IIQE Paper 1 Principles and Practice of Insurance Examination Quiz 06 Advanced

The Insurance Authority (IA) assesses the fitness and properness of individuals and business entities to conduct regulated insurance activities. This assessment includes evaluating an individual’s past conduct, financial status, and other relevant matters.

An individual’s fitness and properness can be called into question if they have been dismissed or asked to resign from a position due to misconduct, negligence, incompetence, or mismanagement. Similarly, involvement in a business entity that faced compulsory winding-up, creditor compromises, or ceased trading with outstanding debts can raise concerns. Civil liability for fraud or misconduct related to a business entity’s formation or management is also a significant factor. Furthermore, if an individual was a controller, director, or partner of a business entity that failed to comply with legal or regulatory requirements due to their consent, connivance, neglect, or omission, this would be a relevant consideration. Criminal convictions or unresolved criminal charges relevant to fitness and properness are also taken into account. Finally, being found civilly liable for fraud, misfeasance, or misconduct by a court or competent authority is a serious concern.

Regarding financial status, the IA considers factors such as voluntary arrangements with creditors, bankruptcy adjudications, ongoing bankruptcy proceedings, and failure to satisfy judgment debts.

Other relevant matters for individual licensees include residency requirements, specifically being a Hong Kong permanent resident or holding a valid visa or permit that allows them to engage in regulated activities in Hong Kong.

For business entities, the IA assesses their ability to carry out regulated activities competently and fairly. This includes evaluating the qualifications, experience, and authority of the responsible officer(s). The responsible officer must have sufficient authority to discharge their responsibilities under the Insurance Ordinance (IO) and related regulations, codes, and guidelines. The IA considers the organizational structure, management responsibilities, and seniority of the responsible officer, as well as the nature and scale of the regulated activities under their supervision. The eligibility of the responsible officer(s) to carry out regulated activities in the relevant line of business is also a key factor.

Statement I is correct. According to IIQE Paper 1 guidelines, when a client is referred by another person, the agent should inform the client that they are responsible for arranging the insurance policy and the client should deal directly with them.

Statement II is correct. The agent must inform the client that the referrer does not represent the agent and should have no involvement in arranging the insurance policy.

Statement III is incorrect. The agent *should* disclaim all liability for any advice given by the referrer.

Statement IV is incorrect. The agent should inform the client that premium should be paid directly to the insurer or, if permitted, to the agent, but not to the referrer.

Therefore, statements I and II are correct.

Statement I is correct. The Guideline on Anti-Money Laundering and Counter-Terrorist Financing (GL3) issued by the Insurance Authority (IA) under the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) and the Insurance Ordinance (IO) provides a framework for authorized insurers, licensed insurance agencies, and licensed insurance brokers to establish and maintain AML/CFT systems.

Statement II is incorrect. While GL3 is admissible as evidence in court proceedings under the AMLO, failure to comply with its provisions does not automatically lead to legal proceedings. However, it can be considered by the IA when determining if a person has contravened a provision of Schedule 2 of the AMLO.

Statement III is correct. GL3 emphasizes a risk-based approach (RBA), requiring insurers to identify, assess, and understand their ML/TF risks and implement commensurate measures. This includes conducting an Institutional ML/TF Risk Assessment (IRA) to evaluate vulnerabilities related to customers, jurisdictions, products, and delivery channels.

Statement IV is incorrect. According to GL3, an Institutional ML/TF Risk Assessment (IRA) should be conducted every two years and upon trigger events which are material to the II’s business and risk exposure, not annually.

