Paper 2 General Insurance Quiz 25

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 other factors like geographical area, persons covered, and annual policies influence premiums, the duration of the trip is a direct and primary determinant for a single trip policy. The other options represent factors that can influence the premium but are not the direct basis for quoting a premium for a specific trip’s duration.

The question probes the understanding of prohibited practices in the insurance industry, specifically concerning rebating. Rebating, in essence, involves offering inducements or discounts on premiums that are not part of the standard policy terms. This practice is detrimental because it distorts the fair assessment of risk and the proper compensation of intermediaries. The Code of Practice for the Administration of Insurance Agents and the principles underlying agency agreements explicitly prohibit offering such benefits to employees of the insured without the insured’s explicit written consent. This is to prevent situations where an employee might be unduly influenced to steer business towards a particular insurer or intermediary, potentially compromising the employer’s best interests and the integrity of the insurance transaction. Therefore, providing a portion of the commission to an employee of the policyholder without the policyholder’s written approval directly contravenes these regulations.

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 extends beyond the direct physical damage to cover consequential losses like loss of profit, increased cost of working, and other expenses that arise because the business cannot operate as usual. Options (a), (b), and (c) describe direct physical damage or third-party liabilities, which are typically covered by other types of insurance policies (e.g., property damage insurance or public liability insurance), not the primary purpose of business interruption insurance.

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. Option (a) correctly identifies the commitment to quality and service as a fundamental element. Option (b) is also a common element, focusing on professional standards. Option (c) highlights efficiency and ethical business practices. Option (d) addresses the crucial aspect of claims handling. Option (e) refers to specific details on business conduct. The provided text emphasizes that these declarations serve as both a standard of declared intentions and a measure of performance, and typically include commitments to quality, professional standards, efficiency, ethical conduct, and fair claims handling. Therefore, a promise of efficiency and high business ethics is a key component of such declarations.

Fidelity Guarantee Insurance indemnifies employers against financial losses resulting from dishonest acts by their employees. The question presents a scenario where an employee’s actions led to financial loss due to unauthorized transactions, which falls under the scope of dishonest acts covered by fidelity insurance. Option B is incorrect because general errors and omissions are typically excluded. Option C is incorrect as fidelity insurance covers employee dishonesty, not external fraud. Option D is incorrect because while proof of loss is important for claims, it’s not the primary basis for premium calculation in fidelity insurance; the amount guaranteed and risk factors are.

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.

The core principle of an indemnity policy is to restore the insured to their pre-loss financial position. When new parts replace old, worn-out parts, the insured is placed in a better position due to the improved condition and lifespan of the new components. This betterment must be accounted for, and the insured is typically required to contribute to the cost of the new parts to reflect this advantage. The insurer’s calculation of a 35% betterment contribution for an eight-year-old vehicle, while potentially debatable in its exact percentage, is a reasonable application of the betterment principle, especially when the policy explicitly excludes depreciation. The Complaints Panel’s reasoning supports this, acknowledging that new parts offer superior condition and longevity compared to aged original parts.

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

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 (e.g., a digger being used for digging). While statutory provisions for compulsory insurance might mandate certain third-party cover, this exclusion applies to the broader third-party liability coverage beyond the compulsory minimum. Food poisoning claims are related to mobile food vendors, and damage to stock-in-trade or specific equipment on the vehicle are also distinct exclusions. Therefore, the use of a vehicle as a tool of trade, unless mandated by compulsory insurance laws, is a key exclusion.

This question tests the understanding of the core principle of ‘All Risks’ insurance, which is that it covers all losses unless specifically excluded. The insurer bears the burden of proof to demonstrate that an exclusion applies. Option (b) is incorrect because while exclusions exist, the fundamental principle is broad coverage. Option (c) misrepresents the burden of proof, suggesting the insured must prove coverage. Option (d) is incorrect as ‘all risks’ does not imply coverage for every conceivable event, but rather a broad scope subject to defined exclusions.

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 from the general coverage. This allows the insurer to offer coverage for the standard risks while mitigating losses from the identified adverse factor, rather than declining the entire policy. Options B, C, and D describe different types of exclusions or policy adjustments that do not directly address the scenario of an insurer accepting a standard risk but excluding a specific, identified problem.

