QUESTION BANK

1)

Definition of Risk Management.

Risk management is the process of identifying risk, assessing risk, and taking steps to reduce risk to an
acceptable level [1]. The risk management approach determines the processes, techniques, tools, and team roles
and responsibilities for a specific project. The risk management plan describes how risk management will be
structured and performed on the project [2].
2)
Various steps in Risk management
All risk management processes follow the same basic steps, although sometimes different jargon is used to
describe these steps. Together these 5 risk management process steps combine to deliver a simple and
effective risk management process.
Step 1: Identify the Risk. You and your team uncover, recognize and describe risks that might affect your
project or its outcomes. There are a number of techniques you can use to find project risks. During this step
you start to prepare your Project Risk Register.
Step 2: Analyze the risk. Once risks are identified you determine the likelihood and consequence of each
risk. You develop an understanding of the nature of the risk and its potential to affect project goals and
objectives. This information is also input to your Project Risk Register.
Step 3: Evaluate or Rank the Risk. You evaluate or rank the risk by determining the risk magnitude, which
is the combination of likelihood and consequence. You make decisions about whether the risk is acceptable
or whether it is serious enough to warrant treatment. These risk rankings are also added to your Project
Risk Register.
Step 4: Treat the Risk. This is also referred to as Risk Response Planning. During this step you assess
your highest ranked risks and set out a plan to treat or modify these risks to achieve acceptable risk levels.
How can you minimize the probability of the negative risks as well as enhancing the opportunities? You
create risk mitigation strategies, preventive plans and contingency plans in this step. And you add the risk
treatment measures for the highest ranking or most serious risks to your Project Risk Register.
Step 5: Monitor and Review the risk. This is the step where you take your Project Risk Register and use
it to monitor, track and review risks.
Risk is about uncertainty. If you put a framework around that uncertainty, then you effectively de-risk your
project. And that means you can move much more confidently to achieve your project goals. By identifying
and managing a comprehensive list of project risks, unpleasant surprises and barriers can be reduced and
golden opportunities discovered. The risk management process also helps to resolve problems when they
occur, because those problems have been envisaged and plans to treat them have already been developed
and agreed. You avoid impulsive reactions and going into fire-fighting mode to rectify problems that could
have been anticipated. This makes for happier, less stressed project teams and stakeholders. The end
result is that you minimize the impacts of project threats and capture the opportunities that occur.

3) History of insurance

4) Present scenario of insurance sector - number of players etc . Limit of foreign

investment present limit of 49%.
5) Term insurance and pure endowment in life insurance
WHY TERM PLANS?
Term insurance is the simplest and most fundamental insurance product.Term insurance plans are designed to
ensure that in the event of the policyholder's death, the family gets the sum assured(the cover amount).
What is term life insurance?
Term life insurance ensures that your family receives a large lumpsum amount, called the sum assured, in the
unfortunate event of death of the policyholder. By offering this benefit at extremely competitive rates, Term
insurance plans provide an opportunity to get the protection of insurance cover at extremely affordable prices.

Why do I need term life insurance?

Increasing liabilities:People today prefer to take loans to fulfilling their needs, instead of waiting
to save for the future. India's outstanding credit card debt had touched Rs 26,500 crore in May 2008, up by 87%
from May 2007. Hence, in your absence, your family needs to take care of this loan.
Nuclear family structure:Earlier, people could depend on their extended joint family system to
take care of their near and dear ones in case of their absence. However, the share of families with more than 5
members has come down from 64% in 1990 to 56% in 2005 and is expected to decrease further.**
Increasing lifestyle diseases:The share of lifestyle diseases in India is increasing. Also, people
in senior management are more prone to lifestyle diseases, as per an ICRIER Study.

pure endowment
An endowment payable at the end of the policy period if the insured is alive. If the insured has died, there is
nothing paid in the form of benefits.

6) ulips
1.

A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that unlike a
pure insurance policy gives investors the benefits of both insurance and investment under a single integrated
plan.

2.