When an existing customer or beneficial owner is identified as a non-Hong Kong Politically Exposed Person (PEP), enhanced due diligence (EDD) measures are required. These measures, as outlined in the AML/CFT guidelines, aim to mitigate the higher risk associated with PEPs. Obtaining senior management approval for continuing the business relationship is a crucial step in this process. Additionally, it is essential to establish the source of wealth and funds of the customer or beneficial owner to ensure transparency and legitimacy. Ongoing monitoring, including reviewing customer information and scrutinizing transactions, is also vital for maintaining an effective AML/CFT system. Furthermore, insurance institutions (IIs) must screen customers against sanctions lists and report any suspicious transactions to the Joint Financial Intelligence Unit (JFIU). Therefore, applying EDD measures such as obtaining senior management approval and establishing the source of wealth and funds are necessary when an existing customer is found to be a non-Hong Kong PEP.

I. Correct. As per IIQE Paper 1 syllabus, a principal is obligated to remunerate the agent as agreed upon, including commissions or bonuses, within a reasonable or specified timeframe.
II. Correct. The principal is required to reimburse the agent for reasonable expenses incurred while acting on the principal’s behalf, unless otherwise stated in the agency agreement. This aligns with the duties owed by a principal to an agent.
III. Incorrect. While an agent can take action against a principal for breach of obligations, the death of the principal automatically terminates the agency agreement due to its personal nature. The agent cannot sue the deceased principal.
IV. Incorrect. If the agency agreement is for a determined period, it will terminate at the end of such period. This is a valid way to terminate an agency agreement, but it is not a breach of duty by the principal.

Therefore, statements I and II are correct.

The question explores the concept of automatic reinstatement in liability policies, particularly in relation to aggregate limits. Automatic reinstatement clauses restore the policy’s aggregate limit after a claim is paid, up to a specified number of reinstatements. The aggregate limit represents the maximum amount the insurer will pay out during the policy period. In this scenario, the policy has an initial aggregate limit of $500,000 and one automatic reinstatement. This means that after the first claim, the aggregate limit is restored to $500,000 again, but only once. The per-occurrence limit restricts the maximum payout for any single event to $250,000. Therefore, with the initial aggregate limit and one reinstatement, the maximum payout would be the initial $500,000 plus an additional $250,000 from the reinstatement, totaling $750,000. The other options misinterpret how aggregate limits and automatic reinstatement provisions function together. The aggregate limit is not increased by the per-occurrence limit after each claim, and the automatic reinstatement is not unlimited.

The Insurance Ordinance (IO) distinguishes between different types of insurance intermediaries, including licensed insurance agents and licensed insurance brokers. A ‘Regulated Person’ has a specific definition under the IO, encompassing licensed insurance intermediaries, responsible officers of licensed insurance agencies or broker companies, and individuals involved in the management of regulated activities within these agencies or broker companies. Responsible officers must be licensed technical representatives and their appointment requires prior approval from the Insurance Authority (IA). Section 68 of the IO addresses vicarious liability, stipulating the conditions under which an authorized insurer is liable for the actions of its appointed agents. This liability extends to acts within or outside the agent’s scope of authority, subject to certain exceptions such as proper disclosure to the client. The IO also clarifies liability when an agent is appointed by multiple insurers, focusing on which insurer’s appointment covers the relevant line of business or whose authority the agent was acting under. The transitional arrangements were put in place to ensure a smooth transition from the old to the new licensing regime, minimizing disruption to insurance intermediaries’ business and their service to existing policyholders. These arrangements allowed existing registered intermediaries to be ‘deemed’ licensed for a period of three years, during which they could apply for formal licenses from the IA.

When handling insurance claims, two key aspects require careful consideration: liability and quantum. Liability involves determining if the insurer is responsible under the policy and, in liability insurance, whether the insured is legally liable to the third-party claimant. Quantum refers to the amount payable for the claim. In life insurance, this is typically predetermined, but in other types of insurance, it can involve complex negotiations. Reinsurance is a mechanism where an insurer transfers risk to another insurer (the reinsurer). This provides financial security and increases underwriting capacity, allowing the insurer to accept more business. However, reinsurance has no direct effect on the policyholder, who is still entitled to the full amount payable under the contract from the original insurer. Actuaries play a crucial role in insurance, especially in life insurance, by using mathematical calculations to assess mortality rates and project interest earnings. They also contribute to general insurance by calculating outstanding claims reserves, particularly in long-tail business. The Insurance Ordinance requires insurers engaged in long-term business to appoint a qualified actuary and conduct annual valuations of assets and liabilities. Accountants are essential for maintaining accurate financial records and ensuring the collection of money owed to the insurer. Their role is vital for the financial stability of the company.

