IIQE Paper 1 Principles and Practice of Insurance Examination Quiz 02

Question 1 of 30

1. 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, due to a policy deductible. Subsequently, the policyholder successfully recovered the full amount of the loss from the negligent third party. Under the principle of subrogation, what is the insurer’s entitlement from this recovery, considering the partial indemnification?

The insurer is entitled to a portion of the recovery that is proportionate to the amount it paid as indemnity, with any excess recovery belonging to the policyholder.
The insurer is entitled to the entire amount recovered from the negligent third party, up to the full value of the loss.
The policyholder is entitled to the entire amount recovered from the negligent third party, as the insurer only partially indemnified the loss.
The insurer can claim the full amount of the loss from the negligent third party, regardless of the amount it paid in indemnity.

Question 2 of 30

2. Question

When a new entity intends to commence operations offering insurance coverage within Hong Kong, what is the primary regulatory prerequisite it must fulfill according to the Insurance Ordinance (Cap. 41)?

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

Question 3 of 30

3. Question

During a comprehensive review of a process that needs improvement, a scenario arises where employers engaged in specialized, high-risk industries are consistently encountering obstacles in obtaining mandatory Employees’ Compensation (EC) insurance. To address this systemic issue and ensure compliance with regulatory requirements, a mechanism was put in place that requires all EC insurers to participate and collectively underwrite these challenging risks. What is the primary function of the body overseeing this collective underwriting mechanism?

To provide a last resort market for employers unable to secure Employees' Compensation insurance.
To act as a central registry for all licensed insurance agents and their supervisors.
To compensate victims of motor vehicle accidents when compulsory insurance is absent or ineffective.
To promote the insurance industry in Hong Kong by upholding high ethical standards among its members.

Question 4 of 30

4. Question

During a voyage, a vessel carrying insured cargo experiences a series of events. Initially, the master’s negligence, an uninsured peril, causes a collision. This collision ignites a fire, an insured peril under the cargo policy. The fire subsequently leads to an explosion, also an insured peril. As a direct consequence of the explosion, the vessel sustains leaks, and seawater enters, damaging the cargo. Under the principle of proximate cause, how would the cargo damage be assessed for recovery under the policy that covers fire and explosion?

The cargo damage is recoverable because the proximate cause, while initiated by negligence, ultimately resulted from insured perils (fire and explosion) that directly led to the loss.
The cargo damage is irrecoverable because the chain of events began with an uninsured peril (negligence), which negates any subsequent insured perils.
The cargo damage is only partially recoverable, with the insurer liable only for the portion of damage directly attributable to the fire and explosion, excluding any damage caused by the initial negligence.
The cargo damage is irrecoverable because the final cause of the damage was seawater entry, which is an uninsured peril, regardless of the preceding events.

Question 5 of 30

5. Question

During a comprehensive review of a process that needs improvement, an insurance agent is discussing a general insurance policy with a potential client. Which of the following actions are considered essential components of the agent’s professional conduct under the relevant regulations for general insurance and restricted scope travel business?

Provide advice only on subjects where the agent possesses demonstrable knowledge, clearly state their identity before engaging in business discussions, articulate policy distinctions when presenting comparative options, and ensure the client fully understands the coverage being purchased.
Offer advice on any insurance product regardless of expertise, avoid explicit self-identification until a sale is imminent, focus on the benefits of their own company's policies without detailing differences, and assume client comprehension of policy terms.
Advise on all insurance types to showcase breadth of service, introduce themselves only after the client expresses interest, highlight similarities between policies to simplify the decision, and provide a summary of coverage without detailed explanation.
Provide advice only on products they personally prefer, identify themselves only if asked, compare policies by emphasizing price advantages, and leave the understanding of coverage solely to the client's interpretation.

Question 6 of 30

6. Question

During a comprehensive review of a process that needs improvement, a situation arises where employers engaged in specialized, high-risk industries are consistently finding it challenging to secure the legally mandated Employees’ Compensation insurance. To address this systemic market failure and ensure compliance with employment regulations, a mechanism was put in place. This mechanism operates on a collective risk-sharing basis among all insurers underwriting this type of coverage, acting as a final avenue for coverage when standard market options are exhausted. Which entity is primarily responsible for overseeing the operational framework of this last-resort insurance provision?

