IIQE Paper 1 Principles and Practice of Insurance Examination Quiz 19

Question 1 of 30

1. Question

During a comprehensive review of a process that needs improvement, an insurance company identifies a significant concentration of risk associated with a newly underwritten, high-value policy. To mitigate the potential financial impact of a large claim on this single policy, the company decides to transfer a portion of this risk to another entity. Under the Insurance Ordinance, what is the most appropriate classification for this action?

Outward reinsurance
Inwards reinsurance
Direct underwriting
Portfolio diversification

Question 2 of 30

2. Question

During a voyage, a vessel carrying insured cargo experiences a collision due to the master’s negligence. This collision ignites a fire, which subsequently leads to an explosion. The explosion causes the vessel to sustain leaks, and seawater enters, damaging the cargo. If the cargo policy specifically covers ‘fire’ but excludes ‘negligence’ and ‘explosion’ as direct causes of loss, how would the damage from seawater be assessed under the principle of proximate cause?

The damage is recoverable because the proximate cause, fire, is an insured peril, despite the initial uninsured peril.
The damage is irrecoverable because the chain of events began with an uninsured peril (negligence).
The damage is only partially recoverable, with the insurer covering the portion directly attributable to the fire.
The damage is irrecoverable because the ultimate cause of the leaks was an explosion, which is an excluded peril.

Question 3 of 30

3. Question

A financial institution in Hong Kong, intending to engage in direct marketing for new investment products, plans to share its customer data with an external marketing agency. Under the Personal Data (Privacy) Ordinance (PDPO), what is the primary obligation of the financial institution before providing this customer data to the agency for marketing purposes, assuming the agency will be compensated for its services?

Provide the data subject with written notification detailing the types of personal data to be shared, the categories of marketing subjects, and confirmation that the data is being provided to another party for gain.
Obtain explicit written consent from each data subject for the sharing of their data with the marketing agency, without necessarily detailing the specific marketing categories.
Inform the data subject orally about the data sharing and the intended marketing activities, and then wait for a written objection before proceeding.
Only notify the data subject if the data is being provided to the agency for gain, and no specific information about the data types or marketing categories is required.

Question 4 of 30

4. Question

During a regulatory review of an insurance broking firm, it was noted that the firm operates as an incorporated entity. According to the Insurance Companies Ordinance (Cap. 41), what are the minimum financial requirements that this incorporated insurance broker must consistently maintain to ensure its operational solvency and compliance?

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$200,000.

Question 5 of 30

5. Question

During a comprehensive review of a process that needs improvement, an insurance broker is advising a client on a complex property insurance policy. The broker has a strong, long-standing relationship with a particular insurer that offers competitive rates. However, to ensure the client receives the most suitable coverage, the broker must present a diverse range of options. Which of the following actions best demonstrates the broker’s adherence to placing the client’s interests above all other considerations, as mandated by professional conduct guidelines?

Presenting a curated selection of policies from various insurers, including the broker's preferred insurer, while clearly outlining the pros and cons of each.
Recommending only the policies from the broker's preferred insurer, highlighting their perceived advantages, due to the established rapport and efficiency.
Focusing the client's attention primarily on the policies from the broker's preferred insurer, while briefly mentioning other options as less viable alternatives.
Suggesting that the client directly contact multiple insurers to gather information, thereby reducing the broker's direct involvement in presenting comparative options.

Question 6 of 30

6. Question

When dealing with a with-profit life insurance policy, how are the insurer’s profits primarily shared with the policyholder, reflecting the mutual nature of such contracts?

Through the allocation of bonuses, which represent a share of the company's profits.
By providing a direct cash dividend payment annually, regardless of company performance.
By reducing the policy's premium amount automatically each year based on investment returns.
Through a guaranteed increase in the sum assured, independent of the insurer's profitability.

Question 7 of 30

7. Question

During a comprehensive review of a process that needs improvement, an insurance broker, acting as a registered person under the Code of Practice for the Administration of Insurance Agents, made a critical error in advising a client on a complex investment-linked insurance product. This error led to a significant financial loss for the client. Which type of insurance would primarily cover the broker for their failure to meet the expected degree of professional competence, resulting in this loss to the client?