The Insurance Authority (IA), under Section 133 of the Insurance Ordinance (Cap. 41), assesses the ‘fit and proper’ status of individuals and business entities applying for or renewing insurance intermediary licenses. Guideline GL23 outlines the criteria the IA considers, including an individual’s reputation, financial status, disciplinary actions by regulatory bodies (like the MA, SFC, or MPFA), and the state of affairs of other businesses they conduct. For business entities, the IA considers information about related companies, controllers, directors, and the effectiveness of internal controls and risk management systems. The ‘fit and proper’ requirement is ongoing, applying to licensees, controllers, partners, directors, and responsible officers. GL23 also emphasizes intermediaries’ duty to comply with the Insurance Ordinance and related rules, codes, and guidelines, with non-compliance affecting their ‘fit and proper’ status. The IA considers education, qualifications, and experience relevant to the functions performed by individual licensees and proposed responsible officers.

According to the Personal Data (Privacy) Ordinance, insurance practitioners must collect personal data through lawful and fair means. Copying customer data from a former employer for use at a new company is a breach of this principle. Using personal data for a new purpose without consent, such as marketing new products from a different company, violates the principle that data should only be used for the original intended purpose. Insurance institutions must implement security measures to protect customer data, including secure transmission methods like sealed envelopes for sensitive documents. Clear guidelines should be provided to staff regarding the handling of customer data outside the workplace to prevent unauthorized access or disclosure. The Sex Discrimination Ordinance, Disability Discrimination Ordinance, and Family Status Discrimination Ordinance aim to eliminate discrimination. However, the insurance industry can differentiate between proposers based on actuarial data if it is reasonable and from a reliable source. For example, life insurance premiums may differ between men and women due to differing life expectancies. Similarly, personal accident insurance may have different terms for individuals with disabilities due to varying risk profiles. Therefore, statements I and II are correct.

Statement I is correct. According to the Personal Data (Privacy) Ordinance, a data user must comply with a data subject’s request to cease using their personal data for direct marketing at any time.

Statement II is correct. The Ordinance mandates that a data user must comply with a data subject’s request to stop providing their personal data to others for direct marketing purposes and notify those recipients to cease using the data.

Statement III is incorrect. The maximum penalty for contraventions involving the provision of personal data for gain is a fine of HK$1,000,000 and imprisonment for 5 years. The statement incorrectly states HK$500,000 and 3 years.

Statement IV is correct. The Personal Data (Privacy) Ordinance provides a defense if a person reasonably believed that the data user had consented to the disclosure of personal data.

Therefore, statements I, II, and IV are correct.

Statement I is correct. Customer service departments handle various inquiries, some unrelated to the company’s business, requiring perception and tact.
Statement II is correct. Customer service plays a crucial role in shaping the public’s perception of a company.
Statement III is incorrect. While customer service might handle initial requests for documentation, complex amendments often require specialized departments.
Statement IV is correct. Customer service is responsible for handling complaints fairly and promptly, potentially involving other departments and escalating to higher management or regulators.
Therefore, statements I, II, and IV are correct.

