Paper 2 General Insurance Quiz 01

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. According to the provided text, for motorcycles, theft claims are only admissible if the entire machine is stolen. This means that if only accessories are stolen, the insurer will not cover the loss. Therefore, a policyholder whose motorcycle’s valuable accessories were stolen would not be able to claim under the ‘Own Damage/Accidental Damage’ section for that specific loss.

This question tests the understanding of how insurers manage risk through policy endorsements. When an insurer identifies a specific, elevated risk associated with a particular aspect of a policy, such as a pre-existing back condition in personal accident insurance or a high-risk driver in motor insurance, they can choose to exclude coverage for that specific risk. This is achieved through a ‘specially worded exclusion’ or an endorsement that carves out the problematic element while potentially allowing coverage for other aspects of the policy. This practice allows insurers to offer coverage in situations where a blanket refusal might be too restrictive, by tailoring the policy to the specific risk profile. Options B, C, and D describe different types of exclusions or policy adjustments that are not directly related to the scenario of an underwriter specifically addressing a known, isolated risk within an otherwise standard profile.

The ‘Schedule’ within a scheduled policy form is the section that specifically details all information pertinent to the individual risk being insured. This includes crucial data such as the policy number, the insured’s personal details, the sums insured or limits of liability, the effective dates of coverage, a description of the insured item or risk, the premium paid, and any special terms, warranties, exclusions, or endorsements that modify the standard policy wording. The Recital Clause introduces the contract, the Operative Clause defines the scope of cover, and General Exceptions apply universally across the policy. Therefore, identifying the specific details of the insured’s vehicle, such as its make, model, and registration number, would be found within the Schedule.

This question tests the understanding of what constitutes a material fact that must be disclosed by an insurance proposer. According to insurance principles, a material fact is one that would influence the judgment of a prudent underwriter in deciding whether to accept the risk and on what terms. Option (a) describes a situation where the proposer’s business involves storing highly flammable materials, which significantly increases the fire risk beyond what a typical prudent underwriter would anticipate for a general store. This directly aligns with the definition of a material fact that could render a risk greater than otherwise supposed. Option (b) describes a fact that improves the risk, which is explicitly stated as a non-disclosure requirement. Option (c) refers to common knowledge, which also does not need to be disclosed. Option (d) describes a fact that the proposer cannot reasonably be expected to know, which is another category of non-disclosable information.

This question tests the understanding of the Insurance Claims Complaints Bureau (ICCB) in Hong Kong, a key dispute resolution mechanism for insurance policyholders. The ICCB scheme is designed to provide an accessible and cost-effective avenue for resolving complaints against insurers. It is crucial to understand its scope, operational principles, and limitations. Specifically, the ICCB handles complaints related to both general and long-term insurance, not just personal lines. The service is free for complainants, making it an accessible recourse. While the ICCB aims to facilitate settlements, its decisions are not binding on the insurer if they exceed a certain monetary threshold, and policyholders can still pursue legal action. The maximum claim amount that the ICCB can adjudicate upon is HK$800,000, as stipulated by its operating rules. Therefore, statements (ii) and (iv) are correct, as the complainant is not charged, and there is a monetary limit to the claims handled.

The question tests the understanding of the basis of cover for Public Liability (PL) insurance. The provided text explicitly states that PL insurance is usually written on a ‘claims-occurring’ basis, meaning that the policy covers incidents that occur during the policy period, regardless of when the claim is actually reported. While ‘claims-made’ policies are not unknown, they are not the common practice for PL insurance. Therefore, a claim reported in the current policy year for an incident that happened in a previous policy year would not be covered under a ‘claims-occurring’ policy.

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. This scheme acts as a fallback mechanism to ensure employees receive compensation for work-related injuries or diseases, even if their employer has failed to secure the required insurance. Therefore, its primary purpose is to fulfill the intentions of compulsory employees’ compensation insurance when it’s not functioning as intended.

