IIQE Paper 1 Principles and Practice of Insurance Examination Quiz 21

Question 1 of 30

1. 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 system, if disclosed, would have led to a lower premium. According to the principles governing insurance contracts in Hong Kong, this omission is considered a breach of the duty of utmost good faith because it relates to a circumstance that would influence a prudent insurer’s decision on:

The determination of the premium and acceptance of the risk
The insured's eligibility for a no-claims discount
The insurer's internal administrative procedures
The availability of specific policy endorsements

Question 2 of 30

2. Question

When dealing with a complex system that shows occasional shifts in customer preferences and emerging technological advancements, an insurer’s strategic approach to maintaining market relevance would primarily involve which of the following activities?

Conducting thorough product research to identify and develop new or improved insurance solutions.
Implementing stringent underwriting guidelines to mitigate potential adverse selection.
Establishing efficient claims handling procedures to ensure prompt settlement.
Engaging in reinsurance arrangements to transfer a portion of the underwriting risk.

Question 3 of 30

3. Question

During a comprehensive review of a process that needs improvement, a policyholder contacts an insurance company requesting a complete record of all personal information the company possesses concerning their insurance policy. According to the Personal Data (Privacy) Ordinance, what is the insurer’s primary obligation in this situation?

Provide a copy of all personal data held about the policyholder.
Inform the policyholder that their data is only used for policy administration and cannot be disclosed.
Explain that data is retained only for the necessary period and a copy cannot be provided.
Request the policyholder to submit a formal data correction request instead of an access request.

Question 4 of 30

4. Question

When a business owner in Hong Kong decides to purchase a comprehensive fire insurance policy for their commercial property, what is the most fundamental benefit they are seeking from the insurer, as outlined by the principles of insurance?

To transfer the potential financial impact of a fire loss to the insurance company.
To contribute to the growth of the financial services sector in Hong Kong.
To create employment opportunities within the insurance industry.
To enhance the overall economic development of the region through investment.

Question 5 of 30

5. Question

During a comprehensive review of a process that needs improvement, an insurance agent is found to be advising clients on complex commercial property insurance, an area for which they have not completed the requisite advanced training. Additionally, during client meetings, the agent often omits their company affiliation until prompted. When presenting options, the agent broadly states one policy is ‘better’ than another without detailing specific coverage differences. Finally, the agent assumes clients understand the policy terms after a brief overview. Which of the following actions by the agent directly contravene the expected standards of conduct for insurance agents in general insurance and restricted scope travel business?

All of the listed actions contravene the expected standards.
Only advising on complex commercial property insurance and omitting company affiliation contravene the standards.
Only explaining policy differences vaguely and assuming client understanding contravene the standards.
Advising on complex commercial property insurance, omitting company affiliation, explaining policy differences vaguely, and assuming client understanding all contravene the standards.

Question 6 of 30

6. Question

During a comprehensive review of a process that needs improvement, an insurance practitioner transitions to a new insurance institution. Before departing their previous role, they made copies of existing customer policy details. They intend to use this information to promote the new institution’s offerings to these former clients. Which data protection principle is most directly contravened by this practitioner’s actions concerning the collected customer data?

The principle prohibiting a change in the purpose for which data was originally collected
The principle requiring the collection of only adequate, but not excessive, personal data
The principle mandating that personal data be collected by lawful and fair means
The principle requiring the implementation of security safeguards for personal data

Question 7 of 30

7. Question

During a comprehensive review of a process that needs improvement, a marine cargo insurance policy exclusion states that the insurer is not liable for losses ‘directly or indirectly’ caused by a specific peril. If an insured shipment experiences a significant delay due to this excluded peril, and this delay leads to a loss of market for the goods, how would the insurer typically interpret this exclusion in relation to the proximate cause of the loss?

The insurer can deny the claim because the excluded peril, even if only an indirect contributor to the delay, falls within the scope of the exclusion.
The insurer must pay the claim if the proximate cause of the loss was the delay itself, and not the excluded peril.
The insurer can only deny the claim if the excluded peril was the sole and direct cause of the loss.
The insurer must consider the market conditions at the time of the original expected arrival to determine liability.

Question 8 of 30

8. 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, if the data is to be shared with a third-party marketing agency for a fee?

The types of personal data to be used, the classes of marketing subjects, and confirmation that the data will be provided to a third party for gain.
The customer's account number, the date of the next marketing communication, and a general statement about data usage.
The names of the marketing agency employees who will handle the data and the specific marketing messages to be sent.
A summary of the institution's privacy policy and a link to the PDPO website for further details.