The Employees’ Compensation Insurance Residual Scheme Bureau
The Motor Insurers' Bureau of Hong Kong
The Insurance Agents Registration Board
The Employees’ Compensation Insurer Insolvency Bureau

Question 7 of 30

7. Question

When assessing the ‘Fitness and Properness’ of an insurance intermediary operating within a corporate structure, and considering the provisions in Part E of the Code of Practice for the Administration of Insurance Agents, what is the regulatory implication of a company being part of a ‘Group of Companies’?

The intermediary's fitness and properness assessment must consider the relationships and structures within the defined group of companies, including subsidiary and holding company arrangements.
The 'Group of Companies' definition is purely for administrative purposes and does not impact the individual assessment of an intermediary's fitness and properness.
Only the ultimate holding company's fitness and properness is relevant, and individual subsidiaries are exempt from this specific consideration.
The term 'Group of Companies' is only relevant for solvency requirements and has no bearing on the fitness and properness of individual registered persons.

Question 8 of 30

8. Question

During a comprehensive review of a process that needs improvement, an Insurance Authority (IA) investigator requests a Registered Person (RP) to provide documentation verifying their completion of Continuing Professional Development (CPD) hours for the previous year. The RP, who is registered to engage only in Restricted Scope Travel Business (RSTB), fails to respond to this request within the stipulated timeframe. What is the most likely consequence for this RP under the relevant IA guidance?

The RP's registration will be revoked for a specified period, and their future registration applications will be held until proof of compliance is submitted.
The RP will be issued a warning and a deadline to submit the outstanding CPD hours, with a minor penalty if missed.
The RP's registration will be automatically suspended for three months, requiring them to complete all outstanding CPD hours upon re-registration.
The RP will be fined a fixed amount and required to complete double the outstanding CPD hours within the next renewal cycle.

Question 9 of 30

9. Question

During a meeting with a client at a coffee shop to discuss a new life insurance policy, an insurance representative is reviewing the client’s medical history. Which of the following actions best demonstrates adherence to data privacy principles and professional conduct, considering the potential for sensitive information to be exposed?

Ensuring the client's medical documents are kept within a closed folder and speaking in a low, discreet tone, while also being mindful of surrounding conversations.
Placing the client's documents on the table for easy reference during the discussion, assuming the coffee shop is not overly crowded.
Briefly leaving the documents unattended on the table while stepping away to order a drink, trusting the environment.
Discussing the client's medical conditions openly with the client, assuming that other patrons are not paying attention.

Question 10 of 30

10. Question

When assessing the financial stability of an authorized insurer, what specific area of its operations is the Insurance Authority (IA) particularly focused on, as stipulated by the Insurance Ordinance, to safeguard the interests of policyholders, especially when dealing with affiliated entities?

The adequacy and quality of its reinsurance arrangements, with a specific guideline for related companies
The precise number of branch offices maintained within Hong Kong for client servicing
The frequency of internal audits conducted by the company's independent audit committee
The total amount of marketing expenditure allocated to public awareness campaigns

Question 11 of 30

11. Question

Under Hong Kong’s regulatory framework for insurance intermediaries, which of the following entities are currently recognized by the Insurance Authority as approved bodies for insurance brokers, as stipulated by relevant legislation?

The Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association Limited
The Hong Kong Federation of Insurers and the Insurance Agents Registration Board
The Confederation of Insurance Brokers of Asia and the Hong Kong Insurance Institute
The Financial Services and the Treasury Bureau and the Office of the Commissioner of Insurance

Question 12 of 30

12. Question

During a voyage, a vessel carrying insured cargo experiences a series of events initiated by the master’s negligence. This negligence leads to a collision, which in turn causes a fire. The fire then triggers an explosion, resulting in the vessel sustaining leaks. Subsequently, seawater enters through these leaks, damaging the cargo. If the cargo policies cover perils such as fire and explosion, but not negligence or entry of water, how would the damage be assessed under the principle of proximate cause?

