Paper 2 General Insurance Quiz 16

The scenario describes a situation where an insured individual, after an injury, is initially deemed unable to perform any work, qualifying for Temporary Total Disablement (TTD) benefits. However, the insurer later re-evaluates the condition, suggesting that the insured’s improved range of motion allows them to perform some duties, thus potentially qualifying only for Temporary Partial Disablement (TPD) benefits. The core of the dispute lies in the interpretation of ‘unable to perform any work’ versus ‘able to perform some duties’. The Complaints Panel’s decision to favour the insured’s attending doctors’ opinion highlights the importance of the treating physician’s assessment in determining the extent of disability. The panel’s reasoning implies that the attending doctors, having continuously monitored the patient’s recovery, are better positioned to assess the functional limitations impacting the insured’s ability to perform their usual occupation. Therefore, the panel’s ruling that the insured should continue receiving TTD benefits until the specified date, despite the insurer’s assessment of partial recovery, underscores the principle that the determination of disability status, especially when conflicting medical opinions exist, often leans towards the more conservative and continuous assessment provided by the insured’s own medical team, particularly when it pertains to the ability to perform their usual occupation.

The scenario describes an insurance broker offering a portion of their commission to a potential client to secure business. This practice, known as rebating, is explicitly addressed in the provided text as a 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.

This question tests the understanding of the proposer’s duty of disclosure, specifically focusing on facts that an insurer is deemed to know or should reasonably be aware of. According to the principles of insurance law, an insurer cannot rely on the non-disclosure of facts that are common knowledge within a particular industry or geographical area, or facts that are inherent to the nature of the insured’s business and would be readily apparent to a prudent underwriter. In this scenario, the insurer is aware of the general business operations of a jewellery shop, which inherently involves the storage of valuable items. Therefore, the presence of gold and precious stones, while increasing the risk of theft, is a fact that the insurer is expected to know and does not need to be explicitly disclosed by the proposer. The other options represent facts that would typically need to be disclosed as they either increase the risk beyond what is normally expected (highly flammable materials without specific mention), relate to past negative insurance experiences (previous policy cancellation), or are specific details about the insured’s health that are not common knowledge or discoverable through a general risk assessment.

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, relinquishes its right to enforce a specific contractual provision. 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 is the most accurate description of the situation that could lead to a waiver of the punctuality requirement.

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 coverage to relevant authorities and is a separate, permanent document, unlike a cover note which is temporary. Therefore, a cover note is best described as a temporary policy that provides immediate, albeit potentially short-term, coverage.

The scenario describes an individual intentionally intervening in a fight to rescue friends, resulting in serious injuries. 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 fray. The key principle here is that for a personal accident claim, the injury must be the result of an ‘accident,’ which implies 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 event from the realm of pure accident. This aligns with the concept that an insured’s own deliberate actions, even if intended for a noble cause, can negate the accidental nature of the resulting injury if the injury is a natural and foreseeable consequence of those actions.

Institute Cargo Clauses (ICC) (A) provides the broadest ‘all risks’ coverage for own damage to cargo. ICC (B) covers specified risks, which are more limited than ICC (A), and ICC (C) offers even more restricted coverage for specified risks. The scenario describes a cargo shipment that is damaged due to a fire originating from a faulty electrical system within the cargo itself. This type of damage, stemming from the inherent nature or condition of the goods, is typically excluded under all ICC clauses as ‘inherent vice’. However, ICC (A) is the most comprehensive and would be the most likely to cover such a loss if it were not for the inherent vice exclusion. Since the question implies a scenario where the damage is due to an internal fault, and ICC (A) is the ‘all risks’ cover, it is the most appropriate choice among the options, assuming the inherent vice exclusion is not the sole determining factor in a real-world claim assessment which would depend on specific policy wording and circumstances. The question tests the understanding of the different levels of coverage provided by ICC (A), (B), and (C) and the concept of inherent vice as a common exclusion.

