IIQE Paper 1 Principles and Practice of Insurance Examination Quiz 11

Question 1 of 30

1. Question

During a comprehensive review of a process that needs improvement, an insurance company discovers that a long-serving sales representative, who has consistently been permitted by the company to solicit new business and provide policy quotations, has made a commitment to a client that exceeds their actual delegated authority. The client, having dealt with this representative for several years and observed the company’s consistent allowance of such activities without explicit limitations being communicated to the public, reasonably believed the representative had the authority to make such a commitment. Under the Insurance Ordinance and general principles of agency law applicable in Hong Kong, what legal principle would most likely bind the insurance company to the representative’s commitment?

Apparent Authority
Agency by Estoppel
Actual Authority
Principal's Vicarious Liability

Question 2 of 30

2. Question

During a comprehensive review of a process that needs improvement, a registered person is advising a potential client on a long-term insurance policy. 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.
Highlighting only the most favourable aspects of the policy's projected benefits to encourage immediate sign-up.
Offering a small, unspecified rebate on the first premium to incentivize the client to proceed with the policy.
Comparing the policy's potential returns to other investment types without detailing the specific differences in risk and structure.

Question 3 of 30

3. Question

During a comprehensive review of a process that needs improvement, an authorized insurer operating solely as a captive insurer is found to have paid-up capital of HK$3 million. Under the Insurance Companies Ordinance (Cap. 41), what is the minimum paid-up capital required for this type of insurer to operate in Hong Kong?

HK$2 million
HK$10 million
HK$5 million
HK$20 million

Question 4 of 30

4. Question

When an insurance agent in Hong Kong is found to be in breach of the Code of Conduct, which entity is primarily responsible for investigating the matter and potentially recommending disciplinary action, acting under the broader regulatory framework?

The Insurance Agents Registration Board (IARB)
The Hong Kong Federation of Insurers (HKFI) directly
The Insurance Ordinance's enforcement division
The individual Principal's compliance department

Question 5 of 30

5. Question

When dealing with a complex system that shows occasional inconsistencies in adherence to regulatory guidelines, which body is primarily responsible for investigating potential breaches of the Insurance Ordinance or the Code of Conduct by registered insurance professionals and can initiate disciplinary actions or report to the relevant authority?

The Insurance Agents Registration Board (IARB)
The Hong Kong Federation of Insurers (HKFI) directly
The Principal of the insurance agent
The Insurance Authority (IA) without prior investigation by a regulatory board

Question 6 of 30

6. Question

During a comprehensive review of a process that needs improvement, an insurer indemnified a policyholder for a portion of a loss caused by a third party’s negligence. The policy had a specific deductible, meaning the insurer did not cover the entire amount of the loss. Subsequently, the policyholder successfully pursued a claim against the negligent third party, recovering an amount that fully covered the original loss, including the deductible. Under the principle of subrogation, how would the recovered funds typically be allocated between the insurer and the policyholder?

The insurer is entitled to recover the amount it paid to the policyholder, and any remaining funds from the third-party recovery belong to the policyholder. If the third-party recovery is insufficient to cover both the insurer's payout and the policyholder's deductible, the insurer's recovery is limited to a proportion of the total recovery based on its contribution to the loss.
The policyholder is entitled to keep the entire amount recovered from the third party, as the insurer has already fulfilled its contractual obligation by paying the claim.
The insurer can claim the full amount recovered from the third party, regardless of the amount it paid to the policyholder, to compensate for the overall loss.
The recovered funds are split equally between the insurer and the policyholder, irrespective of the amounts each party contributed to the loss or the policy terms.

Question 7 of 30

7. Question

During a comprehensive review of a process that needs improvement, an applicant for an insurance broker’s license presents a resume detailing a Bachelor’s degree in Business Administration, two years of experience as an insurance claims assessor, and three years as a team leader in an insurance agency. According to the Insurance Authority’s minimum requirements for qualifications and experience, would this applicant be considered to have met the necessary criteria to be authorized as an insurance broker?

Yes, provided they pass the relevant IIQE papers and have a minimum of two years in a management position within the insurance industry.
No, because they lack a specific insurance qualification and have only two years of experience in a management role.
Yes, as their business administration degree and combined experience in claims and team leadership satisfy the IA's criteria.
No, because their experience as a claims assessor does not count towards the required insurance industry experience.

