Principles and practice of insurance examination (1)

Complications may include:

• Inability to trace the primary beneficiary
• Multiple claims from alleged assignees or new policyholders
• Outstanding policy loans
• Assignment issues where the claimant is not the original policyholder
• Uncertainties regarding the actual death or identity of the deceased
• Dividend or bonus considerations with participating or with-profits policies

The ancillary functions and benefits of the insurance industry in Hong Kong include:

1. Employment: Significant contributor to the local workforce.
2. Financial Services: Plays a crucial role in the local economy, especially after the decline in manufacturing.
3. Loss Prevention and Control: Involves surveys and inspections that lead to fewer accidents and unwanted events.
4. Saving/Investments: Life insurance provides a means for future financial security, supported by the Mandatory Provident Fund Schemes introduced in 2000.
5. Economic Growth/Development: Encourages investment in costly projects by providing necessary protection, facilitating development in various sectors.

A 'contract' is defined as a legally enforceable agreement that comprises promises or undertakings exchanged between parties. In the context of insurance:

• An insurance policy serves as evidence of an insured contract, although it is not a contract itself.
• Contracts can cover trivial or significant matters, and parties expect promises to be honored, with the ability to demand compensation or enforce performance if they are not.

Simple contracts are defined by the following characteristics:

1. Formation: Created verbally or in writing, not under seal.
2. Inferred from Conduct: Validity can be established through actions, such as body language indicating a purchase.
3. No Special Formalities: Their validity does not depend on specific formal requirements, making them easier to form compared to other types of contracts.

1. Void/Invalid Contracts: These have no legal effect and all premiums paid are returnable.

2. Voidable Contracts: These remain effective unless an aggrieved party treats it as void within a reasonable time after discovering a breach or omission.

3. Unenforceable Contracts: These cannot be enforced in court due to some required action not being taken, but can become enforceable once the action is completed.

A deed is a written instrument that must be signed, sealed, and delivered. It is required for certain transactions, such as land transfers, and is essential for suretyship to avoid defenses against claims due to lack of consideration.

An offer in insurance can be made by an intending insured through a proposal form or by the insurer as a counteroffer, depending on the intention evidenced by the facts.

The proposed contract cannot come into being unless the offer is accepted by the offeree. All terms of the offer must be accepted before a contract is concluded.

Consideration is the price (monetary) that a contracting party pays for the promise made by the other party. In a simple contract, consideration must be given by both parties; otherwise, it is void. A unilateral promise not made by a deed is invalid.

Capacity to contract refers to the legal ability to enter into a contract. Contracts made by individuals who are mentally disordered or minors are generally voidable at their option. Companies must not exceed their legal powers when contracting.

The subject of the agreement must be legal. Contracts for illegal activities, such as killing or smuggling goods, are not valid. However, courts may enforce an insurance claim under an illegal contract if the insurer failed to meet statutory requirements.

To make a valid contract, each party must clearly intend for it to have legal consequences. This is generally not an issue with insurance contracts, as commercial agreements are presumed to have this intention.

The doctrine of privity of contract states that a third party is not obliged to perform and cannot be made liable for failing to perform the terms of a contract to which they are not a party, and they cannot enforce a right under such a contract.

Under Cap 624, a third party expressly identified in the contract may enforce a term of the contract that confers a benefit on them, unless the contract indicates that the term is not intended to be enforceable by them.

The jurisdiction limit for the non-claim related mediation service is HK$1,000,000.

A licence granted by the Insurance Authority (IA) is required for carrying on any regulated activity in the course of business or employment, subject to certain exemptions.

Regulated activities include negotiating or arranging an insurance contract.

A material decision refers to a decision made by the person entering into a contract of insurance.

Cap. 624 prohibits contracting parties from rescinding or varying a relevant term of the contract without the third party's consent, especially if the third party relied on the term. This aims to protect the interests of third parties while allowing some freedom for contracting parties to amend the contract.

Agency is the relationship that exists between a Principal and his agent, which may arise as a matter of fact rather than through a precise agency appointment. It involves the agent arranging or performing agreements on behalf of the principal with a third party.

An agency relationship can arise in several ways, including:

1. Express Agreement: A formal agreement between the principal and agent.
2. Implied Agreement: Actions or circumstances that imply an agency relationship.
3. Ratification: The principal accepts the actions of the agent after they have occurred.
4. Estoppel: The principal's conduct leads a third party to believe that the agent has authority to act on their behalf.

In an agency relationship, there are two contracts to consider:

1. Contract between the agent and the principal: This outlines the duties and responsibilities of the agent.
2. Contract between the principal and the third party: This is the agreement that the agent arranges or performs on behalf of the principal.

1. By agreement: This can be contractual or implied from the conduct or situation of the parties.

2. By ratification: This involves giving retrospective authority for an act that was not authorized at the time, which can be confirmed in writing, verbally, or by conduct.

Regulated advice includes opinions related to:

1. Making an application or proposal for an insurance contract.
2. Issuance, continuance, or renewal of an insurance contract.
3. Cancellation, termination, surrender, or assignment of an insurance contract.
4. Exercise of a right under an insurance contract.
5. Change in any term or condition of an insurance contract.
6. Making or settlement of an insurance claim.

Authority of necessity refers to the power granted to an agent to act on behalf of a principal in urgent situations where the principal's property or interests are in imminent jeopardy and there is no opportunity to communicate with the principal.