Question 9 of 30

9. Question

During a comprehensive review of a process that needs improvement, a property owner has a fire insurance policy covering their building. Simultaneously, a tenant who has made significant improvements to the interior of that building has a separate insurance policy covering those specific improvements. A fire occurs, damaging both the building structure and the tenant’s improvements. Which of the following conditions, if not met, would prevent contribution between the insurers of the building and the tenant’s improvements?

The policies must cover the same interest affected by the loss.
Each policy must be liable to the loss, without exclusions preventing contribution.
The respective policies must each be providing an indemnity to the loss.
Each policy must cover the peril that has given rise to the loss.

Question 10 of 30

10. 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 potential 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 advise the same client on products from both capacities.
This situation is acceptable if the individual is registered with the Insurance Authority for both roles independently.

Question 11 of 30

11. Question

During a comprehensive review of a process that needs improvement, an insurance intermediary’s compliance officer is assessing the internal reporting mechanisms for potential terrorist financing activities. An employee has a genuine suspicion that a client’s funds might be linked to terrorism. According to the United Nations (Anti-Terrorism Measures) Ordinance (UNATMO), what action by the employee would satisfy their statutory obligation concerning this suspicion?

Reporting the suspicion directly to the Hong Kong Police Force's Organised Crime and Triad Bureau.
Disclosing the suspicion to a colleague to gather more information before any formal report.
Communicating the suspicion to the designated person within their own organisation as per the company's established procedures.
Waiting for a formal request from a regulatory authority before taking any action on the suspicion.

Question 12 of 30

12. Question

During a comprehensive review of an applicant’s suitability to be a registered insurance intermediary, the Insurance Agents Registration Board (IARB) is evaluating their past conduct. Which of the following past actions would most directly lead the IARB to question the applicant’s ‘fit and proper’ status, according to the relevant regulatory framework?

A finding that the applicant previously failed to meet the minimum educational qualification requirements for a different professional license.
A documented instance where the applicant was found to have contravened the Code of Conduct for Persons Licensed by or Registered with the Insurance Authority.
Evidence that the applicant's employment visa conditions in Hong Kong were restrictive for certain types of financial advisory roles.
A period of two consecutive years where the applicant was not actively engaged in insurance-related work after passing an examination.

Question 13 of 30

13. Question

When a new entity intends to commence operations offering insurance coverage within Hong Kong, what is the primary regulatory prerequisite it must fulfill before commencing business activities, as stipulated by the governing legislation?

Obtain formal authorization from the Insurance Authority.
Register with the Hong Kong Companies Registry and declare its insurance intent.
Secure approval from the Hong Kong Monetary Authority for financial operations.
Submit a detailed business plan to the Financial Secretary for review.

Question 14 of 30

14. Question

During a comprehensive review of a process that needs improvement, an Insurance Authority (IA) investigator requests a Registered Person (RP) to submit evidence of their adherence to Continuing Professional Development (CPD) requirements. The RP, however, does not respond to this request. Under the relevant regulations, what is the most probable consequence for this RP?

The RP's registration will be revoked for a period determined by the IA, and future registration applications will be contingent on providing the requested proof of compliance.
The RP will receive a formal warning and be given an additional 30 days to submit the outstanding CPD documentation.
The RP's registration will be suspended for three months, after which they can re-register without needing to submit the previously requested proof.
The RP will be fined a nominal amount and required to complete double the usual CPD hours in the following year.

Question 15 of 30

15. Question

Mr. Chan has recently obtained authorisation to operate as an insurance broker in Hong Kong. He is also considering taking on a role as an appointed insurance agent for a life insurance company. Under the relevant provisions of the Insurance Ordinance, can Mr. Chan legally hold both positions concurrently?

No, an individual cannot be both an appointed insurance agent and an authorised insurance broker simultaneously.
Yes, as long as he advises different clients for each role.
Yes, provided he discloses both roles to the Insurance Authority.
No, but he can be an appointed insurance agent if he does not provide advice for the insurance broker role.

Question 16 of 30

16. Question

During a comprehensive review of a process that needs improvement, an insurer is examining its compliance procedures related to its members. A key aspect of this review involves ensuring that the insurer has obtained the necessary financial documentation from all its members. Which of the following actions is a mandatory requirement for the insurer in this context, as per the relevant regulatory framework governing insurers in Hong Kong?

Confirm receipt of financial statements and auditor's reports from every member, verifying their alignment with the insurer's membership rules and regulations.
Request updated financial statements from members who have not submitted them within the last fiscal year, regardless of membership rules.
Conduct an independent audit of each member's financial statements to ensure accuracy and compliance with industry standards.
Accept any financial documentation provided by members, as long as it is signed by a certified public accountant, without further verification.

