Paper 2 General Insurance Quiz 71

The scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This pattern of behavior, if demonstrated clearly and consistently, can lead to the insurer being considered to have ‘waived’ their right to strictly enforce the contractual term requiring punctual premium payment. The doctrine of waiver implies that the insurer, through their conduct, has relinquished their right to insist on the original terms. Estoppel, on the other hand, requires the insured to show they reasonably relied on this conduct to their detriment. While both concepts are related to the insurer’s conduct regarding late payments, waiver focuses on the insurer’s relinquishment of a right, whereas estoppel focuses on the insured’s reliance on the insurer’s conduct. The question asks about the insurer’s potential loss of the right to enforce punctuality due to past acceptance of late payments, which directly aligns with the definition of waiver in this context. The other options are less precise: ‘estoppel’ requires reliance, which isn’t explicitly stated as the primary focus of the question; ‘forfeiture’ is the consequence of non-payment, not the insurer’s relinquishment of the right to enforce punctuality; and ‘subrogation’ relates to the insurer’s right to step into the insured’s shoes to recover from a third party.

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.

The question tests the understanding of the ‘pro rata average’ condition in insurance policies, specifically how under-insurance affects claim payouts. The scenario describes a situation where the sum insured for contents is less than the actual value of the contents at the time of loss. The pro rata average condition stipulates that the claim payment will be reduced proportionally to the extent of under-insurance. In this case, the sum insured ($500,000) represents 80% of the actual value ($625,000). Therefore, the claim for a loss of $100,000 will be paid at 80% of that amount, resulting in a payout of $80,000, provided it does not exceed the sum insured.

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 ‘claims-occurring’ policies, where the event causing the claim must have happened 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 typically achieved through an ‘extended reporting period’ or by ensuring the company maintains a claims-made policy for a sufficient duration after their departure. Option (a) correctly identifies the need for continued coverage post-employment due to the claims-made nature of D&O insurance. Option (b) is incorrect because while D&O insurance covers wrongful acts, the basis of cover dictates when a claim is actionable. Option (c) is incorrect as the premium basis (flat premium) is separate from the trigger for coverage. Option (d) is incorrect because while the policy covers liability for wrongful acts, the ‘claims-made’ basis is the critical factor for post-employment coverage concerns.

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 insurer has the right to adjust the terms or premium, or in severe cases, cancel the policy, as per the principles of utmost good faith and the insurer’s right to reassess risk. Option (a) correctly identifies that the insurer can adjust terms or cancel the policy. Option (b) is incorrect because while an increase in premium might be a consequence, it’s not the sole or primary action; cancellation is also a possibility. Option (c) is incorrect as the insurer’s primary concern is the altered risk, not necessarily the insured’s financial stability, although that might be a secondary consideration in some contexts. Option (d) is incorrect because while the insurer might inform the insured of the changes, the core action is related to the policy’s terms and continuation, not just a general notification.

The scenario describes an individual intentionally engaging in a physical altercation to rescue friends. The Complaints Panel determined that the insured’s injury was not accidental because it was a foreseeable consequence of his deliberate actions in joining the fight. The key principle here is that for a personal accident claim, the injury must be the result of an unforeseen and unintentional event. By actively participating in a dangerous situation, the insured’s actions led to a predictable outcome of being injured, thus negating the ‘accidental’ nature of the event as required by personal accident policies. The insurer’s rejection was based on the injury not being accidental, which aligns with the panel’s finding.

This question tests the understanding of how an excess works in motor insurance. An excess is the amount the policyholder must pay towards a claim before the insurer covers the rest. In this scenario, the damage is HK$12,000 and the voluntary excess is HK$2,000. Therefore, the insured is responsible for the first HK$2,000 of the claim, and the insurer will pay the remaining HK$10,000. The question asks how much the insurer will pay, which is the total claim minus the excess.

This question tests the understanding of the specific definition of ‘loss of one limb’ within the context of personal accident insurance, as illustrated by Case 12. The scenario highlights that a fracture causing functional impairment, but not physical severance at or above the wrist or total functional disablement, does not meet the policy’s strict definition for this benefit. The explanation clarifies that the Complaints Panel upheld the insurer’s decision because the insured’s condition, while inconvenient, did not align with the policy’s precise wording for ‘loss of one limb’ or ‘total functional disablement’. It also points out the absence of provisions for partial permanent disability compensation in the policy.

