Paper 2 General Insurance Quiz 72

The “step-back system” for No Claim Discount (NCD) in private car insurance, as outlined in the IIQE syllabus, dictates how a discount is adjusted after a claim. For drivers with an entitlement of four or more claim-free years (equivalent to 50% or 60% NCD), a single claim in the policy 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. Other options are incorrect because a single claim with a lower entitlement (e.g., 30% NCD) or multiple claims with higher entitlements would result in no NCD at all, forcing the insured to start building the discount from zero.

The scenario describes a situation where an insurer is determining the premium for a motor insurance policy. The insurer needs to consider various factors that influence the likelihood and potential cost of a claim. ‘Rating Features’ are precisely these elements that are used to calculate premiums. For instance, in motor insurance, the engine capacity, the intended use of the vehicle, and its overall value are all critical rating features that directly impact the premium charged. The other options are related but not the direct term for these premium-determining factors. ‘Risk Assessment Factors’ is a broader term that includes rating features but also encompasses aspects of insurability. ‘Risk Classification’ is the process of grouping similar risks, and ‘Risk Discrimination’ refers to differentiating within those groups, but neither directly names the specific elements used for calculation.

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, emphasizing its role in guaranteeing project completion.

This question tests the understanding of how changes in the original circumstances of a risk can impact an insurance policy. The Insurance Companies Ordinance (Cap. 41) and related regulations govern how insurers must handle such situations. When the circumstances under which a risk was insured alter for the worse, it fundamentally changes the risk profile. Insurers have the right to adjust terms, premiums, or even cancel the policy if the risk becomes significantly greater than initially assessed. This is a core principle of underwriting and risk management, ensuring the insurer’s solvency and fairness to all policyholders. Option (a) correctly identifies that the insurer can adjust terms or cancel the policy, reflecting the insurer’s right to manage increased risk. Option (b) is incorrect because while the insurer might investigate, simply continuing the policy without any action is not a standard or prudent response to a significantly worsened risk. Option (c) is incorrect as the insurer’s primary concern is managing the risk, not necessarily educating the policyholder on risk management unless it’s part of a broader strategy or a condition for continuing cover. Option (d) is incorrect because while a premium adjustment might occur, it’s not the only or necessarily the primary action; cancellation is also a possibility, and the insurer’s right to act is paramount.

This question tests the understanding of how contract terms are classified based on their timing of operation within an insurance policy. A ‘condition precedent to liability’ is a term whose breach does not void the entire contract but specifically invalidates a particular claim. The scenario describes a situation where the insured fails to notify the insurer of a change in profession, which is a common example of a condition that, if breached, affects the insurer’s obligation to pay a specific claim rather than the contract’s existence. Option B describes a condition precedent to the contract, which must be met for the contract to begin. Option C describes a condition subsequent, which, if it occurs, can terminate the contract. Option D describes a representation, which is a statement of fact that needs to be substantially true if material, but its breach typically has different consequences than invalidating a specific claim.

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, the insured’s occupation (self-employed director with mainly office duties), and the absence of complications. The panel concluded that after eight days, the insured was capable of performing some duties, thus qualifying for temporary partial disability rather than temporary total disability for the remaining five days. This aligns with the principle that personal accident policies often differentiate benefit amounts based on the degree of disability, and the insurer’s assessment was deemed appropriate given the policy definitions and the specific circumstances of the injury and recovery.

The scenario describes a shop owner losing cash after business hours. The money insurance policy explicitly states that cover is for losses occurring during normal business hours. Since the loss happened outside of this specified period, the insurer is justified in rejecting the claim. The policy’s wording is crucial here, limiting the scope of coverage to a specific timeframe to manage risk, as personal money or money outside of business operations is generally not covered under standard money policies, which are designed to protect business funds during operational periods.

