Paper 2 General Insurance Set Two

The Employees’ Compensation Insurance Residual Scheme (ECIRS) in Hong Kong serves as a safety net for employers struggling to secure Employees’ Compensation insurance, particularly those in high-risk industries. To be eligible for the ECIRS, an employer must demonstrate that they have been declined by at least three insurers or have received three quotations exceeding the benchmark premium rate for their specific trade. This ensures that the scheme is utilized by employers who genuinely face difficulties in obtaining coverage through the standard insurance market. The ECIRS operates under a co-insurance arrangement, where all member insurers collectively share the risk. This mechanism helps to distribute the financial burden and ensures that employers in high-risk industries can still obtain the necessary insurance coverage to protect their employees. This is related to IIQE Paper 2 General Insurance Examination.

In personal accident policies, the definition of ‘accident’ is crucial for claim eligibility. It typically involves an unforeseen and involuntary event causing bodily injury. The presence of visible signs of injury, like redness or swelling, can support a claim, even without X-ray abnormalities. The Complaints Panel considers the nature and extent of the injury, along with supporting medical reports, to determine if a genuine accident occurred. Benefit amounts may vary for temporary total and temporary partial disablement, depending on the insured’s ability to perform their duties. Therefore, statements I and II are correct.

A performance bond is a guarantee, not an insurance policy, ensuring the completion of construction work within a specified timeframe. It protects the project owner against losses resulting from the contractor’s failure to fulfill their contractual obligations. This contrasts with other insurance types like personal accident insurance, which provides benefits for accidental death or injuries, or products liability insurance, which covers liabilities arising from defective products. The key distinction lies in the bond’s function as a guarantee of performance rather than a compensation for loss due to an insured event. Therefore, statement I is correct.

In personal accident policies, compensation for injuries is structured differently based on the severity and duration of the disablement. A ‘Principal Sum Insured’ is often specified in the policy, and compensation is calculated as a percentage of this sum. For events like death, total permanent disablement, or the loss of two limbs, the benefit is typically 100% of the principal sum. Lesser injuries receive lower percentages based on a pre-defined table of benefits.

Temporary disablement, on the other hand, is compensated through weekly benefits. This is further divided into Temporary Total Disablement and Temporary Partial Disablement, each with different compensation amounts. The determination of whether an insured person has sustained temporary total or partial disablement is crucial in calculating the appropriate benefit amount. Insurers may consider medical opinions and the insured’s ability to perform their duties when making this determination. Cases adjudicated by the Complaints Panel highlight the importance of medical evidence and the insured’s functional capacity in determining the appropriate level of disability benefit. These distinctions are vital in the context of IIQE Paper 2, as they reflect the practical application and interpretation of policy terms in general insurance.

A deductible, also known as an excess, is the amount the insured must pay out-of-pocket before the insurance coverage applies. A franchise, on the other hand, stipulates that if the loss reaches or exceeds a certain amount, the insurer pays the entire loss; otherwise, nothing is paid. Warranties are absolute undertakings by the insured, and a breach can discharge the insurer’s liability. Conditions in insurance can refer to either policy conditions or contract conditions, which have different legal implications. Therefore, statements I and II are correct.

Contractors’ All Risks insurance provides coverage for physical loss or damage to the contract works, construction plant, equipment, and machinery. Section I typically includes exclusions applicable to ‘all risks’ cover, such as faulty design and losses discovered during inventory. Section II provides liability insurance for third-party injury or property damage arising from the construction work, excluding damage to the insured’s property and certain perils like weakening support to other buildings (which can be added for an extra premium). Deductibles are common in both sections. Erection All Risks insurance is similar but applies to the assembly and installation of pre-constructed components. Liability insurance policies can be ‘claims-made’ (covering claims made during the policy period) or ‘claims-occurring’ (covering events occurring during the policy period). Employers’ Liability Insurance, similar to Employees’ Compensation (EC) policy in Hong Kong, covers the employer’s legal liabilities towards employees for work-related injuries or death, as required by the Employees’ Compensation Ordinance. This liability is ‘strict’ and doesn’t depend on the employer’s fault. Understanding these aspects is crucial for the IIQE Paper 2 General Insurance Examination.