An agent of necessity acts on behalf of a principal without express authority, creating binding contracts and conferring rights on the principal. The agent is entitled to reimbursement and indemnity for their actions and can defend against any claims from the principal regarding unauthorized acts.

Agency by estoppel occurs when a person represents or allows it to be represented that another is their agent, preventing them from denying the agent's authority to third parties. However, this does not create an agency unless the unauthorized act is ratified by the principal.

The doctrine of apparent authority applies when an agent appears to have more authority than actually conferred, while agency by estoppel applies when a supposed agent is allowed to appear as if they were authorized, despite lacking actual authority.

The duties owed by an agent to the principal include:

1. Obedience: Following lawful instructions strictly.
2. Personal performance: Not delegating authority unless authorized.
3. Due care and skill: Exercising reasonable skill and diligence.
4. Loyalty and good faith: Adhering to strict rules of loyalty, including the no-conflict rule.
5. Accountability: Accounting for all money or items received on behalf of the principal and maintaining adequate records.

The agent is entitled to receive commission or other remuneration (such as a bonus) as agreed, and the principal must pay this within a reasonable time or any specified time limit.

The principal must reimburse the agent for costs and expenses that are properly and reasonably incurred by the agent on behalf of the principal, subject to any express terms in the agency agreement.

The agent may take action against the principal for the latter's breach of obligations to him.

An agency agreement can be terminated by mutual agreement, revocation by either party, fundamental breach of contract, death of either party, insanity of either party, or illegality of the agreement.

The exclusive agent may terminate performance immediately and sue the principal for any loss of profit expected from the agreement during the remainder period.

Insurable interest is a person's legally recognised relationship to the subject matter of insurance that gives them the right to effect insurance on it. This relationship must be legal; for example, a thief in possession of stolen goods does not have the right to insure them.

An insurance agreement is void or invalid without insurable interest. The rules regarding the return of premiums under such agreements vary among different classes of insurance and are governed by the general rules on illegality of contract and relevant provisions of the Insured Ordinance and Marine Insurance Ordinance.

The essential criteria for insurable interest include:

1. There must be a person, property, liability, or legal right capable of being insured.
2. That person or entity must be the subject matter of the insurance, meaning the claim payment is contingent on an unfortunate event affecting them.
3. The proposer must have a legally recognised relationship to the subject matter, resulting in potential financial loss if the insured event occurs. Insurable interest can sometimes be presumed without showing a financial relationship.

In personal insurance, everyone has an insurable interest in their own life and limbs. Additionally, individuals have an insurable interest in the life of their spouse, and may also insure the life of their child or ward.

Insurable interest in life insurance is only required at the policy inception. For example, if a woman takes out a whole life policy on her husband and they later separate, she still qualifies for the death benefit despite lacking insurable interest at the time of his death.

Insurable interest for marine insurance is only required at the time of loss, meaning that the insured must have an insurable interest in the property at the moment it is lost or damaged.

The two types of assignment in insurance are: 1. Assignment of the insurance contract/policy, where the interest of the original policyholder passes to the new policyholder. 2. Assignment of the right to insurance money/insurance proceeds, which is the transfer of the right to claim the benefits from the policy.

Executors, administrators, trustees, and mortgagees can insure property that they do not own absolutely, such as estate property, trust property, and mortgaged property. Additionally, bailees can insure goods that they possess with the owner's consent.

Direct liability refers to the insurance covering an individual's own acts or omissions, while vicarious liability refers to insurance that covers the liability of one party for the actions of another, such as an employer insuring against negligence caused by employees.

An assignment of policy proceeds affects both losses that have arisen and those that may arise. The assigned policy covers losses suffered by the assignor, not the assignee/new policyholder, although the assignee has the right to sue the insurer to recover under the policy.

Both the assignor and the assignee/new policyholder must have an insurable interest in the subject matter of insurance at the time of assignment for it to be valid. For example, a motor policy must be assigned to the purchaser at the same time as the transfer of property in the insured car.

No, in the assignment of the right to insurance money or policy proceeds, the assignee/new policyholder does not need to have an insurable interest, allowing the assignment to take effect as a gift to the assignee.

The assignment of the right to insurance money/proceeds requires the insurer's consent. However, the assignment of the insurance contract may have different legal rules depending on the type of insurance, with life policies and marine cargo policies often being assignable without the insurer's consent.

Ordinary Good Faith requires that the parties behave with honesty and that the information they supply must be substantially true. However, it is not the parties' responsibility to ensure that the other party obtains all necessary information.

The principle of utmost good faith requires each party to reveal all vital information (material facts) to the other party, regardless of whether it is requested. This principle is stricter in insurance compared to other contracts, obligating proposers to disclose relevant information, such as loss records, even if not explicitly asked for.

Material facts can be categorized based on their impact on decision-making:

1. Decision to accept or reject a proposed risk

   • Example: A proposed life insured has an inoperable malignant brain tumour.

2. Setting of a premium

   • Example: The insured person of a proposed personal accidental insurance is a salesperson.

3. Decision to accept or reject a proposed risk AND setting of a premium

   • Example: A proposed life insured is a diabetic.

Certain facts do not need to be disclosed, including:

• Matters of common knowledge
• Facts already known or deemed to be known to the insurer (e.g., the problem of piracy in Somalia)
• Facts that diminish the risk (e.g., a proposer for commercial fire insurance not mentioning an automatic sprinkler system, which would lower the risk).

