IIQE Paper 1 Principles and Practice of Insurance Examination Quiz 13

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 suspicious property, not to general compliance with AML/CFT guidelines. While the IA Guideline emphasizes robust AML/CFT systems, it does not offer a statutory defence against UNATMO offenses. The offence of failing to disclose knowledge or suspicion of terrorist property carries a lesser penalty, and tipping off is a separate offence with its own penalties. Therefore, the most direct and legally recognized defence against the core offenses of UNATMO, as described, is the timely and proper reporting to the JFIU.

This question tests the understanding of apparent authority in agency law, a key concept within the IIQE syllabus. Apparent authority arises when a principal’s actions lead a third party to reasonably believe that an agent has the authority to act on the principal’s behalf, even if the agent lacks actual authority. In the scenario, the principal’s consistent issuance of policies for cargo risks to West Africa, despite privately forbidding the agent from accepting them, creates the impression for the client that the agent possesses the authority to grant such cover. This consistent conduct by the principal, rather than the agent’s internal instructions, is what establishes apparent authority. Therefore, the principal is bound by the agent’s actions in this instance due to the manifestation of authority to the third party.

The Insurance Authority (IA) mandates that insurance brokers must submit annual audited financial statements and an auditor’s report within six months of their financial year-end. This auditor’s report specifically confirms adherence to minimum requirements, including those related to financial soundness, operational capabilities, and professional conduct. While the broker must also disclose their registration number upon request and on business cards, and provide a Customer Protection Declaration for new long-term policies, these are separate obligations from the annual financial reporting and auditor’s confirmation of meeting minimum standards.

The Insurance Authority (IA) is responsible for overseeing the conduct of insurance intermediaries. When an applicant for registration as a Registered Person is undergoing the approval process, the appointing Principal or Insurance Agent has a duty to inform the IA of any changes in the applicant’s circumstances that might influence the IA’s decision. This proactive disclosure is crucial for maintaining the integrity of the registration process and ensuring that only fit and proper individuals are registered. Failure to provide such information could lead to the application being rejected or, if registered, potential disciplinary action.

This question tests the understanding of vicarious liability in the context of data protection under Hong Kong law. The Personal Data (Privacy) Ordinance (PDPO) holds data users responsible for the actions of their data processors. Therefore, if a data processor infringes on a data subject’s privacy, the data subject can seek recourse from the data user, who is considered liable as the principal for the data processor’s wrongful acts. The contract between the data user and data processor can serve as evidence of compliance, but it does not absolve the data user of their primary responsibility to the data subject. The data processor itself is not directly liable to the data subject for infringing their privacy.

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.

Guidance Note 6 (GN6) explicitly states that no individual, whether a prospective or current insurance agent, Responsible Officer, or Technical Representative, should present themselves as conducting insurance agency business for a Principal before receiving written confirmation of their registration from the IARB. Acting or holding oneself out as an insurance agent before the effective date specified in the Notice of Confirmation of Registration can constitute an offence under Section 77 of the Insurance Ordinance, potentially leading to criminal prosecution. Similarly, for Responsible Officers and Technical Representatives, doing so before their registration date is a breach of the Code and can impact their fitness and properness. Therefore, the critical point is the official confirmation date from the IARB, not the application submission date or the insurer’s internal approval.

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. Therefore, any activity before the specified confirmation date is prohibited and can lead to prosecution or affect fitness and properness.

The Insurance Claims Complaints Bureau (ICCB) is a self-regulatory body established by the insurance industry in Hong Kong. Its primary function is to handle complaints from individual policyholders concerning claims arising from personal insurance contracts with its member insurers. The ICCB’s Insurance Claims Complaints Panel, which handles these complaints, has the authority to make awards against insurers. The maximum award amount the Panel can make is HK$800,000. Insurers cannot appeal an award made by the Panel. However, a complainant who is dissatisfied with the Panel’s award retains the right to pursue legal recourse.

