Paper 6 Travel Insurance Agents Quiz 21

The Insurance Ordinance (Cap. 41) governs the insurance industry in Hong Kong. The question tests the understanding of the fundamental principle of utmost good faith, which is a cornerstone of insurance contracts. Non-fraudulent non-disclosure occurs when a party negligently or innocently fails to reveal material facts that would influence an underwriter’s decision. This is a breach of the duty of utmost good faith, distinct from ordinary good faith which only requires truthful answers to direct questions. While all options relate to breaches of good faith, only non-fraudulent non-disclosure accurately describes the negligent omission of material facts.

The Insurance Ordinance (Cap. 41) mandates specific minimum paid-up capital requirements for insurers operating in Hong Kong. For an insurer conducting only general business or only long-term business, but not any statutory (compulsory) insurance business, the minimum paid-up capital is HK$10 million. If the insurer engages in any statutory (compulsory) insurance business, regardless of whether it also conducts other types of insurance business, the minimum paid-up capital requirement increases to HK$20 million. Therefore, an insurer solely offering general insurance and not involved in compulsory lines would meet the lower threshold.

Risk financing is a broad strategy aimed at mitigating the financial impact of losses that cannot be entirely prevented. While insurance is a primary tool for risk financing, it is not the only one. Risk assumption (or retention) involves accepting the financial consequences of a loss, often for smaller, predictable losses. Self-insurance is a formal method of risk assumption where an entity sets aside funds to cover potential losses. Risk transfer, other than insurance, could involve contractual agreements like indemnification clauses with suppliers or customers. Therefore, a comprehensive risk financing program encompasses a variety of methods to manage the financial fallout from adverse events, not solely relying on insurance.

The Hong Kong Federation of Insurers (HKFI) plays a crucial role in the self-regulatory framework of the insurance industry in Hong Kong. One of its key functions is to foster and advance the collective interests of insurance and reinsurance companies operating within the territory. This includes actively participating in and influencing the self-regulatory processes that govern the market. The HKFI’s mission statement emphasizes promoting insurance and building consumer trust by upholding high standards of ethics and professionalism among its member organizations. Furthermore, the HKFI established the Insurance Agents Registration Board (IARB) to manage the registration of insurance agents and their associated personnel, as well as to handle complaints related to their conduct, as outlined in the Code of Practice for the Administration of Insurance Agents.

This question tests the understanding of how different types of risks are typically handled by commercial insurers. Pure risks, by definition, only present the possibility of loss or no change, making them insurable because the potential for gain is absent, thus aligning with the principle of indemnity. Speculative risks, however, involve the possibility of both gain and loss. Insuring speculative risks would undermine the principle of indemnity and create moral hazard, as the insured would have a direct financial incentive to incur the loss to realize a gain. Fundamental risks, affecting large populations, are generally considered uninsurable by commercial insurers due to the immense financial exposure and the difficulty in accurately pricing such widespread potential losses, often exceeding the capacity of a single insurer. Particular risks, affecting individuals or small groups, are the primary focus of commercial insurance due to their localized impact and greater predictability.

Insurable interest is a fundamental principle in insurance, requiring the policyholder to have a legitimate financial stake in the subject matter of the insurance. This prevents individuals from profiting from the misfortune of others or engaging in speculative gambling. The scenario describes a situation where a person has a financial relationship with a debtor’s property, but this relationship is not sufficient on its own to establish insurable interest unless it’s formalized through a legal mechanism like a mortgage. Without such a legal recognition of a financial stake, the insurance contract would be void. Therefore, the creditor cannot insure the debtor’s property simply because they are owed money.

Travel insurance agents, as defined under the Insurance Intermediaries Quality Assurance Scheme, are specifically authorized to deal with a ‘Restricted Scope Travel Business’. This scope is narrowly defined in the Code of Practice for the Administration of Insurance Agents to include the effecting and carrying out of contracts of travel insurance that are directly tied to a tour, travel package, trip, or other travel services that the same travel agent has arranged for their clients. Crucially, this definition explicitly excludes annual travel insurance policies and any travel insurance policies for arrangements that the travel agent did not organize. Therefore, a travel insurance agent cannot sell a policy that covers a specific valuable item with an ‘all risks’ clause if that policy is not intrinsically part of the travel package they arranged, even if the item is intended for use during the trip. The restriction is on the nature of the policy and its direct linkage to the travel services provided by the agent, not merely on the fact that it relates to travel.

