IIQE Paper 1 Principles and Practice of Insurance Examination Quiz 42

Question 1 of 30

1. Question

During a comprehensive review of a process that needs improvement, a registered insurance agent is explaining a complex investment-linked insurance product to a prospective client. The agent feels uncertain about certain technical aspects of the product’s underlying funds and their performance projections. Under the Conduct of Registered Persons, what is the most appropriate action for the agent to take in this situation?

Seek clarification and guidance from their Principal or appointing Insurance Agent before proceeding with the detailed explanation.
Provide a general overview of the product's benefits, omitting the specific fund details the client inquired about.
Disclose their registration number to the client and proceed with the explanation, hoping the client does not ask probing questions.
Treat all information supplied by the potential policyholder as confidential and avoid discussing any uncertainties.

Question 2 of 30

2. Question

During a comprehensive review of a process that needs improvement, a proposer for commercial fire insurance failed to mention that their premises were equipped with an automatic sprinkler system. This omission, while relevant to premium calculation, would have indicated a lower risk. Under the principle of utmost good faith, as applied in Hong Kong insurance law, is this omission a breach of the proposer’s duty?

No, because the fact disclosed would have diminished the risk, and such facts need not be disclosed in the absence of inquiry.
Yes, because any fact that influences the determination of the premium must be disclosed, regardless of whether it increases or decreases the risk.
Yes, because the Law Amendment and Reform (Consolidation) Ordinance requires disclosure of all operational details.
No, because the insurer is expected to conduct their own risk assessment and cannot rely solely on the proposer's disclosures.

Question 3 of 30

3. Question

During a comprehensive review of a process that needs improvement, a registered travel insurance agent discovers they have not met the annual Continuing Professional Development (CPD) hours requirement for the past assessment year. According to the regulations overseen by the Insurance Authority, what is the minimum number of CPD hours that such an intermediary must complete each year to maintain their registration?

3 CPD hours
5 CPD hours
2 CPD hours
4 CPD hours

Question 4 of 30

4. Question

During a comprehensive review of a process that needs improvement, an insurance broker is assessing the validity of a proposed policy. The applicant wishes to insure the life of a close business associate, with whom they have a mutually beneficial, but informal, working relationship. The applicant argues that the associate’s death would significantly disrupt their shared projects and lead to substantial financial losses for the applicant. Under the principles of insurance law, which of the following best describes the applicant’s position regarding insurable interest in the associate’s life?

The applicant lacks a legally recognized insurable interest because the relationship, while financially impactful, is not legally defined in a way that grants direct financial loss from the associate's death.
The applicant possesses a valid insurable interest due to the direct financial losses they would incur from the disruption of their shared business ventures.
The applicant's insurable interest is established because the financial loss is substantial, regardless of the legal recognition of the relationship.
The applicant has an insurable interest because they have a strong emotional connection and a shared professional history with the associate.

Question 5 of 30

5. Question

During a comprehensive review of a process that needs improvement, an insurance intermediary discovers that a client’s funds may have originated from illicit activities. To mitigate potential legal repercussions under the United Nations (Anti-Terrorism Measures) Ordinance, which action would provide the most direct statutory defence regarding the disclosed information?

Filing a report with the Joint Financial Intelligence Unit (JFIU) in the prescribed format detailing the suspicious activity.
Implementing enhanced customer due diligence procedures for all future transactions.
Seeking legal advice from a qualified solicitor on the interpretation of the UNATMO.
Updating the company's internal anti-money laundering policies and procedures.

Question 6 of 30

6. Question

During the application process for a new life insurance policy, an applicant, while answering all questions truthfully to the best of their knowledge, omits mentioning a minor, recurring health issue that they did not consider significant. The insurer later discovers this omission and deems the policy void. Under Hong Kong insurance principles, what type of breach has most likely occurred, even in the absence of fraudulent intent?

Non-fraudulent non-disclosure
Breach of ordinary good faith
Failure to fulfill a surety obligation
Misrepresentation in a performance bond application

Question 7 of 30

7. Question

During a comprehensive review of a process that needs improvement, a situation arises where employers in specialized, high-risk industries are consistently being denied standard employees’ compensation insurance. To ensure these employers can meet their statutory obligations and protect their workforce, a mechanism was put in place that requires all insurers writing this type of business to participate in a collective risk-sharing arrangement as a final recourse. Which industry body is primarily responsible for overseeing this last-resort insurance provision?