The insured is not legally obliged to disclose material facts that come to their knowledge after the insurance contract has been concluded, unless the terms of the insurance policy specifically require such disclosure.

When a policy is renewed, the duty of utmost good faith revives, requiring the insured to disclose material facts. However, this duty does not revive for life policies as they approach their anniversary date.

Breaches of utmost good faith can be classified into:

1. Fraudulent Misrepresentation: Giving false material facts fraudulently.
2. Non-fraudulent Misrepresentation: Giving false material facts innocently or negligently.
3. Fraudulent Non-disclosure: Fraudulently omitting to disclose material facts.
4. Non-fraudulent Non-disclosure: Omitting to disclose material facts innocently or negligently.

If a breach of utmost good faith occurs, the aggrieved party (insurer) may:

1. Avoid the whole contract within a reasonable time from policy inception.
2. Return premiums and claims previously paid, unless the breach was fraudulent.

The proximate cause of a loss is its effective or dominant cause. It determines whether a loss is recoverable under an insurance policy based on the nature of the peril involved.

The three types of perils are:

1. Insured peril: Covered by the policy (e.g., fire under a fire insurance policy).
2. Expected/Excluded peril: Covered but removed from the policy (e.g., fire damage caused by war).
3. Uninsured peril: Neither insured nor excluded (e.g., rain and theft under a standard fire policy).

If a loss is caused by an insured peril that leads to an uninsured peril, the loss is covered under the insurance policy.

An insured peril must always be involved for a loss to be recoverable; otherwise, the loss is definitely irrecoverable.

Uninsured perils can lead to insured perils, meaning that if an insured peril occurs as a result of an uninsured peril, the loss from the insured peril is covered. For example, if a fire (insured peril) is caused by a careless act (uninsured peril), the damage from the fire is covered under the policy.

Proximate cause refers to the primary cause of loss in an insurance claim. It is important to note that neither the first nor the last cause necessarily constitutes the proximate cause, and more than one proximate cause may exist. For instance, both employee dishonesty and supervisor neglect can be proximate causes of a theft loss.

Yes, damage from an excluded peril can still be recoverable under an insurance policy if it is found that the proximate cause of the loss is an insured peril. For example, if a fire causes an explosion leading to water damage, the water damage may be recoverable under the policy despite the initial cause being an uninsured peril.

Insurers adopt specific policy wording that modifies the application of proximate cause rules, which can affect how claims are evaluated and what is covered under the policy.

A policy exclusion stating that loss 'directly or indirectly' arising from a particular peril is excluded means that a loss will not be recoverable even if the expected peril was only a remotely contributory factor.

By excluding 'loss proximately/direction caused by delay', the insurer can deny a 'loss of market' claim even if the loss is due to an insured peril, such as a collision during the insured voyage.

Indemnity means an exact financial compensation for the insured loss, no more, no less.

Indemnity cannot apply to types of insurance like life insurance and personal accident insurance, as these deal with losses that cannot be measured precisely in financial terms, involving benefit policies instead.

Types of insurance subject to the principle of indemnity include medical expenses insurance, personal accident insurance, and travel insurance policies, unless otherwise specified.

Insurances that aren't linked with insurable interest apply indemnity, while those with limited insurable interest cannot apply indemnity. Life and personal accident insurances are generally regarded as having unlimited insurable interest, thus indemnity does not apply to them.

1. Cash payment to the insured: The most convenient method for the insurer.

2. Repair: Payment to a repairer, commonly used for motor partial loss claims.

3. Replacement: Providing new items or articles that suffer little or no depreciation, especially if the insurer can obtain a discount from a supplier.

4. Salvage: Taking into account the financial value of any remaining damaged property when calculating indemnity.

The complaint must be of a monetary nature, not exceed HK$1,000,000, involve an ICB member insurer, concern a personal insurance policy, and be filed by a policyholder, beneficiary, insured person, or rightful claimant.

The Complaints Panel shall have regard to the terms of the relevant policy, general principles of good insurance practice, applicable law, and any codes or guidelines issued by the HKFI or ICB, while also considering fairness to the complainant.

A complaint must be filed with the ICB within 6 months from the day of notification by the insurer of its final decision.

Complaints that are excluded include those arising from commercial, industrial, or third party insurance, and those that are subject to legal proceedings or arbitration.

Salvage refers to the financial value of any remaining damaged property, which must be considered when calculating indemnity. The value of the salvage is deducted from the amount payable to the insured, who retains the salvage. Alternatively, the insurer may pay in full and dispose of the salvage for its own account.

Abandonment is the act of surrendering the subject matter insured to the insurers in exchange for a total loss payment. The insurer benefits from the residual value of the surrendered property. This practice is common in marine insurance but is usually excluded in other property insurance policies.

Some policies promise to indemnify the insured for harm or loss. The term 'average' refers to partial loss, which is a loss other than total loss for non-marine property. In marine property, the concept is more complex and beyond basic understanding.

It means that the insurer expects the insured property to be insured for its full value. If the property is under-insured, the amount payable in the event of a loss will be reduced in proportion to the level of under-insurance.

A policy excess or deductible is the amount that the insured must pay out of pocket before the insurer covers the remaining loss. For example, if a motor policy has a $4,000 excess and the repair costs are$14,000, the insurer will only pay $10,000.

