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IIQE Paper 2 study materials
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IIQE Paper 2 practice questions

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Question 1General principles of insurance and the Hong Kong insurance market

Under the Insurance Ordinance, which body is the principal statutory regulator of insurers and insurance intermediaries in Hong Kong?

  1. The Insurance Authority Correct answer.
  2. The Securities and Futures Commission
  3. The Hong Kong Monetary Authority
  4. The Mandatory Provident Fund Schemes Authority

Explanation

The Insurance Authority is the statutory regulator established under the Insurance Ordinance and is responsible for regulating insurers and licensed insurance intermediaries in Hong Kong. The other bodies regulate banking, securities and retirement schemes respectively, not insurance conduct and authorisation.

Question 2General principles of insurance and the Hong Kong insurance market

Which principle allows an insurer to decline a claim where the insured failed to disclose a material fact it knew before the contract was formed?

  1. Indemnity
  2. Utmost good faith Correct answer.
  3. Contribution
  4. Subrogation

Explanation

Utmost good faith requires each party to disclose material facts and to avoid misrepresentation when the contract is formed. A breach of this duty can entitle the insurer to avoid the policy from inception, which then justifies declining the claim.

Question 3General principles of insurance and the Hong Kong insurance market

A fire policy covers a stock of goods. After the goods are destroyed, the insured's claim is limited to the actual value of the goods lost rather than the sum insured. Which principle is being applied?

  1. Indemnity Correct answer.
  2. Proximate cause
  3. Contribution
  4. Insurable interest

Explanation

Indemnity means the insured is restored to its financial position immediately before the loss, so compensation cannot exceed the actual loss suffered. The sum insured is only the maximum the insurer will pay, not an automatic entitlement.

Question 4General principles of insurance and the Hong Kong insurance market

Which of the following best describes insurable interest in a life insurance policy?

  1. A relationship where the policyholder owns physical property belonging to the life assured
  2. A relationship where the policyholder would suffer financial loss if the life assured died Correct answer.
  3. A relationship where the life assured consents to the policy in writing
  4. A relationship where the beneficiary is a blood relative of the policyholder

Explanation

Insurable interest in life insurance is based on a reasonable expectation of financial loss on the death of the life assured. Consent or blood relationship alone does not create insurable interest in Hong Kong practice; the interest must exist at inception.

Question 5General principles of insurance and the Hong Kong insurance market

What is the main purpose of the Hong Kong Federation of Insurers in the market?

  1. To authorise new insurers to carry on business in Hong Kong
  2. To represent member insurers and promote industry standards and self-regulation Correct answer.
  3. To set statutory capital requirements for insurers
  4. To adjudicate complaints against licensed insurance intermediaries

Explanation

The HKFI is an industry association that represents member insurers, promotes professional standards and administers self-regulatory codes. Authorisation, licensing and capital requirements are handled by the Insurance Authority.

Question 6General principles of insurance and the Hong Kong insurance market

Which of the following is a key difference between a mutual insurer and a proprietary insurer?

  1. A mutual insurer cannot be authorised in Hong Kong
  2. A mutual insurer may only sell life insurance products
  3. A mutual insurer is exempt from capital adequacy requirements
  4. A mutual insurer is owned by its policyholders rather than by shareholders Correct answer.

Explanation

A mutual insurer is owned by its policyholders and is run for their benefit, whereas a proprietary insurer is owned by shareholders and seeks profit for them. Both types remain subject to authorisation and capital requirements in Hong Kong.

Question 7General principles of insurance and the Hong Kong insurance market

Which party to an insurance contract is bound by the duty of utmost good faith?

  1. Only the insurer
  2. Only the proposer
  3. Only the intermediary arranging the contract
  4. Both the proposer and the insurer Correct answer.

Explanation

The duty of utmost good faith is reciprocal and binds both parties to the insurance contract. The proposer must disclose material facts and the insurer must also deal fairly in setting terms and handling claims.

Question 8General principles of insurance and the Hong Kong insurance market

An insured breaches a policy condition requiring it to maintain fire-fighting equipment. How is this breach best described?

