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Insurance Foundations Certificate Exam (IFCE): free practice test

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Practice test questions with answers and explanations

Try the questions in the test above first, then open each one here to see the correct answer and why every other option is wrong.

01Salem was in a road accident two months ago. He now believes the chance of another accident is much higher than the statistics suggest. What does this illustrate?

Practice question Unit: Understand the nature and main features of risk and insurance

  1. Athat people's decisions about risk are never affected by their past experiences

    This is the opposite of what the example shows; Salem's earlier experience changed how he views the risk.

  2. Bthat perception of risk can be shaped by experience, leading to an overstated likelihood ✓ Correct answer

    The text states that someone who has recently had an accident may hold an exaggerated view of the chance of it happening again because of his experience.

  3. Cthat the actual chance of an accident doubles for anyone after a first accident

    The point is about personal perception of the likelihood, not a real increase in the likelihood after a previous accident.

  4. Dthat Salem has become a risk seeker after his recent experience

    A risk seeker is willing to take risks, whereas Salem is overstating his fear of it, which is closer to risk aversion.

Reference: IFCE Study Text (The Financial Academy & CII, Sept 2025 ed.), ch. 1, section 1A: The role of risk in insurance

02Why is it harder for an insurer to predict the losses of rare, very severe events, such as an aircraft crash, than those of small, frequent claims?

Practice question Unit: Understand the nature and main features of risk and insurance

  1. ABecause the law of large numbers applies only to non-financial risks

    The law is applied to insurable financial risks, not to non-financial ones.

  2. BBecause they are few and random, leaving too little data for prediction ✓ Correct answer

    Low-frequency, high-severity claims are hard to predict because they are random, whereas frequent ones can be predicted using the law of large numbers.

  3. CBecause their losses cannot be identified or measured in money at all

    Losses such as an aircraft crash can be measured in money, even if very large; the difficulty comes from how few events occur.

  4. DBecause insurers classify them as speculative risks that cannot be insured

    An aircraft crash is a pure, insurable risk; the difficulty lies in how few and random the events are, not in classification.

Reference: IFCE Study Text (The Financial Academy & CII, Sept 2025 ed.), ch. 1, section 1D: Components of risk

03An insurer covers many commercial buildings in the same industrial area of Jeddah and fears that a single flood could produce many claims at once and threaten its financial position. What is the main purpose of arranging reinsurance in this case?

Practice question Unit: Know the structure and main features of the insurance market in Saudi Arabia

  1. ATo protect its portfolio from many losses arising from one event (accumulation of risk) ✓ Correct answer

    Accumulation of risk means several losses in the same area from one event such as a flood, and reinsurance protects the portfolio from its effect.

  2. BTo let the policyholders claim directly from the reinsurer when a loss occurs

    There is no contractual relationship between the policyholder and the reinsurer, so the policyholder looks to his own insurer only.

  3. CTo be released from any obligation to the policyholders once claims exceed a set level

    The insurer remains responsible for settling the loss in full to the policyholder; what it recovers from the reinsurer is its own matter.

  4. DTo inform the policyholders of the reinsurer's identity and the terms of its agreement with the company

    The policyholder is normally unaware of the reinsurance arrangement, so informing him of its terms is not its purpose.

Reference: IFCE Study Text (The Financial Academy & CII, Sept 2025 ed.), ch. 2, section 2C: Reinsurance

04An insurer offered a workshop owner cover for a premium of SAR 3,000. The owner replied: "I accept, on condition that the cover includes flood damage." The insurer refused this condition, so the owner said: "Fine, I accept your original offer at SAR 3,000." What is the result?

Practice question Unit: Understand the main legal principles governing insurance contracts

  1. ANo contract is formed: the original offer lapsed and the later acceptance is only a new offer ✓ Correct answer

    A conditional acceptance is a counter-offer, and a counter-offer rejects the original offer; it can no longer be accepted, and any later acceptance is a new offer that only the insurer's acceptance can complete.

  2. BA contract is formed at SAR 3,000, because the original offer stayed open until it was finally accepted

    The original offer did not stay open; it was rejected by implication when the counter-offer was made.

  3. CA contract is formed at SAR 3,000, because the insurer's refusal of the condition restored the original offer

    Refusing the counter-offer does not revive the original offer once the conditional reply had ended it.

  4. DA contract is formed including flood damage, because the insurer did not expressly withdraw its offer

    The insurer never agreed to the flood condition, and no contract arises on a term the parties did not agree.

Reference: IFCE Study Text (The Financial Academy & CII, Sept 2025 ed.), ch. 3, section 3B: Offer and acceptance

05A home contents policy runs for 12 months with a premium of SAR 2,400, paid in full by the policyholder. The insurer cancelled the policy under its cancellation clause after giving the required notice, and the cancellation took effect exactly three months after cover began, with no claims made. How much must the insurer refund to the policyholder?

Practice question Unit: Understand the main legal principles governing insurance contracts

  1. ASAR 600

    SAR 600 is the premium for the three months already elapsed, not the amount to be refunded.

  2. BSAR 1,200

    SAR 1,200 is half the premium, i.e. six months, which does not match the nine unexpired months.

  3. CSAR 2,400

    Refunding the whole premium would mean the insurer keeps nothing for three months during which cover was in force.

  4. DSAR 1,800 ✓ Correct answer

    When the insurer cancels, it refunds the premium for the unexpired period pro rata: 9 months out of 12 × 2,400 = SAR 1,800.