A policy excess requires the insured to cover losses up to a specified amount before the insurer pays, while a policy franchise eliminates small claims and pays the full loss if it exceeds or meets the franchise amount.

If the insured damage is less than the franchise amount, the insurer does not pay anything. For example, if a ship insured for $5 million has a 5$100,000, the insurer pays nothing because the damage does not exceed the franchise threshold.

Policy limits are the maximum amount the insurer will pay for a loss. Any loss exceeding this limit will not be fully compensated. For instance, a single article limit in a household contents policy restricts coverage for valuable items unless they are separately insured.

The 'single article limit' is the maximum amount payable for a loss of an item that has not been separately insured under a specific sum in the policy.

A section limit refers to the individual limit of liability that applies to different sections of a policy, which may cover various subject matters or insured perils.

Reinstatement insurance provides coverage without deductions for wear and tear or depreciation after a loss, unlike standard indemnity which may account for these factors.

'New for Old' cover means that no deductions are made for wear and tear or depreciation, ensuring that the insured receives the full replacement value of the item.

Agreed value policies are used for high-value items where depreciation is not a factor, and the sum insured is based on an expert's valuation agreed upon by both parties.

Marine policies are usually written on a valued basis, meaning the agreed value is considered the actual value at the time of loss for both partial and total loss claims.

Practical problems with indemnity include disagreements over the depreciation of property, as claimants often believe their property has not depreciated or has only marginally done so.

The doctrine of contribution applies in cases of double insurance, where two or more policies cover the same interest. In such cases, insurers share the loss rather than allowing the insured to receive more than the actual loss. For example, if both a husband and wife insure their home for $200,000 and a fire causes$200,000 in damage, they will collectively receive only $200,000, with insurers sharing the loss.

The criteria for applying the doctrine of contribution include:

1. The respective policies must provide an indemnity for the loss, not a benefit.
2. Each policy must cover the interest affected, not just property or liability.

For example, if a merchant and a warehouse operator both insure the same stock-in-trade, they can claim under their policies, but contribution may not apply if the policies cover different interests.

'Rateable proportion' refers to the specific share of the insured's loss that any one insurer is responsible for when multiple insurers are involved. It determines how much each insurer contributes towards the total indemnity paid to the insured.

Contribution applies if:

1. Each policy covers the peril that caused the loss.
2. Each policy covers the subject matter of insurance related to the loss.
3. Each policy is liable to the loss without exclusions or limitations preventing contribution.

The equitable doctrine of contribution means that in cases of double insurance, each insurer is liable only for its rateable share of the loss. For example, if two policies cover a loss of $200,000, each insurer will pay according to their respective shares, preventing the insured from claiming the full amount from one insurer.

A non-contribution clause means that the insurer will pay the loss without sharing it with other insurers. If such a clause is present, the policy will not be liable for losses of items that are more specifically insured elsewhere.

A rateable proportion cause/contribution condition restricts an insurer's liability to its rateable share of the loss in cases of double insurance. This ensures that the insured cannot claim the entire loss from one insurer, but must seek contributions from all relevant insurers.

In a partial contribution condition, the fire policy will not share the loss with the marine policy except for the portion of the loss that exceeds the marine compensation. This means that the fire policy only contributes to losses above what the marine policy covers.

Subrogation is the exercise, for one's own benefit, of rights or remedies possessed by another against third parties. It allows proceeds of the claim against the third party to be passed to insurers, to the extent of their insurance payments, and must be conducted in the name of the insured.

Subrogation rights in tort arise when a third party's negligence causes a loss that is indemnifiable by a policy. For example, a fire insurer may sue a negligent neighbor for damages after compensating the insured for a fire loss.

An example of subrogation arising from a contractual relationship is when a landlord (the insured) has a right under a tenancy agreement against a tenant for an insured loss. After compensating the landlord, the insurer may exercise this right against the tenant in the name of the landlord.

In common law, subrogation rights are only acquired after an indemnity has been provided. However, non-marine policies often remove this restriction, allowing insurers to have subrogation rights even before indemnification.

The insurer cannot recover more under subrogation than it has paid as an indemnity. For example, if an antique is insured and later found to be worth more than the indemnity paid, the insurer can only keep an amount equal to what it has paid, with any excess belonging to the insured.

When the insurer has provided less than full indemnity, the sharing of subrogation proceeds can vary based on policy limitations. For instance:

1. Excess: If the insured has a $10,000 excess and the insurer pays$40,000, any recovery from a third party will belong to the insurer until the total recovery exceeds the indemnity paid.
2. Limit of Liability: If the insured has to pay part of a liability due to policy limits, any recovery above that amount will belong to the insurer.
3. Average: If there is underinsurance, the insured may be entitled to a percentage of the subrogation proceeds proportional to their share of the risk.

The key areas of focus in product development include:

1. Individual product development: Continuous improvement and innovation to stay ahead of competitors.
2. Product portfolio development: Creating comprehensive packages of cover to maintain a competitive edge, especially for larger clients.
3. Product research: Analyzing own products, competitors' products, and market trends to adapt and improve offerings.

The purpose of customer servicing is to provide support to existing and potential customers. This includes handling enquiries, managing public relations, processing documentation requests, and addressing complaints effectively and promptly.

Marketing and promotion are crucial as they help in selling insurance products. This involves managing public relations to enhance the company's image and coordinating all external communications to ensure a positive perception in the market.