The ‘Schedule’ within a scheduled policy form is the section that specifically details all information pertinent to the individual risk being insured. This includes crucial data such as the policy number, the insured’s personal details, the sums insured or limits of liability, the effective dates of coverage, a description of the insured item or risk, the premium paid, and any special terms, warranties, exclusions, or endorsements that modify the standard policy wording. The Recital Clause introduces the contract and references the proposal form, while the Operative Clause outlines the circumstances under which coverage is active, and General Exceptions apply to the entire policy. Therefore, identifying the policy number, insured’s details, and sums insured falls under the purview of the Schedule.

This question tests the understanding of the legal implications of renewing an insurance policy in Hong Kong. Statement (i) is true because the duty of utmost good faith is a continuous obligation that applies at all stages of the insurance contract, including renewal. Statement (ii) is also true as a renewal is generally considered the creation of a new contract, not merely a continuation of the old one, meaning new terms and conditions can apply. Statement (iv) is correct because insurers have a duty to inform policyholders if they do not intend to renew a policy, allowing the insured to seek alternative coverage. Statement (iii) is false; while terms can be negotiated, they are not entirely ‘freely’ negotiable as they must still align with the insurer’s underwriting guidelines and regulatory requirements. Therefore, statements (i), (ii), and (iv) are the accurate assertions regarding general insurance policy renewals.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. A key limitation of the ICCB is its jurisdiction limit, which restricts the maximum claim amount it can consider. Claims exceeding this monetary threshold must be resolved through alternative dispute resolution mechanisms such as litigation or arbitration. Therefore, a complaint involving a claim of HK$950,000 falls outside the ICCB’s purview.

The “step-back system” for No Claim Discount (NCD) in private car insurance, as described in the IIQE syllabus, dictates how a claim affects the accumulated discount. For private cars with an entitlement of four or more years (equivalent to 50% or 60% NCD), a single claim in the policy year will result in a reduction of the NCD to 20% or 30% respectively upon renewal. This means the discount is not entirely lost but is significantly reduced, requiring subsequent claim-free years to rebuild to the previous level. Options B, C, and D describe scenarios that are either incorrect or do not fully represent the “step-back” mechanism for higher NCD entitlements.

The question tests the understanding of the specific exclusions in motorcycle insurance policies regarding theft claims. Unlike private car policies, motorcycle insurance typically only covers the entire motorcycle being stolen. Loss or damage to accessories alone, even if stolen, is generally not covered under the ‘Own Damage/Accidental Damage’ section of a motorcycle policy. This is a key distinction from broader vehicle insurance. Therefore, a scenario where only accessories are stolen would not be admissible under the ‘Own Damage’ cover.

A ‘condition precedent to the contract’ is a term that must be fulfilled for the insurance agreement to become effective. If this condition is not met, the contract never truly begins. In contrast, a ‘condition precedent to liability’ relates to a term that, if breached, will invalidate a specific claim, even if the contract itself is in force. A ‘condition subsequent to the contract’ is a term that must be adhered to during the policy’s currency, but its breach does not necessarily invalidate the entire contract or a specific claim unless stipulated. ‘Consequential loss’ refers to indirect financial losses resulting from an insured event, which are typically excluded from property insurance unless specifically covered under a business interruption policy.

A combined liability policy typically consolidates coverage for public liability, products liability, and employees’ compensation liability into a single document. While clients may request additional coverages like Directors’ and Officers’ Liability or Professional Liability, these are often added as endorsements or separate sections within the broader policy framework, rather than being the foundational components of a standard combined liability offering. The core intent is to streamline the management of common liability exposures for a client.

This question tests the understanding of the core principle of ‘All Risks’ insurance, which is that it covers all losses unless specifically excluded. The insurer bears the burden of proving that an exclusion applies. Option (b) is incorrect because while exclusions exist, the fundamental principle is broad coverage. Option (c) is incorrect as ‘all risks’ does not imply coverage for intentional acts by the insured. Option (d) is incorrect because the insurer must prove an exclusion, not the insured.

