Part 1: Risk and Insurance
Paper I — Principles and Practice of Insurance · Part 1: Risk and Insurance
Further reading: Risk and Insurance study notes →
Q1 Free
Which of the following statements about Definition of Risk are correct? I. The uncertainty concerning a potential loss II. The certainty of a certain type of loss III. The outcome of speculative financial activities
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Correct Answer: D
- According to the syllabus, 'risk' is defined as 'uncertainty concerning a potential loss' — we cannot be sure whether a loss will occur or how much will be lost.
- Statement II (certainty of a certain loss) is wrong because risk is about uncertainty, not certainty.
- Statement III (outcome of speculative financial activities) only describes one type of activity, not the general definition of risk; only Statement I is correct, so the answer is D.
Q2 Free
Which of the following types of potential loss is generally NOT considered a commercially insurable risk?
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Correct Answer: C
- The syllabus clearly states that only financial and physical losses are likely to be commercially insurable risks.
- Emotional losses such as grief and sorrow cannot be measured in monetary terms and are therefore not commercially insurable.
- Options A, B and D all represent losses measurable in monetary terms and are thus insurable.
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