Key components include:

1. Selection of external agencies if used.
2. Extent of media involvement, such as TV or other platforms.
3. Coordination of advertising campaigns.
4. Expenditure analysis and control.

Differences include:

• Life Insurance:
  • Underwriting is a one-time process.
  • Policies cannot be canceled by the insurer without consent.
  • Often centralized underwriting.
• General Insurance:
  • Underwriting is ongoing with renewals and reviews.
  • Policies can be canceled if necessary.
  • Less centralized and more affordable underwriting.

Subrogation rights under statute arise when an employer pays compensation benefits to an injured employee as required by the Employees' Compensation Ordinance. The Ordinance grants subrogation rights to the employer against another party liable for the injury, which must be passed to the EC insurer that compensated the employee.

Subrogation protects the principle of indemnity by ensuring that the insured does not pay twice for the same loss. It allows insurers to recover costs from third parties responsible for the loss after indemnifying the insured.

Risk is defined as 'uncertainty concerning a potential loss', where there is uncertainty about whether a loss will occur and how much will be lost. This uncertainty drives the need for insurance.

Risks can be classified into the following categories:

Examples of commercially insurable risks include:

• Financial Risks: Loss of a camera due to theft.
• Physical Risks: Death or personal injury, which can have financial consequences for individuals or their families.

Pure risks involve the potential for loss only, with no opportunity for gain, and are typically insurable. In contrast, speculative risks involve the potential for both gain and loss and are generally not insurable due to the lack of incentive to avoid loss.

Fundamental risks are those whose causes are outside the control of individuals or groups, affecting large numbers of people. They are typically not insurable because it is financially infeasible for insurers to handle them commercially. Examples include famine, war, and widespread disasters.

In insurance, risk management refers to the ways and means of reducing or improving the insured loss potential of the risks being insured. It focuses on pure risks and may involve identifying, quantifying, and dealing with these risks.

1. Risk Avoidance: Eliminate the chance of loss by not exposing oneself to the peril (e.g., abandoning a nuclear power project).

2. Loss Prevention: Lower the frequency of identified possible losses (e.g., promoting industrial safety).

3. Loss Reduction: Lower the severity of identified possible losses (e.g., using automatic sprinkler systems).

4. Risk Transfer: Shift the risk of loss from one party to another (e.g., purchasing insurance).

5. Risk Financing: Minimize the impact of losses on the organization using tools like insurance and self-insurance.

The primary function of insurance is to act as a risk transfer mechanism, removing the potential financial loss from the individual and placing it upon the insurer in exchange for a premium.

A primary benefit of insurance for businesses is the financial compensation provided to insured victims of various insured events, which enables businesses to survive major financial losses.

Product liaison is vital for ensuring close operation between product development, marketing, and sales. Poor communication in this area can lead to disastrous results, affecting overall sales performance.

Effective underwriting guidelines include:

1. Preparation of underwriting manuals.
2. Development of rating guides.
3. Research and development focused on trends and results.

'Target risks' refer to:

• Highly desirable types of business in life insurance.
• Highly undesirable types of business in general insurance, such as large, hazardous risks (e.g., petrochemical plants).
  Insurance intermediaries should actively seek these risks.

Healthy young professionals are considered desirable contacts in life insurance due to their lower risk profile and potential for long-term policy retention.

A stop-list indicates types of business that should not be encouraged or should be rejected. Compiling such lists requires considerable underwriting expertise and sensitivity to discrimination issues.

In general insurance, the original policy document is seldom necessary for claims, while in life insurance, the policy documents must be produced at the time of a claim due to the contract's non-cancellable nature by the insurer.

The existence of a life insurance contract typically depends on the receipt of the first premium, unlike other classes of business where the contract may commence without it.

1. Liability: Life insurance claims focus on ascertaining liability to third parties, while general claims may involve various liabilities.
2. Quantum: Life insurance claims usually have a pre-determined amount, whereas general claims can involve complex discussions.
3. Significance: The insurer's handling of claims affects their reputation, impacting intermediaries' confidence.

Exemptions from licensing requirements for giving regulated advice apply to:

• Counsels, solicitors, certified public accountants, trust companies, actuaries.
• Media outlets (newspapers, television, radio) and electronic communications to the public.
• Businesses involved in loss assessment and settling claims for authorized insurers.
• Companies giving regulated advice to specified companies (wholly owned subsidiaries).
• Employees performing clerical or administrative duties for authorized insurers or Licensed Insurance Intermediaries.
• Employees of authorized insurers involved in risk assessment and claim processing.

The five types of licensees issued by the IA are:

1. Licensed Individual Insurance Agent: An individual licensed to carry on regulated activities as an agent of any authorized insurer.
2. Licensed Technical Representative (Agent): An individual licensed to carry on regulated activities as an agent of any licensed insurance agency.
3. Licensed Technical Representatives (Brokers): Responsible officers who should be licensed technical representatives (agent) or brokers.
4. Licensed Insurance Agency: Entities licensed to conduct insurance business.
5. Licensed Insurance Broker: Individuals or entities licensed to act as intermediaries in insurance transactions.

An individual granted a licence by the IA to carry on regulated activities in one or more lines of business as an agent of any licensed insurance broker company. All responsible officers should be licensed technical representatives (agent) or brokers.

A sole proprietor, partnership, or company granted a licence by the IA to carry on regulated activities in one or more lines of business as an agent of any authorized insurer.