  1. A breach of warranty of the truth of statements, which renders the policy void from inception
  2. A breach of the principle of contribution, which requires repayment by other insurers
  3. A breach of a condition precedent to liability, which may entitle the insurer to refuse a related claim Correct answer.
  4. A breach of insurable interest, which cancels cover automatically

Explanation

Conditions precedent to liability require the insured to satisfy certain obligations before the insurer is liable for a claim. Breach of such a condition allows the insurer to refuse the affected claim, but it does not automatically void the policy from inception.

Question 9General principles of insurance and the Hong Kong insurance market

Which of the following is an example of a proximate cause of loss under a property policy?

  1. A fire that spread from a neighbouring building and destroyed the insured warehouse Correct answer.
  2. A surveyor's report noting the building's age
  3. The insured's decision to store goods in a wooden shed
  4. The insured's failure to read the policy wording

Explanation

Proximate cause is the dominant and effective cause of the loss, without which the loss would not have occurred. A spreading fire that actually destroys the insured property is an insured peril and the operative cause of loss.

Question 10General principles of insurance and the Hong Kong insurance market

An insured holds two property policies that both cover the same fire loss on a rateable basis. What does the principle of contribution require?

  1. Each insurer pays its rateable proportion of the loss, provided total recovery does not exceed the loss Correct answer.
  2. The insured may recover the full loss from each insurer and keep the total
  3. The insured must choose one policy and abandon the other
  4. The insurer that issued the later policy pays the whole claim

Explanation

Contribution allows insurers covering the same interest against the same peril to share the loss rateably so the insured is indemnified but does not profit. Total recovery cannot exceed the actual loss.

Question 11General principles of insurance and the Hong Kong insurance market

After paying a claim for water damage caused by a negligent contractor, an insurer pursues the contractor for the amount paid. Which principle supports this?

  1. Average
  2. Abandonment
  3. Subrogation Correct answer.
  4. Contribution

Explanation

Subrogation transfers to the insurer, after payment, the insured's right to recover from the party responsible for the loss. The insurer can only recover up to the amount it paid and cannot profit from the action.

Question 12General principles of insurance and the Hong Kong insurance market

Which statement best explains the concept of reinsurance?

  1. A broker places risks with several insurers on a co-insurance basis
  2. An insured buys a second policy to increase its own cover
  3. An insurer arranges cover for its own office buildings
  4. An insurer transfers part of the risk it has accepted to another insurer Correct answer.

Explanation

Reinsurance is insurance of insurance: the ceding insurer transfers part of the risk it has accepted to a reinsurer. It protects the insurer's solvency and capacity and does not alter the original insured's contract with its insurer.

Question 13General principles of insurance and the Hong Kong insurance market

An insurer operates underwriting and claims functions in separate departments. Which benefit does this separation mainly provide?

  1. A check against fraud and error through segregation of duties Correct answer.
  2. A reduction in the premium charged to policyholders
  3. An exemption from the duty of utmost good faith
  4. A guarantee that all claims will be paid in full

Explanation

Segregation of duties between underwriting and claims creates internal controls that reduce the risk of fraud, collusion and error. It is a governance measure and does not change legal duties or premium levels.

Question 14General principles of insurance and the Hong Kong insurance market

Which of the following best describes the role of an insurance broker in Hong Kong?

  1. An intermediary who acts on behalf of the client in arranging insurance Correct answer.
  2. An employee of the Insurance Authority who supervises insurers
  3. An underwriter who accepts risks on behalf of an insurer
  4. An intermediary who acts solely as agent of the insurer

Explanation

An insurance broker represents the client and advises on insurance needs, placing cover with suitable insurers. This contrasts with an insurance agent, who acts for the insurer it represents.

Question 15General principles of insurance and the Hong Kong insurance market

A broker receives a premium from a client and holds it before passing it to the insurer. Which statement is correct under Hong Kong practice?

  1. The broker is not accountable for the premium until the policy is issued
  2. Client premiums should be kept in a separate client account and not mixed with the broker's own money Correct answer.
  3. The premium becomes the broker's property once received
  4. The broker may use the premium for working capital as long as it is repaid

Explanation

Premiums held on behalf of clients must be safeguarded in a separate client account so they are not mixed with the intermediary's own funds. This protects clients if the intermediary becomes insolvent.

Question 16General principles of insurance and the Hong Kong insurance market

Which of the following is the main purpose of the Insurance Authority's conduct requirements for licensed intermediaries?