According to the Insurance Authority’s guidelines for licensed insurance brokers, several key disclosures and practices are mandated to ensure transparency and protect client interests. Firstly, a licensed insurance broker must inform the client about their license type (company or technical representative), and if a technical representative, the name of their appointing licensed insurance broker company. This information, along with the fact that the broker represents the client in dealings with insurers, must be provided before commencing regulated activities or as soon as reasonably practicable thereafter. If a technical representative works for multiple broker companies, they must clearly identify which company they represent for each transaction. Furthermore, a technical representative’s business card must accurately display their name, license number, license type, and the name of their appointing broker company. Regarding insurance products, brokers must provide comprehensive information on key features, including the insurer’s name, major policy terms, premium levels, and any fees. When comparing products, similarities and differences must be explained accurately. Finally, if recommending an insurer not authorized by the IA, specific disclosures about the insurer’s jurisdiction, regulatory status, financial standing, and the policy’s governing law are required, with written acknowledgement from individual clients.

A defective contract is one that is void, voidable, or unenforceable due to various reasons. A void contract is not legally binding from the outset. A voidable contract can be cancelled by one of the parties, often due to misrepresentation or duress. An unenforceable contract is valid but cannot be enforced in court, often due to lack of proper documentation or legal requirements. Understanding the reasons why a contract might be considered defective is crucial in insurance to determine the validity of a policy and any subsequent claims. The Electronic Transactions Ordinance allows for electronic submission of information, but does not directly address defective contracts. The duties owed by an agent to a principal and vice versa relate to the agency relationship and are separate from the validity of the contract itself. Therefore, only the statement about the nature of defective contracts is correct.

When an existing customer or beneficial owner is identified as a non-Hong Kong Politically Exposed Person (PEP), enhanced due diligence (EDD) measures are crucial. These measures, as outlined in the AML/CFT guidelines, aim to mitigate the higher risk associated with PEPs. Obtaining senior management approval ensures that the decision to continue the business relationship is carefully considered at a higher level within the institution. Establishing the source of wealth and funds helps to verify the legitimacy of the customer’s financial activities and reduces the risk of illicit funds entering the financial system. Ongoing monitoring, including reviewing customer information and scrutinizing transactions, is essential for detecting any unusual or suspicious activities. Screening against sanctions lists is also a critical component of AML/CFT compliance, ensuring that the institution does not inadvertently facilitate transactions involving sanctioned individuals or entities. Reporting suspicious transactions to the Joint Financial Intelligence Unit (JFIU) is a statutory obligation when there is knowledge or suspicion of money laundering or terrorist financing.

When a licensed insurance broker believes a client’s decision regarding an insurance policy is unsuitable, the broker has specific obligations to fulfill under the Insurance Ordinance (IO) and related guidelines.

First, the broker must provide a clear and comprehensive explanation to the client detailing why the decision is considered unsuitable. This explanation should cover the potential risks, drawbacks, or inconsistencies of the client’s choice in relation to their needs and circumstances. The goal is to ensure the client fully understands the implications of their decision.

Second, it is crucial to acknowledge and document that the final decision rests solely with the client. Even if the broker advises against a particular course of action, the client has the right to make their own informed choices. The broker should maintain records demonstrating that the client was informed of the broker’s concerns but ultimately chose to proceed with their original decision. This documentation protects the broker from potential liability and demonstrates adherence to regulatory requirements.

These obligations are rooted in the principles of fair treatment and informed consent, ensuring that clients are empowered to make decisions that align with their best interests, even if those decisions differ from the broker’s recommendations.

The Insurance Ordinance outlines specific restrictions to prevent conflicts of interest and ensure proper oversight within the insurance industry. These restrictions apply to individuals associated with licensed insurance agencies and broker companies.

* **Statement I:** This statement is correct. The proprietor of a licensed insurance agency cannot simultaneously be a director of a licensed insurance broker company who manages regulated activities. This prevents an individual from having conflicting responsibilities and potentially prioritizing one entity over another.
* **Statement II:** This statement is incorrect. A licensed technical representative (agent) *can* be a licensed technical representative (agent) of another licensed insurance agency. The regulations state that they must not be a licensed technical representative (agent) of *another* licensed insurance agency.
* **Statement III:** This statement is correct. A director of a licensed insurance broker company who manages regulated activities cannot also be a licensed individual insurance agent. This separation ensures that individuals focus on their specific roles and avoid potential conflicts of interest.

