Paper 2 General Insurance Quiz 04

The scenario describes a situation where the insured experienced a loss (damaged watch) and took action to mitigate it by sending it for repair. However, the claim was lodged only after the repair was completed and the watch was collected, which was two weeks after the incident. The provided text emphasizes the importance of timely notification to the insurer as per policy conditions. While the insured acted promptly to get the watch repaired, the delay in notifying the insurer about the incident itself, before or immediately after the repair, could be a breach of the ‘as soon as possible’ notification clause. This delay, even if the repair was done, might affect the insurer’s ability to investigate the cause of the loss or assess the damage independently, potentially impacting the claim’s validity. Therefore, the insurer might consider the claim invalid due to the delayed notification, despite the insured’s prompt action in seeking repairs.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a jurisdictional limit of HK$800,000 for the value of the claim. Complaints exceeding this amount, or those arising from commercial, industrial, or third-party insurance, fall outside the ICCB’s purview and must be resolved through other means such as litigation or arbitration. Therefore, a dispute involving a commercial property insurance claim, regardless of its monetary value, would not be handled by the ICCB.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. According to established insurance law principles, particularly those derived from the Marine Insurance Act 1906 (which heavily influences Hong Kong insurance law), representations must be substantially true. This means that while minor inaccuracies might not invalidate the contract, any misrepresentation of a material fact that influences the insurer’s decision to accept the risk or the terms offered can lead to the contract being voidable at the insurer’s option. The requirement for substantial truth is a cornerstone of the principle of utmost good faith (uberrimae fidei) in insurance.

The question tests the understanding of exclusions in pleasure craft insurance, specifically concerning the ship’s boat. According to the provided text, a ship’s boat is excluded from coverage if it is not permanently marked with the parent boat’s name. This implies that if the ship’s boat is properly marked, it would be covered under the policy. Therefore, the scenario where the ship’s boat is properly marked would lead to a claim being accepted for damage to it.

The Code of Conduct for Insurers in Hong Kong is designed to promote good insurance practice and protect policyholders. It covers a broad spectrum of insurer conduct, including their interactions with customers and their operational responsibilities. Specifically, it addresses how insurers should handle underwriting and claims processes to ensure fairness and efficiency. It also explicitly outlines the rights and obligations of customers, ensuring they are informed and treated equitably. Furthermore, the Code emphasizes the importance of safeguarding customers’ overall interests, which encompasses not just their contractual rights but also their well-being and fair treatment throughout their relationship with the insurer. While a good corporate image is desirable, the Code’s primary focus is on the direct conduct of insurance business and customer protection, rather than the broader societal impact of the industry’s public image as a corporate citizen.

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’ financial stability 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 in their dealings with individual policyholders, particularly regarding the fair and efficient handling of claims and the clarity of product information.

A combined liability policy is designed to consolidate various liability coverages into a single document for administrative convenience and potential premium savings. While it typically includes Public Liability, Products Liability, and Employees’ Compensation Liability, it can be extended to encompass other specific liability risks. Directors’ and Officers’ Liability and Professional Liability are common additions that clients may request, reflecting the need for comprehensive protection against management and professional errors, respectively. Therefore, the inclusion of Directors’ and Officers’ Liability and Professional Liability cover is a common feature of such combined policies when specifically requested by the client.

The question probes the understanding of prohibited practices in the insurance intermediary sector, specifically concerning rebating. Rebating, in essence, is the offering of inducements or benefits to a policyholder that are not explicitly stated in the policy contract. This practice is considered unethical and potentially illegal because it distorts the true cost of insurance and can lead to unfair competition. The Code of Practice for the Administration of Insurance Agents, along with provisions in agency agreements, aims to prevent such practices. Offering a portion of the commission to an employee of the insured, without the insured’s explicit written consent, falls under the definition of rebating. This is because it provides an unstated benefit to an individual associated with the insured entity, thereby undermining the integrity of the commission structure and potentially influencing the decision-making process based on factors other than the policy’s merits. Such actions can be viewed as a form of bribery or corruption as they offer an incentive for business that is not transparent or equitable.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles, an insurer is not legally mandated to remind the policyholder about an approaching renewal date. If the policyholder fails to take action, the policy simply lapses at the end of its term. Cancellation, on the other hand, refers to the premature termination of a policy, which is distinct from non-renewal.

