Paper 6 Travel Insurance Agents Quiz 27

The Insurance Ordinance (Cap. 41) governs the insurance industry in Hong Kong. Section 5.1.1 of the syllabus defines ‘Long Term Business’ as one of the two major divisions of insurance, with life insurance contracts being the dominant category. These are termed ‘long-term’ because the policies typically extend beyond a single year, often spanning many years, distinguishing them from short-term or annual contracts. Therefore, the core characteristic that defines long-term business under the Ordinance is the duration of the insurance contract.

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 as the insured has no incentive to cause the loss for gain. Speculative risks, however, involve the potential for both gain and loss. Insurers generally avoid insuring speculative risks because the voluntary pursuit of gain by the insured could lead to moral hazard, where the insured might intentionally incur a loss to profit from the insurance payout, or at least have less incentive to prevent the loss. Fundamental risks, affecting a large segment of the population, are also typically uninsurable due to the immense financial exposure they represent for an insurer.

The policy explicitly states that a camera body, lenses, and accessories are to be treated as a set for the purpose of the article limit. The memory card, while a separate purchase, is functionally dependent on the camera and serves as an accessory to its operation. Case 30 highlights that items which cannot function independently of the main item and are essential for its operation are considered part of a set. Therefore, the insurer correctly applied the HK$3,000 limit to the combined value of the camera and memory card.

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 cover 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 facilitate. Therefore, a travel insurance agent cannot offer a policy for a precious watch that is unrelated to a specific travel package they have arranged, even if the proposer intends to take the watch on a trip. This is because such a policy would fall outside the defined ‘travel insurance’ and the ‘Restricted Scope Travel Business’ permitted for these agents.

Risk financing is a broad strategy to mitigate the financial impact of losses. While insurance is a primary tool, it’s 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 formalised way of assuming risk, where an entity sets aside funds to cover potential losses. Risk transfer, other than insurance, could involve contractual agreements with other parties to bear certain risks. Therefore, while insurance is a key component, a comprehensive risk financing programme encompasses a wider array of methods to minimise the adverse effects of future losses.

The question tests the understanding of the concept of ‘deemed’ or ‘treated as’ in the context of insurance and agency. The Insurance Ordinance (Cap. 41) and common law principles establish that certain duties and responsibilities are automatically assumed or implied in contractual relationships, such as agency, even if not explicitly stated. These are ‘deemed’ to apply. Option (a) correctly identifies that these implied responsibilities are considered part of the contractual framework. Option (b) is incorrect because while specific duties can be individually specified, the core concept of ‘deemed’ refers to those that are inherently part of the relationship. Option (c) is incorrect as ‘equity’ is a separate body of law and not the primary mechanism for deeming duties in this context. Option (d) is incorrect because ‘fair discrimination’ relates to pricing practices and not the inherent duties within an agency agreement.

The Insurance Agents Registration Board (IARB) is responsible for registering insurance agents, responsible officers, and technical representatives. According to the provided text, the IARB may register an insurance agent on behalf of a Principal upon application and payment of the prescribed fee. This registration is for a specified period, not exceeding three years. Re-registration can be applied for within a specific window before the current registration expires. The question tests the understanding of the IARB’s role in the registration process and the duration of such registrations, as outlined in the Code.

This question tests the understanding of the distinction between different categories of retirement scheme management. Category G specifically covers group retirement scheme contracts that provide a guaranteed capital or return. Category H, in contrast, deals with group retirement schemes that do not offer such guarantees. Category I is for group contracts providing insurance benefits under retirement schemes, but it explicitly excludes those falling under G and H. Capital redemption business (Class F) is unrelated to retirement schemes and focuses on providing a capital sum at the end of a term to replace existing capital, often for financial obligations like debenture repayment, and is not linked to human life events.

The scenario describes a situation where an individual, previously a fireman, sustained an injury that prevented them from continuing their specific occupation. However, the policy’s definition of Total and Permanent Disability (TPD) requires the inability to engage in *any* gainful occupation. The provided information indicates that the insured was still capable of working and walking without functional limitations, and efforts were being made to find alternative employment for them. The Complaints Panel’s reasoning, which supported the insurer’s decision, highlights that while the insured could no longer perform their previous job, they were not precluded from engaging in other forms of gainful employment. Therefore, the condition for TPD as defined in the policy was not met.

