Insurance Intermediaries

Quality Assurance Scheme

Principles and Practice of Insurance Examination
















Study Notes

2013 Edition


i

PREFACE



These Study Notes have been prepared to correspond with the various
Chapters in the Syllabus for the Principles and Practice of Insurance
Examination. The Examination will be based upon these Notes. A few
representative examination questions are included at the end of each Chapter
to provide you with further guidance.


It should be noted, however, that these Study Notes will not make you a
fully qualified underwriter or other insurance specialist. It is intended to give
a preliminary introduction to the subject of Principles and Practice of
Insurance, as a Quality Assurance exercise for Insurance Intermediaries.


We hope that the Study Notes can serve as reliable reference materials
for candidates preparing for the Examination. While care has been taken in
the preparation of the Study Notes, errors or omissions may still be inevitable.
You may therefore wish to make reference to the relevant legislation or seek
professional advice if necessary. As further editions will be published from
time to time to update and improve the contents of these Study Notes, we would
appreciate your feedback, which will be taken into consideration when we
prepare the next edition of the Study Notes.


First Edition: August 1999
Second Edition: June 2000
Third Edition: June 2001
Fourth Edition: September 2004
Fifth Edition: July 2013

Office of the Commissioner of Insurance 1999, 2000, 2001, 2004, 2013


Please note that no part of the Study Notes may be reproduced for the purposes of selling or making profit without the
prior permission of the Office of the Commissioner of Insurance.


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TABLE OF CONTENTS
Chapter

Page
1. RISK AND INSURANCE 1/1
1.1 Concept of Risk 1/1
1.1.1 Meaning of Risk
1.1.2 Classification of Risk
1.1.3 Risk Management
1.2 Functions and Benefits of Insurance 1/4

2. LEGAL PRINCIPLES 2/1
2.1 The Law of Contract 2/1
2.1.1 Definition
2.1.2 Types of Contracts
2.1.3 Elements or Essentials of a Contract
2.2 The Law of Agency 2/4
2.2.1 Definition
2.2.2 How Agency Arises
2.2.3 Authority of Agents
2.2.4 Duties Owed by Agent to Principal
2.2.5 Duties Owed by Principal to Agent
2.2.6 Termination of Agency

3. PRINCIPLES OF INSURANCE 3/1
3.1 Insurable Interest 3/1
3.1.1 Definition
3.1.2 Importance of Insurable Interest
3.1.3 Its Essential Criteria
3.1.4 How It Arises
3.1.5 When Is It Needed?
3.1.6 Assignment


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3.2 Utmost Good Faith 3/4
3.2.1 Ordinary Good Faith
3.2.2 Utmost Good Faith
3.2.3 Material Fact
3.2.4 When to Disclose Material Facts
3.2.5 Types of Breach of Utmost Good Faith
3.2.6 Remedies for Breach of Utmost Good Faith
3.3 Proximate Cause 3/7
3.3.1 Meaning and Importance of the Principle
3.3.2 Types of Peril
3.3.3 Application of the Principle
3.3.4 Policy Modification of the Principle
3.4 Indemnity 3/10
3.4.1 Definition
3.4.2 Implications
3.4.3 Link with Insurable Interest
3.4.4 How Indemnity Is Provided
3.4.5 Salvage
3.4.6 Abandonment
3.4.7 Policy Provisions Preventing Indemnity
3.4.8 Policy Provisions Providing More Than Indemnity
3.4.9 The Practical Problems with Indemnity
3.5 Contribution 3/15
3.5.1 Equitable Doctrine of Contribution
3.5.2 Rateable Proportions
3.5.3 How Arising
3.5.4 How Applicable
3.5.5 How Amended by Policy Conditions

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3.6 Subrogation 3/18
3.6.1 Definition
3.6.2 How Arising
3.6.3 How Applicable
3.6.4 Other Considerations

4. CORE FUNCTIONS OF AN INSURANCE COMPANY 4/1
4.1 Product Development 4/1
4.2 Customer Servicing 4/2
4.3 Marketing and Promotion 4/2
4.4 Insurance Sales 4/3
4.5 Underwriting 4/4
4.6 Policy Administration 4/4
4.7 Claims 4/5
4.8 Reinsurance 4/6
4.9 Actuarial Support 4/7
4.10 Accounting and Investment 4/8
4.11 Training and Development 4/8

5. STRUCTURE OF HONG KONG INSURANCE INDUSTRY 5/1
5.1 Types of Insurance Business 5/1
5.1.1 Statutory Classification of Insurance
5.1.2 Practical Classification of Insurance
5.1.3 Academic Classification of Insurance
5.1.4 Reinsurance
5.2 Size of Industry 5/5
5.2.1 Authorised Insurers
5.2.2 Registered or Authorised Insurance Intermediaries
5.2.3 Persons Employed
5.2.4 Premium Volume
5.3 Insurance Companies 5/7
5.4 Insurance Intermediaries 5/8

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5.5 Market Associations/Insurance Trade Organisations 5/8
5.5.1 The Hong Kong Federation of Insurers (HKFI)
5.5.2 Approved Bodies of Insurance Brokers
5.5.3 Industry Organisations to Assist Claimants or Victims
5.5.4 Employees Compensation Insurance Residual
Scheme Bureau

6. REGULATORY FRAMEWORK OF INSURANCE INDUSTRY 6/1
6.1 Regulation of Insurance Companies in Hong Kong 6/1
6.1.1 Insurance Companies Ordinance (ICO)
6.1.2 Code of Conduct for Insurers
6.1.3 Guidelines on Complaint Handling
6.1.4 Insurance Claims Complaints Bureau (ICCB)
6.2 Regulation of Insurance Intermediaries in Hong Kong 6/15
6.2.1 Roles and Responsibilities of Insurance Agents and
Brokers
6.2.2 The Code of Practice for the Administration of
Insurance Agents
6.2.3 Minimum Requirements Specified for Insurance
Brokers


7. ETHICAL AND OTHER RELATED ISSUES 7/1
7.1 Insurance Intermediaries' Duties to Policyholders 7/1
7.1.1 If the Insurance Intermediary is an Insurance Broker
7.1.2 If the Insurance Intermediary is an Insurance Agent
7.2 Protection of Personal Data 7/3
7.2.1 Features of the Ordinance
7.2.2 Insurance Applications
7.3 Issues Regarding Equal Opportunity 7/14
7.3.1 Legislation Addressing Discrimination
7.3.2 Fair Discrimination in Insurance
7.3.3 Unfair Discrimination in Insurance

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7.4 Prevention of Money Laundering and Terrorist Financing 7/15
7.4.1 What is Money Laundering
7.4.2 What is Terrorist Financing
7.4.3 Vulnerabilities in Insurance Industry
7.4.4 Stages of Money Laundering
7.4.5 Legislation on Money Laundering and Terrorist
Financing
7.4.5a Anti-Money Laundering and Counter-
Terrorist Financing (Financial Institutions)
Ordinance (AMLO)
7.4.5b Drug Trafficking (Recovery of Proceeds)
Ordinance (DTROP)
7.4.5c Organized and Serious Crimes Ordinance
(OSCO)
7.4.5d United Nations (Anti-Terrorism Measures)
Ordinance (UNATMO)




7.4.6 Guideline on Anti-Money Laundering and Counter-
Terrorist Financing
7.5 Prevention of Corruption 7/27
7.6 Prevention of Insurance Fraud 7/28
7.6.1 Beware of Becoming Partners in Crimes
7.6.2 The Insurance Intermediary and Examples of Insurance
Fraud
7.6.3 Practical Steps in Preventing Fraud

GLOSSARY (i) - (xxi)
INDEX (1) (7)
- o - o - o -

vii
NOTE


For your study purposes, it is important to be aware of the relative weight of the
various Chapters in relation to the Examination. All Chapters should be studied carefully,
but the following table indicates areas of particular importance:


Chapter Relative Weight
1 12%
2 16%
3 30%
4 9%
5 5%
6 21%
7 7%
Total 100%

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1 RISK AND INSURANCE


1.1 CONCEPT OF RISK

1.1.1 Meaning of Risk

There have been many attempts to define risk. Probably, to most of us,
risk contains a suggestion of loss or danger. We may therefore define it as
uncertainty concerning a potential loss, a situation in which we are not sure
whether there will be loss of a certain kind, or how much will be lost. It is this
uncertainty and the undesirable element found with risk that underlie the wish and
need for insurance.

The potential loss that risk presents may be:

(a) financial: i.e. measurable in monetary terms (e.g. loss of a camera by theft);

(b) physical: death or personal injury (often having financial consequences for
the individual or his family); or

(c) emotional: feelings of grief and sorrow.

Only the first two types of risks are likely to be (commercially) insurable
risks. Also, from a wider perspective, not every risk will be seen in the negative
form we have just outlined (see 1.1.2a below).

Note: Without trying to complicate matters, we should also be aware that
insurance practitioners may use the word risk with other meanings,
including:

1 the property or person at risk that they are insuring or considering
insuring; and

2 the peril (i.e. cause of loss) insured (so, some policies may insure on
an all risks basis, meaning that any loss due to any cause is covered,
except where the cause is excluded from cover).

1.1.2 Classification of Risk

To simplify a complex subject, we may classify risk under two broad
headings (each having two categories) according to:

(a) its potential financial results; and

(b) its cause and effect.

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1.1.2a Financial Results

Risks may be considered as being either Pure or Speculative:

(i) Pure Risks offer the potential of loss only (no gain), or, at best, no
change. Such risks include fire, accident and other undesirable
happenings.

(ii) Speculative Risks offer the potential of gain or loss. Such risks
include gambling, business ventures and entrepreneurial activities.

The majority of the risks which are insured by commercial insurers are pure
risks, and speculative risks are not normally insurable. The reason for this is
that speculative risks are engaged in voluntarily for gain, and, if they were
insured, the insured would have little incentive to strive to achieve that
gain.

1.1.2b Cause and Effect

Risks may also be considered as being either Particular or Fundamental:

(i) Particular Risks: They have relatively limited consequences, and
affect an individual or a fairly small number of people. The
consequences may be serious, even fatal, for those involved, but are
comparatively localised. Such risks include motor accidents,
personal injuries and the like.

(ii) Fundamental Risks: Their causes are outside the control of any one
individual or even a group of individual, and their outcome affects
large numbers of people. Such risks include famine, war, terrorist
attack, widespread flood and other disasters which are problems for
society or mankind rather than just the particular individuals
involved.

The majority of the risks which are insured by commercial insurers are
particular risks. Fundamental risks are not normally insurable because it is
considered financially infeasible for insurers to handle them commercially.


1.1.3 Risk Management

Risk management is a term which is used with different meanings:

(a) in the world of banking and other financial services outside insurance, it is
probably used with reference to investment and other speculative risks (see
1.1.2a above);

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(b) insurance companies will probably use the term only in relation to pure
risks, but they may well restrict it even further to insured risks only. Thus,
when insurers talk about risk management, they could well be referring
to ways and means of reducing or improving the insured loss potential of
the risks they are insuring, or being invited to insure;

(c) as a separate field of knowledge and research, risk management may be
said to be that branch of management which seeks to:

(i) identify;

(ii) quantify; and

(iii) deal with risks (whether pure or speculative) that threaten an
organisation. Tools or measures of risk handling include:

- risk avoidance: elimination of the chance of loss of a certain
kind by not exposing oneself to the peril (e.g. abandoning a
nuclear power project so as to eliminate the risk of nuclear
accidents);

- loss prevention: the lowering of the frequency of identified
possible losses (e.g. activities promoting industrial safety);

- loss reduction: the lowering of the severity of identified possible
losses (e.g. automatic sprinkler system);

- risk transfer : making another party bear the consequences of
ones exposure to loss (e.g. purchase of insurance and
contractual terms shifting responsibility for possible losses);

- risk financing: no matter how effective the loss control measures
an organisation takes, there will remain some risk of the
organisation being adversely affected by future loss occurrences.
A risk financing programme is to minimise the impact of such
losses on the organisation. It uses tools like: insurance, risk
transfer other than insurance, self-insurance, etc. (Whilst
insurance is closely connected with risk management, it is only one
of the tools of risk management.)

To illustrate (i) - (iii) above, suppose a supermarket finds that it is losing
goods from its shelves. It identifies its possible causes by observation,
which could be theft by customers, theft by staff, etc. It quantifies the loss
from frequent stocktaking compared with cash receipts (making allowance
for staff errors). It may deal with the risk, for example, by installing closed
circuit TV, or (if market conditions allow) by raising prices generally to
offset such losses, or by setting up a self-insurance fund for them.

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1.2 FUNCTIONS AND BENEFITS OF INSURANCE

Insurance has many functions and benefits, some of which we may describe as
primary and others as ancillary or secondary, as follows:

(a) Primary functions/benefits: Insurance is essentially a risk transfer mechanism,
removing, for a premium, the potential financial loss from the individual and
placing it upon the insurer.

The primary benefit is seen in the financial compensation made available to
insured victims of the various insured events. On the commercial side, this
enables businesses to survive major fires, liabilities, etc. From a personal point of
view, the money is of great help in times of tragedy (life insurance) or other times
of need.

(b) Ancillary functions/benefits: Insurance contributes to society directly or
indirectly in many different ways. These will include:

(i) employment: the insurance industry is a significant factor in the local
workforce;

(ii) financial services: since the relative decline in manufacturing in Hong
Kong, financial services have assumed a much greater role in the local
economy, insurance being a major element in the financial services sector;

(iii) loss prevention and loss reduction (collectively referred to as loss
control): the practice of insurance includes various surveys and
inspections related to risk management (see 1.1.3(b) above). These are
followed by requirements (conditions for acceptance of risk) and/or
recommendations to improve the risk. As a consequence, we may say that
there are fewer fires, accidents and other unwanted happenings;

(iv) savings/investments: life insurance, particularly, offers a convenient and
effective way of providing for the future. With the introduction of the
Mandatory Provident Fund Schemes in 2000, the value of insurance
products in providing for the welfare of people in old age or family tragedy
is very evident;

(v) economic growth/development: it will be obvious that few people would
venture their capital on costly projects without the protection of insurance
(in most cases, bank financing will just not be available without insurance
cover). Thus, developments of every kind, from erection of bridges to
building construction and a host of other projects, are encouraged and
made possible partly because insurance is available.


- o - o - o -

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Representative Examination Questions

The examination will consist of 75 multiple-choice questions. The majority of the
questions will be very straightforward, involving a simple choice from four alternatives.
These we may call Type A Questions. A selection of the questions (probably between
10% and 15%) will be slightly more complex, but again involving a choice between four
alternatives. These we may call Type B Questions. Examples of each are shown below.

Type A Questions

1 Risk may be described as the uncertainty concerning a potential loss. That
potential loss may be:

(a) physical; .....
(b) financial; .....
(c) emotional; .....
(d) all of the above. .....

[Answer may be found in 1.1.1]

2 A risk which offers the prospect of loss only, with no chance of gain, may be
described as a:

(a) pure risk; .....
(b) particular risk; .....
(c) speculative risk; .....
(d) fundamental risk. .....

[Answer may be found in 1.1.2a]

Type B Questions

3 Which of the following statements concerning risk are true?

(i) All risks are commercially insurable.
(ii) Not all risks are commercially insurable.
(iii) The only remedy for any kind of risk is insurance.
(iv) Insurers may mean a number of things when talking about risk.

(a) (i) and (iii) only; .....
(b) (ii) and (iv) only; .....
(c) (i) and (iv) only; .....
(d) (i), (iii) and (iv) only. .....

[Answer may be found in 1.1-1.1.1]

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4 Which of the following may be considered as being among the secondary or
subsidiary benefits of insurance to Hong Kong?

(i) means of savings
(ii) source of employment
(iii) encouragement of economic development
(iv) reduction in number of accidents/losses

(a) (i) and (ii) only; .....
(b) (i), (ii) and (iii) only; .....
(c) (iii) and (iv) only; .....
(d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 1.2(b)]

Note: The answers to the above questions are for you to discover. This should be easy,
from a quick reference to the relevant part of the Notes. If still required, however, you
can find the answers at the end of the Study Notes.


2/1
2 LEGAL PRINCIPLES


This and the next Chapter will concern principles of law, but the Notes will not
provide a comprehensive survey of some very complex issues. The purpose of the
Notes, as with the overall study, is to give an insight into the important aspects of an
insurance intermediary's professional activities.


2.1 THE LAW OF CONTRACT

This is an area of law which affects every one of us, whether in our personal or
business lives. As we shall see, contract is an essential element in civilised societies,
therefore it is important to have some appreciation of this important subject.


2.1.1 Definition

The simplest definition for contract is probably: a legally enforceable
agreement. There are a large variety of agreements, but not all are intended to
have legal consequences. A social arrangement between two persons, such as a
lunch appointment for example, is an agreement, but where either of them
unilaterally cancels the appointment, there is no suggestion that the disappointed
party should be able to take legal action against the other party, because the
agreement is not legally recognised as valid.

