Comidex International Ltd is seeking insurance for its motor racing team.

Mark scheme

Marking points from the official mark scheme (May/June 2015). The mark or mark type is shown in brackets.

1. [4] (a)(i) Any four points × 1 mark each or two points × 2 marks each
2. the application for insurance which must be completed truthfully forms the basis of the insurance contract as all information about the insured risk is given on the form may act as a request for a quotation from the insurance company used by the insurer to assess the risk and decide whether or not to accept the risk used by the insurer to calculate the premium to be charged
3. any other relevant point
4. [3] (a)(ii) Any one insurance principle × 1 mark and 2 marks for explanation
5. utmost good faith – telling the truth and giving all relevant facts that might affect the risk
6. insurable interest - the applicant should suffer a financial loss if the risk occurred/ e.g. ownership of the risk
7. indemnity – the applicant should not over-insure hoping to make a profit from a loss.
8. [6] (a)(iii) Level 2 (4–6 marks) Has discussed whether or not Comidex International Ltd will have difficulty in obtaining insurance and has given a reasoned opinion. (If a candidate has discussed only one side of the argument, award 4 marks max)
9. Comidex will probably not have difficulty obtaining insurance cover for general risks such as premises insurance and insurance against fire and theft. It will have to have employer's liability insurance and is likely to have public liability insurance in case spectators are injured.
10. Comidex will, however, have difficulty obtaining motor insurance for its motor racing team because the risk of an accident occurring is very high and therefore the premium will be very large. Comidex is unlikely to obtain motor insurance from general insurers. It will have to use an insurance broker who specialises in finding insurers for high level risks. The insurance broker will arrange the insurance and also the documentation. Comidex is likely to pay high premiums and also likely to have large excesses and conditions or exclusion clauses on its policy. It will, however, be able to obtain motor insurance but at a price.
11. It is possible, however, that Comidex might decide to be its own insurers for the motor races. It would have to have considerable funds to be able to do this.
12. Level 1 (1-3 marks) Has commented on motor insurance with/without context.
13. Comidex will find it very difficult to obtaining motor insurance for its motor racing team. The risk of an accident occurring is very high. The premium will be very large. Comidex will use an insurance broker.
14. [1] (b)(i) Any one example × 1 mark such as retained profits, selling off unwanted assets, reducing stock levels.
15. [4] (b)(ii) Any four points × 1 mark each
16. internal finance is likely to be readily available
17. no interest has to be paid
18. it does not have to be repaid
19. no security is required
20. it may not be sure of the amount required
21. any amount up to the amount available may be taken
22. there is no loss of ownership
23. any other relevant point
24. [2] (c) Any two points × 1 mark each
25. they are used as advertising devices/methods of appeal
26. they are well known people
27. many people admire sports personalities
28. and so will buy a product associated with that person
29. any other relevant point