Average adjusters are specialists in General Average (GA) claims, which are complex and require specific expertise. These claims involve detailed legal knowledge, numerous interested parties, and long-term investigations. Arbitration clauses are designed to provide an alternative to litigation for resolving disputes, but they typically apply to quantum (the amount payable) rather than liability (insurer responsibility). Lloyd’s Agents often act as survey agents for marine underwriters, and independent surveys are almost always required for marine claims, except for very minor ones.

Statement I is incorrect because arbitration clauses usually apply to disputes over the amount payable (quantum), not liability.
Statement II is correct because average adjusters specialize in General Average claims, which require considerable experience and expertise.
Statement III is correct because Lloyd’s Agents frequently act as survey agents for marine underwriters.
Statement IV is incorrect because litigation may still be possible if a party is unhappy with an arbitration award, although courts will not overrule a properly conducted arbitration unless there was a clear mistake in law or proof of bias. Therefore, statements II and III are correct.

Buildings insurance typically covers specified perils, while contents insurance often provides ‘all risks’ coverage. Policies may include coverage for buildings, contents, temporary removal of contents, contents in transit, and additional property coverages like lock replacement or spoiled frozen food. Furthermore, policies may cover architects’ and surveyors’ fees for damaged buildings, alternative accommodation costs, and liability towards third parties. Personal accident benefits and referral services may also be included. Common limitations and exclusions include war, nuclear risks, consequential loss, unoccupancy, policy excesses, and pro rata average condition. Premiums are often based on the value of the buildings and/or contents, or the gross floor area of the insured premises. Therefore, statements I, II and III are correct.

Forcible and violent entry or exit is a standard requirement for valid claims under a commercial theft insurance policy, indicating that the theft must involve visible signs of forced entry or exit. A ‘Hold-Up’ cover extends a theft policy to include theft accompanied by violence or the threat of violence. Fraud involves dishonest attempts to cheat, such as providing false information when arranging insurance or making claims, and can lead to policy termination and forfeiture of benefits. Therefore, statements I and II are correct.

The Institute Cargo Clauses (A) provide the broadest form of coverage, operating on an ‘all risks’ basis, subject to specific exclusions. Clauses (B) and (C) offer coverage for specified risks, with (B) providing a wider range of coverage compared to (C). When assessing cargo insurance needs, it’s essential to consider the nature of the goods, the transportation methods, and the potential risks involved to determine the most appropriate level of coverage. Understanding the differences between these clauses is crucial for selecting the right insurance policy to protect against potential losses during transit, aligning with the principles of risk management and insurance outlined in the IIQE Paper 2 syllabus.

When a general insurance policy is up for renewal in Hong Kong, several key principles come into play. Firstly, the duty of utmost good faith is not a one-time obligation; it is revived at each renewal, requiring both the insurer and the insured to be transparent and honest with each other. Secondly, a renewal is not merely an extension of the existing policy but is legally considered a new contract, meaning all terms and conditions are subject to review and acceptance. Thirdly, the terms of the renewal, including the premium and coverage details, are negotiable, allowing both parties to adjust the policy to meet their current needs and risk profiles. These aspects are vital for maintaining fairness and relevance in the insurance relationship. Therefore, statements I, II, and III are correct.

The Code of Conduct for Insurers, as it relates to the HK IIQE exam, sets out the expected standards of good insurance practice. This includes guidelines on underwriting and claims handling, ensuring fair and transparent processes. It also emphasizes the importance of respecting customers’ rights and obligations, providing clear information and fair treatment. The Code further addresses the need to consider customers’ rights and interests generally, promoting ethical behavior and consumer protection within the insurance industry. Finally, it acknowledges the industry’s responsibility to maintain a positive public image as a good corporate citizen, encouraging insurers to act responsibly and contribute to the community. Therefore, all of the above statements are correct.