The Employees’ Compensation Insurance Residual Scheme Bureau
The Employees’ Compensation Insurer Insolvency Bureau
The Insurance Claims Complaints Bureau
The Motor Insurers' Bureau of Hong Kong

Question 8 of 30

8. Question

During a comprehensive review of a process that needs improvement, an insurance company is analyzing a motor vehicle claim. The insured’s vehicle sustained damage with repair costs amounting to $20,000. The policy has no excess or deductible. After the repairs were completed, the insurer took possession of the damaged vehicle, which had a salvage value of $5,000, and sold it. What is the net cost of this claim to the insurer?

$15,000
$20,000
$25,000
$5,000

Question 9 of 30

9. Question

During a period of significant change where established methods conflict with new operational requirements, an insurance agent, tasked with managing policy renewals for a client, inadvertently misses the renewal deadline for a crucial property insurance policy. The agent had the necessary funds from the client readily available. Consequently, the property suffers damage that would have been covered had the policy been active. Under the principles of agency law relevant to the IIQE syllabus, what is the most likely legal implication for the agent’s actions?

The agent may be held liable to the principal for the loss incurred due to the lapse in coverage, as this constitutes a breach of the duty of due care and skill.
The agent is protected from liability as the oversight was an unintentional error, and the principal implicitly accepted the risk by entrusting the renewal to the agent.
The principal is solely responsible for the loss, as the ultimate decision to renew the policy rests with them, regardless of the agent's actions.
The agent's actions create an agency by estoppel, meaning the insurer cannot deny coverage because the agent appeared to have the authority to manage the renewal.

Question 10 of 30

10. Question

During a comprehensive review of a process that needs improvement, an insurance agent is found to be engaging with potential clients. Which of the following actions are considered essential components of their professional conduct under the regulations governing general insurance and restricted scope travel business?

Providing advice only when possessing the requisite competence, identifying oneself before commencing discussions, explaining policy differences during comparisons, and ensuring client understanding of purchased coverage.
Identifying oneself before business discussions, explaining policy differences when making comparisons, and ensuring the client understands what they are buying.
Giving advice only when competent to do so and explaining policy cover and ensuring the client understands what they are buying.
Explaining policy differences when making comparisons and ensuring the client understands what they are buying, while also identifying oneself before business discussions.

Question 11 of 30

11. Question

During a comprehensive review of a process that needs improvement, an examiner is assessing the financial stability requirements for an incorporated insurance broker operating in Hong Kong. According to the relevant regulatory framework, what are the minimum financial thresholds that this type of entity must consistently maintain to ensure its operational integrity and client protection?

A minimum net asset value of HK$100,000 and a minimum paid-up share capital of HK$100,000.
A minimum net asset value of HK$200,000, with no specific requirement for paid-up share capital.
A minimum paid-up share capital of HK$200,000, with no specific requirement for net asset value.
A minimum net asset value of HK$100,000 and a minimum paid-up share capital of HK$50,000.

Question 12 of 30

12. Question

During a comprehensive review of a process that needs improvement, a financial institution is examining the prerequisites for individuals to legally represent insurance products. According to the relevant regulatory framework governing insurance intermediaries in Hong Kong, what is the primary legal requirement for an individual to act as an insurance agent?

Official registration with the Insurance Authority
Completion of a specific number of continuing professional development hours annually
Attainment of a minimum of five years of experience in the financial services sector
Securing a letter of appointment from at least three different insurance companies

Question 13 of 30

13. Question

When considering the scope of Hong Kong’s Personal Data (Privacy) Ordinance, which of the following best describes the entities to which its provisions apply?

All organizations, whether governmental or commercial, that collect and process personal data.
Only government departments and public bodies that handle citizen information.
Solely private sector businesses and corporations operating within Hong Kong.
Entities involved in international data transfers, excluding domestic operations.

Question 14 of 30

14. Question

During a comprehensive review of a process that needs improvement, an insurance agent is found to be engaging with potential clients. Which of the following actions are considered essential for the agent to uphold the standards of conduct for general insurance and restricted scope travel business?

Clearly explain policy coverage and ensure client comprehension, identify oneself before business discussions, provide advice only when competent, and articulate policy differences when making comparisons.
Identify oneself before business discussions, provide advice only when competent, and articulate policy differences when making comparisons.
Clearly explain policy coverage and ensure client comprehension, and articulate policy differences when making comparisons.
Identify oneself before business discussions, and clearly explain policy coverage and ensure client comprehension.

Question 15 of 30

15. Question

During a comprehensive review of a process that needs improvement, an insurance broker is assessed on their record-keeping practices. According to the relevant regulatory guidelines, what is the fundamental purpose of maintaining detailed accounting and transactional records for an insurance broker?

