetrate into the
warehouse due to previous damage caused by the thieves. The rainwater also short-circuits the
electrical system causing a fire which damages Olum’s goods housed in the warehouse. The fire
brigade cause more water damage to goods in extinguishing the fire.
Olum claims the following under his policy:
i) damage caused by the thieves
ii) value of stock stolen
iii) damage caused by the storm
iv) damage caused by the fire
v) damage caused by the fire brigade.
Advise Olum whether these claims are likely to be met, and explain the insurance principles which
may be considered by insurers in dealing with these claims [10 Marks]
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b) In what circumstances may a contract of insurance be terminated? [5 Marks]
c) Highlight any five limitations of insurance . [5 Marks]
d) Distinguish between life insurance and general insurance [4 Marks]
e) Give any SIX benefits of insurance [6 Marks]
QUESTION TWO
a) Define coinsurance and explain its importance to the insurance industry [5 Marks]
b) With the use of illustrations explain the working of the major reinsurance treaties in property and
liability insurance [15 Marks]
QUESTION THREE
a) Discuss the following type of general insurance
i) Property
ii) Third party
iii) Worker injury benefits
iv) Business risk [12 Marks]
b) Define the unearned premium reserve and briefly explain how it is calculated [4 Marks]
c) ABC Insurance Company Limited had an unearned premium reserve of Ksh 20 million at the end
of 2007. During 2008, it wrote Ksh 25million in annual premiums. At the end of 2008, its earned
premium reserve was Ksh23million. What were the earned premiums during 2008? [4 Marks]
QUESTION FOUR
a) Write short explanatory notes on the following
i) Fundamental and particular risk [4 Marks]
ii) Pure and speculative risk [4 Marks]
iii) Risk and uncertainty [4 Marks]
b) Discuss the considerations affecting the sum assured and the measure of indemnity where a
proposer for fire insurance reveals the following information
i) If the firm’s building were destroyed by fire it would be replaced by one of much lighter
construction at less than half the cost of exactly reinstating the existing building.
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ii) Certain process machines owned by the insured are obsolete, although working well.
New machines performing the same process are available but these are much more
efficient, being faster and less labour intensive than the machines currently used.
[8 Marks]
QUESTION FIVE
a) Explain any FOUR risk transfer strategies that a risk manager may employ in his risk management
job in the organization. [8 Marks]
b) Underwriting is an important function of insurers. Briefly discuss the services that aid life
insurance underwriters. [6 Marks]
c) Discuss how an insurance mechanism works, pointing out the relationship between the law of large
numbers and risk pools. [6 Marks]
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