This question tests the understanding of the legal implications of policy renewals in Hong Kong. Statement (i) is correct because the duty of utmost good faith, which is fundamental to insurance contracts, is a continuing obligation and is particularly important at renewal when new information may be relevant. Statement (ii) is correct as a renewal is generally considered the creation of a new contract, not merely a continuation of the old one, meaning new terms and conditions can apply. Statement (iv) is also correct; 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 incorrect because while terms can be negotiated, they are not ‘freely’ negotiable in the sense that the insurer still operates within the bounds of the policy contract and regulatory requirements; the insurer can propose new terms, but the insured is not obligated to accept them, and the insurer may choose not to renew if terms are not agreed upon. Therefore, statements (i), (ii), and (iv) are true.

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. Therefore, if an employer fails to secure the mandatory insurance, the ECAS steps in to ensure employees receive compensation for work-related injuries or diseases, fulfilling the spirit of the compulsory insurance requirement.

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) is also a common element, focusing on professional standards. Option (c) highlights efficiency and ethical business practices. Option (d) addresses the crucial aspect of claims handling. Option (e) refers to specific details on business conduct. The provided text emphasizes that these declarations serve as both a standard of declared intentions and a measure of performance, and typically include commitments to quality, professional standards, efficiency, ethical conduct, and fair claims handling. Therefore, a promise of efficiency and high business ethics is a key component of such declarations.

The question tests the understanding of ‘Public Policy’ as a legal concept in the context of insurance. Public policy refers to fundamental principles that underpin the legal system and societal well-being. Agreements or actions that contravene these principles are considered void or unenforceable. In the provided context, an agreement that restricts an individual’s freedom of marriage or attempts to prevent access to the courts is cited as an example of being contrary to public policy. Similarly, a claim arising from illegal conduct, such as breaking into a flat, would likely be denied because it is based on an unlawful act, which is against public policy. Therefore, the concept of public policy serves as a broad principle that can invalidate contracts or claims that are deemed harmful to society or its fundamental values.

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, assuming it’s not an excluded peril like inherent vice or wear and tear.

The scenario describes an individual injured while ice-skating. The insurer denied the claim based on a ‘winter-sports’ exclusion. The Complaints Panel, in interpreting this exclusion, determined that ‘winter-sports’ generally encompass activities on snow or ice, regardless of the season or whether they are performed indoors. Therefore, ice-skating, even in a shopping complex, 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 (on ice) rather than the temporal or environmental context.

An insurance broker acts as an agent for the proposer, meaning they are legally identified with the proposer. This agency relationship imposes a duty of utmost good faith. If a broker withholds or misrepresents material facts, this breach of good faith is imputed to the proposer. This can lead to the insurer voiding the contract. Therefore, the broker’s actions directly impact the validity of the insurance contract from the proposer’s perspective.

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 customer-facing practices in personal insurance.

A condition precedent to the contract is a term that must be fulfilled for the insurance contract to become effective. Without this condition being met, the insurer has no obligation to provide cover. For instance, if a policy states that the insured must undergo a medical examination before the contract commences, and this examination is not completed, the contract is not in force. This differs from a condition precedent to liability, which relates to the validity of a specific claim after the contract is already in effect, and a condition subsequent, which is a term to be complied with during the policy’s currency.

The scenario describes a situation where valuable items like jewelry and antiques are insured on an ‘agreed value’ basis. This means that in the event of a total loss, the insurer will pay the sum insured (the agreed value) regardless of the actual market value of the items 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 agreed value. This approach is designed to address the difficulty in accurately valuing unique or rare items at the time of a claim, providing certainty for both the insured and the insurer in case of a complete loss.

This question assesses the understanding of the positive impacts of excellent customer service beyond merely avoiding negative consequences. While retaining intermediaries and enhancing market prestige are important outcomes, the core benefit of good service, as highlighted in the syllabus, is fostering customer loyalty. Loyal customers are more likely to renew policies and generate new business through recommendations, directly contributing to the insurer’s long-term success and profitability. Increased profitability is a result of customer loyalty and reduced complaints, but loyalty itself is the foundational positive outcome.

The ‘Schedule’ within a scheduled policy form is the section that specifically details all information pertinent to the individual risk being insured. This includes crucial data such as the policy number, the insured’s particulars, the sums insured or limits of liability, the effective dates of coverage, a description of the insured subject matter, the premium paid, and any special terms, warranties, exclusions, or endorsements that modify the standard policy wording. The Recital Clause introduces the contract and references the proposal form, while the Operative Clause outlines the circumstances of cover and perils insured. General Exceptions apply to the entire contract, not just specific sections.

