Paper 2 General Insurance Quiz 75

Institute Cargo Clauses (ICC) (A) provides the broadest coverage for own damage on an ‘All Risks’ basis. This means it covers all perils except those specifically excluded. ICC (B) and ICC (C) offer coverage on a ‘specified risks’ basis, meaning only the listed perils are covered. Therefore, if a loss occurs due to a peril not explicitly listed in ICC (B) or ICC (C), it would not be covered under those clauses, whereas it would be covered under ICC (A) unless it falls under a specific exclusion. The scenario describes a loss that is not a ‘specified major casualty’ or one of the other perils listed for ICC (B) and (C), making ICC (A) the appropriate choice for comprehensive own damage protection.

This question tests the understanding of the legal implications of policy renewals in Hong Kong. Statement (i) is true because the duty of utmost good faith is a continuous obligation that applies at all stages of the insurance contract, including renewal. Statement (ii) is also true 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 be introduced. Statement (iv) is correct because 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 false because while terms can be negotiated, they are not entirely ‘freely’ negotiable as they must still align with the insurer’s underwriting policies and regulatory requirements. Therefore, statements (i), (ii), and (iv) are the accurate assertions regarding general insurance policy renewals.

Institute Cargo Clauses (ICC) (A) provides the broadest ‘all risks’ coverage for own damage to cargo. ICC (B) covers specified risks, and ICC (C) covers even fewer specified risks. The question describes a scenario where cargo is damaged due to a fire that originated from a faulty electrical system within the cargo itself, not due to external perils like collision or stranding. Under ICC (A), this would be covered as it’s an ‘all risks’ policy. ICC (B) and (C) would not cover this unless fire was explicitly listed as a covered peril in those clauses, which it is not for internal faults. The exclusion for ‘inherent vice’ applies to damage arising from the cargo’s own quality, not a mechanical or electrical fault that develops during transit. Therefore, ICC (A) is the most appropriate cover for this situation.

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 are not just self-imposed but can also be mandated by industry bodies or legislation, reinforcing their importance as a measure of performance and declared intentions.

A cover note is a binding temporary document that provides immediate evidence of insurance coverage, even before a formal proposal is fully assessed. It is not conditional on the final proposal form being satisfactory. While it offers immediate protection, it typically has a limited duration and may include cancellation clauses. A policy, on the other hand, is the final, formal document that represents the completed contract of insurance and replaces any prior cover notes. A certificate of insurance, in its more common understanding, serves as proof of compulsory insurance, particularly for motor vehicles, and is a separate, permanent document, distinct from the policy itself, although a temporary motor certificate might be incorporated into a cover note.

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 the core principle of ‘All Risks’ insurance, which is that it covers all losses unless specifically excluded. The insurer bears the burden of proof to demonstrate that an exclusion applies. Option (b) is incorrect because while exclusions exist, the fundamental principle is broad coverage. Option (c) misrepresents the burden of proof, suggesting the insured must prove coverage. Option (d) is incorrect as ‘all risks’ does not imply coverage for every conceivable event, but rather a wide scope subject to defined exclusions.

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 by the policy, shifting the burden of proof to the insurer to demonstrate an exclusion applies. Therefore, the key difference lies in which party bears the onus of proving the cause of loss and the scope of covered events.

The question tests the understanding of policy conditions, specifically the ‘average’ clause. 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$1,000,000, but only insured for HK$500,000. The loss is HK$200,000. Applying the average clause, the insurer will pay (HK$500,000 / HK$1,000,000) * HK$200,000 = HK$100,000. The remaining HK$100,000 is the uninsured portion due to under-insurance.

Under Hong Kong insurance law, specifically concerning general insurance claims, a valid claim typically requires several conditions to be met. The absence of fraudulent misrepresentation or concealment by the claimant is fundamental, as fraud invalidates a policy. The loss or damage must be a direct consequence of an event or peril that is specifically covered by the policy terms and conditions. Furthermore, the occurrence of the insured event and the resulting loss must generally fall within the period of insurance coverage specified in the policy. Therefore, all these elements are essential for a claim to be considered valid and legally enforceable under a general insurance contract.

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 private cars 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 NCD to 20% or 30% respectively upon 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 or do not accurately reflect the “step-back” mechanism for higher NCD entitlements.

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 primary basis for premium calculation in this context.

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 not conditional on the submission of a satisfactory proposal form later. While it offers unconditional cover, it typically includes cancellation provisions and is intended for a short duration, often replaced by a formal policy. Its primary function is to provide documentary proof of existing insurance, which can be crucial for various purposes, such as vehicle registration or satisfying lender requirements.

The scenario describes a situation where an insured person, a businessman who travels frequently, sustains a back injury. Initially, he receives Temporary Total Disability (TTD) benefits. However, the insurer later reclassifies his condition to Temporary Partial Disability (TPD) based on a medical examiner’s report indicating an improved range of trunk movement. The core of the dispute lies in determining whether the insured was still unable to perform *any* work (TTD) or could perform *some* duties (TPD). The Complaints Panel, in this case, gave more weight to the attending doctors’ opinions, who stated the insured was unable to perform *any* work until a specific date. This aligns with the principle that TTD benefits are payable when an insured is completely incapacitated from performing their usual occupation, and the medical evidence from the treating physicians is crucial in such determinations, especially when conflicting opinions exist. The insurer’s unilateral decision to change the benefit classification based on a partial improvement, without fully considering the attending physicians’ assessment of the insured’s overall inability to work, was deemed incorrect by the panel.

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 ascertaining the exact onset date is a common challenge in applying such exclusions, but the evidence of prior symptoms and the estimated growth time of the tumor supported the insurer’s stance.

