Paper 2 General Insurance Quiz 23

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.

The Motor Vehicles Insurance (Third Party Risks) Ordinance mandates compulsory third-party motor insurance in Hong Kong. This ordinance ensures that victims of motor accidents have a legal recourse for damages caused by negligent drivers. The Motor Insurers’ Bureau of Hong Kong (MIB) plays a crucial role in fulfilling the intentions of this compulsory insurance by providing a safety net where such insurance might be unavailable or ineffective, ensuring that the ordinance’s objectives are met. Therefore, the ordinance is the foundational legal framework for compulsory motor insurance.

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, the Operative Clause defines the scope of coverage and perils, and General Exceptions apply universally across the policy. Therefore, identifying the specific details of the insured’s occupation would fall under the purview of the Schedule.

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 within the policy period but arising from incidents that occurred outside that period would not align with the typical “claims-occurring” basis.

The question tests the understanding of exclusions in a money insurance policy, specifically concerning losses due to theft or fraud committed by employees. Money insurance policies typically exclude losses arising from theft by employees or collusion with employees, as these risks are generally covered under fidelity guarantee insurance. The scenario describes a situation where an employee is suspected of misappropriating funds, which falls under this exclusion. Therefore, the claim would likely be rejected based on this policy provision.

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 legally begins. 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, but its breach does not necessarily invalidate the entire contract, only potentially affecting claims arising after the breach. ‘Consequential Loss’ refers to indirect financial losses resulting from an insured event, which are typically excluded from property insurance unless specifically covered by a business interruption policy.

Average adjusters are specialists in marine insurance, particularly in the complex area of General Average (GA) claims. Their expertise is crucial due to the intricate legal knowledge required (international and national maritime laws), the large number of parties often involved (e.g., numerous cargo owners), and the lengthy investigation periods typically needed to settle these claims. While Lloyd’s Agents and Loss Adjusters are also involved in claims handling, their roles differ. Lloyd’s Agents often act as survey agents for marine underwriters, and Loss Adjusters are more commonly used in non-marine general insurance claims. Arbitration clauses, while a method of dispute resolution, are distinct from the specialized role of an average adjuster in calculating and apportioning GA claims.

The scenario describes an individual who intentionally intervenes in a violent 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 injured, thus negating the ‘accidental’ nature required for the claim. The insurer’s rejection was based on the injury not being accidental, which aligns with the panel’s finding.

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 rather than declining the entire policy. This is achieved through a ‘specially worded exclusion’ or an endorsement that carves out the problematic element. Option (a) accurately describes this practice of tailoring coverage by excluding specific risks while allowing the rest of the policy to remain in force. Option (b) is incorrect because while insurers can cancel policies, the scenario describes a modification of coverage, not outright cancellation. Option (c) is incorrect as ‘market exclusions’ are typically broad, industry-wide exclusions for fundamental risks, not tailored exclusions for individual policy risks. Option (d) is incorrect because while fraud can lead to policy voidance, the scenario describes a proactive risk management technique applied before any fraudulent activity occurs.

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 primary basis for premium calculation in this context.

This question assesses the understanding of the positive impacts of excellent customer service in the insurance industry, specifically focusing on how satisfied customers contribute to business growth. Customer loyalty, driven by positive experiences, leads to repeat business through renewals. Furthermore, happy customers become advocates, generating new business through recommendations and word-of-mouth, thereby increasing customer ‘productivity’. This directly translates to increased profitability by reducing the need for costly new customer acquisition and minimizing complaint handling expenses. The other options, while potentially related to business operations, do not directly capture the positive feedback loop of customer satisfaction leading to new business generation through advocacy.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance, as outlined in the IIQE syllabus. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘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 unable to identify the exact cause. Under a ‘Specified Perils’ policy, this would likely result in a denied claim because the claimant cannot prove the loss was caused by a named peril. However, under an ‘All Risks’ policy, the claimant only needs to demonstrate that an accidental loss occurred, and the insurer would then need to prove an exclusion applies. Therefore, the ‘All Risks’ policy is more advantageous to the claimant in this specific situation.

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 has a specific exclusion that prevents a claim for the damage caused by lightning, the BI policy would also not respond to the resulting business interruption.

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’. It also points out the absence of provisions for proportional compensation for partial permanent disability in the policy.

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 an indoor shopping complex, falls under this exclusion as it is an activity performed on ice. The key principle here is the interpretation of policy exclusions and the broad definition of ‘winter-sports’ as understood by the regulatory panel, which extends beyond traditional outdoor winter activities.

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 injured, thus negating the ‘accidental’ nature of the event as required by personal accident policies.

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. Option C refers to property insurance, which covers physical assets, and pecuniary insurance, which covers financial interests, distinct from liability risks. Option D describes a traditional fire policy, which is a form of property insurance and does not encompass the range of liability coverages found in a combined liability policy.

