Paper 2 General Insurance Quiz 22

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) assesses whether an applicant or existing broker meets this standard based on various factors, including integrity, financial soundness, and competence. While qualifications, experience, and professional indemnity insurance are crucial components of the minimum requirements, the ‘fit and proper’ criterion is a broader, overarching assessment of the individual or entity’s suitability to operate in the insurance broking sector, encompassing ethical conduct and a commitment to client interests. The other options represent specific, albeit important, regulatory stipulations but do not capture the holistic nature of the ‘fit and proper’ assessment.

The scenario describes an individual injured while ice-skating. The insurer declined the claim based on an exclusion for ‘winter-sports’. The Complaints Panel, in interpreting this exclusion, determined 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 category. The policy’s explicit exclusion of losses related to participating in winter sports means the insurer was justified in rejecting the claim, as the injury directly resulted from an activity classified as a winter sport under the panel’s interpretation.

The question tests the understanding of the specific exclusions in motorcycle insurance policies 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 ‘Own Damage/Accidental Damage’ section. Therefore, a motorcycle owner whose scooter’s accessories were stolen would not be able to make a claim under this policy provision.

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 an injury resulting from a natural and probable outcome of one’s own intentional conduct, even if the specific harm was not precisely foreseen, is generally not considered ‘accidental’ for the purposes of personal accident claims. This aligns with the concept that an accident implies an unforeseen and unintended event, and the insured’s participation in a fight, with the inherent risk of being attacked, negates the accidental nature of the resulting injuries.

Institute Cargo Clauses (ICC) (A) provides the broadest coverage for own damage on an ‘All Risks’ basis. This means it covers all perils except those specifically excluded. ICC (B) and ICC (C) offer coverage on a ‘specified risks’ basis, meaning only the listed perils are covered. Therefore, if a loss occurs due to a peril not explicitly listed in ICC (B) or ICC (C), it would not be covered under those clauses, whereas it would likely be covered under ICC (A) unless it falls under a specific exclusion. The scenario describes a loss that is not a ‘specified major casualty’ or one of the other perils listed for ICC (B) and (C), making ICC (A) the most appropriate choice for comprehensive own damage protection.

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. According to the provided text, for motorcycles, theft claims are only admissible if the entire vehicle is stolen. This means that if only accessories are stolen, the insurer will not cover the loss under the ‘Own Damage/Accidental Damage’ section. Therefore, a policyholder whose motorcycle’s valuable accessories were stolen would not be able to claim under the policy for that specific loss.

The Code of Conduct for Insurers in Hong Kong is designed to promote good insurance practice and protect policyholders. It addresses various aspects of an insurer’s operations to ensure fair treatment and transparency. Specifically, the Code covers the insurer’s responsibilities towards customers, including their rights and interests, and also sets standards for underwriting and claims handling processes. While an insurer’s public image as a corporate citizen is important, the Code’s primary focus is on the direct conduct of insurance business and the protection of policyholders’ rights and interests, rather than broader corporate social responsibility initiatives.

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 Complaints Panel upheld the insurer’s decision 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’. It also notes the absence of provisions for proportional compensation for partial permanent disability in the policy.

The scenario highlights the importance of the insured’s duty to notify the insurer of a potential claim. While the insured reported the damage within 20 days, the key issue is whether this constitutes ‘as soon as reasonably possible,’ especially since the repair had already been completed. The Complaints Panel acknowledged that the repair prejudiced the insurer’s ability to investigate. However, they considered the simplicity of the circumstances and the layman’s perspective on the notification period. Crucially, the panel’s remark suggests that a condition precedent to liability requiring notification *before* repairs might not have been explicitly stated or strictly enforced in this instance. The insurer’s rejection was based on a breach of the notification condition. The question tests the understanding of when a notification is considered timely and the potential impact of prejudice to the insurer, as well as the interpretation of policy conditions by a complaints panel.

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) offer coverage for specified risks only, with ICC (C) being the most restrictive. Banks often require ICC (A) for cargo shipments when providing financing or guarantees because its comprehensive nature offers greater protection against unforeseen events, aligning with their need for security.

