Paper 2 General Insurance Quiz 51

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 loss due to theft, there must be evidence of forced entry or exit from the premises. Without this evidence, the claim may be invalidated. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount that the insured must bear before the insurer pays, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ are those with potentially catastrophic loss potential that are often excluded.

This question tests the understanding of how changes in the insured risk can impact the insurance contract. The Insurance Companies Ordinance (Cap. 41) and related common law 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. The insurer’s right to cancel in such situations is a fundamental aspect of maintaining the integrity of the insurance contract and managing their exposure to unforeseen adverse changes in risk.

In marine insurance, particularly with General Average (GA) claims, the complexity and the number of parties involved necessitate specialized expertise. Average adjusters are the professionals who possess the detailed legal knowledge of maritime law and the ability to manage a large volume of claims and apportionments, which can take years to settle. While Lloyd’s Agents and Loss Adjusters are involved in claims handling, their roles are typically broader or different in scope. Lloyd’s Agents often act as surveyors, and loss adjusters are more common in non-marine general insurance. Arbitration clauses are a method for dispute resolution, usually concerning the quantum of a claim, and are distinct from the expertise required for adjusting complex GA claims.

The question probes the understanding of rebating in the context of insurance intermediary practices, specifically its potential to be construed as bribery or corruption. Rebating, which involves offering inducements to policyholders, fundamentally distorts the principle of fair premium assessment and the legitimate earning of commissions. The Code of Practice for the Administration of Insurance Agents and the Minimum Requirements of the Model Agency Agreement explicitly prohibit offering commissions or other valuable considerations to employees of the insured without the insured’s explicit written consent. This prohibition is in place to prevent unfair competition and to maintain the integrity of the insurance sales process, ensuring that commissions are earned based on legitimate business transactions and not through illicit inducements that could be seen as bribery.

A General Average Act is defined as any extraordinary sacrifice or expenditure voluntarily and reasonably made or incurred in time of peril for the purpose of preserving the property imperilled in the common adventure. In this scenario, the decision to jettison a portion of the cargo to lighten the vessel and prevent it from sinking during a storm is a classic example of an extraordinary sacrifice made voluntarily and reasonably in a time of peril to save the entire marine adventure. Therefore, this action constitutes a General Average Act, and the loss incurred by the owner of the jettisoned cargo is a General Average Loss.

This question tests the understanding of how an excess works in motor insurance, specifically the difference between a voluntary and a compulsory excess, and how they interact. A voluntary excess is chosen by the policyholder to reduce the premium, while a compulsory excess is imposed by the insurer. Standard policy excesses are a type of compulsory excess that applies universally or to specific risk factors without a premium discount. In this scenario, the policyholder chose a voluntary excess of HK$5,000. The insurer then imposed a compulsory underwriting excess of HK$2,000 due to the vehicle’s high performance. Standard policy excesses, by definition, are always in parallel with other excesses and do not qualify for premium discounts. Therefore, the total excess applicable to the claim would be the sum of the voluntary excess and the compulsory underwriting excess, which is HK$7,000. The explanation that the standard policy excess would be added to the voluntary excess is incorrect because the HK$2,000 is an underwriting excess, not a standard policy excess. The explanation that the voluntary excess supersedes the compulsory excess is incorrect as they are additive. The explanation that only the voluntary excess applies is incorrect as compulsory excesses are also binding.

This question tests the understanding of what constitutes a material fact that an applicant must disclose to an insurer. According to insurance principles, a material fact is one that would influence a prudent underwriter’s decision to accept the risk or the terms offered. Storing highly flammable materials like chemicals in a general store, where such items are not typically expected, significantly increases the fire risk beyond what a prudent underwriter would anticipate for a standard general store. This directly aligns with the definition of a material fact that renders a risk greater than would otherwise be supposed. Option B is incorrect because while common knowledge of typhoons in Hong Kong is not a material fact to be disclosed for fire insurance, the presence of unusual, high-risk items is. Option C is incorrect because an insurer’s knowledge of normal business operations doesn’t extend to unusual, undisclosed hazardous materials. Option D is incorrect because while an insurer might be deemed to know the normal processes of a business, they are not expected to know about undisclosed, abnormal risks like storing hazardous chemicals without being informed.

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 or violent entry into the premises. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount that the insured must bear before the insurer pays, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ are those with potentially catastrophic loss potential that are often excluded.

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 dissatisfied. 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 correct.