Moral hazard refers to the increased likelihood of a loss occurring because an individual is insured. This can manifest in various ways, including dishonesty (fraud), carelessness leading to accidents, unreasonableness in decision-making that exacerbates risk, and negative social behaviour like vandalism. While dishonesty is a direct form of moral hazard, carelessness, unreasonableness, and certain social behaviours also contribute to an increased probability or severity of claims, thus representing a form of moral hazard by increasing the ‘human element’ risk. The question asks to identify the manifestation that is NOT a form of moral hazard. While all the listed options can be considered aspects of moral hazard, the prompt implies a distinction. However, based on the provided text, all listed options (dishonesty, carelessness, unreasonableness, and social behaviour) are presented as potential manifestations of moral hazard. Re-examining the prompt and the provided text, the question is designed to test the understanding of what constitutes moral hazard. The text explicitly lists dishonesty, carelessness, unreasonableness, and social behaviour as ways moral hazard can show itself. Therefore, if the question asks what is NOT a form of moral hazard, and all options are presented as forms, there might be a misunderstanding of the question’s intent or a subtle distinction being tested. Let’s assume the question is asking which of the following is the *least* direct or *most* nuanced form of moral hazard, or perhaps a distractor. However, the provided text does not offer such a hierarchy. Let’s re-evaluate the core concept. Moral hazard is about changes in behaviour *after* insurance is obtained that increase risk. Dishonesty (fraud) is a clear example. Carelessness directly increases the chance of loss. Unreasonableness, by leading to poor decisions, can also increase risk. Social behaviour like vandalism, while potentially criminal, is presented as a manifestation of ‘general public behaviour’ linked to moral hazard. If we must choose one that is *not* a form, and all are presented as forms, there might be an error in the question’s premise or the provided options. However, in the context of insurance underwriting, the focus is on behaviours that directly impact the insured risk. Vandalism, while a loss, might be considered a societal issue rather than a direct consequence of the insured’s behaviour *because* they are insured, unless the insured actively participates or encourages it. The other options (dishonesty, carelessness, unreasonableness) are more directly linked to the insured’s actions or inactions related to the insured subject matter. Therefore, social behaviour, in its broader sense of general public conduct, could be argued as the least direct manifestation of moral hazard stemming from the insured’s personal behaviour change due to insurance. However, the text explicitly includes it. Let’s assume there’s a subtle distinction intended. The question asks what is *not* a form of moral hazard. The text lists (i) Dishonesty, (ii) Carelessness, (iii) Unreasonableness, and (iv) Social behaviour. All are presented as ways moral hazard can manifest. If we must select one that is *not* a form, and the text says these *are* forms, then the question might be flawed or testing a very subtle interpretation. Let’s consider the possibility that the question is asking for something that is *not* a behavioural aspect of the insured. However, all options are behavioural. Let’s reconsider the phrasing: “as far as the normal understanding of morality is concerned, but still represent poor moral hazard”. This suggests a contrast. Perhaps ‘social behaviour’ like vandalism is seen as a general societal problem rather than a direct consequence of the insurance contract itself, unlike dishonesty or carelessness which are directly related to managing the insured risk. The text states “Social behaviour: by which is meant general public behaviour, expressing itself, for example, in vandalism and social disturbances.” This phrasing suggests it’s about broader societal conduct. The other three are more directly tied to the insured’s personal actions concerning the insured risk. Therefore, social behaviour, in this context, might be considered the least direct manifestation of moral hazard *caused by the insurance itself*, even though the text lists it as a manifestation. The question asks what is NOT a form. Given the options and the text, the most plausible interpretation is that the question is testing the understanding of the *direct* impact of insurance on behaviour. While vandalism is a loss, it’s not necessarily a direct behavioural change *because* of insurance in the same way that being careless with a car or being dishonest about a claim is. The text does list it, which makes this question tricky. However, if forced to choose one that is *least* directly a consequence of the insurance contract’s moral hazard aspect, it would be social behaviour. Let’s assume the question is poorly phrased and intends to ask which is the *least* direct manifestation. In that case, social behaviour is the best fit. However, the question asks what is *not* a form. This implies one of the options is fundamentally different. Let’s re-read the text carefully. “Moral hazard, in its adverse form, could show itself in: (i) Dishonesty… (ii) Carelessness… (iii) Unreasonableness… (iv) Social behaviour…”. The text explicitly states these *are* forms. Therefore, the question as posed, asking what is *not* a form, is problematic if it expects one of these to be the answer. Let’s assume there’s a misunderstanding of the question’s intent or a subtle nuance. If we consider the *source* of the behaviour, dishonesty, carelessness, and unreasonableness are directly attributable to the insured’s personal choices regarding the insured risk. Social behaviour, while potentially involving the insured, is described as “general public behaviour”. This suggests it might be a broader societal issue that the insured is part of, rather than a direct behavioural change *induced by the insurance*. Therefore, if one must be excluded, it’s the one described as ‘general public behaviour’.

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.

