IIQE Paper 1 Principles and Practice of Insurance Examination Quiz 58

Guidance Note 4 (GN4) issued by the IARB (now part of the HKFI) provides specific directives on ethical conduct for insurance agents. A key requirement is that agents must not accept blank or incomplete proposal forms from clients. Any necessary amendments to a form must be initialed by the client to ensure transparency and prevent potential fraud or misrepresentation. This practice safeguards both the policyholder and the insurer by maintaining the integrity of the application process.

The scenario describes an insurance practitioner moving to a new company and taking copies of their former employer’s customer information. This action directly violates the principle of lawful and fair means of data collection and the concept of purpose limitation. Personal data collected for one purpose (servicing policies with the former employer) cannot be reused for a different purpose (marketing for the new employer) without explicit consent or legal basis. This is a core tenet of data protection, as outlined in the Personal Data (Privacy) Ordinance (PDPO) and further elaborated in guidance for insurance practitioners. The practitioner’s actions are not only unfair but also likely illegal, as they misuse data obtained under a previous contractual relationship for a new, unauthorized purpose.

This question tests the understanding of ‘Non-fraudulent Non-Disclosure’ as a breach of utmost good faith. It arises when a party, without intent to deceive (innocently or negligently), fails to reveal material facts to another party. The scenario describes an applicant for travel insurance who, when asked about pre-existing medical conditions, omits a recent minor ailment that they genuinely forgot about. This omission, while not intentional fraud, is a failure to disclose a material fact, thus constituting non-fraudulent non-disclosure. Option B describes ‘Ordinary Good Faith,’ which only requires truthful answers to specific questions, not proactive disclosure of all facts. Option C describes ‘Utmost Good Faith’ generally, but the specific scenario points to a non-fraudulent breach. Option D describes ‘Proximate Cause,’ which relates to the direct cause of a loss, not disclosure obligations.

This question tests the understanding of the core functions within an insurance company and the division of responsibilities. The Accounts department is primarily concerned with financial transactions, record-keeping, and managing the company’s monetary assets and liabilities. Options (i) and (ii) both relate to financial management: paying bills and collecting premiums are direct financial responsibilities. Option (iii), determining the insurability of a risk, falls under the purview of underwriting, which involves assessing and evaluating potential risks. Option (iv), arranging the launch of a new policy product, is typically the responsibility of the product development or marketing departments, involving market research, policy design, and promotional strategies. Therefore, both determining risk insurability and arranging new product launches are outside the typical scope of an Accounts department.

The ‘single article limit’ in a household contents policy is a safeguard for insurers against a situation where a single, highly valuable item constitutes a disproportionately large percentage of the total sum insured for all contents. If such an item is not specifically declared and insured for its individual value, the policy will cap the payout for that item to a predetermined limit, even if the overall sum insured for contents is higher. This prevents the insurer from being exposed to a significant risk on one item without adequate premium or knowledge. Option (b) describes a section limit, which applies to different sections of a policy. Option (c) refers to reinstatement or ‘new for old’ cover, which relates to how claims are settled without deductions for depreciation. Option (d) describes an agreed value policy, where the value is fixed beforehand, typically for specific high-value items.

The Employees’ Compensation Insurance Residual Scheme Bureau (ECIRS Bureau) was established to address situations where employers, particularly those in high-risk occupations, faced difficulties in securing Employees’ Compensation (EC) insurance. It functions as a ‘market of last resort,’ ensuring that such employers can obtain the mandatory EC insurance. This is achieved through a market agreement where all EC insurers are members and collectively share the risks. The ECIRS Bureau oversees the operation of this scheme, facilitating access to insurance for employers who would otherwise be unable to obtain it.

Under the Personal Data (Privacy) Ordinance (PDPO), when a data user intends to use personal data for direct marketing for their own purposes, and they provide the prescribed information to the data subject either orally or in writing, the data subject’s consent or indication of no objection can be given orally or in writing. However, if the data subject’s reply is given orally, the data user is obligated to confirm this consent in writing to the data subject within 14 days of receiving the oral reply. This written confirmation must specify the permitted kinds of personal data and the permitted classes of marketing subjects. This ensures a clear record of consent and compliance with the PDPO’s requirements for direct marketing.

