Paper 2 General Insurance Quiz 29

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 implications, the standard premium calculation is primarily based on the insured’s occupation, which is classified according to accident risk. Therefore, occupation is the fundamental basis for premium calculation in this context.

A cover note is a binding document that provides immediate, albeit temporary, insurance coverage. It serves as documentary evidence that insurance exists, even before the formal policy is issued. While it is temporary and may have cancellation clauses, it is not conditional on the submission of a satisfactory proposal form. The insurer is bound by the cover note. A policy, on the other hand, is the final document that replaces the cover note and represents the culmination of the underwriting process. A certificate of insurance, in its more common understanding, serves as proof of compulsory insurance and is a separate, permanent document, distinct from the policy and the temporary nature of a cover note.

The ‘step-back system’ for No Claim Discount (NCD) in private car insurance, as outlined in the IIQE syllabus, dictates how a claim affects the accumulated discount. For a private car with an entitlement of four or more claim-free years (resulting in a 50% or 60% NCD), a single claim during the policy year will reduce the NCD on renewal to 20% or 30% respectively. This means the discount doesn’t reset to zero but moves back a few steps. Options B, C, and D describe scenarios that are either incorrect regarding the step-back system’s impact on higher NCDs or misrepresent how NCDs are earned or lost.

The scenario describes a situation where an insured person sustained an injury and received a certain number of days of benefit. The insurer paid for a portion of the leave as temporary total disability (TTD) and the remainder as temporary partial disability (TPD). The insured disagreed, believing the entire period should be compensated as TTD. The Complaints Panel reviewed the case, considering the nature of the injury (contusion without fracture or nerve involvement), the insured’s occupation (self-employed director with primarily office duties), and the absence of complications. The panel concluded that after eight days, the insured was likely capable of performing some of her duties, thus qualifying for TPD rather than TTD for the remaining period. This aligns with the principle that TPD benefits are typically lower than TTD benefits because the insured can still perform some work. Therefore, the insurer’s offer, differentiating between TTD and TPD, was deemed appropriate based on the assessment of the insured’s functional capacity.

Case 9 illustrates that for a personal accident claim to be valid, the injury must be accidental. The insured’s deliberate action of intervening in a fight, which led to his injury, was deemed a foreseeable consequence. Therefore, the injury was not considered accidental but a natural outcome of his own conduct, thus falling outside the scope of coverage for accidental means. The insurer was justified in rejecting the claim because the insured’s actions directly contributed to the injury in a non-accidental manner, negating the ‘accidental means’ requirement for the policy.

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 provided an undertaking to the Hong Kong Federation of Insurers that they will only refuse a claim due to a breach of warranty if there is a causal connection between the breach and the loss, or if the breach is fraudulent. This means that a breach that does not cause the loss and is not fraudulent would not typically lead to a claim refusal under this undertaking, even though technically the warranty is breached.

The question tests the understanding of the ‘pro rata average’ condition in insurance policies, specifically how under-insurance affects claim payouts. The scenario describes a situation where the sum insured for contents is less than the actual value of the contents at the time of loss. The pro rata average condition dictates that the claim payment will be reduced proportionally to the extent of under-insurance. In this case, the sum insured ($500,000) represents 80% of the actual value ($625,000). Therefore, the claim for a $100,000 loss would be paid at 80% of that amount, resulting in a payout of $80,000. The other options represent incorrect calculations or misinterpretations of the average clause.

This question assesses the understanding of the Insurance Authority’s minimum requirements for insurance brokers, specifically focusing on financial stability and client fund protection. Option A correctly identifies the requirement for keeping separate client accounts, which is a crucial measure to prevent commingling of funds and ensure client assets are segregated. Option B is incorrect because while professional indemnity insurance is a requirement, it pertains to covering losses arising from professional negligence, not directly to the segregation of client funds. Option C is incorrect as maintaining adequate capital and net assets relates to the broker’s financial solvency, not the handling of client premiums. Option D is incorrect because while proper record-keeping is essential, the specific requirement for separate client accounts is a distinct and vital safeguard for client money.

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, highlighting their critical legal role in demonstrating compliance with compulsory insurance requirements. Therefore, the primary legal function of such a certificate is to serve as proof of compliance with statutory insurance obligations.

The scenario describes a situation where a valuable antique vase is insured on an agreed value basis. This means that in the event of a total loss, the insurer will pay the agreed sum insured, irrespective of the vase’s actual market value at the time of the loss. This is a key feature of agreed value policies for items like jewelry and antiques, designed to avoid disputes over valuation in case of a complete loss. For partial losses, however, the principle of strict indemnity typically applies, meaning the payout would be based on the actual loss incurred, not the agreed value. Therefore, the agreed value is payable for a total loss, but strict indemnity applies to partial losses.

A fire business interruption policy is designed to compensate an insured business for financial losses incurred due to a disruption of operations caused by a covered peril, such as fire. This compensation typically extends beyond the direct physical damage to cover consequential losses like loss of profit, fixed operating expenses, and increased costs of working, which are not material losses in the sense of direct physical damage to property. Option (a) and (b) refer to direct physical damage cover, which is typically handled by a standard fire policy, not business interruption. Option (c) relates to liability insurance, which covers legal obligations to third parties, a different type of risk altogether.

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, and the complainant can still pursue legal action if unsatisfied. The maximum claim amount handled by the ICCB is HK$1,000,000, not HK$800,000. Therefore, only the statements that the complainant is never charged a fee and that the maximum claim amount is HK$1,000,000 are accurate.