Therefore, statements I and III are correct.

Statement I is correct. The Agents’ Code of Conduct, issued by the IA under section 95(1) of the Insurance Ordinance (IO), aims to establish minimum standards of professionalism for licensed insurance agents when conducting regulated activities.

Statement II is correct. The Agents’ Code supplements the duties agents owe to their principals by requiring compliance with the principal’s requirements regarding regulated activities.

Statement III is incorrect. While the Agents’ Code aims to inform and explain statutory conduct requirements in sections 90 and 91 of the IO, it also references rules made by the IA under section 94 of the IO, not section 92.

Statement IV is incorrect. The Agents’ Code does not have the force of law, meaning a failure to comply does not automatically lead to legal proceedings. However, the IA may consider the Agents’ Code when assessing an agent’s conduct or fitness to remain licensed.

Therefore, statements I and II are correct.

I. Correct. As per IIQE Paper 1 syllabus, a principal is obligated to remunerate the agent as agreed upon, including commissions or bonuses, within a reasonable or specified timeframe.
II. Correct. The principal is generally required to reimburse the agent for reasonable expenses incurred while acting on the principal’s behalf, unless otherwise specified in the agency agreement. This aligns with the duties owed by a principal to an agent.
III. Incorrect. While an agent can take action against a principal for breach of obligations, the death of the principal automatically terminates the agency agreement due to its personal nature. The agent cannot take action against a deceased principal.
IV. Incorrect. If the agency agreement is for a determined period, it will terminate at the end of such period. This is a standard way an agency agreement can be brought to an end, and it does not involve the agent taking action against the principal.

Statement I is correct. Licensed insurance broker companies are indeed required to maintain records in either Chinese or English, or in a manner that allows for easy conversion into either language. This ensures transparency and accessibility for regulatory oversight.

Statement II is correct. As per the Insurance Ordinance (IO) and related rules, licensed insurance broker companies must retain required records for a minimum of 7 years. This retention period is crucial for audits and compliance checks by the Insurance Authority (IA).

Statement III is incorrect. While financial statements must include insurance brokerage income, aggregate balances of client accounts, and insurance premiums payable, this requirement does not apply to the audited financial statements of a specified insurance broker company for a financial year beginning before 1 January 2021.

Statement IV is incorrect. According to the Insurance Ordinance, any document (except an auditor’s report) provided under section 73(1) must be approved by the directors of the company, and signed by 2 of its directors on its directors’ behalf; or where it only has 1 director, by the director. The statement is therefore incorrect as it states 3 directors.

Therefore, statements I and II are correct.

Statement I is correct. According to the guidelines for licensed insurance brokers, they must disclose to the client the name of the insurer when recommending or arranging an insurance product.

Statement II is correct. Licensed insurance brokers are required to provide clients with information on major policy terms and conditions, including coverage, policy period, exclusions, and warranties, as these factors significantly impact the client’s decision.

Statement III is incorrect. While licensed insurance brokers should disclose fees and charges (other than premiums) to be paid by the client, they are not required to disclose the insurer’s profit margin.

Statement IV is correct. As per the regulations, when a licensed insurance broker intends to give regulated advice on or arrange an insurance policy with an insurer which is not authorized by the IA, the broker should disclose to the client the governing law of the insurance policy and the jurisdiction in which disputes under the policy will be determined.

Therefore, statements I, II, and IV are correct.

The equitable doctrine of contribution arises in situations of double insurance, where multiple policies cover the same interest and loss. Let’s analyze each statement:

Statement I: Correct. Contribution is indeed a principle applied when an insured party has multiple insurance policies covering the same risk and seeks indemnity from more than one insurer. This prevents the insured from profiting from the loss.

