Paper 2 General Insurance Quiz 73

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 the relationship between material damage insurance and business interruption (BI) insurance, specifically the ‘material damage proviso’ in BI policies. This proviso stipulates that a claim under a BI policy is contingent upon a valid claim being payable under the associated material damage policy for the same insured peril. If the material damage policy does not cover the event causing the interruption, or if it’s invalid, the BI claim will not be admitted. Therefore, the absence of a valid material damage cover for the physical loss directly invalidates the business interruption 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, typically a year, covering multiple trips. The other options represent individual trip characteristics or benefits, not the overarching pricing model for frequent travelers.

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, by recommendations and word of mouth advertising to family and friends.’ This directly translates to increased customer ‘productivity’ through referrals. Option (b) describes a negative consequence (loss of business), option (c) refers to a general industry benefit (market prestige), and option (d) points to a potential government reaction to poor service, none of which directly represent the positive impact of satisfied customers generating new business.

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 is valued at HK$500,000, but only insured for HK$300,000. The loss is HK$100,000. Applying the average clause, the payout would be (HK$300,000 / HK$500,000) * HK$100,000 = HK$60,000. Therefore, the insured would receive HK$60,000.

The scenario describes a situation where an insurer rejected a hospitalization claim due to a pre-existing condition. The insured had consulted for rectal bleeding 15 months before applying for insurance, and the insurer believed the colon tumor could not have developed within 10 days of policy inception. The Complaints Panel, considering the tumor size, agreed that it likely took time to grow, and since the policy excluded illnesses presenting signs or symptoms prior to commencement, the insurer’s decision was upheld. This aligns with the principle that insurance policies typically exclude coverage for conditions that were already present or manifesting before the policy’s effective date, even if not formally diagnosed. The difficulty in pinpointing the exact onset date is a common challenge in applying pre-existing condition clauses, but the evidence of prior symptoms and the tumor’s likely growth period supported the insurer’s stance.

The Employees’ Compensation Ordinance in Hong Kong establishes a strict liability framework for employers. This means that an employer is legally obligated to compensate an employee for injuries or death sustained due to an accident arising out of and in the course of employment, regardless of whether the employer was at fault. The ordinance mandates insurance to cover these liabilities. Therefore, the core principle is the employer’s legal duty to compensate, irrespective of negligence.

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, typically a year, covering multiple trips. The other options represent individual trip factors or general policy features, not the specific pricing model for frequent travelers.

Institute Cargo Clauses (A) provides the broadest coverage, insuring against all risks of loss or damage to the insured subject matter, except for those specifically excluded. This ‘all risks’ nature means it covers a wide array of perils, including those not explicitly listed, provided they are not excluded. Clauses (B) and (C) offer more limited coverage, specifying only the risks that are covered. Clause (B) covers a broader list of specified perils than Clause (C), which is the most restrictive. Therefore, a loss caused by a sudden and accidental leakage of water from a burst pipe within the cargo hold, not caused by a specifically excluded peril like inherent vice or faulty packing, would be covered under Clause (A) due to its comprehensive nature, whereas it might not be covered under (B) or (C) unless water damage was a specifically listed peril in those clauses.

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, but the ordinance itself is the foundational legal requirement.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. According to the provided text, a certificate of motor insurance merely confirms the existence of compulsory insurance as prescribed by law and does not detail the policy’s coverage level (e.g., Comprehensive or Act Only). The law mandates the issuance of these certificates, and failure to do so is a criminal offense. Furthermore, the law requires insurers to recover these documents upon policy cancellation due to their legal importance. Therefore, a certificate of motor insurance is primarily a legal document confirming compliance with compulsory insurance requirements, not a summary of policy terms.

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.

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, typically a year, covering multiple trips. The other options represent individual trip factors or general policy features, not the specific pricing model for frequent travelers.

