Paper 2 General Insurance Quiz 48

The ‘step-back system’ for No Claim Discount (NCD) in private car insurance, as described in the IIQE syllabus, dictates how a claim affects the accumulated discount. For a private car with an entitlement of four or more years (equivalent to 50% or 60% NCD), a single claim in the policy year will result in a reduction of the renewal discount to 20% or 30% respectively. This means the discount does not reset to zero but is stepped back to a lower tier. Options B, C, and D describe scenarios that are either incorrect regarding the step-back mechanism or misrepresent the impact of claims on NCD entitlement.

The provided text states that Personal Accident (PA) policies in Hong Kong are typically ‘Accidents Only’ policies. This means they are designed to cover benefits arising from accidental events, not from sickness. While sickness benefits for temporary disablement might have been included historically, death from sickness is explicitly excluded as it falls under life insurance. Therefore, a PA policy would not cover medical expenses incurred due to a sickness, even if it resulted in temporary disablement.

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 related to a worsened risk. Option C is incorrect as the insurer’s obligation to pay claims is contingent on the policy terms and the nature of the risk; a worsened risk doesn’t automatically void all obligations without proper procedure. Option D is incorrect because while the insured might be notified, the core principle is the insurer’s right to adjust terms or cancel due to a significantly altered risk profile.

The provided text states that Personal Accident (PA) policies in Hong Kong are generally ‘Accidents Only’ policies. This means they are designed to cover benefits arising from accidental bodily injury or death. Sickness benefits, particularly for temporary disablement, might be included, but death from sickness is explicitly excluded as it falls under life insurance. Therefore, a policy that covers medical expenses arising from sickness would not be classified as a PA policy.

A combined liability policy is designed to consolidate various liability coverages into a single document for convenience and potential premium savings. While it typically includes Public Liability, Products Liability, and Employees’ Compensation Liability, it can be extended to encompass other specific liabilities like Directors’ and Officers’ Liability and Professional Liability, based on the client’s unique needs. The key characteristic is the integration of multiple liability types, not necessarily the inclusion of property or pecuniary risks, which are distinct insurance classes. The caution regarding separate contracts within a single document highlights the importance of clear policy wording to avoid a single breach invalidating all coverages.

This question tests the understanding of the ‘claims-made’ basis for liability insurance, a crucial concept for IIQE candidates. A claims-made policy covers claims that are both made against the insured and reported to the insurer during the policy period, or an extended reporting period. Option (a) describes ‘occurrence-based’ coverage, where the event causing the claim must have occurred during the policy period, regardless of when the claim is made. Option (b) is incorrect as claims made before the policy began are not covered. Option (c) is also incorrect because the policy covers claims made during the period, not necessarily settled, although settlement timing can be relevant in some contexts, the primary trigger is the claim being made.

This question tests the understanding of how travel insurance premiums are determined. While geographical area, duration, and the number of people insured are primary factors, the concept of an ‘annual policy’ is a specific pricing structure designed for frequent travelers. This structure offers a single premium for a defined period, regardless of the number of individual trips taken within that year, making it distinct from per-trip pricing. The other options represent factors that influence premium calculations but are not the specific pricing model described.

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, the Code 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 a good corporate image is desirable, the Code’s primary focus is on the direct conduct of insurance business and customer protection, rather than the broader societal impact of the industry’s public image as a corporate citizen.

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, not just personal lines. The service is free for complainants, ensuring accessibility. While the ICCB makes recommendations, its decisions are not legally binding on the insurer, and either party can reject the outcome, meaning appeals against an award are not a formal process in the same way as a court appeal. The maximum claim amount handled by the ICCB is HK$1,000,000, not HK$800,000. Therefore, only the statement that the complainant is never charged a fee is accurate.

The question tests the understanding of the specific definition of ‘theft’ under a typical theft insurance policy, which requires evidence of forcible and violent entry or exit. The scenario describes a situation where an employee steals items without any physical damage to the premises’ security defenses. This means the loss would not be covered under a standard theft policy as it lacks the ‘forcible and violent entry/exit’ element. Theft by staff is also typically excluded and falls under fidelity guarantee, further reinforcing why this scenario wouldn’t be covered by a theft policy. Option (a) correctly identifies that the absence of forcible and violent entry/exit means the claim would not be payable under the theft policy.

