Paper 2 General Insurance Quiz 46

The scenario describes a situation where an insured person sustained an injury and received a certain number of days of benefit. The core issue is the distinction between Temporary Total Disablement (TTD) and Temporary Partial Disablement (TPD) benefits under a personal accident policy. TTD typically compensates for the complete inability to perform any duties of the insured’s occupation, while TPD compensates for a reduced ability to perform duties, often resulting in a lower benefit amount. The Complaints Panel’s decision was based on the nature of the injury and the insured’s occupation. Since the insured was a self-employed director whose work primarily involved office duties, and the injury (contusion over the sacrum) did not involve fractures or nerve damage, the panel determined that after eight days, the insured should have been able to perform some of her duties. This means that for the subsequent five days, her condition met the definition of Temporary Partial Disablement, not Temporary Total Disablement, as per the policy terms. Therefore, the insurer’s payment of a lower benefit for those five days was deemed appropriate.

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 financial loss due to theft. This directly aligns with the core purpose of Fidelity Guarantee Insurance, which covers such fraudulent activities. The other options are incorrect because: Money Insurance typically covers loss of money due to external causes like robbery or fire, not employee theft. 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 and exit, which is not the primary issue described.

The question tests the understanding of the scope of theft insurance, specifically regarding damage to the premises during an attempted theft. According to the provided text, theft policies typically include coverage for damage caused by thieves to the insured premises when making forcible and violent entry or exit. This damage is not subject to a separate sum insured but is covered as part of the overall contents coverage. Option (a) accurately reflects this, stating that damage to the premises during forcible entry or exit is generally included. Option (b) is incorrect because while theft by staff is excluded, the question is about damage to the premises, not the theft itself by staff. Option (c) is incorrect as fire damage is explicitly excluded from theft policies. Option (d) is incorrect because while warranties are common, the question is about what is included in the cover, not a condition for it.

The question tests the understanding of the legal significance of a certificate of compulsory motor insurance. According to the provided text, these certificates are issued solely due to legal requirements. Failure to issue one is a criminal offense. The text explicitly states that the certificate confirms the existence of compulsory motor insurance in a legally prescribed form, but it does not detail the specific coverage levels like ‘Comprehensive’ or ‘Act Only’. Therefore, a certificate of motor insurance, by itself, does not reveal the extent of the policy’s coverage.

The scenario describes a situation where the insured delayed notifying the insurer about a claim. The policy likely contains a condition requiring prompt notification. While the insured took the watch for repair immediately, the claim submission to the insurer occurred two weeks after the repair was completed. This delay, even if the initial damage was accidental, could be considered a breach of the ‘as soon as possible’ notification clause, which is a common policy condition affecting claims. The insurer might use this delay as a basis to question the claim’s validity, especially if the delay prejudiced their ability to investigate the loss or the repair process. Therefore, the most relevant consideration for the insurer in assessing this claim, based on the provided text, is the insured’s compliance with policy provisions affecting claims, specifically the notification requirement.

The scenario describes a situation where valuable items like jewelry are insured on an agreed value basis. This means that in the event of a total loss, the insurer will pay the sum insured (the agreed value) regardless of the actual market value of the items at the time of the loss. However, for partial losses, the principle of strict indemnity applies, meaning the insurer will only pay the actual loss incurred, not exceeding the agreed value. This approach is common for items whose value can fluctuate significantly or is difficult to ascertain precisely at the time of loss, providing certainty for the insured in case of a complete loss.

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. This scheme acts as a fallback mechanism to ensure employees receive compensation for work-related injuries or diseases, even if their employer has failed to secure the required insurance. Therefore, its primary purpose is to bridge the gap when the primary insurance mechanism fails.

A Performance Bond is a financial guarantee, structured as a bond rather than an insurance policy, designed to ensure the successful completion of a construction project within the agreed-upon timeframe. It protects the project owner from financial loss if the contractor fails to fulfill their contractual obligations, such as completing the work on schedule or to the specified quality standards. The other options describe different types of insurance or financial instruments. Personal Accident and Sickness Insurance provides benefits for injuries or illness, not for project completion. Professional Indemnity Insurance covers negligence in professional services. Private Car Insurance covers vehicles.

