Paper 2 General Insurance Quiz 09

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. While private car policies typically cover the loss of accessories due to theft, motorcycle policies, as per market practice, often stipulate that only the entire machine being stolen is admissible for a theft claim. This means that if only accessories are stolen from a motorcycle, the ‘Own Damage/Accidental Damage’ section of the policy would not provide cover for that specific loss.

A voluntary excess, also known as a ‘self-insured retention’ or ‘excess requested by the insured’, is an amount that the policyholder agrees to bear themselves in the event of a claim. This is typically offered by insurers as a way to reduce the premium. The insured chooses a higher excess amount in exchange for a lower premium. This is in addition to any compulsory excess that might apply to the policy, such as a young driver excess.

The question tests the understanding of the definition of ‘theft’ under a typical theft insurance policy, specifically the requirement for forcible and violent entry or exit. Option (a) correctly states that the policy requires evidence of forced entry or exit to cover the loss. Option (b) is incorrect because while staff theft is excluded, the policy does not automatically cover all losses due to staff negligence; it’s typically handled by fidelity insurance. Option (c) is incorrect because fire damage, even if related to a theft, is excluded from a theft policy and would be covered under a fire policy. Option (d) is incorrect because while warranties are common, the absence of a specific security device does not automatically mean the policy covers theft without forcible entry; it might lead to a claim denial based on the warranty breach, but the fundamental definition of theft still requires forced entry.

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.

This question tests the understanding of the specific definition of ‘loss of one limb’ within the context of personal accident insurance, as illustrated by Case 12. The scenario highlights that a fracture causing functional impairment, but not physical severance at or above the wrist or total functional disablement, does not meet the policy’s strict definition for this benefit. The explanation clarifies that the insurer’s decision was upheld because the insured’s condition, while inconvenient, did not align with the policy’s precise wording for ‘loss of one limb’ or ‘total functional disablement’. The absence of proportional compensation for partial disability in the policy further reinforces why the claim was rejected.

This question tests the understanding of the ‘fit and proper’ requirement for insurance brokers, which is a fundamental aspect of their licensing and ongoing supervision. The Insurance Authority (IA) mandates that all insurance brokers must be fit and proper to operate. This assessment considers various factors beyond just technical qualifications, including integrity, financial soundness, and adherence to regulatory standards. While professional indemnity insurance and maintaining proper books are crucial operational requirements, they are components that contribute to demonstrating fitness and properness, rather than being the sole definition of it. The ability to maintain adequate capital is also a key financial requirement, but the overarching principle is the broker’s overall suitability to conduct business responsibly and ethically.

A voluntary excess, also known as a ‘self-insured retention’ or ‘excess requested by the insured’, is an amount that the policyholder agrees to bear themselves in the event of a claim. This is typically offered by insurers as a way to reduce the premium. The insured chooses a higher excess amount in exchange for a lower premium. This is in addition to any compulsory excess that might apply to the policy, such as a young driver excess.

This question assesses the understanding of the positive impacts of excellent customer service in the insurance industry, specifically focusing on its role in fostering repeat business. Customer loyalty, driven by positive experiences, is crucial for the continuity of insurance policies, which are often renewed. This continuity is more cost-effective than acquiring new clients, directly contributing to profitability. The other options, while potentially related to good business practices, do not as directly or comprehensively capture the primary positive outcome of sustained customer satisfaction in the context of renewable insurance products.

This question tests the understanding of how changes in the insured risk can impact an insurance policy, specifically focusing on the underwriter’s perspective. When the original circumstances under which a risk was insured alter for the worse, it signifies an increase in the probability or severity of a loss. This necessitates a review of the policy terms and premium. The underwriter’s primary responsibility is to accurately assess and price risk. An adverse change in the risk profile means the existing premium may no longer adequately cover the increased exposure. Therefore, the underwriter must consider adjusting the terms, which could include increasing the premium, imposing specific conditions (warranties), or even cancelling the policy if the risk becomes uninsurable under the current framework. Option (a) correctly identifies the need for the underwriter to re-evaluate the terms and conditions due to the worsened risk. Option (b) is incorrect because while a reduction in premium might occur if the risk improves, the scenario describes a deterioration. Option (c) is incorrect as the underwriter’s role is to manage risk, not to solely rely on the insured to report changes, especially when the change is for the worse. Option (d) is incorrect because while expert advice might be sought, the immediate and fundamental action is to reassess the policy’s alignment with the altered risk.

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 on a “claims-occurring” basis, meaning that the policy covers incidents that happen during the policy period, regardless of when the claim is actually made. While “claims-made” policies are not unknown, they are not the common practice for PL insurance. Therefore, a policy that covers claims reported during the policy period, even if the incident occurred earlier, would be characteristic of a “claims-made” basis, which is not the standard for PL insurance.

