IIQE Paper 2 common mistakes
IIQE Paper 2 · Understand the traps and how to avoid them.
Treating 'utmost good faith' as a one-way duty on the applicant and answering that the insurer owes no disclosure obligation, so questions on material facts and non-disclosure are missed.
Candidates memorise 'the insured must disclose material facts' from introductory material and never learn that the duty is reciprocal - the insurer must also disclose material facts and avoid misrepresentation, and the 2014 Insurance Ordinance reform codified the insured's duty as a duty to take reasonable care, not a strict duty to disclose everything.
What to do instead
Learn the three-part structure explicitly: (1) insured's duty to disclose material facts within actual or constructive knowledge, judged by the reasonable-policyholder test; (2) insurer's reciprocal duty; (3) remedies - avoidance ab initio for fraudulent non-disclosure, proportionate or other remedies for negligent non-disclosure under the amended regime. Drill the distinction between 'material' (would influence a prudent underwriter's decision) and 'merely relevant'.
Confusing the roles and licensing categories of insurance intermediaries - answering that an insurance broker can act for an insurer, or that a technical representative can advise clients independently.
The three categories (insurance broker, insurance agent, technical representative) share overlapping vocabulary and candidates learn them as a list rather than as a set of distinct legal relationships with different principals and permitted activities.
What to do instead
Build a one-page comparison table with columns: whose interests they represent, who they can be appointed by, whether they may advise on or arrange contracts, whether they may handle client premiums, and the licence/registration route. Anchor each row with a concrete scenario and test yourself by classifying 10 short scenarios cold.
Answering conduct questions from general commercial intuition rather than the specific statutory and regulatory requirements - e.g. saying an intermediary may accept a client's premium in cash without any controls, or may share commission without disclosure.
Experienced practitioners import habits from their own firm's practice, and candidates without industry experience default to 'what seems fair'. Neither maps onto the actual requirements on client money handling, disclosure of remuneration, and conflicts of interest.
What to do instead
Study the conduct requirements as rules with named sources: client money segregation and receipting, disclosure of commission and remuneration on request, the prohibition on misleading representations, and the fit-and-proper and training requirements. For each, write the rule, the rationale, and one breach example. Answer exam questions by naming the rule first, then applying it.
Misidentifying the parties and the insured subject matter in a policy - for example treating the policyholder and the life insured as necessarily the same person, or assuming the owner of property is always the insured under a property policy.
Everyday usage conflates 'the person who bought the policy' with 'the person whose interest is covered'. Exam questions deliberately separate them, especially in life, personal accident and property contexts.
What to do instead
Before answering, write down four labels: proposer/policyholder, insured/covered person, beneficiary, and subject matter of insurance. Then check insurable interest for each. Practise with scenarios where a company insures property owned by a subsidiary, or a parent insures a child under a personal accident policy.
Treating a warranty, a condition and a representation as interchangeable, and answering that breach of any of them automatically voids the policy from inception.
The three concepts are taught in the same chapter and share the theme of 'things the insured must comply with', so they blur together. The consequences differ sharply and the exam tests exactly that difference.
What to do instead
Memorise a three-row table: representation (statement inducing the contract; remedy depends on fraud/negligence/innocence), warranty (a term whose breach discharges the insurer's liability, subject to the statutory modification for certain warranties), condition (precedent to liability vs. condition precedent to the contract). Learn the statutory inroad that prevents automatic discharge for breach of certain warranties and what the insurer must do instead.
Mixing up indemnity, reinstatement, replacement cost and agreed-value bases of claims settlement, and applying the wrong one to a property loss.
Candidates learn 'property insurance is a contract of indemnity' and stop there, missing that the policy may specify reinstatement or agreed value, and that average/underinsurance applies only where the policy makes it apply.
What to do instead
For each basis, write the formula and a worked example: indemnity = market value less depreciation; reinstatement = cost to rebuild as new subject to sum insured; agreed value = stated sum regardless of market value. Then do three numerical claims with the same facts under each basis and compare the payouts. Learn the underinsurance/average formula and when it is triggered.
Ignoring exclusions, conditions and deductibles when answering 'is this loss covered?' and answering only on the basis of the insured peril.
The insuring clause is the most memorable part of a policy and candidates stop reading once they find a matching peril. Real claims turn on the exclusions and conditions, so the exam places the decisive fact there.
What to do instead
Adopt a fixed four-step claims method and apply it in order every time: (1) is there an insured peril? (2) is there an exclusion that removes it? (3) are policy conditions satisfied (notification, proof, reasonable precautions)? (4) what is the deductible and the settlement basis? Write the four steps out on scratch paper before reading the options.
Confusing liability insurance concepts - public liability vs. employees' compensation vs. products liability - and answering on the wrong trigger, such as occurrence vs. claims-made, or the wrong statutory scheme.
All three respond to third-party bodily injury or property damage, so the labels feel interchangeable. The distinguishing features are the trigger, the statutory overlay, and who is the claimant.
What to do instead
Tabulate each class by: who is protected, the trigger (occurrence or claims-made), whether cover is compulsory and under which ordinance, key exclusions (e.g. contractual liability, own-property damage), and the territorial scope. Then classify five short loss scenarios by class and trigger.
Applying motor insurance answers from general principles without the compulsory-cover overlay - e.g. saying the insurer can simply avoid the policy against an injured third party for the insured's non-disclosure.
Candidates learn the general law of non-disclosure first and apply it uniformly, missing that compulsory motor cover creates a statutory scheme protecting third parties that overrides the ordinary contractual position as between insurer and injured party.
What to do instead
Learn the compulsory motor insurance requirements: the minimum compulsory cover, the categories of person and loss protected, the insurer's obligation to satisfy third-party judgments, and the insurer's separate right of recovery against its own insured. Write one paragraph explaining why the third party's claim survives the insured's breach.
Treating reinsurance as simply 'insurance for insurers' and failing to distinguish facultative from treaty, proportional from non-proportional, and the effect of reinsurance on the original insured's rights.
Reinsurance gets the least study time, so candidates hold a single vague concept and cannot answer questions on the types of treaty, the operation of surplus and excess-of-loss, or privity between reinsurer and original insured.
What to do instead
Build a two-by-two grid: facultative/treaty against proportional (quota share, surplus)/non-proportional (excess of loss, stop loss). For each cell write one sentence on how the reinsurer shares the loss and one on who deals with the original insured. State clearly that the original insured has no direct rights against the reinsurer absent specific arrangements.
Describing risk management as only 'buying insurance' and failing to distinguish risk avoidance, reduction, retention and transfer when a question asks for the appropriate treatment.
Insurance study naturally foregrounds insurance, so candidates collapse all risk treatment into one option and cannot match a control measure to the correct category.
What to do instead
Learn the five treatments (avoid, reduce, retain, transfer, and - where taught - share) with the defining test: does the activity stop, does frequency/severity fall, does the firm bear it, or does another party bear it? Classify ten measures (sprinklers, deductibles, safety training, subcontracting, captive) and note that a deductible is retention, not transfer.