A ‘claims-occurring’ basis policy provides coverage for events that happen during the policy period, regardless of when the claim is actually reported. This means if an incident occurs while the policy is active, the insurer is obligated to cover it, even if the claim is filed after the policy has expired. Conversely, a ‘claims-made’ policy only covers claims that are both made and reported during the policy’s term. The scenario describes a situation where a potential liability event occurred during the policy’s currency, but the claim was lodged after its expiry. Under a ‘claims-occurring’ policy, this would be covered because the event happened within the policy period. The other options describe different types of insurance or policy features that are not directly relevant to the timing of claim reporting in this specific context.

The question tests the understanding of the core components typically found in a company’s published declaration of customer service standards. These declarations are designed to outline the company’s commitment to its clients and stakeholders. Option (a) correctly identifies the commitment to quality and service as a fundamental element. Option (b) is also a common element, focusing on professional standards. Option (c) highlights efficiency and ethical business practices. Option (d) addresses the crucial aspect of claims handling. Option (e) refers to specific details on business conduct. The provided text emphasizes that these declarations are not just self-imposed but can also be mandated by industry bodies or legislation, reinforcing their importance in demonstrating transparency and accountability.

The scenario describes a situation where an insured person’s ability to perform their usual occupation is partially restored, but not fully. The insurer’s decision to classify the latter part of the recovery period as Temporary Partial Disablement (TPD) is based on the medical assessment that the insured’s range of trunk movement had improved significantly, allowing them to perform some duties. This aligns with the policy’s provision for different benefit amounts for Temporary Total Disablement (TTD) and TPD, where TPD applies when an insured can perform some, but not all, of their usual work. The Complaints Panel’s decision to favour the attending doctors’ opinion over the insurer’s medical consultant highlights the importance of the treating physician’s assessment in determining the extent of disability, especially when there are conflicting medical views. The key distinction lies in the insured’s capacity to engage in their occupation, even if limited.

The question tests the understanding of the insured’s duty to minimize loss after a claim event, as stipulated by common law and often reinforced in policy conditions. The scenario describes a situation where a fire has damaged a commercial property, and the insured has taken steps to protect the remaining inventory from further damage. This aligns with the duty to mitigate further losses. Option B is incorrect because while cooperation is a duty, the specific action described is loss minimization. Option C is incorrect as the insured’s duty is to preserve, not necessarily to immediately dispose of, damaged property, and disposal requires insurer permission. Option D is incorrect because while the insured must provide reasonable proof of loss, the primary action described in the scenario is the physical protection of the damaged goods, not the submission of documentation.

The question tests the understanding of how premiums are calculated in general insurance, specifically focusing on the distinction between risk classification and risk discrimination. Risk classification involves assigning a risk to a broad category with pre-determined average premium rates, such as classifying occupations in personal accident insurance. Risk discrimination, on the other hand, refers to the process of adjusting the premium within that category based on the specific good or bad features of an individual risk. The example of a fire underwriter adjusting premiums for two private warehouse risks in the same building, based on their location (basement vs. second floor), perfectly illustrates risk discrimination. The other options describe different aspects: risk classification is the initial broad grouping, different bases refer to the factors used for calculation (sum insured, turnover, etc.), and premium payment relevance deals with when cover commences.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. The principle of utmost good faith (uberrimae fidei) requires that such representations, particularly those concerning material facts, must be substantially true. If a representation is found to be untrue, and it relates to a material fact, it can give the insurer grounds to avoid the policy. The law does not demand absolute literal accuracy for every minor detail, but rather a substantial truthfulness concerning matters that would influence the insurer’s decision to accept the risk or the terms on which it would be accepted. Options (b), (c), and (d) present incorrect standards: (b) is incorrect because representations are not always required to be in writing, though written proposals are common; (c) is incorrect because absolute accuracy is not the legal standard, but rather substantial truth; and (d) is incorrect because untrue material representations can indeed affect the contract.

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, potentially voiding the policy. Therefore, the broker’s actions directly impact the validity of the insurance contract from the proposer’s perspective.

This question tests the understanding of how an excess works in motor insurance. An excess is the amount the policyholder must pay towards a claim before the insurer covers the rest. In this scenario, the damage is HK$12,000 and the voluntary excess is HK$2,000. Therefore, the insured is responsible for the first HK$2,000 of the claim, and the insurer will pay the remaining HK$10,000. The question asks how much the insurer will pay, which is the total claim minus the excess.

The question tests the understanding of which vessels are subject to registration in Hong Kong under the relevant legislation. Option (a) correctly identifies vessels regularly employed in trading to or from Hong Kong, unless already registered elsewhere. Option (b) is incorrect because pleasure craft are specifically mentioned as requiring registration. Option (c) is incorrect as fishing vessels regularly operating in Hong Kong waters or using them as a base are also subject to registration. Option (d) is incorrect because vessels registered in Mainland China or Macau that trade with Hong Kong and hold specific certificates are also within the scope of registration requirements, not exempt by default.