Question 8 of 30

8. Question

During a comprehensive review of a process that needs improvement, a property owner has a fire insurance policy covering their building, and a tenant occupying the building has a separate fire insurance policy covering their stock-in-trade stored within the same building. A fire occurs, damaging both the building and the tenant’s stock. Which of the following conditions, if not met, would prevent contribution between the property owner’s insurer and the tenant’s insurer for the respective losses?

The policies must cover the same peril that caused the loss.
The policies must cover the same interest affected by the loss.
The policies must provide indemnity rather than a fixed benefit.
Each policy must be liable for the loss, without applicable exclusions.

Question 9 of 30

9. Question

During a comprehensive review of a process that needs improvement, a financial institution’s compliance team identifies a scenario where an employee, acting without the necessary authorization, facilitated the transfer of funds to an individual later identified as a terrorist associate. This action was taken without a licence granted by the Secretary for Security. Under the Unilateral Organised Measures (Terrorism Financing) Ordinance (UNATMO), what is the maximum custodial penalty an individual could face for making property or financial services available, directly or indirectly, to or for the benefit of a terrorist or terrorist associate without the requisite licence?

14 years' imprisonment
7 years' imprisonment
5 years' imprisonment
An unspecified fine only

Question 10 of 30

10. Question

During a comprehensive review of a process that needs improvement, an insurance company is analyzing its operational efficiency. They decide to segment their business data based on the channels through which policies are acquired. This segmentation aims to understand the performance and cost-effectiveness of each acquisition method. Which of the following classifications would best describe this internal approach to categorizing their insurance business?

Classification by Source of Business
Classification by Subject Matter of Insurance
Classification by Regulatory Class of Business
Classification by Type of Client

Question 11 of 30

11. Question

During a comprehensive review of a process that needs improvement, an insurance agent is found to be actively involved in advising clients on Mandatory Provident Fund (MPF) schemes in addition to their insurance business. Based on the relevant regulatory framework, what additional registration is a prerequisite for this agent to legally conduct MPF-related activities?

Registration as an MPF intermediary with the MPFA
Confirmation of appointment by the IARB for MPF advisory services
A separate license issued by the Travel Agents Registration system
Mandatory completion of advanced training in MPF legislation

Question 12 of 30

12. Question

During a comprehensive review of a process that needs improvement, a Hong Kong-incorporated financial institution discovers that one of its overseas subsidiaries, operating in a jurisdiction with significantly different data privacy laws, is unable to fully implement the CDD and record-keeping procedures mandated by Hong Kong’s Schedule 2. What are the two primary actions the financial institution must take in response to this situation, as per the relevant guidelines?

Inform the relevant Hong Kong regulator of the non-compliance and implement enhanced risk mitigation measures for the subsidiary.
Immediately cease all operations of the overseas subsidiary until full compliance can be achieved.
Request a waiver from the Hong Kong regulator and rely solely on the local jurisdiction's AML/CFT framework.
Discontinue the group AML/CFT policy for all overseas operations and focus solely on domestic compliance.

Question 13 of 30

13. Question

During a comprehensive review of a process that needs improvement, an insurer discovers that their internal complaint handling procedures are not widely disseminated. According to the HKFI’s ‘Guidelines on Complaint Handling,’ what is a crucial step an insurer must take to ensure accessibility for customers regarding complaints?

Publish their internal complaint handling procedures and make them readily available in all branch offices.
Only provide complaint handling procedures when a customer explicitly requests them in writing.
Limit the availability of complaint procedures to the insurer's official website.
Inform customers about complaint procedures solely through annual policy renewal notices.

Question 14 of 30

14. Question

When navigating the ethical landscape of insurance intermediation in Hong Kong, an intermediary is advised to consult specific resources to bolster their defenses against corrupt practices and fraudulent activities. Which of the following resources, developed in collaboration with the Insurance Authority and industry stakeholders, is specifically designed to enhance the vigilance and ethical management within the life insurance sector?

The 'Practical Guide on Professional Ethics for Life Insurance Intermediaries'
The ICAC's general Best Practice Packages for all businesses
The Insurance Ordinance's enforcement procedures manual
The Hong Kong Federation of Insurers' annual compliance report

Question 15 of 30

15. Question

When a business owner in Hong Kong decides to purchase a comprehensive fire insurance policy for their factory, 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 overall employment figures within Hong Kong's financial services sector.
To facilitate the company's ability to secure bank financing for future expansion projects.
To benefit from the insurer's recommendations for improving fire safety protocols within the factory.

