CCC Insurance provides insurance services. It insures 500 businesses against the risk of flooding. Fig. 3 shows the pooling of risk for flood insurance. 500 businesses → premiums → $2 million → Compensation for 15 businesses → Costs → X [Figure 3] Use Fig. 3 to help you answer the following questions.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2016). The mark or mark type is shown in brackets.

1. [3] (a) (i) 1 mark for defining 'pooling of risk' and up to 2 further marks for explaining, using Fig. 3. • Pooling of risk is the principle that the fortunate, who pay premiums but make no claims, help the unfortunate who make claims or people contributing to a pool to gain compensation in case of loss (1) • In Fig. 3 the 500 businesses that paid the premiums (1) help the 15 businesses who made claims/received compensation (1) Accept any other relevant points.
2. [2] (a) (ii) 1 mark for identifying total premium of $2 million and 500 customers 1 further mark for correct answer $2 million (1) 500 = $4,000 (1) or 2 marks for the correct answer
3. [2] (a) (iii) 1 mark for each cost identified, maximum 2 costs • Salaries/wages • Premises • Transport • Computers • Office • Electricity Accept any other relevant points.
4. [1] (a) (iv) 1 mark for identifying X • Profit
5. [4] (b) 1 mark for each action stated • Find out how the accident happened (1) • Check to see if the accident is covered by the policy (1) • Contact the insurer/insurance company (1) • Try to find any witnesses (1) • Inform the police (1) • Take photographs (1) • Have documents/proof of car value (1) • Check if the loss is covered by policy (1) • Check the excess to be paid (1) • Complete a claim form (1) in utmost good faith (1) • Use of assessors/loss adjusters (1) Accept any other relevant points.
6. [2] (c) Valid points include (Any 2 × 1 marks): • Insurers like CCC accept risk (1) they transfer the risk from the insured to themselves.(1) • In this way they enable businesses to operate (1) and control risk (1) and are, therefore, productive as they are satisfying peoples' needs/wants (1) to protect their goods/property (1) providing a service (1) Accept any other relevant points.
7. [6] (d) Level 2 (4-6 marks) Has discussed two or more of the means of payments and has given a reasoned opinion (If a candidate has discussed only one means of payment award 4 marks max.) Level 1 (1-3 marks) Has commented on one or two means of payment with/without an opinion • Cheques - written instructions to customer's bank to pay CCC • Direct debits – authorised by customer, giving CCC ability to debit customer's bank account. • Debit card - customer gives debit and number to CCC, who then use it to debit customer's bank account. • Credit card - customer gives credit card number to CCC, who then take payment from credit card company, who in turn send bill to customer. • Cheques involve paying in to CCC's bank and are least efficient method. • Direct debits mean CCC can take a series of payments without having separate authorisations and is most efficient for more than one payment. • Debit cards are efficient for one-off payments, but bank may charge a small fee. • Credit cards are also efficient for one-off payments but there is usually a larger fee than for debit cards. • Direct debits or debit cards would be the most efficient, depending on whether there is a series of payments (Direct debits) or a one-off payment (Debit card). Accept any other relevant points.