IIQE Paper 1 Principles and Practice of Insurance Examination Quiz 24

The Insurance Authority (IA) mandates that travel insurance agents, their responsible officers, and technical representatives 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 the revocation of registration for a specified period, with additional requirements for re-registration. The IA’s Guidance Note outlines the assessment and record-keeping responsibilities for compliance.

The question tests the understanding of how insurers internally classify their business operations. While regulatory classifications exist (like Classes 8-17), insurers have flexibility in how they organize for management and operations. The ‘Source of Business’ classification categorizes business based on how it was acquired (agents, brokers, direct). The ‘Type of Client’ classification distinguishes between personal and commercial insurance. The ‘Departmental’ classification is a broad category where insurers might adopt styles like the UK (Life, Marine, Fire, Accident) or US (Life, Non-Life sub-divided) approaches. Therefore, classifying business by the origin of the client (e.g., individual vs. firm) falls under the ‘Type of Client’ approach to internal classification.

The question tests the understanding of how policy wording can modify the application of proximate cause. The phrase ‘directly or indirectly’ in an exclusion clause, as illustrated by the case of the army officer killed by a train during wartime, means that the insurer is not liable even if the excluded peril (war) was only a remote or indirect cause of the loss. This broadens the exclusion beyond what ‘proximate cause’ alone might imply. Therefore, a loss where the excluded peril is a contributing factor, however minor or indirect, would be denied coverage under such wording.

The scenario describes a situation where an agent (the neighbour) acts to protect the principal’s (the ill person’s) property (household insurance) in an urgent situation (illness, inability to communicate) without express authority. This aligns with the definition of an agent of necessity, which arises in urgent circumstances to prevent loss or damage when communication with the principal is impossible. Such an agent is entitled to reimbursement and indemnity, and their actions bind the principal. Agency by estoppel, on the other hand, arises when a principal allows a third party to believe someone is their agent, leading to reliance by the third party. The agent’s duty of obedience relates to following lawful instructions, and personal performance means an agent cannot delegate without authority. Therefore, the neighbour’s actions fall under the authority of necessity.

The Insurance Authority (IA) has established specific consequences for Registered Persons (RPs) who fail to comply with Continuing Professional Development (CPD) requirements. According to the provided information, making a false declaration regarding CPD hours is considered a more serious offense than simply failing to meet the hours. Consequently, the IA’s Independent Appeals and Review Board (IARB) would typically impose a longer period of registration revocation for a false declaration. A 12-month revocation is stipulated as a starting point for such an offense, whereas a failure to meet requirements without a false declaration might result in a shorter period. Responding to a request for proof of compliance is also a separate obligation, and failure to do so carries its own set of consequences, which are determined by the IARB. Therefore, the most severe consequence among the options, stemming from a direct violation of reporting integrity, is the longer revocation period for a false declaration.

The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) imposes specific obligations on Financial Institutions (FIs) to mitigate risks. Section 23 of Schedule 2 of the AMLO mandates that FIs must implement robust safeguards to prevent breaches of requirements outlined in Parts 2 and 3 of Schedule 2, and to reduce the likelihood of money laundering and terrorist financing (ML/TF). This proactive approach to risk management is a fundamental principle of the ordinance. While customer due diligence (CDD) and record-keeping are crucial components, they are specific measures within the broader framework of risk mitigation. The AMLO also outlines penalties for contraventions, but the question asks about the proactive measures required to prevent such contraventions and mitigate risks, which is directly addressed by the requirement for proper safeguards.

This question tests the understanding of how an agency relationship can be established, specifically focusing on the concept of implied actual authority. Implied actual authority arises from the conduct of the principal, the course of dealing between the principal and the agent, or the circumstances surrounding their relationship, rather than an express instruction. In the scenario, the principal’s consistent acceptance of similar, albeit uninstructed, transactions over time creates an implied authority for the agent to continue such actions. This is distinct from apparent authority, which focuses on the principal’s representations to third parties. Ratification involves post-act approval, and express authority requires clear, direct communication. Therefore, the principal’s past conduct is the most direct basis for the agent’s authority in this situation.

The question tests the understanding of the role of approved bodies of insurance brokers as defined by Hong Kong regulations. Section 70 of the Insurance Ordinance empowers the Insurance Authority to approve associations of insurance brokers. These approved bodies, such as the Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association Limited, play a crucial role in self-regulation and upholding professional standards within the brokerage sector. The other options describe different aspects of insurance operations or regulatory bodies not directly related to the specific definition of approved bodies of insurance brokers under Section 70.

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. However, this duty can be extended or modified by the policy terms. In this scenario, the policy explicitly requires disclosure of material changes in risk during the policy’s term. The insured’s change in occupation, which increases the risk, falls under this clause. Therefore, the insured is obligated to inform the insurer about this change immediately, not just at renewal, to uphold the principle of utmost good faith as stipulated by the policy’s terms.