Institute Cargo Clauses (A) provides the broadest coverage, insuring against all risks of physical loss or damage to the insured subject matter, except for those specifically excluded. This is often referred to as ‘all risks’ coverage. Clauses (B) and (C) offer more limited protection, covering only a specified list of perils. Therefore, a shipment insured under Clause (A) would be protected against damage caused by a sudden, unexpected mechanical breakdown of the refrigeration unit during transit, assuming no exclusion applies.

The question probes the understanding of rebating in the context of insurance intermediary practices, specifically its potential to be construed as bribery or corruption. Rebating, which involves offering inducements to policyholders, fundamentally distorts the principle of fair premium assessment and the legitimate earning of commissions. The Code of Practice for the Administration of Insurance Agents and the Minimum Requirements of the Model Agency Agreement explicitly prohibit offering commissions or other valuable considerations to employees of the insured without the insured’s explicit written consent. This prohibition is in place to prevent unfair competition and maintain ethical standards within the industry. Therefore, offering a portion of the commission to an employee of a corporate client without their employer’s consent directly contravenes these regulations, as it can be seen as an attempt to influence the business decision through an unauthorized benefit, thereby undermining the integrity of the insurance transaction and potentially constituting a form of bribery.

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) refers to professional standards, which is also a common inclusion. Option (c) highlights efficiency and ethical business practices, another key aspect. Option (d) focuses on claims handling, a critical service promise. The provided text emphasizes that these declarations are not just self-imposed but can also be mandated by industry bodies or statutes, reinforcing their importance in demonstrating declared intentions and measuring performance. The question probes the candidate’s knowledge of what constitutes a typical customer service charter in the insurance industry, as outlined in the syllabus.

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 standalone document, distinct from the main policy, that verifies the mandatory coverage is in place. While it can also confirm cover under a master policy, its primary role in compulsory insurance is to provide proof of compliance with legal requirements.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles, an insurer is not legally mandated to remind the policyholder about an approaching renewal date. If the policyholder fails to take action, the policy simply lapses at the end of its term. Cancellation, on the other hand, implies a premature termination of coverage, which is distinct from a policy lapsing due to non-renewal. Therefore, the insurer is not obligated to provide a reminder for renewal.

The question tests the understanding of which vessels are subject to registration in Hong Kong under the relevant legislation. Option (a) correctly identifies vessels regularly employed in trading to or from Hong Kong, unless already registered elsewhere. Option (b) is incorrect because pleasure craft are specifically mentioned as requiring registration. Option (c) is incorrect as fishing vessels regularly operating in Hong Kong waters or using them as a base are also subject to registration. Option (d) is incorrect because vessels registered in Mainland China or Macau that trade with Hong Kong and hold specific certificates are also covered, indicating a broader scope than just vessels registered outside Hong Kong.

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 a distinct pricing consideration compared to per-trip calculations.

The principle of indemnity in insurance aims to restore the insured to the financial position they were in before the loss. When replacing old parts with new ones, there’s an inherent betterment, as the new parts are superior to the old, worn-out ones. The insurer is entitled to deduct a reasonable amount for this betterment to avoid over-indemnifying the insured. The case highlights that for an eight-year-old vehicle, a 35% betterment contribution is considered reasonable, especially when the policy explicitly excludes depreciation. The insured’s argument against betterment is invalid because the new parts inherently provide an advantage over the old, depreciated parts, and the policy’s exclusion of depreciation does not negate the principle of avoiding betterment.

A Performance Bond is a financial guarantee, structured as a bond rather than an insurance policy, designed to ensure that a contractor fulfills their contractual obligations, specifically the completion of construction work within an agreed-upon timeframe. This contrasts with insurance policies that typically indemnify against loss or damage. While both involve financial commitments, their fundamental purpose and structure differ significantly. A Performance Bond is a surety product, guaranteeing performance, whereas insurance is a risk transfer mechanism.

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 losses by implementing robust internal controls and oversight of employees entrusted with financial responsibilities. Option B is incorrect because while audits are part of a system of check, they are typically a retrospective review rather than the primary mechanism for ongoing control. Option C is incorrect as external audits are important but the ‘System of Check’ primarily refers to the employer’s internal mechanisms. Option D is incorrect because while employee background checks are a component, they are a pre-employment measure and not the entirety of the ongoing system of internal control.