This question tests the understanding of the principle of indemnity and its relationship with subrogation. Subrogation allows an insurer, after paying a claim, to step into the shoes of the insured and pursue recovery from a third party responsible for the loss. However, this right is contingent on the principle of indemnity, which aims to restore the insured to their pre-loss financial position, not to provide a profit. In life insurance, the loss is the death of the insured, and the payout is a fixed sum, not a measure of financial loss that can be recovered from a third party. Therefore, subrogation does not apply to life insurance policies because the payment is not an indemnity, meaning the insurer cannot recover the payout from a negligent third party.

The Insurance Authority (IA) mandates that a Registered Person’s qualification for a passed IIQE paper becomes invalid if they do not engage in insurance-related work in Hong Kong for two consecutive years after passing the examination. This rule is designed to ensure that intermediaries maintain current knowledge and practical experience in the insurance sector. Therefore, if a person passes the IIQE but then ceases to work in the industry for two years, they would need to retake the relevant papers to be considered qualified again.

This question tests the understanding of the proximate cause principle in insurance, specifically how an uninsured peril can lead to a loss covered by an insured peril. The scenario describes a chain of events initiated by negligence (uninsured peril) leading to a collision, fire, explosion, and finally water damage. The key concept is that even if the ultimate cause is an uninsured peril, if an insured peril (like fire or explosion) is a direct and natural consequence in the chain of causation, and the loss is directly caused by that insured peril, the loss can be recoverable. The illustration provided in the syllabus highlights that water damage, even if the chain started with negligence, is recoverable if it’s a natural consequence of an insured peril like fire or explosion. Therefore, the loss from the water damage is covered because it was proximately caused by the insured perils (fire and explosion) that naturally followed the initial negligence.

This question tests the understanding of the proximate cause principle in insurance, specifically how an uninsured peril can lead to a loss covered by an insured peril. The scenario describes a chain of events initiated by negligence (uninsured peril) leading to a collision, fire, explosion, and ultimately water damage. The key concept is that even if the initial cause is uninsured, if an insured peril (like entry of water) is the direct cause of the loss, and the chain of events is unbroken, the loss can be recoverable under the policy covering that insured peril. The illustration in the provided text directly supports this by stating that water damage is regarded as a result of the sole insured peril (entry of water) notwithstanding that this peril can be traced backward to an uninsured peril (negligence). Therefore, the cargo damage by seawater is recoverable under the policy covering entry of water.

This question tests the understanding of personal liability coverage under travel insurance, specifically focusing on the exclusions. The scenario describes damage to hotel property, which falls under third-party property damage. However, the key exclusion here is liability for damage to property that is in the ‘care, custody, or control’ of the insured person. Hotel furnishings, like a table lamp, are generally considered to be within the insured’s care and custody while occupying the hotel room. Therefore, the insurer would likely deny coverage based on this exclusion, even if the damage was accidental. The other options represent situations that might be covered or are irrelevant to this specific exclusion.

This question tests the understanding of the remedies available to an insurer when the duty of utmost good faith is breached by the insured. Specifically, it focuses on the insurer’s right to avoid the contract. According to the principles of insurance law, if a breach of utmost good faith occurs, the insurer has the option to rescind the contract. Rescission means the contract is treated as if it never existed from its inception. In such cases, premiums paid are generally returned to the insured, unless the breach was fraudulent. The key point is that the insurer cannot selectively avoid the contract for a specific claim while keeping it valid for other periods or retaining premiums without returning them (unless fraud is involved). Therefore, avoiding the entire contract from inception is the primary remedy for a breach of utmost good faith.

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 agency contract, where the skills, trust, and capabilities of the individuals involved are paramount. If either party ceases to exist as a legal or natural person, the basis of the agreement is fundamentally altered, leading to its termination. This is distinct from situations where a company might be dissolved or liquidated, which also terminates the agency, but the core concept here is the cessation of the individual’s capacity to act or be acted upon.

