Life, Health, and General Insurance

Chapter 1
Insurance Foundations and Industry Structure

Post Graduate In Insurance Management
Life, Health, and General Insurance • Post Graduate

1. Insurance Foundations and Industry Structure

Introduction and Context

Insurance is a financial and social institution for managing the economic consequences of uncertain events. A household may face premature death, illness, disability, accident, theft, fire, or damage to property. A business may suffer interruption, liability claims, cyber incidents, machinery breakdown, or the loss of key personnel. These events differ in frequency, severity, and controllability, but they share one feature: their consequences may be financially disruptive even when their occurrence is not certain.

Insurance does not eliminate risk. Rather, it transfers specified financial consequences from an individual or organization to an insurer in exchange for a premium. The insurer accepts many similar risks, combines them into a portfolio, and uses statistical regularities to pay the losses of the relatively few members who suffer insured events. This arrangement depends upon legal principles, actuarial analysis, underwriting discipline, claims administration, financial strength, and public regulation.

For a postgraduate student of insurance management, it is insufficient to regard insurance as merely a contract of protection. Insurance is also a mechanism of capital formation, risk distribution, social security, business continuity, and economic development. Its operation involves insurers, policyholders, beneficiaries, intermediaries, reinsurers, regulators, actuaries, surveyors, claims professionals, technology providers, and investors. Understanding the foundations of insurance is therefore essential before studying product design, underwriting, claims, solvency, distribution, or insurance strategy.

Learning Objectives

After studying this chapter, the learner should be able to:

1. Distinguish risk from uncertainty and explain the economic purpose of insurance.

2. Explain risk pooling, diversification, insurability, and the role of actuarial information.

3. Interpret the principles of indemnity, utmost good faith, insurable interest, proximate cause, contribution, and subrogation.

4. Differentiate life, health, and general insurance in terms of subject matter, benefits, duration, underwriting, and claims.

5. Describe the roles of insurers, intermediaries, reinsurers, regulators, and other market participants.

6. Analyze major insurance market structures and their managerial implications.

7. Apply foundational principles to practical insurance and claims situations.

8. Recognize ethical, regulatory, technological, and emerging issues affecting insurance markets.

From Individual Exposure to Collective Protection

Risk, peril, hazard, and uncertainty

Risk is commonly understood as the possibility of an adverse outcome. In insurance, the term has a more precise meaning: it generally refers to uncertainty concerning the occurrence, timing, or severity of a loss. A peril is the immediate cause of loss, such as fire, collision, illness, or death. A hazard is a condition that increases the probability or severity of a peril.

Hazards may be physical, moral, or morale-related. A defective electrical system is a physical hazard. Deliberately setting fire to insured property is a moral hazard. Carelessness arising because a person feels protected by insurance is often described as morale hazard. These distinctions matter because underwriting seeks to assess the underlying conditions that influence expected claims, not merely the named peril.

Risk may be classified in several ways. Pure risk involves only the possibility of loss or no loss, as in illness or fire. Speculative risk involves the possibility of gain or loss, as in investment or commercial trading; it is generally not directly insurable. Fundamental risks affect large sections of society, such as war, inflation, or widespread unemployment, whereas particular risks affect individuals or limited groups. Static risks arise from relatively stable conditions, while dynamic risks are associated with economic, technological, or social change.

Uncertainty is broader than risk. Risk can often be estimated using historical data and probability models. Uncertainty exists where relevant outcomes, probabilities, or causal relationships are poorly known. Insurance works most effectively where uncertainty can be converted into measurable risk through sufficiently reliable information and a sufficiently large portfolio.

Pooling and the law of large numbers

The central economic logic of insurance is pooling. Suppose a large number of policyholders face broadly similar independent exposures. The insurer collects premiums from the pool and pays claims to those who experience insured losses. While the outcome for one individual may be highly uncertain, the aggregate number of claims may become more predictable as the portfolio grows.

This principle is related to the law of large numbers. It does not mean that every large portfolio is automatically profitable. The risks must be appropriately classified, exposure data must be credible, policy terms must be controlled, and extreme correlations must be recognized. A portfolio containing properties all exposed to the same flood may be large in number but highly concentrated in geographic risk. Pooling therefore requires both quantity and quality of exposure.

The premium charged by an insurer normally reflects expected claims, expenses, commissions, risk margins, taxes, capital costs, and the insurer’s commercial objectives. Actuaries use statistical models, experience data, assumptions, and judgment to estimate these components. Underwriters then assess whether individual risks fit the insurer’s acceptance criteria and whether the portfolio remains balanced.