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 rather than declining the entire policy. This is achieved through a specially worded exclusion clause or endorsement. Option (a) accurately describes this practice of tailoring coverage by excluding specific identified risks while allowing the policy to remain in force for other covered perils. Option (b) is incorrect because while insurers do assess risk, they don’t typically ‘ignore’ specific risks; they manage them through exclusions or adjusted premiums. Option (c) is incorrect as ‘market exclusions’ are generally broad, industry-wide exclusions for fundamental risks, not tailored to individual policyholder circumstances. Option (d) is incorrect because while fraud is a reason to deny a claim, it’s not a method of underwriting or managing specific, known risks prior to policy inception.

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, such as a mechanical digger being used for excavation. This exclusion is a key differentiator for commercial vehicle insurance and is mandated by statutory provisions regarding compulsory insurance, meaning it applies unless the law requires otherwise for compulsory third-party cover. Food poisoning claims and damage to stock-in-trade are also specific exclusions for certain commercial uses, and damage to roads due to vehicle weight is another distinct exclusion. Therefore, the use of a vehicle as a tool of trade, unless mandated by law for compulsory insurance, is a primary exclusion.

The provided text emphasizes that customer service is no longer a discretionary element but a fundamental expectation. A “take it or leave it” approach, as described, directly leads to negative consequences for an insurer. These consequences include losing business due to increased customer awareness of their rights to courteous and efficient service, alienating insurance intermediaries who rely on quality service from their principals to generate business, damaging the company’s reputation and market prestige, and potentially attracting negative attention and intervention from the government, especially given Hong Kong’s status as a financial services hub. Therefore, all these are direct and significant repercussions of poor customer service.

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 their dishonesty. This directly aligns with the core purpose of Fidelity Guarantee Insurance, which is to cover losses caused by employee theft or fraud. The other options are incorrect because Money Insurance typically covers loss of money in transit or in a safe, not necessarily due to employee dishonesty. Public Liability Insurance covers legal liability for injury or damage to third parties, and Burglary Insurance covers loss of property due to forced entry, neither of which are the primary focus of the described situation.

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.

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 advertising. This directly translates to increased business generation via referrals. Options B, C, and D, while potentially related to good business practices, are not the primary positive outcomes directly linked to customer satisfaction and loyalty in the context of generating new business through referrals as described.

The scenario describes a situation where an insured person’s ability to perform their usual occupation is partially restored, but not fully. The insurer’s decision to classify the latter part of the recovery period as Temporary Partial Disablement (TPD) is based on the medical assessment that the insured’s range of trunk movement had improved significantly, allowing them to perform some duties. This aligns with the policy’s provision for different benefit amounts for Temporary Total Disablement (TTD) and TPD, where TPD applies when an insured can perform some, but not all, of their usual work. The Complaints Panel’s decision to favour the attending doctors’ opinion over the insurer’s medical consultant highlights the importance of the treating physician’s assessment in determining the extent of disability, especially when there are conflicting medical views. The key distinction lies in the insured’s capacity to engage in their occupation, which, according to the medical examiner, had partially returned.

The scenario describes a situation where an insurer rejected a hospitalization claim based on a pre-existing condition. The insured had symptoms 15 months prior to the policy inception, and the insurer argued that the tumor’s size indicated it couldn’t have developed within the 10 days after the policy commenced. The Complaints Panel agreed with the insurer, citing the policy exclusion for illnesses presenting signs or symptoms before the policy start date. The key principle here is the interpretation of ‘pre-existing condition’ and the burden of proof in demonstrating when an illness actually commenced. The panel’s reasoning hinges on the medical understanding that a tumor of a certain size takes time to develop, thus implying its origin predates the policy, even if the exact onset date is not definitively known. This aligns with the general practice in insurance where conditions that were present, even if undiagnosed or asymptomatic, before the policy’s effective date are typically excluded.

This question tests the understanding of waiver in the context of insurance premium payments. Waiver occurs when an insurer, through its actions or representations, indicates it will not strictly enforce a contractual term, such as the punctuality of premium payments. If an insurer consistently accepts late premium payments without objection, this conduct can be interpreted as a waiver of the strict due date. This means the insurer may be prevented from later denying coverage solely because a premium was paid late, especially if the insured reasonably relied on this past acceptance. Estoppel, while related, requires the insured to demonstrate reasonable reliance on the insurer’s conduct or representation, leading to a detrimental change in their position if the insurer were to revert to strict enforcement.

This question tests the understanding of 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 unable 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 described in the scenario. For instance, liability for faulty installation might be covered if it’s not directly tied to a design defect, and general contractual liability is a common exclusion but not the primary reason for non-coverage in this specific design flaw scenario. Similarly, while claims from non-consumers are covered, this doesn’t negate the design exclusion.