Professional Indemnity Insurance
Reinstatement Insurance
Product Liability Insurance
General Liability Insurance

Question 8 of 30

8. Question

During a voyage, a vessel carrying insured cargo experiences a series of unfortunate events. The master’s negligence, an uninsured peril under the cargo policies, causes a collision. This collision ignites a fire, an insured peril for the cargo. The fire subsequently leads to structural damage, causing seawater to enter the holds and damage the cargo. Under a policy that insures against fire but excludes negligence, how would the damage caused by seawater be assessed in relation to the fire peril?

The seawater damage is recoverable under the fire policy because the fire, an insured peril, was the proximate cause of the damage, despite being initiated by negligence.
The seawater damage is irrecoverable because the proximate cause of the entire incident was the master's negligence, which is an uninsured peril.
The seawater damage is only partially recoverable, with the insurer liable only for the portion directly attributable to the fire itself, not the subsequent water ingress.
The seawater damage is irrecoverable because the policy excludes damage arising from any peril that follows an uninsured peril, regardless of the intervening insured peril.

Question 9 of 30

9. Question

During a comprehensive review of a process that needs improvement, an insurance company identified a situation where a policyholder suffered a loss due to the negligence of a third party. The insurer indemnified the policyholder for the full extent of the loss, amounting to HK$100,000. Subsequently, the insurer discovered that the policyholder had a separate contractual claim against the third party for an additional HK$30,000, which was unrelated to the insured loss but arose from the same incident. Under the principle of subrogation as applied in Hong Kong insurance law, what is the maximum amount the insurer can recover from the third party through its subrogation rights?

HK$100,000
HK$130,000
HK$70,000
HK$30,000

Question 10 of 30

10. Question

When an applicant seeks to become an approved body of insurance brokers in Hong Kong, what is the primary responsibility of the Insurance Authority (IA) concerning the applicant’s members, as stipulated by the relevant regulations?

To ensure the applicant body has robust rules and regulations to guarantee its members meet the IA's minimum standards and are deemed fit and proper.
To directly assess the qualifications and experience of each individual member of the applicant body.
To provide a list of approved insurance qualifications that all members must possess.
To conduct an independent audit of the financial standing of every member of the applicant body.

Question 11 of 30

11. Question

During a comprehensive review of a process that needs improvement, a client’s vehicle, insured for $30,000, sustained damage requiring $20,000 in repairs. Post-accident assessment revealed that the damaged vehicle could be sold for $5,000 as salvage. Under the principle of indemnity, what is the maximum amount the insurer would effectively pay for the loss, considering the salvage value?

$15,000
$20,000
$25,000
$30,000

Question 12 of 30

12. Question

When an insurance company lacks a specialized investment department, which of the following functions typically falls under the purview of the accountant, directly impacting the insurer’s financial health and operational capacity?

The strategic allocation and oversight of the company's financial assets to balance security, yield, and cash flow.
The meticulous documentation of all incoming premium payments and outgoing claims settlements.
The systematic process of reminding policyholders about outstanding premium payments.
The efficient processing and disbursement of all operational expenses and vendor invoices.

Question 13 of 30

13. Question

When a Hong Kong company engages a third-party vendor to process customer data, which of the following contractual obligations is most critical for the company to impose on the vendor to ensure compliance with the Personal Data (Privacy) Ordinance?

The vendor must implement robust security measures and adhere to all applicable data protection principles outlined in the Ordinance.
The vendor must agree to return or securely destroy all customer data within 30 days of the contract's termination.
The vendor must provide the company with an annual audit report detailing its data handling procedures and any security incidents.
The vendor must obtain explicit consent from each data subject before processing their data for any purpose other than the primary service delivery.

Question 14 of 30

14. Question

During a comprehensive review of a process that needs improvement, a client expresses dissatisfaction with the advice received from their insurance intermediary regarding a complex policy. The intermediary, an insurance broker, had presented themselves as a specialist in this niche area. The client believes the broker’s advice was flawed, leading to a financial disadvantage. Under Hong Kong regulations, what is the primary recourse for the client if the broker’s actions are found to be below the expected standard of care for a professional expert?

The client can sue the broker for professional negligence, and the broker is required to have Professional Indemnity Insurance.
The client can report the broker to the Office of the Privacy Commissioner for Personal Data for mishandling information.
The client can only seek recourse from the insurer, as the broker acted as an agent of the insurer.
The client can terminate the agency agreement with the broker without any further recourse for past advice.