Insurability

Not every risk is suitable for insurance. The traditional characteristics of an insurable risk include:

The loss should be accidental or at least fortuitous from the policyholder’s perspective.
The loss should be capable of financial measurement.
There should be a sufficiently large number of similar exposures for estimation.
The probability and severity of loss should be reasonably estimable.
The premium should be economically feasible for the customer and adequate for the insurer.
The risk should not involve an unacceptable level of intentional or fraudulent behavior.
The loss should not be so widespread or correlated that it threatens the insurer’s solvency, unless supported by special arrangements such as reinsurance or government participation.

These are not absolute rules. Some risks that were previously difficult to insure, such as cyber or pandemic-related exposures, may become more insurable as data, modeling, policy design, and public-private arrangements develop. Conversely, climate change may make certain geographic risks more difficult to price or insure on conventional terms.

The Legal Architecture of Insurance

Insurance contracts are governed by general contract law, insurance legislation, judicial decisions, regulatory rules, and the wording of the individual policy. Certain principles are especially important because they distinguish insurance from ordinary commercial contracts.

Indemnity

The principle of indemnity seeks to place the insured, after a covered loss, in approximately the same financial position occupied immediately before the loss, subject to the policy terms. It prevents insurance from becoming a source of profit from loss. If a building worth 10 million monetary units suffers covered damage of 2 million, the insured should generally receive compensation for the valid loss, not an amount exceeding it.

Indemnity is most directly associated with property and liability insurance. It is qualified by deductibles, limits, exclusions, depreciation, underinsurance provisions, and policy conditions. It does not operate in the same way in life insurance because human life does not have a precisely measurable market value. A life policy therefore normally pays an agreed sum assured upon the occurrence of the insured event. Certain health policies also pay fixed benefits, such as a specified amount for hospitalization or critical illness, rather than reimbursing the exact economic loss.

Utmost good faith

Insurance depends upon information that is often primarily known by the applicant. The principle of utmost good faith requires the parties, particularly the proposer, to disclose material facts and avoid material misrepresentation. A material fact is one that would influence the judgment of a prudent insurer in deciding whether to accept the risk, determining the premium, or imposing terms.

The duty operates during proposal and may continue through changes in the contract, renewal, and claims processes, depending on applicable law. The insurer also has obligations: policy wording must be clear, representations must be accurate, and claims must be handled fairly. Modern consumer protection regimes increasingly regulate how disclosure questions are asked and how insurers respond to incomplete information. The principle should not be used as a technical device to reject legitimate claims for irrelevant omissions.

Insurable interest

Insurable interest exists when a person would suffer a legally recognized financial or other legitimate interest from the occurrence of the insured event. It prevents wagering contracts and limits insurance to genuine relationships with the subject matter.

A person generally has insurable interest in their own life and property. A creditor may have an interest in the life of a borrower, usually limited to the outstanding debt and subject to legal requirements. An owner has an interest in property, while a business may have an interest in a key employee. In property insurance, insurable interest commonly must exist at the time of loss. In life insurance, the relevant legal requirement may be assessed at the commencement of the contract, depending on the jurisdiction and product.

Proximate cause

When a loss results from a chain of events, the insurer must determine the proximate cause. Proximate cause is not necessarily the event nearest in time; it is the dominant, effective, or legally relevant cause of the loss. If an insured peril initiates an unbroken chain leading to damage, the loss may be covered. If an excluded peril is the operative cause, the claim may fail even though a covered event appears somewhere in the sequence.

Consider a storm that damages a roof, allowing water to enter and destroy stock. The storm may be the proximate cause. If poor maintenance allowed long-term seepage and the policy excludes gradual deterioration, the analysis may differ. Claims assessment therefore requires careful examination of facts, policy wording, causation, and applicable legal interpretation.

Contribution

Contribution applies when the same subject matter and interest are insured against the same peril under more than one policy. It prevents the insured from recovering more than the actual indemnifiable loss while distributing responsibility among insurers. An insurer that pays more than its proper share may seek contribution from other insurers.

Contribution does not generally apply to ordinary life insurance, where each policy pays its agreed benefit. It is more relevant to overlapping property, health reimbursement, and liability covers, subject to policy terms and local law. The insured must normally disclose other insurance where required, because undisclosed duplication can complicate claims and create opportunities for fraud.