The cargo damage is recoverable because the chain of events, initiated by negligence, included insured perils like fire and explosion that proximately led to the damage.
The cargo damage is irrecoverable because the ultimate cause of the damage was the entry of seawater, which is an uninsured peril.
The cargo damage is only partially recoverable, limited to the portion directly attributable to the fire and explosion, excluding any damage caused by the initial negligence or subsequent water ingress.
The cargo damage is irrecoverable because the proximate cause of the loss was the master's negligence, which is an uninsured peril.

Question 13 of 30

13. Question

When managing the financial operations of an insurance firm, which of the following responsibilities, often falling under the purview of the accounting department, is most directly linked to ensuring the long-term solvency and operational capacity of the company by optimizing the use of its financial resources?

Overseeing the strategic allocation and management of the company's financial assets to balance risk, yield, and accessibility of funds.
Maintaining meticulous records of all financial transactions and ensuring the accuracy of the general ledger.
Establishing and enforcing robust procedures for the timely collection of premiums and other receivables.
Processing and executing payments for claims, operational expenses, and other liabilities in an efficient manner.

Question 14 of 30

14. Question

When dealing with a complex system that shows occasional discrepancies in dispute resolution outcomes, an insurer receives an adverse award from the Insurance Claims Complaints Bureau (ICCB) Panel concerning a policyholder’s claim. Under the relevant regulations, what is the insurer’s recourse regarding this specific award?

The insurer is prohibited from appealing the decision made by the ICCB Panel.
The insurer can appeal the decision to the Insurance Authority within 14 days.
The insurer can request a review by the Insurance Agents Registration Board.
The insurer can challenge the award through an internal review process before it is finalized.

Question 15 of 30

15. Question

During a comprehensive review of a process that needs improvement, it was discovered that a Principal failed to implement a required disciplinary action against a Registered Person. According to the relevant regulations governing insurance intermediaries in Hong Kong, what action can the Insurance Authority (IA) take in response to this non-compliance?

The IA may report the failure to the Hong Kong Federation of Insurers (HKFI) and impose a further requirement or disciplinary action on the Principal.
The IA can only issue a warning letter to the Principal and monitor future compliance without further immediate action.
The IA must immediately suspend the registration of the Principal and all associated Registered Persons.
The IA will refer the matter to the Appeals Tribunal for an independent investigation and decision.

Question 16 of 30

16. Question

During a comprehensive review of a process that needs improvement, a financial institution identifies potential weaknesses in its customer due diligence (CDD) procedures that could inadvertently facilitate illicit financial activities. According to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO), what is the primary obligation of the financial institution in such a situation?

To implement all reasonable measures to ensure proper safeguards are in place to prevent contraventions of relevant provisions and to mitigate money laundering and terrorist financing risks.
To immediately cease all customer onboarding until a complete overhaul of the CDD system is achieved.
To report the identified weaknesses to the Joint Financial Intelligence Unit (JFIU) and await further instructions.
To rely solely on the discretion of individual employees to identify and report suspicious transactions.

Question 17 of 30

17. Question

When an authorized insurer enters into reinsurance agreements with a reinsurer that is part of the same corporate group, what is the primary supervisory concern of the Insurance Authority (IA) as outlined in relevant guidelines, according to the Insurance Ordinance?

The potential for compromised prudent control over reinsurance arrangements, which could impact policyholder interests.
The need to ensure that the reinsurer has a higher solvency margin than the ceding insurer.
The requirement for the reinsurer to be domiciled in Hong Kong for all such related-party transactions.
The obligation to disclose the reinsurance arrangements to all policyholders within 30 days of the agreement.

Question 18 of 30

18. Question

During a comprehensive review of a process that needs improvement, a financial institution discovers that its internal controls for identifying and reporting suspicious transactions are not fully aligned with current best practices for mitigating money laundering and terrorist financing risks. According to the relevant Hong Kong legislation, what is the primary obligation of the financial institution in this scenario, and what are the potential consequences of failing to address this deficiency?