The core principle here is that financial institutions (FIs) must establish robust internal controls to prevent their employees, including appointed insurance agents, from inadvertently or intentionally revealing information that could tip off a customer or another party about an ongoing anti-money laundering (AML) or counter-terrorist financing (CFT) investigation. This involves training staff to recognize suspicious activities by understanding normal customer behavior and transaction patterns. When a suspicion arises, the FI must manage the Customer Due Diligence (CDD) process carefully to avoid any actions that could be construed as tipping off. The guideline emphasizes that individual insurance agents, while often depositing records with the insurer, remain responsible for ensuring the insurer’s systems comply with record-keeping requirements and that these records are readily accessible to regulatory authorities.

This question tests the understanding of non-fraudulent non-disclosure, which is a breach of the duty of utmost good faith. This occurs when a party, without intent to deceive, fails to reveal material facts to another party. In the context of insurance, the insured has a duty to disclose all material facts to the insurer. Failing to do so, even if unintentional or due to negligence, can invalidate the policy. Option B describes ordinary good faith, which only requires truthful answers to specific questions, not proactive disclosure of all material facts. Option C refers to the offeror’s role in contract formation, which is unrelated to disclosure duties. Option D describes a performance bond, which is a type of guarantee and not a disclosure principle.

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 hold this additional license to legally conduct this specific type of business.

The Insurance Authority (IA) mandates that travel insurance agents, their responsible officers, and technical representatives 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 the revocation of registration for a specified period, with additional requirements for re-registration. The IA’s Guidance Note outlines the assessment and record-keeping responsibilities for compliance.

The Insurance Authority (IA) mandates that travel insurance agents, their responsible officers, and technical representatives 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 the revocation of registration for a specified period, with additional penalties for false declarations or non-response to requests for proof of compliance. The question tests the understanding of the ongoing CPD obligations for specific types of insurance intermediaries.

Guidance Note 6 (GN6) clarifies that an insurance agent, Responsible Officer, or Technical Representative cannot solicit or conduct insurance business for a principal before receiving written confirmation of their registration from the Insurance Authority Registration Board (IARB). Acting as an unregistered agent is an offense under Section 77 of the Insurance Ordinance, potentially leading to prosecution. Similarly, a Responsible Officer or Technical Representative cannot act in their capacity before their registration is confirmed by the IARB, as this constitutes a breach of the Code and can impact their fitness and properness.

The core principle here is that financial institutions (FIs) must establish robust internal controls to prevent their employees, including appointed insurance agents, from inadvertently or intentionally revealing information that could tip off customers or other individuals about suspicious activity investigations. This involves training staff to recognize unusual transactions by understanding customer behavior and to conduct customer due diligence (CDD) in a manner that avoids such disclosures. The emphasis is on proactive measures and staff awareness to maintain the integrity of anti-money laundering (AML) and counter-terrorist financing (CFT) efforts, as mandated by relevant guidelines and regulations.

The Insurance Complaints Committee (ICCB) Panel has the authority to review complaints against insurers. While the terms of the insurance policy are paramount, the Panel can deviate from a strict interpretation if doing so would lead to an unfair or unreasonable outcome for the complainant. This power is balanced by the requirement to consider general principles of good insurance practice, applicable laws, and guidelines from relevant bodies like the Hong Kong Federation of Insurers (HKFI). The Code of Conduct for Insurers, particularly its section on claims handling, is a key reference for assessing fairness. Therefore, the Panel’s ability to look beyond the literal policy wording to ensure fairness is a core aspect of its function.

The scenario describes an insurance practitioner who, upon changing employers, copies customer information from their previous company. This action directly violates the principle of lawful and fair means of data collection and the guidance on direct marketing. Specifically, it breaches Data Protection Principle 1, which mandates that personal data should only be collected by lawful and fair means. Copying customer data from a former employer for marketing purposes with a new employer is generally considered unfair and potentially unlawful, as it goes beyond the original purpose for which the data was collected and shared. The guidance note explicitly advises against making copies of customer information from a former principal/employer when changing jobs, as this data is not intended for use by the new employer. Therefore, the practitioner’s actions are not in line with the recommended practices for data handling and direct marketing.

The principle of utmost good faith in insurance mandates that all material facts be disclosed by the proposer to the insurer. A material fact is defined as any circumstance that would influence a prudent insurer’s decision regarding accepting the risk or setting the premium. While a proposer must disclose facts that increase risk or affect premium calculation, they are not obligated to disclose facts that diminish the risk, assuming no inquiry is made. An automatic sprinkler system, by reducing the likelihood of fire damage, inherently diminishes the risk. Therefore, its non-disclosure, in the absence of a specific question about protective measures, does not violate the duty of utmost good faith because it would have led to a lower premium, not a rejection of the risk or a higher premium.