Question 16 of 30

16. 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$60,000 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$60,000, as the insurer can only claim what the policyholder recovered from the third party.
HK$40,000, representing the difference between the indemnity paid and the amount recovered by the policyholder.
The insurer cannot recover any amount, as the policyholder has already received compensation from the third party.

Question 17 of 30

17. Question

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

Identifying oneself before discussing business, offering advice only when competent, explaining policy differences during comparisons, and ensuring clients understand their purchased coverage.
Providing advice on any insurance product regardless of expertise, comparing policies without detailing differences, and ensuring clients understand the general concept of insurance.
Identifying oneself only after a sale is made, offering advice on any product to maximize sales, and explaining policy coverage in technical terms.
Explaining policy differences only when specifically asked, offering advice only on products with high commission rates, and ensuring clients understand the policy's name.

Question 18 of 30

18. Question

When examining the operational structure of an insurance entity, which two of the following activities are least likely to be assigned to the department responsible for financial record-keeping and transactions?

Assessing the acceptability of a proposed risk and planning the introduction of a new insurance offering
Processing incoming payments for premiums and settling outstanding vendor invoices
Reconciling bank statements and managing the company's general ledger
Calculating the value of policy reserves and processing claims payments

Question 19 of 30

19. Question

During a comprehensive review of a process that needs improvement, a newly established firm begins offering insurance policies in Hong Kong without prior formal approval. According to the regulatory framework governing the insurance industry in Hong Kong, what is the primary consequence of commencing insurance business without obtaining the necessary authorization from the Insurance Authority?

The firm is operating in violation of the Insurance Ordinance (Cap. 41).
The firm is exempt from capital requirements due to its new status.
The firm is permitted to operate until its first annual audit.
The firm is considered to be operating under a provisional license until further notice.

Question 20 of 30

20. Question

During a comprehensive review of a process that needs improvement, a Hong Kong-incorporated financial institution discovers that one of its overseas subsidiaries, operating in a jurisdiction with significantly different data privacy laws, is unable to fully implement the CDD and record-keeping procedures mandated by Hong Kong’s Schedule 2. What are the two primary actions the financial institution must take in this situation, according to the relevant guidelines?

Inform the relevant Hong Kong regulator of the non-compliance and implement enhanced risk mitigation measures for the subsidiary.
Immediately cease all operations of the overseas subsidiary until full compliance can be achieved.
Seek an exemption from the Hong Kong regulator and rely solely on the local jurisdiction's AML/CFT framework.
Discontinue the group AML/CFT policy for all overseas operations to ensure consistency.

Question 21 of 30

21. Question

During a comprehensive review of a process that needs improvement, a policy exclusion states that losses ‘directly or indirectly’ caused by a specific event are not covered. If an insured event occurs where this specific event was a contributing factor, but not the immediate or primary cause of the loss, how would this exclusion typically be interpreted by the courts in Hong Kong, considering relevant insurance principles?

The insurer would likely deny the claim because the exclusion covers any causal link, however remote.
The insurer would likely accept the claim if the specific event was not the proximate cause of the loss.
The insurer would likely only deny the claim if the specific event was the sole cause of the loss.
The insurer would likely accept the claim if the insured could prove the loss was primarily caused by an insured peril.

Question 22 of 30

22. Question

During a comprehensive review of a process that needs improvement, a property owner discovers that their building sustained water damage. The policy in question is a standard fire insurance policy. Investigations reveal that an accidental fire, which occurred in an adjacent unoccupied unit, caused significant smoke and heat, leading to a burst pipe in the insured property. The burst pipe then released water, causing the damage. Under the principle of proximate cause as applied in Hong Kong insurance law, how would this loss typically be treated?

The water damage is recoverable as it was proximately caused by the accidental fire, which is an insured peril.
The loss is irrecoverable because water damage itself is an uninsured peril, regardless of the initiating event.
The loss is only partially recoverable, with the insurer covering the portion directly attributable to smoke and heat, but not the water damage.
The loss is irrecoverable because the proximate cause, the burst pipe, is an uninsured peril, even though it was triggered by a fire.