The scenario describes an individual injured while ice-skating. The insurer denied the claim based on a policy 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 indoor or outdoor. Ice-skating, even indoors, falls under this broad interpretation. Therefore, the insurer’s decision to reject the claim due to the winter-sports exclusion is upheld because the activity, ice-skating, is considered a winter sport by the panel, and the policy explicitly excludes losses arising from such activities.

This question tests the understanding of the ‘Loss of Deposits’ cover within travel insurance. The scenario describes a situation where a pre-paid holiday becomes non-refundable due to the insured’s unexpected illness. The ‘Loss of Deposits’ clause is specifically designed to reimburse the insured for such non-recoverable payments made for travel arrangements when the trip cannot be undertaken due to specific unforeseen circumstances like illness of the insured or a close relative. Option B is incorrect because while luggage loss is covered, it’s a separate benefit and doesn’t directly address the loss of pre-paid holiday funds. Option C is incorrect as ‘Loss of Money’ typically refers to cash or traveler’s cheques lost or stolen during the trip, not pre-paid holiday costs. Option D is incorrect because ‘Repatriation expenses’ cover the costs of returning an injured or deceased person, which is unrelated to the loss of holiday deposits.

The scenario describes a situation where an insurer is determining the premium for a motor insurance policy. The insurer needs to consider various factors that influence the likelihood and potential cost of a claim. The ‘Road Traffic Act 1930’ is a foundational piece of legislation that mandated compulsory motor insurance in the UK, establishing the legal framework for such policies. While other options relate to insurance concepts, they are not directly the legislative basis for determining premium calculation factors in this context. ‘Public Policy’ is a broad legal principle, ‘Risk Classification’ is a method of grouping risks, and ‘Salvage (Non-Marine)’ refers to the residual value of damaged property, none of which are the primary legislative driver for premium calculation factors.

Fidelity Guarantee Insurance indemnifies an employer against financial losses resulting from dishonest acts by their employees. The policy specifically covers theft or fraud committed by the insured staff. General errors, omissions, or negligence by employees are not covered under this type of insurance. Therefore, a scenario involving an employee causing a loss due to a mistake in data entry, rather than intentional dishonesty, would not be covered by a Fidelity Guarantee policy.

The question tests the understanding of exclusions in pleasure craft insurance, specifically concerning the ship’s boat. According to the provided text, a ship’s boat is excluded from coverage if it is not permanently marked with the parent boat’s name. This implies that if the ship’s boat is properly marked, it would be covered under the policy. Therefore, the scenario where the ship’s boat is properly marked would lead to a claim being accepted for damage to it.

The scenario describes a situation where an insured party, after experiencing a fire loss, fails to take reasonable steps to protect the damaged property from further deterioration, such as preventing water damage to electrical components. This directly contravenes the insured’s duty to minimize loss, which is a common law obligation and often explicitly stated in policy conditions. Failing to take such reasonable care can lead to the insurer reducing the claim amount or even denying it, as the additional damage is a result of the insured’s inaction rather than the original insured peril. The other options are less relevant: while cooperation is a duty, the primary breach here is the failure to mitigate damage; admitting liability to a third party is a separate issue related to not compromising the insurer’s rights; and disclosing other insurances is related to contribution, not the immediate post-loss duty to preserve property.

This question tests the understanding of exclusions in a Product Liability policy, specifically concerning liability arising from the design or specifications of the product. The scenario describes a TV cabinet that fails due to its design capacity being insufficient for a standard television. This type of failure, stemming directly from the inherent design limitations of the product, is typically excluded from Product Liability coverage. Options B, C, and D represent situations that might be covered or are related to different types of liability, but not the specific design flaw described.

The question tests the understanding of policy conditions, specifically the ‘Average’ condition. The Average clause is a penalty for under-insurance. If the sum insured is less than the value of the property at the time of loss, the insurer will only pay a proportion of the loss, calculated based on the ratio of the sum insured to the actual value. In this scenario, the property’s value is HK$500,000, but it is insured for only HK$300,000. The loss is HK$100,000. Applying the Average clause, the insurer will pay (Sum Insured / Value of Property) * Loss = (HK$300,000 / HK$500,000) * HK$100,000 = 0.6 * HK$100,000 = HK$60,000. Therefore, the insured will bear the remaining HK$40,000.

