Paper 2 General Insurance Quiz 13

A fire business interruption policy is designed to compensate an insured business for financial losses incurred due to a disruption of operations following a covered peril, such as fire. This compensation typically includes the loss of gross profit and continuing expenses. While the physical damage to buildings and contents is covered by a standard fire policy, business interruption insurance addresses the consequential financial losses that arise from the inability to trade. It does not cover direct third-party liabilities, which are typically addressed by other types of insurance.

This question tests the understanding of how an excess works in motor insurance, specifically in the context of property damage to the insured’s own vehicle. The scenario describes a loss of HK$12,000. An excess of HK$2,000 means the insured is responsible for the first HK$2,000 of any claim. Therefore, the insurer will pay the remaining amount, which is HK$12,000 – HK$2,000 = HK$10,000. The question is designed to ensure the candidate understands that the excess is deducted from the total loss to determine the payable amount by the insurer.

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, typically a year, covering multiple trips. The other options represent individual trip factors or benefits, not the overarching premium basis for frequent travelers.

In the context of marine insurance claims, the assured (the policyholder) is typically responsible for arranging and initially paying for a surveyor’s report. This report serves as an independent assessment of the cause and extent of the loss. While the surveyor’s fee is generally recoverable from the insurer as part of a valid claim, the initial appointment and payment usually fall to the assured. This contrasts with non-marine loss adjusters, who are more commonly appointed and paid by the insurer.

A cover note is a preliminary document that provides immediate proof of insurance coverage, binding the insurer even before the final policy is issued. It serves as a temporary policy, often used in situations where immediate evidence of insurance is required, such as for vehicle registration or to satisfy a lender’s requirements before a loan is disbursed. While it offers unconditional cover, it typically has cancellation provisions and is intended to be replaced by a formal policy within a short period. A policy, on the other hand, is the final, formal contract of insurance, representing the culmination of the underwriting process and incorporating all agreed terms and conditions. A certificate of insurance, in its more common understanding, serves as proof of compulsory insurance, particularly for motor vehicles, and is a separate, permanent document, distinct from the policy itself, though a temporary version might be incorporated into a motor cover note.

A cover note serves as a temporary insurance document that binds the insurer, providing immediate evidence of coverage. While it is not conditional on a later proposal form, it often includes cancellation provisions. A policy, on the other hand, is the final, formal document that represents the completed underwriting process and replaces any prior cover notes. A certificate of insurance, particularly in the context of compulsory insurance like motor, acts as proof of that legal requirement and is a separate, permanent document, unlike a cover note which is temporary. Therefore, the document that provides immediate, albeit temporary, evidence of insurance coverage and binds the insurer before the final policy is issued is the cover note.

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 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.

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, typically a year, covering multiple trips. The other options represent components that influence premium calculation but are not the overarching pricing model for frequent travelers.

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 spectrum of practices, including underwriting, claims handling, product understanding, customer rights, and advising/selling practices. The Insurance Companies Ordinance (ICO) primarily focuses on the regulatory framework for insurers themselves, such as authorization, capital, and solvency requirements, to ensure their financial stability and viability. While the ICO provides a foundational legal structure, the Code of Conduct offers more detailed guidance on the operational and ethical conduct of insurers in their dealings with policyholders. The Code of Practice for the Administration of Insurance Agents is specific to the conduct and regulation of intermediaries, not the insurers’ direct obligations under the Code of Conduct. Common law principles, while applicable to insurance contracts, do not supersede the specific guidelines set forth in the Code of Conduct regarding industry best practices.

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 policies, not just personal lines. The service is free for complainants, ensuring accessibility. While the ICCB makes recommendations, its decisions are not legally binding on the insurer, and either party can choose not to accept the recommendation. The maximum claim amount handled by the ICCB is HK$1,000,000, not HK$800,000. Therefore, only the statements that the complainant is never charged a fee and that the maximum claim amount is HK$1,000,000 are correct.

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.