The core principle of an indemnity policy is to restore the insured to their pre-loss financial position. When new parts are used to repair an older vehicle, these new parts inherently offer a superior lifespan and condition compared to the original, aged parts. This improvement in the vehicle’s condition beyond its pre-accident state is termed ‘betterment’. The insurer is not obligated to provide a benefit that exceeds the original state. Therefore, a contribution from the insured towards the cost of these new parts is justified to account for this betterment, ensuring the insured does not gain an advantage. The scenario highlights that the insurer’s calculation of a 35% betterment contribution for an eight-year-old vehicle was deemed reasonable by the Complaints Panel, especially when compared to a standard 50% depreciation rate for such a vehicle. The policy’s exclusion of depreciation further supports the insurer’s stance on the insured contributing to the betterment.

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. According to the provided text, for motorcycles, theft claims are only admissible if the entire vehicle is stolen. This means that if only accessories are stolen, the insurer will not cover the loss under the ‘Own Damage/Accidental Damage’ section. Therefore, a policyholder whose motorcycle’s valuable accessories were stolen would not be able to claim under the policy for that specific loss.

This question assesses the understanding of the positive outcomes of excellent customer service in the insurance industry, as outlined in the provided text. The text explicitly states that happy customers not only remain loyal but also become a ‘productive source of extra business’ through recommendations and word-of-mouth. This directly translates to increased business generation via referrals. While improved profitability and enhanced market prestige are also benefits, the question specifically asks about the direct impact on generating new business from existing satisfied clients, which is best described by customer ‘productivity’ through recommendations.

A Performance Bond is a financial guarantee, structured as a bond rather than an insurance policy, specifically designed to ensure the successful completion of construction projects within the agreed-upon timeframe. It protects the project owner from financial losses if the contractor fails to fulfill their contractual obligations, such as completing the work on schedule or to the specified quality standards. The other options describe different types of insurance or financial instruments: Personal Accident and Sickness Insurance provides benefits for injuries and temporary disability due to accidents or illness; Professional Indemnity Insurance covers liability arising from negligence in professional services; and Public Liability Insurance covers broader liabilities to third parties for injury or property damage.

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 considers various factors beyond just technical qualifications, including integrity, financial soundness, and adherence to regulatory standards. While professional indemnity insurance and proper record-keeping are crucial operational requirements, they are components that contribute to demonstrating fitness and properness, rather than being the sole determinant. The existence of a code of conduct is also important, but the overarching requirement is the individual broker’s suitability.

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 policyholder chooses a voluntary excess of HK$5,000 and the repair cost is HK$15,000, the insurer will pay the amount exceeding the excess, which is HK$10,000 (HK$15,000 – HK$5,000). The remaining HK$5,000 is the policyholder’s responsibility. This demonstrates the principle of risk sharing between the insurer and the insured.

The scenario describes an insurance broker who, to secure a new client, offers a portion of their commission back to the client. This practice, known as rebating, is explicitly addressed in the provided text. While often seen as a harmless gesture, it becomes a serious issue when used as an improper inducement to gain business. The question tests the understanding of this specific ethical and regulatory concern within the insurance industry, highlighting the distinction between a simple discount and an unethical sales tactic. The other options represent different, unrelated ethical or procedural aspects of an insurance intermediary’s role.

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 the loss of gross profit and continuing expenses. While the physical damage to buildings and contents is covered by a standard fire policy, business interruption insurance addresses the consequential financial losses that arise from the inability to trade. It does not cover third-party liabilities, which are addressed by other types of insurance.

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 as described.

The Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation for injuries or deaths sustained by employees arising out of and in the course of employment. While the ECO provides a statutory framework for compensation, employers can also be liable under common law for negligence or breach of statutory duty related to workplace safety. Employees’ Compensation Insurance (ECI) policies are designed to cover both these liabilities. The question highlights a scenario where an insurer rejected a claim because the injury did not meet the ‘arising out of and in the course of employment’ criterion under the ECO. However, the employer’s liability might still exist under common law if negligence can be proven, irrespective of the ECO’s specific definition. Therefore, the policy’s coverage for ‘liability independent of the EC Ordinance’ would be relevant here, as it addresses common law liabilities for workplace injuries.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a monetary jurisdiction limit of HK$800,000. Complaints concerning amounts exceeding this limit fall outside the ICCB’s purview and must be addressed through other dispute resolution mechanisms such as litigation or arbitration. Therefore, a claim for HK$950,000 would not be eligible for the ICCB’s services.

