Paper 2 General Insurance Quiz 28

Question 1 of 30

1. Question

During a review of a motor insurance policy, a client inquires about a provision that allows them to reduce their annual premium. They are presented with an option to increase the amount they would pay out-of-pocket before the insurer covers any damages. This arrangement, which is separate from any mandatory excess related to driver age, is best described as:

A voluntary excess
A compulsory deductible
A claims-made provision
A warranty clause

Question 2 of 30

2. Question

During a comprehensive review of a process that needs improvement, a private car owner with a 60% No Claim Discount (NCD) experiences a single at-fault accident during the policy year. According to the principles of motor insurance as outlined in the IIQE syllabus, what is the most likely outcome for their NCD upon renewal?

The NCD will be reduced to 30% for the next policy year.
The NCD will be completely forfeited, requiring a new accumulation from zero.
The NCD will remain at 60% as the accident was only one incident.
The NCD will be reduced to 40% as a partial penalty for the claim.

Question 3 of 30

3. Question

During a comprehensive review of a process that needs improvement, an applicant for marine insurance is completing a proposal form. Which of the following types of information would an underwriter, acting as a prudent insurer, consider most critical in assessing the risk and determining the terms of the policy, as per the duty of utmost good faith?

Circumstances that would sway a prudent insurer's decision on premium or risk acceptance.
Details about the applicant's personal preferences for policy features.
Information regarding the applicant's previous insurance claims history, regardless of relevance to the current risk.
Minor operational details of the vessel that do not directly impact its seaworthiness or the cargo's safety.

Question 4 of 30

4. Question

During a comprehensive review of a process that needs improvement in marine cargo insurance, when a loss is reported, who is generally responsible for appointing and initially covering the expenses of an independent investigator to assess the damage and its cause, as stipulated in typical marine cargo policies?

The assured, who then seeks reimbursement from the insurer for valid claims
The insurer, who directly engages the investigator to manage the claim process
A jointly appointed claims committee comprising representatives from both the insurer and the assured
A government-appointed maritime authority to ensure impartial assessment of all marine losses

Question 5 of 30

5. Question

During a comprehensive review of a process that needs improvement, a business owner discovers that their commercial premises were burgled. The insurer denies the claim, stating that the policy’s conditions for theft coverage were not met. The evidence shows that the thief gained access through an unlocked window without any signs of forced entry. Which of the following conditions, typically found in theft insurance policies, would most likely be the reason for the claim denial?

Forcible and Violent Entry
Hold-Up (Cover)
Inherent Vice
Fraud

Question 6 of 30

6. Question

During a comprehensive review of a process that needs improvement, an insured’s watch was damaged. The insured had the watch repaired before filing a claim. The insurer rejected the claim, citing a breach of the policy condition requiring notification of any event that might lead to a claim ‘as soon as reasonably possible.’ The insured argued that filing within 20 days of the damage was sufficient and presented the damaged parts. The Complaints Panel, while noting the prejudice to the insurer due to the repair, ultimately awarded the repair cost. Which of the following best explains the rationale behind the Complaints Panel’s decision, considering the principles of insurance contract law in Hong Kong?

The Complaints Panel considered the insured's layman understanding of 'as soon as reasonably possible' and the lack of significant prejudice to the insurer, allowing for a claim despite the repair preceding notification.
The insurer's rejection was upheld because the insured clearly breached the policy condition by repairing the watch before notifying the insurer, regardless of the time elapsed.
The Complaints Panel prioritized the insurer's right to investigate before any repairs, deeming the insured's actions as a fundamental breach that nullified the claim.
The precedent set by the insurer in a previous, similar claim where a late notification was accepted was the primary factor in the Complaints Panel's decision.

Question 7 of 30

7. Question

When a policyholder in Hong Kong purchases a personal insurance product, which regulatory framework or code primarily outlines the expected standards of practice for the insurer regarding underwriting, claims handling, and customer interaction?

The Code of Conduct for Insurers
The Insurance Companies Ordinance (ICO) regarding capital requirements
The common law duty of utmost good faith in contract law
The Code of Practice for the Administration of Insurance Agents

Question 8 of 30

8. Question

During a comprehensive review of a process that needs improvement, a retail store owner discovered that a significant amount of inventory was missing. Investigations revealed that a long-term employee, who had access to the stockroom, had been systematically taking items over several months. There was no evidence of forced entry or exit from the store or the stockroom, and the employee’s actions were entirely clandestine. Under a standard theft insurance policy, how would this loss typically be treated?

The loss would not be covered as it lacks evidence of forcible and violent entry or exit from the premises.
The loss would be covered as it represents a direct loss of insured property due to an act of dishonesty.
The loss would be covered under a specific extension for employee dishonesty, separate from the main theft cover.
The loss would be covered if the employee's actions caused any damage to the premises during their unauthorized removal of goods.