Contracts comprise promises or undertakings, usually given in exchange
for a promise or undertaking from the other side. In legal terminology, contracts
are something intangible. Therefore, an insurance policy in itself is not a contract;
instead it is the most commonly used evidence of an insurance contract. An
insured who has been affected by a fire will not expect the insurer to deny his
insurance claim on the grounds that the insurance contract no longer exists after
the insurance policy has been destroyed in the fire.

Contracts may concern relatively trivial (such as buying a newspaper or
taking a tram ride) or very important matters (such as a major building project or
employment). In any event, the contracting parties expect promises to be
honoured, and can demand compensation or enforced performance if they are not
honoured.




2/2
2.1.2 Types of Contracts

For our purposes, we may consider that there are two major types of
contract, as follows:

(a) Simple contracts: Although these are described as simple, this does not
mean that they only deal with uncomplicated matters and are easy to
understand. Rather, it means that they are simple or easy to form. A simple
contract is one created verbally, or by writing not under seal. It can also be
inferred from conduct. In short, the validity of simple contracts does not
depend on special formalities.

[An example of a contract inferred from conduct is where someone picks up
a newspaper from a street vendor and where their body language clearly
indicates a purchase. Technically, a contract is formed between the seller
and buyer, with the acts of handing over and accepting the money for the
newspaper: no words or writing are needed.]

In fact, the great majority of insurance contracts are simple contracts.
Technically, insurance contracts, to be valid, do not have to be evidenced in
writing; but in practice, they almost always are. Nevertheless, as we shall
see later, insurance contracts of a certain type are legally required to be
evidenced by insurance policies.

(b) Contracts by deeds: A deed is a written instrument signed, sealed and
delivered. (Delivery is no longer required to be physical delivery; an
intention to be unconditionally bound by the deed suffices.) It must be
used with certain transactions such as a transfer of land. Besides,
suretyship is always issued in the form of a deed; otherwise, when a claim
arises, the obligee may possibly face a defence put up by the surety that he
has not the right to sue because he has provided no consideration (see2.1.3
(c) below for the doctrine of consideration).

2.1.3 Elements or Essentials of a Contract

For the purposes of this section, we shall be talking only of simple contracts
(see 2.1.2(a) above), since these constitute the great majority of contracts that are
met in insurance transactions.

To be a valid contract, an agreement must meet certain criteria called
elements of contract in the course of its formation. Should any of these elements
be absent, the proposed contract either does not exist or is defective in another
sense. There are three types of defective contracts, as follows:

1 Void (or invalid) contracts: This means that the proposed contract
does not exist in law; it is entirely without legal effect. In the context of
insurance, the implication is that generally all premiums which have
already been paid under a void contract (or invalid agreement) are
returnable; so are claims paid.

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2 Voidable contracts: A voidable contract is one that is apparently of
legal effect and that remains to be legally effective unless and until an
aggrieved party to the contract treats it as void as from contract conclusion
within a reasonable time after acquiring knowledge of the availability of
such a right of election. In insurance, it could arise, for instance, with a
breach of some types of policy provision, or the discovery that important
information was omitted or wrongly given at the proposal stage (see 3.2
below);

3 Unenforceable contracts: This means what it says, an unenforceable
contract cannot be enforced (or sued on) in a court of law. However, this is
not because it is void, but because some required action has not been taken
(e.g. stamp duty not paid on a lease of land, marine insurance policy not
issued, etc.). This defect can be remedied by carrying out the required
action, so that the contract becomes enforceable (e.g. by issuing a marine
policy even after a loss has realised).

Turning to the elements of contract themselves, legal textbooks are not
always agreed just exactly how many elements should be found with any one valid
contract, but we shall consider six criteria here, as follows (remembering that we
need not go into great detail):

(a) Offer: if no offer is made, obviously there can be no agreement between the
two or more parties. In insurance, the offeror may be the intending insured
(perhaps by completing and submitting to the insurer a proposal form (or
application form)), or the insurer (perhaps as a counter-offer or in
connection with a policy renewal); all depends on intention as evidenced by
facts. Therefore, although it is widely accepted that an act of completing an
insurance proposal form is normally an act of offer, it is technically
incorrect to say that it is a settled law that completing an insurance proposal
form is an act of offer to the insurer.

(b) Acceptance: the proposed contract cannot come into being unless the offer
is accepted by the other party (the offeree). All terms of the offer must be
accepted before a contract is concluded. If that other party intends to vary
the terms of the proposed contract (requiring increased premium or policy
restrictions, for example), this, upon its communication, constitutes a
counter-offer, which will have the effect of nullifying the original offer. A
counter-offer is subject to acceptance by the original offeror (who becomes
the offeree with the counter offer).

(c) Consideration: this is the price (monetary or otherwise) a contracting party
pays for the promise the other party (promisor) makes to him. In the case
of a simple contract, consideration must be given by both parties; otherwise
it is void. On the other hand, a promise contained in a deed, even if it has
been given not for consideration, is enforceable at common law by the
promisee. In other words, a unilateral promise not made by a deed is
invalid. In insurance, the consideration is:

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(i) the promise by the insured to pay premium; and

(ii) the promise by the insurer to pay or compensate as per policy terms.

Note: 1 Where an insured event occurs before the premium promised
is paid, the insured will still be entitled to insurance payment in
accordance with the terms of the contract and the insurer will have a
separate claim against him for the unpaid premium. However, some
policies require actual payment of premium as consideration, which
requirement will have the effect of overriding the said legal rule.

2 The insurer's consideration is the promise to pay, etc., rather
than the actual payment. In many cases, no claim arises under the
policy, but when the insured period ends the insurer is treated as
having provided consideration, and therefore there will not be a
question of the contract being void for lack of consideration leading
to an entitlement to return premiums.

(d) Capacity to contract: it means the legal ability to enter into a contract.
With individuals, if they are mentally disordered, or are minors, the
contracts they make are generally voidable at their option. With
companies, they must not act in a way that exceeds their legal powers.

(e) Legality: the subject of the agreement must be legal. A contract to kill or to
commit any other crimes, for example, is not valid. Likewise, insurance on
smuggled goods would also not be legally recognised. However,
exceptions do exist. For instance, the courts may enforce an insurance
claim in favour of an insured under an insurance contract that is illegal
because the insurer was not authorised to transact the kind of insurance
business in question.

(f) Intention to create legal relation: to make a valid contract, each party to it
must clearly have the intention that it is to have legal consequences. This
seldom gives rise to any problem with insurance contracts because, unlike
social or domestic agreements, commercial agreements are presumed to
have been made with an intention to create legal relation.


2.2 THE LAW OF AGENCY

Before we commence this section, it is very important to realise that the law of
agency is much wider than its application to insurance agents (important as that is).
Therefore, in the following paragraphs, do not think only of insurance agents. The
comments apply to every kind of agent (a shipping agent, an estate agent, etc.), an
explanation of which immediately follows.

(a) An agent in this context is a person who represents a principal. In insurance, the
position is made a little complex because insurance intermediaries may be
described as Insurance Agents (usually representing the insurer) or as Insurance
Brokers (usually representing the insured/proposer), as the case may be. Within
the law of agency, they are both agents.

2/5
(b) The law of agency is deceptively simple in theory, but sometimes quite complex in
practice. Essentially, this whole area of law is governed by the legal principle that
he who acts through another is himself performing the act. In other words, the
principal is bound (for good or ill) by the authorised actions, and sometimes even
the unauthorised actions (see 2.2.2 and 2.2.3 below), of his agent. Thus, when a
child (agent) buys something on credit from a grocery store at his mothers
(principal) bidding, a contract of sale is created between the store and the mother
so that she becomes liable to pay the price.

(c) The principal who becomes bound by the acts of his agent is exposed to vicarious
liability, liability incurred as a result of an act or omission of another.


2.2.1 Definition

Agency is the relationship which exists between a Principal and his Agent.
Because it is a relationship, it may arise as a matter of fact rather than as a precise
agency appointment. In legal terms, an agency relationship may be deemed to
arise in certain given circumstances.

The law of agency are those rules of law which govern an agency
relationship. The law of contract also has to be considered as the agent often
arranges an agreement with the third party, or performs it, on behalf of his
principal. There are two contracts to consider:

(a) one between the agent and the principal; and

(b) another quite different one between the principal and the third party.

Note: an agency can exist without an agency contract. For example: a child
(gratuitous agent) goes to buy a pack of sugar on behalf of his mother
(principal), with authority to bind the mother in so doing, which is not
granted under a contract of agency between them (remember that a
domestic arrangement generally does not constitute a contract).


2.2.2 How Agency Arises

When we say that an agency relationship exists between two parties, we
are, in essence, saying that the agent owes certain duties to the principal and vice
versa, and that the agent has some sort of authority to bind the principal in respect
of some contract or transaction to be made on the principals behalf with another
person (third party).

There are a number of ways in which an agency relationship may arise.
These we consider below:

(a) By agreement: whether contractual or not; express, or implied from the
conduct or situation of the parties.

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(b) By ratification: Ratification is the giving of retrospective authority for a
given act. That is to say, authority was not possessed at the time of the act,
but the principal subsequently confirms the act, effectively backdating
approval. It can be done in writing, verbally, or by conduct.

For example, an insurance agent who is only authorised to canvass
household insurance business for an insurer has an opportunity to secure an
attractive fire insurance risk and purports to grant the required fire
insurance cover to the client. The proposed insurance contract is
technically void for it has been made without authority from the insurer.
However, the insurer may subsequently accept the insurance and confirm
cover so that the contract becomes valid retrospectively.


2.2.3 Authority of Agents

The issue of authority is related to, but distinct from, the issue of agency
relationship. Where a certain act done by A purportedly on behalf of B will be
binding on B, A is said to have Bs authority to do it; but that does not necessarily
mean that there is an agency relationship, or a full agency relationship, between
them, which will, for instance, entitle A to reimbursement by B of expenses
incurred on behalf of B. The various types of authority that an agent may have are
considered below:

(a) Actual authority: The authority of an agent may be actual where it results
from a manifestation of consent that he should represent or act for the
principal, expressly or impliedly made to the agent himself by the principal.
An actual authority can be an express actual authority or an implied actual
authority. An express actual authority is an actual authority that is
deliberately given, verbally or in writing. By contrast, an implied actual
authority arises in a larger variety of circumstances; put simply, it may arise
out of the conduct of the principal, from the course of dealing between the
principal and the agent, or the like.

(b) Apparent authority: The authority of an agent may be apparent instead of
actual, where it results from a manifestation of consent, made to third
parties by the principal. The notion of apparent authority is essentially
confined to the relationship between the principal and a third party, under
which the principal may be bound by an unauthorised act of the agent of
creating a contract or entering into a transaction on behalf of the principal.

Suppose an underwriting agent has been expressly forbidden by his
principal from accepting cargo risks destined for West Africa. In
contravention of this prohibition, the agent has on several occasions
verbally granted temporary cover to a client for such risks purportedly on
behalf of the principal, each time followed by issuance of policies for them
by the principal to the client. Because of such past dealings, future similar
acceptance by the agent may be binding on the insurer on the basis of
apparent authority to the agent.

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(c) Authority of necessity: In urgent circumstances where the property or
interests of one person (who may possibly be an existing principal) are in
imminent jeopardy and where no opportunity of communicating with that
person exists, so that it becomes necessary for another person (who may
possibly be an existing agent) to act on behalf of the former, the latter is
said to have an authority of necessity so to act and becomes an agent of
necessity by so acting even though he has not acquired an express authority
to do that. The implications are that: by exercising such an authority, the
agent creates contracts binding and conferring rights on the principal, and
becomes entitled to reimbursement and indemnity against his principal in
respect of his acts. Besides, he will have a defence to any action brought
against him by the principal in respect of the allegedly unauthorised acts.

For example, when a person is very ill in hospital, a neighbour and friend
volunteers and gives help, by assisting with domestic arrangements at his
home. This includes payment of the renewal premium for his household
insurance. As a result, he will probably be unable to refuse repaying the
neighbour for the premium, as the neighbour will almost certainly be
considered an agent of necessity. Secondly, he will probably be unable to
declare the insurance void and demand a return of premium from the
insurer. Thirdly, it is unlikely that the insurer will be able to deny claims
under the policy on the grounds that the policy was renewed without his
authority.

(d) Agency by estoppel: Where a person, by words or conduct, represents or
allows it to be represented that another person is his agent, he will not be
permitted to deny the authority of the agent with respect to anyone (third
party) dealing with the agent on the faith of such representation. Despite the
binding effect of the acts of the agent done in such circumstances, this
doctrine, agency by estoppel, does not generally create an agency
relationship unless, say for example, the unauthorised act of the agent is
subsequently ratified. In other words, the operation of this doctrine only
concerns the relationship between principal and third party.

Note The doctrine of apparent authority is distinct from the doctrine of estoppel.
The first doctrine applies where an agent is allowed to appear to have a
greater authority than that actually conferred on him, and the second
doctrine applies where the supposed agent is not authorised at all but is
allowed to appear as if he was.

2.2.4 Duties Owed by Agent to Principal

These may be summarised as follows:

(a) Obedience: The agent has to follow all lawful instructions of his principal,
strictly or as best as is reasonably possible.

(b) Personal performance: The agent is not allowed to delegate his authority
and responsibilities to others (subagents) unless he has authority to do so.

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(c) Due care and skill: The law does not demand perfection, and an agent is
normally only required to display all reasonably expected skills and
diligence in performing his duties. Whilst his principal may be bound by
his lack of care, the principal may in turn reclaim from the agent in respect
of a loss caused by the lack of care.

(d) Loyalty and good faith: The agents obligations of loyalty and good faith
are governed by several strict rules of law, the no conflict rule being one of
them.

(e) Accountability: The agent has to account for all moneys or other things he
receives on behalf of his principal. He also has to keep adequate records
relating to the agency activities.


2.2.5 Duties Owed by Principal to Agent

These may be summarised as follows:

(a) Remuneration: The agent is entitled to receive commission or other
remuneration (such as bonus) as agreed. This the principal has to pay
within a reasonable time or any specified time limit, as the case may be.

(b) Expenses, etc.: The principal, subject to any express terms in the agency
agreement, has to reimburse the agent for costs and expenses properly and
reasonably incurred by the agent on behalf of the principal; e.g. legal
defence expenses paid by a claims settling agent.

(c) Breach of duty: The agent may take action against the principal for the
latters breach of obligations to him.


2.2.6 Termination of Agency

There are a number of ways in which an agency agreement can be brought
to an end. These include:

(a) Mutual Agreement: Generally speaking, all agreements may be terminated
by mutual agreement, on terms agreed between the parties.

(b) Revocation: Subject to any contract terms as to notice and/or compensation,
either the principal or the agent may revoke (i.e. cancel) the agreement
during its currency.



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(c) Breach: If either the principal or the agent commits a fundamental breach of
contract, the other party may treat the contract as ended (with a possible
right of compensation). For example, an exclusive agent, upon discovering
that the principal, in breach of a contract condition, has appointed a second
agent before the expiry of the agency agreement, may terminate
performance immediately and sue the principal for any loss of the profit
expected from performing the agreement during the remainder period.

(d) Death: Because an agency relationship is a personal one, the death of either
the principal or the agent will end the agreement. Should either party be a
corporate body (company), its liquidation will have the same effect.

(e) Insanity: If either the principal or the agent becomes insane so that he no
longer can perform the agreement, the agreement will automatically come
to an end.

(f) Illegality: If it happens that the agency relationship or the performance of
the agreement is no longer permitted by law, this will automatically end the
agreement. Suppose a British company (buying agent) has a contract with a
company (principal) incorporated and domiciled in another country
whereby the buying agent will purchase in the United Kingdom stuffs like
wheat, steel, sulphur and other chemicals on behalf of the principal. On the
outbreak of a war between the two countries, this agreement will, in the
English law, automatically end for illegality.

(g) Time: If the agreement is for a determined period, it will terminate at the
end of such period.



- o - o - o -

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Representative Examination Questions


Type A Questions

1 A contract may be defined as:

(a) a legally enforceable agreement; .....
(b) a promise between two or more people; .....
(c) an agreement that is expressed in writing; .....
(d) any agreement between two or more parties. .....

[Answer may be found in 2.1.1]

2 Ratification by a principal of the actions of his agent effectively means that:

(a) the agency agreement is terminated; .....
(b) the agent will not be entitled to any commission; .....
(c) the principal back-dates approval of the actions; .....
(d) the principal refuses to accept responsibility for those actions. .....

[Answer may be found in 2.2.2(b)]


Type B Questions

3 Which two of the following statements regarding simple contracts are true?

(i) they must never be in writing
(ii) they are not issued under seal
(iii) they must always be in writing
(iv) they may be verbal or in writing

(a) (i) and (ii); .....
(b) (i) and (iii); .....
(c) (ii) and (iii); .....
(d) (ii) and (iv). .....