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 extra perils insurance, the presence of unusual, high-risk items is not common knowledge. Option C is incorrect because while an insurer might know the general dangers of occupations, they wouldn’t necessarily know about specific, undisclosed hazardous materials stored on the premises. Option D is incorrect because while an insurer should inquire about blank or uncertain answers, the proactive disclosure of a fact that fundamentally alters the risk profile, like storing hazardous chemicals, is the proposer’s responsibility.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance, as outlined in the IIQE syllabus. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded by the policy, shifting the burden of proof to the insurer to demonstrate an exclusion applies. Therefore, the key difference lies in the onus of proof and the scope of covered perils.

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 held 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 principles, which are not strictly bound by the ECO’s definition of employment. Therefore, the insurer’s rejection based solely on the ECO’s criterion might be incomplete if the policy also covers common law liability, which is often the case for employers’ liability insurance.

This question tests the understanding of the ‘claims-made’ basis for liability insurance, a crucial concept in the IIQE syllabus. 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 policy wordings, the primary trigger is the claim being made.

The scenario describes a situation where an insurance agent offers a portion of their commission back to a corporate client’s employee as an incentive to secure a general insurance policy. This practice is explicitly prohibited under the Code of Practice for the Administration of Insurance Agents and the minimum requirements of the Model Agency Agreement. Rebating, in this context, is considered unethical because it distorts the true cost of insurance, potentially influences the selection of an insurer based on inducements rather than suitability, and can be seen as a form of bribery or corruption. It undermines the principle of fair competition and the integrity of the insurance intermediary’s remuneration structure, which is based on the value and risk associated with the policy. The prohibition is in place to ensure that commissions reflect the services provided and that policy decisions are made on merit, not on illicit financial incentives.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded by the policy, shifting the burden of proof to the insurer to demonstrate an exclusion applies. The scenario describes a situation where a loss occurred, and the insurer is attempting to deny coverage by claiming it wasn’t a covered peril. Under ‘Specified Perils’ cover, the claimant would need to demonstrate the loss was due to a listed peril. However, if the policy was ‘All Risks’, the insurer would need to prove the loss falls under an exclusion. The question implies the insurer is trying to avoid liability by focusing on the cause, which is characteristic of how ‘Specified Perils’ policies operate, making it the correct answer.

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 insurance. The service is free for complainants, making it an accessible recourse. While the ICCB aims to facilitate settlements, its decisions are not binding on the insurer if they exceed a certain monetary threshold, and appeals against awards are typically made by the complainant, not the insurer, to the Insurance Appeals Tribunal. The monetary limit for claims handled by the ICCB is a specific regulatory detail that candidates must be aware of to correctly assess the scope of its jurisdiction.

The scenario describes an individual who intentionally intervenes in a violent situation to rescue friends. The Complaints Panel determined that the insured’s injury was not accidental because it was a foreseeable consequence of his deliberate actions in joining the fray. The key principle here is that for a personal accident claim, the injury must be the result of an unforeseen and unintentional event. By actively participating in a dangerous situation, the insured’s actions led to a predictable outcome of being attacked, thus removing the ‘accidental’ nature of the injury as required by personal accident policies.

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 coverage when the vehicle is being used for its specialized operational functions, like excavation or lifting, as opposed to simply being driven from one location to another. This is because the risks associated with these operational uses are typically higher and may require different underwriting considerations or specialized insurance. The other options are less relevant: a ‘business use clause’ generally defines the scope of business activities permitted, a ‘tool of trade clause’ might relate to equipment attached to the vehicle but not the vehicle’s operation itself, and a ‘professional liability clause’ pertains to errors or omissions in professional services, not vehicle operation.

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 include other specific liability covers based on client needs. Directors’ and Officers’ Liability and Professional Liability are common additions that clients might request to be integrated into such a combined policy, reflecting a broader risk management approach. The other options are less likely to be standard inclusions in a combined liability policy; property insurance covers physical assets, pecuniary insurance covers financial interests, and a ‘combined umbrella’ policy is a broader, often bespoke, arrangement that can encompass various risk types, not exclusively liability.