The Complaints Panel in Case 7 ruled that while a visible bruise or wound is strong evidence of an accident, other forms of proof can also be accepted. However, in this specific case, the panel considered the policyholder’s extensive history of lower back pain. This pre-existing condition, coupled with the lack of definitive evidence directly linking the braking incident to a new, accidental injury, led the panel to conclude that there was insufficient proof that the back problem was caused by an accident. Therefore, the insurer’s decision to deny the claim was upheld because the evidence did not sufficiently establish the accidental nature of the injury, despite the policyholder’s account of the event.

The Complaints Panel in Case 7 ruled that while a visible bruise or wound is strong evidence of an accident, other forms of evidence can also be accepted. However, in this specific case, the panel considered the policyholder’s extensive history of lower back pain. This pre-existing condition, coupled with the lack of definitive proof that the recent braking incident was the sole cause of the injury, led the panel to conclude that there was insufficient evidence to prove the injury was purely accidental. Therefore, the insurer’s decision to deny the claim was upheld because the panel was not satisfied that the injury was caused by an accident, but rather potentially by a pre-existing condition aggravated by the incident.

This question tests the understanding of the proximate cause principle in insurance, specifically how an uninsured peril can lead to a loss covered by an insured peril. The scenario describes a chain of events initiated by negligence (uninsured peril) leading to a collision, fire, explosion, and ultimately water damage. The key concept is that even if the initial cause is uninsured, if an insured peril (like entry of water) is the direct cause of the loss, and the chain of events is unbroken, the loss can be recoverable under the policy covering that insured peril. The illustration in the provided text explicitly supports this by stating that water damage is regarded as a result of the sole insured peril (entry of water) notwithstanding that this peril can be traced backward to an uninsured peril (negligence). Therefore, the cargo damage by seawater is recoverable under the policy covering entry of water.

The Complaints Panel applies the ‘balance of probabilities’ standard of proof in determining whether an insured person knew of a pre-existing medical condition when applying for insurance. This standard means that the panel will find a fact to be true if it is more likely than not that the fact occurred. In Case 16, the insured claimed to have forgotten about past illnesses due to their minor nature and lack of recent symptoms. The panel considered the doctor’s report and the insured’s arguments, ultimately finding that the insurer’s repudiation of the policy was disproportionate to the non-disclosure. This demonstrates the panel’s assessment of the likelihood of the insured’s knowledge and the materiality of the undisclosed facts under the balance of probabilities.

This question assesses the understanding of how the Insurance Claims Complaints Bureau (ICCB) operates, specifically its Complaints Panel. The key point is that the Panel can consider factors beyond the literal wording of a policy. It also relies on established industry standards, such as those outlined in The Code of Conduct for Insurers, particularly the section on claims. Therefore, while policy terms are important, they are not the sole determinant of a ruling, and adherence to good insurance practice and ethical conduct is also a significant consideration.

This question tests the understanding of the ‘named perils’ basis for trip cancellation cover. The scenario describes a situation where a trip is cancelled due to a government-imposed travel ban. According to the provided text, trip cancellation cover is typically on a ‘named perils’ basis, meaning it only covers specific, listed causes. A government travel ban, while preventing travel, is not explicitly listed as one of the usual insured perils such as death, serious sickness, jury duty, or damage to the insured’s home. Therefore, the insurer is justified in rejecting the claim because the cause of cancellation does not fall under the defined insured events.

The Insurance Claims Complaints Bureau (ICCB) has specific terms of reference for handling complaints. One crucial condition is that the complaint must be filed within a defined timeframe after the insurer issues its final decision on the claim. This time limit is established to ensure timely resolution and prevent disputes from lingering indefinitely. Therefore, a complaint submitted more than six months after the notification of the insurer’s final decision would fall outside the ICCB’s purview.