A company granted a licence by the IA to negotiate or arrange insurance contracts in one or more lines of business as an agent of any policyholder or potential policyholder.

Deemed licensees, existing insurance intermediaries registered before the new regime, are deemed to be licensed by the IA for three years, during which they must apply for formal licenses.

A responsible officer supervises regulated activities and ensures compliance with conduct requirements set out in section 90 of the IO, maintaining proper controls and procedures.

A Licensed Insurance Intermediary is either a licensed insurance agent or a licensed insurance broker.

A regulated person includes a licensed insurance intermediary, a responsible officer of a licensed insurance agency or broker company, or a person involved in the management of regulated activities by a licensed insurance agency or broker company.

An authorized insurer is vicariously liable for the acts of an insurance agent it has appointed, particularly in dealings with clients for issuing contracts of insurance, regardless of whether the act is within the agent's authority.

Common law adjudicates disputes based on the specific facts of the case, focusing on whether the insurance intermediary was acting as an agent for the insured at the material time, rather than strictly adhering to legal definitions.

Liability is determined based on the specific line of business and the scope of authority from the empowering insurer. If multiple insurers are involved, they may be jointly and severally liable depending on the circumstances of the agent's actions.

1. The act is not within the scope of the person's authority in relation to that insurer.
2. The person disclosed that fact to the client before the client relied on the act.
3. The clarity and prominence of the disclosure was what a person would reasonably require for deciding whether to enter into any of the dealings covered by section 68.

Personnel of licensed agencies must not be:

1. The proprietor or a partner of another licensed insurance agency.
2. A licensed individual insurance agent.
3. A licensed technical representative (agent) of another licensed insurance agency.
4. A licensed technical representative (broker).
5. A director or employee of another licensed insurance agency who manages or controls any matter relating to a regulated activity of that other agency.
6. A director or employee of a licensed insurance broker company who manages or controls any matter relating to a regulated activity of that company.

Directors and employees of licensed insurance broker companies must not be:

1. The proprietor or a partner of a licensed insurance agency.
2. A licensed individual insurance agent.
3. A licensed technical representative (agent).
4. A director or employee of a licensed insurance agency who manages or controls any matter relating to a regulated activity of the agency.

Licensed technical representatives (agents) must not:

1. Act beyond the licensed insurance agency's scope of licensed business.
2. Be a licensed technical representative (agent) of another licensed insurance agency.

Licensed technical representatives (brokers) must not act beyond the licensed insurance broker company's scope of licensed business.

Reinsurance serves several purposes:

1. Risk Transfer: It allows insurers to transfer all or part of the risk to another insurer (reinsurer).
2. Liquidity Management: It provides immediate claim payments from the reinsurer for valid claims exceeding a predetermined figure, helping insurers manage cash flow.
3. Underwriting Capacity: It increases an insurer's ability to accept more business by managing risk effectively, allowing them to take on risks that might otherwise be declined.

Reinsurance has no direct effect on the policyholder. The policyholder is not entitled to know about the reinsurance arrangements, as it is a matter between the insurer and the reinsurers. The insurer remains directly liable to the policyholder for the full amount payable under the insurance contract.

Actuarial support in life insurance involves mathematical calculations related to mortality/death statistics and projected interest earnings. Insurers are required to appoint a qualified actuary and conduct monthly valuations of all assets and liabilities.

Actuarial reviews in general insurance are significant for calculating outstanding claims reserves, especially in long-tail businesses where claims develop over extended periods. The Insurance Authority mandates annual actuarial reviews for motor and employees' compensation insurers.

The key functions include:

1. Record keeping: Maintaining accurate and reliable financial records.
2. Collections: Ensuring receivables are paid to sustain the company's existence.
3. Payments: Prompt and efficient payment of bills and debts.
4. Investment: Managing company assets for security, return, and liquidity.

Training and development are crucial for both in-house personnel and field staff to ensure they are equipped with relevant skills. It is integral to the overall team and contributes to the company's continuity and enhancement.

Key persons in control functions are responsible for the performance of control functions such as actuarial, financial control, internal audit, compliance, risk management, and intermediary management. They play a vital role in the insurer's risk management and internal controls.

An insurer must obtain approval from the Insurance Authority for the appointment of any key person in control functions.

The control function for intermediary management is responsible for:

1. Administering the insurance agents appointed by the insurer.
2. Monitoring compliance with the Insurance Ordinance (IO) by the insurance agents.
3. Ensuring that arrangements by insurance intermediaries comply with the IO and guidelines issued by the Insurance Authority.

Insurance is classified in different ways for various purposes:

1. Statutory: For the purposes of the insurance regulator's authorisation and supervision.
2. Practical: For internal company organisation.
3. Academic: For professional study and training.

The two main classifications of insurance according to the Insurance Ordinance (IO) are long-term business and general business.

The long-term business classification includes:

1. Life and annuity: Life insurance and annuity, excluding linked long term.
2. Marriage and birth: Insurance contracts providing benefits payable on marriage or the birth of a child.
3. Linked long term: Unit-linked life insurance and unit-linked annuity.
4. Permanent health: Long term policies providing benefits for incapacity from accident or ill-health.
5. Tontines: Contracts where accumulated contributions are payable to the last survivors.
6. Capital redemption: Contracts to provide a capital sum at the end of a term.
7. Retirement scheme management categories: Group retirement scheme contracts with varying guarantees.

Accident/personal accident insurance provides benefits or indemnity in the event of an accident or sickness.