Question 23 of 30

23. 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 directly advising clients.
This is acceptable provided the individual is not representing the same client for both roles.

Question 24 of 30

24. Question

When examining the regulatory framework for insurance operations in Hong Kong, the Insurance Ordinance establishes a fundamental division of insurance activities. Beyond the category encompassing short-term, non-life policies, what is the other principal classification of insurance business recognized under this ordinance?

Long Term Business
Specialty Insurance
Reinsurance Operations
Casualty Insurance

Question 25 of 30

25. Question

During a comprehensive review of a process that needs improvement, an insurer is observed to be experiencing an exceptionally rapid increase in new business volume. The Insurance Authority (IA) is concerned that this aggressive growth might outpace the insurer’s capacity to adequately manage the associated future claims. Under the powers vested in the IA to ensure policyholder protection, which of the following direct interventions could the IA consider to address this specific concern?

Imposing a restriction on the insurer's premium income from new policies.
Requiring the insurer to place its assets under the custody of an approved Trustee.
Mandating a special actuarial investigation into the insurer's financial condition.
Directing the insurer to limit its investment in specific asset classes.

Question 26 of 30

26. Question

During a comprehensive review of a process that needs improvement, an authorized insurer is found to have significant reinsurance arrangements with a company within the same corporate group. According to the Insurance Ordinance and related guidelines, what is the primary supervisory concern of the Insurance Authority (IA) in such a situation?

Ensuring the insurer's prudent control over its reinsurance arrangements is not compromised, thereby protecting the insuring public.
Verifying that the reinsurance premiums paid are competitive with market rates for similar coverage.
Confirming that the related reinsurer has a diverse portfolio of business unrelated to the ceding insurer.
Assessing whether the reinsurance contract includes clauses for profit-sharing between the related entities.

Question 27 of 30

27. Question

During a comprehensive review of a process that needs improvement, an insurance intermediary notices that a client’s submitted medical report for a claim appears to have been altered to inflate the severity of an injury. The intermediary suspects this alteration is intended to support a fraudulent claim. According to the principles of combating insurance fraud, what is the most appropriate immediate action for the intermediary?

Report the suspected alteration and the client's potential intent to the insurer.
Directly confront the client about the suspected alteration and demand an explanation.
Ignore the suspicious document as it is the insurer's responsibility to investigate claims.
Advise the client to withdraw the claim to avoid potential legal repercussions.

Question 28 of 30

28. Question

During a period of significant change where established methods conflict with new operational demands, an insurance agent, entrusted with managing a client’s policy renewals, fails to process a renewal payment on time due to an oversight. The client’s property subsequently suffers damage during a period when the policy had lapsed. The agent had sufficient funds from the client to cover the renewal premium. Under the principles of agency law relevant to the IIQE syllabus, what is the most likely consequence for the agent?

The agent may be held liable to the principal for the loss incurred due to the lapsed policy, as this indicates a breach of the duty of due care and skill.
The agent is protected from liability as the oversight was an unintentional error, and the principal bears the ultimate responsibility for the policy's continuity.
The agent is only liable if the principal can prove malicious intent behind the failure to renew the policy.
The agent's actions would be considered an exercise of authority of necessity, absolving them of any responsibility for the lapse.

Question 29 of 30

29. Question

When dealing with a complex system that shows occasional issues with agent conduct and adherence to professional standards, which regulatory body in Hong Kong is primarily tasked with overseeing the registration and addressing complaints specifically concerning insurance agents?

The Insurance Agents Registration Board (IARB)
The Insurance Claims Complaints Bureau
The Insurance Ordinance (Cap. 41)
The Insurance Claims Complaints Panel

Question 30 of 30

30. Question

During a comprehensive review of a process that needs improvement, the Insurance Authority (IA) identifies that a particular insurer is experiencing an unusually rapid growth in its policy count. This rapid expansion raises concerns about the insurer’s capacity to adequately manage the future claims arising from this new business. Under the powers vested in the IA to ensure policyholder protection, which of the following direct interventions could the IA implement to address this specific concern?

Impose a limitation on the insurer's premium income.
Require the insurer to place its assets under the custody of an approved Trustee.
Restrict the insurer's ability to effect or vary contracts of insurance of a specified description.
Mandate a special actuarial investigation into the insurer's financial condition.