This question assesses the understanding of the role of an accountant within an insurance company, specifically focusing on the critical function of managing company assets. While record-keeping, collections, and payments are all vital accounting functions, the prompt highlights the accountant’s responsibility for the care and placement of company assets, particularly when a dedicated investment department is absent. This responsibility is paramount for ensuring the security of funds, achieving competitive returns, and maintaining sufficient liquidity to meet financial obligations. The other options, while important accounting tasks, do not directly address the strategic management of the insurer’s financial resources in the same way as investment oversight.

The United Nations (Anti-Terrorism Measures) Ordinance (UNATMO) empowers the Secretary for Security to freeze assets suspected of being linked to terrorism. Section 4 of the UNATMO specifically prohibits providing property or financial services to or for the benefit of a terrorist or terrorist associate without a license. The question describes a scenario where a financial institution (FI) is asked to facilitate a transaction for an individual whose name appears on a list of individuals associated with a designated terrorist organization. This directly triggers the FI’s obligation under the UNATMO to cease facilitating such transactions unless a specific license is obtained from the Secretary for Security. Failing to do so would constitute a contravention of the ordinance. Option B is incorrect because while reporting suspicious transactions is crucial, the immediate action required by the UNATMO in this scenario is to halt the transaction and seek authorization, not just report. Option C is incorrect as the UNATMO’s primary focus is on preventing the flow of funds to terrorists, and while due diligence is part of this, the specific prohibition on providing services to designated individuals is the core issue. Option D is incorrect because while the FI must maintain updated databases, the scenario implies the FI is aware of the designation, making the immediate action to cease the transaction paramount.

The question tests the understanding of the concept of ‘Apparent Authority’ in agency law, specifically as it relates to insurance. Apparent authority arises when a principal’s actions lead a third party to reasonably believe that an agent has authority, even if that authority hasn’t been explicitly granted. This is distinct from agency by estoppel, which typically involves a misrepresentation by the principal that someone is their agent, leading a third party to act on that belief. In this scenario, the insurer’s consistent allowance of the agent to handle claims and issue policy endorsements, without explicit limitations communicated to the policyholder, creates an appearance of authority. Therefore, the insurer would be bound by the agent’s actions in extending the coverage, as the policyholder reasonably relied on this apparent authority. The other options describe different legal concepts or misinterpretations of agency principles. Actual authority refers to express or implied authority granted by the principal. Ostensible authority is a synonym for apparent authority. Ratification occurs when a principal approves an unauthorized act after it has occurred.

Guidance Note 4 (GN4) issued by the IARB (now part of HKFI) provides specific directives for insurance agents to uphold integrity and protect policyholders. One key directive is that agents must not accept blank or incomplete proposal forms from customers. Any amendments made to a form after initial completion must be acknowledged and initialed by the customer to prevent unauthorized alterations and potential misrepresentation. This ensures transparency and accuracy in the application process, safeguarding both the client and the insurer.

Principle 6 of the Personal Data (Privacy) Ordinance (PDPO) grants data subjects the right to access and correct their personal data. This means an individual can request a copy of the information an insurer holds about them, and if they find it inaccurate, they can ask for it to be corrected. The scenario describes a situation where an insurer has outdated contact information for a client. According to Principle 2, personal data should be accurate and kept up-to-date. Failing to update this information and continuing to use it would violate this principle. Therefore, the insurer has a responsibility to correct the inaccurate address. The other options are incorrect because while data security (Principle 4) is important, it doesn’t directly address the correction of inaccurate data. Principle 3 relates to the use of data, not its accuracy or retention. Principle 5 concerns transparency about data policies, not the correction of specific data points.

The Insurance Authority (IA) is responsible for overseeing the conduct of insurance intermediaries. When an applicant for registration as a Registered Person is undergoing the approval process, the appointing Principal or Insurance Agent has a duty to inform the IA of any changes in the applicant’s circumstances that might influence the IA’s decision. This proactive disclosure is crucial for maintaining the integrity of the registration process and ensuring that only fit and proper individuals are registered. Failure to provide such information could lead to the application being rejected or, if registered, potential disciplinary action.