This question tests the understanding of an agent’s duty of care and skill. An agent is expected to exercise reasonable care and skill in performing their duties. While the law doesn’t demand perfection, a failure to meet this standard can lead to the principal reclaiming losses from the agent. In this scenario, the agent’s failure to renew the policy due to oversight, despite having the funds, demonstrates a lack of reasonable care and skill, making the principal liable for the loss caused by the lapse in coverage and allowing the principal to seek recourse from the agent.

This question tests the understanding of vicarious liability in the context of data protection. Under the Personal Data (Privacy) Ordinance (PDPO), a data user is generally held responsible for the actions of their data processor when personal data is outsourced. The Ordinance specifies that the data subject may seek recourse from the data user, who is liable as the principal for the wrongful acts of their authorized data processor. While the data processor is not directly liable to the data subject, the data user remains accountable. The contract between the data user and data processor can serve as evidence of compliance, but it does not absolve the data user of their primary responsibility to the data subject. Therefore, the data user is liable for the data processor’s contravention.

When a Hong Kong-incorporated financial institution (FI) operates overseas and its foreign branches or subsidiaries cannot comply with Hong Kong’s Customer Due Diligence (CDD) and record-keeping requirements due to local legal restrictions, the FI has specific obligations. According to the provided guidelines, the FI must first inform its relevant regulator (RA) about this inability to comply. Secondly, it must implement additional measures to effectively manage and reduce the risks of money laundering (ML) or terrorist financing (TF) that arise from this non-compliance. This ensures that even with local legal limitations, the FI maintains a robust AML/CFT framework.

This question tests the understanding of how an agency agreement can be terminated due to a fundamental breach by either party. According to contract law principles applicable to agency, a fundamental breach by one party grants the other party the right to treat the contract as ended. This means they can cease performing their obligations and potentially claim damages for losses incurred, such as lost profits. Option (b) is incorrect because while a breach might lead to termination, it doesn’t automatically mean the agent forfeits all commission; it depends on the contract terms and the nature of the breach. Option (c) is incorrect as the death of a principal or agent terminates the agency, it does not have the same effect as a breach. Option (d) is incorrect because insanity of a party can lead to termination, but it’s a specific cause related to capacity, not a general breach of contract terms.

The question tests the understanding of how insurance companies perceive and utilize the term ‘risk management’. While risk management as a broader discipline involves identifying, quantifying, and dealing with all types of risks (pure and speculative), insurance companies often narrow their focus. They primarily apply risk management principles to the risks they underwrite or are asked to underwrite. This means their ‘risk management’ activities are geared towards reducing the potential for losses within the scope of the insurance policies they offer or are considering. Therefore, they tend to use the term in relation to ‘insured risks’ or ‘pure risks’ that can be insured, aiming to improve the loss potential of these specific risks.

The Personal Data (Privacy) Ordinance (PDPO) in Hong Kong is a comprehensive piece of legislation designed to protect the privacy of individuals by regulating the collection, holding, processing, and use of their personal data. It applies broadly to all entities, whether they are from the public sector (government departments, statutory bodies) or the private sector (companies, businesses, non-profit organizations), that collect and handle personal data. The ordinance sets out data protection principles that all data users must adhere to, ensuring a consistent standard of privacy protection across Hong Kong.

The Insurance Agents Registration Board (IARB) has specific requirements for processing applications for registration. According to the provided text, the IARB is not obligated to review an application if it is not submitted in the correct format, is incomplete, or if requested information has not been fully provided. This emphasizes the importance of adhering to the prescribed procedures and ensuring all necessary documentation is submitted for an application to be considered. Options B, C, and D describe actions or scenarios that are not the primary reason for the IARB to decline consideration of an application under the specified conditions.

The scenario describes a situation where a customer is seeking clarification on policy terms and requesting a duplicate document. According to the provided syllabus, the Customer Servicing department is responsible for handling various types of enquiries, including those seeking guidance and information, as well as requests for documentation like duplicate policies. While Public Relations is also mentioned under Customer Servicing, its primary focus is on the company’s overall standing and external image, which is not the core of the customer’s immediate needs in this instance. Marketing and Promotion, and Insurance Sales are distinct functions focused on attracting new business and developing products, respectively, and are not directly involved in servicing existing policyholder requests for documentation or information.

