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Insurance And Risk Management Question Paper
Insurance And Risk Management
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2011
UNIVERSITY EXAMINATIONS: 2010/2011
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CMS 200: INSURANCE AND RISK MANAGEMENT (D+E)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
Question One
a) Times have changed very much to the extent that average Kenyans are anxious on every aspects of
their life, the country is in a disaster mode, it is increasingly becoming difficult for the government
to provide fuel and food at affordable prices, basic education for all its citizens, insecurity is at all
time high.
i) In each of the above deficiencies outline how the country found itself in these precarious
sitituation. [6 Marks]
ii)Outline any THREE risks that such deficiencies pose to the country and techniques that you will
use to identify such risks. [8 Marks]
iii) As risk consultants, discuss any THREE ways the government should address the above
national challenges and restore the confidence of its citizens. [6 Marks]
b) The university librarian is considering the installation of a machine at the university library that will
help prevent theft of library books. The machine is to cost 6 million and will require an annual
maintenance cost of Ksh. 500,000. If installed the machine will prevent loss of books of Ksh.
1,500,000 on average annually. The expected useful life of the machine is ten years and is without
salvage value.
2
i) Establish whether the university library should install the machine given that the prevailing
risk free rate is 10%, tax rate is 30%, and the expected market return is 15% and beta is
0.99. [6 Marks]
ii) Establish whether the university library should install the machine given the above
information but with a beta of 0.01 [4 Marks
Question Two
Insurance coverage in the country is very low. Businesses and individuals are always counting losses
whenever disaster strikes.
a) Discuss the reasons that might have led to such a low insurance coverage in the country.
[10 Marks]
b) What are the ways that insurers should use to increase the penetration levels of insurance coverage
in the country? [10 Marks]
Question Three
a) Chief executive officers of companies in Kenya have a greater role on risk management than ever
before. Discuss TWO critical functions that they cannot delegate and must always undertake to
keep their organization afloat. [4 Marks]
b) Insurable interest is one of the insurance principles. Explain the circumstances that may give rise to
insurable interest. [6 Marks]
c) An intermediary is an agent who is authorized by the principal to bring the principal into a
contractual relationship with another third party. Briefly discuss the different intermediaries that
assist insurance companies market their products and services. [10 Marks]
Question Four
a) Identify and explain FIVE reasons why insurance is subject to regulation. [10 Marks]
b) Discuss the guiding principles that are applied when establishing risk classes. [10 Marks]
Question Five
a) Risk reduction is among the operational measures the manager could consider to help him manage
the risks in the organization. Explain the risk reduction measures that he could put in place to
manage these organization risks. [10 Marks]
b) Mr. Fernandez wants to effect an insurance cover but has not seen a policy document before. He
has approached you to advise him on the main components of the policy document. Advise him
appropriately. [10 Marks]
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