This question tests the understanding of the legal implications of policy renewals in Hong Kong. Statement (i) is true because the duty of utmost good faith, which requires full disclosure of all material facts, is a fundamental principle that applies throughout the entire duration of an insurance contract, including at renewal. Statement (ii) is also true; a renewal is considered the creation of a new contract, even if the terms are identical to the previous period, as it establishes a new period of coverage. Statement (iv) is correct as 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 incorrect because while terms can be negotiated, they are not entirely ‘freely’ negotiable in the sense that the insurer may have standard renewal terms and conditions, and the insured’s ability to negotiate depends on factors like their claims history and the insurer’s risk appetite. Therefore, the correct combination is (i), (ii), and (iv).

This question tests the understanding of ‘System of Check’ in fidelity guarantee insurance, which is crucial for internal discipline and control within an employer’s operations. The correct answer highlights the proactive measures an employer takes to prevent losses from employee dishonesty. Option B is incorrect because while reporting is part of a system, it’s not the primary focus of the ‘System of Check’ itself, which is about preventative controls. Option C is incorrect as it describes a reactive measure (investigation) rather than a preventative system. Option D is incorrect because while financial audits are important, they are a component of a broader system of checks, not the entirety of it, and the ‘System of Check’ specifically refers to the employer’s internal controls over guaranteed staff.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the standards of good insurance practice for personal insurance policies sold to individual policyholders residing in Hong Kong. It covers a broad spectrum of practices, including underwriting, claims handling, product understanding, customer rights, and the industry’s public image. While the Insurance Companies Ordinance (ICO) sets out foundational requirements for insurers’ authorization, capital, and solvency, 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 expected professional behaviour and customer-centric practices within the insurance industry for policyholders.

The question tests the understanding of the specific limitations of motorcycle insurance concerning theft claims. According to the provided text, for motorcycle insurance, theft claims are only admissible if the entire motorcycle is stolen. This means that if only accessories are stolen, the claim would not be covered under the standard policy. Therefore, a claim for stolen handlebars would be rejected.

A commercial motor policy, particularly one covering vehicles used for specialized tasks like excavation, often contains specific exclusions. The ‘tool of trade’ clause is a common exclusion that removes coverage when the vehicle is being used for its specialized function, such as digging or lifting, as these activities may carry higher risks than standard road use and are typically covered under different types of insurance (e.g., equipment insurance or specific construction liability). The other options are less relevant: a ‘business use clause’ generally defines the scope of business activities permitted, a ‘working operations clause’ is too general, and a ‘professional liability clause’ relates to errors in professional services, not the operation of machinery.

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, determined that ‘winter-sports’ generally encompass activities on snow or ice, regardless of the season or whether they are performed indoors. Therefore, ice-skating, even in a shopping complex, falls under this broad interpretation of winter sports. The key principle here is the insurer’s right to define and enforce exclusions, and the panel’s interpretation of the term ‘winter-sports’ to include ice-based activities, aligning with the policy’s intent to exclude hazardous activities associated with such environments. The fact that the insured was a passenger in the second case is irrelevant to the first case’s reasoning.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to the provided text, an insurer is not legally obligated to remind the insured about an approaching renewal date. If the insured fails to take action, the policy simply lapses at the end of its term. Therefore, the statement that an insurer must remind the insured is incorrect. The other options describe situations that are not mandated by law for renewals; while it might be in the insurer’s interest to remind the insured, it’s not a legal requirement.

The question tests the understanding of an insurer’s obligation regarding policy renewals. 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. Cancellation, on the other hand, implies a premature termination of coverage, which is distinct from a policy lapsing due to non-renewal. Therefore, the statement that an insurer does not have to remind the insured about renewal is accurate.

This question tests the understanding of the scope of ‘all risks’ insurance policies, a common concept in property insurance. While ‘all risks’ policies are designed to be broad, they typically contain exclusions for certain types of losses that are either uninsurable, predictable, or covered by other specialized policies. Wear and tear (deterioration due to normal use) is a gradual process and not a sudden, accidental event, hence it’s usually excluded. War and similar perils (like civil commotion, invasion) are often excluded due to their catastrophic and widespread nature, typically requiring separate war risk insurance. Confiscation by authorities is also a common exclusion as it relates to legal or governmental actions rather than accidental damage. Therefore, all these items are generally excluded from standard ‘all risks’ policies.

