Paper 2 General Insurance Quiz 62

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.

Moral hazard refers to the increased likelihood of a loss occurring because an individual is insured. It stems from the ‘human element’ of risk, encompassing attitudes and behaviours. Dishonesty, carelessness, unreasonableness (like inflexibility), and negative social behaviour (such as vandalism) are all manifestations of moral hazard. While dishonesty can lead to fraud, carelessness can directly cause losses. Unreasonableness, even without malicious intent, can create significant problems for insurers due to an insured’s rigid or opinionated stance, potentially leading to claims that might have been avoided with a more cooperative approach. Social behaviour, while seemingly less direct, can also contribute to losses through actions that damage property or disrupt society, indirectly impacting insurance risks.

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 often used in motor insurance to facilitate vehicle registration and serves as proof of legally required insurance. While it provides unconditional cover, it typically includes cancellation provisions and is intended for a short duration, to be replaced by a formal policy. The question tests the understanding of the primary function and nature of a cover note as a binding, temporary document that offers immediate proof of insurance.

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 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 non-convention certificates are also within the scope of registration requirements.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. The principle of utmost good faith (uberrimae fidei) requires that such representations, particularly those concerning material facts, must be substantially true. If a representation is found to be untrue, and it relates to a material fact, it can give the insurer grounds to avoid the policy, even if the non-disclosure or misrepresentation was unintentional. This is because the insurer relies on the proposer’s statements to assess the risk and determine the terms and premium. Option (b) is incorrect because representations do not always need to be in writing, though written proposals are common. Option (c) is too strict; while accuracy is important, the legal standard is typically substantial truth rather than absolute accuracy for representations. Option (d) is incorrect as untrue material representations can indeed affect the contract.

The scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This pattern of conduct suggests that the insurer is choosing not to enforce the strict contractual requirement of timely premium payment. This voluntary relinquishment of a known right, demonstrated through consistent action, is the essence of waiver. Estoppel, while related, requires the insured to have reasonably relied on this conduct to their detriment. While reliance might be implied, the core action by the insurer here is the waiver of the punctuality clause. Therefore, waiver is the most direct and accurate legal principle applicable to the insurer’s behavior.

The question tests the understanding of exclusions in engineering insurance, specifically Boiler Explosion Insurance. The provided text states that Boiler Explosion Insurance excludes risks normally insurable by other policies, such as fire and extra perils. Therefore, a fire that occurs concurrently with a boiler explosion would typically be handled by a separate fire insurance policy, not the boiler explosion policy itself. Option B correctly identifies this exclusion. Option C is incorrect because while wear and tear is an exclusion, it’s not the primary exclusion related to concurrent perils. Option D is incorrect as wilful neglect is an exclusion, but the question focuses on the exclusion of perils covered elsewhere. Option A is incorrect because the policy does cover damage to the boiler itself, but the question is about what is *excluded*.

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 confirms their commitment and undertakings under the contract. Without this signature, the policy might not be considered fully executed. While other clauses are important, the Signature Clause is the specific component that formally binds the insurer to the terms outlined in the scheduled policy form.

Institute Cargo Clauses (A) provides the broadest coverage, operating on an ‘all risks’ basis, meaning it covers all losses unless specifically excluded. Institute Cargo Clauses (B) and (C) offer more limited coverage, specifying the perils that are covered. Therefore, a shipment insured under Clause (A) would be protected against a wider array of potential damages compared to shipments under Clauses (B) or (C), assuming the loss is not an explicitly excluded peril.

This question tests the understanding of the specific definitions used in Personal Accident (PA) cover within travel insurance, as illustrated by Case 12. The scenario highlights that a claim for ‘loss of one limb’ requires physical severance or total functional disablement as per the policy wording. Partial functional loss, even if causing significant inconvenience, does not meet this definition unless the policy explicitly provides for proportional compensation for such partial disabilities. Therefore, the insurer’s rejection of the claim for partial disablement of the hand, based on the policy’s strict definition of ‘loss of one limb’ and the absence of provisions for partial loss, is consistent with the policy terms.