[Answer may be found in 2.1.2(a)]

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4 Which of the following are regarded as essential elements in any valid simple
contract?

(i) offer
(ii) acceptance
(iii) consideration
(iv) capacity of the parties to contract

(a) (i) and (ii) only; .....
(b) (i) and (iii) only; .....
(c) (ii) and (iii) only; .....
(d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 2.1.3]

[If still required, the answers may be found at the end of the Study Notes.]


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3 PRINCIPLES OF INSURANCE

3.1 INSURABLE INTEREST

The word interest can have a number of meanings. In the present context, it
means a financial relationship to something or someone. There are a number of
features to be considered with insurable interest, as below.

3.1.1 Definition

Insurable interest is a persons legally recognised relationship to the subject
matter of insurance that gives them the right to effect insurance on it. Since the
relationship must be a legal one, a thief in possession of stolen goods does not
have the right to insure them.


3.1.2 Importance of Insurable Interest

An insurance agreement is void without insurable interest. The rules
relating to return of premiums under such an agreement vary as between the
different classes of insurance. These rules are the general rules on illegality of
contract and the relevant provisions of the Insurance Companies Ordinance
(ICO) and of the Marine Insurance Ordinance.


3.1.3 Its Essential Criteria

For insurable interest to exist, the following criteria must be satisfied:

(a) there must be some person (i.e. life, limbs, etc.), property, liability or legal
right (e.g. the right to repayment by a debtor) capable of being insured;

(b) that person, etc. must be the subject matter of the insurance (that is to say,
claim payment is made contingent on a mishap to such person, etc.);

(c) the proposer must have the legally recognised relationship to the subject
matter of insurance, mentioned in 3.1.1 above, so that financial loss may
result to him if the insured event happens. (However, insurable interest is
sometimes legally presumed without the need to show financial
relationship. For example, any person is regarded as having an insurable
interest in the life of their spouse.)

Note: A financial relationship alone is not sufficient to give rise to insurable
interest. For instance, a creditor is legally recognised to have insurable
interest in the life of his debtor, but is not allowed to insure the debtors
property despite his financial relationship to it, unless the property has been
mortgaged to him.

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3.1.4 How It Arises

Insurable interest arises in a variety of circumstances, which may be
considered under the following headings:

(a) Insurance of the Person: everyone has an insurable interest in his own life,
limbs, etc. One also has an insurable interest in the life of one's spouse.
Further, one may insure the life of one's child or ward (in guardianship)
who is under 18 years of age, and a policy so effected will not become
invalid upon the life insured turning 18.

(b) Insurance of Property (physical things): the most obvious example arises
in absolute ownership. Executors, administrators, trustees and mortgagees,
who have less than absolute ownership, may respectively insure the estate,
the trust property and the mortgaged property. Bailees (i.e. persons taking
possession of goods with the consent of the owners or their agents, but
without their intention to transfer ownership) may insure the goods bailed.

(c) Insurance of Liability: everyone facing potential legal liability for their
own acts or omissions may effect insurance to cover this risk (sometimes
insurance is compulsory), such liability being termed direct liability or
primary liability. Insurance against vicarious liability (see 2.2(c) above)
is also possible, where, for example, employers insure against their liability
to members of the public arising from negligence, etc. of their employees.

(d) Insurance of Legal Rights: anyone legally in a position of potential loss due
to infringement of rights or loss of future income has the right to insure
against such a risk. Examples include landlords insuring against loss of
rent following a fire.

Note: Anyone (agent) who has authority from another (principal) to effect
insurance on the principals behalf will have the same insurable interest to
the same extent as the principal. For instance, a property management
company may have obtained authority from the individual owners of a
building under its management to purchase fire insurance on the building.
There is no question of a fire insurance effected under such authority being
void for lack of insurable interest, even if it is the property management
company (rather than the property owners) which is designated in the
policy as the insured.


3.1.5 When Is It Needed?

(a) With life insurance, insurable interest is only needed at policy inception.
Suppose a woman had effected a whole life policy on the life of her
husband, who died some years later. When the woman presented a claim to
the insurer, the latter discovered that at the time of the mans death, they
were no longer in the relationship of husband and wife. That means the
woman had no insurable interest in the life of the deceased at the time of
the death. Nevertheless, this lack of insurable interest will not disqualify her
for the death benefit.

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(b) However, with marine insurance, insurable interest is only needed at the
time of loss.

(c) The above marine insurance rule is probably applicable to other types of
indemnity contracts as well.

3.1.6 Assignment

Assignment is a legal term that generally means a transfer of property.

In insurance, there are broadly two types of assignment: assignment of the
insurance contract (or insurance policy) and assignment of the right to insurance
money (or insurance proceeds). They are different from each other in the
following manner:

(a) Effect of an assignment of the insurance contract: With an effective
assignment of a policy (or contract) from the assignor (original
policyholder) to the assignee (new policyholder), the interest of the
assignor in the contract passes wholly to the assignee to the effect that
when an insured event occurs afterwards, the insurer is obliged to pay the
assignee for his loss, not that suffered by the assignor, if any. In the case of
life insurance, assignment will never substitute a new life insured.

(b) Effect of an assignment of the right to insurance money (sometimes
simply referred to as an assignment of policy proceeds): Assignment of
policy proceeds will have an effect on both losses that have arisen and those
that may arise. An assigned policy remains to cover losses suffered by the
assignor, not those by the assignee, although it is now the assignee (instead of
the assignor) who has the right to sue the insurer to recover under the policy.

(c) Necessity for insurable interest: With assignment of the insurance
contract, both the assignor and the assignee need to have insurable interest
in the subject matter of insurance at the time of assignment; otherwise the
purported assignment will not be valid. (Taking assignment of motor policy
as an illustration, the requirement of insurable interest will be satisfied by
having the motor policy assigned to the purchaser contemporaneously with
the transfer of property in the insured car.) However, with assignment of
the right to insurance money, no insurable interest is needed on the part of
the assignee, so that it may actually take effect as a gift to the assignee.

(d) Necessity for insurers consent: An assignment of the right to insurance
money requires no consent from the insurer, irrespective of the nature of the
insurance contract concerned. But the position is not that simple with
assignment of the insurance contract. Different types of insurance are subject
to different legal rules as to whether a purported assignment of the insurance
contract will have to be agreed to, by the insurer. The matter is further
complicated by the fact that very often non-marine policies include
provisions that override these legal rules. Fortunately, it is sufficient for you
simply to know that, in practice, unlike all other types of policies, life policies
and marine cargo policies are assignable without the insurers consent.

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(e) Assignment of benefits as opposed to obligations: Assignment does not
have the effect of transferring the assignors obligations under the insurance
contract to the assignee. Such a transfer requires the insurers consent.

Note: 1 It is sometimes misunderstood that any policy provision that claim
payments have to be made to a designated person other than the insured is
an assignment of the right to insurance money. In fact, the courts may
construe such a provision as a mere instruction to pay, which will at most
give the designated payee an expectation to be paid, rather than the right to
sue the insurer, which right remains in the hands of the insured.

2 Statutory assignment, the best known form of assignment, is subject to
the requirements of Section 9 of the Law Amendment and Reform
(Consolidation) Ordinance.


3.2 UTMOST GOOD FAITH

3.2.1 Ordinary Good Faith

At common law, most types of contracts are subject to the principle of
good faith, meaning that the parties have to behave with honesty and such
information as they supply must be substantially true. However, it is not their
responsibility to ensure that the other party obtains all vital information which
may affect his decision to enter into the contract, or may affect the terms on which
he would enter into the contract. For example, if only after you have boarded a
double-decker and paid the fare do you find that no seats on it are vacant, you will
have no grounds for complaint. In technical terms, you are not entitled, in such
circumstances, to avoid your contract with the bus company for its failure to
voluntarily disclose to you the fact that all the seats have been taken on the bus.

3.2.2 Utmost Good Faith

Insurance is subject to a more stringent common law principle of good
faith, often called the principle of utmost good faith. It means that each party is
under a duty to reveal all vital information (called material facts) to the other
party, whether or not that other party asks for it. For example, a proposer of fire
insurance is obliged to reveal the relevant loss record to the insurer, even where
there is not a question on this on the application form.

Note: 1 Insurers sometimes extend the common law duty of utmost good
faith by requiring the proposer to declare (or warrant) that all information
supplied, whether relating to material matters or not, is totally (not simply
substantially) true. For example, where a proposer for medical insurance
enters 30 as his current age on the proposal form when he is aged 31, this
is a technical breach of the above kind of warranty, if any, although this
inaccuracy is unlikely to be material in the eyes of the common law
principle of utmost good faith as applied to medical insurance.

3/5
2 On the other hand, a policy provision may state that an innocent
or negligent (as opposed to fraudulent) breach of the duty will be
waived (excused).

3.2.3 Material Fact

(a) Statutory Definition: Every circumstance which would influence the
judgment of a prudent insurer in fixing the premium, or determining
whether he will accept the risk.

From this definition, it can be seen that there are three categories of
material facts, by reference to the kinds of decisions likely to be affected
by their disclosure. The first one only concerns the decision to accept or
to reject a proposed risk (e.g. the fact that a proposed life insured has an
inoperable malignant brain tumour.) The second only concerns the
setting of premium (e.g. the fact that the insured person of a proposed
personal accident insurance is a salesperson). And the third concerns
both (e.g. where a proposed life insured is a diabetic).

You should also note that the law looks at an alleged material fact in
the eyes of a prudent insurer - not a particular insurer, a particular
insured or a reasonable insured.

(b) Facts that need not be disclosed: In the absence of enquiry, certain
facts need not be disclosed; they include:

(i) matters of common knowledge (e.g. the explosive character of
hydrogen);

(ii) facts already known, or deemed to be known, to the insurer (e.g.
the problem of piracy in Somalia);

(iii) facts which diminish the risk.
[Example: A proposer for commercial fire insurance did not
mention the fact that his premises were protected by an automatic
sprinkler system, which fact, if disclosed, would have influenced
the determination of the premium. This omission does not breach
utmost good faith, as the fact (although very relevant) actually
indicates a lower risk.]


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3.2.4 When to Disclose Material Facts

It may be said that utmost good faith involves a duty of disclosure by the
proposer/insured. Technically, the insurer is under the same duty, but here we will
concentrate on the proposer's duty. This duty has some features that we should
note:

(a) Duration (at common law): Those material facts which do not come to the
proposers (or his agents) knowledge until the insurance contract has been
concluded do not have to be disclosed. Suppose a proposal for a one-year
medical insurance commencing on 15 January 2011 was accepted on 2
January, and the insured had a routine medical examination on 10 January,
which revealed to him on 16 January the contraction of malaria. An
important question to ask is: Is the insured legally obliged to disclose such
finding to his insurer? Applying the legal rule just said, the insured is not
obliged to do so, assuming that the terms of insurance are silent on this
point. Of course, the policy will normally contain an exclusion for pre-
existing diseases, in which case the insurer may rely on this exclusion
rather than a breach of utmost good faith in trying to deny a claim in
respect of malaria.

(b) Duration (under policy terms): Some non-life policies require the
disclosure of material changes in risk happening during the currency of the
contract, such as a change in occupation in the case of a personal accident
insurance. At common law, such a change, which could at most represent
an increase in risk, need not be notified until renewal.

(c) Renewal: when the policy is being renewed, the duty of utmost good faith
revives. (Note: the duty of utmost good faith does not revive when a life
policy is approaching its anniversary date.)

(d) Contract alterations: If these are requested during the currency of the
policy, the duty of utmost good faith applies in respect of these changes.
Where, for example, the insured of a fire policy is requesting an extension
to cover theft, he is immediately obliged to disclose all material facts
relating to the theft risk, e.g. the physical protections of the insured
premises and his record of theft losses, if any.

3.2.5 Types of Breach of Utmost Good Faith

A breach of utmost good faith can be in the form of either a
misrepresentation (i.e. the giving of false information) or a non-disclosure (i.e.
failure to give material information). Alternatively, it can be classified into a
fraudulent breach and a non-fraudulent breach (i.e. a breach committed either
innocently or negligently, rather than fraudulently). Both classifications combined
produce a four-fold categorisation as follows:

(a) Fraudulent Misrepresentation: an act of fraudulently giving false material
facts to the other party;

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(b) Non-fraudulent Misrepresentation: an act of giving false material facts to
the other party done either innocently or negligently;

(c) Fraudulent Non-disclosure: a fraudulent omission to give material facts to
the other party; or

(d) Non-fraudulent Non-disclosure: an omission to give material facts to the
other party done either innocently or negligently.

3.2.6 Remedies for Breach of Utmost Good Faith

If the duty of utmost good faith is breached (any one of the four types
mentioned above), the aggrieved party (normally the insurer) may have available
certain remedies against the guilty party:

(a) To avoid within a reasonable time the whole contract as from policy
inception, with the effect that premiums (and claims) previously paid
without knowledge of the breach are generally returnable, unless it was a
fraudulent breach on the part of the insured or his agent;

(b) In addition to (a) above, it is in principle possible to sue in tort (see
Glossary) for damages in the case of fraudulent or negligent
misrepresentation;

(c) To waive the breach, alternatively, in which case the contract becomes
valid retrospectively.

Note: An insurer aggrieved by a breach of utmost good faith has not the option to
refuse payment of a particular claim, to treat the policy as valid for the
remainder of the insurance period, and to retain part of or the whole of the
premium paid. This is because rescinding only part of a contract is not an
available remedy.

3.3 PROXIMATE CAUSE

3.3.1 Meaning and Importance of the Principle

The proximate cause of a loss is its effective or dominant cause.

Why is it important to find out which of the causes involved in an accident
is the proximate cause? A loss might be the combined effect of a number of
causes. For the purposes of insurance claim, one dominant cause must be singled
out in each case, because not every cause of loss will be covered.

3.3.2 Types of Peril

In search of the proximate cause of a loss, we often have to analyse how the
causes involved have interacted with one another throughout the whole process
leading to the loss. The conclusion of such an analysis depends very much on the
identification of the perils (i.e. the causes of the loss) and of their nature. All perils
are classified into the following three kinds for the purposes of such an analysis:

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(a) Insured peril: It is not common that a policy will cover all possible perils.
Those which are covered are known as the insured perils of that policy,
e.g. fire under a fire policy, and stranding under a marine policy.

(b) Excepted (or excluded) peril: This is a peril that would be covered but for
its removal from cover by an exclusion, e.g. fire damage caused by war is
irrecoverable under a fire policy because war is an excepted peril of the
policy.

(c) Uninsured peril: This is a peril that is neither insured nor excluded. A loss
caused by an uninsured peril is irrecoverable unless it is an insured peril
that has led to the happening of the uninsured peril. For example, raining
and theft are among the uninsured perils of the standard fire policy.

3.3.3 Application of the Principle

The principle of proximate cause applies to all classes of insurance. Its
practical applications may be very complex and sometimes controversial. For our
purposes, we should note the following somewhat simplified rules:

(a) There must always be an insured peril involved; otherwise the loss is
definitely irrecoverable.

(b) If a single cause is present, the rules are straightforward: if the cause is an
insured peril, the loss is covered; if it is an uninsured or excepted peril,
it is not.

(c) With more than one peril involved, the position is complex, and different
rules of proximate cause are applicable, depending on whether the perils
have happened as a chain of events or concurrently, and on some other
considerations. Specific cases should perhaps be a matter of consultation
with the insurer and/or lawyers, but the general rules are:

(i) uninsured perils arising directly from insured perils: the loss is
covered, e.g. water damage (uninsured peril) proximately caused by
an accidental fire (insured peril) in the case of a fire policy;

(ii) insured perils arising directly from uninsured perils: the loss from
the insured peril is covered, e.g. fire (insured peril) damage
proximately caused by a careless act of the insured himself or of a
third party (uninsured peril) in the case of a fire policy.

(iii) the occurrence of an excluded peril is generally fatal to an
insurance claim, subject to complicated exceptions.

(d) Other Features of the Principle

(i) Neither the first nor the last cause necessarily constitutes the
proximate cause.



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(ii) More than one proximate cause may exist. For example, the
dishonesty of an employee and the neglect on the part of his
supervisor of a key to a company safe may both constitute proximate
causes of a theft loss from the safe.

(iv) The proximate cause need not happen on the insured premises.
Suppose a flat insured under a household policy is damaged by
water as a result of a fire happening upstairs. The damage is
recoverable under the policy, although the insured flat has never
been on fire.

(iv) Where the proximate cause of a loss is found not to be an insured
peril, it does not necessarily mean that the loss is irrecoverable under
the policy.