A Certificate of Insurance serves as a formal confirmation of the existence of compulsory insurance. It is a standalone document, distinct from the main policy, and is commonly issued for motor vehicle and pleasure vessel insurance. Its primary function is to provide evidence that the required insurance is in place, fulfilling legal obligations. While it confirms coverage, it is not the policy itself, nor is it a claim document. It also differs from a cover note, which is a temporary document issued before the final policy is ready.

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 if applicable. 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 while settlement is important, the trigger for coverage under a claims-made policy is the making and reporting of the claim, not necessarily its settlement within the policy period.

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, meaning the claimant must prove the loss was due to one of these named perils. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded, shifting the burden of proof to the insurer to demonstrate an exclusion applies. The scenario describes a situation where a loss occurred, and the claimant is attempting to recover. The key is to identify which type of cover requires the claimant to prove the cause of loss was a listed peril. If the policy only covers ‘lightning’ and ‘fire’, and the loss was caused by a flood, the claimant would need to prove the flood was a specified peril, which it is not in this example. Therefore, the cover that requires the claimant to prove the cause of loss is a specified peril is ‘Specified Perils’ cover.

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” policies are not unknown, they are not the common practice for PL insurance. Therefore, a policy that covers claims reported within the policy period but arising from incidents that occurred outside that period would not align with the typical “claims-occurring” basis.

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 is in addition to any compulsory excess that might apply to the policy, such as a young driver excess.

A ‘Scheduled Policy Form’ is a common structure for insurance policies that includes a policy schedule. This schedule details specific information about the insured, the risk, the sum insured, and other relevant terms and conditions pertinent to that particular policy. The Signature Clause, also known as the Attestation Clause, is a specific part of this scheduled policy form where the insurer formally confirms their agreement to the undertakings outlined in the contract. Therefore, the Signature Clause is an integral component of a Scheduled Policy Form.

The scenario describes an individual injured while ice-skating. The insurer denied the claim based on a ‘winter-sports’ exclusion. The Complaints Panel, in interpreting this exclusion, determined that ‘winter-sports’ generally encompass activities on snow or ice, regardless of the season or whether they are performed 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 (on ice) rather than the timing or location.

The scenario describes an individual injured while ice-skating. The insurer denied the claim based on a ‘winter-sports’ exclusion. The Complaints Panel, in interpreting this exclusion, considered that ‘winter-sports’ generally encompass sports played on snow or ice. Ice-skating, regardless of whether it’s indoors or outdoors, falls under this broad interpretation. Therefore, the exclusion for participating in winter sports would apply, leading to the rejection of the claim. This aligns with the principle that policy exclusions are interpreted based on common understanding and the nature of the activity, even if not explicitly defined in the policy document.

The question tests the understanding of the specific exclusions in motorcycle insurance policies, particularly concerning theft claims. While private car policies might cover the loss of accessories, motorcycle policies typically require the entire machine to be stolen for a theft claim to be admissible. This is a key distinction in motorcycle insurance as outlined in the syllabus.

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 arise out of and in the course of employment, implying the claim fell outside the scope of the ECO. However, the employer’s liability independent of the ECO, often referred to as common law liability, could still be covered if the policy is structured to include it. This type of liability is based on fault and can be contested. Therefore, the insurer’s rejection based solely on the injury not meeting the ECO’s ‘arising out of and in the course of employment’ criterion might be premature if the policy also covers common law liability, which is a distinct but related area of employer responsibility.

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, the insured’s occupation (self-employed director with mainly office duties), and the absence of complications. The panel determined that after eight days, the insured was capable of performing some duties, thus qualifying for temporary partial disability rather than temporary total disability for the remaining five days. This aligns with the principle that personal accident policies often differentiate benefit amounts based on the degree of disability, and the insurer’s assessment was deemed appropriate given the policy definitions and the insured’s recovery trajectory.