Paper 2 General Insurance Quiz 24

The scenario describes a situation where an insurer rejected 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 tumor could not have developed within 10 days of policy inception. The Complaints Panel, considering the tumor size, agreed that it likely took time to develop, and since the policy excluded illnesses presenting signs or symptoms before the commencement date, the insurer’s decision was upheld. This aligns with the principle that insurers can decline claims if the condition for which treatment is sought was present, even if undiagnosed, before the policy’s effective date, provided the policy terms exclude such pre-existing conditions.

The question tests the understanding of the core components typically found in a company’s published declaration of customer service standards. These declarations are designed to outline the company’s commitment to its clients and stakeholders. While all the options represent potential elements of such a declaration, the prompt specifically asks for what is *very likely* to be included. Commitments to quality and service, dedication to professional standards, efficiency and ethics, and fair claims handling are fundamental promises that insurers make to build trust and meet regulatory expectations. Specific information on business conduct and practices, while important, is often a more detailed elaboration or a subset of the broader commitments to professional standards and ethics. Therefore, the most encompassing and universally expected elements are the commitments to quality, service, professional standards, efficiency, ethics, and claims handling. Option (a) encapsulates these core promises that form the bedrock of customer service declarations.

The Employees’ Compensation Ordinance in Hong Kong mandates that employers must provide compensation to employees for injuries or death arising out of and in the course of their employment. This liability is considered ‘strict’ because it does not depend on the employer’s fault. The scenario describes an employee injured in a traffic accident while on her way home after a client meeting. To determine if this falls under the employer’s Employees’ Compensation (EC) policy, the key consideration is whether the injury occurred ‘arising out of and in the course of employment.’ While the meeting was work-related, the accident happened during her commute home. The interpretation of ‘in the course of employment’ can be complex and often depends on specific circumstances and case law, but generally, commuting is not considered part of employment unless there are specific factors like the employer providing transport or the employee being on call. Therefore, the injury might not be covered under the strict interpretation of the ordinance, making it a potential exclusion or requiring further investigation into the specific details of the commute and the employer’s policy.

Moral hazard refers to the increased likelihood of a loss occurring because an individual is insured. It stems from the ‘human element’ of risk, encompassing attitudes and behaviours. While dishonesty (including fraud) is a direct manifestation, carelessness, unreasonableness (like inflexibility or opinionated views that create problems), and negative social behaviour (such as vandalism) are also considered forms of moral hazard. These behaviours, even if not overtly fraudulent, can significantly increase the probability or severity of a claim, thereby representing a poor moral hazard from the insurer’s perspective. The question tests the understanding that moral hazard extends beyond outright dishonesty to include a broader spectrum of detrimental human behaviours.

A ‘Scheduled Policy Form’ is a common policy structure that includes a policy schedule. This schedule details specific information about the policy, such as the insured’s name, the property covered, the sum insured, and any specific terms or conditions. The ‘Signature Clause’, also known as the Attestation Clause, is a specific part of this scheduled policy form where the insurer formally confirms their commitment and undertakings under the contract. Therefore, the signature clause is an integral component of a scheduled policy form, not a separate type of policy or a general contractual term.

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. While other options relate to insurance, they do not specifically address the foundational legal requirement for third-party coverage in motor vehicle use.

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 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 exclusions in a Professional Indemnity (PI) policy, specifically concerning dishonest acts. PI policies are designed to cover negligence or errors in professional judgment. However, they explicitly exclude liabilities arising from intentional wrongdoing, such as dishonesty or fraud, as these are not considered professional errors but deliberate misconduct. The other options represent common exclusions or limitations found in various liability policies, but dishonesty is a fundamental exclusion in PI insurance.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. According to the provided text, a certificate of motor insurance merely confirms the existence of compulsory insurance as prescribed by law and does not detail the policy’s coverage level (e.g., Comprehensive or Act Only). The law mandates the issuance of these certificates, and failure to do so is a criminal offense. Furthermore, the law requires insurers to recover these certificates upon policy cancellation due to their critical legal importance. Therefore, the primary legal function of such a certificate is to serve as proof of compliance with compulsory insurance requirements, not to delineate the specific terms of the policy.

This question tests the understanding of the ‘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 by implementing robust internal controls and oversight of employees entrusted with financial responsibilities. Option B is incorrect because while audits are part of a system of check, they are typically retrospective rather than a primary preventative measure. Option C is incorrect as it focuses on external regulatory compliance rather than the employer’s internal control mechanisms. Option D is incorrect because while employee background checks are important, they are only one component of a comprehensive system of check, which also includes ongoing monitoring and internal procedures.