The scenario describes a situation where an insurance agent is assisting a potential policyholder with a proposal form. According to the Code of Practice for the Administration of Insurance Agents, specifically section 5/32 (b)(1), a registered person must refrain from influencing the potential policyholder and must make it clear that the answers provided are the policyholder’s own responsibility. This directly aligns with the principle of ensuring the applicant understands their role in providing accurate information and that the agent is facilitating, not dictating, the application process. Option B is incorrect because while explaining consequences of fraud is important (5/32 (b)(2)), the primary directive in this specific assistance context is about the applicant’s responsibility for their statements. Option C is incorrect as disclosing commission details (5/31 (10)) is a separate requirement related to charges, not the applicant’s responsibility for their statements. Option D is incorrect because while displaying registration numbers is a requirement (5/31 (3) and (4)), it is not directly related to the agent’s conduct during the proposal completion process.

The Insurance Ordinance (Cap. 41) is the primary legislation governing the prudential supervision of the insurance industry in Hong Kong. It outlines the requirements for insurers and intermediaries, including authorization, capital requirements, and conduct of business. The establishment of the Insurance Authority (IA) as an independent statutory body, replacing the Office of the Commissioner of Insurance (OCI) following the Insurance Companies (Amendment) Ordinance 2015, signifies a modernization of the regulatory framework. The IA’s mandate includes protecting policyholders, promoting industry stability, and aligning Hong Kong with international best practices. Therefore, understanding the foundational legislation and the role of the IA is crucial for anyone operating within or interacting with the Hong Kong insurance market.

Risk financing is a broad strategy aimed at mitigating the financial impact of losses. While insurance is a primary tool, it’s not the only one. Risk assumption, where an entity accepts the potential loss, and self-insurance, where an entity sets aside funds to cover potential losses, are also valid risk financing techniques. Risk transfer, other than insurance, involves shifting the financial burden to another party through mechanisms like contractual agreements. Therefore, all listed methods are components of a comprehensive risk financing program.

The question tests the understanding of how a travel insurance policy’s coverage period is defined, particularly concerning the commencement and termination of benefits other than cancellation. The provided text states that for covers other than cancellation, the insurance typically begins when the insured person departs from their residence or office (whichever is later) and ends upon their return to their residence or office (whichever is earlier). It also notes a potential pre-departure and post-arrival buffer. Therefore, the most accurate description of the commencement of coverage for non-cancellation benefits is tied to the departure from the insured’s usual place of work or home.

The core of this question lies in interpreting the definition of ‘Accident’ as provided in the Personal Accident policy, which requires the cause to be ‘violent, external and visible means’. The medical experts’ opinion, supported by the attending physicians, concluded that the intracerebral haemorrhage was spontaneous and related to primary hypertension, not a consequence of the fall. The location of the haemorrhage (confined to the right thalamus without involvement of areas typically affected by external trauma) and the absence of visible trauma signs were crucial in determining that the cause was not external. Therefore, the insurer’s repudiation based on the death not being caused by an ‘Accident’ as defined is justified.

The core of this question lies in understanding the insurer’s interpretation of ‘pre-existing conditions’ as defined in the policy proviso. The insurer’s reconsideration and acceptance of the claim hinged on the fact that the father’s renal failure, while chronic, did not, at the time of the insurance certificate’s issuance, present a situation that would have prompted a reasonable insured person to cancel their trip. The subsequent deterioration of the father’s condition on April 4th, which was a routine follow-up, was the critical event that, in the insurer’s view, constituted the circumstance that would have led to cancellation. Therefore, the condition that mattered for the exclusion was not the mere existence of the chronic illness, but its severity at the time of policy inception in relation to the likelihood of trip cancellation.

The question tests the understanding of underwriting practices in travel insurance, specifically concerning single trip policies versus annual policies. The provided text explicitly states that single trip risks are not individually underwritten, meaning the insurer does not typically inquire about the insured’s medical history for these policies. This contrasts with annual policies, where such inquiries are common. Therefore, a proposal for a single trip that omits medical history details, even if not explicitly asked for on the form, is generally acceptable from an underwriting perspective for that specific type of policy, as the insurer has not requested this information for that risk type. The legal duty to disclose material facts still exists, but the underwriting practice for single trips is to not require this information, thus simplifying the process and the application form.