Statement II: Incorrect. Contribution applies when multiple policies cover the same interest. In the example provided, the merchant’s policy covers their ‘interest as owner,’ while the warehouse operator’s policy covers their ‘interest as bailee.’ These are different interests, so contribution does not apply.

Statement III: Correct. The ‘rateable proportion’ refers to the share of the loss that each insurer is responsible for when contribution applies. The sum of all insurers’ rateable proportions must equal 100% of the loss.

Statement IV: Incorrect. Contribution applies to indemnity-based insurance policies, not benefit-based policies like life insurance. Life insurance policies pay out the full sum insured regardless of other policies.

Therefore, statements I and III are correct.

The Insurance Ordinance (IO) in Hong Kong categorizes insurance business into Long Term Business and General Business. Long Term Business primarily encompasses Life Insurance and is further divided into nine classes (A to I). General Business is divided into 17 categories (1 to 17). Understanding this statutory classification is crucial for insurance practitioners as it dictates the authorization and supervision of insurance companies. The question tests the understanding of specific classes within Long Term Business as defined by Schedule 1 of the Insurance Ordinance.

According to Part 6A of the Personal Data (Privacy) Ordinance, a data user intending to use a data subject’s personal data for direct marketing must adhere to specific requirements. This includes informing the data subject about the types of personal data to be used, the classes of marketing subjects involved, and the classes of individuals to whom the data may be provided. If the data is to be provided for profit, this must also be disclosed. The data user must also provide a response channel for the data subject to indicate their consent or objection. A critical aspect is obtaining explicit consent or a clear indication of no objection from the data subject before using their data for direct marketing purposes or providing it to others for such use. If consent is given orally for the data user’s own direct marketing, written confirmation of the permitted data and marketing subjects must be sent to the data subject within 14 days. Providing data to others for direct marketing always requires written consent. The ‘grandfathering’ arrangement allows the continued use of data already used for direct marketing before the new provisions came into effect, provided previous requirements were met. Finally, data users must notify data subjects of their opt-out rights when using their personal data for direct marketing for the first time. Therefore, a data user cannot proceed with direct marketing activities without first obtaining the data subject’s explicit consent or indication of no objection, and fulfilling the notification requirements.

To be eligible for an individual insurance agent license, a technical representative (agent) license, or a technical representative (broker) license, individuals must meet specific academic or professional qualifications as outlined by the Insurance Authority (IA). These qualifications include achieving a certain level in the Hong Kong Diploma of Secondary Education Examination (HKDSE) or the Hong Kong Certificate of Education Examination (HKCEE), holding a Diploma Yi Jin, possessing an International Baccalaureate Diploma, or obtaining a diploma from a recognized higher education institution. The IA also recognizes specific insurance qualifications and other qualifications deemed equivalent or higher.

Exemptions from these qualifications are granted to individuals who were ‘specified persons’ before September 23, 2019, and have continuously engaged in insurance-related work in Hong Kong, provided they apply for the license within a three-year transitional period. ‘Specified persons’ include Individual Agents, Technical Representatives, Responsible Officers registered with the IARB, CIB, or PIBA, and Chief Executives registered with the CIB or PIBA.

Furthermore, exemptions from certain IIQE papers are granted based on specific insurance, actuarial, and professional qualifications, or for individuals who were in the insurance intermediary business before January 1, 2000, and held the Certificate of Proficiency in General Insurance Studies issued by The Hong Kong Federation of Insurers (HKFI), or possessed five years of proven experience in the insurance business in Hong Kong within the six-year period immediately before January 1, 2000. However, IIQE results may lapse if an individual ceases insurance practice for two or more consecutive years, unless they hold a specified insurance, actuarial, or professional qualification.

Proposed responsible officers are expected to have a bachelor’s degree from a recognized university or tertiary educational institution, an insurance qualification specified by the IA, or any other qualification considered equivalent or higher by the IA.