This question tests the understanding of how an excess works in motor insurance, specifically the difference between a voluntary and a compulsory excess, and how they interact. A voluntary excess is chosen by the policyholder to reduce the premium, while a compulsory excess is imposed by the insurer. Standard policy excesses are a type of compulsory excess that applies universally or to specific risk factors without a premium discount. In this scenario, the policyholder chose a voluntary excess of HK$5,000. The insurer then imposed a compulsory underwriting excess of HK$2,000 due to the vehicle’s high performance. Standard policy excesses, by definition, are always in parallel with other excesses and do not qualify for premium discounts. Therefore, the total excess applicable to the claim would be the sum of the voluntary excess and the compulsory underwriting excess, which is HK$7,000. The remaining amount of the claim, HK$15,000 – HK$7,000 = HK$8,000, would be covered by the insurer. The key here is that standard policy excesses are a specific category of compulsory excess and are not additive in the same way as a voluntary and an underwriting excess would be if they were separate categories. The question implies the HK$2,000 is an underwriting excess, not a standard policy excess. If it were a standard policy excess, it would be in parallel with the voluntary excess, but the phrasing suggests it’s an underwriting excess. The most accurate interpretation based on the provided text is that the voluntary excess and the underwriting excess are additive, and a standard policy excess would be in parallel with both. Since the question specifies a voluntary excess and an underwriting excess, and asks for the total excess, the sum is the correct approach. The explanation clarifies that standard policy excesses are a type of compulsory excess and are in parallel with other excesses, meaning they are applied in addition to any voluntary or underwriting excess. Therefore, the total excess is the sum of the voluntary and underwriting excesses.

The ‘Schedule’ section of a scheduled policy form is specifically designed to contain all information pertinent to the individual risk being insured. This includes details such as the policy number, the insured’s particulars, the sums insured, effective dates, a description of the insured subject matter, the premium paid, and any special terms or endorsements that modify the standard wording. The Recital Clause introduces the contract, the Operative Clause defines the scope of cover, and General Exceptions apply universally to the entire policy. Therefore, identifying the policy number and the insured’s address falls under the purview of the Schedule.

The scenario describes an individual injured while ice-skating. The insurer denied the claim based on a ‘winter-sports’ exclusion. The Complaints Panel, in interpreting this exclusion, considered that ‘winter-sports’ generally encompass sports played on snow or ice, regardless of the season or whether they are indoors or outdoors. Therefore, ice-skating, even indoors, falls under this broad interpretation of winter sports. The policy’s exclusion of losses caused by or related to participating in winter sports would therefore apply, justifying the insurer’s decision. This aligns with the principle that policy exclusions are interpreted based on their common understanding and the intent to cover risks associated with specific activities.

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 lost overboard but is marked with the parent vessel’s name would be a covered loss, as it does not fall under the specified exclusions.

This question tests the understanding of how changes in the insured risk can impact the policy. The Insurance Companies Ordinance (Cap. 41) and general insurance principles dictate that if the circumstances under which a risk was insured alter for the worse, the insurer may have grounds to cancel the policy, provided they follow the correct procedures. This is because the original assessment of risk and premium may no longer be adequate. Option B is incorrect because while a change in market conditions might influence underwriting, it doesn’t directly grant the insurer the right to cancel based on a worsened risk for the insured. Option C is incorrect as a change in the insured’s occupation, if it increases the risk, is precisely the type of alteration that could lead to cancellation. Option D is incorrect because while policy endorsements can be used to reflect changes, the fundamental right to cancel arises from the worsening of the risk itself, not merely the administrative act of endorsement.

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.

The question tests the understanding of the scope of theft insurance, specifically regarding damage to the premises during an attempted theft. According to the provided text, theft policies typically include coverage for damage caused by thieves to the insured premises when making 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, a scenario where a thief damages a shop’s door to gain entry and subsequently steals items would be covered for both the stolen items and the damage to the door, provided the entry was forcible and violent.

The scenario describes a situation where the insured delayed notifying the insurer about a claim. The policy requires notification ‘as soon as possible’. While the insured took the watch for repair immediately, the claim was lodged two weeks later after the repair was completed. This delay in lodging the claim, after the repair and collection, likely constitutes a breach of the notification condition, as ‘as soon as possible’ implies a prompt report to the insurer to allow them to investigate the loss before it is repaired or altered. The insurer has the right to investigate the circumstances of the loss and the extent of the damage. By repairing and collecting the watch before lodging the claim, the insured may have prejudiced the insurer’s ability to conduct a proper investigation, potentially invalidating the claim.