A combined liability policy is designed to consolidate various liability coverages into a single document for convenience and potential premium savings. While it typically includes Public Liability, Products Liability, and Employees’ Compensation Liability, clients may also opt for additional coverages like Directors’ and Officers’ Liability or Professional Liability. The key characteristic is the integration of these distinct liability risks under one policy framework, rather than separate, standalone policies for each type of liability. This consolidation aims to streamline administration and potentially reduce overall insurance costs for the insured.

The ‘step-back system’ for No Claim Discount (NCD) in private car insurance, as described in the IIQE syllabus, dictates how a discount is adjusted after a claim. For drivers with an entitlement of four or more claim-free years (equivalent to 50% or 60% NCD), a single claim in the policy period will result in a reduction of the NCD to 20% or 30% respectively upon 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 interpretations of the step-back system or describe the treatment for other vehicle types, or a complete loss of discount which is not the case for a single claim with a high NCD entitlement.

A cover note is a temporary document that provides immediate evidence of insurance coverage, binding the insurer even before the final policy is issued. It is not conditional on the submission of a complete proposal form later. While it offers unconditional cover, it typically includes cancellation provisions and is intended for a short duration, to be replaced by a formal policy. Its primary function is to provide the insured with documentary proof of existing insurance, which can be crucial for various purposes, such as vehicle registration or satisfying lender requirements.

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 employee fraud or dishonesty. The other options are incorrect because: a) Money Insurance typically covers loss of money due to external causes like theft or transit accidents, not employee dishonesty. c) Public Liability Insurance covers an organization’s legal liability for injury or property damage to third parties, unrelated to employee theft. d) Business Interruption Insurance covers loss of income due to an insured event, not direct financial loss from employee fraud.

This question tests the understanding of how contract terms are classified based on their timing of operation within an insurance contract. A ‘condition precedent to liability’ is a term whose breach does not void the entire contract but rather invalidates a specific claim. The scenario describes a policy requiring the insured to report changes in profession. If this condition is breached, the contract itself remains valid, but the insurer is not liable for claims arising from the un-notified change in profession. This aligns with the definition of a condition precedent to liability, as it affects the insurer’s obligation to pay for a particular claim, not the contract’s existence. A ‘condition precedent to the contract’ would prevent the contract from coming into effect if not met. A ‘condition subsequent to the contract’ typically refers to an event that, if it occurs, can terminate or alter the contract’s obligations, but the initial breach of a notification clause usually impacts claim validity rather than contract termination. Therefore, the most accurate classification is a condition precedent to liability.

The scenario describes a situation where an insurer provides a replacement item for a non-depreciating subject matter that has been damaged. This aligns with the definition of ‘Replacement’ as a method of indemnity where the insured receives a new item to substitute the damaged one, particularly when the original item’s value doesn’t decrease over time. ‘Reinstatement’ involves restoring the damaged property to its pre-loss condition, which is not applicable here as a new item is provided. ‘Salvage’ refers to the residual value of damaged property, and ‘Repatriation Expenses’ cover the cost of returning a deceased person’s remains. Therefore, ‘Replacement’ is the most accurate term for the indemnity provided.

A Certificate of Insurance serves as a formal confirmation of the existence of compulsory insurance, particularly in contexts like motor vehicle insurance. It is a distinct, permanent document that stands apart from the main policy document, providing evidence of compliance with mandatory insurance requirements. While a policy document outlines the full terms and conditions, the certificate is a concise proof of coverage.

This question tests the understanding of ‘System of Check’ in fidelity guarantee insurance. A robust system of check is crucial for employers to maintain internal discipline and control over their employees who are entrusted with financial responsibilities. This involves implementing procedures and controls to prevent or detect fraudulent activities. Option (a) accurately describes this by emphasizing the employer’s role in establishing internal controls and discipline to safeguard against employee dishonesty. Option (b) is incorrect because while insurance policies do have terms and conditions, the ‘system of check’ specifically refers to the employer’s internal measures, not the insurer’s policy wording in isolation. Option (c) is incorrect as it focuses on the insurer’s underwriting process for general risks, which is a different concept from the internal controls for fidelity insurance. Option (d) is incorrect because while transparency is important in insurance, it’s a broader regulatory principle and not the specific mechanism of internal control within an employer’s operations for fidelity guarantee insurance.

Institute Cargo Clauses (ICC) (A) provides the broadest coverage for own damage, operating on an ‘All Risks’ basis. This means it covers all perils except those specifically excluded. ICC (B) and ICC (C) are more restrictive, covering only specified risks. Banks often require ICC (A) for cargo shipments when providing financing or guarantees because its comprehensive nature offers greater protection against unforeseen events, aligning with their need for robust security.

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 causes a boiler to explode would typically be covered under a fire policy, not the boiler explosion policy.