To sufficiently explain all business transactions, accurately reflect the financial position, enable the preparation of true and fair financial statements, and be suitable for auditing.
To primarily demonstrate the broker's current financial position to regulatory bodies.
To ensure compliance with reporting deadlines for annual financial statements.
To provide a convenient summary of all income and expenses for internal budgeting purposes.

Question 16 of 30

16. Question

During a policy application process, an insurance agent realizes a minor data entry error on a form that has already been signed by the prospective client. According to the prevailing guidance notes concerning agent conduct, what is the correct procedure for rectifying this error to uphold the principles of good faith and integrity?

The agent must obtain the client's initial next to the corrected entry on the already signed form.
The agent can simply cross out the error and write the correct information, assuming the client verbally agrees.
The agent should discard the form and have the client complete a new one from scratch to avoid any ambiguity.
The agent may amend the form and have the client sign the entire document again to validate the changes.

Question 17 of 30

17. Question

During a comprehensive review of a process that needs improvement, an insurance underwriter, who is internally instructed not to accept cargo risks destined for West Africa, has on multiple occasions verbally agreed to such risks with a client. The principal insurer subsequently issues the policies for these risks to the client. Based on these past dealings, the client reasonably believes the underwriter has the authority to accept these specific types of risks. Which type of authority is most likely to bind the principal to a future similar agreement made by the underwriter?

Apparent authority
Actual authority
Ratification
Ostensible authority

Question 18 of 30

18. Question

During a comprehensive review of a process that needs improvement, an insurance intermediary is assisting a client in obtaining a policy. The intermediary is aware of certain undisclosed information that, if revealed, would likely result in a significantly higher premium or even the denial of coverage for the client. The intermediary, knowing this information could adversely affect the application, intentionally omits it from the proposal to ensure the policy is issued under more favourable terms for the client. Under the Insurance Ordinance (Cap. 41), which of the following best describes the intermediary’s conduct in this scenario?

The intermediary has committed fraud by misrepresenting material facts to the insurer.
The intermediary has acted in accordance with their duty to the client by securing the best possible terms.
The intermediary has fulfilled their obligation by submitting a complete application form as provided by the client.
The intermediary has merely facilitated the transaction, and the responsibility for disclosure lies solely with the client.

Question 19 of 30

19. Question

During a comprehensive review of a process that needs improvement, a situation arises where employers engaged in specialized, high-risk industries are consistently finding it challenging to secure mandatory employees’ compensation insurance. To address this systemic market failure and ensure compliance with legal obligations, a mechanism was put in place. What is the principal objective of the entity responsible for operating this last-resort insurance provision for such employers?

To provide a safety net for employers unable to obtain employees' compensation insurance through normal channels
To act as a primary underwriter for all high-risk occupations in Hong Kong
To offer alternative dispute resolution services for employee compensation claims
To develop and enforce new regulations for the employees' compensation insurance market

Question 20 of 30

20. Question

During a comprehensive review of a process that needs improvement, it was discovered that a Principal failed to implement a required disciplinary action against a Registered Person. According to the relevant regulations governing insurance intermediaries in Hong Kong, what is a potential consequence for this Principal’s non-compliance?

The Insurance Authority (IA) may impose further disciplinary or other action on the Principal for failing to comply with the requirement.
The Registered Person is solely responsible for the Principal's failure to act, and no action will be taken against the Principal.
The IA will automatically suspend the Principal's license for a period of six months without further investigation.
The matter will be referred to the Hong Kong Federation of Insurers (HKFI) for an internal review, with no immediate regulatory action.

Question 21 of 30

21. Question

During a comprehensive review of a process that needs improvement, a registered person is discussing a life insurance policy with a potential client. The client has disclosed their income, savings, and stated their primary goal is to build a retirement fund with some protection. Which of the following actions best demonstrates compliance with the conduct requirements for long-term business?

Proactively recommending a policy that closely matches the client's stated retirement savings goal and risk tolerance, based on the information provided.
Highlighting only the most favorable projected returns of a complex investment-linked policy, without detailing the underlying assumptions.
Suggesting the client replace an existing, suitable long-term insurance policy with a new one that offers slightly higher commission for the registered person.
Emphasizing the guaranteed benefits of a participating policy while downplaying the fact that future bonuses are not assured and can fluctuate.

Question 22 of 30

22. Question

During a comprehensive review of a process that needs improvement, a customer contacts the insurance company with a query about the specific coverage details of their existing policy and also requests a duplicate copy of their policy document. Which department is primarily responsible for addressing both of these customer needs?

