Paper 2 General Insurance Quiz 02

The question probes the understanding of prohibited practices in the insurance intermediary sector, specifically concerning rebating. Rebating, in essence, involves offering inducements to policyholders that are not part of the insurance contract itself. This practice is detrimental because it distorts the principle of fair pricing and can lead to unfair competition. The Code of Practice for the Administration of Insurance Agents and the Minimum Requirements of the Model Agency Agreement explicitly address this. Offering a portion of the commission to an employee of the insured, without the insured’s explicit written consent, is a form of rebating. This is because it provides a financial benefit to an individual associated with the policyholder that is not available to other potential clients, thereby undermining the integrity of the commission structure and potentially influencing the decision-making process based on factors other than the merits of the insurance product. Such actions can be construed as a form of bribery or corruption as they offer an unfair advantage and can lead to a lack of transparency in the transaction.

This question tests the understanding of how an excess works in motor insurance. An excess is the amount the policyholder agrees to pay towards a claim. In this scenario, the damage is HK$12,000 and the voluntary excess is HK$2,000. Therefore, the insurer will pay the remaining HK$10,000 (HK$12,000 – HK$2,000). The question specifically asks what the insurer will pay, not what the policyholder pays or the total claim amount.

Case 9 illustrates that for a personal accident claim to be valid, the injury must be considered ‘accidental’. The insured’s deliberate action of intervening in a fight, even with the intention of rescuing friends, led to foreseeable consequences of being attacked. The Complaints Panel determined that the injury was a natural and predictable outcome of his participation, thus not an ‘accident’ in the insurance context. This highlights that an injury resulting from a direct and foreseeable consequence of one’s own intentional actions, even if not directly self-inflicted, can be excluded from coverage under personal accident policies.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a monetary jurisdiction limit of HK$800,000. Complaints concerning amounts exceeding this limit fall outside the ICCB’s purview and must be addressed through other dispute resolution mechanisms such as litigation or arbitration. Therefore, a claim for HK$950,000 would not be eligible for the ICCB’s services.

This question assesses the understanding of the multifaceted impact of poor customer service on an insurance company’s operations and reputation. The “take it or leave it” approach, while seemingly a direct cost-saving measure, leads to a cascade of negative consequences. Loss of business is a direct result of customers seeking better service elsewhere. Insurance intermediaries, crucial for business generation, will withdraw their support if they cannot rely on the insurer’s service quality, impacting their own ability to produce business. The industry’s overall prestige suffers as negative experiences spread, potentially leading to government intervention to protect consumers, especially in a key financial hub like Hong Kong. While increased profitability is a positive outcome of good service, it is not a direct consequence of poor service; rather, poor service leads to decreased profitability due to the other factors mentioned.

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 coverage and perils, and General Exceptions apply universally across the policy. Therefore, identifying the specific details of the insured’s occupation and the policy’s commencement date falls under the purview of the Schedule.

This question tests the understanding of how contract terms are classified based on their timing of operation within an insurance contract. A ‘condition precedent to liability’ is a term that, if breached, does not void the entire contract but rather prevents a specific claim from being paid. The scenario describes a policy requiring the insured to report changes in their profession. Failure to do so, as stipulated, would mean the insurer is not liable for any claims arising from that unreported change, directly aligning with the definition of a condition precedent to liability. Option B describes a condition precedent to the contract, which must be met for the contract to even begin. Option C describes a condition subsequent, which, if it occurs, can terminate an existing contract. Option D is a misrepresentation, which is a type of statement made before or at the time of the contract, not a condition related to ongoing obligations or claims.

The Motor Vehicles Insurance (Third Party Risks) Ordinance mandates compulsory third-party motor insurance in Hong Kong. This ordinance ensures that victims of motor accidents have a legal recourse for damages caused by negligent drivers. While other options relate to insurance, they do not represent the foundational legal requirement for motor insurance in Hong Kong.

The Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation to employees for injuries or death arising out of and in the course of employment. Employees’ Compensation Insurance (ECI) policies are designed to cover an employer’s liability under this ordinance. However, employers can also have liability independent of the ECO, often referred to as common law liability, which arises from negligence or breach of statutory duty concerning industrial safety. This common law liability is also covered by ECI policies. The question asks about the basis of premium calculation for ECI. The provided text states that the premium is usually a rate per cent or per mille applied to the annual payroll, and that the initial premium is provisional, subject to adjustment based on final payroll figures. Therefore, the premium basis is directly linked to the employer’s payroll.