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 ‘Source of Business’ approach categorizes business based on how it was acquired, such as through agents, brokers, or directly from the public. This aids in managing distribution channels and agent/broker performance. The other options represent different classification methods: ‘Departmental’ focuses on the type of insurance product, ‘Type of Client’ differentiates between personal and commercial lines, and ‘Academic Classification’ is for theoretical or examination purposes.

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 personal data. Its scope is broad and encompasses both the public and private sectors. This means that government departments, statutory bodies, as well as commercial enterprises and non-profit organizations that handle personal data, are all subject to the provisions of the PDPO. Therefore, the Ordinance applies to all entities that collect and process personal data, regardless of whether they operate in the public or private domain.

This question tests the understanding of the core functions within an insurance company and the division of responsibilities. The Accounts department is primarily concerned with financial transactions, record-keeping, and managing the company’s monetary assets and liabilities. Determining the insurability of a risk falls under the purview of underwriting, which involves assessing the likelihood and potential cost of a loss. Arranging the launch of a new policy product is a strategic and marketing function, typically handled by product development, marketing, or actuarial departments, not the accounts department. Therefore, both determining risk insurability and arranging new product launches are outside the typical responsibilities of an accounts department.

The question tests the understanding of the concept of ‘Agency by Estoppel’ as defined in contract law within the insurance context. Agency by Estoppel arises when a principal, through their words or actions, leads a third party to believe that another person is their agent. If the third party acts on this representation, the principal is then prevented (estopped) from denying the existence of the agency relationship. This is distinct from apparent authority, where the agent is genuinely appointed but appears to have broader powers than actually granted. In this scenario, Mr. Chan’s consistent allowance of Ms. Lee to present herself as his representative, coupled with his inaction when she solicits business, creates a representation to potential clients like Ms. Wong. Therefore, Mr. Chan would be bound by Ms. Lee’s actions under the principle of Agency by Estoppel.

This question tests the understanding of the fundamental principles of risk management and insurance, specifically the distinction between different types of risks. A ‘pure risk’ is defined as a situation where there is only the possibility of loss or no loss, with no chance of financial gain. Conversely, a ‘speculative risk’ involves the possibility of gain as well as loss. ‘Particular risk’ refers to a risk that affects only an individual or a small group, while ‘fundamental risk’ affects a large segment of society or the economy. Therefore, a risk that presents only the potential for loss, without any possibility of a positive financial outcome, is classified as a pure risk.

The Insurance Ordinance (Cap. 41) in Hong Kong categorizes insurance business into two primary divisions: General Business and Long Term Business. General Business encompasses a wide array of non-life insurance products, such as property, casualty, and marine insurance. Long Term Business, conversely, deals with insurance contracts that are expected to remain in force for extended periods, typically involving life insurance, annuities, and permanent health insurance. The distinction is crucial for regulatory purposes, including capital requirements and solvency margins, as the risk profiles and business models differ significantly between these two categories. Therefore, ‘Long Term Business’ is the correct counterpart to ‘General Business’ as defined by the Ordinance.

When a Hong Kong-incorporated financial institution (FI) operates overseas and its foreign branch or subsidiary cannot comply with Hong Kong’s Customer Due Diligence (CDD) and record-keeping requirements due to local legal restrictions, the FI has specific obligations. It must first inform its relevant regulator in Hong Kong about this inability to comply. Secondly, and crucially, the FI must implement additional measures to effectively manage and reduce the risks of money laundering and terrorist financing (ML/TF) that arise precisely because of this non-compliance with the similar Hong Kong standards. This ensures that the overall AML/CFT framework remains robust despite local legal limitations.

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 concerning the acts disclosed. The question describes a scenario where an insurance intermediary facilitates a transaction that could be construed as providing financial services to a known associate of a terrorist organization. By reporting this suspicion to the JFIU, the intermediary is availing themselves of the statutory defence against potential offences under the UNATMO, specifically related to making financial services available to terrorist associates.