The scenario describes a shop owner whose wallet containing cash went missing after her shop closed. The money insurance policy specified that cover was 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 cover for this specific policy. Money policies often restrict coverage to business hours to differentiate between business funds and personal funds, and to manage the risk associated with money outside of controlled business environments. Therefore, the claim would be rejected based on the policy’s temporal limitation.

This question tests the understanding of the proposer’s duty to disclose material facts under Hong Kong insurance law, specifically focusing on what constitutes a material fact that must be disclosed. A material fact is one that would influence the judgment of a prudent underwriter in deciding whether to accept the risk and on what terms. Storing highly flammable materials like chemicals on the insured premises, especially when the business itself doesn’t inherently involve such materials, significantly increases the fire risk beyond what a prudent underwriter would typically anticipate for a general store. This directly impacts the underwriter’s assessment of insurability and premium calculation, making it a material fact. The other options describe situations that are either common knowledge (typhoons in Hong Kong), improvements to risk (sprinkler systems), or facts the insurer is expected to know or discover through their own processes, and therefore do not need to be proactively disclosed by the proposer.

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 allows the insurer to offer coverage for the standard risk while mitigating potential losses from the identified hazard. Options B, C, and D describe different concepts: a market exclusion is a general exclusion common across the industry (like nuclear risks), a general exclusion is a broad exclusion applicable to all policies of a certain type, and a policy cancellation is the termination of the contract, not a modification of its terms.

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, including their interactions with customers and their operational responsibilities. Specifically, it addresses how insurers should handle underwriting and claims processes to ensure fairness and efficiency. It also explicitly outlines the rights and obligations of customers, ensuring they are informed and treated equitably. Furthermore, the Code emphasizes the importance of safeguarding customers’ overall interests, which encompasses their rights and well-being throughout the insurance lifecycle. While an insurer’s role as a good corporate citizen is important, the Code’s primary focus is on the direct conduct of insurance business and customer protection, rather than broader corporate social responsibility initiatives.

The scenario describes a situation where an insured person sustained an injury that prevented them from performing their usual duties for a period. The insurer paid a benefit for temporary total disability for eight days and temporary partial disability for five days. The insured believed they should receive temporary total disability benefits for the entire thirteen days. 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 was capable of performing some of their duties, thus qualifying for temporary partial disability rather than temporary total disability for the remaining five days. This aligns with the principle that personal accident policies often differentiate benefit amounts based on the degree of disablement, and the insurer’s assessment was deemed appropriate given the policy definitions and the insured’s condition.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. A key limitation of the ICCB is its jurisdiction limit, which restricts the maximum claim amount it can consider. Claims exceeding this monetary threshold must be resolved through alternative dispute resolution mechanisms such as litigation or arbitration. Therefore, a complaint involving a sum greater than HK$800,000 falls outside the ICCB’s purview.

The question tests the understanding of the specific exclusions in motorcycle insurance policies, particularly concerning theft claims. According to the provided text, for motorcycle insurance, theft claims are only admissible if the entire motorcycle is stolen. This implies that claims for the loss of accessories alone, even if stolen from the motorcycle, would not be covered under the standard theft provisions of the policy. Therefore, a scenario where only accessories are stolen would not be covered.

Institute Cargo Clauses (A) provides the broadest coverage, operating on an ‘all risks’ basis, meaning it covers all losses unless specifically excluded. Institute Cargo Clauses (B) and (C) are more restrictive, covering only specified perils. Therefore, a shipment insured under Clause (A) would be protected against a wider array of potential damages compared to shipments under Clauses (B) or (C), assuming the cause of loss is not an explicit exclusion in the (A) policy.

This question tests the understanding of the specific exclusions in a Product Liability policy. Option (a) is correct because liability arising from the design, plan, formula, or specification of the goods is a common exclusion, as illustrated by the example of a TV cabinet designed for a lower weight capacity. Option (b) is incorrect as while product liability covers a broad range of claimants, the exclusion relates to the *cause* of the liability, not the claimant’s status. Option (c) is incorrect because while contractual liability is a common exclusion, the scenario described in the provided text relates to design flaws, not a breach of contract. Option (d) is incorrect because liability for the repair or replacement of the faulty product itself is typically excluded, but the damage caused by the faulty product to other property (like the car in the example) would generally be covered.

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 loss of profits and continuing expenses that would have been earned or incurred had the interruption not occurred. It does not cover the physical damage to the building or its contents (which is covered by a standard fire policy), nor does it cover third-party liabilities. Therefore, the primary purpose is to cover consequential financial losses that are not material damage.