Subrogation

Subrogation allows an insurer that has indemnified the insured to assume the insured’s rights against a responsible third party, to the extent of the payment. For example, if an insurer pays for damage caused by a negligent contractor, it may pursue recovery from that contractor. Subrogation prevents the insured from recovering twice and places the ultimate cost on the party responsible for the loss.

Subrogation is generally associated with indemnity insurance and does not operate in the same manner for life insurance. The insured must not deliberately prejudice the insurer’s recovery rights. Insurers often use investigation, salvage, legal recovery, and negotiated settlement as part of subrogation management.

Life, Health, and General Insurance Compared

Life insurance primarily addresses mortality, longevity, and sometimes disability or critical illness. Its contracts may be term-based, whole-life, endowment, unit-linked, annuity-based, or otherwise structured according to the product design. The benefit is typically a predetermined amount or formula. Underwriting considers age, health, occupation, lifestyle, medical history, financial justification, and policy duration. Long-term assumptions about mortality, expenses, investment returns, lapses, and interest rates are central to pricing and reserving.

Health insurance protects against medical expenses, income loss, or specified health events. Products may reimburse hospitalization costs, pay fixed daily or critical illness benefits, cover outpatient treatment, or provide managed-care arrangements. Health insurance faces distinctive issues such as medical inflation, provider behavior, moral hazard, adverse selection, pre-existing conditions, fraud, waiting periods, and rapidly changing medical technology. Claims may require coordination among insurers, hospitals, third-party administrators, doctors, and policyholders.

General insurance, also called non-life insurance in many markets, covers property, motor, marine, aviation, engineering, agriculture, liability, travel, commercial interruption, and other risks. Contracts are commonly annual, although some covers have different durations. Underwriting depends on construction, location, usage, safety systems, claims experience, legal liability, catastrophe exposure, and other characteristics. Claims are usually indemnity-based, though fixed-benefit and agreed-value products also exist.

The following comparison is useful:

|---|---|---|---|

| Key management concerns | Reserves, persistency, solvency, asset-liability matching | Provider networks, utilization, fraud, medical costs | Pricing cycles, catastrophe accumulation, claims severity |

The distinctions are analytical rather than absolute. A life policy may include health riders; health insurance may pay fixed benefits; general insurance may include long-tail liability claims extending over many years. Product classification must therefore consider both legal form and economic function.

The Insurance Industry as an Institutional System

Insurers

An insurer designs products, assesses risks, collects premiums, invests funds, manages reserves, administers policies, investigates claims, and pays valid benefits. It must balance growth with underwriting quality and maintain sufficient capital to meet obligations under adverse conditions. Functional areas typically include actuarial, underwriting, claims, finance, investments, risk management, compliance, distribution, operations, information technology, and customer service.

The insurer’s business model involves an underwriting cycle and an investment function. Premiums may be received before claims are paid, creating investable funds. However, investment income cannot justify persistently inadequate pricing, particularly where liabilities are uncertain or claims are long-tailed. Governance must ensure that commercial incentives do not override policyholder protection.

Intermediaries and service providers

Agents generally represent or distribute products for one or more insurers according to the legal framework. Brokers commonly act for customers in arranging insurance and may advise on coverage, market alternatives, placement, and claims support. Bancassurance distributes insurance through banking channels. Digital platforms, comparison services, embedded insurance providers, and affinity organizations are additional channels.

Other participants include surveyors and loss adjusters, third-party administrators, medical examiners, actuaries, legal advisers, repair networks, investigators, and technology vendors. Their roles affect customer experience and claims outcomes. Intermediary remuneration, conflicts of interest, advice quality, data use, and disclosure are central governance concerns.

Reinsurers

Reinsurance is insurance purchased by an insurer. It allows a primary insurer to transfer part of its risk, stabilize results, increase underwriting capacity, protect capital, and obtain specialist expertise. Proportional reinsurance shares premiums and losses according to an agreed percentage. Non-proportional arrangements, such as excess-of-loss reinsurance, respond when losses exceed a specified retention.

Reinsurance may be facultative, covering an individual risk, or treaty-based, covering a defined portfolio. It does not remove the primary insurer’s responsibility to its policyholder. The insurer remains exposed to reinsurer default, contract interpretation disputes, basis risk, and the possibility that reinsurance protection is insufficient.

Regulators and professional institutions

Insurance regulation seeks to protect policyholders, preserve market confidence, promote fair competition, prevent financial crime, and support orderly market development. Regulators may license insurers and intermediaries, prescribe solvency standards, review products, monitor conduct, regulate investments, require disclosures, supervise claims practices, and intervene in failing institutions.

