Part 1: Risk and Insurance
Paper I — Principles and Practice of Insurance · Part 1: Risk and Insurance
Further reading: Risk and Insurance study notes →
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
Why: 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.
Which of the following types of potential loss is generally NOT considered a commercially insurable risk?
Why: 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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