The question tests the understanding of ‘Agreed Values’ in insurance, specifically for high-value items like jewelry and antiques. When an ‘All Risks’ policy is effected on an agreed value basis, the sum insured, or the agreed value, is payable in the event of a total loss, irrespective of the item’s actual market value at the time of the loss. This means the insurer agrees to a specific valuation beforehand. However, for partial losses, the principle of strict indemnity still applies, meaning the payout will be based on the actual loss incurred, not the agreed value. Therefore, the agreed value is only fully applicable to total loss scenarios.

The scenario describes an insurance broker offering a portion of their commission to a potential client to secure business. This practice, known as rebating, is explicitly addressed in the provided text as a grave matter if it serves as an improper inducement. While rebating might seem like a harmless gesture in some contexts, its use to attract clients by offering a ‘cheaper’ premium falls under prohibited conduct, as it can distort fair competition and potentially lead to misrepresentation of policy value. The other options describe actions that are generally considered good business practice or are unrelated to the specific prohibition of rebating as an inducement.

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) is incorrect as ‘all risks’ does not imply coverage for intentional acts by the insured. Option (d) is incorrect because the insurer must prove an exclusion, not the insured.

This question tests the understanding of how changes in the insured risk can impact the insurance contract. According to general insurance principles, if the circumstances under which the risk was originally insured alter for the worse, the insurer may have grounds to adjust terms or even cancel the policy. This is because the initial premium was calculated based on the perceived risk at the time of inception. A significant deterioration in the risk profile, such as a business changing its operations to become more hazardous without informing the insurer, fundamentally changes the basis of the contract. While the insurer might offer to continue cover at an adjusted premium, the right to cancel or revise terms exists when the risk has materially worsened.

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 and ongoing expenses that continue even when the business is not operating. Options (a), (b), and (c) describe direct physical damage or third-party liabilities, which are generally covered by other types of insurance policies (e.g., property insurance for buildings and contents, or third-party liability insurance). Therefore, the primary purpose of business interruption insurance is to address the financial impact of the disruption itself, including lost earnings.

This question tests the understanding of the specific exclusions within a Product Liability policy. Option (a) correctly identifies that liability stemming from the inherent design or formulation of a product, such as a cabinet failing to support a weight exceeding its specified limit, is typically not covered. Options (b), (c), and (d) describe situations that might be covered or are general exclusions not specific to the design flaw mentioned in the scenario. For instance, liability for faulty installation of a product (c) might be covered if it’s not directly due to a manufacturing defect in the product itself, and liability for property damage (b) is generally covered, unlike design flaws. Dishonesty (d) is a common exclusion across many liability policies but doesn’t directly address the design issue.

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 is unavailable or ineffective, ensuring that victims are not left without compensation. Therefore, the ordinance is the foundational legal framework for compulsory motor insurance.

A Scheduled Policy Form is a common structure for insurance policies 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 the premium. 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 insurance contract. Therefore, the Signature Clause is an integral component of a Scheduled Policy Form.

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 and references the proposal form, while the Operative Clause outlines the circumstances under which coverage is active. General Exceptions apply to the entire policy, not just specific sections.

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 loss, 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 of warranty does not automatically void the policy for all claims if the insurer adheres to this undertaking, unless the breach is causally linked to the loss or is fraudulent.

This question tests the understanding of waiver in the context of insurance premium payments. Waiver occurs when an insurer, through its conduct or clear representation, indicates it will not strictly enforce a contractual requirement, such as the punctuality of premium payments. If an insurer consistently accepts late premium payments without objection, this behavior can be interpreted as a waiver of the strict due date for future payments. Estoppel, on the other hand, requires the insured to have reasonably relied on this conduct to their detriment. The scenario describes a pattern of accepting late payments, which directly aligns with the concept of waiver. The other options describe different insurance principles or are irrelevant to the scenario presented.