A Unit Link Insurance Plan is basically a combination of insurance as well as investment. A part of
the premium paid is utilized to provide insurance cover to the policy holder while the remaining portion is invested
in various equity and debt schemes. The money collected by the insurance provider is utilized to form a pool of
fund that is used to invest in various markets instruments (debt and equity) in varying proportions just the way it is
done for mutual funds. Policy holders have the option of selecting the type of funds (debt or equity) or a mix of
both based on their investment need and appetite. Just the way it is for mutual funds, ULIP policy holders are also
allotted units and each unit has a net asset value (NAV) that is declared on a daily basis. The NAV is the value
based on which the net rate of returns on ULIPs are determined. The NAV varies from one ULIP to another based
on market conditions and the funds performance.
7) What can be covered under fire insurance
Buildings Electrical installation in buildings Contents of buildings such as machinery, plant and
equipments, accessories, etc. Goods (raw materials, inprocess, semifinished, finished, packing

materials, etc.) in factories, godowns etc.. Goods in the open Furniture, fixture and fittings
Pipelines (including contents) located inside or outside the compound, etc.
STANDARD FIRE & SPECIAL PERILS POLICY COVERS
This policy is taken to insure a specified risk which could be any or all of the following building, furniture & fittings,
stocks, plant and machinery and any other other specified fixed assets.
PERILS COVERED
The major perils covered in a fire policy can be grouped as:Fire Perils

Fire.

Explosion / implosion.

Aircraft damage.

AOG perils.

Lightning. Storm, cyclone, tempest, hurricane, tornado & flood.

Subsidence & landslide including rock slide.

Social Perils

Riot, strike, malicious damage.

Terrorism (the optional cover).

Other perils

Impact damage.

Bursting or overflowing of water tanks & pipes.

Bush fire.

8) What risks can be covered under fire insurance

Fire insurance business in India is governed by the All India Fire Tariff that lays down the terms of coverage, the premium
rates and the conditions of the Fire Policy. The fire insurance policy has been renamed as Standard Fire and Special Perils
Policy.The risks covered are as follows:
Fire:
Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous combustion
or its undergoing any heating or drying process cannot be treated as damage due to fire. For e.g., paints or chemicals in
a factory undergoing heat treatment and consequently damaged by fire is not covered. Further, burning of property
insured by order of any Public Authority is excluded from the scope of cover.
Lightning:
Lightning may result in fire damage or other types of damage, such as a roof broken by a falling chimney struck by

lightning or cracks in a building due to a lightning strike. Both fire and other types of damages caused by lightning are
covered by the policy.
Explosion/Implosion:
Explosion is defined as a sudden, violent burst with a loud report. An explosion is caused inside a vessel when the
pressure within the vessel exceeds the atmospheric pressure acting externally on its surface. An explosion may cause fire
damage or concussion damage.
Implosion means bursting inward or collapse. This takes place when the external pressure exceeds the internal
pressure. This policy, however, does not cover destruction or damage caused to the boilers (other than domestic boilers),
economisers or other vessels in which steam is generated and machinery or apparatus subject to centrifugal force by its
own explosion/ implosion. These risks can be covered in a Boiler & Pressure Plant Insurance Policy, which is specially
designed to handle these risks.
AircraftDamage:
The loss or damage to the property (by fire or otherwise) directly caused by aircraft and other aerial devices and/ or
articles dropped there from is covered. However, destruction or damage resulting from pressure waves caused by aircraft
travelling at supersonic speed is excluded from the scope of the policy.
Riot,Strike,MaliciousandTerrorismDamage:
The act of any person taking part along with others in any disturbance of public peace (other than war, invasion,
mutiny, civil commotion etc.) is construed to be a riot, strike or a terrorist activity.
Any loss or physical damage to the property insured directly caused by such activity or by the action of any lawful
authorities in suppressing such disturbance or minimising its consequences is covered. Further the wilful act of any
striker or locked out worker, in connection with a strike or a lock out, or the action of any lawful authority in suppressing
such act, resulting in visible physical damage by external means, is also covered. Malicious act would mean an act with
malicious intent but excluding omission of any kind by any person, resulting in visible physical damage to the insured
property, whether or not the act is committed in the course of disturbance of public peace or not. Burglary,
housebreaking, theft or larceny does not constitute a malicious act for the purpose of this cover.
Total or partial cessation of work or the retarding or interruption or cessation of any process or operations; or,
permanent dispossession resulting from confiscation, commandeering, requisition or destruction by order of the
Government or any lawfully constituted authority; or permanent or temporary dispossession of any building or plant or
unit or machinery resulting from the unlawful occupation by any person of the same or prevention of access to the same,
are not covered.
Storm,Cyclone,Typhoon,Tempest,Hurricane,Tornado,FloodandInundation:
Storm, Cyclone, Typhoon, Tempest, Tornado and Hurricane are all various types of violent natural disturbances that
are accompanied by thunder or strong winds or heavy rainfall. Flood or Inundation occurs when the water rises to an
abnormal level. Flood or inundation should not only be understood in the common sense of the terms, i.e., flood in river
or lakes, but also accumulation of water due to choked drains would be deemed to be flood.
ImpactDamage:
Impact by any Rail/ Road vehicle or animal by direct contact with the insured property is covered. However, such
vehicles or animals should not belong to or owned by the insured or any occupier of the premises or their employees
while acting in the course of their employment.
* Subsidence and Landslide including Rockslide:
Destruction or damage caused by Subsidence of part of the site on which the property stands or Landslide/ Rockslide
is covered. While Subsidence means sinking of land or building to a lower level, Landslide means sliding down of land
usually on a hill.
However, normal cracking, settlement or bedding down of new structures; settlement or movement of made up
ground; coastal or river erosion; defective design or workmanship or use of defective materials; and demolition,
construction, structural alterations or repair of any property or ground-works or excavations, are not covered.
* Burstingand/oroverflowing of Water Tanks, Apparatus and Pipes:

Loss or damage to property by water or otherwise on account of bursting or accidental overflowing of water tanks,
apparatus and pipes is covered.
MissileTestingoperations:
Destruction or damage due to impact or otherwise from trajectory/ projectiles in connection with missile testing
operations by the Insured or anyone else, is covered.
LeakagefromAutomaticSprinklerInstallations:
Damage caused by water accidentally discharged or leaked out from automatic sprinkler installations in the insured's
premises is covered. However, such destruction or damage caused by repairs or alterations to the buildings or premises;
repairs removal or extension of the sprinkler installation; and defects in construction known to the insured, are not
covered.
Bush Fire:
This covers damage caused by burning, whether accidental or otherwise, of bush and jungles and the clearing of lands by
fire, but excluding destruction or damage caused by Forest Fire.

3)

Types of policies under fire insurance

Following are the important policies of fire insurance :
1.ValuedPolicy:Under the policy agreed value of the property is mentioned in the policy. In the event of loss by fire the insurer pays the admitted
value of property. So in this policy value of property is predetermined.
2.UndervaluedPolicy:Under this policy the value of the property is not predetermined. In case of loss the value is computed by assessment.
3.FloatingPolicy:It is issued to cover the risk of various goods laying in different places. In this policy the insured amount may be changed with the
rise and fall in the quantity of goods in the store.
4.SpecificPolicy:Under this policy the property is insured for a definite amount. In case of loss the stated amount will be paid to the policy holder.
5.AveragePolicy:Sometimes the insured insures the property less than the value ofproperty. In that situation insurance company compensates the
loss according to the proportion of original value of the property and insured amount.
6.SchedulePolicy:Some people property is situated in various locations. So the policy which insure, the many properties in different areas under
collective terms and conditions is called scheduler policy. Rate of premium and details are given in the same policy.
7.StandardFirePolicy:Such policy covers all the loss caused by lighting burning, earthquakes and floods.
8.ReplacementPolicy:Under this policy insurance company pays more than the actual value of the property destroyed by fire and also covers the cost of
replacement.
9.TransitPolicy:Transit policy is issued to transfer the goods carefully on its destination. If the subject matter is destroyed due to fire then company
compensates the loss.
10.ProfitInsurancePolicy:Sometimes due to business closes for few days or for few months. Businessman looses the profit due to close of business. So this
policy covers the profit which sustains due to fire. Insurance Company pays the profit on the basis of previous years average.
11.RentInsurancePolicy:Some times due to fire one shop or store damages. Now the owner of shop had already given.