A policy franchise operates similarly to an excess, eliminating small claims. However, unlike an excess, if the loss exceeds the franchise threshold, the entire loss is payable. This can be expressed as a percentage, an amount, or a time period. In the example, a 5% franchise on a $5,000,000 insured ship means that if damages are below $250,000 (5% of $5,000,000), nothing is paid. If damages exceed $250,000, the entire loss is covered. Policy limits, on the other hand, define the maximum amount the insurer will pay, regardless of the extent of the loss. Single article limits and section limits are examples of policy limits. Reinstatement insurance provides more than indemnity by not deducting depreciation. ‘New for Old’ cover is similar, and agreed value policies fix the sum insured based on an expert’s valuation. Marine policies are almost always valued policies.

According to the Insurance Authority’s guidelines for licensed insurance brokers, a licensed technical representative (broker) has several key responsibilities. First, they must adhere to the record-keeping policies and procedures established by their broker company to ensure compliance with regulatory requirements. Second, regarding cooling-off periods, the broker must inform the client of their right to cancel the policy and how to do so before the application is finalized. The broker should also deliver the policy promptly to allow the client sufficient time to review it. Third, unless otherwise stated in the client agreement, the broker should provide reasonable assistance to the client in submitting insurance claims and relay relevant information to the insurer. Finally, the broker must possess the necessary professional knowledge and experience to provide competent advice and should not engage in activities beyond their expertise. Therefore, all the statements are correct.

I. Correct. According to the statutory definition, a material fact is any circumstance that would influence a prudent insurer’s judgment in setting the premium or deciding whether to accept the risk. This aligns with the principle of utmost good faith, requiring full and accurate disclosure.
II. Incorrect. While the duty of utmost good faith revives at renewal, it does not revive merely because a life policy is approaching its anniversary date. The anniversary date itself doesn’t trigger a new assessment of risk.
III. Correct. If alterations are requested during the policy’s term, the duty of utmost good faith applies specifically to those changes. The insured must disclose all material facts relevant to the altered risk.
IV. Incorrect. Facts that diminish the risk do not need to be disclosed in the absence of enquiry. The example given in the text is that of a sprinkler system, which reduces fire risk and therefore doesn’t need to be disclosed unless specifically asked about.

Therefore, statements I and III are correct.

Insurable interest is a fundamental principle in insurance, requiring a legally recognized relationship between the insured and the subject matter of the insurance. This relationship must be such that the insured would suffer a financial loss if the insured event occurs.

Statement I is correct because insurable interest is indeed required at the inception of a life insurance policy. The policy’s validity hinges on this initial insurable interest.

Statement II is also correct. As per the Insurance Ordinance, an insurance agreement is void if insurable interest is absent. This underscores the critical nature of insurable interest in the formation of a valid insurance contract.

Statement III is incorrect. While a financial relationship can contribute to insurable interest, it is not sufficient on its own. There must be a legally recognized relationship. A creditor can insure a debtor’s life, but not their property unless there’s a mortgage or other legal tie.

Therefore, statements I and II are correct.

This question assesses the understanding of ethical conduct for licensed insurance agents, specifically regarding harassment, coercion, undue influence, and bribery, as outlined in the IIQE Paper 1 syllabus. It also covers the agent’s duty to act fairly and in the client’s best interests.

Statement I is correct because licensed insurance agents are explicitly prohibited from using harassment, coercion, or undue influence to induce a client into an insurance contract or decision. This is a fundamental ethical requirement.

Statement II is correct because the Prevention of Bribery Ordinance (Cap. 201) prohibits agents from soliciting or accepting advantages without proper permission from their appointing insurer or agency. This ensures integrity and prevents conflicts of interest.

Statement III is correct because licensed insurance agents are obligated to treat clients fairly and provide suitable, impartial, and objective advice that considers the client’s best interests. This is a core principle of ethical insurance practice.

Therefore, all three statements are correct.