The Insurance Authority (IA) Code of Conduct outlines the criteria for determining if an individual is fit and proper to be registered. Clause 6/31 (ix) specifically states that a person must have passed the relevant papers of the Insurance Intermediaries Qualifying Examination (IIQE) recognized by the IA, unless exempted. This demonstrates a fundamental requirement for demonstrating competence and knowledge in the insurance field, which is a key aspect of being fit and proper. While other factors like compliance with the MPF Code or having a valid employment visa are important, the IIQE qualification is a direct measure of the individual’s preparedness to act as an insurance intermediary.

The HKFI’s ‘Guidelines on Complaint Handling’ emphasize that insurers must ensure customers are aware of how and where to lodge complaints. This includes making the internal complaint handling procedures readily available. Publishing these procedures, providing access in all offices, and supplying them freely to customers upon request or automatically to complainants are key components of ensuring accessibility. Informing new customers about the existence of these procedures is also a crucial step in this accessibility framework.

The question tests the understanding of market concentration in Hong Kong’s insurance sector, specifically differentiating between General Business and Long Term Business. The provided text indicates that in General Business, the top ten insurers held a 42% market share, with no single insurer exceeding 17% in any major class. This suggests a more fragmented market. In contrast, for Long Term Business, the top ten insurers held 75% of the market, the top five held 55%, and the top one held 16%. This significant concentration, particularly the higher share of the top players, points to a less evenly distributed market compared to General Business. Therefore, General Business is considered more evenly distributed among authorized insurers.

The scenario highlights a situation where a customer is dissatisfied with a policy amendment process, which falls under the purview of customer servicing. While marketing and public relations are important for a company’s image, and sales enhancement programs aim to boost business, the core issue presented is a customer’s negative experience with a service request. The prompt specifically mentions “amendments to existing policies” as a duty of the customer servicing department. Therefore, addressing this customer’s complaint and ensuring a fair and prompt resolution is the primary responsibility of customer servicing, as mandated by regulations governing customer interaction and complaint handling in the financial services sector.

This question tests the understanding of how subrogation proceeds are shared when the recovery from a negligent third party exceeds the total loss suffered by the insured. In the ‘Excess’ method of subrogation sharing, the insurer is typically reimbursed first for the amount they paid out. If the recovery is greater than the insurer’s payout, the excess amount is then shared with the insured. In this scenario, the insured’s loss was $10,000, and the insurer paid $40,000. The recovery from the third party is $45,000. The insurer is entitled to the full $40,000 they paid. The remaining $5,000 ($45,000 – $40,000) is then returned to the insured, as it covers their initial $10,000 loss, and they have received $5,000 back. The insured’s net out-of-pocket expense is $5,000 ($10,000 loss – $5,000 recovery). Therefore, the insured is entitled to $5,000, and the insurer receives $40,000.

The Insurance Authority (IA) has the power to impose further disciplinary or other actions on a Principal or Registered Person, including the respondent’s appointing insurance agent, if they fail to comply with a requirement to take disciplinary or other action. This is a direct consequence outlined in the regulatory framework for insurance intermediaries, emphasizing accountability within the industry. The IA’s role is to ensure compliance and maintain professional standards, and this power allows them to enforce such requirements effectively.

The Insurance Authority (IA) mandates that travel insurance agents, their responsible officers (ROs), and technical representatives (TRs) must complete 3 Continuing Professional Development (CPD) hours annually, starting from August 1, 2008. This requirement is crucial for maintaining their registration status. Failure to meet this requirement can lead to consequences such as revocation of registration for a specified period, with additional requirements for re-registration. Making a false declaration regarding CPD hours carries a more severe penalty of a 12-month revocation. The IA also emphasizes the importance of maintaining proper records and monitoring compliance, with responsibilities assigned to ROs, TRs, appointing insurance agents, and insurers.

