IIQE Paper 2 General Insurance Examination Quiz 02 Advanced

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles, an insurer is not legally mandated to remind the policyholder about an approaching renewal date. If the policyholder fails to take action, the policy simply lapses at the end of its term. Cancellation, on the other hand, implies a premature termination of coverage, which is distinct from a policy lapsing due to non-renewal. Therefore, the statement that an insurer is not obligated to remind the insured about the renewal date is accurate.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles, an insurer is not legally mandated to remind the policyholder about an approaching renewal date. If the policyholder fails to take action, the policy simply lapses at the end of its term. Cancellation, on the other hand, implies a premature termination of coverage, which is distinct from a policy lapsing due to non-renewal. Therefore, the insurer is not obligated to provide a reminder for renewal.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded by the policy, shifting the burden of proof to the insurer to demonstrate an exclusion applies. The scenario describes a situation where a loss occurred, and the insurer is attempting to deny coverage by claiming it wasn’t a covered peril. Under ‘Specified Perils’ cover, the claimant would need to demonstrate the loss was due to a named peril. However, if the policy was ‘All Risks’, the insurer would need to prove the loss falls under an exclusion. The question implies the insurer is trying to avoid liability by stating the cause wasn’t covered, which is characteristic of the claimant needing to prove the cause under ‘Specified Perils’ cover.

The scenario highlights the importance of the insured’s duty to notify the insurer of a potential claim as soon as reasonably practicable. While the insured reported the damage within 20 days, the insurer argued this was not ‘as soon as reasonably possible’ because the watch had already been repaired, hindering the investigation. The Complaints Panel, however, considered the layman’s perspective and the simplicity of the circumstances, ultimately awarding the claim. This implies that the insurer’s ability to investigate is a key factor in determining if the notification was timely. The question tests the understanding of the ‘prejudice’ principle in relation to late notification, where a delay is only a valid reason for rejection if it demonstrably disadvantages the insurer’s ability to assess the claim’s validity or extent. The other options represent incorrect interpretations of the notification clause or the Complaints Panel’s reasoning.

This question tests the understanding of the core principle of ‘All Risks’ insurance, which is that it covers all losses unless specifically excluded. The insurer bears the burden of proving that an exclusion applies. Option (b) is incorrect because while exclusions exist, the fundamental principle is broad coverage. Option (c) is incorrect as ‘all risks’ does not imply coverage for intentional acts by the insured. Option (d) is incorrect because the insurer must prove an exclusion, not the insured.

Institute Cargo Clauses (A) provides the broadest coverage, operating on an ‘all risks’ basis. This means it covers all losses unless specifically excluded. Clauses (B) and (C) are more restrictive, covering only listed perils. Therefore, a shipment insured under Clause (A) would be covered for damage caused by a sudden, unexpected event like a storm surge, provided it’s not an explicitly excluded peril. Clauses (B) and (C) would likely not cover this unless ‘storm surge’ or a similar peril was specifically named in the policy.

This question tests the understanding of the specific definitions used in Personal Accident (PA) cover within travel insurance, as illustrated by Case 12. The scenario highlights that a claim for ‘loss of one limb’ requires physical severance or total functional disablement as per the policy wording. Partial functional loss, even if causing significant inconvenience, does not meet this definition unless the policy explicitly provides for proportional compensation for such partial disabilities. Therefore, the insurer’s rejection of the claim for partial disablement of the hand, based on the policy’s strict definition of ‘loss of one limb’ and the absence of provisions for partial loss, is consistent with the policy terms.

A Certificate of Insurance serves as a formal confirmation of the existence of compulsory insurance, particularly in contexts like motor vehicle insurance. It is a standalone document, distinct from the main policy, providing evidence of coverage. While it confirms coverage, it does not typically detail the specific terms and conditions of the underlying policy, nor does it represent a guarantee of payment from the insurer. Its primary function is to satisfy legal requirements for mandatory insurance.