  1. To fix premium rates across the market
  2. To guarantee that intermediaries make a profit
  3. To replace insurers' underwriting decisions
  4. To ensure fair treatment of customers and raise professional standards Correct answer.

Explanation

Conduct requirements focus on fair dealing with customers, suitability of advice, disclosure of interests and proper handling of client money. They do not set prices or underwrite risks, which remain commercial decisions for insurers.

Question 17General principles of insurance and the Hong Kong insurance market

An insurer discovers that a proposer concealed a material medical condition when applying for life cover, which led the insurer to accept the risk at standard rates. What remedy is generally available?

  1. The insurer must pay the full sum assured regardless
  2. The insurer may cancel cover but must refund all premiums with interest
  3. The insurer may only increase the premium for future years
  4. The insurer may avoid the policy and treat it as never having existed Correct answer.

Explanation

Concealment of a material fact breaches the duty of utmost good faith and entitles the insurer to avoid the contract. Avoidance means the policy is treated as void from inception, subject to any statutory or regulatory protections in force.

Question 18General principles of insurance and the Hong Kong insurance market

Which statement about the principle of indemnity is correct when an insured property is worth less than the sum insured?

  1. The insured can recover nothing because the sum insured is not fully used
  2. The insured can recover the actual loss up to the sum insured, but not more Correct answer.
  3. The insured can recover double the actual loss
  4. The insured can recover the full sum insured as a guaranteed minimum

Explanation

Indemnity limits recovery to the actual financial loss, even where the sum insured is higher. The sum insured is a ceiling, not a floor, and the insured cannot profit from a loss.

Question 19General principles of insurance and the Hong Kong insurance market

A general insurer accepts large property risks and arranges facultative reinsurance for each individual risk. What is the main purpose of this arrangement?

  1. To allow the reinsurer to deal directly with the original insured
  2. To reduce the ceding insurer's exposure on individual large risks and protect its solvency Correct answer.
  3. To avoid the need for the insurer to hold any capital
  4. To transfer the insurer's conduct obligations to the reinsurer

Explanation

Facultative reinsurance is arranged risk by risk and lets the ceding insurer limit its exposure on large or unusual risks. This protects solvency and capacity, but the original insurer remains responsible to the insured and must still hold regulatory capital.

Question 20General principles of insurance and the Hong Kong insurance market

Which of the following statements about insurable interest in property insurance is correct?

  1. Insurable interest can be created simply by taking out the policy
  2. Insurable interest is only required when the policy is issued and never afterwards
  3. Insurable interest is not required in property insurance
  4. The insured must have an insurable interest at the time of the loss as well as when the policy is effected Correct answer.

Explanation

In property insurance, insurable interest must exist both when the contract is formed and when the loss occurs, because indemnity depends on the insured actually suffering loss. Taking out a policy does not itself create an interest.

Question 21General principles of insurance and the Hong Kong insurance market

Which of the following is a distinguishing feature of a Lloyd's-style subscription market compared with a single-insurer arrangement?

  1. Several underwriters each subscribe to a stated share of the same risk Correct answer.
  2. The insured must buy separate policies from each underwriter
  3. One underwriter accepts the entire risk without sharing
  4. The risk is transferred entirely to the government

Explanation

In a subscription market, multiple underwriters each accept a defined percentage of the risk under one policy, and each is liable only for its own share. This differs from a single insurer accepting the whole risk.

Question 22General principles of insurance and the Hong Kong insurance market

Which of the following best explains why the Insurance Authority requires insurers to maintain adequate solvency margins?

  1. To prevent insurers from writing any new business
  2. To ensure insurers can meet their obligations to policyholders in adverse conditions Correct answer.
  3. To guarantee that shareholders receive dividends
  4. To set uniform premiums for all policyholders

Explanation

Solvency requirements ensure an insurer holds sufficient capital above its liabilities so it can withstand adverse experience and pay claims. They protect policyholders and market stability rather than guaranteeing shareholder returns.

Question 23General principles of insurance and the Hong Kong insurance market

Which of the following is a characteristic of a warranty in an insurance contract?

  1. A statement of opinion that has no contractual effect
  2. A promise by the insured that a particular state of affairs exists or will be maintained Correct answer.
  3. A right of the insurer to cancel cover only at renewal
  4. A voluntary payment made by the insurer after a loss

Explanation

A warranty is a contractual promise that a fact is true or that a condition will be maintained. Breach of a warranty can affect the insurer's liability, depending on the terms and applicable law.

