Paper 2 General Insurance Quiz 61

The provided text states that Personal Accident (PA) policies in Hong Kong are typically ‘Accidents Only’ policies. While sickness benefits might have been traditionally linked, they are now unlikely to be included. Death from sickness is explicitly excluded as it falls under life insurance risk. Therefore, a PA policy would not cover medical expenses arising from a sickness, even if it resulted in temporary disablement.

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 scenario describes an individual injured while ice-skating. The insurer declined the claim based on an exclusion for ‘winter-sports’. The Complaints Panel, in interpreting this exclusion, determined that ‘winter-sports’ generally encompass sports played on snow or ice, regardless of the season or whether they are indoors or outdoors. Therefore, ice-skating, even indoors, falls under this category. The key principle here is the broad interpretation of exclusion clauses by regulatory bodies when a specific definition is not provided in the policy, focusing on the nature of the activity itself (ice-based) rather than the timing or location.

Institute Cargo Clauses (A) provides the broadest coverage, operating on an ‘all risks’ basis. This means it covers all losses unless specifically excluded. Clauses (B) and (C) are more restrictive, covering only specified perils. Therefore, a shipment insured under Clause (A) would be covered for damage caused by a sudden, unexpected event like a rogue wave, provided it’s not an excluded peril. Clause (B) would likely cover this if the rogue wave was considered a peril of the sea, but it’s less certain than (A). Clause (C) would only cover it if ‘perils of the sea’ were explicitly listed and the rogue wave qualified. The question tests the understanding of the hierarchical coverage levels of the Institute Cargo Clauses.

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.

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.

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 void the policy from the date of the breach. However, insurers in Hong Kong have voluntarily agreed, through the Hong Kong Federation of Insurers’ Code of Conduct, to only deny a claim due to a warranty breach if there is a causal link between the breach and the loss, or if the breach was fraudulent. This undertaking aims to mitigate the harshness of the strict legal interpretation of warranties, particularly in personal insurance. Therefore, while the legal position is absolute, the practical application is often qualified by this industry undertaking.

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, it addresses how insurers should handle underwriting and claims processes to ensure fairness and efficiency. It also explicitly details 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 an insurer’s role as a good corporate citizen is important, the Code’s primary focus is on the direct conduct of insurance business and customer protection, rather than broader corporate social responsibility initiatives. Therefore, underwriting and claims, customers’ rights and obligations, and customers’ rights and interests generally are all integral components of the Code’s scope.

A General Average Act involves a voluntary and reasonable sacrifice or expenditure made during a peril to preserve the entire marine adventure. When cargo is jettisoned (thrown overboard) to save the ship and other cargo from a common peril, this constitutes a General Average Sacrifice. The owner of the jettisoned cargo is then entitled to a contribution from the other saved parties to compensate for their loss. The key elements are the voluntary nature of the act, its reasonableness in the face of peril, and the intention to preserve the common adventure. The scenario describes a situation where a portion of the cargo was deliberately discarded to prevent the vessel from sinking, directly aligning with the definition of a General Average Act leading to a General Average Sacrifice.

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 aspects 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 insurers make. However, specific details on business conduct and certain practices, while important, are often elaborated upon in separate sections or codes of practice, rather than being a primary, overarching category in the initial declaration itself. The other options represent broader, more fundamental commitments that are almost universally present in these types of declarations.

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 machine 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 motorcycle owner whose sidecar is stolen would not be able to claim under the policy for this specific loss, as it does not constitute the theft of the ‘whole machine’.

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, which falls directly under the scope of dishonest acts covered by fidelity insurance. Options B, C, and D describe situations that are typically excluded or not the primary focus of fidelity guarantee insurance: general errors and omissions (which are not necessarily dishonest), losses due to external theft (which would be covered by other policies like money insurance), and losses from natural disasters (which are covered by property 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 crucial part of this form where the insurer formally confirms their commitment and undertakings under the contract. Without this signature, the policy’s validity as a formal agreement could be questioned. While other clauses are important, the Signature Clause is the specific element that formally binds the insurer to the terms outlined in the scheduled policy.

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 partially correct in that settlement is important, but the primary trigger for coverage under a claims-made policy is the making and reporting of the claim, not necessarily the settlement within the policy period.

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. 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 customer advocacy as described.

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.

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, often a year, covering multiple trips, which is distinct from per-trip pricing based on the other factors. Therefore, the existence of an annual policy option is a feature that influences premium calculation by providing an alternative to individual trip premiums.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the expected standards of good insurance practice for personal insurance policies sold to individual policyholders residing in Hong Kong. It covers a broad spectrum of practices, including underwriting, claims handling, product understanding, customer rights, and advising/selling practices. The Insurance Companies Ordinance (ICO) primarily focuses on the regulatory framework for insurers themselves, such as authorization, capital, and solvency requirements, to ensure their financial stability and viability. While the ICO provides a foundational legal structure, the Code of Conduct offers more detailed guidance on the operational and ethical conduct of insurers in their dealings with policyholders. The Code of Practice for the Administration of Insurance Agents is specific to the conduct and regulation of intermediaries, not the insurers’ direct obligations under the Code of Conduct. Common law principles, while applicable to insurance contracts, do not encompass the specific, industry-driven standards detailed in the HKFI’s Code of Conduct.

The Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation to employees for injuries or death 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 typically cover both 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, independent of the ECO. Therefore, the insurer’s rejection based solely on the ECO criterion might be premature if the policy also covers common law liability. Option (a) correctly identifies that the insurer’s rejection might be incomplete if the policy extends to common law liabilities, which are often fault-based and distinct from the no-fault compensation under the ECO. Option (b) is incorrect because while the ECO is compulsory, the scope of coverage for common law liability is a policy term. Option (c) is incorrect as the ECIRS is a residual scheme for high-risk trades and not directly related to the insurer’s obligation to cover common law liability in a standard policy. Option (d) is incorrect because contractual liability is typically excluded from standard ECI policies, not the basis for coverage in this scenario.

The question tests the understanding of the ‘claims-made’ basis for Directors and Officers (D&O) liability insurance. Under a claims-made policy, coverage is triggered by a claim being made against the insured during the policy period, regardless of when the wrongful act occurred. This contrasts with an ‘occurrence’ basis, where coverage is triggered by the event causing the loss happening during the policy period. Therefore, if a director leaves a company, they need to consider how to maintain coverage for potential future claims arising from their past actions. This is often achieved through ‘tail coverage’ or ensuring the policy has a sufficient retroactive date. The scenario highlights the importance of understanding this policy trigger for individual directors’ long-term protection, especially when considering career changes or company dissolution.

A Certificate of Insurance serves as formal confirmation of the existence of compulsory insurance. It is a standalone document, distinct from the main policy, and is commonly issued for motor and pleasure vessel insurance. Its primary function is to provide proof of coverage, particularly for regulatory or legal purposes, ensuring that the mandatory insurance requirements are met. While it confirms coverage, it is not the policy itself, nor is it a claim document or a summary of all policy terms.

This question tests the understanding of ‘System of Check’ in fidelity guarantee insurance. A robust system of check is crucial for an employer to maintain internal discipline and control over employees who are entrusted with financial responsibilities or valuable assets. This system involves implementing procedures and controls to prevent or detect fraudulent activities. Option A correctly identifies the core purpose of such a system in this context. Option B is incorrect because while audits are part of a control system, the ‘system of check’ is broader and encompasses ongoing operational controls, not just periodic audits. Option C is incorrect as the primary focus is on preventing and detecting fraud by employees, not on external market risks. Option D is incorrect because while insurance policies do have terms and conditions, the ‘system of check’ refers to the employer’s internal controls, not the insurer’s policy wording.

This question tests the understanding of how changes in the original circumstances of a risk can impact an insurance policy. The Insurance Ordinance (Cap. 41) and general insurance principles dictate that if the risk deteriorates significantly after the policy inception, the insurer may have grounds to adjust terms or even cancel the policy. Option A correctly identifies that a worsening of the risk’s original circumstances is a valid reason for an insurer to consider policy adjustments or cancellation, aligning with the duty of utmost good faith and the principle of indemnity. Option B is incorrect because while market conditions can influence underwriting, they are not directly related to a change in the insured risk’s circumstances. Option C is incorrect as the insured’s financial stability, while a factor in initial assessment, doesn’t directly address a change in the risk itself post-inception unless it leads to risk-increasing behaviour. Option D is incorrect because the insurer’s internal profitability targets are business decisions, not a direct response to a change in the insured risk’s fundamental nature.

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 machine 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 scenario where a motorcycle’s valuable accessories are stolen would not be covered by the standard policy.

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 noted as having no impact on premiums if other conditions are equal. Therefore, occupation is the primary determinant for premium rates in standard PA policies.

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 only HK$300,000. The loss is HK$100,000. Applying the Average clause, the insurer will pay (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 bear the remaining HK$40,000.

The scenario describes a situation where an insured person sustained an injury that prevented them from performing their usual duties for a period. The insurer paid a benefit for temporary total disability for eight days and temporary partial disability for five days. The insured believed they should receive temporary total disability benefits for the entire 13 days. 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 to the sacrum) did not involve fractures or nerve damage, the panel concluded that after eight days, the insured should have been able to perform some of their duties. This means the condition for the remaining five days met the definition of temporary partial disability, not temporary total disability, as per the policy. Therefore, the insurer’s offer, differentiating between the two benefit levels, was deemed appropriate.

The “step-back system” for No Claim Discount (NCD) in private car insurance, as described in the IIQE syllabus, dictates how a claim affects future discounts. For drivers with an entitlement of four or more claim-free years (equivalent to 50% or 60% NCD), a single claim in the policy year will result in a reduction of the NCD to 20% or 30% on 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 (total loss of NCD for any claim, or no impact of claims on NCD) or misrepresent the specific reduction percentages associated with the step-back system for higher NCD entitlements.

This question assesses the understanding of the positive impacts of excellent customer service beyond merely avoiding negative outcomes. While all options represent potential benefits, customer loyalty is directly linked to the retention of business, particularly in insurance where renewals are crucial. Happy customers are more likely to continue their policies, reducing the need for costly new business acquisition. Increased profitability and customer productivity are also positive outcomes, but customer loyalty is the foundational element that drives these benefits in the long term, especially in a renewal-driven business like insurance. The question emphasizes the proactive benefits, and customer loyalty is the most direct and significant positive outcome of good service in this context.

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, making the statement about its exclusion conditional on the marking. Therefore, the statement that the ship’s boat is excluded is not universally true for all pleasure craft policies; it depends on a specific condition.