The scenario describes an insurance broker offering a portion of their commission to a prospective client to secure their business. This practice, known as rebating, is explicitly addressed in the provided text as a potentially grave matter if it serves as an improper inducement. While rebating might seem like a harmless gesture in some contexts, its use to unfairly attract clients is considered unethical and potentially illegal, as it distorts fair competition and can lead to clients making decisions based on financial incentives rather than the suitability of the insurance product. Therefore, the broker’s action constitutes misconduct.

The question tests the understanding of the ‘pro rata average’ condition in insurance policies, specifically how under-insurance affects claim payouts. The scenario describes a situation where the sum insured for contents is less than the actual value of the contents at the time of loss. The pro rata average condition dictates that the claim payment will be reduced proportionally to the extent of under-insurance. In this case, the sum insured ($500,000) represents 80% of the actual value ($625,000). Therefore, the claim for a loss of $100,000 will be paid at 80% of that amount, resulting in a payout of $80,000. The other options represent incorrect calculations or misinterpretations of the average clause. Option B incorrectly assumes full payout, Option C applies a fixed deduction, and Option D miscalculates the proportion of under-insurance.

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 allowing the rest of the policy to remain in force. This allows the insurer to offer coverage for the standard risk while mitigating potential losses from the identified hazard, rather than outright declining the entire policy. Options B, C, and D describe different, less precise or incorrect methods of risk management. A general exclusion applies broadly to all policyholders, not a specific risk within a policy. A market exclusion is a standard exclusion common across the industry for fundamental risks. A policy cancellation is the termination of the entire contract, not a modification of coverage.

The question tests the understanding of policy conditions, specifically the ‘Average’ condition. The Average clause is a penalty for under-insurance. If the sum insured is less than the value of the property at the time of loss, the insurer will only pay a proportion of the loss, calculated based on the ratio of the sum insured to the actual value. In this scenario, the property’s value is HK$500,000, but it is insured for only HK$300,000. The loss is HK$100,000. Applying the Average clause, the insurer will pay (Sum Insured / Value of Property) * Loss = (HK$300,000 / HK$500,000) * HK$100,000 = 0.6 * HK$100,000 = HK$60,000. Therefore, the insured will bear the remaining HK$40,000.

The question tests the understanding of exclusions in pleasure craft insurance policies, specifically concerning the ship’s boat. According to the provided text, a ship’s boat is excluded from coverage if it is not permanently marked with the parent boat’s name. This implies that if the ship’s boat is properly marked, it would be covered under the policy. Therefore, the scenario where the ship’s boat is not marked correctly leads to its exclusion from the policy’s coverage.

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.

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when an employer’s compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. Therefore, if an employer fails to secure the mandatory insurance, the ECAS steps in to ensure employees receive compensation for work-related injuries or diseases, fulfilling the spirit of the compulsory insurance requirement.

This question tests the understanding of the relationship between material damage insurance and business interruption (BI) insurance, specifically the ‘material damage proviso’ in BI policies. This proviso stipulates that a claim under a BI policy is contingent upon a valid claim being payable under the associated material damage policy for the same insured peril. If the material damage policy does not cover the event causing the interruption, or if it’s invalid, the BI claim will not be admitted. Therefore, the absence of a valid material damage cover for the physical loss directly invalidates the business interruption claim.

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 facts.

The question tests the understanding of an insurer’s obligation regarding policy renewal. According to general insurance principles, an insurer is not legally obligated to remind the policyholder about an approaching renewal date. If the policyholder fails to take action, the policy simply lapses at the end of its term. The explanation clarifies that while it’s common practice for insurers to send reminders as it benefits them, it’s not a legal requirement. The distinction between a policy lapsing due to non-renewal and cancellation (premature termination) is also crucial.

A Scheduled Policy Form is a common structure where the policy details, such as the insured’s name, the property covered, the sum insured, and the premium, are listed in a schedule attached to the policy document. This schedule forms an integral part of the contract. The Signature Clause, also known as the Attestation Clause, is a specific section within this scheduled policy form where the insurer formally signifies their agreement and commitment to the terms and conditions outlined in the policy. It is the insurer’s formal confirmation of their undertaking.

The scenario highlights the importance of timely notification of potential claims. 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 investigation. 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 and the overall prejudice caused by the delay are key factors. The question tests the understanding that a breach of a notification clause doesn’t automatically void a claim if the insurer isn’t prejudiced, or if the delay is deemed reasonable in the circumstances, especially when the claim is genuine and verifiable through other means like repair slips.