[Illustration: There are four containers of cargo being carried on
board a vessel and insured respectively under four marine cargo
policies. The first policy solely covers the peril of collision, the
second fire only, the third explosion only, and the fourth entry of
water only. During the insured voyage, because of the masters
negligence, this vessel collides with another. The collision causes a
fire, which then triggers an explosion. As a result, the vessel springs
several leaks and all the cargo is damaged by seawater entering
through the leaks. These facts show that the cargo damage was
proximately caused by negligence. Bearing in mind that negligence
is merely an uninsured rather than insured peril of each of the four
cargo policies, an immediate, important question that has to be
grappled with is: Is the cargo damage irrecoverable under those
policies? In search of an answer to this question, we must look at
the links between the individual events of the incident. Negligence,
the identified proximate cause, naturally causes a collision, which
then naturally causes a fire. The fire naturally leads to an explosion,
which then naturally causes an entry of water. At last, the water
damages the cargo. Before us is a chain of events, happening one
after another without being interrupted by other events. With respect
to each policy, the water damage is regarded as a result of its sole
insured peril, notwithstanding that this peril can be traced backward
to an uninsured peril. Therefore, the only conclusion that we can
reach is that each of the policies is liable for the water damage to the
cargo it has insured. (Of course, if the proximate cause is found to be
an excepted peril, the opposite conclusion will have to be made.)]

3.3.4 Policy Modification of the Principle

It is very common for insurers to adopt policy wording that has the effect of
modifying the application of proximate cause rules. Two examples of such
practice are given below:

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(a) Directly or indirectly: There are a whole number of ways that an insurer
can frame his policy wording for the purposes of specifying what he wants
to cover or not to cover. For instance, it may use such wording as loss
caused by , loss directly caused by and loss proximately caused
by . Well do they mean different things to you? Will any of them have
the effect of modifying the rules of proximate cause? The answer is that
they have been held to mean the same thing. That is to say, whether the
term directly or proximately is adopted or left out, the legal rules to be
applied are exactly the same and the same scope of cover is given or
excluded, as the case may be. But what if the term indirectly is used? A
policy exclusion that says that loss directly or indirectly arising from a
particular peril (excepted peril) is excluded has been construed by the courts
to mean that a loss will not be recoverable even where the operation of that
excepted peril has only been a remotely (as opposed to proximately)
contributory factor. Read the following decided court case for illustrations:

An army officer was insured under a personal accident policy, which
excluded claims directly or indirectly caused by war. During wartime, the
insured was on duty supervising the guarding of a railway station. Walking
along the track in the darkness, he was struck by a train and killed. It was
held that although the war was merely an indirect cause of the death, the
policy wording meant that the insurer was not liable.

(b) Loss proximately caused by delay, even though the delay be caused by a
risk insured against (an exclusion wording quoted from a marine cargo
insurance clause most commonly used): Suppose an insured shipment of
calendar for the year 2011, expected to arrive on 1 December 2010, does
not arrive until 15 February 2011 because of a collision (insured peril)
involving the carrying vessel during the insured voyage. By relying on the
exclusion, the insurer can deny a loss of market claim from the insured
even though the loss is due to an insured peril.

Note: Remember that the principle of proximate cause is sometimes very
complicated. There have been many interesting, sometimes surprising
court cases which have decided its application. In particular, not too rarely
are inconsistent or opposing judicial decisions seen in factually similar
cases which are made on the basis of the same rule(s) of proximate cause,
perhaps because the judgments of the judges vary from one case to another
on how the facts of a case relate to one another. Therefore, please do not
assume that knowledge of the above brief notes will make you an expert in
this area.

3.4 INDEMNITY

3.4.1 Definition

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

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3.4.2 Implications

Indemnity cannot apply to all types of insurance. Some types of insurance
deal with losses that cannot be measured precisely in financial terms.
Specifically, we refer to Life Insurance and Personal Accident Insurance. Both
are dealing with death of or injury to human beings, and there is no way that the
loss of a finger, say for instance, can be measured precisely in money terms.
Thus, indemnity cannot normally apply to these classes of business. (Note:
medical expenses insurance, which is often included in personal accident and
travel insurance policies, is indemnity insurance unless otherwise specified in the
policies.)

Other insurances are subject to the principle of indemnity.

Note: It is sometimes said that life and personal accident insurances involve
benefit policies rather than policies of indemnity. Since indemnity cannot
normally apply, the policy can only provide a benefit in the amount
specified in the policy for death or for the type of injury concerned.

3.4.3 Link with Insurable Interest

We studied insurable interest in 3.1. That represents the financial interest
in the subject matter, which is exactly what should be payable in a total loss
situation, if the policyholder is to be completely compensated. However, life and
personal accident insurances may generally be regarded as involving an unlimited
insurable interest, and therefore indemnity cannot apply to them.

3.4.4 How Indemnity is Provided

It is common for property insurance policies to specify that the insurer may
settle a loss by any one of four methods named and described below. However,
both marine and non-property policies are silent on this issue so that the insurer is
obliged to settle a valid claim by payment of cash.

(a) Cash payment (to the insured): This is the most convenient method, at least
to the insurer.

(b) Repair: Payment to a repairer is the norm, for example, with motor partial
loss claims.

(c) Replacement: With new items, or articles that suffer little or no
depreciation, giving the insured a replacement item may be a very suitable
method, especially if the insurer can obtain a discount from a supplier.

(d) Reinstatement: This is a word that has a number of meanings in insurance.
As a method of providing an indemnity, it means the restoration of the
insured property to the condition it was in immediately before its
destruction or damage.

Note: You are absolutely correct if you understand that the term reinstatement
overlaps in meaning with repair and with replacement.

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3.4.5 Salvage

When measuring the exact amount of loss (which indemnity is), it has to be
borne in mind with certain property damage that there will sometimes be
something left of the damaged subject matter of insurance (fire-damaged stock,
the wreck of a vehicle, etc.). These remains are termed salvage. If the remains
have any financial value, this value has to be taken into account when providing an
indemnity. For example:

(a) The value of the salvage is deducted from the amount otherwise payable to
the insured (who then keeps the salvage); or

(b) The insurer pays in full and disposes of the salvage for its own account.

Note: The term salvage in maritime law has a very different meaning, where it
usually refers to acts or activities undertaken to save a vessel or other
maritime property from perils of the sea, pirates or enemies, for which a
sum of money called salvage award (or just salvage) is payable by the
property owners to the salvor provided that the operation has been
successful. The term is sometimes also used to describe property which has
been salved.

3.4.6 Abandonment

This is a term mostly found in marine insurance, where it refers to the act of
surrendering the subject matter insured to the insurers in return for a total loss
payment in certain circumstances. This is quite standard in marine practice, but in
other classes of property insurance, policies usually specifically exclude
abandonment.

The important thing to be remembered with abandonment is that the subject
matter insured (or what is left of it) is completely handed over to the insurer, who
may therefore benefit from its residual value. (This will be important with
Subrogation; see 3.6 below).

3.4.7 Policy Provisions Preventing Indemnity

While policies in some classes of business promise to indemnify the
insured, this has to be done subject to the express terms of the policy, if any.
Some of these terms mean that something less than indemnity is payable. For
example:

(a) Average: Most non-marine property insurances are expressly subject to
average. This means that the insurer expects the insured property to be
insured for its full value. If it is not, in the event of a loss the amount
payable will be reduced in proportion to the under-insurance. For
example, if the actual value of the affected property at the time of a loss
was $4 million and it was only insured for $1 million, we may say that the
property was at the time of the loss only 25% insured. Therefore, by the
application of average, only 25% of the loss is payable.

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In view of this penalty for under-insurance, it is very important for
insurance intermediaries to do their best to ensure that their clients will
arrange full value insurance.

Note: In marine insurance, average has a totally different meaning.
Here it means partial loss, a loss other than total loss. Average in
marine insurance is complex and beyond the needs of this present
study.

(b) Policy excess/deductible: An excess or deductible is a policy provision
whereby the insured is not covered for losses up to the specified amount,
which is always deducted from each claim.

Suppose a motor policy is comprehensive, with a $4,000 excess for
damage to the insured vehicle. If an accident occurs and the repair bill for
the car amounts to $14,000, the insurer is only liable for $10,000. On the
other hand, with a minor accident and repairs costing $3,000, the insurer
would have no liability at all.

(c) Policy franchise: Seldom seen today (except for time franchise see
example below), it is similar to an excess in that it eliminates small claims.
On the other hand, it is different from an excess in that if the loss exceeds
or reaches the franchise depending on the wording used - the loss is
payable in full. Like an excess, a franchise can be expressed as a
percentage, an amount of loss, or a time period.

Suppose a ship which is insured for $5,000,000 subject to a 5% franchise
sustains insured damage. If repairs cost only $100,000 (2%), nothing is
payable by the insurer. But if repairs cost $1,000,000 (20%), the loss is
payable in full.

Example of time franchise: A particular hospitalisation policy contains a 2-
day franchise provision; in other words, there is a waiting period of two
days. If the insured person stays in hospital for one day, no expenses are
reimbursable. But if he has to stay for 5 days, the policy pays the medical
expenses incurred during the whole of that 5-day period.

(d) Policy limits: As the sum insured is the insurer's maximum liability, any
loss exceeding that limit will not be fully indemnified. Other types of limits
may also exist within the policy terms; examples include:

(i) Single Article Limit: It is a limit commonly found in a household
contents policy. Where such a policy covers property described in
broad terms like contents for a stated amount, there is no way the
insurer can tell whether the insured contents will not, at the time of
loss, be found to include an article which is so valuable that its
value already accounts for, say, 90% of the sum insured for the
whole of the contents. This is a situation the insurer will not want to
see, partly because of the theft risk it represents. In fact, the insured

3/14
could have declared the value of this item of contents to the insurer,
requiring that it be separately subject to a sum insured representing
its value. The benefit of this approach is that the insurer will be
liable for an insured loss of this item of property up to its own sum
insured. On the other hand, in the event that an insured has not
made such an article the subject of a separate sum insured, the
insurer will have to restrict the amount payable for a loss of this
item to a limit specified in the policy, called the single article
limit.

(ii) Section Limit: A policy may contain two or more sections, which
take effect in relation to different subject matter of insurance (as in
the case of a travel insurance policy, which normally covers
property damage, legal liability and others), different insured perils,
etc. Each of these sections is usually made subject to its own limit
of liability, which operates similarly to a sum insured.


3.4.8 Policy Provisions Providing More Than Indemnity

Indemnity is very logical and technically easy to defend. However, in
practice, most policyholders are ignorant of this and are confused and offended
when insurers reduce their claims, by deducting depreciation, wear and tear,
etc. As a marketing or public relations exercise, insurers sometimes offer or agree
to grant property insurances which may be said to give a commercial rather than
a strict indemnity. Some examples are as follows:

(a) Reinstatement insurances (or insurances on a reinstatement basis): This is
one of the several uses of the term reinstatement (see 3.4.4(d) above) and
is often found with fire and commercial all risks insurances. The
meaning is that where reinstatement takes place after a loss, no deductions
are made from claim payments in respect of wear and tear, depreciation,
etc.

(b) New for Old cover: Again, this means that no deductions are made in
respect of wear and tear, deprecation, etc. This term is more generally used
with household and marine hull policies.

(c) Agreed value policies (or valued policies): Such policies may be used for
articles of high value, where depreciation is unlikely to be a factor (e.g.
works of art, jewellery, etc.) or where property valuation contains a rather
subjective element. The sum insured is fixed on the basis of an expert's
valuation, and agreed between the insured and the insurer as representing
the value at risk of the property throughout the currency of the policy. In
non-marine insurance, a valued policy undertakes to pay this sum in the
event of a total loss, without regard to the actual value at the time of loss,
whereas in the event of a partial loss, the actual amount of loss would
instead be payable without regard to the agreed value.

3/15
(d) Marine policies: Almost without exception, marine hull and marine cargo
policies are written on a valued basis, and the agreed value will be taken as
the actual value at the time of loss for the purposes of both partial and total
loss claims.

3.4.9 The Practical Problems with Indemnity

Indemnity, as mentioned above, is extremely logical. What makes more
sense than to say that a person should only recover what he has lost? He should
not profit from a loss! However, most people feel that they should receive the
amount they have insured for, with a total loss. Moreover, the fact or amount of
depreciation is an area where you, or the claims handler, may definitely expect
problems with the claimant. When claims are being made, a lot of claimants will
say that their property has not depreciated at all, or only marginally!


3.5 CONTRIBUTION

3.5.1 Equitable Doctrine of Contribution

This is a claims-related doctrine of equity which applies as between
insurers in the event of a double insurance, a situation where two or more policies
have been effected by or on behalf of the insured on the same interest or any part
thereof, and the aggregate of the sums insured exceeds the indemnity legally
allowed.

[Example: Suppose a husband and wife each insure their home and
contents, each thinking that the other will forget to do it. If a fire occurs
and $200,000 damage is sustained, they will not receive $400,000
compensation. The respective insurers will share the $200,000 loss.]

Apart from any policy provisions, any one insurer is bound to pay to the
insured the full amount for which he would be liable had other policies not existed.
After making an indemnity in this manner, the insurer is entitled to call upon other
insurers similarly (but not necessarily equally) liable to the same insured to share
(or to contribute to) the cost of the payment.

3.5.2 Rateable Proportions

Where contribution applies, the ultimate proportion of the insureds loss
that any one particular insurer is responsible for is called the rateable proportion
of that insurer. It is not difficult to understand that the sum of all the insurers
rateable proportions equals one, that is to say, 100% of the insureds loss.

A few methods are available for calculating rateable proportions. But as an
insurance intermediary, it is not essential that you should know them well, bearing
in mind that how much your clients will ultimately get paid for a loss will not
depend on the basis of contribution to be employed.

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3.5.3 How Arising

The criteria (or essentials) that need to be satisfied before contribution
applies are:

(a) the respective policies must each be providing an indemnity (rather than
benefit) to the loss in question (this is the reason why it is said that
contribution is a corollary (i.e. a natural consequence of an established
principle) of indemnity);

(b) they must each cover the interest (which term does not mean property,
liability, etc.) affected (see counter-example below);

(c) they must each cover the peril (cause of loss) that has given rise to the loss;

(d) they must each cover the subject matter of insurance (property, liability,
etc.) that has been affected; and

(e) each policy must be liable to the loss (i.e. not be subject to a policy
exclusion or limitation preventing contribution).

[Counter-example of criterion (b): A merchant has some stock-in-trade
kept in a public warehouse, and insured under a fire policy. Separately and at the
same time, the warehouse operator buys fire insurance on the same property.
When a fire occurs damaging the stock-in-trade, both the merchant and the
warehouse operator claim under their own policies for the same damage.
Immediately two basic questions come to mind. First, is the warehouse operator,
not being an owner of the damaged property, entitled to claim under his own fire
policy? Second, if both policyholders are entitled to claim, will there be
contribution between the insurers? The answer to the first question is: the
warehouse operator, being a bailee of the stock-in-trade, has insurable interest in it
at the time of loss, and is thus entitled to claim under his own policy. Turning to
the merchant, you probably will not conclude or argue that he cannot expect to be
indemnified. Now we have to wrestle with the second question. The answer to this
question hinges on that to the question of whether the two policies cover the same
interest (criterion (b)). For whose benefit has the merchant bought his fire
insurance? And what about the warehouse operator? In fact, each of them has
bought insurance for their own benefit. In other words, the first mentioned policy
covers the merchants interest as owner, and the second one covers the
warehouse operators interest as bailee. Is it apparent to you now that the two
policies cover different interests, so that contribution will not apply as between
them?

At this point, we have completely resolved the issue of contribution arising
in the case. But there remains an issue of the cogency of indemnifying for the
same loss with twice its amount. Now it is time for another principle of
insurance subrogation (see 3.6 below) to play its part. The insurer of the
merchant, upon indemnification, is entitled to claim, for his own benefit albeit in
the name of the merchant, against the warehouse operator (bailee) for the
indemnity provided by the other insurer.]

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3.5.4 How Applicable

Contribution will only apply if indemnity applies. Thus, if a person dies
whilst insured by two or more separate life insurance policies, each has to pay in
full, because the insurances are not subject to indemnity.

3.5.5 How Amended by Policy Conditions

The position between insurers as governed by the equitable doctrine of
contribution is of little or no concern to the insured, unless that has been modified
by one of the following policy provisions:

(a) Rateable Proportion Clause (or Contribution Condition), restricting the
insurers liability to its rateable share of the loss. The effect is that, where
there is double insurance and each of the relevant policies contains such a
clause, the insured could no longer claim all of his loss from one insurer
alone.

[Example: Using the example in 3.5.1 again, the standard fire policy
contains a clause restricting its contribution to its rateable share in the
event of double insurance. In the given circumstances, if Insurer A is
approached first and his rateable share is, say, $50,000 (25%), he cannot be
made to pay the full loss. He is liable only for $50,000 and the insured
must himself go to Insurer B for Bs rateable share ($150,000 or 75%).]