The question tests the understanding of the insured’s duty to minimize loss after a claim event. While cooperating with the insurer and providing proof of loss are crucial duties, the primary obligation in the immediate aftermath of a loss, as per common law and policy conditions, is to take reasonable steps to prevent further damage or escalation of the loss. This includes actions like protecting damaged property from further harm, which directly aligns with the duty to minimize loss. Admitting liability to a third party without the insurer’s consent would actually jeopardize the insurer’s rights, and while fraud is always unacceptable, the scenario focuses on the immediate post-loss actions to mitigate damage.

The question tests the understanding of how premiums are determined in Personal Accident (PA) insurance, specifically referencing the provided text. The text explicitly states that while individual features like age might have underwriting consequences, the standard premium calculation is primarily based on the insured’s occupation, which is classified according to accident risk. Other factors like gender are mentioned as not affecting the premium if other conditions are equal. Therefore, occupation is the most significant factor for standard premium calculation in PA policies as described.

Institute Cargo Clauses (ICC) (A) provides the broadest form of ‘all risks’ coverage for the insured cargo. This means it covers damage from any cause not specifically excluded. ICC (B) and ICC (C) offer more limited coverage, only insuring against a list of specified perils. Therefore, if a loss occurs due to a peril not explicitly listed in ICC (B) or (C), it would not be covered under those clauses, but it would be covered under ICC (A) as long as it’s not an exclusion. The scenario describes a situation where the cargo is damaged by a peril that is not a listed peril under ICC (B) or (C), making ICC (A) the most appropriate and comprehensive cover.

The ‘step-back system’ for No Claim Discount (NCD) in private car insurance, as outlined in the IIQE syllabus, dictates how a claim affects the accumulated discount. For a private car with an entitlement of four or more claim-free 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 (total loss of NCD for any claim, or a fixed reduction regardless of prior entitlement) or misinterpret the ‘step-back’ mechanism’s impact on higher NCD levels.

The ‘step-back system’ for No Claim Discount (NCD) in private car insurance, as outlined in the IIQE syllabus, dictates how a claim affects the accumulated discount. For a private car 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 renewal discount to 20% or 30% respectively. This means the discount does not reset to zero 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 (no impact or full loss of NCD for a single claim) or apply to different vehicle types or claim frequencies not specified in the question’s premise.

The question tests the understanding of which vessels are subject to Hong Kong insurance regulations. Specifically, it focuses on the definition of a vessel ‘regularly employed in trading to or from Hong Kong’ that is not registered elsewhere. Option (a) correctly identifies a vessel that fits this description, implying it falls under the purview of Hong Kong’s insurance requirements for such trading activities. Option (b) is incorrect because a vessel registered outside Hong Kong, even if trading to or from Hong Kong, might not automatically be subject to the same local insurance regulations unless specified. Option (c) is too broad, as pleasure craft might have different regulatory considerations. Option (d) is also too specific, focusing only on sea fishing vessels, whereas the question is about general trading vessels.

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 or mischaracterize the impact of untrue representations.

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 the scope of its jurisdiction and the procedures involved. 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 because only the complainant (the policyholder) can appeal against an ICCB award; the insurer cannot appeal. Statement (iv) is incorrect as 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.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance. ‘Specified Perils’ cover only losses caused by events 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, 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 attempting to prove it was due to a specific cause (a storm), which aligns with the burden of proof in a ‘Specified Perils’ policy. Therefore, the policy likely covers losses only when caused by perils explicitly mentioned.

A performance bond is a type of surety bond, not an insurance policy. Its primary function is to guarantee the fulfillment of contractual obligations, specifically the completion of construction work within a stipulated timeframe. Unlike insurance, which typically covers unforeseen events, a performance bond is a financial guarantee against non-performance or default by the contractor. The bond ensures that if the contractor fails to complete the project as agreed, the surety company will step in to cover the costs of completion, either by finding another contractor or by compensating the obligee (the party receiving the bond). This aligns with the definition provided, emphasizing its role as a guarantee for project completion within a specified period.

A Performance Bond is a financial guarantee, structured as a bond rather than an insurance policy, designed to ensure that a contractor fulfills their contractual obligations, specifically the completion of construction work within the agreed-upon timeframe. This contrasts with insurance policies that typically indemnify against loss or damage. While both involve financial commitments, their fundamental purpose and structure differ significantly. A Performance Bond is a surety product, guaranteeing performance, whereas insurance is a risk transfer mechanism.

The question tests the understanding of exclusions in a money insurance policy, specifically concerning losses due to theft by employees. Money insurance policies typically exclude losses arising from theft committed by the insured’s staff or with their collusion, as such risks are generally covered under a separate fidelity guarantee insurance. Therefore, a claim for money stolen by an employee would be rejected under a standard money policy.