Customer Servicing
Marketing and Promotion
Insurance Sales
Claims Department

Question 23 of 30

23. Question

During a comprehensive review of a process that needs improvement, an insurance company is identified as transacting both life insurance policies and property damage insurance policies. According to the Insurance Ordinance, what classification would this insurer most likely fall under?

Composite Insurer
Specialist Insurer
Claims Adjusting Firm
Reinsurance Provider

Question 24 of 30

24. Question

During a comprehensive review of a process that needs improvement, an insurance intermediary encounters a client’s claim that is supported by medical documents which appear to be altered. The intermediary suspects the client may be exaggerating their injury to receive a larger payout. Under the relevant Hong Kong regulations and ethical guidelines for insurance intermediaries, what is the most appropriate course of action for the intermediary in this situation?

Report the suspicion of potential fraud to the insurer, providing any relevant details or observations.
Directly confront the client about the suspected alteration of documents and demand an explanation.
Ignore the suspicious documents and process the claim as submitted to avoid potential client dissatisfaction.
Advise the client on how to present the documents more convincingly to the insurer to avoid suspicion.

Question 25 of 30

25. Question

During a comprehensive review of a process that needs improvement, an insurance broker is found to have incomplete transaction logs and financial summaries. According to the relevant Hong Kong regulations governing insurance brokers, what is the fundamental objective behind the stringent record-keeping requirements for these professionals?

To ensure all business activities are transparent, financially sound, and auditable, enabling a true and fair view of the broker's operations.
To provide a historical database for market trend analysis and competitor benchmarking.
To facilitate the efficient processing of client claims and policy renewals.
To allow for the immediate identification of all potential clients for targeted marketing campaigns.

Question 26 of 30

26. Question

During a voyage, a vessel carrying four distinct cargo shipments, each insured under separate marine cargo policies, experiences a series of events. The first policy covers only collision, the second fire, the third explosion, and the fourth entry of water. Due to the master’s negligence, the vessel collides with another. This collision ignites a fire, which subsequently leads to an explosion. As a consequence, the vessel sustains multiple leaks, and all cargo is damaged by seawater entering through these breaches. If negligence is considered an uninsured peril for all policies, and collision is an insured peril for the first policy, how would the damage from seawater be treated under the policy covering collision?

The damage is recoverable as the collision, an insured peril, is the proximate cause of the subsequent events leading to the water damage.
The damage is irrecoverable because the initial cause, negligence, is an uninsured peril.
The damage is only partially recoverable, depending on the proportion of water damage directly attributable to the collision.
The damage is irrecoverable as the ultimate cause of the damage, entry of water, is an uninsured peril.

Question 27 of 30

27. Question

During a comprehensive review of a process that needs improvement, a compliance officer noted that a Technical Representative’s registration was renewed just one month before its expiration date. Based on the Insurance Agents (Registration) Regulation, what is the earliest permissible timeframe for this renewal to have been processed?

Not earlier than three months before the current registration expires
Not earlier than six months before the current registration expires
Not earlier than one month before the current registration expires
Not earlier than the day of the current registration expiry

Question 28 of 30

28. Question

During a comprehensive review of a process that needs improvement, an individual is found to be simultaneously operating as an appointed insurance agent for ‘Alpha Insurance Company’ and as an authorised insurance broker. According to the relevant provisions of the Insurance Ordinance, what is the regulatory standing of this individual’s dual role?

This dual role is strictly prohibited by the Insurance Ordinance to avoid conflicts of interest.
This arrangement is permissible as long as the individual clearly discloses their dual capacity to all clients.
The individual may hold both roles provided they do not offer advice on the same type of insurance product for both capacities.
This situation is acceptable if the individual is registered with the Insurance Authority for both roles separately.

Question 29 of 30

29. Question

Under the regulatory framework governing insurance operations in Hong Kong, the Insurance Ordinance establishes a fundamental division of insurance activities. One of these broad classifications pertains to ‘General Business.’ What is the other principal category into which insurance business is officially segmented by this Ordinance?

Long Term Business
Specialty Insurance
Casualty Insurance
Reinsurance Operations

Question 30 of 30

30. Question

During a comprehensive review of a process that needs improvement, a financial institution is preparing to use its existing customer data for a new direct marketing campaign. According to the Personal Data (Privacy) Ordinance (PDPO), what essential information must the institution provide to each customer in writing before commencing this campaign?

The specific categories of marketing subjects, the types of personal data to be used, and whether the data will be provided to third parties for gain.
A general statement about data usage for marketing, a summary of the institution's privacy policy, and a link to the PDPO website.
The customer's account number, the date of the last transaction, and a disclaimer about potential data breaches.
A list of all employees who will have access to the data and a detailed breakdown of the marketing budget.