Question 24General principles of insurance and the Hong Kong insurance market

An intermediary recommends a savings plan to a client who states that the funds may be needed within one year. Which conduct expectation is most relevant?

  1. Avoiding any discussion of the product's risks
  2. Maximising the intermediary's commission from the sale
  3. Relying solely on the client's signature as proof of advice
  4. Assessing suitability and matching the recommendation to the client's needs and circumstances Correct answer.

Explanation

Conduct standards require intermediaries to understand the client's circumstances and recommend products that suit the client's needs. Recommending a long-term product for short-term needs may be unsuitable and could breach those standards.

Question 25General principles of insurance and the Hong Kong insurance market

Which of the following statements about the doctrine of proximate cause is correct?

  1. It requires the insured to prove every possible cause of the loss
  2. It always identifies the first event in a chain of events as the cause
  3. It looks for the dominant and effective cause of the loss, not simply the last event Correct answer.
  4. It applies only to life insurance claims

Explanation

Proximate cause is the dominant and effective cause of the loss, determined by substance rather than mere sequence. It is not necessarily the first or last event and applies across classes of insurance.

Question 26General principles of insurance and the Hong Kong insurance market

Under Hong Kong's insurance regulatory framework, which body is responsible for licensing insurance intermediaries and supervising their conduct?

  1. The Insurance Authority Correct answer.
  2. The Hong Kong Monetary Authority
  3. The Mandatory Provident Fund Schemes Authority
  4. The Securities and Futures Commission

Explanation

Since the Insurance Authority took over statutory regulation of insurance intermediaries in 2019, it licenses insurance brokers and agents and issues codes of conduct governing their sales and advisory activities. The other bodies regulate banking, securities, and retirement schemes respectively, and none of them licenses insurance intermediaries.

Question 27General principles of insurance and the Hong Kong insurance market

An insurer issues a policy where the premium is stated as subject to later adjustment based on the insured's actual declared turnover at the end of the period. Which type of premium arrangement does this describe?

  1. A deposit premium that is never adjusted
  2. A provisional premium subject to adjustment Correct answer.
  3. A single non-refundable premium
  4. A level premium fixed for the whole policy term

Explanation

A provisional premium is an initial amount paid at inception, later adjusted against the declared exposure such as turnover or wages, with a further payment or refund at the end. This is common in liability and business interruption covers where exposure is not known in advance.

Question 28General principles of insurance and the Hong Kong insurance market

A proposer for household contents insurance tells the insurer that the flat is unoccupied for most of the year, but the insurer's proposal form does not ask about occupancy. The insurer issues the policy without further enquiry. Which statement best describes the proposer's duty of disclosure?

  1. The proposer's duty ends once the first premium has been paid to the insurer
  2. The proposer need disclose only facts that the insurer has expressly asked about in writing
  3. The proposer must still disclose the occupancy because it is material, and failure to do so allows the insurer to avoid the policy
  4. The proposer has discharged the duty because the insurer asked no question on occupancy and the information was volunteered Correct answer.

Explanation

Under Hong Kong law the duty is to disclose material facts, and materiality is judged by what a prudent insurer would want to know, not only by what the proposal form asks. Even so, a proposer is expected to volunteer material facts, and the absence of a question does not by itself excuse silence. Where the fact is genuinely material to the risk, non-disclosure can entitle the insurer to avoid the contract.

Question 29General principles of insurance and the Hong Kong insurance market

A cargo owner insures a shipment of goods for HK$2,000,000, but the goods are worth HK$2,500,000 at the time of loss. A partial loss of HK$500,000 occurs and the policy contains no average or coinsurance clause. How much is the insured entitled to recover under the principle of indemnity?

  1. HK$400,000
  2. HK$1,000,000
  3. HK$500,000 Correct answer.
  4. HK$250,000

Explanation

Where the sum insured is less than the value of the subject matter, the policy is under-insured, but without an average or coinsurance clause the insured recovers the actual loss up to the sum insured. A partial loss of HK$500,000 is within the HK$2,000,000 sum insured, so the full loss is payable. The shortfall in cover becomes relevant only if the loss exceeds the sum insured or if an average clause applies.