11) Sction 27 of Insurance act 1938 - various provisions regarding investment

12) How Insurance is a tool for economic development
The insurance industry promotes economic growth and structural development through the
following channels:
1. Providing broader insurance coverage directly to firms, improving their financial soundness.
2. Fostering entrepreneurial attitudes, encouraging investment, innovation, market dynamism and
competition.
3. Offering social protection alongside the state, releasing pressure on public sector finance.
4. Enhancing financial intermediation, creating liquidity and mobilizing savings. As major
institutional investors, insurers gather dispersed financial resources, and channel them towards
investment opportunities, facilitating companies access to capital.
5. Promoting sensible risk management by households and firms, contributing to sustainable and
responsible development. 6. Fostering stable consumption throughout life.
13) Declaration at the end of proposal form? Is it a warranty
14) Section 45 of Insurance act

Section 45 in the new Bill says no claim can be repudiated after three years of the policy being in force,
even if a fraud is detected, has sent life insurers into a tizzy.
According to Section 45 of the Insurance Act, 1938, no life insurance policy can be called into question
on grounds of mis-statement or wrong disclosure after two years of the policy coming into force.
However, if the insurer is able to prove that the claim was fraudulent, it need not be passed.
"No policy of life insurance shall, after the expiry of two years from the date on which it was effected, be
called into question by an insurer on the ground that a statement made in the proposal for
insurance...was inaccurate or false," says the Insurance Act. This is unless the insurer shows that such
statement was on a material matter and that the policyholder knew at the time of making it that the
statement was false.
Now, under the proposed Bill, this has undergone changes. Insurers said that in the new Bill, several
organised rackets of fraudsters would use the facility to defraud insurance companies. This would mean
the life insurer would have the onus of proving that the policy had been taken for false purposes and
this has to be done within three years of the policy being taken.

15) Principles of insurance

1. Nature of contract:
Nature of contract is a fundamental principle of insurance contract. An insurance contract comes
into existence when one party makes an offer or proposal of a contract and the other party accepts
the proposal.
A contract should be simple to be a valid contract. The person entering into a contract should
enter with his free consent.
2. Principal of utmost good faith:
Under this insurance contract both the parties should have faith over each other. As a client it is
the duty of the insured to disclose all the facts to the insurance company. Any fraud or
misrepresentation of facts can result into cancellation of the contract.
3. Principle of Insurable interest:
Under this principle of insurance, the insured must have interest in the subject matter of the
insurance. Absence of insurance makes the contract null and void. If there is no insurable interest,
an insurance company will not issue a policy.
An insurable interest must exist at the time of the purchase of the insurance. For example, a
creditor has an insurable interest in the life of a debtor, A person is considered to have an
unlimited interest in the life of their spouse etc.
4. Principle of indemnity:
Indemnity means security or compensation against loss or damage. The principle of indemnity is
such principle of insurance stating that an insured may not be compensated by the insurance
company in an amount exceeding the insureds economic loss.
In type of insurance the insured would be compensation with the amount equivalent to the actual
loss and not the amount exceeding the loss.

This is a regulatory principal. This principle is observed more strictly in property insurance than in
life insurance.
The purpose of this principle is to set back the insured to the same financial position that existed
before the loss or damage occurred.
5. Principal of subrogation:
The principle of subrogation enables the insured to claim the amount from the third party
responsible for the loss. It allows the insurer to pursue legal methods to recover the amount of
loss, For example, if you get injured in a road accident, due to reckless driving of a third party, the
insurance company will compensate your loss and will also sue the third party to recover the
money paid as claim.
6. Double insurance:
Double insurance denotes insurance of same subject matter with two different companies or with
the same company under two different policies. Insurance is possible in case of indemnity contract
like fire, marine and property insurance.
Double insurance policy is adopted where the financial position of the insurer is doubtful. The
insured cannot recover more than the actual loss and cannot claim the whole amount from both
the insurers.
7. Principle of proximate cause:
Proximate cause literally means the nearest cause or direct cause. This principle is applicable
when the loss is the result of two or more causes. The proximate cause means; the most dominant
and most effective cause of loss is considered. This principle is applicable when there are series of
causes of damage or loss.