(b) Non-contribution Clause, to the effect that it is the other policies that will
have to pay the loss.

[Example: Household policies on contents may exclude items more
specifically insured. If a camera is separately insured under an All Risks
policy, that policy may be regarded as more specific than the household
policy, so that the latter policy, if it contains such a clause, will not be
liable for a, say, theft loss of the camera from the insured premises.]

(c) Partial Contribution Condition

[Example: The so-called Marine Clause in the standard fire policy
provides that in the event of potential contribution between a marine policy
and the fire policy, the fire policy will not share the loss, except for that
part of the loss which is above the marine compensation. (This may
happen where, for example, some cargo, while being left in a container
depot awaiting the carrying vessel, catches fire. The usual marine policy
will cover the damage so caused. It is also possible that there is in place a
fire policy whose cover has been extended to cover a fire occurring in such
circumstances.)]


3/18
3.6 SUBROGATION

3.6.1 Definition

Subrogation is the exercise, for ones own benefit, of rights or remedies
possessed by another against third parties. As a corollary (i.e. a natural
consequence of an established principle) of indemnity, subrogation allows
proceeds of claim against third party be passed to insurers, to the extent of their
insurance payments. At common law, an insurers subrogation action must be
conducted in the name of the insured.

Suppose, for example, that a car, covered by a comprehensive motor
policy, is damaged by the negligence of a building contractor. The motor insurer
has to pay for the insured damage to the car. As against the negligent contractor,
the insureds right of recovery will not be affected by the insurance claim
payment. However, the motor insurer may, after indemnifying the insured, take
over such right from the insured and sue the contractor for the damage in the name
of the insured.

From this, it will easily be seen how subrogation seeks to protect the parent
principle of indemnity, by ensuring that the insured does not get paid twice for
the same loss.

3.6.2 How Arising

Subrogation rights arise in several manners as follows:

(a) In tort: This usually arises where a third party negligently causes a loss
indemnifiable by a policy. For example, a fire insurer, after paying a fire
loss, discovers that the fire was caused by a negligent act of a neighbour of
the insured. It sues the neighbour in the name of the insured for damages
recognised by the law of tort.

(b) In contract: This arises where the insured (perhaps a landlord) has a
contractual right (perhaps under a tenancy agreement) against another
person (perhaps a tenant) for an insured loss. After indemnifying the
insured for the loss, the insurer may exercise such right against that other
person in the name of the insured.

(c) Under statute: If a person is injured at work, his employer, if any, will have
to pay an employee compensation benefit to him in accordance with the
provisions of the Employees' Compensation (EC) Ordinance. The
Ordinance will then grant subrogation rights to the indemnifying employer
against another person who is liable to the employee for the injury. In turn,
the employer has to pass these rights to the EC insurer who has paid the
employee compensation benefit for or on behalf of the employer.

(d) In salvage: This we have already considered (see 3.4.5 above). The insurer
may be said to have subrogation rights in what is left of the subject matter
of insurance (salvage), arising under the circumstances already discussed.

3/19
3.6.3 How Applicable

As with contribution, subrogation can only apply if indemnity applies.
Thus, if the life insured of a life policy is killed by the negligence of a motorist, the
paying life insurer will not acquire subrogation rights, as this payment is not an
indemnity.

3.6.4 Other Considerations

There are other features to note:

(a) In the common law, subrogation rights are only acquired after an indemnity
has been provided. Non-marine policies usually remove such restriction by
stipulating that the insurer is entitled to such rights even before
indemnification.

(b) Some considerations arise in respect of proceeds of subrogation:

(i) The insurer cannot recover more under subrogation than he has paid
as an indemnity. By way of example, suppose there is an insured
loss of an antique. The insurer pays, and sometime later when the
antique is found, its value is much higher. The insurer can only
keep an amount equal to what he has paid and any balance belongs
to the insured.

(ii) The above saying is not true in the event of subrogation arising after
abandonment of the property to the insurer (see 3.4.6 above).
There, all rights in the property belong to the insurer, of course
including the right to make a profit!

(iii) Sharing of Subrogation Proceeds

Where the insurer has only provided a less-than indemnity on the
basis of certain policy limitations, the insured may possibly be
entitled to part of sometimes even the whole of - the subrogation
proceeds, depending on what limitations have been applied in the
process of claims adjustments. The following are illustrations of
several manners in which the sharing of subrogation proceeds
between the insured and the insurer can be done:

(1) Excess: Suppose the insured is responsible for a loss (excess) of
$10,000 before his liability insurer pays $40,000, and $20,000
is subsequently recovered from a negligent third party. The
whole of $20,000 will belong to the insurer. However, if the
subrogation recovery is $45,000 instead, the insured will be
entitled to $5,000 and the insurer $40,000.


3/20
(2) Limit of Liability: Suppose an insured contractor has incurred
liability to a road user in the amount of $1.5 million, of which
the insured has to pay $0.5 million out of his own pocket
because his policy is subject to a limit of liability of $1 million.
Any recovery from a joint tortfeasor will belong to the insured,
except where it amounts to more than $0.5 million in which
case that part over and above the $0.5 million threshold will
belong to the insurer up to the amount of insurance payment.

(3) Average: Suppose a fire insurer has paid 80% of a loss where
there is a 20% underinsurance. The insured is entitled to 20% of
subrogation proceeds as if he was a co-insurer for 20% of the
risk.

- o - o - o -

3/21
Representative Examination Questions


Type A Questions

1 Insurable interest may be described as:

(a) possession of certain goods; .....
(b) the amount always payable for insurance claims; .....
(c) a legally recognised relationship to the subject matter; .....
(d) the interest payments due if the insurance premium is paid late. .....

[Answer may be found in 3.1.1]

2 For marine insurance, insurable interest is required:

(a) certainly at the time of loss; .....
(b) only when the policy is first arranged; .....
(c) only at the time the first premium is paid; .....
(d) only if this is specifically mentioned in the policy. .....


[Answer may be found in 3.1.5]


Type B Questions

3 Which of the following are the types of breach of utmost good faith?

(i) Fraudulent non-disclosure
(ii) Non-fraudulent non-disclosure
(iii) Non-fraudulent misrepresentation
(iv) Fraudulent misrepresentation

(a) (i) and (ii) only; .....
(b) (i) and (iii) only; .....
(c) (ii), (iii) and (iv) only; .....
(d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 3.2.5]

3/22
4 Which three of the following insurance policy provisions could mean that
something more than indemnity is payable with claims?

(i) New for Old cover
(ii) Agreed value policies
(iii) Reinstatement insurances
(iv) The condition of average

(a) (i), (ii) and (iii); .....
(b) (i), (ii) and (iv); .....
(c) (i), (iii) and (iv); .....
(d) (ii), (iii) and (iv). .....

[Answer may be found in 3.4.8]

[If still required, the answers may be found at the end of the Study Notes.]

4/1
4 CORE FUNCTIONS OF AN INSURANCE COMPANY

Whilst an insurance intermediary is unlikely to have close contact with the
internal organisation of insurance companies, it is good to understand something of
their infrastructure and to be aware of the various departments and personnel behind
the marketing process. These, in outline, are considered below. Please remember,
however, that there is no single system for insurance companies to follow, and
therefore the suggested structure must be seen as representative only.


4.1 PRODUCT DEVELOPMENT

Someone once said, Insurance is not something that is bought, it is something that
has to be sold. We shall recall this when discussing marketing and promotion (4.3
below), but to the extent that it is true the whole exercise depends upon having something
to sell. That something may be described as an insurance product.

Some insurances, of course, are compulsory (e.g. third party motor and
employees compensation), but even with these classes the precise policy wording is not
decreed by the Government. Therefore there is scope for flexibility in presentation (whilst
the requirements of Ordinances must be respected). With other classes of insurance
business, Hong Kong is an open and very competitive business environment. Insurers
must therefore be efficient and dynamic in preparing the products they sell. As an
abbreviated summary, the Product Development department/section of an insurer will be
much occupied with:

(a) Individual product development: this is a never-ending process. With
competitors eager to learn and copy, it has been said that the unchallenged
lifespan of a totally new product is very short, perhaps a matter of only a few
weeks or months. After that time, the product has been copied, adapted and
frequently undersold.

(b) Product portfolio development: increasingly, producing a package of cover,
especially for larger clients, has become sensible, even vital, in order to retain a
competitive edge.

(c) Product research: we may think of this in three areas:

(i) our own products: nothing is perfect beyond improvement.

(ii) competitors' products: we do not, and cannot, live in a vacuum. It is
essential to know what is happening in our market and what we are up
against. Besides, they will have no hesitation in borrowing from us!

(iii) market trend: the needs of the general public.

4/2
4.2 CUSTOMER SERVICING

Sometimes described as Client Servicing, this section has a number of functions,
and with a particular insurer some of these may be carried out by other departments (such
as Accounts, Claims etc.). The general scope of its responsibilities is indicated by its
name. It is to provide a service to existing and potential customers/clients, and the duties
probably include:

(a) Correspondence: enquiries of every imaginable kind are likely to be received,
asking for guidance and information. Sometimes, the enquiries will be totally
unrelated to the company's business; therefore a degree of perception and tact will
be required. It is quite sure that the response a company gives to enquiries is very
important.

(b) Public relations: the more formal aspects of this could be within the province of
the marketing people, but the way clients are dealt with profoundly influences a
company's standing in the eyes of the public.

(c) Documentation: requests for duplicate policies, amendments to existing policies,
copies of motor insurance certificates, etc. will probably receive at least their
initial attention in this department.

(d) Complaints: an area that must be seen to be handled fairly and promptly. This
may require considerable liaison with other colleagues/departments. It must also
be remembered that complaints may reach high levels of company management
and receive media and even Government attention.


4.3 MARKETING AND PROMOTION

Remembering the quotation in 4.1, this is a very important area for the insurer.
The particular areas of responsibility include:

(a) Public Relations: as explained, this may overlap to some extent with Customer
Services, but the image of the company and its perceived standing in the eyes of
the public is of great significance. This wide-ranging activity will include:

(i) the co-ordination of all external communications;

(ii) the co-ordination of media enquiries and interviews;

(iii) press conferences, to announce or explain things, as necessary;

(iv) preparing press releases and copy for trade and other journals.

(b) Promotions: organising and co-ordinating their preparation and conduct.

4/3
(c) Advertising: closely interconnected with the above, this enormously important
area includes:

(i) selection of external agencies (if used);

(ii) the extent to which TV or other media are to be involved;

(iii) co-ordination of advertising campaigns;

(iv) expenditure analysis and control.

Note: Advertising is an area which could involve massive expenditure. Great
care must therefore be taken in its management and control. As one
famous businessman said Half the money I spend on advertising is wasted.
Unfortunately, I do not know which half!

(d) Sponsorship: insurers are frequently asked to sponsor industry or educational
projects. Also, this is of course an important aspect of advertising, involving
much time and probably a considerable budget.

(e) Market research: obviously, continuous monitoring of one's present and potential
market is a vital element for a marketing department. This will seek to establish
existing and perceived needs and demands in respect of insurance products.


4.4 INSURANCE SALES

Very closely connected with marketing, there may be considerable overlap of
activity, if separate sections exist. The name, however, indicates the functions, which
specifically will include:

(a) Product liaison: it is vital that the closest co-operation exists between Product
Development, Marketing and Sales, for obvious reasons. Poor communication
between colleagues in this area could have disastrous results.

(b) Sales enhancement programmes: again requiring co-operation with other
colleagues, e.g. Training and Marketing.

(c) Monitoring: it is important to keep abreast of results and trends. Again, much
teamwork with colleagues is required.



4/4
4.5 UNDERWRITING

This may be defined as the selection of risks to be insured and the determination of
the terms under which the insurance is given. With non-life insurances, it also involves a
continuing process of monitoring results and individual risks, to see whether renewals
should be offered, and on what terms. Special features to note are:

(a) Life insurance: for individual life policies, underwriting is a once only exercise,
since the policy cannot be cancelled by the insurer and changes are only possible
with the insured's consent. Because of its crucial importance, life insurance
underwriting is often centralised.

(b) General insurance: here the range of different cover is very wide and mistakes in
underwriting are not permanent, in the sense that policies will come up for renewal
and their terms be reviewed, and can even be cancelled if necessary. Therefore
much less centralised underwriting is still affordable.

(c) Guidelines: whilst underwriting is at a one to one level, there is obviously a need
for the preparation of underwriting manuals, rating guides and similar guidelines
for staff. These involve considerable research and development, again with much
attention to trends and results.

(d) Target risks: curiously, this term could mean highly desirable types of business
(in Life Insurance) or highly undesirable types of business (in General Insurance).
In the former, of course, this is business the insurance intermediaries should be
encouraged to seek diligently. In the latter, the term could mean large, hazardous
risks, e.g. petrochemical plants.

Each insurer will have its own ideas about what constitutes desirable or
undesirable risks. Typically, however, in life insurance, healthy young
professionals are likely to be desirable contacts. In theft insurance, jewellery
stores in Central Hong Kong may not be favoured.

(e) Stop-lists: sometimes given other names, a stop-list indicates those types of
business that should not be encouraged, or should be rejected if offered. Some
examples may readily come to mind, with different types of insurance, although
not every insurer will have the same opinions on this subject. Nevertheless,
compiling such lists involves considerable underwriting expertise, especially
bearing in mind the sensitivity over discrimination of every kind (see 7.3 below).


4.6 POLICY ADMINISTRATION

This is another departmental description that may involve overlap with other
sections or departments mentioned above or below. The general areas of concern here
may be:


4/5
(a) General or Life insurance? : this is a most important question, since the policy
document with each has a very different significance. With general insurance,
technically there need not be a policy (although there almost invariably is) and it is
seldom necessary to produce the original policy document when making a claim.
With life insurance, however, the contract is non-cancellable by the insurer, and
the policy documents are required to be produced at the time of a claim.

(b) Life insurance policies: as mentioned above, these must be produced when a
claim is made. A mistake in a life policy is potentially much more serious than
with General Business, especially since the policy may be assigned to another
person and/or used as collateral with a loan and any assignees are expected to be
relying on the veracity of the policy.

(c) New business procedures: especially with Life business (as noted) the process of
verification and checking, both for factual accuracy and errors in document
preparation, is very important. With any class of business, it is important that the
policy should be prepared and issued as efficiently and as impressively as
possible, for reasons that are obvious.

(d) Other procedures: this topic embraces such matters as error handling, policy
correction, endorsement preparation and renewal procedures. With life insurance,
once more, the great importance of the actual payment of the first premium must
be considered. In other classes, the contract may commence without the receipt of
a premium (often a non-marine policy requires that the insured has paid or agreed
to pay the premium). With life insurance, the usual practice is that the existence
of the contract depends upon the first premium being received.

4.7 CLAIMS

Once more, there are significant differences between Life and General Business
claims. Specifically, the implications include:

(a) Life insurance claims: obviously, there will only be one death claim. It is quite
essential for the claims handler to check each claim with the utmost care, as all
sorts of considerations are involved, such as:

(i) possible disputes or complications, for instance, problems may arise when
the primary beneficiary cannot be traced, or more than one person lodges a
claim as alleged assignees;

(ii) possible outstanding policy loans;

(iii) possible assignment, so that the claimant is not the original policyholder;

(iv) uncertainties over actual death or the identity of the deceased;


4/6
(v) dividend/bonus considerations with participating/with-profit policies.

For similar reasons to those pertaining to underwriting (see 4.5 above), life
insurance claims handling is frequently centralised.

(b) General insurance claims: the range of different types of claims is much wider
than with life insurance. Also, it is quite possible that the amounts involved are
enormous. Therefore, equal care should be taken in verification, although most
claims being relatively small, the work is much more likely to be decentralised,
sometimes with fairly junior staff having some degree of authority in claim
settlement.

[Example: Claims may be relatively trivial, such as the loss of a camera, or
exceedingly complex, such as a major explosion at a large power station.]

(c) Common features: there are two areas that must be the subject of attention in all
insurance claims. These are:

(i) Liability: is the insurer liable under the policy? When dealing with
liability insurance, it must also be ascertained whether the insured is liable
at law to the third party claimant.

(ii) Quantum: how much is payable with the claim? With life insurances, it is
usually pre-determined, but with other classes of business, this could
involve complex and sometimes bitter discussion.

(d) Significance: it has been said that an insurer stands or falls on the way it deals
with its claims. There is truth in the remark and the insurance intermediary will
want to know and feel confidence in the support he looks for in this area.

4.8 REINSURANCE

This is not an area where the insurance intermediary is likely to have a close
association, but he should be aware that reinsurance is very important to the insurer. The
aftermath of the September 11 terrorist attack is a testimony to this saying.