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 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 comprehensive and universally expected elements are the commitments to quality, service, professional standards, efficiency, ethics, and claims handling.

The scenario describes a situation where an insured individual, after an injury, is initially deemed totally disabled. However, the insurer later reclassifies the disability as partial based on a medical examiner’s report indicating an improved range of motion. The key issue is the conflicting medical opinions regarding the insured’s ability to perform any work. The Complaints Panel’s decision to favor the attending doctors’ opinion highlights the importance of the primary treating physician’s assessment in determining the extent of disability, especially when it directly impacts the classification between temporary total and temporary partial disablement. The policy’s distinction between these two types of benefits is crucial, and the panel’s ruling emphasizes that the insured’s inability to perform *any* work, as stated by their doctors, justifies continued temporary total disability benefits, even if some functional improvement is noted.

This question tests the understanding of how changes in the insured risk can impact an insurance policy. The Insurance 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. This is because the original assessment of the risk, and therefore the premium charged, may no longer be adequate. Option B is incorrect because while an increase in premium might be a consequence, it’s not the primary action an insurer takes when the risk deteriorates; cancellation is a more direct response to a fundamentally altered risk profile. Option C is incorrect as the insurer’s obligation is based on the terms of the policy and the law, not solely on the insured’s financial capacity. Option D is incorrect because while the insurer might review the policy, the core issue is the adverse change in the risk itself, which can lead to cancellation, not just a review without further action.

Fidelity Guarantee Insurance indemnifies employers against financial losses resulting from dishonest acts by their employees. The question describes a scenario where an employee’s actions led to a financial shortfall due to unauthorized transactions. This directly aligns with the core purpose of fidelity guarantee insurance, which is to cover losses arising from fraud or dishonesty by employees. The other options are incorrect because: Money insurance typically covers loss of money due to external causes like theft or transit accidents, not employee dishonesty. Public liability insurance covers an organization’s legal liability for injury or property damage to third parties. Burglary insurance covers loss of property due to forced entry.

The question tests the understanding of the insured’s duty to minimize loss after a claim event, as stipulated by common law and often reinforced in policy conditions. The scenario describes a fire damaging a commercial property. The insured’s immediate action of boarding up windows and securing the premises is a proactive step to prevent further damage from vandalism or weather, thereby fulfilling their duty to mitigate further losses. Option B is incorrect because while reporting the loss is a duty, it’s not the primary action to minimize damage. Option C is incorrect as admitting liability to a third party without the insurer’s consent would prejudice the insurer’s rights, not minimize the loss. Option D is incorrect because disposing of damaged property without permission can be a breach of duty, not a fulfillment of the duty to minimize loss.

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 HK$300,000. The loss is HK$100,000. Applying the Average clause, the recoverable amount is (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 receive HK$60,000.

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) mandates that all insurance brokers must be fit and proper to operate. This assessment goes beyond mere technical qualifications and encompasses aspects like integrity, financial soundness, and adherence to regulatory standards. While professional indemnity insurance and maintaining proper books are crucial operational requirements, they are components that contribute to demonstrating fitness and properness, rather than being the overarching criterion itself. The existence of self-regulatory bodies and their codes of conduct are also important, but the primary responsibility for ensuring a broker is ‘fit and proper’ rests with the broker and is overseen by the IA.

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 ‘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 truly 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 under a business interruption policy.

The scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This pattern of behavior, if it leads the insured to reasonably believe that punctuality is no longer a strict requirement, can lead to the insurer being prevented from enforcing the strict contractual term of timely payment in the future. This legal principle is known as waiver, where the insurer, through its conduct, relinquishes its right to enforce a specific contractual provision. Estoppel also applies if the insured reasonably relied on this conduct to their detriment. Therefore, the insurer’s past acceptance of late payments without protest is the most direct cause for this potential legal consequence.

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 exclusion is conditional on the marking of the ship’s boat.

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 the insurer to cover a theft, there must be evidence of forced entry or exit from the premises. Without this proof, the claim may be invalidated. Options B, C, and D describe other insurance concepts or conditions that are not directly related to the requirement for proving forcible entry in a theft claim.

The scenario describes a shop owner losing cash from her bag after closing her shop. The money insurance policy explicitly states that cover is for losses occurring ‘during normal business hours’ and ‘while being conveyed by messenger’. The loss occurred outside business hours, and while the cash was being conveyed, the timing violated a key condition of the policy. Therefore, the claim would be rejected because the loss did not occur within the specified business hours, which is a critical limitation of the money insurance policy as outlined in the provided text. The policy is designed to cover business-related money during operational periods, not personal losses outside of these times.

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 not marked correctly leads to its exclusion from the policy’s coverage.

This question tests the understanding of exclusions in engineering insurance, specifically Boiler Explosion Insurance. The provided text states that risks normally insurable by other policies, such as fire and extra perils, are excluded from Boiler Explosion Insurance. This is to prevent duplication of coverage and ensure that each policy covers distinct risks. Therefore, a fire that occurs during a boiler explosion would typically be covered by a separate fire insurance policy, not the boiler explosion 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 in accidents that arise out of and in the course of their 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 duty to compensate for work-related injuries, irrespective of fault, which is covered by compulsory insurance.

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, provided these arise from covered perils and not from dishonesty.