LM1 FINAL PAPER 2026 QUESTIONS WITH
ANSWERS GRADED A+
◉ Risk-transfer mechanism (1). Answer: The acceptance of an unknown
future potential risk by an insurer for an agreed premium.
◉ Risk adverse (1). Answer: Feel happier minimising the risk to which
they are exposed.
◉ Risk management: Importance (1). Answer: Reduces the potential for
loss
. Gives shareholders confidence that the business is being run properly
. Provides a disciplined approach to quantifying risk
◉ Two aspects of controlling risk (1). Answer: Physical controls such as
sprinklers and alarms
. Financial controls such as making sure contracts are well-worded
◉ Components of risk (1). Answer: Uncertainty
. Level of risk - frequency/severity
◉ Categories of risk (1). Answer: Financial and non-financial risks
,. Pure and speculative risks
. Particular and fundamental risks
◉ Types of insurable risks (1). Answer: Fortuitous (has to be accidental
to be insurable)
. Insurable interest (relationship between insured and object being
insured)
. Public policy (must not go against what society considers to be the
right or moral thing to do)
. Homogeneous exposures (patterns of risk or forecast, are ideal)
◉ Insurable risks (1). Answer: Financial
. Pure
. Particular
. Fortuitous
. Insurable interest
. Not against public policy
. Homogeneous exposures
◉ Non insurable risks (1). Answer: Non financial
. Speculative
. Fundamental
. Deliberate act
,. No insurable interest
. Against the public interest
. One-offs (generally)
◉ Pooling of risk (1). Answer: The losses of the few who suffer
misfortune are met by the contributions of the many.
◉ Law of large numbers (1). Answer: Where there are a large number of
similar situations, the actual number of events occurring tends towards
the expected number.
◉ Peril (1). Answer: Can be defined as that which gives rise to a loss.
◉ Hazard (1). Answer: Can be defined as that which influences the
operation or effect of the peril.
Physical - Refers to physical characteristics of risk, anything
measurable.
Moral - Attitude and behaviour or people.
◉ Compulsory insurance (1). Answer: Private individuals - Motor
insurance and public liability insurance
Professions and businesses - Motor insurance and employers' liability
insurance are compulsory
, ◉ Reasons for compulsory insurance (1). Answer: - To provide funds for
compensation
- In response to national concerns
- Reputation of the profession
◉ Employers' liability insurance (1). Answer: Act 1969 made it
compulsory for employers in GB to effect employers' liability insurance.
Insures against their liability to pay to employees who injure themselves
◉ Motor insurance (1). Answer: Road Traffic Act 1988 stipulates it is
illegal to cause or permit the use of a vehicle on a public road unless an
insurance policy is in force
◉ Public liability insurance: Riding establishments (1). Answer: Riding
Establishments Act 1970 is that all proprietors of riding establishments
must have public liability insurance
◉ Liability insurance: dangerous wild animals and/or dangers dogs (1).
Answer: Liability insurance is compulsory for private individuals that
are in respect of the ownership of dangerous wild animals or dangerous
dogs
◉ Professional indemnity insurance (1). Answer: Is compulsory for
certain professions. These include solicitors and others such as
ANSWERS GRADED A+
◉ Risk-transfer mechanism (1). Answer: The acceptance of an unknown
future potential risk by an insurer for an agreed premium.
◉ Risk adverse (1). Answer: Feel happier minimising the risk to which
they are exposed.
◉ Risk management: Importance (1). Answer: Reduces the potential for
loss
. Gives shareholders confidence that the business is being run properly
. Provides a disciplined approach to quantifying risk
◉ Two aspects of controlling risk (1). Answer: Physical controls such as
sprinklers and alarms
. Financial controls such as making sure contracts are well-worded
◉ Components of risk (1). Answer: Uncertainty
. Level of risk - frequency/severity
◉ Categories of risk (1). Answer: Financial and non-financial risks
,. Pure and speculative risks
. Particular and fundamental risks
◉ Types of insurable risks (1). Answer: Fortuitous (has to be accidental
to be insurable)
. Insurable interest (relationship between insured and object being
insured)
. Public policy (must not go against what society considers to be the
right or moral thing to do)
. Homogeneous exposures (patterns of risk or forecast, are ideal)
◉ Insurable risks (1). Answer: Financial
. Pure
. Particular
. Fortuitous
. Insurable interest
. Not against public policy
. Homogeneous exposures
◉ Non insurable risks (1). Answer: Non financial
. Speculative
. Fundamental
. Deliberate act
,. No insurable interest
. Against the public interest
. One-offs (generally)
◉ Pooling of risk (1). Answer: The losses of the few who suffer
misfortune are met by the contributions of the many.
◉ Law of large numbers (1). Answer: Where there are a large number of
similar situations, the actual number of events occurring tends towards
the expected number.
◉ Peril (1). Answer: Can be defined as that which gives rise to a loss.
◉ Hazard (1). Answer: Can be defined as that which influences the
operation or effect of the peril.
Physical - Refers to physical characteristics of risk, anything
measurable.
Moral - Attitude and behaviour or people.
◉ Compulsory insurance (1). Answer: Private individuals - Motor
insurance and public liability insurance
Professions and businesses - Motor insurance and employers' liability
insurance are compulsory
, ◉ Reasons for compulsory insurance (1). Answer: - To provide funds for
compensation
- In response to national concerns
- Reputation of the profession
◉ Employers' liability insurance (1). Answer: Act 1969 made it
compulsory for employers in GB to effect employers' liability insurance.
Insures against their liability to pay to employees who injure themselves
◉ Motor insurance (1). Answer: Road Traffic Act 1988 stipulates it is
illegal to cause or permit the use of a vehicle on a public road unless an
insurance policy is in force
◉ Public liability insurance: Riding establishments (1). Answer: Riding
Establishments Act 1970 is that all proprietors of riding establishments
must have public liability insurance
◉ Liability insurance: dangerous wild animals and/or dangers dogs (1).
Answer: Liability insurance is compulsory for private individuals that
are in respect of the ownership of dangerous wild animals or dangerous
dogs
◉ Professional indemnity insurance (1). Answer: Is compulsory for
certain professions. These include solicitors and others such as
