ANZIIF Tier 1 Practice Exam

The correct term that describes the remaining liability of a policy after it has been cancelled is "run off cover." This concept is particularly relevant in the context of insurance policies where liabilities may still arise even after the policy has ended. Run off cover serves to protect against claims that could be made for events that occurred during the policy period, but are reported after the cancellation of the policy.

For example, in a professional indemnity insurance context, a provider may still face claims related to work done while the policy was in force, even if the policy is cancelled later. Run off cover ensures that these risks are still managed and that the policyholder has some form of protection for claims that are arising from the past activities covered under the cancelled policy.

In contrast, other terms related to insurance do not align with the notion of remaining liability after cancellation. Subrogation refers to an insurer's right to recover costs from a third party after they have paid a claim, rather than addressing liabilities post-cancellation. Risk avoidance is a strategy to eliminate exposure to certain risks upfront rather than managing them after the fact. Retroactive cover relates to past incidents being covered by a current policy but does not pertain to the scenario of a policy being cancelled.