ETHIC311: Ethical Decision Making in Risk and Insurance —
Revision Questions, Answers & Rationales
1. What is the primary purpose of ethics in risk and insurance?
A. To maximize profit only
B. To reduce paperwork
C. To guide fair and responsible decision-making
D. To eliminate all risks
Answer: C. To guide fair and responsible decision-making
Rationale: Ethics helps insurance professionals make decisions that are fair, honest, lawful, and
socially responsible while protecting clients and organizations.
2. Which ethical principle requires telling the truth to clients?
A. Integrity
B. Confidentiality
C. Loyalty
D. Competence
Answer: A. Integrity
Rationale: Integrity involves honesty, transparency, and truthfulness in all professional dealings.
3. What is a conflict of interest?
A. A legal contract
B. A disagreement between insurers
C. A situation where personal interests may influence professional judgment
D. A customer complaint
Answer: C. A situation where personal interests may influence professional judgment
Rationale: Conflicts of interest can compromise fairness and objectivity in insurance decisions.
4. Which of the following best describes moral hazard?
,A. Natural disasters increasing claims
B. Increased risk because a person feels protected by insurance
C. Fraud committed by insurers only
D. Government regulation of insurers
Answer: B. Increased risk because a person feels protected by insurance
Rationale: Moral hazard occurs when insured individuals take greater risks because they know
losses are covered.
5. Why is confidentiality important in insurance?
A. To increase marketing
B. To avoid taxes
C. To protect sensitive client information
D. To reduce premiums
Answer: C. To protect sensitive client information
Rationale: Insurance professionals handle private financial and medical data that must remain
secure and confidential.
6. Which action is considered insurance fraud?
A. Paying premiums on time
B. Submitting false claims intentionally
C. Asking policy questions
D. Comparing insurance policies
Answer: B. Submitting false claims intentionally
Rationale: Insurance fraud involves deliberate deception for financial gain.
7. What does “utmost good faith” mean in insurance?
A. Customers must trust insurers blindly
B. Both parties must disclose important facts honestly
C. Insurers should avoid investigations
D. Claims must always be approved
,Answer: B. Both parties must disclose important facts honestly
Rationale: The principle of utmost good faith requires honesty and full disclosure from both
insurer and insured.
8. Which ethical theory focuses on the greatest good for the greatest number?
A. Utilitarianism
B. Egoism
C. Relativism
D. Legalism
Answer: A. Utilitarianism
Rationale: Utilitarianism evaluates actions based on outcomes that maximize overall benefit.
9. A broker recommends a policy mainly because it gives the highest commission.
This is an example of:
A. Professionalism
B. Ethical leadership
C. Conflict of interest
D. Risk transfer
Answer: C. Conflict of interest
Rationale: The broker’s personal financial interest interferes with serving the client’s best
interest.
10. What is the role of corporate governance in insurance companies?
A. Eliminating taxes
B. Guiding ethical management and accountability
C. Increasing premiums automatically
D. Reducing customer rights
Answer: B. Guiding ethical management and accountability
Rationale: Corporate governance ensures organizations operate transparently, responsibly, and
ethically.
, 11. Which principle requires insurance contracts to be fair and balanced?
A. Justice
B. Negligence
C. Loyalty
D. Arbitration
Answer: A. Justice
Rationale: Justice involves fairness, equality, and impartial treatment of stakeholders.
12. What should an insurance employee do after discovering fraudulent activity?
A. Ignore it
B. Participate quietly
C. Report it through proper channels
D. Hide evidence
Answer: C. Report it through proper channels
Rationale: Ethical responsibility requires reporting misconduct to protect the organization and
clients.
13. Which stakeholder is directly affected by unethical insurance practices?
A. Clients only
B. Shareholders only
C. Employees only
D. All stakeholders
Answer: D. All stakeholders
Rationale: Unethical behavior damages trust, finances, reputation, and operations across the
entire industry.