(a) Definition: insurance used to transfer all or part of the risk assumed by an insurer
under one or more insurance contracts to another insurer, who may be referred to
as a reinsurer in relation to such a transaction.

(b) Reasons: The major reason for buying reinsurance is security. It is very likely that
an individual insurance claim is payable from the assets of the insurer, but it may
be very inconvenient (and even costly) to produce large amounts of cash at short
notice, since assets will mostly be in investments. A reinsurance contract may be
so arranged as to entitle the reinsured to an immediate claim payment by the
reinsurer in the event of a valid direct claim (i.e. a claim from the original insured)
exceeding a pre-determined figure, even before the reinsured has actually paid the
direct claim.

4/7
Another important reason for reinsurance is to increase an insurers underwriting
capacity, which means the ability to accept proposed business with in mind all
risk management considerations. Having reinsurance means that some risks may
be accepted which might otherwise have to be declined in part or total.

(c) Methods: This does not concern insurance intermediaries, unless they handle
reinsurance matters on behalf of insurers or reinsurers.

(d) Effects for the Insured: Reinsurance has no direct effect for the policyholder. He
is not entitled to know, and probably has no need to know, that his insurance is
being reinsured. That is a matter entirely between the insurer and the reinsurer(s).
The insurer is always directly liable to the policyholder for the full amount
payable under the contract irrespective of the financial condition of its reinsurers.
Reinsurance, however, does give an added security that the insurer will be able to
pay!


4.9 ACTUARIAL SUPPORT

An actuary may be thought of as a highly skilled mathematician. His particular
expertise is not only in the collation and presentation of numerical information, but also
in projecting and predicting future trends, based on available data and assumptions. It
will immediately be understood, therefore, that such an expert has a very important role
to play in insurance. Some specific observations:

(a) Life insurance: more than any other class of business, life insurance depends
upon mathematical calculations (although they are very important to all classes).
It is essential for the life insurer to know mathematical facts about mortality (death
statistics) and projected interest earnings, for example.

Note: 1 The Insurance Companies Ordinance requires all insurers who carry
on long term business to appoint a qualified actuary, acceptable to the
Insurance Authority.

2 This Ordinance also requires long term insurers to carry out a
valuation of all assets and liabilities at least once a year. This is perhaps
the most important function of the actuary.

(b) General insurance: Their expertise, especially with long-tail business (insurance
where claims arise and develop over a long period of time until, say, 5 years or
even more after policy expiry, e.g. liability classes), is extremely valuable. This is
particularly true when having to calculate outstanding claims reserves required.
The Office of the Commissioner of Insurance requires motor and employees
compensation insurers to annually conduct actuarial review of their reserves
relating to such statutory classes of business.


4/8
Note: A corresponding term, short-tail business, refers to business where
claims are mostly settled within a relatively short space of time after
arising, e.g. motor (own-damage) and fire insurance.

(c) Generally: the application of an actuary's skills is very obvious in such areas as
premium rating, the calculation of reserves and the valuation of liabilities.


4.10 ACCOUNTING AND INVESTMENT

The Accountant is another official with a vital role to play in the running of any
business enterprise, and particularly that of an insurer. The functions of this department
are fairly obvious, but for completeness we note:

(a) Record keeping: financial records must be accurate and reliable.

(b) Collections: ensuring that money receivable by the insurer is in fact paid clearly
affects the very existence of the company. A satisfactory system for collecting,
monitoring and reminding the company debtors is thus of high priority.

(c) Payments: ensuring that bills and debts are paid promptly and efficiently (and
correctly) entails much routine but important work.

(d) Investment: if there is not a separate investment department, the care and
placement of company assets may be the responsibility of the Accountant. It goes
without saying that this is extremely important, from the perspectives of security,
relative return (or yield) and liquidity (having sufficient cash-flow to meet known
and anticipated monetary demands).


4.11 TRAINING AND DEVELOPMENT

Sometimes unappreciated by line managers, ever conscious of targets and
deadlines, the Training and Development department within a company is very important.
Some observations to note:

(a) Staff and Agents: Training is essential for both in-house personnel and field staff.
The educational and training needs of both must not be overlooked.

(b) Relevance: Training is not an optional extra, nor is it independent. It is part of the
overall team that constitutes the insurer, and its activities must not be self-
fulfilling, but relevant and effective to the continuance and enhancement of the
company.

(c) Training: This may be seen as preparation for the actual job in hand, or the job in
prospect. As such, it will involve courses, seminars and self-preparation arranged
or encouraged by staff training personnel.

4/9
(d) Education: This may be seen as involving the quest for wider learning and
professional or related qualifications. Preparations, etc. for this may be
encouraged rather than provided, but having qualified staff (and insurance agents)
is of great importance.
(e) In-house or external: Whether instruction is provided by its own staff, or
arranged on behalf of staff with outside providers, this will be an important
concern of company trainers.

(f) Resources and records: Facilities for training (library and other aids) as well as
up to date records of individual training progress will clearly assist the efficient
running of this section.



- o - o - o -

4/10
Representative Examination Questions


Type A Questions

1 Product development for an insurer is:

(a) a never-ending process; .....
(b) not necessary for a large insurer; .....
(c) not necessary with compulsory classes of business; .....
(d) no longer necessary once policy wording has been decided. .....

[Answer may be found in 4.1]

2 Underwriting, in the context of an insurance company's operations, means:

(a) sales activities; .....
(b) being responsible for any unsold shares; .....
(c) the assessment of risks for insurance purposes; .....
(d) the actual signing of policy and other contract documents. .....

[Answer may be found in 4.5]


Type B Questions

3 Which of the following may have significance with life insurance claims?

(i) Outstanding policy loans
(ii) Complications with beneficiaries
(iii) Possible assignment of the policy to a third party
(iv) Uncertainty over the death or identity of the deceased

(a) (i) and (ii) only; .....
(b) (ii) and (iii) only; .....
(c) (i), (iii) and (iv) only; .....
(d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 4.7(a)]

4/11
4 Which two of the following are not likely to be the responsibility of the Accounts
department in an insurance company?

(i) Payment of outstanding bills
(ii) Collection of unpaid premiums
(iii) Determining whether a risk is insurable
(iv) Arranging the launch of a new policy product

(a) (i) and (ii); .....
(b) (i) and (iii); .....
(c) (ii) and (iii); .....
(d) (iii) and (iv). .....

[Answer may be found in 4.10]

[If still required, the answers may be found at the end of the Study Notes.]

5/1
5 STRUCTURE OF HONG KONG INSURANCE INDUSTRY


5.1 TYPES OF INSURANCE BUSINESS

Insurance is classified in different cross-cutting ways for different purposes.
Without trying to give an exhaustive review, we may consider the topic under three
headings:

(a) Statutory: for the purposes of Government authorisation and supervision.

(b) Practical: for the purposes of internal company organisation.

(c) Academic: for the purposes of professional study and training.


5.1.1 Statutory Classification of Insurance

This is found in the First Schedule of the Insurance Companies Ordinance
(ICO), which specifies the various classes of business, using essentially the
format used in the U.K. and the European Community. The Ordinance divides
insurance into Long Term Business and General Business, with a number of sub-
divisions, as follows:

(a) Long Term Business (predominantly Life Insurance): this is divided into
nine categories, with a designated letter per class, i.e.

A Life and annuity - life insurance and annuity (see
Glossary), excluding class C
below
B Marriage and birth - insurance contracts providing
benefits payable on marriage or
on the birth of a child
C Linked long term - unit-linked life insurance and
unit-linked annuity (see
Glossary for Unit-linked
Business)
D Permanent health - essentially long term policies
providing benefits for incapacity
from accident or for ill-health
(the policy is not normally
cancellable by the insurer)
E Tontines - A tontine is an unusual contract
on a group of persons, the
accumulated contributions
payable to the last survivor(s) at
the end of a defined period.

5/2

F Capital redemption - a contract to provide a capital
sum at the end of a term in order
to replace ones capital because,
e.g. debentures will become
repayable; not related to human
life
G Retirement scheme
management category I
- group retirement scheme
contracts providing for a
guaranteed capital or return
H Retirement scheme
management category II
- group retirement scheme
contracts not providing for a
guaranteed capital or return
I Retirement scheme
management category III
- group contracts providing
insurance benefits under
retirement schemes, but
excluding classes G and H above

Note: It will be appreciated that not all the above will have equal significance in
the day to day business of the Hong Kong insurance market. For instance,
only a handful of companies are currently authorised to write class B, E or
F business.

(b) General Business: this is divided into 17 categories, with a designated
number per class, i.e.

1 Accident - this is more usually referred to by
insurance practitioners as Personal
Accident (and Sickness), providing
benefits or indemnity in the event of
accident or sickness

2 Sickness - policies providing benefits or
indemnity for loss due to sickness or
infirmity, but excluding class D above

3 Land vehicles - property insurance on vehicles used on
land, including motor vehicles but
excluding railway vehicles)
4 Railway rolling
stock
- property insurance on such vehicles
5 Aircraft - property insurance on aircraft
6 Ships - property insurance on ships
7 Goods in transit - property insurance on goods in transit,
including marine cargo


5/3

8 Fire and natural
forces
- property insurance covering fire and
some other perils (e.g. storm and
explosion)
9 Damage to
property
- property insurance exclusive of classes
3-8 above
10 Motor vehicle
liability
- third party Motor insurance (including
compulsory motor insurance)
11 Aircraft liability - covering liabilities for property damage
or personal injury/death arising out of
the use of aircraft
12 Liability for ships - covering marine liabilities for property
damage or personal injury/death
13 General liability - liability insurance exclusive of classes
10-12 above; employees compensation
insurance is included here
14 Credit - covering loss to creditors from debtors
failure to pay debts
15 Suretyship - contracts of guarantee, including
fidelity guarantee, performance bonds
(see Glossary for the meanings of these
two terms)
16 Miscellaneous
financial loss
- any other classes of business (business
interruption, loss of use, etc.)
17 Legal expenses - insurance to pay legal costs, with the
insured as defendant or as claimant)

Note: Few, if any, local insurers are likely to use the above classification in their
internal organisation, but authorisation to transact business will be granted
in respect of the classes indicated.


5.1.2 Practical Classification of Insurance

For internal management and operational purposes, each insurer is free to
classify his business as he sees fit. The following are typical examples of
classifications used by insurers in Hong Kong:

(a) Departmental (Class of Business)

There is no single pattern under this form of classification, but there are two
main approaches:

(i) U.K. (European) Style: where traditionally the major classes were
Life, Marine, Fire and Accident (Accident effectively meant
anything else, such as personal accident, liability, motor, etc.).

5/4
(ii) U.S. Style: where there is a very clear distinction between Life
(including annuity, medical expense and disability) and Non-Life
business, the latter frequently being sub-divided into Fire, Marine,
Bonding and Casualty (i.e. automobile, liability, theft, workers
compensation, etc.).

(b) Source of Business

Under this system, for control and management purposes, business is sub-
divided according to how it was obtained, i.e.

(i) from insurance agents;

(ii) from insurance brokers;

(iii) direct from the public, no insurance intermediary being involved.

(c) Type of Client

Under this system, for control and management purposes, business is sub-
divided according to whether it covers:

(i) individuals - Personal Insurance; or

(ii) firms and organisations - Business or Commercial Insurance.

5.1.3 Academic Classification of Insurance

For academic and professional examination purposes (especially with the
U.K. and Commonwealth countries), insurance is frequently sub-divided on a
Subject Matter of Insurance or Functional basis, as follows:

(a) Insurance of the person (which is not equivalent to personal insurance),
i.e. human beings being the subject matter of insurance (life, health and
personal accident insurances, etc.);

(b) Insurance of property, i.e. covering tangible objects against loss or damage
(fire, motor damage, marine cargo, etc.);

(c) Insurance of liability, i.e. covering legal liability for death, injury or
property damage to others (employees compensation, public liability, etc.);

(d) Insurance of pecuniary interests: It relates to any financial interest to be
insured not covered by (a) - (c) above, including business interruption,
credit and rent insurances.


5/5
Note: It must not be thought that the academic classification is only of use in
studying for examinations. Thinking about insurance according to the
function it performs (person, property, liability etc.) is a useful check-list
when trying to help a client decide what insurances he should have.

5.1.4 Reinsurance

Reinsurers insure the insurers. This is absolutely normal, indeed essential
to the well-being of the insurance industry (see 6.1.1e below). Reinsurance is
usually a normal activity of insurers. It can be:

(a) Outwards reinsurance: where the insurer insures again with other
insurers/reinsurers; or

(b) Inwards reinsurance: where the insurer acts as a reinsurer, covering risks
already insured by other insurers/reinsurers.

(Those insurers who confine their business to reinsurance are sometimes
called Professional Reinsurers.)


5.2 SIZE OF INDUSTRY

As insurance is a dynamic element in the financial services industry of Hong
Kong, statistics are always likely to be somewhat out of date. Nevertheless, we may
usefully consider this topic under four headings (source of figures: the Office of the
Commissioner of Insurance, unless otherwise stated):

(a) number of authorised insurers (including those which are professional reinsurers);

(b) number of registered or authorised insurance intermediaries;

(c) number of persons employed in the industry;

(d) premium volume.

5.2.1 Authorised Insurers

As at 31 December 2012, there were totals as follows:

(a) Pure Long Term Business (see 5.1.1 (a) above): pure in this context
means only or exclusively (specialising) in this class. A total of 44 pure
long term insurers were authorised, comprising 15 Hong Kong
incorporated companies and 29 others (including 1 from the Mainland of
China).

(b) Pure General Business (see 5.1.1 (b) above): 92 pure general insurers
were authorised, comprising 58 Hong Kong incorporated companies and 34
others (including 1 from the Mainland of China).

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(c) Composite: the term implies carrying on both Long Term and General
Business. 19 insurers were so authorised, comprising 10 Hong Kong
incorporated companies and 9 others (none from the Mainland of China).

5.2.2 Registered or Authorised Insurance Intermediaries

As at 31 December 2012, adding the total number of appointed insurance
agents and their Responsible Officers and Technical Representatives in Hong
Kong to that of authorised insurance brokers and their Chief Executives and
Technical Representatives gave a grand total of 77,259.

Note: An insurance intermediary is defined in the Insurance Companies
Ordinance as either an insurance agent or an insurance broker (see 6.2
below). Whether the intermediary being referred to is a firm or an
individual, the same set of terms are used.

5.2.3 Persons Employed

The biennial Manpower Survey Report on the Insurance Industry in Hong
Kong (commissioned by the Vocational Training Council) was most recently
conducted in 2011. This survey concluded that the industry on 3 January 2011
had a workforce of 52,485 people. 69% of this workforce were mainly connected
with Life Insurance (77% of these being insurance agents or technical
representatives of insurance agents) and 31% mainly with General Insurance.

5.2.4 Premium Volume

When discussing premiums, many technical considerations arise which are
beyond the scope of the present study. We shall therefore confine ourselves to the
broad picture. In 2011 (source of data: the Office of the Commissioner of
Insurance):

(a) the gross premiums for General Insurance Business (comprising Direct
Business and Reinsurance Inward Business) amounted to a total of
HK$34,834.7 million, representing 1.84% of Hong Kongs Gross Domestic
Product;

(b) the premiums for Long Term Business were as follows: HK$186,696.5
million of Individual Life In-Force Business office premium, HK$1,847.9
million of Group Life In-Force Business office premium, HK$8,119.1
million of contributions for Retirement Scheme In-Force Business
transacted by insurers, HK$2,251.6 million of Annuity and Other In-Force
Business office premium. The total premium (HK$198,915.1 million)
represents 10.49% of Hong Kongs Gross Domestic Product.


5/7
5.3 INSURANCE COMPANIES

Some statistical information about insurance companies in Hong Kong has already
been considered (see 5.2.1 above). Some other features should be noted as well, as
follows (source of figures: the Office of the Commissioner of Insurance, unless otherwise
stated):

(a) International Basis

As is well-known, Hong Kong is a major international centre for financial
services. Of the 155 authorised insurers as at 31 December 2012, 83 were Hong
Kong incorporated and 72 incorporated in 21 jurisdictions outside Hong Kong
(including 2 incorporated in the Mainland of China).

(b) Market Analysis

Below are statistics on the market shares of the top insurers by major classes of
business in the year 2011:

(i) General Business: by gross premium, the aggregate percentage market
share of the top ten insurers in relation to General Business (comprising
Direct Business and Reinsurance Inward Business) is 42% and in relation
to each of the major classes is 73% for Accident and Health, 60% for
Motor Vehicle, 56% for Property Damage, and 51% for General Liability
(comprising Statutory Business and Other Business). No one insurer had a
market share of more than 17% in any one of these classes.

(ii) Long Term Business: here the analysis reveals a different picture, with
the top ten insurers accounting for 75% of the 2011 market, the top five
accounting for 55% and the top one 16%, all by premium (annual plus
single) of Total In-Force Business.