Question 17 of 30

17. Question

During a comprehensive review of a process that needs improvement, an insurance underwriter is discovered to have consistently accepted cargo risks destined for West Africa, a type of business they were expressly instructed by their principal (the insurance company) not to engage in. However, for each of these unauthorized acceptances, the principal subsequently issued the relevant policies to the clients. Based on these past dealings, if the underwriter were to accept another similar risk, on what legal principle would the principal likely be bound by this action, even though the agent exceeded their explicit instructions?

Apparent authority stemming from the principal's consistent conduct
Actual authority, as the agent was performing a function related to underwriting
Ratification, as the principal's issuance of policies implies approval of past actions
Ostensible authority, due to the agent's position within the company

Question 18 of 30

18. Question

During a comprehensive review of a process that needs improvement, a client seeks advice from an insurance intermediary regarding a complex financial product. The intermediary, who identifies as an insurance broker, provides recommendations that, upon subsequent analysis, are found to be suboptimal and result in a financial loss for the client. Considering the intermediary’s self-proclaimed expertise and the nature of the advice given, which of the following is the most accurate assessment of the situation under Hong Kong insurance regulations?

The broker may be liable for professional negligence due to a breach of their heightened duty of care as an expert, necessitating professional indemnity insurance coverage.
The intermediary's actions would likely be considered standard practice, as their primary obligation is to the insurer, not the policyholder.
The client would have no recourse as insurance intermediaries are not legally obligated to provide expert advice, regardless of their self-representation.
The intermediary, if an agent, would be solely responsible for any loss, as agents are not covered by professional indemnity insurance and their advice is considered secondary.

Question 19 of 30

19. Question

During a voyage, a vessel carrying insured cargo experiences a master’s negligence, leading to a collision. This collision ignites a fire onboard, which subsequently causes an explosion. The explosion results in leaks, and seawater enters the vessel, damaging the cargo. If the cargo policies cover perils such as fire and entry of water, but exclude negligence, how would the loss from seawater damage be treated under the fire insurance aspect of the policies, considering the chain of events?

The loss from seawater damage would be recoverable under the fire peril, as the fire was the proximate cause of the damage, despite being initiated by negligence.
The loss would be irrecoverable because the initial cause, negligence, is an excluded peril.
The loss would be irrecoverable as seawater entry is an uninsured peril, and the chain of causation is broken by the initial negligence.
The loss would be recoverable only if the seawater entry directly resulted from the fire, bypassing the explosion and leaks.

Question 20 of 30

20. Question

During a comprehensive review of a process that needs improvement, an insurance broker is advising a client on obtaining a new property insurance policy. The broker has a strong existing relationship with a particular insurer and finds their products to be generally competitive. However, to ensure the client receives the best possible terms, the broker also researches policies from several other reputable insurers. Which of the following actions best demonstrates the broker prioritizing the client’s interests above all other considerations, as mandated by professional conduct guidelines relevant to the Hong Kong insurance industry?

Presenting a curated selection of policies from a few insurers, including the broker's preferred insurer, after conducting thorough market research to ensure competitive offerings.
Recommending the insurer with whom the broker has the most favorable commission structure, provided their policy meets the client's basic needs.
Solely presenting policies from the insurer with whom the broker has the strongest business relationship, assuming their products are generally suitable.
Advising the client that the broker's preferred insurer offers the most comprehensive coverage, without extensively exploring alternative options from other providers.

Question 21 of 30

21. Question

When implementing a new customer service charter, an insurance company is reviewing its complaint handling protocols. According to the HKFI’s ‘Guidelines on Complaint Handling,’ what is a crucial step an insurer must take to ensure customers are aware of the complaint resolution process?

Only provide complaint procedures when specifically asked by a customer.
Make the complaint handling procedures available on a password-protected section of their website.
Inform customers about the complaint procedures solely through annual policy renewal notices.
Ensure that the complaint handling procedures are readily accessible and proactively communicated to all customers.

Question 22 of 30

22. Question

An individual, currently licensed as an insurance agent, also holds a valid travel agent license. This individual intends to offer insurance products specifically related to travel. Under the relevant regulatory framework, what additional compliance is mandated for this individual to legally conduct this specialized travel insurance business?

The individual must obtain a specific endorsement for restricted scope travel business from the IARB.
The individual must register as an MPF intermediary with the MPFA.
The individual must ensure their agency agreement explicitly mentions compliance with Part F of the Code.
The individual must be registered with the IARB as a travel agent.

Question 23 of 30

23. Question

When advising a client on selecting an insurance policy, an insurance broker must adhere to a strict ethical framework. Which of the following actions best exemplifies the broker’s commitment to placing the client’s interests first, as mandated by relevant professional conduct guidelines?