14. What is discrimination in insurance underwriting?
Revision Questions, Answers & Rationales
1. What is the primary purpose of ethics in risk and insurance?
A. To maximize profit only
B. To reduce paperwork
C. To guide fair and responsible decision-making
D. To eliminate all risks
Answer: C. To guide fair and responsible decision-making
Rationale: Ethics helps insurance professionals make decisions that are fair, honest, lawful, and
socially responsible while protecting clients and organizations.
2. Which ethical principle requires telling the truth to clients?
A. Integrity
B. Confidentiality
C. Loyalty
D. Competence
Answer: A. Integrity
Rationale: Integrity involves honesty, transparency, and truthfulness in all professional dealings.
3. What is a conflict of interest?
A. A legal contract
B. A disagreement between insurers
C. A situation where personal interests may influence professional judgment
D. A customer complaint
Answer: C. A situation where personal interests may influence professional judgment
Rationale: Conflicts of interest can compromise fairness and objectivity in insurance decisions.
4. Which of the following best describes moral hazard?
,A. Natural disasters increasing claims
B. Increased risk because a person feels protected by insurance
C. Fraud committed by insurers only
D. Government regulation of insurers
Answer: B. Increased risk because a person feels protected by insurance
Rationale: Moral hazard occurs when insured individuals take greater risks because they know
losses are covered.
5. Why is confidentiality important in insurance?
A. To increase marketing
B. To avoid taxes
C. To protect sensitive client information
D. To reduce premiums
Answer: C. To protect sensitive client information
Rationale: Insurance professionals handle private financial and medical data that must remain
secure and confidential.
6. Which action is considered insurance fraud?
A. Paying premiums on time
B. Submitting false claims intentionally
C. Asking policy questions
D. Comparing insurance policies
Answer: B. Submitting false claims intentionally
Rationale: Insurance fraud involves deliberate deception for financial gain.
7. What does “utmost good faith” mean in insurance?
A. Customers must trust insurers blindly
B. Both parties must disclose important facts honestly
C. Insurers should avoid investigations
D. Claims must always be approved
,Answer: B. Both parties must disclose important facts honestly
Rationale: The principle of utmost good faith requires honesty and full disclosure from both
insurer and insured.
8. Which ethical theory focuses on the greatest good for the greatest number?
A. Utilitarianism
B. Egoism
C. Relativism
D. Legalism
Answer: A. Utilitarianism
Rationale: Utilitarianism evaluates actions based on outcomes that maximize overall benefit.
9. A broker recommends a policy mainly because it gives the highest commission.
This is an example of:
A. Professionalism
B. Ethical leadership
C. Conflict of interest
D. Risk transfer
Answer: C. Conflict of interest
Rationale: The broker’s personal financial interest interferes with serving the client’s best
interest.
10. What is the role of corporate governance in insurance companies?
A. Eliminating taxes
B. Guiding ethical management and accountability
C. Increasing premiums automatically
D. Reducing customer rights
Answer: B. Guiding ethical management and accountability
Rationale: Corporate governance ensures organizations operate transparently, responsibly, and
ethically.
, 11. Which principle requires insurance contracts to be fair and balanced?
A. Justice
B. Negligence
C. Loyalty
D. Arbitration
Answer: A. Justice
Rationale: Justice involves fairness, equality, and impartial treatment of stakeholders.
12. What should an insurance employee do after discovering fraudulent activity?
A. Ignore it
B. Participate quietly
C. Report it through proper channels
D. Hide evidence
Answer: C. Report it through proper channels
Rationale: Ethical responsibility requires reporting misconduct to protect the organization and
clients.
13. Which stakeholder is directly affected by unethical insurance practices?
A. Clients only
B. Shareholders only
C. Employees only
D. All stakeholders
Answer: D. All stakeholders
Rationale: Unethical behavior damages trust, finances, reputation, and operations across the
entire industry.
14. What is discrimination in insurance underwriting?