A modern regulatory approach often combines prudential supervision with market-conduct supervision. Prudential regulation asks whether an insurer can meet its obligations. Conduct regulation asks whether customers are treated fairly before, during, and after the sale. Professional bodies and standard-setting institutions also influence actuarial practice, accounting, risk management, governance, and reporting.

Market Structures and Strategic Implications

Insurance markets may be analyzed by ownership, distribution, product, geography, and competitive structure. Stock insurers are owned by shareholders and generally seek returns on capital. Mutual insurers are owned by policyholders, although organizational forms vary across jurisdictions. Public or state-owned insurers may pursue commercial and public policy objectives. Cooperative and community-based arrangements emphasize member interests.

Markets may be centralized or fragmented, highly regulated or relatively open, and dominated by a few large firms or populated by many specialized providers. Barriers to entry include capital requirements, licensing, brand trust, actuarial capability, distribution access, data, technology, and claims infrastructure. Economies of scale matter in administration and technology, while specialization enables niche underwriting.

The market structure influences managerial decisions. In a concentrated market, scale, brand, and regulatory capability may be decisive, but competition authorities may scrutinize market power. In a fragmented market, brokers and digital platforms may improve comparison but also intensify price competition. In emerging markets, low insurance penetration may create growth opportunities while financial literacy, affordability, trust, and informal risk-sharing practices remain important constraints.

An Illustrative Case: Fire, Multiple Policies, and Recovery Rights

Background

A manufacturing company insures its warehouse under a property policy with Insurer A. It later obtains a second policy covering substantially the same stock and peril from Insurer B without clearly informing either insurer. The warehouse is damaged by a fire caused by an electrical contractor’s negligent installation.

Situation and problem

The verified loss is 8 million monetary units. The policy with Insurer A has a limit of 10 million, while the policy with Insurer B has a limit of 6 million. The company seeks the full 8 million from both insurers and also considers suing the contractor.

Analysis

The claim first requires analysis of coverage and proximate cause. If the fire is an insured peril and no exclusion applies, the loss is potentially covered. The indemnity principle prevents recovery exceeding the actual loss. Because two policies cover the same interest and peril, contribution may apply. The insurers will determine their respective shares according to policy terms and applicable law; the company cannot profit from duplicate insurance.

After paying its share, an insurer may exercise subrogation against the negligent contractor. The company must cooperate and must not release the contractor in a way that prejudices the insurers’ recovery rights. The insurer’s subrogation recovery is limited by the amount paid, and any remaining recovery may belong to the insured to the extent of its uninsured loss or deductible.

The undisclosed second policy may create a separate issue concerning utmost good faith and policy conditions. Whether it affects validity depends on the significance of the non-disclosure, the wording, and governing law. It should not automatically be assumed that every administrative omission justifies rejection of an otherwise valid claim.

Approach and outcome

A sound claims approach would involve site investigation, verification of ownership and stock values, examination of electrical records, review of both policy wordings, assessment of underinsurance and deductibles, and coordination between insurers. The insurers would agree the indemnifiable amount and contribution mechanism, then separately pursue the contractor if evidence supports negligence.

Learning points

The case demonstrates that indemnity, contribution, subrogation, proximate cause, and utmost good faith are interrelated. It also shows why risk managers should maintain a complete insurance register, disclose overlapping policies, preserve evidence, and coordinate claims promptly.

Operational, Ethical, and Regulatory Challenges

Insurance managers must address adverse selection, moral hazard, fraud, information asymmetry, underinsurance, accumulation of catastrophe exposures, inflation, climate-related losses, cyber threats, and third-party dependency. Poor data can produce discriminatory or unstable pricing. Excessively broad exclusions can undermine the value of coverage, while overly generous terms can create unsustainable claims costs.

Ethically, insurers should provide clear information, avoid misleading sales practices, protect personal and medical data, investigate claims fairly, and explain adverse decisions. Automated underwriting and claims systems must be tested for bias, accuracy, explainability, and security. Human oversight remains necessary when decisions significantly affect health, livelihood, or family security.

Regulatory compliance should not be treated as a checklist separate from management. Licensing, solvency, capital adequacy, anti-money-laundering controls, data protection, complaint handling, outsourcing oversight, and financial reporting are components of responsible enterprise governance. Boards and senior managers are accountable for risk culture, internal controls, and the reliability of information used in decisions.

