O-LevelCommerceInsurance7100/21 · Oct/Nov 2012 · Q720 Marks

Many people, businesses and international traders insure against risk.

(a)(i)Name two risks against which international traders should insure.[2]
(a)(ii)To what extent do businesses need to be insured against risk? Give reasons for your answer.[6]
(b)(i)What advice would you give to people who made the following statements? In each case, give any general insurance rules or principles that apply. My factory is worth $1.5m. If it were destroyed by fire, I would like to build a larger one, so I have insured it for $2m.[3]
(b)(ii)What advice would you give to people who made the following statements? In each case, give any general insurance rules or principles that apply. I have just taken out an insurance policy on my house. It was cheaper than I expected but I forgot to tell the insurance company about the additional rooms I added last year.[3]
(b)(iii)What advice would you give to people who made the following statements? In each case, give any general insurance rules or principles that apply. Trade is not very good. I think I need to insure against business failure.[3]
(b)(iv)What advice would you give to people who made the following statements? In each case, give any general insurance rules or principles that apply. I sold my business last month but I have not cancelled the insurance policy on it.[3]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2012). The mark or mark type is shown in brackets.

[2] (a) (i) Any two risks x 1 mark each that apply to international traders - aviation – or losses when carrying goods by air, marine - losses when carrying goods by ship, non-payment for goods or services – export credit insurance, travel, loss or theft of credit cards, fire/theft in warehouse, any other relevant risk relating to international traders
[6] (a) (ii) Level 2 (4–6 marks) Has shown the extent to which insurance is necessary to businesses with reasoning. (If a candidate has given a reasoned answer without showing the extent to which insurance is necessary – award 4 marks max.) Insurance is very important for most businesses. Many businesses want to reduce risk. If a business is not insured and a risk occurs such as a fire, the business will suffer financial losses and may have to close. Having insurance gives the business person the confidence to conduct the business. The insurance company may advise the business on ways to reduce risk e.g. fire precautions such as sprinklers. Cover for some risks is also compulsory by law in some countries e.g. employers’ liability for employees and third party motor insurance. Level 1 (1–3 marks) Has mentioned some reasons for having insurance cover. Many businesses have insurance. They want to obtain compensation if a risk occurs. They want cover in case of fire or theft.
[3] (b) (i) Any three points x 1 mark each for each of the following sections – the person has overinsured the factory, he would not be indemnified, as he is not able to make a profit from a loss, he would receive only (up to) $1.5m if the factory was totally destroyed by fire
[3] (b) (ii) the person has not given all relevant facts (when completing the proposal form), and so has not complied with the principle of utmost good faith, if she makes a claim it may be refused, as she has not told the truth, the risk may have been greater because of the extra rooms, and so the premium would have been greater
[3] (b) (iii) this person would not be able to insure against business failure, because it is a non-insurable risk, as there are no past records/statistical records, with which to assess risk, and set a premium, the person may cause the business failure in order to claim compensation
[3] (b) (iv) this person should have cancelled the insurance policy on the business, as he no longer owns the business, and so has no insurable interest in the business, as he will not suffer any financial loss if anything happens to it, the new owner should insure the business, any other relevant point