Institute Cargo Clauses (ICC) (A) provides the broadest coverage for own damage, operating on an ‘All Risks’ basis. This means it covers all perils except those specifically excluded. ICC (B) and ICC (C) are more restrictive, covering only specified risks. Banks often require ICC (A) for cargo shipments when providing financing or guarantees because its comprehensive nature offers greater security against potential losses. The other options represent narrower scopes of coverage or different types of insurance not directly related to the ‘all risks’ nature of ICC (A) for own damage.

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 truly commenced. 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, and its breach might lead to the termination of cover or other consequences, but it doesn’t prevent the contract from initially starting. ‘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.

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 coverage for this specific policy, leading to the rejection of the claim. The policy’s wording is crucial here, limiting coverage to specific times and circumstances.

A cover note is a temporary document that provides immediate proof of insurance coverage, binding the insurer from the outset. It is not conditional on the submission of a full proposal form later. While it serves as evidence of insurance, particularly for legally mandated insurance like motor insurance where it often includes a temporary certificate of insurance, its primary function is to offer immediate, albeit temporary, protection. The policy, on the other hand, is the final, formal document that represents the complete contract of insurance and typically replaces any previously issued cover notes. A certificate of insurance, in its more common understanding, serves as proof of compulsory insurance, distinct from the policy itself, and is a separate, permanent document, unlike the temporary nature of a cover note.

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 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 do not precisely fit the scenario of modifying coverage for a specific, identified risk within an otherwise standard policy. A market exclusion (B) is a general exclusion applied across many policies, not tailored to an individual’s specific risk. A policy cancellation (C) is the termination of the entire contract, not a modification. A general exclusion (D) is too broad and doesn’t capture the targeted nature of the exclusion described.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the standards expected in various aspects of the insurance business. Among these are the fair, efficient, and prompt handling of claims, which is a crucial element of customer service and regulatory compliance. While other regulations and ordinances touch upon insurer conduct, the Code of Conduct for Insurers is the primary document that outlines these specific service-level expectations for claims management.

The scenario describes a situation where an insurer provides a replacement item for a non-depreciating subject matter that has been damaged. This aligns with the definition of ‘Replacement’ as a method of indemnity where the insured receives a new item to substitute the damaged one, particularly when the original item’s value doesn’t decrease over time. ‘Reinstatement’ involves restoring the damaged property to its original condition, which is not applicable here as a new item is provided. ‘Salvage’ refers to the residual value of damaged property, and ‘Repatriation Expenses’ are costs associated with returning a deceased insured’s remains. Therefore, ‘Replacement’ is the most accurate term for the indemnity provided.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the standards expected in various aspects of the insurance business. Among these are the fair, efficient, and prompt handling of claims, as well as the criteria used when a claim is denied. While other regulations touch upon claims, the Code of Conduct provides detailed guidance on the insurer’s obligations in these specific areas concerning policyholders.

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. Without physical damage covered by the material damage policy, the BI policy will not respond to losses arising from the interruption. Therefore, if the material damage policy is voided due to a breach of policy conditions by the insured, the BI policy would also be invalidated for claims stemming from that event, as the prerequisite for a valid material damage claim would not be met.

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. Specifically, it addresses the insurer’s responsibilities in underwriting and claims handling, ensuring fair treatment and efficient processing. It also explicitly details the rights and obligations of customers, empowering them with knowledge about their policies and the insurer’s duties. Furthermore, the Code emphasizes the importance of safeguarding customers’ rights and interests in all dealings. While a good corporate citizen image is desirable, the Code’s primary focus is on the direct relationship and conduct between the insurer and its customers, and the operational standards of insurance practice, rather than the broader public image of the industry as a whole. Therefore, areas (i), (ii), and (iii) are directly encompassed by the Code’s provisions.