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.

The ‘step-back system’ for No Claim Discount (NCD) in private car insurance, as described 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 in the policy year will result in a reduction of the NCD to 20% or 30% on 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 (complete loss of NCD for any claim, or a fixed reduction regardless of prior entitlement) or not the primary consequence of a single claim with a high NCD entitlement under the step-back system.

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 written on a ‘claims-occurring’ basis, meaning that the policy covers incidents that occur 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 claim arising from an accident that happened within the policy year, even if reported after the policy has expired, would typically be covered under a claims-occurring policy, provided the notification requirements are met.

The scenario describes a situation where an insured party, after experiencing a fire loss, fails to take reasonable steps to protect the damaged property from further deterioration, such as preventing water damage to electrical components. This directly contravenes the insured’s duty to minimize loss, which is a common law obligation and often explicitly stated in policy conditions. Failing to take such reasonable care can lead to the insurer reducing the claim amount or even denying it, as the additional damage is a result of the insured’s inaction rather than the original insured peril. The other options are less relevant: while cooperation is a duty, the primary breach here is the failure to mitigate loss; admitting liability to a third party is a separate duty not mentioned in the scenario; and disclosing other insurances relates to contribution, not the immediate post-loss duty to preserve property.

Institute Cargo Clauses (ICC) (B) provides coverage for own damage on a specified perils basis. While it covers major casualties like fire, stranding, sinking, and collision, it does not extend to losses arising from inherent vice, which is the deterioration of the cargo itself due to its nature. Inherent vice is a common exclusion across all ICC clauses (A, B, and C) unless specifically endorsed. Wilful misconduct of the assured is also an exclusion. Loss due to inadequate packing is also excluded. Therefore, a loss caused by the natural spoilage of perishable goods due to their inherent nature would not be covered under ICC (B).

The scenario describes a situation where an insurer is determining the premium for a motor insurance policy. The question asks about the factors influencing this premium calculation. ‘Rating Features’ are defined as the factors on which premiums are calculated, and the example given for motor insurance includes the scope of cover, engine capacity, vehicle usage, and value. Therefore, these are the elements that the insurer would consider when setting the premium. ‘Risk Classification’ is the broader practice of grouping similar risks, while ‘Risk Discrimination’ refers to adjusting terms for individual risks within a category. ‘Public Policy’ relates to legal principles that prevent certain agreements or actions, which is not directly relevant to the calculation of premium based on risk characteristics.

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 breach without a causal connection or fraud would not typically lead to a claim refusal under this undertaking, even though technically the policy liability might be discharged.

An insurance broker acts as an agent for the proposer, meaning they are legally identified with the proposer. This agency relationship imposes a duty of utmost good faith. If a broker withholds or misrepresents material facts, this breach of good faith is imputed to the proposer. This can lead to the insurer voiding the contract. Therefore, the broker’s actions directly impact the validity of the insurance contract from the proposer’s perspective.

The Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation to employees for injuries or death arising out of and in the course of employment. Employees’ Compensation Insurance (ECI) policies are designed to cover an employer’s liability under this ordinance. However, employers can also have liability independent of the ECO, often referred to as common law liability, which arises from negligence or breach of statutory duty concerning industrial safety. This common law liability is also typically covered by an ECI policy, but the compensation awarded under common law is net of any amounts already paid or payable under the ECO. The question tests the understanding that ECI policies cover both statutory liability under the ECO and common law liability, but the latter is distinct and its compensation is adjusted.

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, distinguishing it from the engagement of non-marine loss adjusters who are usually appointed and paid by the insurer.

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 is a key exclusion that limits coverage when a vehicle is used as a piece of equipment for a business, such as a mechanical digger performing its primary function. While compulsory insurance laws mandate certain third-party cover, this exclusion applies to the voluntary part of the policy. Food poisoning claims related to mobile food vending and damage to stock-in-trade are also specific exclusions for certain commercial vehicle uses. Damage to roads or weighbridges due to the vehicle’s weight or vibration is another distinct exclusion. Therefore, the use of a vehicle as a tool of trade, unless mandated by statutory provisions for compulsory insurance, is a specific exclusion.