Question 30General principles of insurance and the Hong Kong insurance market

An insurer's claims department pays a large property claim without checking whether the policy had lapsed for non-payment of premium, and the error is discovered only after payment. Which statement best explains the internal control weakness illustrated?

  1. The underwriting function breached the duty of utmost good faith owed by the insurer
  2. The claims function lacked adequate checks against policy status, so segregation of duties and authorisation controls failed Correct answer.
  3. The reinsurer is liable for the full amount because it shares the insurer's errors
  4. The broker must reimburse the insurer because it arranged the original cover

Explanation

Paying a claim without verifying that cover was in force reflects a failure of internal controls, particularly the separation of claims assessment from policy administration and the requirement for proper authorisation before payment. Effective controls require claims staff to confirm premium payment and policy status before settling. The error is an operational control failure, not a breach of good faith or a matter automatically transferred to reinsurers or brokers.

Question 31Regulatory framework and conduct requirements for insurance intermediaries

Under the Insurance Ordinance, which body is responsible for regulating the conduct of licensed insurance intermediaries in Hong Kong?

  1. The Insurance Authority Correct answer.
  2. The Hong Kong Monetary Authority
  3. The Mandatory Provident Fund Schemes Authority
  4. The Securities and Futures Commission

Explanation

The Insurance Authority (IA) is the statutory regulator established under the Insurance Ordinance and is responsible for licensing and supervising insurance intermediaries, including their conduct and fitness and properness. The other bodies regulate banking, securities and MPF schemes respectively within their own statutory remits.

Question 32Regulatory framework and conduct requirements for insurance intermediaries

A person who wishes to carry on regulated activities of insurance broking in Hong Kong must ordinarily hold which status?

  1. A permit issued by the Companies Registry
  2. A registration with the Estate Agents Authority
  3. A licence granted by the Insurance Authority Correct answer.
  4. A practising certificate from the Law Society

Explanation

Insurance broking is a regulated activity under the Insurance Ordinance, and a person must be licensed by the Insurance Authority as an insurance broker (or be an authorised insurer, which is not the case for brokers). The Law Society, Estate Agents Authority and Companies Registry do not license insurance intermediaries.

Question 33Regulatory framework and conduct requirements for insurance intermediaries

Which of the following is a core conduct requirement expected of a licensed insurance intermediary when dealing with a client?

  1. Guaranteeing the investment return of any policy sold
  2. Recommending the product with the highest commission
  3. Sharing client information freely with other intermediaries
  4. Acting in the best interests of the client Correct answer.

Explanation

Licensed insurance intermediaries must act in the best interests of clients, which underpins fair dealing and suitability obligations. They cannot guarantee returns, must protect client confidentiality, and must not let commission drive recommendations.

Question 34Regulatory framework and conduct requirements for insurance intermediaries

What is the primary purpose of the requirement that an insurance intermediary be "fit and proper"?

  1. To ensure intermediaries hold a university degree
  2. To ensure intermediaries only sell to corporate clients
  3. To ensure intermediaries are competent, honest and financially sound Correct answer.
  4. To ensure intermediaries are members of a trade union

Explanation

The fit and proper test assesses matters such as integrity, competence, financial soundness and past regulatory compliance, so that only suitable persons act as intermediaries. It does not require union membership, a degree, or restrict client types.

Question 35Regulatory framework and conduct requirements for insurance intermediaries

An insurance intermediary receives a complaint from a client about mis-selling. Under the regulatory framework, what is the intermediary's expected first step?

  1. Immediately cancel all of the client's policies without discussion
  2. Forward the complaint to a competitor for an opinion
  3. Ignore the complaint unless the client commences legal proceedings
  4. Handle the complaint through its established complaint-handling procedures and keep proper records Correct answer.

Explanation

Licensed intermediaries must maintain effective complaint-handling procedures, investigate complaints fairly and promptly, and keep records of complaints and their resolution. Ignoring complaints, involving competitors or unilaterally cancelling policies is not acceptable.

Question 36Regulatory framework and conduct requirements for insurance intermediaries

Which statement best describes the role of the Insurance Authority in relation to disciplinary action against a licensed insurance intermediary?