The Insurance Agents Registration Board (IARB) is responsible for assessing the compliance of Registered Persons (RPs) with Continuing Professional Development (CPD) requirements. According to the relevant guidance, an RP registered to engage in the sale of specified investment products (RSTB) who has fulfilled all CPD hours for an assessment year within that year is considered qualified to maintain their registration for an additional 12 months, provided they also meet other fitness and properness criteria. This ensures that individuals involved in selling investment products remain knowledgeable and up-to-date with industry practices and regulations, thereby protecting consumers.

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 subsidiary of the HKFI, specifically tasked with registering insurance agents and managing complaints against them, as outlined in the Code of Practice for the Administration of Insurance Agents. The Insurance Claims Complaints Bureau and Panel are distinct entities focused on resolving disputes related to insurance claims, particularly for personal insurance policies.

The question tests the understanding of the concept of ‘deemed’ or ‘treated as’ in the context of insurance and agency. The Insurance Ordinance (Cap. 41) and related codes of practice often use this phrasing to establish legal responsibilities or classifications that are not explicitly stated but are implied by law or regulation. For instance, certain duties of an agent to a principal are ‘deemed’ to apply even if not specifically written into the agency agreement, reflecting the common law principles of agency. Similarly, the Insurance Ordinance might ‘deem’ certain activities or entities to be regulated in a specific way for compliance purposes. Option (a) correctly identifies that these are responsibilities or classifications established by law or regulation, rather than explicit contractual agreements or voluntary assumptions. Option (b) is incorrect because while some duties might be individually specified, the core of ‘deemed’ implies a legal presumption. Option (c) is incorrect as it focuses only on contractual obligations, whereas ‘deemed’ often extends beyond explicit contracts. Option (d) is incorrect because ‘deemed’ implies a legal status or obligation, not merely a potential future event.

This question tests the understanding of the principle of subrogation in insurance, specifically how it operates after a loss has been paid. Subrogation allows the insurer, after indemnifying the insured, to step into the shoes of the insured and pursue any rights the insured may have against a third party responsible for the loss. This prevents the insured from recovering twice for the same loss and ensures that the responsible party bears the cost. Option (b) is incorrect because the insured’s right to sue the third party is transferred to the insurer upon payment, not retained by the insured. Option (c) is incorrect as the insurer’s right arises from the payment of the claim, not from a separate agreement with the third party. Option (d) is incorrect because while the insurer acts in the insured’s name, the right to pursue the third party is an insurer’s right derived from the policy and the law, not a direct contractual right granted by the insured to the third party.

This question tests the understanding of an insurance intermediary’s responsibility in preventing fraud, specifically concerning the misrepresentation of information during the application process. The ‘Practical Guide on Professional Ethics for Life Insurance Intermediaries’ and the broader principles of utmost good faith, as mentioned in the syllabus, emphasize the intermediary’s duty to ensure accuracy. Deliberately withholding or falsifying material facts, even if difficult to prove later, constitutes fraud. Therefore, an intermediary who is aware of such misrepresentation and fails to act is complicit. The scenario highlights a situation where an intermediary is aware of a client’s false declaration about their smoking habits, which is a material fact affecting the risk assessment and premium calculation. By not correcting this or reporting it, the intermediary is facilitating the fraudulent act, making them a secondary party to the offense. The Insurance Ordinance, particularly sections related to fraud and misrepresentation, would govern such conduct. The ICAC’s role in promoting ethical conduct and providing training underscores the importance of vigilance against such practices.

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 explicitly states that there were 19 composite insurers authorized, comprising 10 Hong Kong incorporated companies and 9 others. Therefore, the number of composite insurers that were not incorporated in Hong Kong is 9.

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 facilitate. Therefore, a travel insurance agent cannot sell a policy that covers a specific valuable item like a precious watch with an ‘all risks’ coverage, even if it’s related to a trip the agent arranged, because such a policy is not considered ‘travel insurance’ under the restricted definition and falls outside their permitted scope of business. The scenario describes a situation where a client wants a specific, high-value item covered with an ‘all risks’ policy, which goes beyond the standard coverage typically found in a package travel insurance policy and is not within the permitted business scope of a travel insurance agent.