The question tests the understanding of the ‘pro rata average’ condition in insurance policies, specifically how under-insurance affects claim payouts. The scenario describes a situation where the sum insured for contents is less than the actual value of the contents at the time of loss. The pro rata average condition stipulates that the claim payment will be reduced proportionally to the extent of under-insurance. In this case, the sum insured ($500,000) represents 80% of the actual value ($625,000). Therefore, the claim for a loss of $100,000 will be paid at 80% of that amount, resulting in a payout of $80,000, provided it does not exceed the sum insured.

A Certificate of Insurance serves as a formal confirmation of the existence of compulsory insurance, particularly in contexts like motor vehicle insurance. It is a standalone document, distinct from the main policy, that verifies the mandatory coverage is in place. While it confirms coverage, it is not the primary document for detailing all terms and conditions, nor is it a guarantee of the insurer’s financial solvency, which is typically addressed through regulatory oversight. It also doesn’t represent a claim payment.

A Certificate of Insurance serves as a formal confirmation of the existence of compulsory insurance. It is a standalone document, distinct from the main policy, and is commonly issued for motor insurance and pleasure vessel insurance to demonstrate compliance with legal requirements. While it confirms coverage, it is not the policy itself, nor is it a claim notification or a summary of all policy terms.

An insurance broker acts as an agent for the proposer (the client seeking insurance). This agency relationship means the broker is legally bound to act in the proposer’s best interest and to disclose all material facts known to them concerning the risk being insured. If a broker withholds or misrepresents such information, it constitutes a breach of the duty of utmost good faith. This breach is legally attributed to the proposer, potentially voiding the insurance contract from its inception, as the insurer relied on the information provided (or lack thereof) when making their underwriting decision. Therefore, the broker’s actions are directly linked to the proposer’s obligations under the principle of utmost good faith.

A fire business interruption policy is designed to compensate an insured business for financial losses incurred due to a disruption of operations following a covered peril, such as fire. This compensation typically includes the loss of gross profit and continuing expenses. While the physical damage to buildings and contents is covered by a standard fire policy, business interruption insurance addresses the consequential financial losses that arise from the inability to trade. It does not cover legal liabilities to third parties, which are addressed by other types of insurance.

The question tests the understanding of the core components typically found in a company’s published declaration of service standards for insurance intermediaries and policyholders. These declarations are designed to outline the company’s commitment to quality, professionalism, efficiency, ethical conduct, and fair claims handling. Option (a) accurately reflects the commitment to quality and service, which is a fundamental aspect of such declarations. Option (b) is also a common element, focusing on professional standards. Option (c) highlights efficiency and business ethics. Option (d) addresses the crucial aspect of claims handling. However, the question asks for the most encompassing and foundational element that influences the company’s declared intentions and performance measurement. While all options are relevant, a commitment to ‘quality and service’ serves as the overarching principle that guides the specific promises made in other areas. The provided text emphasizes that these declarations are a ‘standard of declared intentions and as a measure of performance,’ and a commitment to quality and service is the most direct representation of this. The other options are specific manifestations of this broader commitment.

The scenario describes an individual who intentionally intervenes in a violent situation to rescue friends. The Complaints Panel determined that the insured’s injury was not accidental because it was a foreseeable consequence of his deliberate actions in joining the fray. The key principle here is that for a personal accident claim, the injury must be the result of an unforeseen and unintentional event. By actively participating in a dangerous situation, the insured’s actions led to a predictable outcome of being attacked, thus negating the ‘accidental’ nature of the injury as required by personal accident policies. The insurer’s rejection was based on the injury not being accidental, which aligns with the panel’s finding.

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when an employer’s compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. Therefore, if an employer fails to secure the mandatory insurance, the ECAS steps in to ensure employees receive compensation for work-related injuries or diseases, fulfilling the spirit of the Employees’ Compensation Ordinance.