Question 9 of 30

9. Question

During a comprehensive review of a process that needs improvement, a junior underwriter asks about the insurer’s duty concerning policy renewals. Specifically, they inquire if the insurer must proactively notify the policyholder before the coverage period concludes. Based on the principles governing insurance contracts in Hong Kong, what is the insurer’s legal obligation in this regard?

The insurer is not legally required to remind the policyholder of the upcoming renewal date.
The insurer must send a renewal notice at least 30 days before the policy expires.
The insurer is obligated to remind the policyholder if a claim was made in the previous period.
The insurer must provide a written reminder via registered mail to the policyholder's last known address.

Question 10 of 30

10. Question

During a severe storm, the master of a vessel voluntarily jettisoned a portion of the cargo to prevent the ship from capsizing. The remaining cargo and the vessel were subsequently saved. Under the principles of marine insurance law, what is the primary consequence for the owner of the jettisoned cargo?

Entitlement to a General Average Contribution from other saved parties.
Automatic coverage for the full value of the jettisoned cargo under their own policy.
The loss is considered a particular average loss, borne solely by the cargo owner.
Entitlement to claim salvage charges from the vessel owner.

Question 11 of 30

11. Question

During a comprehensive review of a process that needs improvement, a client is questioning the scope of their ‘All Risks’ property insurance policy. They believe that any loss not explicitly mentioned as covered should be excluded. Based on the principles of ‘All Risks’ insurance as understood in the Hong Kong insurance market, how should this perception be corrected?

The policy covers all accidental losses or damage unless a specific exclusion is invoked by the insurer, who must prove the exclusion applies.
The policy covers only those losses that are explicitly listed within the policy wording.
The insured must demonstrate that their loss is not due to a common exclusion to be covered.
The policy is designed to cover only a predefined set of perils, and any deviation requires specific endorsement.

Question 12 of 30

12. Question

When dealing with a complex system that shows occasional inconsistencies, consider the legal implications of documentation in motor insurance. A certificate of compulsory insurance, as prescribed by relevant ordinances, primarily serves to confirm the existence of mandatory coverage. Which of the following best describes the fundamental reason for its issuance and its legal standing?

It is a mandatory legal document required by statute to evidence compliance with compulsory insurance laws.
It provides a comprehensive summary of all policy benefits, including specific coverage levels like comprehensive or third-party only.
It acts as a primary proof of premium payment, ensuring the policy remains active and valid.
It is an optional document that insurers may issue to provide a brief overview of the policy's scope.

Question 13 of 30

13. Question

During a comprehensive review of a process that needs improvement, a commercial vehicle insurer is examining the third-party liability provisions for a fleet of specialized construction vehicles. One particular vehicle, a hydraulic excavator, is frequently used on-site for digging and earthmoving. Which specific exclusion, commonly found in commercial vehicle third-party cover but not typically in private car policies, would be most relevant to consider regarding damage caused by the excavator while actively performing its digging function?

The 'tool of trade' clause, which excludes damage arising from the vehicle's use as a functional implement.
The 'overloading or strain' exclusion, which pertains to damage caused by exceeding the vehicle's operational capacity.
The 'food poisoning' exclusion, which relates to claims arising from vehicles used for mobile food vending.
The 'damage to stock-in-trade' exclusion, which limits coverage for goods carried on the vehicle.

Question 14 of 30

14. Question

During a comprehensive review of a process that needs improvement, an insurer discovered that a policyholder, who had a theft insurance policy, failed to maintain the fitted burglar alarm in working order for a period of two weeks prior to a burglary. While the policy contained a warranty requiring the alarm to be kept in working order, the insurer’s internal investigation confirmed that the alarm system was not the sole factor preventing the theft, and the breach was not fraudulent. Under the current industry practices and undertakings in Hong Kong, what is the most likely outcome regarding the claim for the stolen items?

The insurer may refuse the claim because the warranty was breached, even if the breach did not directly cause the loss.
The insurer will likely pay the claim in full, as the breach of warranty did not have a direct causal link to the loss.
The insurer may offer a partial settlement, considering the breach of warranty but also the lack of direct causation.
The insurer is obligated to pay the claim without any consideration of the warranty breach, as the policyholder did not act fraudulently.

Question 15 of 30

15. Question

During a comprehensive review of a process that needs improvement, an insurer identifies that a specific applicant for a personal accident policy, while generally a standard risk, has a documented history of a recurring back injury. To manage this specific elevated risk, the insurer decides to offer coverage but with a modification. Which of the following best describes the insurer’s action?

Applying a specially worded exclusion to the policy to remove coverage for back-related incidents.
Implementing a market exclusion for all policyholders due to the prevalence of back injuries.
Declaring the entire policy void based on the principle of public policy.
Issuing a general exclusion clause that applies to all potential back problems for any insured.