The Personal Data (Privacy) Ordinance (PDPO) in Hong Kong mandates that when a data user intends to use personal data for direct marketing, they must provide specific prescribed information to the data subject. This information includes the types of personal data to be used, the categories of marketing subjects, and, if applicable, the classes of persons to whom the data will be provided for direct marketing. Crucially, if the data is provided to others for gain, the data user must also inform the data subject of this fact. The information must be presented in an easily readable and understandable format. The question tests the understanding of these notification requirements under the PDPO for direct marketing purposes.

The scenario describes an insurance agent handling sensitive customer information outside the traditional office environment. The core principle here is the protection of personal data. The guidance note emphasizes that agents must ensure customer data is not exposed to unauthorized individuals and that sensitive conversations are not overheard. This directly relates to the agent’s responsibility to maintain data privacy and confidentiality, even when working remotely or in public. Option (a) correctly identifies this as a primary responsibility. Option (b) is incorrect because while customer satisfaction is important, it’s not the primary legal or ethical obligation being tested in this context. Option (c) is incorrect as the scenario doesn’t involve any specific anti-discrimination laws; it’s about data handling. Option (d) is incorrect because while compliance with regulations is crucial, the specific action of ensuring data privacy is the direct requirement in this situation, not a general statement about regulatory adherence.

Terrorist financing, as defined by relevant legislation, involves the provision or collection of property with the intention or knowledge that it will be used, in whole or in part, to commit terrorist acts. This includes situations where the property is actually used or not. Option (b) describes making property or services available to a known or recklessly considered terrorist or associate, which is a component of terrorist financing but not the overarching definition. Option (c) focuses solely on the collection or solicitation of property for the benefit of a terrorist or associate, which is also a part of the broader definition but not the complete scope. Option (d) is incorrect as it misrepresents the core definition by focusing on the source of funds rather than the intent or knowledge of their use for terrorist acts.

This question tests the understanding of liability in cases of data processing outsourcing under Hong Kong’s Personal Data (Privacy) Ordinance. The Ordinance holds the data user primarily responsible for any contravention of the Ordinance, even if it occurs due to the actions of a data processor. While a data processor is not directly liable to the data subject, the data user remains liable as the principal for the processor’s wrongful acts. The contract between the data user and processor can serve as evidence of compliance and allow the data user to seek recourse from the processor, but it does not absolve the data user of their initial responsibility to the data subject.

In life insurance underwriting, the process is typically a one-time assessment because the insurer cannot unilaterally cancel the policy. Any changes to the policy terms after issuance generally require the policyholder’s consent. This contrasts with general insurance, where policies are subject to renewal and can be adjusted or cancelled by the insurer at renewal, allowing for a more continuous underwriting approach. Therefore, while both involve risk selection, the nature and timing of the underwriting exercise differ significantly due to the non-cancellable nature of life policies.

This question tests the understanding of voidable contracts within the context of insurance. A voidable contract is one that can be nullified by one of the parties due to a defect present at the time of formation. In insurance, this often arises from misrepresentation or non-disclosure by the proposer. The key characteristic is that the contract remains valid until the aggrieved party chooses to void it. Option (a) correctly identifies this characteristic. Option (b) describes an unenforceable contract, which is valid but cannot be enforced due to a procedural defect. Option (c) describes a void contract, which is invalid from the outset. Option (d) describes a valid contract, which is fully enforceable.

The Insurance Authority (IA) mandates that insurance brokers must submit annual audited financial statements and an auditor’s report within six months of their financial year-end. This auditor’s report specifically confirms adherence to minimum regulatory requirements, including those related to financial soundness and operational capabilities. While a broker must disclose their registration number upon request and on business cards, and provide a Customer Protection Declaration for new long-term policies, these are distinct obligations from the annual financial reporting and auditor’s confirmation of compliance with minimum requirements.