The scenario describes an individual intentionally engaging in a physical altercation to rescue friends. The Complaints Panel determined that the insured’s injury was not accidental because it was a foreseeable consequence of his deliberate actions in joining the fight. The key principle here is that for a personal accident claim, the injury must be the result of an unforeseen and unintentional event. By actively participating in a dangerous situation, the insured’s actions led to a predictable outcome of being injured, thus negating the ‘accidental’ nature of the event as required by personal accident policies.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the standards expected in the insurance industry concerning personal insurance policies for Hong Kong residents. It covers a broad spectrum of practices, including underwriting, claims handling, product knowledge, and customer rights. While the Insurance Companies Ordinance (ICO) sets out foundational regulatory requirements for insurers’ financial stability and governance, and the Code of Practice for the Administration of Insurance Agents details intermediary conduct, the Code of Conduct for Insurers is the primary document outlining the industry’s self-regulatory standards for direct interactions with policyholders on the operational aspects of insurance business.

The Employees’ Compensation Ordinance in Hong Kong establishes a strict liability framework for employers. This means that an employer is legally obligated to compensate an employee for injuries or death sustained in accidents that arise out of and in the course of their employment, regardless of whether the employer was at fault. The ordinance mandates insurance to cover these liabilities. Therefore, the core principle of this compulsory insurance is to provide compensation based on the occurrence of a work-related accident, not on proving the employer’s negligence.

This question tests the understanding of the legal implications of policy renewals in Hong Kong, specifically concerning the duty of utmost good faith, the nature of the renewal contract, the negotiability of terms, and the insurer’s obligation to notify non-renewal. Statement (i) is true because the duty of utmost good faith applies to all insurance contracts, including renewals, requiring both parties to disclose all material facts. Statement (ii) is also true as a renewal is generally considered the formation of a new contract, not merely a continuation of the old one, meaning new terms and conditions can be introduced. Statement (iv) is true because insurers in Hong Kong have a regulatory obligation to inform policyholders if they do not intend to renew a policy, allowing the policyholder time to seek alternative coverage. Statement (iii) is false because while terms can be negotiated, they are not ‘freely’ negotiable in the sense that insurers must adhere to regulatory requirements and their own underwriting guidelines; the insurer has the right to offer renewal terms based on updated risk assessments and market conditions, and the insured can choose to accept or decline.

This question tests the understanding of the Insurance Claims Complaints Bureau (ICCB) in Hong Kong, a key dispute resolution mechanism for insurance policyholders. The ICCB scheme is designed to provide an accessible and cost-effective avenue for resolving complaints against insurers. It is crucial to understand its scope, operational principles, and limitations. Specifically, the ICCB handles complaints related to both general and long-term insurance policies, not just personal lines. The service is free for complainants, ensuring accessibility. While the ICCB makes recommendations, its decisions are not legally binding on the insurer in the same way a court judgment would be, and neither party is compelled to accept an award. However, the ICCB does have a monetary limit for the claims it can consider, which is set by the Insurance Authority. Therefore, statements (i) and (iii) are incorrect because the scheme applies to all types of insurance claims and only the complainant can appeal against an award, not the insurer. Statement (iv) is correct as the maximum claim amount is HK$800,000. Statement (ii) is also correct as the complainant is not charged a fee.

This question tests the understanding of exclusions in Directors’ and Officers’ (D&O) liability insurance, specifically concerning actions taken by the insured. The scenario describes a director making a decision that leads to a financial loss for the company, and the director is subsequently sued for this action. According to typical D&O policy exclusions, claims arising from dishonesty or fraud of the insured director are generally not covered. While the policy might cover defense costs for allegations of dishonesty, the indemnity for the loss itself would be excluded if the dishonesty is proven. The other options represent situations that might be covered or are not standard exclusions. For instance, a breach of professional duty is typically covered by Professional Indemnity insurance, not excluded from D&O. Contractual liability is also a separate exclusion, but the core issue here is the director’s personal conduct. Known circumstances are excluded if known at inception, but the scenario implies the action itself is the basis of the claim, not prior knowledge of a problem.

This question tests the understanding of exclusions in engineering insurance, specifically Boiler Explosion Insurance. The provided text states that risks normally insurable by other policies, such as fire and extra perils, are excluded from Boiler Explosion Insurance. This is to prevent duplication of coverage and ensure that each policy covers distinct risks. Therefore, a fire that occurs during a boiler explosion would typically be covered by a separate fire insurance policy, not the boiler explosion policy.