Three categories of general business insurance are:

1. Land vehicles: Property insurance on vehicles used on land, including motor vehicles.
2. Fire and natural forces: Property insurance covering fire and other perils like storms and explosions.
3. Motor vehicle liability: Third party motor insurance, including compulsory motor insurance.

Aircraft liability insurance covers liabilities for property damage or personal injury/death arising out of the use of aircraft.

General liability insurance includes:

• Liability insurance exclusive of classes 10-12
• Employees' compensation insurance

Credit insurance covers loss to creditors from debtors' failure to pay debts.

Suretyship refers to contracts of guarantee, including fidelity guarantee and performance bonds.

Miscellaneous financial loss insurance includes any other classes of business such as business interruption and loss of use.

The UK/European style classifies insurance into major classes such as life, marine, fire, and accident, with accident covering anything else like personal accident, liability, and motor.

The U.S. style distinguishes between life insurance (including annuity, medical expense, and disability) and non-life business, which is divided into fire, marine, bonding, and casualty (automobile, liability, theft, workers' compensation, etc.).

Insurance can be classified by the source of business into:

1. From insurance agents
2. From insurance brokers
3. Direct from the public, with no intermediary involved

Insurance can be classified by type of client into:

1. Individuals (personal or consumer insurance)
2. Firms and organizations (business or commercial insurance)

The academic classification of insurance includes: (a) Insurance of the person (life, health, personal accident) (b) Insurance of property (tangible objects against loss or damage) (c) Insurance of liability (legal liability for death, injury, or property damage) (d) Insurance of pecuniary interests (financial interests not covered by the previous categories)

• Outwards reinsurance: The insurer insures again with other insurers/reinsurers.
• Inwards reinsurance: The insurer acts as a reinsurer, covering risks already insured by other insurers/reinsurers.

The size of the insurance industry depends on:

1. Number of authorized insurers (including professional reinsurers).
2. Number of registered or licensed insurance intermediaries.
3. Number of persons employed in the industry.
4. Premium volume.

A total of 54 pure long-term insurers were authorized, comprising 26 Hong Kong incorporated companies and 28 others (including one from the Mainland).

'Composite' insurers are those that carry on both long term and general term business. A total of 19 composite insurers were authorized, comprising 10 Hong Kong incorporated companies and 9 others, none from the Mainland.

The total workforce in the insurance industry in Hong Kong in 2021 was 102,288 people, with 76% connected with Life Insurance and 24% with General Insurance.

The gross premiums for General Insurance Business represented 2.21% of Hong Kong's Gross Domestic Product in 2020.

The total premium for Long Term Business was HK$521,451 million, representing 19.24% of Hong Kong's Gross Domestic Product in 2020.

In 2021, there were 165 authorized insurers in Hong Kong, of which 69 were incorporated in 21 jurisdictions outside Hong Kong.

The top ten insurers accounted for 42% of the market share in General Business in Hong Kong.

The top ten insurers accounted for 85.6% of the Long Term Business market in Hong Kong in 2020.

The two types of insurance intermediaries are insurance agents and insurance brokers.

Insurance intermediaries play a crucial role in the Hong Kong insurance industry by facilitating transactions, especially in complex commercial risks. They possess wide experience and independent expertise, which is essential for arranging insurance, particularly in long-term business where direct transactions with insurers are not common.

The main objective of the HKFI is to promote and advance the common interests of insurers and reinsurers transacting business in Hong Kong, while also building consumer confidence in the industry by encouraging high standards of ethics and professionalism among its members.

In 2019, the Insurance Authority took over the regulation of insurance intermediaries from the self-regulatory organizations, including the Insurance Agents Registrations Board (IARB), which ceased to perform self-regulatory functions.

The two main professional bodies of insurance brokers in Hong Kong are the Hong Kong Confederation of Insurance Brokers (HKCIB) and the Professional Insurance Brokers Association (PIBA).

The Insurance Complaints Bureau (ICB) assists claimants or victims in resolving disputes with insurance companies regarding claims.

The Motor Insurers' Bureau of Hong Kong (MIB) provides compensation for death or injury to innocent victims of motor vehicle accidents when compulsory insurance is not effective or does not exist.

The ECIIB runs the Employees Compensation Insurer Insolvency Scheme to assume liabilities under employees' compensation policies of member insurers that have become insolvent, funded by a surcharge on premiums.

The ECIRS acts as a market of last resort for employers who have difficulty obtaining employees' compensation insurance, ensuring collective risk coverage among all insurers.

The Insurance Companies (Amendment) Ordinance 2015 established the Insurance Authority (IA) as an independent statutory body to regulate the insurance industry in Hong Kong.

The IA aims to modernize the regulatory infrastructure, provide better protection for policyholders, align with international practices, and establish a direct regulatory regime for insurance intermediaries.

The principal functions of the IA include:

1. Regulating the conduct of insurance intermediaries through a licensing regime.
2. Promoting understanding of insurance products and the insurance industry among policyholders and potential policyholders.
3. Formulating effective regulatory strategies for sustainable market development and competitiveness in the global insurance market.
4. Conducting studies on matters affecting the insurance industry.
5. Assisting the Financial Secretary in maintaining financial stability in Hong Kong related to the insurance industry.