In personal accident policies, compensation for specified injuries is often calculated as a percentage of the Principal Sum Insured. Death and total permanent disablement typically merit 100% of this sum. Major injuries, such as the loss of two limbs or total loss of sight, also usually receive 100% of the benefit. Less severe, but still permanent, injuries are compensated at lower percentages, varying based on the severity and impact of the injury. Temporary disablement benefits are divided into Temporary Total Disablement and Temporary Partial Disablement, each providing different levels of compensation based on the insured’s ability to perform their usual occupation or any occupation. When assessing claims, insurers may consider medical reports and the insured’s ability to perform their duties to determine the appropriate level of benefit. Cases involving conflicting medical opinions may require careful consideration of all available evidence to ensure fair compensation. Therefore, understanding the policy’s definitions and benefit structures is essential for accurately assessing and settling claims under personal accident policies.

In personal accident insurance, compensation for injuries is structured differently based on the severity and duration of the disablement. Permanent disablements, such as the loss of limbs or sight, typically receive a lump-sum payment calculated as a percentage of the Principal Sum Insured, with major injuries often meriting 100% of this sum. Temporary disablements, on the other hand, are usually compensated with weekly benefits, divided into Temporary Total Disablement and Temporary Partial Disablement, each offering different amounts of compensation depending on the insured’s ability to perform their usual occupation. The Complaints Panel’s decisions in the provided cases highlight the importance of accurately assessing the extent of disablement to determine the appropriate benefits. Therefore, statements I and II are correct.

In general insurance policies, prompt notification of any event that might lead to a claim is crucial. This allows the insurer to investigate the matter efficiently and accurately while the evidence is still fresh. Delaying notification can hinder the insurer’s ability to assess the claim’s validity and extent of damage, potentially prejudicing their position.

While policies often specify immediate or ‘as soon as practicable’ notification, what constitutes a reasonable timeframe can depend on the circumstances. A delay might be excused if the insured had a valid reason, such as being unaware of the damage or the potential for a claim. However, if the delay prejudices the insurer’s ability to investigate, the claim may be denied.

The contractual intention of the parties regarding the effect of breaching the notification clause is legally significant. For compulsory insurance classes, delays may not allow the insurer to refuse third-party claims but could lead to the application of the Avoidance of Certain Terms and Right of Recovery Clause.

In the context of the IIQE Paper 2 General Insurance Examination, understanding the implications of delayed claim notification and the insurer’s rights is essential.

Under Employees’ Compensation (EC) policies, ‘common law’ cover extends beyond the benefits stipulated under the EC legislation. It applies when the insured employer incurs liabilities to employees due to negligence or breach of duty outside the scope of the EC Ordinance. This coverage addresses situations where an employee can sue the employer for damages in addition to receiving EC benefits. The coverage is applicable under Hong Kong law, ensuring that employers are protected against potential legal claims arising from work-related injuries or illnesses that are not fully covered by the EC Ordinance alone. This is an important aspect of understanding the scope of employer’s liability insurance within the Hong Kong legal framework, which is relevant to the IIQE Paper 2 General Insurance Examination.

Commercial vehicle insurance in Hong Kong differs from private car insurance in several key aspects. One significant difference lies in the exclusions under Third Party cover. Specifically, the use of the vehicle as a tool of trade, food poisoning and related claims if the vehicle is a mobile food vendor, damage to stock-in-trade, and damage caused by vibration or the weight of the vehicle to roads or weighbridges are typically excluded from commercial vehicle Third Party cover, unlike private car policies. While medical expenses are not typically included in the basic commercial vehicle policy, they can be added as an extra benefit for an additional premium. The minimum recommended liability limit for third-party death/injury cover is HK$100 million, and HK$1 million for third-party property damage. Therefore, statements I and II are correct.

When settling claims, insurers have several options beyond direct monetary compensation. Paying for repairs directly involves the insurer covering the costs with a reputable repairer, common in motor insurance, ensuring quality repairs and preventing inflated estimates. Replacement involves providing a new item, suitable for items with minimal depreciation or recently purchased items. Reinstatement focuses on restoring the damaged property to its pre-loss condition, often used for buildings. The insurer typically has the option to choose the settlement method, but customer satisfaction is a key consideration. Therefore, all of the above statements are correct.