Presenting a diverse range of insurers and policies, ensuring the client has ample choice and is not unduly influenced by the broker's potential affiliations.
Recommending a specific insurer that offers the broker a higher commission, provided the policy meets the client's basic needs.
Limiting the selection of insurers to those with whom the broker has established long-standing relationships, to streamline the application process.
Focusing primarily on insurers that are authorized within Hong Kong, even if a more suitable and cost-effective option exists offshore.

Question 24 of 30

24. Question

When a new entity intends to commence underwriting insurance policies within Hong Kong, what is the fundamental regulatory prerequisite mandated by the Insurance Ordinance (Cap. 41) before any business activities can legally begin?

Obtain formal authorization from the Insurance Authority (IA)
Register with the Hong Kong Companies Registry and declare intent to operate
Secure approval from the three former Self-Regulatory Organisations (SROs)
Submit a detailed business plan to the Financial Secretary for review

Question 25 of 30

25. Question

During a comprehensive review of a process that needs improvement, an individual is found to be simultaneously acting as an appointed insurance agent for ‘Alpha Insurance Co.’ and 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 is permissible as long as the individual clearly discloses their dual capacity to all clients.
This is allowed if the individual is acting as a director for both entities and not in an advisory capacity.
This is acceptable provided the individual is not representing the same client for both roles.

Question 26 of 30

26. Question

During a comprehensive review of a process that needs improvement, an insurance company discovered that a policyholder suffered a total loss of HK$100,000 to their property. The insurer, adhering to the policy’s terms, paid out HK$50,000 to the policyholder, reflecting a specific deductible. Subsequently, it was determined that a third party’s negligence was the direct cause of the loss. The insurer, acting in the policyholder’s name, successfully pursued a claim against the negligent third party and recovered HK$80,000. Under the principles of subrogation, how should this recovered amount be allocated between the insurer and the policyholder?

The insurer receives HK$50,000, and the policyholder receives the remaining HK$30,000.
The insurer receives HK$80,000, as they initiated the recovery action.
The policyholder receives the full HK$80,000, as the insurer's payout was only partial.
The insurer and policyholder split the HK$80,000 equally, each receiving HK$40,000.

Question 27 of 30

27. Question

When dealing with clients and aiming to uphold ethical standards within the insurance industry, what specific resource, developed in conjunction with the Insurance Authority and industry bodies, is recommended for life insurance intermediaries to enhance their awareness of anti-corruption measures and professional conduct?

The 'Practical Guide on Professional Ethics for Life Insurance Intermediaries'
General corruption prevention services offered by the ICAC
The module on Verification of Insurance Claims
Adherence to the Insurance Ordinance's general provisions

Question 28 of 30

28. Question

During a comprehensive review of a process that needs improvement, an insurance agent registered with the Insurance Authority (IA) is found to have submitted a declaration stating completion of all mandatory Continuing Professional Development (CPD) hours, when in fact, they had not fulfilled the required hours. According to the IA’s disciplinary framework for Registered Persons, what is the likely initial consequence for such an act?

The agent's registration is revoked for a period of 12 months, and they must complete all outstanding CPD hours upon re-application.
The agent is issued a formal warning and must complete the outstanding CPD hours within three months to avoid further action.
The agent's registration is suspended for three months, and they are required to complete all outstanding CPD hours before their registration can be reinstated.
The agent is fined a predetermined amount and must provide proof of completed CPD hours within six months.

Question 29 of 30

29. Question

During a comprehensive review of a process that needs improvement, an individual holding a personal accident insurance policy discovers that their employment status has changed to a higher-risk occupation. The policy document, however, contains a specific clause mandating the disclosure of any material changes in risk during the policy’s currency. According to the principles of utmost good faith as applied in Hong Kong insurance law, when is this individual obligated to inform the insurer of this change in occupation?

Immediately upon the change in occupation occurring, as stipulated by the policy terms.
Only at the time of the next policy renewal, as is the common law position for changes in risk.
When the insurer specifically requests an update on the insured's occupational status.
Upon the occurrence of any claim, at which point all relevant changes must be disclosed.

Question 30 of 30

30. Question

During a comprehensive review of a process that needs improvement, an Insurance Intermediary (Registered Person) is contacted by the Insurance Authority (IA) to provide documentation verifying their adherence to Continuing Professional Development (CPD) mandates. The intermediary, despite receiving the request, does not submit the required proof. Under the relevant regulations, what is the most likely immediate consequence for this Registered Person’s failure to comply with the IA’s request?

Their registration will be suspended for a period determined by the IA, and future registration applications will be contingent on providing the requested proof.
They will be issued a formal warning and a minor administrative penalty, with a grace period to submit the outstanding CPD documentation.
Their registration will be automatically revoked for a fixed period of three months, regardless of the reason for non-compliance.
They will be required to complete double the usual CPD hours in the following year to rectify the non-compliance.