Technology and Emerging Developments

Digital distribution, electronic policy documents, telematics, wearable devices, medical coding systems, geospatial data, artificial intelligence, and automated claims platforms are changing insurance operations. Predictive analytics can improve segmentation, fraud detection, reserving, and customer service. Parametric insurance pays when a measurable trigger—such as rainfall below a specified level or an earthquake exceeding a defined intensity—occurs, reducing the need for conventional loss adjustment in suitable situations.

These developments create new risks. Data may be incomplete or biased; algorithms may produce opaque decisions; connected devices may be hacked; and customers may not understand how their data affects pricing. Cyber insurance itself remains challenging because losses can be correlated across many insureds through common software or cloud infrastructure. Climate change, aging populations, medical innovation, artificial intelligence liability, and new mobility models will continue to test traditional definitions of risk and insurability.

Best Practices for Insurance Managers

Effective insurance management rests on several connected practices:

Define risk appetite and underwriting authority clearly.
Use credible data while recognizing model uncertainty.
Align product wording, pricing, claims procedures, and reinsurance.
Monitor concentration, accumulation, reserving adequacy, and capital stress.
Treat customers fairly throughout the product life cycle.
Maintain strong controls over intermediaries, vendors, and delegated authority.
Use technology with validation, human oversight, privacy protection, and auditability.
Learn from complaints, near misses, claim trends, and external developments.

The foundational principles studied in this chapter are not isolated legal rules. They form a practical decision framework. A manager assessing a product, a broker advising a client, an underwriter accepting a risk, or a claims professional evaluating causation must repeatedly ask: What is the risk? Is it insurable? What interest is protected? What loss actually occurred? What caused it? Who bears responsibility, and what contractual and legal rights follow?

Chapter Summary

Insurance converts uncertain financial consequences into a structured system of contractual protection and collective risk sharing. Pooling and the law of large numbers support predictable aggregate outcomes, but effective insurance requires credible data, appropriate risk classification, adequate premiums, diversification, and capital.

The principles of indemnity, utmost good faith, insurable interest, proximate cause, contribution, and subrogation regulate the relationship between risk, contract, claim, and recovery. Life insurance generally provides agreed benefits for mortality or longevity risks; health insurance addresses medical expenses and health events; and general insurance covers diverse property, liability, accident, and commercial risks.

The industry includes primary insurers, policyholders, beneficiaries, intermediaries, service providers, reinsurers, investors, regulators, and professional institutions. Market structure affects competition, distribution, specialization, scale, and access. Contemporary managers must also address fraud, information asymmetry, climate risk, cyber exposure, data governance, algorithmic fairness, and customer protection. Sound insurance management therefore combines legal understanding, actuarial reasoning, operational discipline, ethical conduct, and strategic judgment.

Key Terms

Risk: The possibility of an adverse outcome, especially an uncertain financial loss.

Uncertainty: A condition in which outcomes, probabilities, or causal relationships are not fully known.

Peril: The immediate cause of a loss, such as fire, collision, or illness.

Hazard: A condition that increases the probability or severity of a loss.

Pure risk: A risk involving the possibility of loss or no loss, but not gain.

Pooling: Combining many exposures so that aggregate claims become more predictable.

Insurability: The suitability of a risk for transfer through insurance.

Indemnity: Compensation intended to restore the insured approximately to the pre-loss financial position.

Utmost good faith: The duty to disclose material facts and avoid material misrepresentation.

Material fact: Information that would influence an insurer’s decision, pricing, or terms.

Insurable interest: A legally recognized interest that would suffer from the insured event.

Proximate cause: The dominant or legally effective cause of a loss.

Contribution: Apportionment of an indemnified loss among insurers covering the same interest and peril.

Subrogation: The insurer’s right to pursue a responsible third party after paying the insured.

Adverse selection: The tendency of higher-risk individuals to seek or retain insurance disproportionately.

Moral hazard: Intentional behavior that increases the likelihood or size of an insured loss.

Reinsurance: Insurance purchased by an insurer to transfer part of its risk.

Underwriting: The evaluation, selection, classification, and pricing of insurance risks.

Solvency: The ability of an insurer to meet its obligations as they fall due.

Parametric insurance: Coverage that pays when a specified measurable trigger is reached.