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, rather than calculating premiums for each individual trip. Therefore, it’s a distinct pricing consideration that impacts the overall cost for a frequent traveler.

This question tests the understanding of the duty of utmost good faith in insurance contracts, specifically concerning the disclosure of material facts. A material fact is defined as any circumstance that would influence a prudent insurer’s decision regarding premium calculation or risk acceptance. The duty to disclose these facts is a fundamental principle of insurance law, requiring the proposer to reveal all relevant information, irrespective of whether specific questions are asked. Therefore, facts that impact an underwriter’s assessment of insurability or the terms of the policy are considered material.

A combined liability policy is designed to consolidate various liability coverages into a single document for convenience and potential premium savings. While it typically includes Public Liability, Products Liability, and Employees’ Compensation Liability, it can be extended to include other specific liability covers like Directors’ and Officers’ Liability or Professional Liability, based on the client’s unique needs. The key is that these are distinct coverages bundled together, not a single, indivisible contract. The caution provided in the syllabus highlights the importance of clear policy wording to avoid a situation where a breach in one section could invalidate the entire policy, emphasizing the need for each coverage to be treated as a separate contract within the combined document.

A combined liability policy is designed to consolidate various liability coverages into a single document for convenience and potential premium savings. While it typically includes Public Liability, Products Liability, and Employees’ Compensation Liability, clients may also opt for additional coverages like Directors’ and Officers’ Liability or Professional Liability. The key characteristic is the integration of these distinct liability risks under one policy document. Option B describes a combined ‘Umbrella’ type cover, which is broader and can encompass property, pecuniary, and liability risks, often individually designed and not necessarily limited to the core liability types mentioned. Option C refers to property insurance, which covers physical assets, and pecuniary insurance, which covers financial interests, distinct from liability coverage. Option D describes fire and explosion insurance, which are specific perils within property insurance, not a combination of liability coverages.

The scenario describes an individual who intentionally intervenes in a violent situation 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 fray. The key principle here is that for a personal accident claim, the injury must be the result of an ‘accident,’ which implies an unforeseen and unintentional event. By actively participating in a fight, even with the intent to help, the insured exposed himself to a predictable risk of harm, thus negating the accidental nature of the injury as per the policy’s intent.

Fidelity Guarantee Insurance indemnifies employers against financial losses resulting from dishonest acts by their employees. The question describes a scenario where an employee’s actions led to a financial shortfall due to unauthorized transactions. This directly aligns with the core purpose of fidelity guarantee insurance, which is to cover losses arising from fraud or dishonesty by employees. Option B is incorrect because while errors can lead to financial loss, fidelity policies specifically cover dishonest acts, not general mistakes. Option C is incorrect as liability insurance covers legal obligations arising from negligence, not direct financial loss from employee theft. Option D is incorrect because business interruption insurance covers loss of income due to a covered event, not the direct loss of funds due to employee dishonesty.

A “take it or leave it” approach by an insurer or its staff, while seemingly efficient in the short term, is detrimental to the long-term health of the business and the industry. This attitude fosters a negative perception among customers, leading to a loss of business as consumers become more aware of their rights and expect courteous and efficient service. Furthermore, it erodes the confidence of insurance intermediaries, such as agents and brokers, who rely on the quality of service provided by their principal insurers to effectively generate business. This lack of support can significantly hinder their ability to place business, ultimately impacting the insurer’s market share. Moreover, poor customer service damages the insurer’s reputation and the overall prestige of the insurance industry in Hong Kong, a crucial financial services hub. Governments also play a role in ensuring fair treatment of citizens in important sectors like insurance, and persistent poor service can attract regulatory scrutiny and intervention. Therefore, a proactive and customer-centric approach is essential for sustained success and maintaining a positive industry image.

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, implies a premature termination of coverage, which is distinct from a policy lapsing due to non-renewal. Therefore, the insurer is not obligated to provide a reminder for renewal.

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 voluntarily agreed, through the Hong Kong Federation of Insurers’ Code of Conduct, to only refuse a claim due to a warranty breach if there is a causal link between the breach and the loss, or if the breach is fraudulent. This means that a minor breach, unrelated to the loss, would not typically lead to a claim denial under this voluntary undertaking, even though technically, the policy might allow it. Therefore, the most accurate statement is that a breach of warranty does not automatically mean the insurer will refuse a claim if there’s no causal link to the loss or fraud.