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’ unless it is registered outside Hong Kong. This aligns with the provided syllabus point (xiv)(b). Option (a) correctly identifies this category. Option (b) is incorrect because a vessel used for pleasure purposes is covered under (xiv)(c). Option (c) is incorrect as it describes a vessel used for sea fishing, covered under (xiv)(d). Option (d) is incorrect because it refers to vessels registered in Mainland China or Macau that are issued specific certificates, which is a separate category under (xiv)(e).

The “step-back system” for No Claim Discount (NCD) in private car insurance, as described in the IIQE syllabus, dictates how a claim affects the accumulated discount. For private cars 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 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. The other options describe scenarios that would lead to a complete loss of NCD or are not directly related to the “step-back” mechanism for higher NCD entitlements.

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 having no impact on premiums, all else being equal. Therefore, occupation is the primary driver of premium rates in this context.

The ‘Schedule’ within a scheduled policy form is the section that contains all information specific to the individual insurance contract. This includes details like the policy number, the insured’s particulars, sums insured, effective dates, the subject matter of insurance, the premium, and any special terms or endorsements. The Recital Clause introduces the contract and references the proposal form, while the Operative Clause outlines the circumstances of cover and perils insured. General Exceptions apply to the entire policy, not just specific sections. Therefore, identifying the policy number falls under the purview of the Schedule.

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 deny claims due to a warranty breach if there is a causal link between the breach and the loss, or if the breach was fraudulent. This means that while technically a breach can void liability, in practice, insurers will consider the materiality of the breach in relation to the loss.

The question tests the understanding of specific exclusions in third-party liability cover for commercial vehicles, as distinct from private car policies. The ‘tool of trade’ clause specifically excludes damage caused when a vehicle is used as a tool for its primary function, such as a mechanical digger excavating. While compulsory insurance laws mandate certain third-party cover, this exclusion remains for other types of damage. Food poisoning claims are excluded if the vehicle is a mobile food vendor, and damage to stock-in-trade or specific equipment on the vehicle is also excluded. Damage to roads or weighbridges due to the vehicle’s weight or vibration is another specific exclusion. Therefore, the use of a vehicle as a tool of trade, except where mandated by compulsory insurance, is a key exclusion.

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.

The provided text states that Personal Accident (PA) policies in Hong Kong are generally ‘Accidents Only’ policies. This means they are designed to cover benefits arising from accidental bodily injury or death. Sickness benefits, particularly for temporary disablement, might be included, but death from sickness is explicitly excluded as it falls under life insurance. Therefore, a policy that covers medical expenses arising from sickness would not be classified as a PA policy.

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 is crucial for independently investigating the cause and extent of a reported loss. While the surveyor’s fee is generally recoverable from the insurer if the claim is valid, the initial appointment and payment rest with the assured. Loss adjusters, on the other hand, are usually appointed and paid by the insurer to investigate and negotiate claims, particularly for property and liability losses.

The scenario describes a situation where an insurer denied a hospitalization claim due to a pre-existing condition. The insured had consulted for rectal bleeding 15 months before applying for insurance, and the insurer believed the colon cancer tumor, diagnosed shortly after policy inception, could not have developed in such a short period. The Complaints Panel, considering the tumor size, agreed that it likely took time to grow and that the policy’s exclusion for illnesses presenting signs and symptoms prior to the commencement date was applicable. This aligns with the principle that insurers can reject claims if the condition for which treatment is sought was present, even if undiagnosed, before the policy’s effective date, provided there’s evidence of prior symptoms or a condition that logically predates the policy inception. The key is establishing that the illness ‘commenced or presented signs and symptoms’ before the policy start date, which the tumor’s size and the prior consultation for bleeding supported in this case.

The scenario describes a situation where an insurer rejected a hospitalization claim based on a pre-existing condition. The insured had consulted for rectal bleeding 15 months before applying for insurance, and the insurer argued that the colon tumor, diagnosed shortly after policy inception, could not have developed in such a short period. The Complaints Panel agreed with the insurer, citing the policy’s exclusion for illnesses presenting signs and symptoms prior to the policy commencement date. The panel reasoned that a tumor of the diagnosed size would likely take time to develop, implying the condition existed before the policy began, even if the exact onset date was unclear. This aligns with the principle that insurance policies typically exclude coverage for conditions that were already present or manifesting before the policy’s effective date, regardless of the precise moment of diagnosis.