Question 15 of 30

15. Question

During a comprehensive review of a process that needs improvement, a registered person is discussing a long-term insurance policy with a potential policyholder. The client has disclosed their financial situation and stated their primary goal is capital preservation with a modest growth expectation. Which of the following actions best demonstrates compliance with the conduct requirements for registered persons in long-term business?

Making every reasonable effort to ensure the proposed policy is suitable to the needs and resources of the potential policyholder as disclosed.
Providing detailed illustrations of projected benefits, emphasizing the highest possible growth rates to attract the client.
Offering a small, unadvertised rebate on the first year's premium to incentivize the client to proceed with the policy.
Comparing the policy's features to a competitor's product, highlighting only the most favorable aspects of the proposed policy.

Question 16 of 30

16. Question

During a fire incident, a business’s inventory sustained damage estimated at $20,000. Upon inspection, it was determined that the damaged inventory could be sold for $5,000 as salvage. According to the principles of indemnity and salvage as applied in Hong Kong insurance practice, what is the maximum amount the insurer would typically be liable to pay to the insured for this loss, assuming the policy covers the full value of the inventory and there are no other policy conditions affecting the payout?

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

Question 17 of 30

17. Question

In the context of Hong Kong’s insurance regulatory framework, an entity that is authorized to underwrite both life assurance policies and property damage insurance would be classified as which of the following?

A composite insurer
A specialist insurer
A reinsurer
A general business insurer

Question 18 of 30

18. Question

During a comprehensive review of a process that needs improvement, a registered technical representative (TR) for a travel insurance agency realizes they have not met their annual Continuing Professional Development (CPD) obligations. The TR had previously declared completion of the required hours but cannot produce supporting documentation when requested by the Insurance Authority (IA). According to the relevant regulations, what is the most likely immediate consequence for this TR?

The TR's registration will be revoked for a specified period, and their future registration applications will be contingent on providing proof of compliance.
The TR will be required to complete double the annual CPD hours in the following year to rectify the non-compliance.
The TR will receive a formal warning and a fine, with no immediate impact on their registration status.
The TR's registration will be suspended for 3 months, after which they can re-register without further action.

Question 19 of 30

19. Question

When dealing with a complex system that shows occasional inconsistencies in adherence to regulatory guidelines, which of the following bodies is primarily responsible for investigating potential breaches of the Insurance Ordinance or the Code of Conduct, and for managing the registration and disciplinary actions concerning insurance intermediaries and their representatives in Hong Kong?

The Insurance Agents Registration Board (IARB)
The Hong Kong Federation of Insurers (HKFI) solely for policy interpretation
The Insurance Authority (IA) for all operational matters
Individual insurance principals for all compliance issues

Question 20 of 30

20. Question

During a comprehensive review of the regulatory framework for intermediaries in Hong Kong, a key discussion point revolves around the entities that represent and uphold professional standards for insurance brokers. Which of the following best describes the function and basis of recognition for such organizations under the relevant legislation?

Associations of insurance brokers officially recognized by the Insurance Authority under Section 70 of the Insurance Ordinance, tasked with promoting best practices.
Individual insurance brokers who have achieved a certain level of experience and are licensed to operate independently.
Insurers who have voluntarily adopted a Code of Conduct to ensure fair treatment of policyholders.
Financial institutions that manage client accounts for insurance brokers, ensuring the segregation of client funds.

Question 21 of 30

21. Question

During a comprehensive review of a process that needs improvement, a financial advisor is examining a life insurance policy taken out by a client on their spouse. The policy was initiated when they were married. However, by the time the insured event occurred, the couple had divorced. According to the Insurance Ordinance (Cap. 41), when is the presence of insurable interest most crucial for the validity of a life insurance policy?

At the time the policy is taken out
At the time of the insured event (death)
At the time the claim is submitted
At the time of policy assignment, if applicable

Question 22 of 30

22. Question

During a comprehensive review of a process that needs improvement, a financial institution (FI) identifies a proposed transaction involving a client whose activities are strongly suspected of indirectly funding an organization previously linked to acts of terror. The FI has internal policies requiring due diligence and compliance with anti-terrorism financing regulations. Under the relevant Hong Kong legislation, what is the FI’s primary obligation in this situation?

Refuse the transaction and report the suspicion to the Joint Financial Intelligence Unit (JFIU).
Proceed with the transaction but increase monitoring of the client's future activities.
Contact the Secretary for Security to request a license to proceed with the transaction.
Inform the client that their transaction cannot be processed due to internal policy limitations.