Question 16 of 30

16. Question

During a comprehensive review of a process that needs improvement, a business owner is examining their insurance coverage following a significant operational disruption. Their business interruption policy covers loss of profit and increased costs of working due to a fire. However, the physical damage to their premises from the fire was minor and not fully covered by their material damage policy due to a specific exclusion for damage caused by faulty wiring, which was the root cause. According to the principles of fire business interruption insurance as regulated in Hong Kong, what is the likely outcome for a claim filed under the business interruption policy?

The business interruption claim will likely be denied because the material damage policy does not cover the physical loss.
The business interruption claim will be fully paid, as the loss of profit is a direct consequence of the fire, regardless of material damage coverage.
The business interruption policy will independently cover the loss of profit, as it is a separate financial insurance product.
The business interruption claim will be partially paid, reflecting the proportion of material damage that was covered by the material damage policy.

Question 17 of 30

17. Question

During a motor vehicle accident claim, an insurer assessed the repair cost for an eight-year-old vehicle. The policy, an indemnity contract, excluded depreciation. The insurer proposed a 35% contribution from the insured towards the cost of new replacement parts, citing this as a ‘betterment’ allowance due to the superior condition of the new parts compared to the original, aged components. The insured argued against this contribution, believing the insurer should cover all repair costs. Under the principles of indemnity insurance and considering the policy’s specific exclusions, what is the insured’s responsibility regarding the betterment contribution?

The insured is responsible for contributing to the cost of new parts to account for the betterment, as the new parts provide an improved condition beyond the pre-accident state.
The insured is not responsible for any betterment contribution because the policy is an indemnity policy and should cover all repair costs to restore the vehicle to its original condition.
The insured is only responsible for the policy excess, and any contribution for betterment is an invalid charge by the insurer.
The insured is responsible for the betterment contribution only if the policy explicitly states a fixed percentage for betterment, which was not the case here.

Question 18 of 30

18. Question

During a comprehensive review of a process that needs improvement, it was discovered that a small business owner, despite being legally obligated under the Employees’ Compensation Ordinance, had neglected to obtain compulsory employees’ compensation insurance for their staff. In such a scenario where the employer’s statutory insurance is non-existent, which mechanism is primarily intended to ensure employees are still compensated for work-related injuries or diseases?

The Employees' Compensation Assistance Scheme
A direct ex gratia payment from the government
The employer's personal liability under common law
An engineering insurance policy covering faulty workmanship

Question 19 of 30

19. Question

When considering the legal framework governing the use of private cars on Hong Kong roads, which specific ordinance establishes the fundamental requirement for insurers to provide coverage for damages to third parties arising from accidents?

The Motor Vehicles Insurance (Third Party Risks) Ordinance
The Insurance Companies Ordinance (Cap. 41)
The Insurance Agents Registration Regulation
The Mandatory Provident Fund Schemes Ordinance

Question 20 of 30

20. Question

When navigating a complex liability insurance landscape, a company is reviewing its policy terms. If the policy operates on a ‘claims-made’ basis, under which circumstance would a potential claim be considered admissible for coverage?

The claim is formally reported to the insurer during the active policy period, even if the incident occurred prior to the policy's inception.
The incident that led to the claim occurred within the policy period, irrespective of when the claim is reported.
The claim is fully settled and paid by the insurer before the policy's expiration date.
The claim is filed with the relevant authorities before the policy's commencement date.

Question 21 of 30

21. Question

When dealing with a complex system that shows occasional inconsistencies, a pleasure craft insurance policy typically excludes coverage for the parent vessel’s tender if it is not permanently identified with the primary craft’s designation. This exclusion is primarily based on:

The requirement for the tender to be clearly identified with the main vessel.
The potential for outboard motors to detach and fall overboard.
The inclusion of personal effects and consumable stores within the policy.
The warranty regarding the craft's maximum designed speed.

Question 22 of 30

22. Question

During a comprehensive review of a process that needs improvement, a policyholder insures a rare Ming Dynasty vase for HK$5,000,000 on an ‘all risks’ basis. The policy specifies an ‘agreed value’ clause. If the vase is completely destroyed in a fire, what is the most likely outcome regarding the payout from the insurer, assuming no policy exclusions are breached?

The insurer will pay the agreed value of HK$5,000,000, regardless of the vase's market value at the time of the loss.
The insurer will pay the actual market value of the vase at the time of the loss, which might be less than HK$5,000,000.
The insurer will pay the cost of a similar vase, which could be higher or lower than the agreed value.
The insurer will pay a pro-rata refund of the premium and deny the claim due to the difficulty in assessing the true value.

Question 23 of 30

23. Question

When examining a document issued by an insurer to satisfy legal requirements for motor vehicle use, what is the primary function of this document, considering it may not specify the exact scope of coverage like ‘Comprehensive’ or ‘Act Only’?

