IIQE Paper 2 key terms

A legal and financial relationship with the subject matter of insurance such that the insured benefits from its safety and suffers loss from its damage; required at inception for most general insurance and at the time of loss for marine cover.

The mutual duty on proposer and insurer to deal openly and honestly, disclosing all material facts before the contract is formed; breach by the insured can allow the insurer to avoid the policy.

Any information that would influence a prudent insurer's decision on whether to accept a risk, what premium to charge, or what terms to impose; it must be disclosed even if no question asks for it.

Failure by the proposer to reveal a material fact to the insurer, whether deliberate or inadvertent, which may entitle the insurer to avoid the contract or apply proportionate remedies depending on the legislation and the proposer's state of mind.

A statement of fact made to the insurer that is untrue or misleading, whether innocent, negligent or fraudulent; remedies range from proportionate adjustment of the claim to avoidance of the policy.

The rule that a property or liability policy restores the insured to the financial position held before the loss, no better and no worse, so that recovery is capped by the actual loss and the sum insured.

The improvement in the insured's position where a claim payment leaves them with new or superior property; insurers typically deduct for depreciation so the insured bears the cost of upgrading.

A condition applying to underinsured property risks under which the claim is reduced in the proportion that the sum insured bears to the value of the property at risk, so the insured shares the shortfall.

The maximum amount the insurer will pay under a policy or section, representing the declared value of the subject matter or the limit of liability; it may be reduced by claims paid during the period.

The first amount of each loss that the insured must bear before the insurer pays, agreed at inception to discourage small claims and share risk; it differs from a franchise, which is only paid if the loss exceeds it.

A threshold amount below which no claim is payable at all, but once the loss exceeds the threshold the insurer pays the full amount without deducting the threshold.

Arrangement where two or more insurers each accept a stated percentage of the same risk under one policy, each bearing only its share of every loss; also describes the insured sharing loss above a stated percentage.

Insurance bought by an insurer to transfer part of the risks it has accepted to another insurer, protecting its solvency and capacity; the original insured has no direct contractual claim against the reinsurer.

Reinsurance arranged case by case, with the reinsurer free to accept or decline each individual risk offered; used for large or unusual risks outside the scope of existing treaties.

An agreement under which the reinsurer automatically accepts a defined class or portfolio of risks that the insurer writes during the treaty period, subject to the terms and limits set out in the agreement.

A proportional reinsurance treaty in which the reinsurer takes a fixed percentage of every risk in the covered portfolio and receives the same percentage of premium and of each loss.

A non-proportional reinsurance arrangement where the reinsurer pays losses above a stated retention up to a defined limit, typically applied per risk or per event rather than as a share of every loss.

The amount of risk or loss an insurer keeps for its own account before reinsurance responds, reflecting its appetite, capital and treaty structure.

The insurer's right, after paying a claim, to step into the insured's legal position and recover the loss from the party responsible, limited to the amount paid and subject to the insured's prior rights.

The right of an insurer that has paid a loss to recover a proportionate share from other insurers covering the same interest, against the same peril, for the same insured; it prevents double recovery.

The dominant, effective and operative cause of a loss, the one that sets the others in motion; it determines whether cover applies where several causes combine, some insured and some excluded.

A defined event or circumstance listed in the policy as covered, such as fire, theft or accidental damage; the insured bears the burden of proving the loss resulted from such a peril.

A clause that removes specified perils, property, persons or circumstances from the scope of cover, often because the risk is uninsurable, better covered elsewhere, or controllable by the insured.

A policy term that the insured promises to comply with exactly; at common law any breach discharges the insurer from liability, though modern insurance law reforms may require a causal link to the loss.

A policy term that must be satisfied before the insurer's liability arises or before a claim is payable, for example notifying a loss promptly or submitting proof of loss.

The personalised part of the policy document identifying the insured, the subject matter, the period of cover, the sums insured, excesses and the sections and endorsements that apply.

A written amendment attached to and forming part of the policy that alters, restricts or extends cover, often used to record special terms agreed for a particular risk.

The risk that the existence of insurance changes the insured's behaviour, encouraging carelessness, exaggeration of claims or even deliberate loss; underwriters assess it through history, controls and character.

The tendency for poorer-than-average risks to seek or retain insurance more actively than good risks, which can distort a pooled premium; controlled by underwriting, exclusions and renewal review.

The core insurance mechanism of collecting premiums from many policyholders exposed to similar perils so that the losses of the few are funded by the contributions of the many.

The statistical principle that as the number of similar independent exposure units increases, actual loss experience converges on the expected level, making future claims more predictable for the insurer.

The consideration paid by the insured for cover, built from the expected claims cost, expenses, commission, a margin for contingencies and profit, adjusted for the risk's individual features.

A rating feature in motor and similar insurance that reduces the renewal premium after each claim-free year and is usually forfeited or reduced when a claim is made.

Cover for the insured's legal liability to compensate others for bodily injury or property damage, as opposed to cover for the insured's own loss; compulsory for motor vehicles in Hong Kong.

A civil wrong requiring a duty of care owed by the defendant, a breach of that duty, and loss caused by the breach that is not too remote; the basis of most liability claims.

Legal responsibility imposed on one party, typically an employer, for the wrongful acts of another, typically an employee acting in the course of employment, even without personal fault.

Compulsory cover in Hong Kong for an employer's liability under the Employees' Compensation Ordinance for work-related injury or death of employees, with statutory minimum limits and mandatory renewal.

Cover paying fixed benefits for accidental bodily injury, often scaled to the injury type, with capital sums for death or permanent disablement and weekly benefits for temporary incapacity; benefits are not reduced by other income.

Short-term cover for trips, typically combining medical expenses, emergency evacuation, trip cancellation, baggage, personal liability and travel delay, subject to territorial and time limits.

A person carrying on regulated activities of advising on, arranging or negotiating insurance contracts, licensed in Hong Kong as an insurance broker or insurance agent under the Insurance Ordinance.

A licensed intermediary who acts for the policyholder rather than the insurer, advising on needs and placing cover with insurers; must maintain professional indemnity cover and meet capital requirements.

A licensed intermediary who acts for one or more insurers in distributing their products, and whose appointment must be registered with the authority through the principal insurer.

The licensing test applied to intermediaries and their principals, covering qualifications, experience, financial soundness, integrity and absence of relevant convictions or disciplinary history.

A situation where an intermediary's own interest, or a duty to another party such as an insurer, could compromise the advice or service owed to the client; it must be avoided or disclosed and managed.

The conduct expectation that intermediaries put the customer's interest first across product design, advice, disclosure of remuneration, after-sales service and complaint handling, not merely at the point of sale.

The requirement to recommend a product that matches the client's stated needs, financial situation, risk appetite and objectives, supported by documented fact-find and advice.

A defined window after taking out certain personal insurance products during which the policyholder may cancel and receive a refund of premium, less any expenses or claims, without penalty.

The systematic process of identifying, analysing, treating and monitoring exposures, using avoidance, reduction, retention and transfer, so that an organisation's objectives are protected at acceptable cost.

Deliberately accepting and funding a risk internally rather than insuring it, appropriate where the exposure is small, predictable or cheaper to absorb than to transfer.

Shifting the financial consequences of a risk to another party, most commonly through insurance or contractual indemnities, in exchange for a premium or price.

Measures that reduce the frequency or severity of losses, such as fire detection, security, training and maintenance; effective controls improve insurability and can earn premium discounts.