The question tests the understanding of the breakdown of authorized insurers in Hong Kong as of December 31, 2013, as per the provided text. The text clearly states that there were 19 composite insurers authorized, which conduct both long-term and general business. These composite insurers comprised 10 Hong Kong incorporated companies and 9 others. Therefore, the number of non-Hong Kong incorporated composite insurers was 9.

The Hong Kong Federation of Insurers (HKFI) is the primary industry body representing authorized insurers in Hong Kong. Its core mission includes promoting insurance to the public and fostering consumer confidence in the insurance sector. The Insurance Agents Registration Board (IARB) is a body established by the HKFI specifically to register insurance agents and manage complaints against them, as outlined in the Code of Practice for the Administration of Insurance Agents. Therefore, the IARB operates under the umbrella of the HKFI’s broader objectives.

This question tests the understanding of exemptions to the Personal Data (Privacy) Ordinance (PDPO) in Hong Kong, specifically concerning the prevention or detection of crime. The PDPO allows for the disclosure of personal data without consent if it is for the purpose of preventing or detecting crime. In this scenario, the insurance company is legally permitted to provide the requested information to the police for their investigation into a suspected fraudulent claim, as this falls under a statutory exemption. Option B is incorrect because while data subjects have rights, these are subject to exemptions. Option C is incorrect as the exemption for security, defence, and international relations is distinct from crime prevention. Option D is incorrect because the exemption for domestic or recreational purposes is not applicable to business operations or law enforcement investigations.

The question tests the understanding of the breakdown of authorized insurers in Hong Kong as of December 31, 2013, as presented in the provided text. The text clearly states that there were 19 composite insurers, which are those carrying on both long-term and general business. The breakdown of these 19 composite insurers into Hong Kong incorporated companies (10) and others (9) is also provided. Therefore, the total number of composite insurers is 19.

This question tests the understanding of the ‘Place of Origin’ clause in travel insurance policies, specifically concerning medical expenses cover. Case 20 and Case 22 highlight that injuries or illnesses must be contracted or sustained outside the defined ‘Place of Origin’ (Hong Kong in these examples) for medical expenses to be covered. While the policy might commence coverage from the departure from residence or office, specific benefits like medical expenses have their own geographical limitations. The scenario describes an injury sustained within Hong Kong, which directly contradicts the policy’s requirement for medical expenses to arise from events occurring outside the Place of Origin. Therefore, the insurer’s rejection of the claim for medical expenses is consistent with the policy terms.

The Insurance Claims Complaints Bureau (ICCB) Panel has the authority to make awards against insurers. A key aspect of this power is that the insurer against whom an award is made has no right of appeal. This means the insurer cannot challenge the Panel’s decision through an appeal process. However, the complainant, if dissatisfied with the award, retains the option to pursue legal avenues for redress. This asymmetry in the appeal process is a significant feature of the ICCB’s dispute resolution mechanism.

This question tests the understanding of personal liability coverage under travel insurance, specifically focusing on the exclusions. The scenario describes damage to a hotel’s property, which falls under third-party property damage. However, the policy explicitly excludes liability for loss or damage to property that is in the care, custody, or control of the insured person. In this case, the hotel’s lamp was in the insured’s temporary possession and control while staying at the hotel, making it fall under this exclusion. Therefore, the insurer would likely deny coverage for this specific claim based on the policy’s exclusions, even though it’s a third-party claim.

The Insurance Authority (IA) has the power to intervene in an insurer’s operations to protect policyholders. One of the measures available to the IA, as outlined in the Insurance Ordinance, is the ability to impose restrictions on an insurer’s investments. This can include limitations on the types of assets the insurer can hold or the geographical locations where it can invest. This power is crucial for ensuring the financial stability of the insurer and safeguarding the interests of policyholders, especially if the insurer is engaging in risky investment strategies or facing financial difficulties. Limiting premium income, restricting new business, or requiring custody of assets by a trustee are also intervention powers, but the question specifically asks about controlling the insurer’s asset allocation.

The Conduct of Insurance Agents for General Insurance Business and Restricted Scope Travel Business mandates several key principles for agents. Firstly, agents must only offer advice when they possess the necessary expertise and knowledge to do so effectively, ensuring the client receives accurate guidance. Secondly, it is crucial for agents to clearly identify themselves and their affiliation before engaging in any business discussions, fostering transparency and trust. Thirdly, when comparing different policies, agents are obligated to explain the distinctions between them, enabling clients to make informed decisions. Finally, agents must thoroughly explain the coverage provided by a policy and confirm that the client comprehends what they are purchasing, thereby ensuring client understanding and satisfaction. All these points are essential for ethical and compliant insurance sales practices.