With 111 insurers authorised to write General Business and 63 authorised to write
Long Term Business, we may reasonably conclude that General Business is more
evenly distributed among authorised insurers than Long Term Business.

(c) Market Co-operation

More will be said on this topic later (see for example 5.5 below), but it is
appropriate to mention at this stage that Hong Kong insurers have a central body
representing their interests, The Hong Kong Federation of Insurers (HKFI).
Since its formation in August 1988, the HKFI has been recognised by the
Government as the representative body of insurers in Hong Kong. According to
the HKFI, as at the end of 2012, it had 86 general insurance members and 43 life
insurance members. Without doubt, it is a major factor in the structure of the
Hong Kong Insurance Industry.

5/8
5.4 INSURANCE INTERMEDIARIES

As noted above (5.2.2), insurance intermediaries comprise insurance agents and
insurance brokers. More detailed comments on their respective roles and legal
requirements appear elsewhere in these Notes (see especially 6.2 below), but considering
them under the topic of the structure of the Hong Kong Insurance Industry, we should
note the following:

(a) Registration/Authorisation: Insurance intermediaries in Hong Kong are
required by the ICO to be formally registered or authorised, as the case may be
(see 6.2.1 below).

(b) Qualifications: Before a person can be registered or authorised to act as an
insurance intermediary, he must satisfy certain criteria. These are considered in
detail later (see Chapter 6).

(c) Role: It is true that insurance may be arranged direct with the insurer, i.e. without
using an insurance intermediary, but this is not the norm, especially in Long Term
Business. It would be relatively rare, for instance, to find life insurances being
arranged in Hong Kong without an insurance intermediary being involved. Also,
with complex commercial risks, it is quite normal for an insurance broker to be
engaged, in view of the wide experience and independent expertise which they are
generally seen to possess. It is therefore quite clear that insurance intermediaries
have, and are very likely to continue to have, an important role in the structure of
the Hong Kong insurance industry.

(d) Market Co-operation: More will be said on this topic in 5.5 below, but it would
probably be fair to say that the roles of insurance agents and insurance brokers are
quite distinct. All, however, through their market representations and individually,
have a common interest in quality service and the integrity of the market.


5.5 MARKET ASSOCIATIONS/INSURANCE TRADE
ORGANISATIONS

Some of the major market associations/insurance trade organisations in the Hong
Kong insurance market are:

5.5.1 The Hong Kong Federation of Insurers (HKFI)

(a) This organisation has already been mentioned (see 5.3(c) above), but the
importance of the HKFI on the local insurance scene cannot be overstated.
An important objective of the HKFI is to promote and advance the
common interests of insurers and reinsurers transacting business in Hong
Kong. As a major influence in the self-regulatory process, the HKFI has
numerous areas of activity.

5/9
(b) According to its Mission Statement, the HKFI exists to promote insurance
to the people of Hong Kong and build consumer confidence in the
industry by encouraging the highest standards of ethics and
professionalism amongst its members.

(c) The HKFI established the Insurance Agents Registration Board (IARB)
in January 1993 to perform the dual role of registering insurance agents
and their Responsible Officers and Technical Representatives, and of
handling complaints against insurance agents or their Responsible
Officers or Technical Representatives, pursuant to the Code of Practice for
the Administration of Insurance Agents (see 6.2.2 below).


5.5.2 Approved Bodies of Insurance Brokers

The Insurance Authority has the power to approve a body of insurance
brokers under Section 70 of the ICO, so that its members are deemed to be
authorised insurance brokers, without the need to seek authorisation from the
Insurance Authority direct. There are two such approved bodies in Hong Kong:

(a) the Hong Kong Confederation of Insurance Brokers; and

(b) the Professional Insurance Brokers Association.


5.5.3 Industry Organisations to Assist Claimants or Victims

Three such organisations should be noted:

(a) The Insurance Claims Complaints Bureau (ICCB): this is considered in
more detail in 6.1.4 below.

(b) The Motor Insurers' Bureau of Hong Kong (MIB): funded by a surcharge
on motor insurance premiums, the MIB seeks to provide compensation in
respect of the death of or injury to innocent victims of motor vehicle road
accidents, where the required compulsory insurance for such situations
does not exist or is not effective, or the insurer concerned is in liquidation.

(c) The Employees Compensation Insurer Insolvency Bureau (ECIIB):
composed of all insurers carrying on the business of employees
compensation insurance in Hong Kong, the ECIIB runs the Employees
Compensation Insurer Insolvency Scheme to assume responsibilities for
liabilities under employees compensation policies of its member insurers
that have become insolvent. The Scheme is funded by a surcharge on
employees compensation insurance premiums.



5/10
5.5.4 Employees Compensation Insurance Residual Scheme Bureau

There have been cases in which employers appeared to have difficulty
obtaining EC insurance in respect of employees engaged in certain high risk
occupations. To tackle this problem, an Employees Compensation Insurance
Residual Scheme (ECIRS) was set up to act as a market of last resort for these
employers. By a market agreement, all employees compensation insurers have to
become members of the ECIRS, taking on risks on a collective basis. The running
of this scheme is overseen by a market body called the Employees Compensation
Insurance Residual Scheme Bureau, which was formed for the purposes of
enabling employers who have found themselves being unable to obtain
employees compensation insurance to obtain such insurance.

- o - o - o -

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Representative Examination Questions


Type A Questions

1 The Insurance Companies Ordinance in Hong Kong divides insurance business
into two broad categories. One is General Business and the other is:

(a) Specific Business; .....
(b) Accident Insurance; .....
(c) Long Tail Business; .....
(d) Long Term Business. .....

[Answer may be found in 5.1.1]

2 The difference between inwards reinsurance and outwards reinsurance for a
given insurance company is that:

(a) inwards reinsurance is with Hong Kong reinsurers; .....
(b) outwards reinsurance is with non-Hong Kong reinsurers; .....
(c) inwards reinsurance is where the company acts as reinsurer; .....
(d) outwards reinsurance is where the company acts as reinsurer. .....

[Answer may be found in 5.1.4]


Type B Questions

3 Which two of the following are classes of Long Term Business?

(i) Aircraft liability
(ii) Life and Annuity
(iii) Permanent Health
(iv) Damage to property

(a) (i) and (ii); .....
(b) (ii) and (iii); .....
(c) (ii) and (iv); .....
(d) (iii) and (iv). .....

[Answer may be found in 5.1.1(a)]

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4 Which of the following statements are true in the Hong Kong situation, based
upon available data?

(i) Relatively few insurers dominate General Business
(ii) Relatively few insurers dominate Long Term Business
(iii) General Business is shared more evenly among insurers
(iv) Long Term Business is shared more evenly among insurers

(a) (i) and (ii) only; .....
(b) (i) and (iii) only; .....
(c) (ii) and (iii) only; .....
(d) (iii) and (iv) only. .....

[Answer may be found in 5.3]

[If still required, the answers may be found at the end of the Study Notes.]




6/1
6 REGULATORY FRAMEWORK OF INSURANCE INDUSTRY

All civilised societies recognise that a financial service as important as
insurance must be subjected to some form of supervision or control. This is a sensitive
area, since on the one hand it is not good for society to strangle any kind of
worthwhile business activity with excessive controls. On the other hand, left totally
unsupervised, the huge amounts of money involved with insurance have over the
centuries proved irresistible to fraudsters and irresponsible people, to the great harm
and detriment of the societies affected.

A measure of balance is therefore to be sought. That balance, to some extent, is
achieved by a judicious mixture of statutory (Government) regulation and self-regulation,
where representatives of the industry itself exercise discipline and oversight. Below, we
shall examine both these aspects of the Hong Kong insurance industry regulatory
framework.


6.1 REGULATION OF INSURANCE COMPANIES IN HONG KONG

This is a combination of statutory and/or persuasive influence by the Government,
coupled with various self-regulating functions on the part of the industry itself. These we
shall consider in some detail.

6.1.1 Insurance Companies Ordinance (ICO)

This very important piece of legislation, with its amending statutes,
provides the framework for the prudential supervision of the insurance industry of
Hong Kong. In fact, it covers not only the supervision and regulation of insurers,
but also that of insurance intermediaries. The ICO came into effect in June 1983
and the Commissioner of Insurance is appointed as the Insurance Authority
(IA) for the purposes of the ICO. Some of its important provisions are outlined
below.

6.1.1a Authorisation of Insurers

Any person (which may, as a legal term, mean a corporation),
before they carry on insurance business in or from Hong Kong, must first
of all obtain authorisation to do so from the IA. The ICO prescribes certain
minimum requirements for authorisation, relating to such matters as:

(a) paid-up capital;
(b) solvency margin;
(c) directors and controllers;
(d) adequate reinsurance arrangement.

In addition, the IA has issued Guidelines which seek to ensure that
the applicant insurer is financially sound and otherwise suitable, not only at
the time of authorisation but continuing to be so in the future.

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6.1.1b Capital Requirement

Minimum paid-up capital required:

(a) HK$10 million: if carrying on only General or only Long Term
business, but not any statutory (or compulsory) insurance business;

(b) HK$20 million: if carrying on any statutory (or compulsory)
insurance business, either alone or together with any other insurance
business;

(c) HK$20 million: if carrying on both General and Long Term
business;

(d) HK$2 million (instead of the above figures): if the insurer is a
Captive Insurer (see Glossary).

Note: The above figures are merely minimum requirements. Insurers in
Hong Kong almost invariably have paid-up capital well in excess of
these requirements.

6.1.1c Solvency Margin Requirement

Solvency may be thought of as the point at which assets are just
sufficient to meet liabilities. A margin of solvency is therefore the degree
or amount by which assets exceed liabilities. Insurance companies must
have a solvency margin of not less than the relevant amount the
minimum amount of solvency margin required of a particular insurer - as a
safeguard against the risk that the insurer may not be able to meet its
liabilities. The relevant amount is prescribed as follows:

(a) General Business: calculated on two different bases,

(i) Premium Income (the higher the volume of premium
income, the larger the relevant amount) and

(ii) Claims Outstanding (the higher the amount of claims
outstanding (see Glossary), the larger the relevant amount),

whichever produces the higher figure; and subject to a Minimum
Amount of HK$10 million (or HK$20 million if carrying on
statutory insurance business).

(b) Long Term Business:

Calculated in accordance with the detailed requirements of the
Insurance Companies (Margin of Solvency) Regulation, subject to a
total of not less than HK$2 million.

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(c) Composite Business:

In respect of the Long Term Business, the calculation of the relevant
amount follows (b) above. In respect of the General Business, it will
be calculated in the usual manner for General Business (see (a)
above).

(d) Captive Insurer:

Either the premium income basis or the claims outstanding basis,
whichever produces the higher figure; subject to a minimum of
HK$2 million.

6.1.1d Fit and Proper Directors and Controllers

Any Director or Controller (which term is defined as including a
Managing Director and a Chief Executive) of an insurer must be fit and
proper to assume such a position. In addition, prior approval of the IA is
required for an authorised insurers appointment of a Chief Executive,
Managing Director, or Shareholder Controller.

The term fit and proper is explained by the IA in the Guidance
Note on Fit and Proper Criteria under the Insurance Companies
Ordinance (the Fit and Proper Guidance Note). According to the Fit
and Proper Guidance Note, the IA would look for high standards of
competence and honesty. It specifies some of the relevant factors in
considering whether a person is fit and proper as:

(a) financial status;

(b) character, reputation, integrity and reliability;

(c) qualifications or experience having regard to the nature of the
functions to be performed; and

(d) ability to perform such functions efficiently, honestly and
fairly.

This Fit and Proper Guidance Note also sets out the events and
matters that are likely to give rise to concerns about the fitness and
properness of a person to be appointed, or who has been appointed, as a
director or controller of an authorised insurer.


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Related but distinct from the concept of fitness and properness
is that of corporate governance, which term refers to the rules and
practices put in place within a corporation for the management and
control of its business and affairs. The IA has issued the Guidance Note
on the Corporate Governance of Authorised Insurers (the Guidance
Note on Corporate Governance), which sets out the minimum standard
of corporate governance that is expected of authorised insurers. A high
standard of corporate governance established by authorised insurers is
considered to be an essential step in instilling the confidence of the
insuring public and encouraging more stable and long term development
of the insurance market. The Guidance Note on Corporate Governance
covers all levels of management, and all functions (risk management,
underwriting, claims, client servicing, audit, etc.), of an authorised
insurer.

6.1.1e Adequate Reinsurance

Reinsurance is an extremely important, in many cases crucial,
element in the financial security of an insurer. Its importance is much
influenced by various factors, including the financial strength of the
insurer, and the type and volume of business. The ICO requires
authorised insurers to have adequate reinsurance arrangements in force.
It is a vital consideration in the overall financial supervision of an
insurer, both with regard to the quantity and the quality (probable
collectability) of the reinsurance effected.

The IA has issued and implemented a guidance note on the
subject, the Guidance Note on Reinsurance with Related
Companies. This Guidance Note applies only where an authorised
insurer reinsures with a related reinsurer (meaning one within the same
grouping of companies, as defined in Section 2(7)(b) and (c) of the ICO).
The reason why this Guidance Note is important is that the prudent
control that any one insurer should exercise on its reinsurance
arrangements may possibly be compromised when the reinsurer is related
to it. This situation, if allowed to be loosely supervised, will put the
interests of the insuring public at risk.

The Guidance Note aims to promulgate how reinsurance
arrangements with related companies will be considered adequate by the
IA in terms of financial security, and how the IA intends to address the
supervisory concern if such reinsurance arrangements are not considered
adequate.



6/5
6.1.1f Other Major Provisions of the ICO

Certain other features of the ICO which should be noted include:

(a) Maintenance of Assets in Hong Kong: An insurer carrying on
General Business must maintain assets in Hong Kong in respect of
its liabilities arising from its Hong Kong General Business. The
amount required is to be calculated in accordance with one of two
prescribed methods, one of which requires an amount not less than
the aggregate of:

(i) 80% of its net liabilities (i.e. after deducting those covered
by reinsurance); and

(ii) the relevant amount.

Claims from Hong Kong general insurance policyholders have
preference under Hong Kong insolvency law. Such protection is
enhanced by the above requirement of the ICO to have funds
available in Hong Kong.

Note: This requirement does not apply to Captive Insurers and
Professional (Specialist) Reinsurers.

(b) Valuation Bases for Assets and Liabilities: Assets and liabilities
must be valued for both General and Long Term Business. The way
each is calculated is obviously of the greatest importance to the
perceived financial position of the insurer concerned.

(i) General Business: Specific regulation governs the
valuation of assets and liabilities. However, it does not apply
to a Captive Insurer.

(ii) Long Term Business: Again, specific regulation
governs the valuation of liabilities, especially concerning
such matters as projected interest earnings and expected yield
from investments.

(c) Reporting Requirements: The following reporting requirements
apply:

(i) Every insurer: Has to submit annually to the IA its
financial statements prepared in accordance with the
requirements of the ICO.



6/6
(ii) General Business: These insurers, in addition to the
requirement mentioned in (i) above, have to submit
annually to the IA an audited General Business Return and
audited Statement of Assets and Liabilities relating to its
Hong Kong business. However, Captive Insurers and
Professional (Specialist) Reinsurers are not required to
submit audited Statements of Assets and Liabilities to the
IA.

The Guidance Note on Actuarial Review of Insurance
Liabilities in respect of Employees Compensation and
Motor Insurance Businesses issued by the IA requires that
insurers (including reinsurers) which carry on employees
compensation business and/or motor insurance business
should annually commission an actuarial review of their
reserves set aside for future claims payments in respect of
such statutory line(s) of business. The review should be
conducted according to specified criteria. An actuarial
report should be prepared and certified by the actuary, and
submitted to the IA for review within a prescribed period.
It should be noted that this Guidance Note applies to
professional reinsurers as well as to direct insurers.

(iii) Long Term Business: In addition to meeting the
requirement mentioned in (i) above periodically normally
every 12 months - Long Term insurers have to commission
an actuarial investigation into its financial condition in
respect of its long term business. An abstract of the
actuarial investigation report together with a certificate
made by the appointed actuary have to be submitted to the
IA within a prescribed period.

Note: 1 With the enactment of the Electronic Transactions
Ordinance, insurers may submit these documents by
electronic means.

2 Some people might find it difficult to distinguish
between reserves and solvency margin. In simple terms, the
solvency margin of an insurer represents the surplus of its
assets over its liabilities. On the other hand, claims reserves
represent projected or estimated future insurance liabilities.
If an insurers claims reserves have been set up on the basis
of a less than prudent projection or estimation, other things
being equal, its net asset value must be an overstated figure.



6/7
(d) Transparency: As an enhancement to market transparency,
with effect from June 2000, the ICO allows the IA to disclose
financial and statistical information of individual insurers and
Lloyds when it is considered in the interests of policyholders or the
public to do so.