To serve as legal confirmation of compulsory insurance coverage as mandated by law.
To provide a detailed summary of all policy benefits and exclusions.
To act as a negotiable instrument for premium payments.
To indicate the specific risk classification assigned to the insured vehicle.

Question 24 of 30

24. Question

When dealing with a complex system that shows occasional discrepancies in claim settlements, a policyholder in Hong Kong lodges a complaint against their insurer with the Insurance Claims Complaints Bureau (ICCB). Which of the following statements accurately reflects the operational parameters of the ICCB, as per relevant regulatory guidelines?

The ICCB's purview extends to all types of insurance claims, and the service is provided without any charge to the complainant, with a maximum award limit of HK$800,000 for any disputed claim.
The ICCB exclusively handles long-term insurance disputes, and either the insurer or the policyholder can appeal an ICCB decision to a higher regulatory body.
Complaints are only accepted if the policyholder has first exhausted all internal dispute resolution processes with the insurer, and the ICCB's recommendations are legally binding on all parties.
The ICCB's jurisdiction is limited to general insurance policies, and the maximum claim amount it can consider is HK$500,000, with a fee charged to the complainant if the complaint is deemed frivolous.

Question 25 of 30

25. Question

During a review of a personal accident claim, a Complaints Panel considered a case where an insured, a self-employed director whose work primarily involves office tasks, received a contusion at home. The insured was granted 13 days of sick leave. The insurer provided benefits for temporary total disablement for eight days and temporary partial disablement for the subsequent five days. The insured contested this, arguing for temporary total disablement benefits for the entire period. The panel, noting the absence of fractures, nerve damage, or complications, and considering the nature of the injury and the insured’s occupational duties, concluded that the insured could resume some work duties after eight days. Which of the following best explains the panel’s reasoning for approving the partial disablement benefit for the latter five days?

The policy's distinction between temporary total and partial disablement benefits necessitates a differential payout based on the insured's residual capacity to perform work duties.
The insured's self-employed status automatically limits the duration of temporary total disablement benefits, regardless of the injury's severity.
A contusion, by its nature, is typically classified as a temporary partial disablement, irrespective of the impact on the insured's ability to work.
The insurer is obligated to provide the highest benefit level for the entire period of sick leave if the initial injury was accidental.

Question 26 of 30

26. Question

When assessing the potential for adverse moral hazard in an insurance context, which of the following behaviours, stemming from the ‘human element’ of the insured, would an underwriter most likely consider indicative of increased risk?

A combination of dishonesty, carelessness, unreasonableness, and negative social behaviour
Strict adherence to all policy terms and conditions, even when inconvenient
A history of minimal claims and proactive risk mitigation efforts
Open communication with the insurer regarding any potential changes in risk factors

Question 27 of 30

27. Question

During a catastrophic event involving a boiler, a significant fire ensued, causing substantial damage to the insured’s property. Considering the typical exclusions within Boiler Explosion Insurance as outlined in Hong Kong’s insurance regulations, which type of damage would most likely NOT be covered by the Boiler Explosion policy itself?

Damage directly resulting from the boiler's explosive failure.
Damage caused by the subsequent fire that spread from the initial explosion.
Damage to the boiler vessel due to the explosion.
Damage to third-party property resulting from the explosion's force.

Question 28 of 30

28. Question

During a comprehensive review of a policy for personal accident insurance, it was noted that the insured failed to inform the insurer about a change in their profession, which was a stipulated requirement in the policy wording. This failure occurred after the policy had commenced and was in effect. According to insurance contract law principles, what is the most accurate classification of this type of policy term and its breach in relation to the insured’s ability to make a claim?

A condition precedent to liability
A condition precedent to the contract
A condition subsequent to the contract
A fundamental term of the contract

Question 29 of 30

29. Question

When a prospective policyholder provides information during the application process for a new insurance policy, and in the absence of any specific contractual clauses dictating otherwise, what is the fundamental legal expectation regarding the accuracy of this information, particularly concerning facts that influence the insurer’s assessment of the risk?

The information provided must be substantially true and accurate.
All statements made must be absolutely precise and verifiable.
The information can contain minor inaccuracies as long as it is not intentionally misleading.
The accuracy of the information is only relevant if explicitly requested in writing by the insurer.

Question 30 of 30

30. Question

During a comprehensive review of a process that needs improvement, a company discovered that a product they manufactured, designed to hold a maximum of 50 kg, collapsed when a 55 kg television was placed on it. According to the principles of Product Liability insurance, which of the following types of liability would typically be excluded from coverage?

Liability arising from the product's inherent design limitations regarding weight capacity.
Liability for damage to the television itself due to the product's failure.
Liability for injuries sustained by a bystander if the product collapse caused a chain reaction.
Liability for the cost of replacing the faulty product with a new one.