The policy explicitly states that the insurance indemnifies additional public transportation expenses returning to the Place of Origin based on economy class fare. The insured’s medical condition, while a factor in the curtailment, did not necessitate an upgrade to executive class when an economy class option was available only an hour later. The insurer’s stance aligns with the policy’s provision for economy class fares for curtailment expenses, as the insured is normally expected to travel on economy class tickets in such situations.

This question tests the understanding of the Personal Data (Privacy) Ordinance’s requirements for data collection. Principle 1 mandates that data users inform data subjects about the purpose of collection, classes of persons to whom data may be transferred, consequences of non-provision, and rights of access and correction. A Personal Information Collection Statement (PICS) is the standard method for conveying this information. Option A correctly identifies the essential elements that must be included in such a statement to comply with the Ordinance. Option B is incorrect because while data accuracy is important (Principle 2), it’s not the primary focus of the initial collection statement. Option C is incorrect as the Ordinance does not mandate the inclusion of the data user’s registration number in the PICS. Option D is incorrect because while data retention is covered by Principle 2, the PICS primarily focuses on the initial collection and intended use, not the specific duration of retention.

Principle 3 of the Personal Data (Privacy) Ordinance (PDPO) mandates that personal data should only be used for the purposes for which it was collected, or a directly related purpose, unless the data subject provides consent. In this scenario, the insurance company is proposing to use customer data collected for policy administration to market unrelated financial products. This constitutes a new purpose for which explicit consent from the data subjects is required. Without such consent, this action would contravene Principle 3. Option B is incorrect because while Principle 4 addresses data security, it doesn’t directly govern the purpose of data usage. Option C is incorrect as Principle 5 relates to transparency about data policies, not the permissible uses of data. Option D is incorrect because Principle 6 concerns access and correction rights, not the secondary use of data.

The core of secondary participation in criminal law, particularly in the context of aiding and abetting, lies in the ‘guilty mind’ or mens rea of the secondary party. The law requires proof that the individual intended to perform the act of aiding or encouraging. Crucially, this intention is not about desiring the commission of the primary crime itself, nor is it about profiting from the crime. Instead, it’s about the intention to provide assistance, knowing that such assistance is capable of contributing to the commission of the offence. For instance, an insurance intermediary issuing an inflated receipt, even if indifferent to whether the client uses it to defraud their employer, demonstrates the required mens rea if they intended to issue that receipt, knowing it could be used for such a purpose. This distinguishes it from merely being aware of a potential misuse.

An agency agreement, being a personal relationship, is automatically terminated upon the death of either the principal or the agent. This principle is rooted in the personal nature of the fiduciary duty owed between the parties. If either party is a corporate entity, its liquidation or dissolution has the same effect as death for an individual, effectively ending the agency relationship. The other options describe different scenarios: mutual agreement requires consent from both parties, revocation is an act of cancellation by one party (subject to contractual terms), and breach of contract allows the non-breaching party to terminate, but it’s not an automatic termination due to the nature of the relationship itself.

This question tests the understanding of the concept of ‘insurable interest’ and when it is required in insurance contracts, as per Hong Kong insurance regulations. Insurable interest is a fundamental principle that the policyholder must have a financial stake in the subject matter of the insurance. While it’s generally required at the inception of the policy, its necessity can vary depending on the type of insurance and the specific circumstances. For instance, in life insurance, it’s typically required at the time of policy inception, but not necessarily at the time of claim if the policy has been assigned. In property insurance, it must exist at the time of loss. The question probes this nuance by presenting a scenario where an agent is advising a client on a policy. The correct answer reflects the general requirement for insurable interest to exist at the time of loss for property-related insurance, which is a common scenario for agents to advise on.

The policy explicitly states that ‘camera body, lenses and accessories will be treated as a set’ for the purpose of applying the article limit. In Case 30, the insurer’s reasoning that a memory card is an accessory to a digital camera, essential for its operation and not independently usable, aligns with this policy wording. The fact that the memory card was purchased separately does not override the policy’s definition of what constitutes a set for the article limit. Therefore, the insurer correctly applied the HK$3,000 limit to the combined value of the camera and memory card.