  1. It may impose sanctions such as fines, suspension or revocation of licence after due process Correct answer.
  2. It may only issue verbal warnings with no other powers
  3. It must refer all disciplinary matters to the police for prosecution
  4. It has no disciplinary powers over intermediaries

Explanation

The Insurance Authority has statutory disciplinary powers over licensed intermediaries, including imposing fines, suspending or revoking licences, and issuing reprimands, subject to procedural safeguards. It is not limited to verbal warnings and does not need to refer every matter to the police.

Question 37Regulatory framework and conduct requirements for insurance intermediaries

A licensed technical representative wants to change the type of regulated activity they perform. What should they do?

  1. Apply to the Insurance Authority for the necessary variation before carrying on the new activity Correct answer.
  2. Ask a colleague to perform the new activity under their own licence
  3. Begin the new activity and notify the Insurance Authority a year later
  4. Assume the existing licence automatically covers all regulated activities

Explanation

A licence covers specified regulated activities, and an intermediary must obtain the appropriate licence or variation before conducting a different regulated activity. Acting first and notifying later, or relying on a colleague's licence, would breach licensing requirements.

Question 38Regulatory framework and conduct requirements for insurance intermediaries

Which of the following best reflects the principle of fair dealing with customers in the sale of insurance products?

  1. Maximising sales volume regardless of customer outcomes
  2. Treating customers fairly at all stages, including product design, marketing, advice and after-sales service Correct answer.
  3. Applying different standards based on the size of the premium
  4. Disclosing only information that favours the sale

Explanation

Fair dealing requires fair treatment of customers across the whole product lifecycle, not just at the point of sale. Sales-volume targets, selective disclosure and premium-based standards conflict with this principle.

Question 39Regulatory framework and conduct requirements for insurance intermediaries

An intermediary is asked to accept a cash payment from a client that exceeds the amount stated in the policy documents. What is the appropriate approach under anti-money-laundering requirements?

  1. Accept the cash without question to keep the client happy
  2. Record the payment under a false client name
  3. Split the cash into smaller amounts to avoid scrutiny
  4. Apply customer due diligence and report suspicious circumstances where appropriate Correct answer.

Explanation

Intermediaries must apply customer due diligence, monitor transactions and report suspicious transactions to the Joint Financial Intelligence Unit where appropriate. Accepting unexplained cash, structuring payments or falsifying records would breach AML requirements.

Question 40Regulatory framework and conduct requirements for insurance intermediaries

Which document typically sets out the scope of authority and responsibilities of an insurance intermediary acting for an insurer?

  1. The insurer's annual advertising brochure
  2. The client's will
  3. The intermediary's personal bank statement
  4. The agency or broker agreement between the parties Correct answer.

Explanation

An agency or broker agreement defines the intermediary's appointment, scope of authority, and responsibilities, and supports compliance with regulatory expectations. Wills, brochures and bank statements do not establish authority.

Question 41Regulatory framework and conduct requirements for insurance intermediaries

Under the regulatory framework, an insurance intermediary must keep records of client transactions for what main reason?

  1. To satisfy personal curiosity
  2. To sell the data to marketing companies
  3. To demonstrate compliance and support supervision and audits Correct answer.
  4. To avoid paying taxes

Explanation

Record-keeping supports compliance, supervision, audits and complaint investigation, and is a regulatory expectation for licensed intermediaries. Selling data, personal curiosity or tax avoidance are not legitimate purposes and may be unlawful.

Question 42Regulatory framework and conduct requirements for insurance intermediaries

A client asks an intermediary to recommend a policy. Which approach best satisfies the suitability requirement?

  1. Recommend the product the intermediary personally prefers
  2. Recommend the product with the highest premium
  3. Recommend the same product to every client for consistency
  4. Assess the client's needs, circumstances and risk profile before recommending a product Correct answer.

Explanation

Suitability requires understanding the client's needs and circumstances and recommending a product that matches them. Premium size, personal preference or a one-size-fits-all approach do not establish suitability.

Question 43Regulatory framework and conduct requirements for insurance intermediaries

Which statement about the disclosure of remuneration to clients by an insurance intermediary is most consistent with regulatory expectations?

  1. The intermediary should conceal all commission details from clients
  2. The intermediary should state that it works for free
  3. The intermediary should be transparent about how it is remunerated so clients can understand potential conflicts Correct answer.
  4. The intermediary should only disclose remuneration if the client threatens to complain

Explanation

Transparency about remuneration helps clients understand conflicts of interest and supports fair dealing. Concealing commission, disclosing only under pressure, or misrepresenting the arrangement as free is inconsistent with these expectations.