Average adjusters are specialized professionals in marine insurance, particularly for General Average (GA) claims. Their expertise is crucial due to the complexity of GA, which involves international maritime law, potentially hundreds of interested parties (like cargo owners), and lengthy investigation periods that can span years. While Lloyd’s Agents and Loss Adjusters are also involved in claims, average adjusters are specifically retained for the intricate calculations and legal considerations inherent in GA, and sometimes for complex hull or cargo losses. The question tests the understanding of specialized roles within marine claims handling, differentiating the unique function of an average adjuster.

This question tests the understanding of how changes in the insured risk can impact an insurance policy, specifically when the circumstances have worsened. According to insurance principles, if the original circumstances under which a risk was insured alter for the worse, the insurer may have grounds to cancel the policy. This is because the risk profile has changed, potentially increasing the likelihood or severity of a claim beyond what was initially assessed and priced. Options B, C, and D describe situations that do not directly relate to a deterioration of the insured risk itself, but rather to the insurer’s internal processes, the insured’s actions unrelated to the risk’s fundamental nature, or the policy’s inception.

This question tests the understanding of how travel insurance premiums are determined. While geographical area, duration, and the number of people insured are primary factors, the concept of an ‘annual policy’ is a specific pricing structure designed for frequent travelers. This structure offers a single premium for a defined period, regardless of the number of individual trips taken within that year, making it distinct from per-trip pricing. The other options represent factors that influence premium calculations but are not the specific pricing model described.

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 if the claim is genuine, the insurer may have grounds to reject it. The question tests the understanding of the ‘prejudice’ principle in relation to late notification, which is a crucial aspect of policy conditions and the Insurance Contracts Ordinance (Cap. 485) in Hong Kong, particularly concerning the insured’s obligations.

The question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance. ‘Specified Perils’ cover only losses caused by perils explicitly listed in the policy, meaning the claimant must prove the loss was due to one of these named perils. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded by the policy, shifting the burden of proof to the insurer to demonstrate an exclusion applies. Therefore, in a ‘Specified Perils’ policy, the onus is on the policyholder to demonstrate that the loss was caused by a peril listed in the policy document.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the expected standards of good insurance practice for personal insurance policies sold to individual policyholders residing in Hong Kong. It covers a broad range of areas including underwriting, claims handling, product understanding, customer rights, and advising/selling practices. While the Insurance Companies Ordinance (ICO) sets out foundational requirements for insurers’ authorization and financial stability, and the Code of Practice for the Administration of Insurance Agents details intermediary conduct, the Code of Conduct for Insurers is the primary document outlining the industry’s self-regulatory standards for direct interactions with policyholders in personal insurance.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance, as outlined in the IIQE syllabus. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded, shifting the burden of proof to the insurer to demonstrate an exclusion applies. The scenario describes a situation where a loss occurred, and the claimant is unable to identify the exact cause. Under a ‘Specified Perils’ policy, this would likely result in a denied claim because the claimant cannot prove the loss was due to a named peril. However, under an ‘All Risks’ policy, the claimant only needs to demonstrate that an accidental loss occurred, and the insurer would then need to prove an exclusion applies. Therefore, the ‘All Risks’ policy is more advantageous in this specific situation for the claimant.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance, as outlined in the IIQE syllabus. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded, shifting the burden of proof to the insurer to demonstrate an exclusion applies. The scenario describes a situation where a loss occurred, and the claimant is unable to identify the exact cause. Under a ‘Specified Perils’ policy, this would likely result in a denied claim because the claimant cannot prove the loss was due to a named peril. However, under an ‘All Risks’ policy, the claimant only needs to prove an accidental loss occurred, and the insurer would have to prove an exclusion applies. Therefore, the ‘All Risks’ policy offers broader protection in this specific scenario.

The question tests the understanding of the scope of theft insurance, specifically concerning damage to the premises during an attempted theft. The provided text states that theft policies typically include damage caused by thieves to the insured premises during forcible and violent entry or exit. This damage is not subject to a separate sum insured but is covered under the general policy for stock and specified contents. Therefore, if a thief breaks a window to gain entry, the cost of replacing that window would be covered as part of the theft insurance, provided it was a forcible and violent act.

The scenario describes an individual intentionally engaging in a physical altercation to rescue friends. The Complaints Panel determined that the insured’s injury was not accidental because it was a foreseeable consequence of his deliberate actions in joining the fight. The key principle here is that for a personal accident claim, the injury must be the result of an unforeseen and unintentional event. By actively participating in a dangerous situation, the insured’s actions led to a predictable outcome of being attacked, thus removing the ‘accidental’ nature of the injury as required by personal accident policies.

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 may still be 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, rather it might affect a specific claim or the continuation of cover under certain circumstances. ‘Consequential Loss’ refers to indirect financial losses resulting from an insured event, which are typically excluded from property insurance unless specifically covered by a business interruption policy.