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 (usually a year), covering multiple trips, which is distinct from per-trip pricing based on the other factors. Therefore, an annual policy is a feature that influences premium calculation by offering a bundled rate for continuous coverage.

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when an employer’s compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. This scheme ensures that employees who suffer work-related injuries or diseases can still receive compensation, even if their employer has failed to secure the mandatory insurance coverage as required by the Employees’ Compensation Ordinance. Therefore, the central fund’s purpose is to fulfill the intentions of compulsory insurance when it’s not in place or fails to function.

The question tests the understanding of the basis of cover for Public Liability (PL) insurance. The provided text explicitly states that PL insurance is usually on a “claims-occurring” basis, meaning that the policy covers incidents that happen during the policy period, regardless of when the claim is actually made. While “claims-made” is not unknown, it is not the common basis for PL. Therefore, a claim arising from an accident that occurred within the policy period, even if reported after the policy has expired, would typically be covered under a claims-occurring policy, provided the policy’s notification requirements are met.

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 for candidates to know the scope of its applicability, the fee structure, the appeal process, and the monetary limits. Specifically, the ICCB scheme applies to both personal and general insurance claims, not just personal ones. Complainants are not charged any fees for utilizing the ICCB’s services. Importantly, only the complainant (the policyholder or beneficiary) can appeal against an award made by the ICCB; the insurer cannot appeal. The maximum claim amount that can be handled by the ICCB is HK$800,000. Therefore, only statement (ii) and (iv) are correct.

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, an annual policy is a pricing basis that is not directly tied to the duration of a single trip but rather to the frequency of travel over a longer period.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. According to the provided text, these certificates are issued solely due to legal requirements and confirm the existence of compulsory insurance. The text explicitly states that a motor insurance certificate does not necessarily indicate the policy’s coverage level (e.g., Comprehensive or Act Only) but serves as proof of compliance with compulsory insurance laws. Therefore, a certificate of motor insurance is primarily a legal document confirming the existence of mandatory coverage, rather than a detailed summary of the policy’s terms or benefits.

This question tests the understanding of exclusions in Directors’ and Officers’ (D&O) liability insurance, specifically concerning actions taken by the insured. The scenario describes a director making a decision that leads to a financial loss for the company. D&O policies typically exclude coverage for claims arising from dishonest or fraudulent acts by the insured director. While the policy might cover legal defense costs for allegations of dishonesty, it will not indemnify the director for losses directly resulting from their proven dishonest conduct. The other options represent situations that might be covered or are not standard exclusions. For instance, a breach of professional duty is usually covered by Professional Indemnity insurance, not D&O. A known circumstance exclusion applies to circumstances known at inception, not subsequent actions. Contractual liability exclusions relate to liabilities assumed under contract, not personal misconduct.

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. Failure to disclose a material fact can lead to the insurer voiding the policy. Therefore, facts that influence an underwriter’s judgment on premium or acceptance are considered material.

A commercial motor policy designed for vehicles used in construction, such as those involved in digging, often contains specific exclusions. The ‘working operations clause’ is a common exclusion that removes cover when the vehicle is being used for activities that go beyond standard road transit, like excavation or lifting. This is to prevent the insurer from being liable for risks associated with the specialized, often more hazardous, nature of construction work, which typically requires separate, more tailored insurance coverage.

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, providing proof of coverage. While it confirms coverage, it does not typically detail the specific terms and conditions of the underlying policy, nor does it act as a contract of insurance itself. Its primary function is to satisfy legal requirements for mandatory 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 period of insurance. 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 contract. Therefore, the Signature Clause is an integral component of a Scheduled Policy Form.