Review Questions

Short Answer Questions

1. Distinguish between a peril and a hazard, giving one example of each.

2. Why does pooling improve the predictability of aggregate insurance claims?

3. State the purpose of the principle of indemnity.

4. What is meant by insurable interest?

5. Differentiate contribution from subrogation.

Long Answer Questions

1. Explain the conditions that make a risk suitable for insurance and discuss why some risks remain difficult to insure.

2. Discuss utmost good faith, insurable interest, and proximate cause as foundations of insurance contracts.

3. Compare life, health, and general insurance with reference to benefits, duration, underwriting, and claims.

4. Explain the roles of insurers, intermediaries, reinsurers, and regulators in the insurance system.

5. Analyze how market structure influences competition, distribution, specialization, and insurer strategy.

Analytical / Application Questions

1. A company has two property policies covering the same warehouse. A fire caused by a contractor results in a loss lower than the combined policy limits. Apply indemnity, contribution, and subrogation to the situation.

2. A health insurer uses an automated model that charges higher premiums to applicants from areas with limited medical data. Identify the underwriting, ethical, data-governance, and regulatory issues that management should examine.

3. A coastal insurer experiences increasingly correlated storm losses and rising reinsurance costs. Recommend a framework for evaluating insurability, pricing, accumulation control, reinsurance, and customer communication.

22. Multiple Choice Questions with Answers

Question 1

Which condition most directly supports the predictability created by insurance pooling?

A. All policyholders must suffer losses in the same period

B. The portfolio contains sufficiently numerous and reasonably similar exposures

C. The insurer guarantees that no claim will be excluded

D. Every risk in the portfolio has identical individual characteristics

Correct Answer: B. The portfolio contains sufficiently numerous and reasonably similar exposures

Question 2

A warehouse is damaged after a storm breaks its roof and rain destroys stock. If the storm initiated an unbroken chain of events and is covered, which principle is primarily used to assess causation?

A. Contribution

B. Insurable interest

C. Proximate cause

D. Subrogation

Correct Answer: C. Proximate cause

Question 3

Which statement best describes indemnity?

A. It allows the insured to profit from a covered loss

B. It restores the insured approximately to the pre-loss financial position

C. It applies identically to every life insurance benefit

D. It transfers all legal responsibility to the reinsurer

Correct Answer: B. It restores the insured approximately to the pre-loss financial position

Question 4

A borrower obtains life insurance on their own life to protect a lender against the outstanding loan. The lender’s legitimate financial relationship with the borrower illustrates:

A. Insurable interest

B. Moral hazard

C. Contribution

D. Parametric insurance

Correct Answer: A. Insurable interest

Question 5

Which situation is most likely to raise an utmost good faith issue?

A. An insurer pays a claim by electronic transfer

B. An applicant omits a medical condition that could affect acceptance and pricing

C. A reinsurer diversifies its investments

D. A broker compares premiums from several insurers

Correct Answer: B. An applicant omits a medical condition that could affect acceptance and pricing

Question 6

What is the main purpose of contribution?

A. To enable recovery from a negligent third party

B. To distribute an indemnifiable loss among insurers covering the same interest and peril

C. To determine the policyholder’s age at inception

D. To convert a pure risk into a speculative risk

Correct Answer: B. To distribute an indemnifiable loss among insurers covering the same interest and peril

Question 7

After paying a property claim caused by a negligent contractor, an insurer seeks recovery from that contractor. This is an exercise of:

A. Subrogation

B. Underinsurance

C. Adverse selection

D. Insurable interest

Correct Answer: A. Subrogation

Question 8

Which feature most clearly distinguishes ordinary life insurance from indemnity-based property insurance?

A. Life insurance never involves underwriting

B. Life insurance normally pays an agreed benefit rather than measuring the exact economic value of a human life

C. Property insurance is never subject to exclusions

D. Life insurance cannot be reinsured

Correct Answer: B. Life insurance normally pays an agreed benefit rather than measuring the exact economic value of a human life

Question 9

Which activity is primarily associated with prudential insurance regulation?

A. Ensuring that an insurer maintains adequate financial resources to meet obligations

B. Selecting the medical treatment for every insured person

C. Negotiating every individual repair invoice

D. Guaranteeing that all insurers charge identical premiums

Correct Answer: A. Ensuring that an insurer maintains adequate financial resources to meet obligations

Question 10

A drought policy pays when rainfall falls below a stated measurement, without requiring conventional proof of crop damage. This is an example of:

A. Facultative reinsurance

B. Parametric insurance

C. Subrogation

D. Moral hazard

Correct Answer: B. Parametric insurance

Life, Health, and General Insurance
Chapter 1 of 14

Chapter 1 Insurance Foundations and Industry Structure