The institution must take all reasonable measures to ensure proper safeguards exist and to mitigate money laundering/terrorist financing risks, facing potential disciplinary actions including pecuniary penalties from Relevant Authorities if it fails to do so.
The institution is only required to report the deficiency to the Joint Financial Intelligence Unit and is exempt from further action as long as the report is filed.
The institution must immediately cease all operations until a complete overhaul of its compliance framework is approved by the Securities and Futures Commission.
The institution's employees are personally liable for any past or future contraventions, with penalties solely focused on individual imprisonment rather than institutional sanctions.

Question 19 of 30

19. Question

During a comprehensive review of a process that needs improvement, an insurer discovers that one of its newly appointed insurance agents has begun contacting potential clients without having completed the formal registration process with the Insurance Authority. According to the relevant regulations governing insurance agents in Hong Kong, what is the most critical prerequisite for this agent to legally solicit insurance business?

Confirmation of the agent's valid registration with the Insurance Authority.
Completion of a company-specific product knowledge assessment.
Attainment of a minimum number of client leads within the first month.
Submission of a detailed business plan outlining sales strategies.

Question 20 of 30

20. Question

During a comprehensive review of a process that needs improvement, an insurance company discovered that a policyholder’s property suffered a HK$100,000 loss due to the negligence of a third party. The insurer, having paid HK$80,000 towards this loss under the terms of the policy, subsequently learned that the policyholder successfully recovered HK$90,000 from the negligent third party. Under the principles of subrogation as applied in Hong Kong insurance law, how would the recovered amount typically be distributed between the insurer and the policyholder?

The insurer receives HK$80,000 from the recovered amount, and the policyholder receives the remaining HK$10,000.
The insurer receives HK$90,000 from the recovered amount, as they indemnified the majority of the loss.
The insurer and policyholder each receive HK$45,000 from the recovered amount, reflecting an equal split of the recovery.
The policyholder receives the full HK$90,000 from the recovered amount, as the third-party recovery is separate from the insurance payout.

Question 21 of 30

21. Question

During a comprehensive review of a process that needs improvement, an insurer is found to have mishandled a claim from an individual policyholder. The policyholder, unsatisfied with the insurer’s final response, decides to escalate the matter to an external body. If this body makes an award against the insurer, what is the maximum monetary value of that award, and what recourse does the insurer have?

HK$800,000, with no right of appeal for the insurer.
HK$1,000,000, with the right to appeal to the Insurance Authority.
HK$500,000, with the ability to request a review by the Insurance Agents Registration Board.
HK$800,000, with the option to challenge the award in the High Court.

Question 22 of 30

22. Question

When a Principal or Registered Person, including an appointing Insurance Agent, neglects to implement required disciplinary measures against an individual under their purview, what is a potential regulatory consequence as stipulated by the relevant framework governing insurance intermediaries in Hong Kong?

The Insurance Authority (IA) may impose additional disciplinary actions on the non-compliant Principal or Registered Person.
The matter is automatically referred to the Hong Kong Police Force for investigation.
The individual who was supposed to receive disciplinary action is automatically deregistered.
The Insurance Authority (IA) will issue a formal warning and no further action will be taken.

Question 23 of 30

23. Question

During a comprehensive review of a process that needs improvement, an insurance agent is found to be consistently engaging with potential clients without clearly stating their professional affiliation. Additionally, when discussing policy options, the agent often presents comparisons without detailing the specific differences in coverage, leading to client confusion. The agent also occasionally offers advice on complex insurance products for which their training is limited. Based on the principles governing the conduct of insurance agents for general insurance and restricted scope travel business, which of the following actions are considered deviations from expected professional standards?

Failing to identify oneself before business discussions, offering advice outside of one's competence, and not explaining policy differences when making comparisons.
Not explaining policy cover to ensure client understanding, and offering advice outside of one's competence.
Failing to identify oneself before business discussions, and not explaining policy differences when making comparisons.
Offering advice outside of one's competence, and not explaining policy cover to ensure client understanding.