The 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 the judgment of a prudent underwriter in deciding whether to accept the risk and on what terms. Storing highly flammable materials like petrol in a residential property, even if not explicitly asked about, significantly increases the fire risk beyond what a standard homeowner’s policy would anticipate. This would undoubtedly affect an underwriter’s decision regarding insurability and premium. Options B, C, and D describe facts that are either common knowledge (typhoons in Hong Kong), improve the risk (sprinkler systems), or are generally assumed by insurers (normal occupational dangers), and therefore do not need to be disclosed as they do not increase the risk in an unexpected way or are already known to the insurer.

The question probes the understanding of prohibited practices in the insurance intermediary sector, 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 distorts the true cost of insurance, undermines fair competition, and can be a form of bribery or corruption. The Insurance Companies Ordinance (Cap. 41) and related codes of practice, such as the Code of Practice for the Administration of Insurance Agents, aim to prevent such activities. Offering a portion of the commission to an employee of the insured without the insured’s explicit written consent falls under this prohibition, as it constitutes an unauthorized benefit and a deviation from the principle of honest reward for services rendered. This practice can lead to unfair advantages and compromise the integrity of the insurance transaction.

Average adjusters are specialized professionals in marine insurance, particularly for General Average (GA) claims. Their expertise is crucial due to the complexity of GA, which involves international maritime law, potentially hundreds of interested parties (like cargo owners), and lengthy investigation periods that can span years. While Lloyd’s Agents often act as survey and settling agents for marine underwriters, and loss adjusters are common in other general insurance classes, average adjusters are specifically retained for the intricate calculations and legal considerations inherent in GA. Therefore, their involvement is a distinctive feature of marine claims handling, especially for complex losses.

The scenario describes a situation where an insurer rejected a hospitalization claim due to a pre-existing condition. The insured had consulted for rectal bleeding 15 months before applying for insurance, and the insurer believed the colon tumor could not have developed within 10 days of policy inception. The Complaints Panel, considering the tumor size and the policy’s exclusion for conditions presenting signs or symptoms prior to the policy commencement date, supported the insurer’s decision. This aligns with the principle that insurance policies typically exclude coverage for illnesses that were already present or showing symptoms before the policy was in effect, even if not formally diagnosed. The difficulty in ascertaining the exact onset date of a condition is a common challenge in applying pre-existing condition clauses, as highlighted in the provided text.

The question tests the understanding of the scope of theft insurance, specifically regarding damage to the premises during an attempted theft. According to the provided text, theft policies typically include coverage for damage caused by thieves to the insured premises when making forcible and violent entry or exit. This damage is not subject to a separate sum insured but is covered under the general policy for stock and specified contents. Option (a) accurately reflects this by stating that damage to the premises during forcible entry or exit is generally covered. Option (b) is incorrect because while theft by staff is excluded, the question is about damage to the premises during the act of theft, not the theft itself by staff. Option (c) is incorrect as fire damage is explicitly excluded from theft policies. Option (d) is incorrect because while warranties are common, the question is about the scope of cover for damage to the premises, not a specific warranty condition.

This question tests the understanding of how changes in risk circumstances can impact an insurance policy. The Insurance Ordinance (Cap. 41) and related common law principles dictate that if the original circumstances under which a risk was insured alter significantly for the worse, the insurer may have grounds to cancel the policy. This is because the insurer’s assessment of the risk, and therefore the premium charged, was based on the initial conditions. A substantial negative change in these conditions means the risk has fundamentally changed, potentially invalidating the original agreement or allowing for adjustments. Option B is incorrect because while an insurer might adjust terms, the core principle relates to the alteration of the risk itself. Option C is incorrect as the focus is on the worsening of the risk, not necessarily a change in the insured’s financial standing. Option D is incorrect because while an insurer must act reasonably, the primary trigger for potential cancellation is the adverse change in the risk’s nature, not just a desire to reduce exposure.

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 will simply lapse 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.