The ‘step-back system’ for No Claim Discount (NCD) in private car insurance, as outlined in the IIQE syllabus, dictates how a claim affects future discounts. For drivers with an entitlement of four or more claim-free years (equivalent to 50% or 60% NCD), a single claim reduces their NCD to 20% or 30% respectively on renewal. This means they do not lose their entire accumulated discount but rather revert to a lower tier. Options B, C, and D describe scenarios that are either incorrect (losing all discount after one claim for private cars) or apply to different vehicle types (losing all discount after one claim for other vehicles) or are not directly related to the step-back mechanism for private cars.

This question tests the understanding of how changes in the insured risk can impact the policy. The Insurance Companies Ordinance (Cap. 41) and general insurance principles dictate that if the circumstances under which a risk was insured alter for the worse, the insurer may have grounds to cancel the policy, provided the policy terms allow for it and proper notice is given. This is because the original risk assessment and premium calculation are no longer valid. Option B is incorrect because while a change in market conditions might influence underwriting strategy, it doesn’t directly grant the right to cancel a policy due to a change in the insured’s circumstances. Option C is incorrect as a policyholder’s financial stability, while a factor in underwriting, doesn’t automatically lead to cancellation if the risk itself hasn’t worsened. Option D is incorrect because while an insurer might review terms, the primary action when the risk deteriorates is often cancellation or renegotiation, not necessarily an immediate premium increase without further assessment or policy adjustment.

The question tests the understanding of the ‘Forcible and Violent Entry’ condition in theft insurance. This condition is a standard requirement for a valid claim under commercial theft policies, meaning that for a theft to be covered, there must be evidence of forced entry or exit from the premises. Options B, C, and D describe other insurance concepts or conditions that are not directly related to the requirement for a theft claim under this specific policy provision. ‘Hold-up’ refers to theft with violence, ‘Franchise’ relates to claim deductibles, and ‘Fraud’ concerns dishonest acts by the insured.

This question tests the understanding of the specific exclusions in a Product Liability policy. Option (a) is correct because liability arising from the design, plan, formula, or specification of the goods is a common exclusion. For instance, if a product fails due to an inherent flaw in its design, such as a weight-bearing capacity being underestimated, the resulting damage is typically not covered. Option (b) is incorrect as while liability for property damage is generally covered, the specific exclusion relates to the *design* of the goods causing the damage. Option (c) is incorrect because while liability for repair or replacement of goods can be complex, the exclusion specifically targets the *cost of the faulty item itself*, not consequential damage to other property. Option (d) is incorrect as the policy does cover liability for third-party injury, but the question pertains to a specific exclusion related to the product’s inherent characteristics.

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 scenario describes a situation where an insured person sustained an injury that prevented them from performing their usual duties for a period. The insurer paid a benefit for temporary total disability for eight days and temporary partial disability for five days. The insured believed they should receive temporary total disability benefits for the entire 13 days. 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 was capable of performing some duties, thus qualifying for temporary partial disability rather than temporary total disability for the remaining five days. This aligns with the principle that personal accident policies often differentiate benefit amounts based on the degree of disability, and the insurer’s assessment was deemed appropriate given the policy definitions and the insured’s recovery trajectory.

This question tests the understanding of how an excess works in motor insurance. An excess is the amount the policyholder must pay towards a claim before the insurer covers the rest. In this scenario, the damage is HK$12,000 and the voluntary excess is HK$2,000. Therefore, the insured is responsible for the first HK$2,000 of the claim, and the insurer will pay the remaining HK$10,000. The question asks how much the insurer will pay, which is the total claim minus the excess.

The scenario describes a situation where an insurer rejected 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 tumor could not have developed within 10 days of policy inception. The Complaints Panel, considering the tumor size and the policy’s exclusion for conditions presenting signs or symptoms prior to commencement, supported the insurer’s decision. This aligns with the principle that insurance policies typically exclude coverage for illnesses that were already present or showing symptoms before the policy’s effective date, even if not formally diagnosed. The difficulty in pinpointing the exact onset date is a common challenge in applying such exclusions, but the evidence of prior symptoms and the tumor’s likely growth period were deemed sufficient to invoke the exclusion.

Moral hazard refers to the increased likelihood of a loss occurring because an individual is insured. It encompasses the ‘human element’ of risk, including attitudes and behaviours. Dishonesty, carelessness, unreasonableness (leading to inflexibility and conflict), and negative social behaviour (like vandalism) are all manifestations of moral hazard. While dishonesty can lead to fraud, the broader concept includes less severe but still detrimental behaviours that increase risk. Therefore, while fraud is a serious form of moral hazard, the question asks for a broader understanding of how moral hazard can manifest, and carelessness is a direct behavioural trait that increases the probability of loss, fitting the definition.