The duty of utmost good faith, which includes the duty of disclosure, generally applies to material facts known to the proposer before the contract is concluded. If a material fact, such as the contraction of malaria, is discovered after the policy has been accepted but before it commences, and the policy terms are silent on this specific point, the proposer is not obligated to disclose it at common law. However, insurers typically include policy wordings that exclude pre-existing conditions, allowing them to deny claims based on the exclusion rather than a breach of utmost good faith.

The scenario describes an insurance agent who is also licensed as a travel agent and wishes to engage in restricted scope travel insurance business. According to the provided text, an insurance agent engaging in restricted scope travel business must be licensed as a travel agent under the Travel Agents Ordinance. This requirement is explicitly stated in section 6.2.2(f)(x) of the Code. Therefore, the agent must possess this additional license to legally conduct this specific type of business.

This question tests the understanding of proximate cause in insurance, specifically when an uninsured peril leads to an insured peril. According to the principles of proximate cause, if an uninsured peril (like negligence) directly causes an insured peril (like fire), and the loss results from the insured peril, the loss is generally recoverable. In this scenario, the master’s negligence (uninsured peril) caused a collision, which in turn caused a fire (insured peril). The subsequent explosion and water damage, while stemming from the fire, are considered consequences of the insured peril. Therefore, the loss due to water damage is recoverable under the fire policy because the fire was the proximate cause that initiated the chain of events leading to the damage, even though the initial cause was an uninsured peril.

The Insurance Claims Complaints Bureau (ICCB) is a key external dispute resolution body for policyholders in Hong Kong. Its panel is empowered to make awards against insurers. The maximum award amount is HK$800,000. Crucially, insurers cannot appeal an award made by the Panel. However, a complainant who is dissatisfied with an award can pursue legal recourse. This question tests the understanding of the ICCB’s powers and limitations regarding awards and appeals, specifically focusing on the insurer’s inability to appeal an adverse decision.

The principle of legality is a fundamental requirement for any contract to be legally binding. This means that the purpose and subject matter of the agreement must not be against any existing laws or public policy. If a contract’s objective is illegal, such as an agreement to commit a crime or to engage in activities prohibited by statute, it is considered void and unenforceable from the outset. Therefore, an insurance policy that facilitates illegal activities would be void due to illegality.

This question tests the understanding of reinsurance from the perspective of an insurer ceding risk. Outward reinsurance is when an insurer transfers a portion of its own risks to another insurer or reinsurer. This is a fundamental risk management technique for insurers to manage their exposure and capacity. Inwards reinsurance, conversely, is when an insurer accepts risks from other insurers, acting as a reinsurer itself. The scenario describes an insurer seeking to reduce its potential payout on a large policy, which directly aligns with the definition of outward reinsurance.

The Insurance Complaints Committee (ICCB) Panel’s powers are guided by its Articles of Association. These stipulate that the Panel must consider the policy terms, general principles of good insurance practice, applicable law, and guidelines from bodies like the Hong Kong Federation of Insurers (HKFI) or the Bureau. Crucially, while policy terms generally prevail, the Panel can override them if they lead to an unfair or unreasonable outcome for the complainant. This means the Panel is not strictly bound by the literal interpretation of policy wording if it conflicts with fairness and good insurance practice, as outlined in documents like the Code of Conduct for Insurers, particularly regarding claims handling. Therefore, the Panel’s authority extends to looking beyond the strict letter of the policy to ensure equitable outcomes.

The Conduct of Insurance Agents for General Insurance Business and Restricted Scope Travel Business mandates specific professional behaviours. Agents are required to only offer advice within their areas of expertise, ensuring they possess the necessary knowledge and qualifications. It is fundamental for an agent to clearly identify themselves and their affiliation before engaging in any business discussions with a potential client. When comparing different insurance policies, agents must meticulously explain the distinctions in coverage, terms, and conditions to avoid misleading the client. Furthermore, a core responsibility is to clearly articulate the policy’s coverage and ensure the client comprehends what they are purchasing, thereby upholding the principle of utmost good faith and transparency. Therefore, all four listed points are essential components of the conduct expected of insurance agents in these business areas.