The scenario describes a situation where an insured person sustained an injury that prevented them from performing their usual duties for a period. The insurer paid a benefit for temporary total disability for eight days and temporary partial disability for five days. The insured believed they should receive temporary total disability benefits for the entire 13 days. The Complaints Panel’s decision was based on the nature of the injury (contusion without fracture or nerve involvement), the insured’s occupation (self-employed director with mainly office duties), and the absence of complications. The panel determined that after eight days, the insured should have been able to perform some of their duties, thus qualifying for temporary partial disability rather than temporary total disability for the remaining five days. This aligns with the principle that personal accident policies often differentiate benefit amounts based on the degree of disability, and the insurer’s assessment was deemed appropriate given the policy definitions and the specific circumstances of the injury and recovery.

This question tests the understanding of exclusions in engineering insurance, specifically Boiler Explosion Insurance. The provided text states that risks normally insurable by other policies, such as fire and extra perils, are excluded from Boiler Explosion Insurance. This is to prevent duplication of coverage and ensure that each policy covers distinct risks. Therefore, a fire that occurs during a boiler explosion would typically be covered by a separate fire insurance policy, not the boiler explosion policy.

A ‘Condition Precedent to the Contract’ is a term that must be fulfilled for the insurance agreement to become effective. Failure to meet this condition means the contract never legally begins. In contrast, a ‘Condition Precedent to Liability’ relates to a term whose breach invalidates a specific claim, but the contract itself remains in force. A ‘Condition Subsequent to the Contract’ is a term that must be adhered to during the policy’s currency, but its breach does not necessarily invalidate the entire contract, only potentially affecting claims arising after the breach. ‘Consequential Loss’ refers to indirect financial losses resulting from an insured event, which are typically excluded from property insurance unless specifically covered under a business interruption policy.

This question tests the understanding of the positive outcomes of excellent customer service in the insurance industry. The provided text highlights that happy customers not only remain loyal but also become a valuable source of new business through recommendations and word-of-mouth. This ‘customer productivity’ directly contributes to business growth and is a key benefit of superior service, distinguishing it from mere complaint reduction or cost savings.

The Employees’ Compensation Ordinance in Hong Kong establishes a strict liability for employers regarding injuries or death sustained by employees arising out of and in the course of their employment. This means the employer is liable regardless of fault. The scenario describes an employee injured in a traffic accident while commuting home after a client meeting. For the injury to be covered under the EC policy, it must be demonstrably linked to the employment. While the meeting was work-related, the accident occurred during the commute home, which is generally considered outside the direct scope of employment unless specific circumstances, such as the employer providing transport or the commute being an integral part of the job duties, are present. Therefore, the key factor is whether the accident arose out of and in the course of employment, which is not definitively established by the provided information and would likely be a point of contention.

The question tests the understanding of the ‘Forcible and Violent Entry’ condition in theft insurance. This condition is a standard requirement for a valid claim under commercial theft policies, meaning that for a theft to be covered, there must be evidence of forced entry or exit from the premises. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount that must be exceeded for a claim to be paid, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ are those with potentially catastrophic loss potential that are often excluded.

The scenario highlights the importance of the insured’s duty to notify the insurer of a potential claim promptly. While the insured reported the damage within 20 days, the insurer argued this was not ‘as soon as reasonably possible’ because the repair had already been completed, hindering the insurer’s ability to investigate. The Complaints Panel, however, considered the layman’s perspective and the simplicity of the case, ultimately awarding the claim. This implies that the insurer’s ability to investigate is a key factor in determining if the notification was timely. If the insurer is prejudiced by the delay, even a seemingly short period might be deemed unreasonable. The question tests the understanding of the ‘prejudice’ principle in relation to notification clauses, which is a crucial aspect of insurance contract law in Hong Kong, particularly under the Insurance Ordinance (Cap. 41) and common law principles governing insurance contracts.

The scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This pattern of behavior, if it leads the insured to reasonably believe that punctuality is no longer a strict requirement, can lead to the insurer being prevented from enforcing the strict contractual term of timely payment in the future. This legal principle is known as waiver, where the insurer, through its conduct, has relinquished its right to strictly enforce the premium payment deadline. Estoppel also applies if the insured reasonably relied on this conduct to their detriment. Therefore, the insurer’s past acceptance of late payments, without protest, suggests a waiver of the strict punctuality clause.