This question tests the understanding of the specific exclusions within a Product Liability policy. Option (a) is correct because liability arising from the design, plan, formula, or specification of the goods is a common exclusion in Product Liability insurance. This means if a product fails due to an inherent flaw in its design, the insurer will not cover the resulting claims. Options (b), (c), and (d) describe situations that might be covered or are general exclusions not specific to the design flaw itself. For instance, liability for property damage to the product itself (like the CD player in the example) is often excluded, but the damage it causes to other property (the car) would be covered. Similarly, while dishonesty is a general exclusion, it’s not the primary exclusion related to a design defect. Employers’ liability is also a common exclusion but unrelated to product design.

A combined liability policy, as described in the syllabus, 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 extensions or endorsements rather than being fundamental components of the basic combined liability structure. Property insurance and pecuniary insurance are distinct categories of insurance, not typically integrated into a standard combined liability policy. Umbrella liability is a separate concept, providing excess coverage over underlying policies.

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 that influences the insurer’s decision to accept the risk or the terms offered, the insurer may have grounds to void the contract. The requirement is for substantial truth, meaning minor inaccuracies that do not affect the risk assessment are generally acceptable, but significant falsehoods can invalidate the policy. Options (b), (c), and (d) present absolute or overly strict requirements that are not aligned with the legal standard for representations in insurance.

This question tests the understanding of General Average (GA) sacrifice versus expenditure. A GA Act involves an extraordinary sacrifice or expenditure voluntarily and reasonably made to preserve the common adventure. Throwing cargo overboard is a physical loss, hence a sacrifice. Towing a disabled vessel to a port of refuge is an expense incurred to save the adventure, thus it’s a GA expenditure. The scenario describes a situation where a portion of the cargo is jettisoned to lighten the vessel and prevent it from sinking, which is a classic example of a GA sacrifice.

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. General Exceptions apply to the entire policy, not just specific sections.

Institute Cargo Clauses (A) provides the broadest coverage, operating on an ‘all risks’ basis. This means it covers all losses unless specifically excluded. Clauses (B) and (C) are more restrictive, covering only specified perils. Therefore, a shipment insured under Clause (A) would be covered for damage caused by a sudden, unexpected event like a rogue wave, provided it’s not an excluded peril. Clause (B) would likely cover this if the rogue wave was considered a peril of the sea, but it’s less certain than (A). Clause (C) would only cover it if a rogue wave was explicitly listed as a covered peril, which is highly unlikely. The question tests the understanding of the hierarchical coverage levels of the Institute Cargo Clauses.

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 disputes between policyholders and insurers. It is crucial to understand the scope of its applicability, the nature of its services, and the limitations on its awards. Specifically, the ICCB scheme covers both general and long-term insurance claims, not just personal insurance. The service is free for complainants, aligning with its objective of accessibility. While the ICCB aims to facilitate resolution, its decisions are not binding on the insurer if they exceed a certain monetary threshold, and only the policyholder can appeal against an award if they are dissatisfied. The maximum claim amount that the ICCB can handle is HK$800,000, a critical detail for understanding its operational limits.

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.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer to the insurer before the contract is concluded. These statements are crucial for the insurer to assess the risk. The law, particularly the Insurance Ordinance (Cap. 41), mandates that such representations must be substantially true. If a representation is found to be untrue, and it is material to the risk, the insurer may have grounds to void the policy. The requirement for substantial truth means that minor inaccuracies that do not affect the insurer’s decision to offer cover or the premium charged may not invalidate the contract, but significant falsehoods or omissions that influence the insurer’s judgment can lead to the contract being set aside. Options (b), (c), and (d) present absolute or incorrect conditions. Representations are not always required to be in writing (though often they are, via the proposal form), they don’t need to be absolutely true (substantial truth is the standard), and they certainly can affect the contract if untrue and material.

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 stipulates 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, provided it does not exceed the sum insured. The other options represent incorrect calculations or misinterpretations of the average clause.

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.

The scenario describes a situation where an insurance agent offers a portion of their commission to a potential client, who is an employee of a company seeking insurance. This practice is known as rebating. Rebating, especially when it involves offering a financial incentive to an employee of the insured without the insured’s explicit written consent, is considered unethical and potentially illegal. It undermines the principle of fair pricing and can be seen as a form of bribery or corruption because it distorts the true cost of insurance and incentivizes business based on personal gain rather than the merits of the insurance product or service. This practice is explicitly prohibited under regulations governing insurance intermediaries, such as the Code of Practice for the Administration of Insurance Agents, as it compromises the integrity of the insurance transaction and the established commission structure for intermediaries.