The principle of ‘directly or indirectly’ broadens the scope of exclusions in insurance policies. Anti-social activities, including suicide and substance abuse, are commonly excluded. The Complaints Panel’s decisions in Cases 9 and 10 highlight the importance of foreseeability and intentionality in determining whether an injury is accidental or a violation of the law. The ‘purposive approach’ to interpreting policy terms, as seen in Case 10, emphasizes the intention of the parties involved.

Statement I is correct because exclusions can be broadened using the term ‘directly or indirectly’. Statement II is incorrect because the Complaints Panel ruled against the insured in Case 9, finding the injury was not accidental. Statement III is correct because Case 10 illustrates the exclusion of losses caused by violation of the law. Statement IV is incorrect because the Complaints Panel adopted a ‘purposive approach’ rather than a ‘literal approach’ in Case 10. Therefore, statements I and III are correct.

When a vehicle is repaired with new parts, and those parts enhance the vehicle’s value beyond its condition before the damage, betterment applies. An indemnity policy seeks to restore the insured to their pre-loss financial position, not to provide a windfall. Depreciation accounts for the reduced value of items over time due to wear and tear. In situations where new parts are installed, a betterment contribution from the insured may be required to account for the increased value. The specific policy terms, including exclusions related to depreciation, are critical in determining the insured’s responsibility for betterment costs. The Complaints Panel’s decision highlights the importance of indemnity principles and policy exclusions in resolving insurance disputes. This aligns with the principles tested in the HK IIQE Paper 2 General Insurance Examination.

In the context of general insurance, particularly for valuable items like jewelry and antiques, an agreed value policy determines the payout for a total loss based on a pre-agreed amount, irrespective of the item’s actual market value at the time of the loss. This differs from standard indemnity, where the payout is based on the actual loss suffered. For partial losses, however, strict indemnity principles typically apply, meaning the insured is compensated for the actual amount of the loss, not exceeding the sum insured. This approach provides certainty for the insured in the event of a total loss, as the value is pre-determined and agreed upon by both parties. Understanding the difference between agreed value and indemnity is crucial in insurance contracts, especially when dealing with unique or high-value items. This is relevant to the HK IIQE Paper 2 exam as it tests the understanding of different types of insurance policies and their specific terms and conditions.

Theft insurance policies are designed to cover losses or damages to insured property resulting from theft or attempted theft. A key feature is the requirement for forcible and violent entry or exit for a claim to be valid. Damage caused by thieves during such entry or exit is typically covered. However, theft by staff, fire damage caused by thieves, and losses due to wear and tear are generally excluded. Full value insurance is usually expected, and warranties related to security measures are common. Therefore, statements I and II are correct.

The Insurance Companies Ordinance (ICO) in Hong Kong sets out several requirements for insurance companies to ensure their financial stability and protect policyholders. These requirements include authorization of insurers, capital requirements, solvency margin requirements, ensuring directors and controllers are ‘fit and proper’, and having ‘adequate’ reinsurance arrangements. The Code of Conduct for Insurers, introduced by The Hong Kong Federation of Insurers (HKFI), focuses on standards of good insurance practice, advising and selling practices, and claims handling. The Code of Practice for the Administration of Insurance Agents, issued in accordance with the ICO and approved by the Insurance Authority (IA), deals with the interpretation, general principles, rules, procedures, fit and proper criteria, and minimum requirements of Model Agency Agreement. Therefore, statements I and II are correct.

Comprehensive motor insurance provides the broadest coverage, including damage to the insured’s vehicle, third-party liabilities, fire, and theft. ‘Act’ only covers the minimum legal requirement for third-party bodily injury or death. Third-party only covers damage to other people’s property. Third-party, fire, and theft covers third-party liabilities plus fire and theft damage to the insured vehicle. A standard policy excess applies to all policies of a particular class, unless otherwise specified. It’s a fixed amount the insured must pay before the insurance covers the remaining costs. The working operations clause excludes cover during specific operations like digging holes with a commercial vehicle. Personal accident insurance policies typically include lump sum benefits for death or permanent disability, medical expenses cover, and weekly benefits for temporary disability. The primary consideration in calculating the premium for personal accident insurance is the proposer’s profession or occupation, as it reflects the risk of accidents. Household contents insurance premiums in Hong Kong are commonly based on the sum insured selected by the proposer. Standard commercial fire insurance policies typically cover fire, lightning, and explosion of gas used for domestic purposes, but not earthquake. A fire business interruption insurance policy covers losses arising after a fire or other insured event, which are not material, such as loss of profit. Therefore, all of the above statements are correct.