Question 44Regulatory framework and conduct requirements for insurance intermediaries

An intermediary becomes aware that a client is using an insurance policy to launder money. What is the most appropriate action?

  1. Continue servicing the policy without any action
  2. Publicly disclose the client's details on social media
  3. Report the suspicious transaction to the Joint Financial Intelligence Unit and follow internal procedures Correct answer.
  4. Warn the client that they are under suspicion

Explanation

Suspicious transactions should be reported to the Joint Financial Intelligence Unit in accordance with internal procedures, and tipping off the client is prohibited. Continuing without action or public disclosure would be improper and potentially unlawful.

Question 45Regulatory framework and conduct requirements for insurance intermediaries

Which of the following is a key element of the "know your client" process for an insurance intermediary?

  1. Collecting and verifying information about the client's identity, financial situation and needs Correct answer.
  2. Relying solely on verbal statements without any verification
  3. Obtaining the client's password to their bank account
  4. Collecting only the client's nickname

Explanation

Know-your-client involves gathering and verifying identity, financial circumstances and insurance needs to support suitability and AML compliance. Nicknames alone, unverified statements or obtaining bank passwords are inadequate or improper.

Question 46Regulatory framework and conduct requirements for insurance intermediaries

An intermediary's licence is suspended by the Insurance Authority. What is the effect on the intermediary's ability to carry on regulated activities during the suspension?

  1. The intermediary may continue if a colleague agrees
  2. The intermediary may continue as normal because suspension is only symbolic
  3. The intermediary must cease the regulated activities covered by the suspension Correct answer.
  4. The intermediary may continue but must use a different company name

Explanation

A suspension removes the intermediary's ability to carry on the regulated activities covered by the licence for the suspension period. Continuing as normal, relying on a colleague's agreement or changing names would breach the licensing regime.

Question 47Regulatory framework and conduct requirements for insurance intermediaries

Which of the following best describes the Insurance Authority's approach to supervising insurance intermediaries?

  1. Supervision only of insurers and never of intermediaries
  2. Risk-based supervision focusing on conduct, fitness and properness and market stability Correct answer.
  3. Random supervision with no defined criteria
  4. Supervision limited to checking advertising slogans

Explanation

The Insurance Authority applies a risk-based supervisory approach that considers conduct, fitness and properness, and market stability. It is not random, does cover intermediaries, and is not limited to advertising.

Question 48Regulatory framework and conduct requirements for insurance intermediaries

A client asks an intermediary to backdate a policy application to obtain a lower premium. What should the intermediary do?

  1. Agree, because the client requested it
  2. Agree, but only for a small amount
  3. Refuse, because backdating to obtain a lower premium would be dishonest and breach conduct requirements Correct answer.
  4. Agree, provided the client pays cash

Explanation

Backdating an application to obtain a lower premium involves misrepresentation and breaches honesty and integrity requirements. Client request, cash payment or the size of the amount does not make it acceptable.

Question 49Regulatory framework and conduct requirements for insurance intermediaries

Which of the following statements about continuing professional development (CPD) for licensed insurance intermediaries is most accurate?

  1. CPD only applies to insurers' directors
  2. CPD is optional and has no regulatory relevance
  3. Intermediaries are expected to undertake ongoing training to maintain competence Correct answer.
  4. CPD is required only once at the start of a career

Explanation

Licensed intermediaries are expected to maintain and enhance their competence through ongoing training, and CPD forms part of the regulatory framework. It is not optional, not limited to directors and not a one-off requirement.

Question 50Regulatory framework and conduct requirements for insurance intermediaries

An intermediary is offered a luxury gift by a client in return for recommending a particular policy. What is the appropriate response?

  1. Accept the gift but hide it from the firm
  2. Decline or handle the gift in line with the firm's conflict-of-interest policy Correct answer.
  3. Ask the client to give the gift to a family member instead
  4. Accept the gift and recommend the policy as requested

Explanation

Gifts that could influence advice create conflicts of interest and must be handled under the firm's policies, often by declining or recording them. Accepting in exchange for a recommendation, concealing it, or redirecting it to a family member would breach integrity and conflict rules.