The scenario describes a situation where the insured experienced a loss (damaged watch) and took action to mitigate it by sending it for repair. However, the claim was lodged two weeks after the repair was completed. The provided text emphasizes the importance of timely notification to the insurer as per policy conditions. While the insured acted promptly to get the watch repaired, the delay in notifying the insurer about the claim itself, after the repair was done, could be a breach of the policy’s notification clause, which typically requires prompt reporting of a potential claim. The insurer’s responsibility is to prove that an exclusion applies or that a warranty was breached, but the insured’s duty to comply with policy terms, including notification procedures, is paramount. Therefore, the delay in lodging the claim after the repair could be a valid reason for the insurer to question the claim’s validity based on the ‘Notification to the insurer’ clause.

The question tests the understanding of exclusions in pleasure craft insurance, specifically concerning the ship’s boat. According to the provided text, a ship’s boat is excluded from coverage if it is not permanently marked with the parent boat’s name. This implies that if the ship’s boat is properly marked, it would be covered under the policy, making the statement about its exclusion conditional on the marking. Therefore, the statement that the ship’s boat is excluded is not universally true for all pleasure craft policies; it depends on the marking of the boat.

The core principle of an indemnity policy is to restore the insured to their pre-loss financial position. When new parts replace old, worn-out parts, the insured is often in a better position financially due to the improved condition and lifespan of the new components. This improvement is termed ‘betterment’. The insurer is entitled to deduct a portion of the repair cost to account for this betterment, ensuring the insured does not profit from the claim. The case highlights that the insurer’s calculation of a 35% betterment contribution for an eight-year-old vehicle, while potentially debatable in its exact percentage due to the lack of a universal calculation method, was deemed reasonable by the Complaints Panel given the vehicle’s age and the policy’s exclusion of depreciation. The insured’s agreement to bear the excess is standard, but their refusal to contribute to betterment is contrary to the indemnity principle when new parts are used.

This question tests the understanding of exclusions in a Professional Indemnity (PI) policy. PI policies are designed to cover financial losses arising from negligent acts or omissions in professional services. However, they typically exclude liability stemming from dishonest or fraudulent conduct by the insured professional. This exclusion is crucial because insurance is meant to cover unforeseen accidents and errors, not intentional wrongdoing. While other options might be covered under different types of insurance or have specific policy endorsements, dishonesty is a fundamental exclusion in PI coverage.

The principle of indemnity in insurance aims to restore the insured to the financial position they were in before the loss. When replacing old parts with new ones, there’s an inherent betterment, as the new parts are superior to the old, worn-out ones. The insurer is entitled to deduct a reasonable amount for this betterment to avoid over-indemnifying the insured. The case highlights that for an eight-year-old vehicle, a 35% betterment contribution is considered reasonable by the Complaints Panel, especially when the policy explicitly excludes depreciation. This contribution reflects the improved condition of the vehicle post-repair due to the new parts, aligning with the indemnity principle. The insured’s agreement to bear the excess is separate from the betterment contribution. The exclusion of depreciation in the policy reinforces the insurer’s right to claim a betterment contribution.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a jurisdictional limit of HK$800,000 for the value of the claim. Complaints exceeding this amount, or those arising from commercial, industrial, or third-party insurance, fall outside the ICCB’s purview and must be resolved through other means such as litigation or arbitration. Therefore, a dispute involving a commercial property insurance claim, regardless of its monetary value, would not be handled by the ICCB.

The question tests the understanding of which vessels are subject to registration in Hong Kong under the relevant legislation. Option (a) correctly identifies vessels regularly employed in trading to or from Hong Kong, unless registered elsewhere. Option (b) is incorrect because pleasure craft are specifically mentioned as requiring registration. Option (c) is incorrect as it describes a specific type of fishing vessel that is already covered by the broader category in (a). Option (d) is incorrect because it describes a scenario where a vessel from Mainland China or Macau might be exempt from Hong Kong registration if it holds specific valid certificates, not that it is always exempt.