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 that the contractor will perform as agreed. If the contractor defaults, the bond ensures that the project owner can recover costs or find an alternative contractor to finish the job. Therefore, it’s a guarantee of performance rather than a contract of indemnity against loss from an insured peril.

This question assesses the understanding of the multifaceted impact of poor customer service on an insurance company’s operations and reputation. The “take it or leave it” approach, while seemingly a direct cost-saving measure, leads to a cascade of negative consequences. Loss of business is a direct result of customers seeking better service elsewhere. Insurance intermediaries, crucial for business generation, will withdraw their support if they cannot rely on the insurer’s service quality, impacting their own productivity and willingness to promote the insurer. A damaged market prestige, stemming from consistent negative customer experiences, erodes confidence among peers and the broader market. Finally, indifferent or suspect service can attract adverse government attention and regulatory intervention, particularly in a key financial hub like Hong Kong, which aims to maintain a strong reputation. Therefore, all these outcomes are direct and significant repercussions of neglecting customer service.

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, coverage limits, effective dates, a description of the insured subject matter, the premium paid, and any special terms 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. Therefore, identifying the policy number falls under the scope of the Schedule.

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.

The scenario describes an individual who, after a period of total inability to work, shows a significant improvement in their physical condition, allowing them to perform some, but not all, of their usual duties. This transition from being completely unable to work to being partially able to work is the defining characteristic of a shift from Temporary Total Disablement (TTD) to Temporary Partial Disablement (TPD). The insurer’s decision to reclassify the benefit from TTD to TPD after May 15th, based on the medical examiner’s report indicating a three-quarters recovery of trunk movement and the ability to perform some duties, aligns with the principles of personal accident insurance where benefit levels are adjusted based on the insured’s capacity to work. The Complaints Panel’s decision to uphold the TTD benefit until July 15th was based on giving more weight to the attending doctors’ opinions, who stated the insured was unable to perform *any* work until that date, highlighting the importance of medical evidence in determining the extent of disablement.

The scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This pattern of conduct, where the insurer does not enforce the strict contractual requirement of timely premium payment, can be interpreted as the insurer waiving its right to insist on punctuality for future payments. Waiver, in this context, is the voluntary relinquishment of a known right. Estoppel, on the other hand, would require the insured to demonstrate that they reasonably relied on this conduct to their detriment. While both concepts are related to the insurer’s actions, the question specifically asks about the insurer’s conduct implying a relaxation of the punctuality rule, which directly aligns with the definition of waiver.

A General Average Act is defined as an extraordinary sacrifice or expenditure voluntarily and reasonably made or incurred in time of peril to preserve the property imperilled in the common adventure. In this scenario, the decision to jettison a portion of the cargo to lighten the vessel and prevent it from sinking during a storm is a classic example of a voluntary and reasonable sacrifice made to save the entire maritime adventure. This action directly aligns with the definition of a General Average Act, as it involves an extraordinary sacrifice for the common safety of the ship and all its cargo. The other options do not fit this definition: ‘Sue and Labour Charges’ are expenses incurred to preserve or minimize loss, not sacrifices; ‘Salvage’ in maritime law refers to the act of saving property from peril and the reward for it, not the sacrifice itself; and ‘Actual Total Loss’ describes a situation where the insured property is destroyed or irretrievably lost, which is the opposite of what the jettisoning aimed to prevent.

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 aims to facilitate settlements, its decisions are not binding on the insurer if they exceed a certain monetary threshold, and appeals against awards are typically made by the complainant to the Insurance Authority, not by the insurer. The maximum claim amount handled by the ICCB is HK$1,000,000, not HK$800,000. Therefore, only the statement that the complainant is never charged a fee is accurate.

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 is crucial for independently investigating the cause and extent of a reported loss. While the surveyor’s fee is generally recoverable from the insurer if the claim is valid, the initial appointment and payment rest with the assured. Loss adjusters, on the other hand, are usually appointed and paid by the insurer to investigate and negotiate claims, particularly for property and liability losses.