IIQE Paper 2 cheat sheet

Insurable interest: the policyholder must suffer a pecuniary or legal detriment on the insured event; in Hong Kong, life insurance requires insurable interest at inception only, whereas indemnity (property) insurance requires it at inception and at the time of loss.

Indemnity principle: property and liability policies restore the insured to the pre-loss financial position; valued policies, agreed-value clauses and reinstatement cover are recognised exceptions.

Utmost good faith (uberrimae fidei): both parties must disclose material facts; materiality is judged by whether a prudent insurer would be influenced in accepting the risk or fixing the premium.

Proximate cause: the dominant, effective cause of loss determines cover; where an excluded peril is the proximate cause, the claim fails even if an insured peril also operated.

Subrogation: after paying an indemnity claim, the insurer acquires the insured's rights of recovery against the third party; it cannot recover more than it paid and does not apply to personal accident or life benefits.

Contribution: where two or more indemnity policies cover the same loss, insurers share it pro rata (or by independent liability); the insured cannot recover more than the actual loss.

Hong Kong market structure: the Insurance Authority (IA) regulates insurers and intermediaries; the Hong Kong Federation of Insurers (HKFI) is the industry body; Motor Insurers' Bureau (MIB) and Employees Compensation Insurers' Bureau (ECIB) handle statutory schemes.

Premium rating context: Hong Kong motor insurance is subject to the Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap. 272) requiring compulsory third-party liability cover; employees' compensation is compulsory under Cap. 282.

Insurance Ordinance (Cap. 41): the IA licenses insurance brokers and insurance agents; a licensed insurance broker company must maintain professional indemnity insurance and a minimum paid-up capital and net assets requirement.

Licensing: insurance intermediaries must be 'fit and proper' - relevant qualifications, experience, and passing of the Insurance Intermediaries Qualifying Examination (IIQE) papers, plus continuous professional development (CPD) hours.

Insurance agents represent insurers (they cannot be appointed by more than a specified number of insurers without consent); brokers act for the policyholder and must be independent of any insurer.

The IA's Code of Conduct for Licensed Insurance Intermediaries: duties include acting honestly and in the best interests of the client, disclosing material information, avoiding conflicts of interest, and keeping client money in a segregated client account.

Anti-money laundering: intermediaries must apply customer due diligence (CDD) under the AMLO (Cap. 615) and the IA's AML/CFT Guideline, including source-of-funds checks and record-keeping for at least five years.

Data privacy: the Personal Data (Privacy) Ordinance (Cap. 486) governs collection, accuracy, retention and use of client data; consent is required for direct marketing use.

Complaints and discipline: the IA may impose disciplinary action (public reprimand, suspension, revocation, fine) for misconduct; the Insurance Complaints Bureau handles disputes with insurers.

Suitability and advice: intermediaries must conduct a financial needs analysis, recommend suitable products, and disclose remuneration and any conflicts; 'know your client' records must be kept.

Offer and acceptance: proposal form + premium payment constitute offer; insurer's acceptance (or issue of policy) forms the contract; cover may be temporary under a cover note.

Consideration: the insured's premium and the insurer's promise to indemnify; the policy schedule and wording form the terms.

Utmost good faith and misrepresentation: a misrepresentation that is material and induced the insurer to contract renders the policy voidable; fraudulent non-disclosure allows avoidance and retention of premium.

Warranties: a breach of warranty discharges the insurer from liability from the date of breach (subject to statutory reform in some jurisdictions); Hong Kong applies common-law warranty rules.

Conditions precedent vs. conditions subsequent: conditions precedent to liability (e.g., notification, proof of loss) must be satisfied before the insurer pays; conditions subsequent relate to continuation of cover.

Exclusions and exceptions: exclusion clauses are construed contra proferentem against the insurer; exceptions restore cover even where an exclusion applies.

Policy documents: proposal form, schedule, wording, endorsements and certificate of insurance; the schedule prevails over the standard wording if inconsistent.

Limitation: contract claims in Hong Kong are generally subject to a 6-year limitation period (Limitation Ordinance, Cap. 347); tort claims 6 years from damage.

Underwriting factors: risk selection based on hazard, exposure, claims history, sums insured, location, occupation and previous declines/loadings.

Rating methods: manual/class rating (tariff), experience rating, retrospective rating, and risk-based pricing; motor uses vehicle group, driver age, claims history and no-claims discount (NCD).

Sum insured adequacy: property policies use reinstatement or indemnity value; underinsurance triggers average (pro rata) clause; overinsurance is capped at actual loss.

Deductibles/excess: reduce small claims and moral hazard; a franchise means the insurer pays nothing if loss is below the threshold, whereas an excess is deducted from every claim.

Claims process: notification, registration, investigation (loss adjuster, surveyor), coverage assessment, reserve setting, settlement and subrogation recovery.

Reserving: case reserves and IBNR (incurred but not reported) reserves; claims handling must be prompt, fair and transparent under IA conduct expectations.

Fraud indicators: inconsistent statements, late notification, inflated claims, staged accidents; insurers may void the policy and refer to police; the IA expects robust fraud controls.

Reinsurance and claims: facultative and treaty reinsurance affect large claims; claims cooperation and claims control clauses govern notification to reinsurers.

Property: fire and special perils policies cover fire, lightning, explosion, storm, flood, escape of water, impact and malicious damage; exclusions include wear and tear, inherent vice and gradual deterioration.

Business interruption: covers loss of gross profit and increased cost of working following an insured property damage; indemnity period and gross profit basis must be correctly selected.

Public liability: covers legal liability for bodily injury or property damage to third parties; employers' liability (employees' compensation) is compulsory under Cap. 282 with statutory limits.

Motor: compulsory third-party bodily injury and property damage cover under Cap. 272; own-damage cover is optional; NCD scales apply; uninsured driver claims handled by MIB.

Travel: covers medical expenses, emergency evacuation, trip cancellation, baggage and personal liability; exclusions typically include pre-existing conditions, adventure sports and travelling against medical advice.

Personal accident: pays fixed benefits for accidental death, permanent disability and temporary total disablement; 'accident' requires an external, violent, visible and fortuitous event.

Marine and cargo: Institute Cargo Clauses (A/B/C) define cover breadth; 'all risks' (A) subject to exclusions; general average and salvage charges are covered.

Liability triggers: occurrence-based policies respond to injury/damage occurring during the policy period; claims-made policies respond to claims first made during the period.

Risk management process: identify, analyse, evaluate, treat (avoid, reduce, transfer, retain) and monitor risks; insurance is a risk-transfer tool, not risk elimination.

Types of risk: pure vs speculative, fundamental vs particular, and financial vs operational; insurable risks are typically pure, particular and measurable.

Reinsurance functions: capacity, stability, catastrophe protection, surplus relief and technical assistance; forms are facultative, treaty (quota share, surplus, excess of loss).

Quota share: reinsurer accepts a fixed percentage of every risk and premium; surplus: reinsurer accepts amounts above the insurer's retention; excess of loss: reinsurer pays losses above a retention up to a limit.

Retention and limits: the ceding insurer retains a portion; reinsurance arrangements must be documented in the reinsurance programme and disclosed to regulators.

Risk financing: retention (self-insurance), captives, and insurance; cost of risk = premiums + retained losses + administration + risk control costs.

Catastrophe exposure: accumulation control, PML (probable maximum loss) modelling, and reinsurance tower design; Hong Kong typhoon and rainstorm exposure is significant.

Solvency and capital: insurers must maintain solvency margins under the Insurance Ordinance; reinsurance recoveries are recognised as assets subject to counterparty credit risk.