This question tests the understanding of General Average (GA) acts and their consequences. A GA act involves a voluntary and reasonable sacrifice or expenditure to preserve the common adventure. When cargo is jettisoned (thrown overboard) to save the ship and other cargo during a peril, it constitutes a GA 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 is that the act must be extraordinary, voluntary, reasonable, and performed in a time of peril for the common safety. Option A correctly identifies jettisoning cargo as a GA sacrifice. Option B is incorrect because salvage awards are for saving property from peril, not a sacrifice made to preserve the adventure. Option C describes Sue and Labour charges, which are expenses incurred by the assured to preserve property, not a sacrifice made for the common good. Option D describes an Actual Total Loss, which is a complete loss of the insured item, not a partial loss contributing to a GA.

The question tests the understanding of the specific exclusions in motorcycle insurance policies, particularly concerning theft claims. Unlike private car policies, motorcycle insurance typically only covers the entire machine being stolen. Loss of accessories alone, even if stolen from the motorcycle, is generally not covered under the theft section of an ‘Own Damage/Accidental Damage’ policy for motorcycles. This is a key distinction highlighted in the provided text.

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, 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 simplify claims settlement for total losses while maintaining the indemnity principle for partial damage.

The scenario describes a situation where an insurer rejected a hospitalization claim due to a pre-existing condition. The insured had consulted for rectal bleeding 15 months before applying for insurance, and the insurer believed the colon tumor could not have developed within 10 days of policy inception. The Complaints Panel, considering the tumor size, agreed that it likely took time to grow, and since the policy excluded illnesses presenting signs or symptoms prior to commencement, the insurer’s decision was upheld. This aligns with the principle that insurance policies typically exclude coverage for conditions that were already present or manifesting before the policy’s effective date, even if not formally diagnosed. The difficulty in pinpointing the exact onset date is a common challenge in applying such exclusions, but the evidence of prior symptoms and the tumor’s likely growth period supported the insurer’s stance.

The question tests the understanding of specific exclusions in third-party liability cover for commercial vehicles, as distinct from private car policies. The ‘tool of trade’ clause specifically excludes damage caused when a vehicle is used as a tool for its primary function (e.g., a digger being used for digging). While statutory provisions for compulsory insurance might mandate certain third-party cover, the policy’s own exclusions can limit coverage for specific uses. Food poisoning claims are also an exclusion for mobile food vendors, and damage to stock-in-trade or specific equipment on the vehicle is another exclusion. Damage to roads or weighbridges due to the vehicle’s weight or vibration is also excluded. Therefore, the use of a vehicle as a tool of trade, unless mandated by compulsory insurance laws, is a key exclusion.

The scenario describes a shop owner losing cash from her bag after closing her shop. The money insurance policy explicitly states that cover is for losses occurring during normal business hours while being conveyed by a messenger. Since the loss happened outside of business hours, it falls outside the defined scope of cover for this specific policy, leading to the rejection of the claim. The policy’s wording is crucial here, limiting coverage to a specific timeframe to manage risk and premium.

The question probes the understanding of prohibited practices in the insurance intermediary sector, 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 distorts the true cost of insurance, undermines fair competition, and can be 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 prohibit such practices. Offering a portion of the commission to an employee of the insured without the insured’s explicit written consent falls directly under the definition of rebating, as it provides an unearned benefit to a party associated with the policyholder, thereby compromising the integrity of the commission structure and potentially influencing the decision-making process based on factors other than the policy’s merits.

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 coverage is triggered by the date of the incident causing the liability, 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 during 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.

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. The ‘Rating Features’ are precisely these elements used by insurers to calculate premiums. For instance, in motor insurance, these features include the scope of coverage, the vehicle’s engine capacity, its intended use, and its value. These are all ‘Rating Features’ that help the insurer assess the risk and set an appropriate premium. ‘Risk Classification’ involves grouping similar risks, ‘Risk Discrimination’ involves differentiating within those groups, and ‘Quotation’ is the offer of terms, but ‘Rating Features’ are the underlying elements used to arrive at that quotation.

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.