This question tests the understanding of the legal implications of policy renewals in Hong Kong. Statement (i) is true because the duty of utmost good faith is a continuous obligation that applies at all stages of the insurance contract, including renewal. Statement (ii) is also true, as a renewal is generally considered the formation of a new contract, even if the terms are similar to the previous one. Statement (iv) is correct because insurers have a duty to inform policyholders if they do not intend to renew a policy, allowing the insured to seek alternative coverage. Statement (iii) is false; while terms can be negotiated, the insurer is not obligated to renegotiate all terms and may offer renewal on existing or modified terms, subject to regulatory requirements and the principle of utmost good faith.

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 loss due to theft, there must be evidence of forced or violent entry into the premises. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount that the insured must bear before the insurer pays, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ refers to catastrophic potential losses that are often excluded.

The scenario highlights the importance of timely notification of potential claims to an insurer. While the insured in the first case reported the damage within 20 days, the repair had already been completed, hindering the insurer’s ability to investigate the cause and extent of the damage. The Complaints Panel acknowledged this prejudice but ultimately ruled in favour of the insured due to the simplicity of the circumstances and the availability of repair documentation. However, the second case presents a clearer breach where the insured failed to report an accident within the stipulated 30 days, and the Complaints Panel upheld the insurer’s rejection due to the delay prejudicing their investigation and the unreasonableness of using a past settlement as a precedent. The core principle tested here is the insurer’s right to investigate and the potential prejudice caused by delayed notification, which can lead to claim rejection, especially when the delay is significant and impacts the insurer’s ability to assess the claim’s validity. The concept of ‘as soon as reasonably possible’ is subjective and depends on the circumstances, but a completed repair before notification significantly undermines the insurer’s investigative capacity.

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.

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. Options B, C, and D describe different types of insurance or aspects not directly covered by the primary intent of fidelity guarantee insurance. Professional Indemnity covers negligence in providing professional services, Public Liability covers injury or damage to third parties, and a Money policy covers loss of physical money or valuables.

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 are protected by requiring all vehicle owners to have a minimum level of insurance coverage for third-party bodily injury and property damage. 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 can still receive compensation. Therefore, understanding the foundational legal requirement for motor insurance is key.

The question probes the understanding of prohibited practices in the insurance industry, specifically concerning rebating. Rebating, in this context, refers to offering inducements or benefits to policyholders or potential policyholders that are not explicitly stated in the policy contract. This practice is considered unethical and potentially illegal because it can distort the true cost of insurance, create unfair competition, and may even be construed as a form of bribery or corruption. The Code of Practice for the Administration of Insurance Agents and the Minimum Requirements of the Model Agency Agreement are key regulatory documents that outline these prohibitions. Offering a commission rebate to an employee of the insured without the insured’s explicit written consent directly contravenes these regulations, as it bypasses the primary policyholder and introduces an unauthorized benefit, thereby undermining the integrity of the commission structure and potentially leading to conflicts of interest or corrupt practices.

A ‘Scheduled Policy Form’ is a common insurance contract structure 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 obligations under the contract. Therefore, the Signature Clause is an integral component of a Scheduled Policy Form.

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 period of insurance. The Signature Clause, also known as the Attestation Clause, is a crucial part of this form where the insurer formally signifies their agreement to the terms and conditions outlined in the policy contract. It represents the insurer’s undertaking and commitment to the policyholder. The other options are related but distinct concepts: ‘Specified Perils’ refers to the causes of loss covered, ‘Simple Contract’ describes a contract not under seal, and ‘Specific Exclusions’ are particular risks intentionally omitted from coverage.

This question tests the understanding of how an excess works in motor insurance, specifically the difference between a voluntary and a compulsory excess, and how they interact. A voluntary excess is chosen by the policyholder to reduce the premium, while a compulsory excess is imposed by the insurer. Standard policy excesses are a type of compulsory excess that applies universally or to specific risk factors without a premium discount. In this scenario, the policyholder chose a HK$5,000 voluntary excess. The insurer then imposed a compulsory underwriting excess of HK$2,000 due to the vehicle’s high performance. Standard policy excesses, by definition, are always in parallel with other excesses and do not qualify for premium discounts. Therefore, the total excess applicable to the claim would be the sum of the voluntary excess and the compulsory underwriting excess, which is HK$7,000. The question is designed to assess if the candidate understands that standard policy excesses are a separate category of compulsory excess and that voluntary and underwriting excesses are additive.

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.