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 goes beyond mere technical qualifications and encompasses aspects like integrity, financial soundness, and adherence to regulatory standards. While professional indemnity insurance and maintaining proper books are crucial operational requirements, they are components that contribute to demonstrating fitness and properness, rather than being the overarching criterion itself. Similarly, adherence to codes of conduct is a demonstration of being fit and proper, but the core requirement is the status of being fit and proper.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. Section 2.2.4 (iv) of the provided text explicitly states that these certificates are issued solely because the law requires them and that failure to issue one is a criminal offense. It further emphasizes the legal importance of the certificate, making it essential for the insurer to recover it upon policy cancellation. Therefore, the primary purpose and legal mandate for issuing such a certificate is to fulfill a statutory requirement, not to detail the specific terms of coverage like ‘Comprehensive’ or ‘Act Only’, which are typically found in the policy document itself.

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 the agreed-upon timeframe. This aligns with the definition provided, distinguishing it from insurance products that typically indemnify against loss.

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 the scope of its applicability, the nature of its services, and the limitations on its awards. Specifically, the ICCB scheme applies to both personal and general insurance claims, not just personal ones. The service is free for complainants, aligning with its objective of accessibility. While the ICCB makes recommendations, its decisions are not binding on the parties, and either the complainant or the insurer can reject the recommendation and pursue other avenues, including legal action. The maximum award limit is a critical detail that policyholders must be aware of when considering the ICCB as a resolution option. The current limit is HK$800,000, as stipulated by the relevant regulations governing the ICCB.

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. While the Insurance Companies Ordinance (ICO) sets out foundational requirements for insurers’ authorization and financial stability, and the Code of Practice for the Administration of Insurance Agents details intermediary conduct, the Code of Conduct for Insurers is the primary document outlining the industry’s self-regulatory standards for direct interactions with policyholders concerning the insurance products themselves and the service provided.

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, aligning with its objective of consumer protection. While the ICCB makes recommendations, its decisions are not legally binding on the insurer, and either party can choose not to accept the recommendation. If a complainant is dissatisfied with the ICCB’s recommendation, they retain the right to pursue legal action. The maximum claim amount that can be considered by the ICCB is HK$1,000,000, not HK$800,000. Therefore, only the statements that the scheme is available for all types of insurance claims and that the complainant is never charged a fee are accurate.

This question tests the understanding of the fundamental principles of general average in marine insurance. General average is a principle where all parties to a maritime adventure share losses arising from a voluntary sacrifice or extraordinary expenditure made to preserve the entire venture from peril. Statement (i) is incorrect because the act causing the loss does not necessarily have to be deliberate; it can also be an extraordinary occurrence. Statement (ii) is correct as the sacrifice or expenditure must be successful in averting a greater loss for the adventure. Statement (iii) is correct because, under general average, the loss is indeed shared proportionally by all interests involved in the maritime adventure, including the ship, cargo, and freight. Statement (iv) is incorrect because the owners of the goods sacrificed are compensated for their loss through the general average contribution, meaning they are not excluded from the sharing mechanism; rather, their sacrificed goods are valued and contribute to the pool of losses.

The ‘step-back system’ for No Claim Discount (NCD) in private car insurance, as outlined 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 significantly reduced, requiring subsequent claim-free years to rebuild to the previous level. Options B, C, and D describe scenarios that are either incorrect (no impact or full loss of NCD for a single claim) or apply to different vehicle types or claim frequencies not specified in the question’s premise.

The question tests the understanding of exclusions in pleasure craft insurance policies, 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.

The scenario describes a situation where a valuable antique vase is insured on an agreed value basis. This means that in the event of a total loss, the insurer will pay the agreed sum insured, regardless of the vase’s actual market value 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 sum insured. This is a key characteristic of agreed value policies for certain high-value items, designed to avoid disputes over valuation in case of a complete loss.

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 and severity 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 area without fracture or nerve injury) was not severe enough to prevent all work-related activities after eight days, the panel determined that the insured was only partially disabled for the remaining five days. This aligns with the principle that temporary partial disability benefits are typically lower than temporary total disability benefits, reflecting the insured’s ability to perform some, but not all, of their usual duties. Therefore, the insurer’s offer, differentiating between the two types of temporary disability, was deemed appropriate.

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 evidence of coverage. While it confirms coverage, it does not typically detail the specific terms and conditions of the underlying policy, nor does it represent a guarantee of future insurability. Its primary function is to satisfy legal requirements for proof of insurance.