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 from the general coverage. This allows the insurer to offer coverage for the standard risks while mitigating losses from the identified higher risk. Option B is incorrect because a general exclusion applies to all policyholders, not specific risks within a policy. Option C is incorrect as a market exclusion is a standard exclusion applied by most insurers in the market for fundamental risks. Option D is incorrect because a policy renewal is a new contract and doesn’t inherently involve the exclusion of specific pre-existing risks unless explicitly agreed upon during the renewal process.

The scenario highlights the importance of the insured’s duty to notify the insurer of a potential claim as soon as reasonably practicable. 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 circumstances, ultimately giving the insured the benefit of the doubt. This implies that the insurer’s ability to investigate is a key factor in determining if the notification was timely. The question tests the understanding of the ‘as soon as reasonably practicable’ clause and the factors influencing its interpretation, particularly the prejudice caused to the insurer by the delay.

A Certificate of Insurance serves as a formal confirmation of the existence of compulsory insurance, particularly in contexts like motor vehicle insurance. It is a standalone document, distinct from the main policy, providing evidence of coverage. While it confirms coverage, it does not typically detail the specific terms and conditions of the underlying policy, nor does it represent a guarantee of future insurability. Its primary function is to satisfy legal requirements for proof of insurance.

The Employees’ Compensation Ordinance (ECO) mandates compulsory insurance for employers to cover their liability for employee injuries or deaths arising out of and in the course of employment. While the ECO covers accidents, it does not typically cover liabilities arising from breaches of contract unless those breaches also result in an injury covered by the ordinance. Product liability insurance, on the other hand, specifically addresses the manufacturer’s or seller’s duty of care to consumers regarding defective products, which is distinct from an employer’s liability to its employees. Therefore, a claim for a defective product causing injury to an employee would generally fall under product liability, not the compulsory employees’ compensation insurance, unless the defect also constituted an accident arising out of and in the course of employment as defined by the ECO.

A warranty in insurance is an absolute undertaking by the insured to the insurer. A breach of this undertaking, regardless of its impact on the claim, can automatically discharge the insurer’s liability from the date of the breach. However, insurers in Hong Kong have provided an undertaking to the Hong Kong Federation of Insurers that they will only refuse a claim due to a breach of warranty if there is a causal connection between the breach and the loss, or if the breach is fraudulent. This means that a breach without a causal link or fraud would not typically lead to a claim refusal under this undertaking, even though technically the warranty is breached.

This question tests the understanding of exclusions in Directors’ and Officers’ (D&O) liability insurance, specifically concerning actions taken by the insured. The scenario describes a director who, prior to the policy’s inception, was aware of a potential issue but did not disclose it. D&O policies typically exclude coverage for claims arising from circumstances known or that ought to have been known by the insured at the time of policy inception. This is to prevent individuals from obtaining coverage for known risks they have not disclosed. Option A correctly identifies this exclusion. Option B is incorrect because while D&O policies cover wrongful acts, the exclusion for known circumstances overrides this general coverage. Option C is incorrect as the policy generally covers legal expenses for defense, but this is contingent on the claim itself being covered, which it is not in this case due to the prior knowledge. Option D is incorrect because while dishonesty is a common exclusion, the primary reason for denial in this scenario is the prior knowledge of the circumstance, which is a distinct exclusion.

This question tests the understanding of exclusions in Directors’ and Officers’ (D&O) liability insurance, specifically concerning actions taken by the insured. The scenario describes a director who, prior to the policy’s inception, engaged in dishonest conduct that later led to a claim. D&O policies typically exclude coverage for claims arising from dishonesty or fraud of the insured director. While the policy might cover defense costs for allegations of dishonesty, it will not indemnify the director for losses stemming directly from their proven dishonest acts. Option B is incorrect because while pollution is a standard exclusion, it’s not the primary reason for excluding this specific claim. Option C is incorrect as contractual liability exclusions are distinct from personal misconduct. Option D is incorrect because while a retroactive date is relevant for claims-made policies, the exclusion here is based on the nature of the act (dishonesty) rather than simply the timing relative to the policy inception, provided the act occurred before the retroactive date.

The 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 a common practice to avoid duplication of coverage and ensure that each policy covers distinct risks. Therefore, a fire that causes a boiler to explode would typically be covered under a fire policy, not the boiler explosion policy.

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.

The scenario describes a shop owner losing cash from her bag after closing her shop. The money insurance policy explicitly states that cover is for losses occurring during normal business hours while being conveyed by a messenger. Since the loss happened outside of business hours, it falls outside the defined scope of cover for this specific policy, leading to the rejection of the claim. The policy’s wording is crucial here, limiting coverage to a specific timeframe to manage risk and premium.