Question 24 of 30

24. Question

During a comprehensive review of a process that needs improvement, an insurance company, acting as a data user, outsources the processing of its customers’ personal data to a third-party data processor. If this data processor inadvertently discloses sensitive customer information due to a security lapse, which party bears the primary legal responsibility to the affected data subjects under the Personal Data (Privacy) Ordinance?

The insurance company (data user) is primarily liable as the principal for the data processor's actions.
The data processor is directly liable to the data subjects for the unauthorized disclosure.
Both the insurance company and the data processor share equal direct liability to the data subjects.
The data subjects must first seek recourse from the Personal Data (Privacy) Commissioner before pursuing any action.

Question 25 of 30

25. Question

When dealing with a complex system that shows occasional inconsistencies in the registration and conduct of insurance intermediaries, which body is primarily responsible for investigating complaints, managing registration processes, and ensuring adherence to regulatory codes, with the power to impose disciplinary actions or report breaches to the ultimate regulatory authority?

The Insurance Agents Registration Board (IARB)
The Hong Kong Federation of Insurers (HKFI) directly overseeing all disciplinary actions
The Insurance Authority (IA) conducting all initial investigations
The Principal of the insurance agent initiating all compliance reviews

Question 26 of 30

26. Question

During a comprehensive review of an applicant’s background for registration as an insurance intermediary, the Insurance Agents Registration Board (IARB) encounters information indicating a prior finding of non-compliance with the industry’s ethical guidelines. According to the relevant regulations governing fitness and propriety, which of the following would most strongly suggest that the applicant may not be considered fit and proper?

A documented instance where the applicant was found to have contravened the Code of Conduct for Persons Licensed by the IA.
The applicant's failure to achieve a passing score on a recent advanced financial planning module.
A period of two consecutive years where the applicant was not actively engaged in insurance-related work.
The applicant's expressed interest in diversifying their professional portfolio into other financial services sectors.

Question 27 of 30

27. Question

When analyzing the structure of Hong Kong’s insurance industry, which of the following statements accurately reflects the distribution of market share between General Business and Long Term Business, based on premium volume for the year 2011?

General Business exhibits a more concentrated market structure than Long Term Business, with a larger proportion of the market held by a few top insurers.
Long Term Business demonstrates a more fragmented market compared to General Business, with a wider spread of market share among numerous insurers.
General Business is characterized by a more even distribution of market share among authorized insurers than Long Term Business.
The market share distribution for both General Business and Long Term Business is largely identical, with no significant differences in concentration.

Question 28 of 30

28. Question

During a comprehensive review of a process that needs improvement, a registered technical representative for a travel insurance agency is discussing their ongoing professional development obligations with their responsible officer. The representative recalls a specific annual requirement for continuing education hours. What is the minimum number of CPD hours that this technical representative must complete each year to maintain their registration, as mandated by the Insurance Authority for travel insurance intermediaries?

3 hours
5 hours
2 hours
4 hours

Question 29 of 30

29. Question

When analyzing the structure of Hong Kong’s insurance industry, which of the following statements accurately reflects the comparative market concentration between General Business and Long Term Business, based on premium share data?

Long Term Business demonstrates a higher degree of market concentration among its leading participants compared to General Business.
General Business exhibits a more pronounced concentration of market share among its top insurers than Long Term Business.
Both General Business and Long Term Business show similar levels of market concentration, with the top ten insurers holding comparable percentages of market share.
The market concentration in General Business is significantly higher, with a single insurer dominating a larger proportion of the market than in Long Term Business.

Question 30 of 30

30. Question

When assessing the fitness and properness of an insurance intermediary that operates as part of a larger corporate structure, which of the following definitions of a ‘Group of Companies’ is most relevant according to the Code of Practice for the Administration of Insurance Agents?

Companies where the relationship is defined by subsidiary and holding company structures, or where multiple companies share common subsidiaries.
Any collection of businesses that share a similar market focus or client base, regardless of legal ownership.
Entities that have entered into a formal partnership agreement to jointly offer insurance products.
Businesses that have a history of collaborating on marketing campaigns and customer outreach initiatives.