A voluntary excess, also known as a ‘self-insured retention’ or ‘excess requested by the insured’, is an amount that the policyholder agrees to bear themselves in the event of a claim. This is typically offered by insurers as a way to reduce the premium. The insured chooses a higher excess amount in exchange for a lower premium. This voluntary excess is in addition to any compulsory excess that might apply to the policy, such as a young driver excess or a specific excess for certain types of claims. Therefore, if a policy has both a voluntary excess and a young driver excess, both would apply to a claim made by a young driver.

This question tests the understanding of how changes in the insured risk can impact an insurance policy, specifically focusing on the underwriter’s perspective. When the original circumstances under which a risk was insured alter for the worse, it signifies an increase in the probability or severity of a loss. This necessitates a review of the policy terms and premium. The underwriter’s primary responsibility is to accurately assess and price risk. An adverse change in the risk profile means the existing premium may no longer adequately cover the increased exposure. Therefore, the underwriter must consider adjusting the terms, which could involve increasing the premium, imposing specific conditions (warranties), or even cancelling the policy if the risk becomes uninsurable under the current framework. Option (a) correctly identifies the need for the underwriter to reassess and potentially adjust the policy to reflect the heightened risk, aligning with the principles of risk management and underwriting in Hong Kong’s insurance regulatory environment.

The question tests the understanding of exclusions in pleasure craft insurance. Specifically, it focuses on the treatment of 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 it *is* permanently marked, it would be covered. Therefore, a pleasure craft policy would typically exclude coverage for a tender that is not marked with the parent vessel’s identification.

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 voluntarily agreed, through the Hong Kong Federation of Insurers’ Code of Conduct, to only refuse a claim due to a warranty breach if there is a causal link between the breach and the loss, or if the breach is fraudulent. This means that while technically a breach voids liability, in practice, insurers will consider the materiality of the breach in relation to the claim.

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. Therefore, the ability to arrange an annual contract at a single premium for frequent travelers is a key feature related to premium basis.

Moral hazard refers to the increased likelihood of a loss occurring because an individual is insured. This can manifest in various ways, including dishonesty, carelessness, unreasonableness, and negative social behaviour. While dishonesty leading to fraud is a direct form of moral hazard, carelessness, which increases the probability of accidents or losses due to a lack of diligence, is also a significant manifestation. Unreasonableness, characterized by inflexible or opinionated attitudes, can lead to complications and increased risk, even without malicious intent. Social behaviour, such as vandalism, directly contributes to losses. Therefore, all these aspects represent forms of moral hazard, with carelessness being a common and impactful manifestation that increases the probability of losses.

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 resolution, its decisions are not binding on the insurer unless accepted by the complainant, and there is no formal appeal process for the complainant against an award. 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 scenario describes a situation where an insured party, after experiencing a fire loss, fails to take reasonable steps to protect the damaged property from further deterioration, such as preventing water damage to electrical components. This directly contravenes the insured’s duty to minimize loss, which is a common law obligation and often explicitly stated in policy conditions. Failing to take such reasonable care can lead to the insurer reducing the claim amount or even denying it, as the additional damage could have been avoided. Admitting liability to a third party without the insurer’s consent, failing to provide proof of loss, or not disclosing other insurances are also duties of the insured, but they are not the primary breach in this specific scenario.

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 disputes between policyholders and insurers. It is crucial to understand the scope of its applicability, the nature of its services, and the limitations on its awards. Specifically, the ICCB scheme applies to a broad range of insurance claims, not just personal lines, and the complainant is indeed not charged any fee. However, the ICCB’s jurisdiction is limited to a maximum claim amount, which is subject to periodic review and adjustment by the regulators. Furthermore, the decision of the ICCB is binding on the insurer, but the policyholder has the option to accept or reject the award, and if rejected, they retain the right to pursue legal action. Therefore, the statement that either the insured or the insurer may appeal against an award is incorrect, as the appeal process is not a standard feature of the ICCB’s determination.