Question 23 of 30

23. Question

When considering the regulatory framework for personal data protection in Hong Kong, which entities are subject to the provisions of the Personal Data (Privacy) Ordinance?

All organizations, whether governmental or commercial, that collect and process personal data.
Only private sector businesses that engage in direct marketing activities.
Exclusively public sector bodies responsible for administering government services.
Neither public nor private sector entities, as it is a voluntary code of conduct.

Question 24 of 30

24. Question

During a comprehensive review of a process that needs improvement, an individual is applying for a one-year medical insurance policy. The proposal is accepted on January 2nd, with coverage set to begin on January 15th. On January 10th, the applicant undergoes a routine medical check-up, and on January 16th, they receive the results indicating the presence of a previously unknown condition. Assuming the policy document does not explicitly address the disclosure of information discovered between acceptance and commencement, what is the applicant’s obligation regarding this new medical finding under the principle of utmost good faith at common law?

No disclosure is required as the information was obtained after the contract's acceptance and before its commencement.
The applicant must immediately disclose the finding to the insurer, as it is a material fact discovered before the policy's effective date.
Disclosure is only necessary if the insurer specifically requests updated medical information before the policy start date.
The applicant should wait until the policy renewal period to disclose this new medical information.

Question 25 of 30

25. Question

When considering the regulatory framework for personal data protection in Hong Kong, which of the following accurately describes the entities subject to the Personal Data (Privacy) Ordinance?

Both public sector organizations and private sector businesses
Only government departments and statutory bodies
Exclusively commercial enterprises and financial institutions
Neither public sector entities nor private sector businesses

Question 26 of 30

26. Question

During a comprehensive review of a process that needs improvement, an insurance company identified a situation where a policyholder suffered a loss due to the negligence of a third party. The insurer indemnified the policyholder for the full extent of the loss, amounting to HK$100,000. Subsequently, the policyholder independently recovered HK$70,000 from the negligent third party. Under the principle of subrogation as applied in Hong Kong insurance law, what is the maximum amount the insurer can recover from the policyholder in this scenario?

HK$100,000, as the insurer is entitled to recover the full indemnity paid.
HK$30,000, representing the difference between the indemnity paid and the amount recovered by the policyholder.
HK$70,000, as the insurer can only claim what the policyholder recovered from the third party.
HK$0, because the policyholder has already recovered a portion of the loss from the third party.

Question 27 of 30

27. Question

During a comprehensive review of a process that needs improvement, a financial institution (FI) receives a notice published in the Government Gazette under section 4 of the United Nations (Anti-Terrorism Measures) Ordinance (UNATMO). This notice designates a specific individual and their associated property. What is the immediate and primary obligation of the FI upon receiving such a notice regarding the designated property?

Immediately cease all transactions and dealings with the designated property, unless a specific license is granted by the Secretary for Security.
Conduct an internal investigation to verify the designation before taking any action on the property.
Report the designation to the Joint Financial Intelligence Unit (JFIU) and await their instructions before acting.
Continue normal transactions with the property but flag it for enhanced monitoring.

Question 28 of 30

28. 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 burden of fire damage away from their own balance sheet.
To contribute to the growth of the financial services sector in Hong Kong.
To create employment opportunities within the insurance industry.
To enhance their company's ability to secure bank financing for future expansion.

Question 29 of 30

29. Question

During a comprehensive review of a process that needs improvement, an insurance company identifies a need to update its offerings to align with evolving customer demands and competitive pressures. Which fundamental activity is most crucial for identifying and creating these new or enhanced insurance solutions?

Product Research
Portfolio Development
Professional Indemnity Insurance
Reinsurance

Question 30 of 30

30. Question

Mr. Chan is the sole proprietor of a successful bakery. He has invested a significant amount of his personal savings into the business. He wishes to take out a comprehensive fire insurance policy to cover the bakery premises and all its equipment. Under the Insurance Ordinance, which of the following best describes Mr. Chan’s insurable interest in relation to the bakery’s assets?

He does not possess insurable interest as the assets are owned by the business entity, not him personally.
He possesses insurable interest due to his personal financial investment and the potential loss of income.
He possesses insurable interest because he is the primary operator and manager of the bakery.
He possesses insurable interest as a creditor to his own business, having advanced personal funds.