The core of underwriting in general insurance involves a continuous assessment of risks. Unlike life insurance, where underwriting is largely a one-time event at policy inception due to the non-cancellable nature of the contract, general insurance policies are subject to renewal. This renewal process provides insurers with the opportunity to re-evaluate the risk profile of the insured and adjust terms, premiums, or even decline renewal if the risk has become unacceptable. Therefore, the ability to review and modify terms at renewal is a fundamental aspect of managing risk in general insurance underwriting.

The United Nations (Anti-Terrorism Measures) Ordinance (UNATMO) criminalizes the provision or collection of property, or making property or financial services available to terrorists or their associates. A statutory defence is provided if a report is filed with the Joint Financial Intelligence Unit (JFIU) in the prescribed manner, disclosing the relevant acts. This defence is specifically linked to the act of reporting, not to a general obligation to prevent terrorism financing. Therefore, while a financial institution must have robust AML/CFT systems, the direct statutory defence under UNATMO for the act of providing property or services to terrorists is contingent upon reporting to the JFIU.

The question tests the understanding of the definition of a ‘composite insurer’ as per Hong Kong insurance regulations. A composite insurer is defined as an insurer that transacts both long-term and general insurance business. Option B is incorrect because it limits the scope to only one type of business. Option C is incorrect as it refers to an insurer that only handles claims, not the underwriting of different business types. Option D is incorrect because it describes an insurer that only deals with reinsurance, which is a specific segment of the insurance market.

The Personal Data (Privacy) Ordinance (PDPO) in Hong Kong is designed to protect the privacy of individuals by regulating the collection, holding, processing, and use of their personal data. This legislation applies broadly across both the public and private sectors, encompassing any entity that handles personal data. Therefore, neither sector is exempt from its provisions. The question tests the understanding of the scope of application of the PDPO, which is a fundamental aspect of data privacy regulations in Hong Kong.

The Insurance Ordinance in Hong Kong categorizes insurance business into Long Term Business and General Business. Long Term Business is further subdivided into nine classes, including Life and Annuity (Class A), Marriage and Birth (Class B), Linked Long Term (Class C), Permanent Health (Class D), Tontines (Class E), Capital Redemption (Class F), and three categories for Retirement Scheme Management (Classes G, H, and I). General Business is divided into seventeen classes, such as Accident, Sickness, Land Vehicles, Railway Rolling Stock, Aircraft, Ships, and Goods in Transit. The question tests the understanding of this statutory classification by asking to identify which of the listed options falls under the General Business category, specifically Goods in Transit, which is designated as Class 7.

Participating policies, also known as with-profit policies, offer policyholders a share in the profits of the insurance company. These profits are typically distributed in the form of bonuses. Bonuses can be reversionary (added to the sum assured and payable at death or maturity) or cash (paid out directly to the policyholder). The question tests the understanding of how these profits are distributed and the nature of the bonuses. Option A correctly identifies that bonuses are a distribution of profits and can be either reversionary or cash. Option B is incorrect because while bonuses increase the policy’s value, they are not guaranteed to be a fixed percentage of the sum assured; they depend on the company’s performance. Option C is incorrect because while bonuses are declared by the company, they are not typically paid out annually as a matter of course; they are usually added to the sum assured or paid at specific intervals or upon claim. Option D is incorrect because the distribution of profits is determined by the insurer’s performance and actuarial valuations, not solely by the policyholder’s claim history.

Subrogation is a legal principle that allows an insurer, after paying a claim, to step into the shoes of the insured and pursue any rights the insured may have against a third party responsible for the loss. This prevents the insured from recovering twice for the same loss and ensures that the responsible party bears the cost. The insurer’s right to subrogation is limited to the amount they have paid out as indemnity, meaning they cannot profit from the recovery. While subrogation can arise from various legal bases like tort or contract, its core function is to transfer the insured’s recovery rights to the insurer to the extent of the indemnity provided.

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 the other party. This is distinct from ordinary good faith, which only requires truthful answers to specific questions and does not mandate proactive disclosure of all known facts. The scenario describes a situation where an applicant, despite not being asked directly, omits information about a pre-existing condition that would influence the insurer’s decision, fitting the definition of non-fraudulent non-disclosure.

The question tests the understanding of how insurers internally classify their business operations. While regulatory classifications exist (like those in the Insurance Ordinance), insurers often adopt practical classifications for management. The U.S. style classification clearly separates Life and Non-Life business, with Non-Life further broken down into categories like Fire, Marine, Bonding, and Casualty. This aligns with the provided text which describes the U.S. style as having a clear distinction between Life and Non-Life, with the latter subdivided. The other options represent different classification approaches or specific types of insurance, not the overarching internal departmental structure described.

The scenario describes a situation where a registered person is advising a potential policyholder. According to the regulations, a registered person must ensure they are competent to provide advice or seek assistance from their Principal or appointing Insurance Agent when necessary. This directly aligns with the principle of providing advice only within one’s expertise or seeking support when needed to ensure accurate and appropriate recommendations.

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.