A company’s commitment to quality and service, dedication to high professional standards, promise of efficiency and high business ethics, undertaking to deal with claims fairly and promptly, and specific information on business conduct and certain practices are all key components of a published declaration. These declarations serve as a standard of declared intentions and a measure of performance. Therefore, all of the above statements are correct.

The Code of Conduct for Insurers, as it relates to the HK IIQE exam, sets out the expected standards of good insurance practice. This includes how insurers should handle underwriting and claims processes, ensuring fairness and transparency. It also emphasizes the importance of respecting customers’ rights and obligations, providing clear and understandable information. The Code further addresses the need to consider customers’ rights and interests generally, promoting ethical behavior and consumer protection. Finally, it acknowledges the industry’s public image as a good corporate citizen, encouraging insurers to act responsibly and contribute positively to society. Therefore, all of the above statements are correct.

When an insurance policy contains an exclusion clause related to ‘violation of the law,’ its interpretation should align with the overall intent of the insurance contract. The Complaints Panel, in Case 10, adopted a ‘purposive approach,’ interpreting ‘violation of law’ as intentional criminal acts rather than minor traffic infringements. This approach ensures that the exclusion is consistent with the contract’s objective, which is to cover unforeseen and unintentional accidents. The panel considered the intention of both parties when entering into the contract, emphasizing that the policy aimed to cover claims arising from accidents, defined as unforeseen and unintentional events. Therefore, a broad interpretation of the exclusion clause that aligns with the purpose of the contract is essential.

A combined liability policy is designed to consolidate various liability covers into a single document. This often includes Public Liability, Products Liability, and Employees’ Compensation Liability. While Directors’ and Officers’ Liability and Professional Liability can be added, the core intention is to provide a streamlined approach to managing common liability exposures. Property and pecuniary risks are generally covered under “Umbrella” type policies, which are individually designed to the requirements of specific insured.

In the context of general insurance, particularly motor insurance in Hong Kong, the principle of indemnity aims to restore the insured to the financial position they were in immediately before the loss. When a vehicle is repaired using new parts, and those parts enhance the vehicle’s value beyond its pre-accident condition, a betterment contribution may be applied. This reflects the improved state of the vehicle post-repair. The depreciation rate applied should be reasonable, considering factors like the vehicle’s age and mileage. If the policy excludes depreciation, the insured may be responsible for a betterment contribution.

Statement I is correct because the principle of indemnity seeks to place the insured in the same financial position they were in before the loss, not to provide a windfall. Statement II is incorrect because betterment arises when new parts improve the vehicle’s condition beyond its pre-loss state. Statement III is correct because depreciation rates should be reasonable and reflect the vehicle’s condition. Statement IV is incorrect because the policy terms dictate whether depreciation or betterment is applicable; if depreciation is excluded, betterment may apply. Therefore, statements I and III are correct.

When determining the premium for a motor insurance policy in Hong Kong, insurers consider several factors to assess the risk involved. The scope of cover (Third Party Only, Third Party Fire & Theft, or Comprehensive) dictates the extent of protection offered. Engine power or carrying capacity influences the risk level, as vehicles with higher capacity may be associated with greater potential for damage or larger claims. The insured’s estimation of the vehicle’s value is crucial for property insurance on the vehicle itself. The use of the vehicle, whether for social, domestic, or business purposes, significantly impacts the risk assessment. Standard policy excesses, which are amounts not insured, also play a role in determining the premium. Understanding these factors is essential for insurance professionals in Hong Kong to accurately assess risk and determine appropriate premiums, in accordance with the IIQE Paper 2 syllabus.