Reference: IFCE Study Text (The Financial Academy & CII, Sept 2025 ed.), ch. 3, section 3F: Cancelling insurance contracts; Implementing Regulations of the Cooperative Insurance Companies Control Law (2004), Article 54

06An agent made a contract with a customer within the authority given to him in the agency agreement signed with his principal. The principal later wanted to be rid of the contract. What is the principal's position?

Practice question Unit: Understand the main legal principles governing insurance contracts

  1. Ahe is bound, since the agent acted within his authority ✓ Correct answer

    Since the agent acted within the authority given, the contract binds the principal, who cannot withdraw from it unilaterally.

  2. Bhe may walk away from it as long as performance has not started

    The principal has no such right; an act within the agent's authority binds him even before performance starts.

  3. Che may escape it by terminating the agency retroactively

    Terminating an agency does not reach back in time; it does not undo contracts made while it was in force.

  4. Dhe is bound only if he confirms it in writing after it is made

    Later confirmation is needed for acts done without authority, not for acts within the agent's authority.

Reference: IFCE Study Text (The Financial Academy & CII, Sept 2025 ed.), ch. 3, section 3G: Agency

07A regulator required insurers to publish reliable, audited data to the public and helped set up dispute-settlement mechanisms, so that consumers and investors can make informed decisions. Which additional regulatory function is it performing?

Practice question Unit: Understand the main regulatory and legal principles applicable to insurance business in Saudi Arabia

  1. ACorporate governance

    Corporate governance concerns supervising the risks arising from the company's activities and management and its compliance with standards, not publishing data to the public.

  2. BMarket discipline ✓ Correct answer

    This is market discipline: promoting timely, adequate and accurate disclosure and facilitating dispute-settlement mechanisms.

  3. CConsumer compensation

    Consumer compensation refers to schemes such as a policyholder protection fund when an insurer fails; it is not about publishing data.

  4. DConsumer education

    Consumer education means raising awareness of what different contracts imply, not requiring insurers to publish audited data.

Reference: IFCE Study Text (The Financial Academy & CII, Sept 2025 ed.), ch. 9, section 9A: Role of the regulator in the insurance sector; Cooperative Insurance Companies Control Law (Royal Decree No. M/32, 1424 AH), Article 10

08A broker recommended a motor policy to a customer from an insurer that did not give the cheapest quotation among those obtained, because the broker's commission on it is higher. What do the Insurance Market Code of Conduct Regulations require of the broker?

Practice question Unit: Know key aspects of ethical behaviour and corporate governance

  1. ARelying on a single quotation from the insurer he recommends without looking at quotations from others

    Incorrect: the broker must make reasonable efforts to obtain quotations from several insurers and give reasons for recommending one.

  2. BNot mentioning the commission to the customer as long as it falls within the normal agreement with the insurer

    Incorrect: if the broker would earn more commission on the recommended contract, this must be explained to the customer.

  3. CShowing the customer the cheapest quotation, justifying the recommendation and explaining the higher commission ✓ Correct answer

    Correct: the broker must give details of the cheapest quotation and a full justification (comparing terms, cover and compensation), and explain if he earns more commission.

  4. DTelling the customer the recommended insurer is the best, without comparing terms and cover

    Incorrect: the justification must include a comparison of terms and conditions and of the differences in cover and compensation between insurers.

Reference: IFCE Study Text (The Financial Academy & CII, Sept 2025 ed.), ch. 11, section 11D: The basic principles of effective customer service; Insurance Market Code of Conduct Regulations (2008), Article 36

09An insurer's actuary has submitted an urgent report directly to the board after noticing a current risk facing the company. Within how many days of receiving the report must the board review it and send IA its views?

Practice question Unit: Understand the procedures and policies of the insurance process

  1. A7 days

    This is not the period the Regulations set; it is fifteen days.

  2. B30 days

    This is longer than the period prescribed; the Regulations set fifteen days, not thirty.

  3. C15 days ✓ Correct answer

    The Implementing Regulations require the board to review the urgent report and send IA its views within fifteen days of receiving it.

  4. D60 days

    Sixty days is the deadline for the actuary's annual reports after the fiscal year ends, not the board's period for reviewing an urgent report.

Reference: IFCE Study Text (The Financial Academy & CII, Sept 2025 ed.), ch. 11, section 11A: Important senior positions in insurers; Implementing Regulations of the Cooperative Insurance Companies Control Law (2004), Article 20

10An accident occurred involving a vehicle insured under the Unified Policy, and it turned out that the driver's licence had expired at the time of the accident; he renewed it 30 days after the accident. What is the insurer's position on recovering from the driver or the insured after compensating the injured party?

Practice question Unit: Know the main insurance products and related services

  1. AA right of recovery, because the licence was expired when the accident occurred

    Incorrect: an expired licence at the time of the accident is not enough on its own; the exception applies if it is renewed within 50 days.

  2. BA right of recovery, because the permitted renewal period is only 15 days

    Incorrect: the period stated in the policy is 50 days, not 15 days.

  3. CNo right of recovery, because an expired licence is never a recovery case

    Incorrect: an expired licence at the time of the accident is a recovery case in principle, but renewal within 50 days removes the right here.

  4. DNo right of recovery, because the licence was renewed within 50 days ✓ Correct answer

    Correct: a right of recovery arises where the licence had expired at the time of the accident unless it was renewed within 50 days of the accident, and here it was renewed after 30 days.

Reference: IFCE Study Text (The Financial Academy & CII, Sept 2025 ed.), ch. 11, section 11C: Insurance classes; Unified Compulsory Motor Insurance Policy (Insurance Authority, 2023), Article 5

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