The minimum paid-up capital requirements are as follows:

Before carrying out insurance business in or from Hong Kong, a person (corporation) must obtain authorization from the Insurance Authority. The Insurance Ordinance prescribes minimum requirements for authorization, including:

• Paid-up capital
• Solvency margin
• Directors and controllers
• Adequate reinsurance arrangement

A margin of solvency is the degree or amount by which assets exceed liabilities. It ensures that an insurer can meet its obligations.

The purpose of a solvency margin is to safeguard against the risk that the insurer may not be able to meet its liabilities, ensuring financial stability.

The solvency margin for general business can be calculated based on:

1. Premium income: Higher volume leads to a larger relevant amount.
2. Claims outstanding: Higher claims lead to a larger relevant amount.

The minimum solvency margin for long-term business is not less than HK $2 million.

Controllers and directors must be fit and proper, which includes considerations of:

1. Education, qualification, or experience.
2. Competence, honesty, and fairness.
3. Reputation, character, reliability, and integrity.
4. Financial status or solvency.
5. Disciplinary actions by other authorities.
6. State of affairs of any business they carry on.

Corporate governance refers to the rules and practices established within a corporation for the management and control of business and affairs, aimed at instilling public confidence and promoting stability in the insurance market.

Adequate reinsurance is crucial for the financial strength of the insurer and is required by the Insurance Ordinance (IO) to ensure proper financial supervision. It involves both the quantity and quality/collectability of reinsurance arrangements.

The 'Guideline on Reinsurance and Related Companies' addresses how reinsurance arrangements with related companies will be considered adequate in terms of financial security and outlines supervisory concerns if these arrangements are deemed inadequate.

Insurers must maintain assets in Hong Kong equal to at least 80% of their net liabilities after deducting those covered by reinsurance, calculated according to prescribed methods.

Every insurer is required to submit annual financial statements to the Insurance Authority, prepared in accordance with the requirements of the Insurance Ordinance.

Insurers must maintain separate accounts for each class of long-term business, ensuring that assets representing a fund are only used for the specific part of the business to which the fund relates.

General Business insurers must submit an audited General Business Return and an audited Statement of Assets and Liabilities related to their Hong Kong business annually. However, Captive Insurers and Professional (Specialist) Reinsurers are exempt from submitting audited Statements of Assets and Liabilities.

The guideline requires insurers and reinsurers involved in employees' compensation and motor insurance businesses to annually commission an actuarial review of their reserves for future claims payments. The review must follow specified criteria, and an actuarial report must be prepared, certified, and submitted to the IA for review.

Long-term insurers are required to commission an actuarial investigation into their financial condition every 12 months. They must submit an abstract of the actuarial investigation report along with a certificate from the appointed actuary to the Insurance Authority (IA) within a prescribed period.

The IA was granted powers to conduct inspections, initiate investigations, and impose disciplinary sanctions on authorized insurers. This includes revocation or suspension of an insurer's authorization, prohibition from applying for authorization to carry on a class of insurance business, public/private reprimands, and pecuniary penalties.

The IO allows the IA to disclose financial and statistical information of individual insurers and Lloyd's to enhance market transparency, provided it serves the interests of policyholders or the public. However, it prohibits disclosing information related to individual insurers' affairs except under specified court proceedings.

Insurance regulators can take various actions, including conducting inspections, initiating investigations, and implementing disciplinary measures to protect the interests of policyholders and potential policyholders. This includes revoking or suspending an insurer's authorization and imposing penalties.

Insurers may face limitations on premium income if they are growing too fast or if there are potential difficulties with liabilities from new business.

Insurers may have restrictions on the type and/or location of their investments.

Insurers may face restrictions on their capacity to effect or vary contracts of insurance or contracts of a specified description.

The custody of assets by an approved Trustee is for additional security.

A special actuarial investigation may be conducted when there is cause for concern regarding an insurer's ability to meet its liabilities.

In extreme cases, an insurer may be wound up or liquidated by presenting a petition to the courts.

The objectives include setting expected standards for underwriting, claims, product understanding, customers' rights and obligations, and the industry's public image.

Sales materials should be up-to-date, accurate, in understandable language, and not misleading to the public.

Proposal/Application forms are crucial as they provide the information from the intending insured to the insurer and should be clear and understandable.

Policies should clearly explain the implications of utmost good faith regarding material facts that need to be disclosed at renewal.

1. General handling: Should be fair, efficient, and speedy.
2. Denial of claims: Should not occur unreasonably, especially in cases of non-disclosure of material facts.
3. Claim forms: Must be issued promptly without charge and in understandable language.
4. Claim progress: Claimants should be kept reasonably informed.
5. Payment: Valid claims should be paid promptly.
6. Third parties: Adjusters and others acting for the insurer should act reasonably and be professionally qualified.

1. Complaints: Proper procedures must be in place to handle complaints against agents.
2. Adequate support: Insurers should provide adequate support for agents to perform efficiently.
3. Liability: Insurers must not limit their liability for the actions of their agents and ensure agents act fairly and honestly.

The ICB provides an alternative dispute resolution mechanism to help resolve insurance-related disputes of a monetary nature arising from personal insurance contracts, having taken over from the Insurance Claims Complaints Bureau (ICCB) on 16 January 2018.

The ICB launched a new mediation service to handle non-claim related insurance disputes of a monetary nature.

The Complaints Panel consists of four members: two from the insurance industry and two from outside the industry, led by an independent Chairman appointed by the ICB.

The Complaints Panel can make an award against an insurer up to HK$1,000,000.