The Motor Vehicles Insurance (Third Party Risks) Ordinance mandates compulsory third-party motor insurance in Hong Kong. This legislation ensures that victims of motor accidents have a recourse for compensation, even if the at-fault driver’s insurer becomes insolvent. The Motor Insurers’ Bureau of Hong Kong (MIB) plays a crucial role in fulfilling this legislative intent by providing a safety net for such situations, funded by levies on motor insurance premiums. Therefore, understanding this ordinance is fundamental to the compulsory nature of motor insurance in the territory.

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, stating that damage to the premises during forcible entry or exit is covered. Option (b) is incorrect because while theft by staff is excluded, the question is about damage to the premises during 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 what is included in the cover, not conditions for it.

A ‘Scheduled Policy Form’ is a common insurance contract structure 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 specific part of this scheduled policy form where the insurer formally confirms their commitment and obligations under the contract. Therefore, the Signature Clause is an integral component of a Scheduled Policy Form.

This question assesses the understanding of the positive impacts of excellent customer service in the insurance industry, specifically focusing on customer retention and business growth. The provided text highlights that happy customers not only remain loyal but also become a valuable source of new business through recommendations and word-of-mouth. This directly translates to increased profitability by reducing the need for costly new customer acquisition and by generating a steady stream of renewed business. Options B, C, and D represent negative consequences or unrelated aspects of customer service, such as increased operational costs due to complaints, a focus on regulatory compliance rather than business growth, or the potential for negative publicity which, while a consequence of bad service, is not the primary positive outcome of good service.

The ‘step-back system’ for No Claim Discount (NCD) in private car insurance, as described 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 (resulting in a 50% or 60% NCD), a single claim in the policy year will reduce their NCD to 20% or 30% respectively upon renewal. This means they don’t lose their entire accumulated discount but rather regress to a lower tier. Options B, C, and D describe scenarios that are either incorrect interpretations of the step-back system or describe the treatment for other vehicle types or multiple claims, which do not apply to this specific situation of a private car with a high NCD entitlement and a single claim.

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. While improved profitability and enhanced market prestige are also benefits, the question specifically targets the direct impact on acquiring new business through existing satisfied clients.

Moral hazard refers to the increased likelihood of a loss occurring because an individual is insured. It’s often linked to the ‘human element’ of risk, encompassing attitudes and behaviours. While dishonesty (including fraud) is a direct manifestation, carelessness, unreasonableness (like stubborn inflexibility), and negative social behaviour (such as vandalism) also contribute to adverse moral hazard. These behaviours can increase the probability or severity of a claim, even if not driven by outright fraud. Therefore, all listed behaviours are considered aspects of moral hazard.

This question tests the understanding of the ‘claims-made’ basis for liability insurance, a key concept in the IIQE syllabus. A claims-made policy covers claims that are first made against the insured during the policy period, regardless of when the incident causing the claim occurred. This is distinct from an ‘occurrence-based’ policy, which covers incidents that happen during the policy period, even if the claim is reported later. Option (a) describes an occurrence-based policy. Option (b) describes a policy that would not cover any claims, as claims must be made during the policy period. Option (c) focuses on settlement, which is not the primary trigger for coverage under a claims-made policy.

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 perils not explicitly listed, unlike Clauses (B) and (C) which are based on specified risks. Therefore, a loss caused by a sudden and unexpected mechanical breakdown of the vessel’s refrigeration system, leading to spoilage of perishable goods, would be covered under Clause (A) as it’s not an excluded peril. Clauses (B) and (C) would likely not cover this unless the breakdown was a direct consequence of a specifically listed peril (e.g., a fire causing the breakdown). The Insurance Companies Ordinance (Cap 38) regulates the insurance industry in Hong Kong, but the specific coverage details are determined by the Institute Cargo Clauses.

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 it describes a specific type of fishing vessel, but the broader category in (a) is more encompassing for trading vessels. Option (d) is incorrect because it refers to vessels registered in Mainland China or Macau that are issued specific certificates, which is a separate category of exemption or special consideration, not a general requirement for all vessels trading to Hong Kong.

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) refers to professional standards, which is also a common inclusion. Option (c) highlights efficiency and ethical business practices, another key aspect. Option (d) focuses on claims handling, a crucial service promise. The provided text emphasizes that these declarations are declarations of intent and measures of performance, encompassing a range of commitments to ensure customer satisfaction and maintain trust. Therefore, a comprehensive declaration would likely include all these elements to demonstrate a holistic approach to customer service and business conduct.

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 disablement, and the insurer’s assessment was deemed appropriate given the policy definitions and the insured’s recovery trajectory.

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, stating that damage to the premises during forcible entry or exit is covered. Option (b) is incorrect because while theft by staff is excluded, the question is about damage to the premises during theft, not the theft itself by staff. Option (c) is incorrect because fire damage, even if related to a theft, 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 specific conditions that might apply.

The core principle of an indemnity policy is to restore the insured to their pre-loss financial position. When new parts replace old, worn-out parts, the insured is often in a better position than before the accident. This improvement is termed ‘betterment’. The insurer is entitled to deduct a reasonable contribution from the insured for this betterment, as the new parts have a longer lifespan and superior condition compared to the original, aged parts. The case highlights that the insurer’s application of a 35% betterment contribution for an eight-year-old vehicle, considering the normal depreciation rate of 50%, was deemed reasonable by the Complaints Panel. The policy’s exclusion of depreciation further supports the insurer’s stance on requiring a betterment contribution.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles and common practice, an insurer is not legally obligated to proactively remind an insured about an approaching renewal date. If the insured fails to take action, the policy simply lapses at the end of its term. While it is often in the insurer’s interest to facilitate renewal, this is a commercial consideration, not a legal mandate. Therefore, the statement that the insurer does not have to remind the insured is accurate.