The Employees’ Compensation Ordinance in Hong Kong establishes a strict liability framework for employers. This means that an employer is legally obligated to compensate an employee for injuries or death sustained due to an accident arising out of and in the course of employment, regardless of whether the employer was at fault. The ordinance mandates insurance to cover these liabilities. Therefore, the core principle is the employer’s legal responsibility to provide compensation, which is then covered by the compulsory insurance.

The provided text emphasizes that customer service is no longer optional but a critical expectation. A “take it or leave it” approach, which is characterized by indifference to customer needs and a lack of effort to improve service, is detrimental. This approach leads to negative consequences such as loss of business due to increased customer awareness of their rights to courteous and efficient service, loss of support from insurance intermediaries who require quality service from their principals, damage to market prestige and confidence in the company’s integrity and efficiency, and potential government intervention due to the negative impact on Hong Kong’s reputation as a financial services center. Therefore, a company that neglects customer service risks alienating its customer base and damaging its reputation.

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 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, even if not explicitly asked. Therefore, facts that impact an underwriter’s assessment of insurability or the terms of the policy are considered material.

Average adjusters are specialists in marine insurance, particularly in the complex area of General Average (GA) claims. Their expertise is crucial due to the intricate legal knowledge required (international and national maritime laws), the large number of parties often involved (e.g., numerous cargo owners), and the lengthy investigation periods typically needed to settle these claims. While Lloyd’s Agents and Loss Adjusters are also involved in claims handling, their roles differ. Lloyd’s Agents often act as survey agents for marine underwriters, and Loss Adjusters are more commonly used in non-marine general insurance claims where insurer’s own staff may not handle them directly. Arbitration clauses, while a method of dispute resolution, are distinct from the specialized role of an average adjuster in calculating and apportioning claims.

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 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.

This question tests the understanding of how an excess works in motor insurance. A voluntary excess is an amount the policyholder agrees to bear for each claim in exchange for a premium reduction. If the damage is HK$12,000 and the voluntary excess is HK$2,000, the insurer will pay the remaining HK$10,000. The question asks about the amount the insurer will pay, which is the total loss minus the excess.

This question tests the understanding of how premiums for travel insurance are determined. The provided text explicitly states that premiums are quoted according to the number of days involved with the trip. While geographical area, persons covered, and the availability of annual policies are also factors, the duration of the trip is a direct and primary determinant of the premium calculation for individual policies.

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 judgment on premium or acceptance are considered material.

This question tests the understanding of exclusions in a Professional Indemnity (PI) policy. PI policies are designed to cover financial losses arising from professional negligence. However, they typically exclude liability stemming from dishonest or fraudulent acts by the insured professional. This exclusion is crucial because the policy is meant to cover errors in judgment or execution, not intentional wrongdoing. Options B, C, and D represent situations that might be covered under a PI policy, such as financial loss due to negligent advice, property damage from a professional error, or legal expenses incurred in defending a claim of professional misconduct.

The provided text states that Personal Accident (PA) policies in Hong Kong are typically ‘Accidents Only’ policies. This means they are designed to cover benefits arising from accidental bodily injury or death. While sickness benefits might have been included in the past, the current practice in Hong Kong is that PA policies do not cover sickness. Death from sickness is explicitly mentioned as a life insurance risk, not a PA risk. Therefore, a policy that covers medical expenses arising from sickness would fall under the scope of medical insurance, not a standard PA policy.

The scenario describes a situation where an insured person sustained an injury and received a certain number of days of temporary total disability benefit and temporary partial disability benefit. The insured was dissatisfied, believing they should have received the higher temporary total disability benefit for the entire duration. The Complaints Panel’s decision was based on the nature and severity of the injury, the insured’s occupation (self-employed director with mainly office duties), and the absence of complications. The panel determined that after eight days, the insured’s condition only met the definition of temporary partial disability, not temporary total disability, making the insurer’s offer appropriate according to the policy terms. This highlights the crucial distinction between these two types of temporary disablement benefits in personal accident policies, where different benefit amounts are typically stipulated.

This question tests the understanding of the specific definition of ‘loss of limb’ in personal accident insurance, as illustrated by Case 12. The scenario describes an injury that caused functional impairment but not physical severance or total functional disablement. According to the policy definition provided in the case, ‘loss of limb’ requires physical severance at or above the wrist/ankle or ‘total functional disablement’. Since the insured’s condition did not meet these strict criteria, and the policy did not offer proportional compensation for partial loss of function, the insurer’s rejection of the claim for ‘loss of limb’ was upheld. Therefore, the most accurate statement is that the insurer correctly denied the claim based on the policy’s precise definition of ‘loss of limb’.