The question tests the understanding of the legal significance of a certificate of compulsory motor insurance. According to the provided text, these certificates are issued solely due to legal requirements. Failure to issue one is a criminal offense. The text specifically states that a motor insurance certificate merely confirms the existence of compulsory insurance and does not detail the policy’s coverage level (e.g., Comprehensive or Act Only). Therefore, the primary legal function of such a certificate is to satisfy the statutory mandate for compulsory insurance, not to provide a summary of the policy’s terms.

Moral hazard refers to the increased likelihood of a loss occurring because an individual is insured. It’s often linked to the ‘human element’ of risk, encompassing attitudes and behaviours. While dishonesty (including fraud) is a direct manifestation, carelessness, unreasonableness (like inflexibility or opinionated views that create problems), and negative social behaviour (such as vandalism) are also considered forms of moral hazard. These behaviours, even if not overtly fraudulent, can significantly increase the probability or severity of a claim, thus representing a poor moral hazard from an insurer’s perspective. The question asks to identify which of the listed behaviours is NOT considered a manifestation of moral hazard. Since dishonesty, carelessness, and unreasonableness are explicitly mentioned as forms of moral hazard in the provided text, the remaining option, which is not a behaviour but a factual detail about the insured, would be the correct answer.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the standards expected in the insurance industry concerning personal insurance policies for Hong Kong residents. It covers a broad spectrum of practices, including underwriting, claims handling, product knowledge, and customer rights. While the Insurance Companies Ordinance (ICO) sets out foundational regulatory requirements for insurers’ solvency and governance, and the Code of Practice for the Administration of Insurance Agents details intermediary conduct, the Code of Conduct for Insurers is the primary document that outlines the expected ethical and professional standards for insurers themselves in their dealings with policyholders, particularly in personal insurance.

Average adjusters are specialists in marine insurance, particularly in the complex area of General Average (GA) claims. Their expertise is crucial due to the intricate legal requirements, the potentially large number of parties involved, and the extended timelines often associated with GA claims. While they may also handle complicated hull and cargo losses, their primary specialization lies in GA. Loss adjusters, on the other hand, are more commonly used in non-marine general insurance claims where an insurer’s own staff may not have the specialized knowledge required, but they do not typically handle the unique complexities of GA.

This question tests the understanding of the Insurance Claims Complaints Bureau (ICCB) in Hong Kong, a key dispute resolution mechanism for insurance policyholders. The ICCB is established under the Insurance Companies Ordinance (Cap. 41) and operates to provide a cost-effective and efficient avenue for resolving complaints against insurers. It is crucial to understand its scope, operational principles, and limitations. Statement (i) is incorrect because the ICCB handles complaints related to both general and long-term insurance, not just personal insurance. Statement (iii) is incorrect as only the complainant (policyholder) can appeal against an ICCB award; insurers are bound by the decision and cannot appeal. Statement (iv) is incorrect because the maximum claim limit for ICCB disputes is HK$1,000,000, not HK$800,000. Therefore, only statement (ii) is accurate, as the ICCB service is free of charge for complainants.

An insurance broker acts as an agent for the proposer, meaning they are legally identified with the proposer. This agency relationship imposes a duty of utmost good faith. If a broker withholds or misrepresents material facts, this breach of good faith is imputed to the proposer. This imputation means the insurer can treat the policy as void from its inception, as if the proposer themselves had failed to disclose crucial information. Therefore, the broker’s actions directly impact the validity of the insurance contract from the proposer’s perspective.

The scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This consistent acceptance, without enforcing the strict contractual deadline, demonstrates a pattern of conduct that suggests the insurer is not strictly enforcing the punctuality clause. This behavior can lead to the insurer being considered to have ‘waived’ their right to insist on timely payments in the future. For the doctrine of estoppel to apply, the insured must also show they reasonably relied on this conduct, believing that late payments would continue to be accepted. Therefore, the insurer’s past actions of accepting late payments without objection indicate a potential waiver of the strict punctuality requirement.