Note: The ICO, however, specifically prohibits the IA from disclosing any
information relating to the affairs of individual insurers, except
under specified court proceedings.


6.1.1g Powers of Intervention

It is often said that for effective supervision, insurance regulators
must not only have eyes, but must also have teeth. The statutory
provisions therefore outline various actions the regulators may take for
protecting the interests of policyholders and potential policyholders. These
actions include:

(a) Limitation of premium income: if, for example, it is deemed that
an insurer is growing too fast or may otherwise be facing potential
difficulties with the inevitable liabilities that new business might
produce.

(b) Restrictions on investments: on the type and/or location of
investments.

(c) Restrictions on new business: on the capacity to effect or vary any
contracts of insurance or contracts of insurance of a specified
description.

(d) Custody of assets by an approved Trustee: for additional security.

(e) Special actuarial investigation: probably when there is cause for
concern on a particular insurers ability to meet liabilities.

(f) Assumption of control by a Manager appointed by the IA: in
serious cases.

(g) Winding up (liquidating) the insurer: in extreme cases; by
presenting a petition to the courts.

6.1.2 Code of Conduct for Insurers

This Code was implemented by the Hong Kong Federation of Insurers
(HKFI) in May 1999. It applies to insurance effected in Hong Kong by
individual (not company) policyholders resident in Hong Kong, insured in their
private capacity only.

6/8
6.1.2a Objectives

These set out the expected standards of good insurance practice
relating to such matters as

(a) underwriting and claims;

(b) product understanding;

(c) customers' rights and obligations under insurance contracts;

(d) customers' rights and interests generally;

(e) the industry's public image as a good corporate citizen.

Sections of the Code relevant to the activities of insurance agents are
covered below.

6.1.2b Advising and Selling Practices

This Part of the Code makes specific comment on:

(a) Sales Materials: these should be up to date, accurate, in
understandable language and not misleading to the public.

(b) Proposal/Application Forms: these are documents of prime
importance to the formation of the contract, being the vehicle
through which the intending insured supplies information to the
insurer. As such, the forms should:

(i) be in understandable language, with clear guidance as
necessary;

(ii) carefully explain the significance of utmost good faith
requirements;

(iii) make matters of material significance the subject of clear
questions;

(iv) explain carefully the importance of any associated
questionnaires.

(c) Policies: these provide visible evidence of the insurance contract
terms. As such, they should be clear and as understandable as
possible to the consumer. Also, any utmost good faith implications
regarding material facts to be disclosed at renewal should be
carefully explained.

(d) Administration: this covers such matters as confidentiality, service
standards, customer enquiries and the fact that customers should not
be the loser from inaccuracy on the part of the insurer's employees.

6/9
(e) Medical Evidence: confirmation that the Personal Data (Privacy)
Ordinance requirements will be observed in this sensitive area.

6.1.2c Claims

Since claims, or their possibility, are at the heart of insurance, clear
statements are necessary to establish good practice in this area. These
include:

(a) General Handling: should be fair, efficient and speedily.

(b) Denial of Claims: This should not happen

(i) unreasonably, especially with non-disclosure of material
facts and particularly where no proposal form was obtained;

(ii) with innocent misrepresentation of material facts (other than
with marine or aviation insurance);

(iii) with a breach of warranty committed without fraud, where
it has not caused the loss.

(c) Claim Forms: to be issued promptly without charge, and in
understandable language.

(d) Other Issues: specific mention is made of other matters such as:

(i) claimants to be kept reasonably informed of claim progress;

(ii) reasonable explanation to be given, if a claim cannot be
admitted;

(iii) payment made promptly with valid claims;

(iv) third parties acting for the insurer (adjusters etc.) should
always act reasonably and should be professionally qualified.

6.1.2d Management of Insurance Agents

Generally, insurers are to ensure that insurance agents comply with
the law and all relevant HKFI Codes. Specifically, insurers should give
attention to the following:

(a) Registration: all insurance agents must be registered under the
provisions of the Insurance Companies Ordinance and governed by
the Code of Practice for the Administration of Insurance Agents (see
6.2.2 below).

6/10
(b) Complaints: proper procedures should be in place to deal with
complaints against insurance agents.

(c) Adequate Support: insurers should ensure that insurance agents
have adequate support to perform their duties efficiently.

(d) Miscellaneous: insurers must not seek to limit their liability for the
actions of their insurance agents and should ensure as far as possible
that the insurance agents act fairly and honestly.

6.1.2e Inquiries, Complaints and Disputes

Insurers should handle inquiries in a fair and timely manner, have in
place documented internal complaint-handling procedures for resolving
complaints by policyholders, and:

(a) comply with the Code of Practice for the Administration of
Insurance Agents (see 6.2.2 below), which provides an external
mechanism for dealing with complaints against insurance agents;
and

(b) participate in the Insurance Claims Complaints Bureau (ICCB)
(see 6.1.4 below), which adjudicates insurance claims disputes
between insurers and individual policyholders.

6.1.3 Guidelines on Complaint Handling

The HKFI has issued the Guidelines on Complaint Handling to
supplement the requirements stipulated in the Code of Conduct for Insurers on the
handling of inquiries, complaints and disputes. The Guidelines apply to complaints
about an insurers provision of, or failure to provide, a service or product. They are
summarised as follows:

6.1.3a Recommended Internal Complaint Handling Procedures

(a) General Principles: The Guidelines lay down general principles for
complaint handling procedures as: comprehensive cover,
transparency and accessibility to customers, ease of use, fairness,
impartiality, consistent approach to provision of redress, flexibility,
simplicity, promptness, efficiency, measurability of performance
standards, and provision of feedback to all the relevant regulatory or
public bodies.

(b) Policies and Procedures: Insurers should have in place
appropriate and effective internal procedures for handling
customer complaints, subjected to management controls. The
procedures should be in writing, and should at least cover:

6/11
receipt of complaints;

response to complaints;

investigation of complaints; and

provision of redress.

(c) Accessibility: Insurers should ensure that customers know where
and how to complain, and that complaints are courteously
received. They should:

publish their internal complaint handling procedures;
provide access to them in each of their offices;
supply them freely to customers upon request;
supply them freely and automatically to complainants;
inform new customers of the availability of the procedures.

(d) Communications: Complainants should be allowed to complain by
any reasonable means, including verbal means. Communications
with complainants should be made in clear and plain language, and
in a language that the complainants desire or use.

(e) Confidentiality: Information relating to complaints including the
complainants identity should be treated as confidential, and access
to it restricted.

(f) Independence and Authority in Handling Complaints

Complaints should not be investigated by an employee who
was directly involved in the matter complained about;

Those responsible for responding to complaints must have the
authority to settle them or have ready access to those who
have it;

Serious matters should be brought to the attention of senior
management.

(g) Redress: Where a complaint is upheld, appropriate redress (e.g.
apology, fair compensation, including compensation for loss of
interest) should be offered.

(h) Resources and Staff Training

Adequate resources should be provided to ensure the
efficiency and effectiveness of the complaint management
system;


6/12
Insurers should ensure that all relevant employees and
registered persons are aware of the procedures and comply
with them. Staff having contact with customers should be
trained in complaints handling.

(i) Monitoring and Audit

Effective procedures should be set up to monitor
complaints and to make regular reports for senior
managements review.

To measure the attainment of the procedures, regular audits
should be conducted by competent and independent staff.
Based on the results of the audits, improvements to the
procedures, where necessary, should be made by competent
staff.

(j) Management Review: Insurers should carry out periodic reviews
of the ability of their complaint management systems to meet
customers' expectations.

(k) Time Limit for Dealing with Complaints: Upon receipt of a
complaint, the insurer should send a written acknowledgement
advising the complainants of:

the name or job title and contact details of the complaint
handler;

expected date of final response to the complaint; and

the internal complaint handling procedures.

(l) Final Response

Insurers are encouraged to give the complainant, no later
than 30 days after receiving the complaint,
(a) a final response, or
(b) the reasons for not being able to make the final response
yet together with the expected date of a final response.

Insurers should consider including in the final response:
(a) the outcome of the investigation,
(b) whether there has been fault on the part of the insurer,
(c) what redress, if any, will be made, and
(d) when the redress will be made.


6/13
6.1.3b External Dispute Resolution

Insurers should inform the complainants of the existence of the
following bodies/regulator to which the complaints could be referred if
they are not satisfied with the insurers response:

Insurance Agents Registration Board;

The Insurance Claims Complaints Bureau; and

Office of the Commissioner of Insurance.

6.1.3c Record Keeping

Insurers should record details of complaints properly, and provide
them to the relevant self-regulatory bodies/regulator upon request.

6.1.4 Insurance Claims Complaints Bureau (ICCB)

The ICCB has a membership of all authorised insurers underwriting
personal insurance in Hong Kong. Its primary objective is to handle insurance
claims complaints from individual policyholders, arising out of personal
contracts with its members.

6.1.4a Composition and Powers

(a) The Insurance Claims Complaints Panel (the Panel) is
appointed by the ICCB to handle complaints. It consists of a
Chairman and four members and is independent in the sense that
the incumbent Chairman is independent of the industry and is
appointed with the prior consent of the Secretary for Financial
Services and the Treasury.

(b) Of the four members on the Panel, two are nominated by the
HKFI, and two from outside the insurance industry (one
representing the legal/accounting profession and the other
representing consumer interests).

(c) No fee is charged to the complainant, whether he wins his case or
not.

(d) The Panel can make an award against an insurer up to
HK$800,000, who has no right of appeal against an award. If the
complainant is unsatisfied with an award, he may, however, seek
legal redress.


6/14
(e) Further points on the powers of the Panel: The Articles of
Association of the ICCB stipulates that the Panel, in making its
ruling, shall have regard to and act in conformity with the terms
of the relevant policy, general principles of good insurance
practice, any applicable rule of law or judicial authority; and any
codes and guidelines issued from time to time by the Hong Kong
Federation of Insurers (HKFI) or the Bureau. In respect of the
terms of the policy contract, these shall prevail unless they would,
in the view of the Complaints Panel, produce a result that is
unfair and unreasonable to the complainant. The gist of these
provisions is that, the Panel, in making a ruling, is given the
power by the ICCB Members to look beyond the strict
interpretation of policy terms.

As far as good insurance practice is concerned, the Panel relies
heavily on the expected standards set out in The Code of Conduct
for Insurers, with particular reference to 'Part III: Claims'. The
first requirement of the section states, Insurers should seek to
handle all claims efficiently, speedily and fairly. As such, as to
whether an insurer has acted fairly in the settlement of claims or
not is subjected to the scrutiny of the Panel.

6.1.4b Terms of Reference

To summarise, the ICCB can only deal with a particular case if:

(a) the complaint is claim-related;

(b) the claim amount does not exceed HK$800,000;

(c) the insurer concerned is an ICCB member;

(d) the policy concerned is a personal insurance policy;

(e) the complaint is filed by a policyholder/beneficiary/rightful claimant
(e.g. an assignee);

(f) the insurer concerned has made its final decision on the claim;

(g) the complaint is filed within 6 months from the date of notification
of the insurers final decision on the claim;

(h) the dispute in question does not arise from commercial, industrial
or third party insurance; and

(i) the claim is not subject to legal proceedings or arbitration.



6/15
6.2 REGULATION OF INSURANCE INTERMEDIARIES IN HONG
KONG

As with insurance companies, the regulation of insurance intermediaries in Hong
Kong is partly by the Government and partly by the industry itself. Obviously, this is an
area of considerable personal and professional interest to all insurance intermediaries. We
shall therefore comment in some detail on specific requirements. Your extra careful
attention is invited to the following sections.

6.2.1 Roles and Responsibilities of Insurance Agents and Brokers

(a) Insurance agent: The ICO prohibits any person from acting as an
insurance agent unless he has become an appointed insurance agent
in accordance with the relevant provisions of the ICO. (Remember that in
law a corporation is a person.)

But what is an insurance agent? In the ICO, a person who holds
himself out to advise on or arrange contracts of insurance in or from Hong
Kong as an agent or subagent [i.e. an agent of an agent] of one or more
insurers is termed an insurance agent.

How to become an appointed insurance agent? To become an
appointed insurance agent, one must get registered with and appointed by
an insurer.

(b) Insurance broker: The ICO prohibits any person from acting as an
insurance broker unless he has become an authorised insurance broker
in accordance with the relevant provisions of the ICO.

But what is an insurance broker within the meaning of the ICO? A
person who carries on the business of negotiating or arranging contracts of
insurance in or from Hong Kong as the agent of the policyholder or
potential policyholder or advising on matters related to insurance is
termed an insurance broker in the ICO.

How to become an authorised insurance broker? To become an
authorised insurance broker, one either has to obtain authorisation from
the Insurance Authority or to become a member of a body of insurance
brokers that has been approved by the Insurance Authority for such
purpose.

(c) No wearing of two hats: The ICO prohibits any person from being an
appointed insurance agent and an authorised insurance broker at the same
time, whether in relation to the same or different clients.



6/16
(d) Further ICO prohibitions:

(i) A proprietor of, or partner in, an insurance agent shall not be a
proprietor or employee of, or partner in, another insurance agent
or an insurance broker.
(ii) An employee of an insurance agent who provides insurance
advice to a policy holder or potential policy holder shall not be a
proprietor or employee of, or partner in, another insurance agent
or an insurance broker.
(iii) A proprietor or employee of, or partner in, an insurance agent
may be a director of another insurance agent or of an insurance
broker only if he does not provide insurance advice to a policy
holder or potential policy holder for the company.
(iv) Where a director of an insurance agent does provide insurance
advice to a policy holder or potential policy holder, he may be a
director of another insurance agent or of an insurance broker only
if he does not provide insurance advice to a policy holder or
potential policy holder for the other company.
(v) A proprietor of, or partner in, an insurance broker shall not be a
proprietor or employee of, or partner in, an insurance agent.

(vi) An employee of an insurance broker who provides insurance
advice to a policy holder or potential policy holder shall not be a
proprietor or employee of, or partner in, an insurance agent.

(vii) A proprietor or employee of, or partner in, an insurance broker
may be a director of an insurance agent only if he does not
provide insurance advice to a policy holder or potential policy
holder for the insurance agent.

(viii) Where a director of an insurance broker does provide insurance
advice to a policy holder or potential policy holder, he may be a
director of an insurance agent only if he does not provide
insurance advice to a policy holder or potential policy holder for
the insurance agent.

Note: Breach of the relevant provisions of the ICO is a serious criminal
offence. For example, claiming to be an insurance broker without
having obtained an authorisation, could result in a fine as much as
HK$1 million and 2 years imprisonment on conviction upon
indictment (or up to HK$100,000 and 6 months imprisonment
on summary conviction).



6/17
6.2.1a Appointed Insurance Agents Relationship with Insurer

The ICO says that an appointed insurance agent (note: it does
not say insurance agent) is the agent of the insurer when dealing with a
third party for (1) the issue of a contract of insurance and (2) insurance
business relating to the contract. What this provision is largely saying is
that whenever someone who is an appointed insurance agent of an
insurer is dealing with a client in respect of (1) or (2) above, he is treated
as having authority to bind the insurer; in other words, the insurer will be
vicariously liable to the client for the agents acts or omissions in the
course of such dealings.

You will recall the common law rule you have learnt in Chapter 2
that the principal is vicariously liable for the agents conduct. But if you
think that the said ICO provision is just repeating this common law rule,
you are missing the essence of the ICO with respect to regulation of
insurance agents.

Before the said provision was enacted, a dispute between an
insured and an insurer as to for whom an insurance intermediary has
acted would have to be adjudicated on the basis of the relevant common
law rules. In the common law, the nub of this issue is best represented by
this question: For whom at the material time was the insurance
intermediary acting in respect of the act which is alleged to have given
rise to a contract or transaction between the insured and the insurer? The
courts would resolve this question on the particular facts of the case and
might possibly hold that the insurance intermediary was an agent of the
insured for the act in question, even if he was at and about the material
time in the business of insurance agency rather than insurance broking.
In other words, this is a question of fact, rather than a question of law.

Now that the said provision has come into effect, when a similar
dispute arises, the insurer will be held vicariously liable for the acts of the
insurance intermediary provided that he was at the material time its
appointed insurance agent and that the acts in question fall within the
scope of (1) or (2) (see the first paragraph of 6.2.1a).


6.2.2 The Code of Practice for the Administration of Insurance Agents (the
Code)

The Code is in seven Parts (A - G) and was issued by the HKFI with the
approval of the Insurance Authority (IA) in accordance with the provisions of the
ICO. It is therefore of considerable legal and professional importance. The
following summary of the Code should be noted carefully.

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6.2.2a PART A: Interpretation

Two matters to note are:

(a) Various definitions for the purposes of the Code, and these Notes,
i.e.

"HKFI" = The Hong Kong Federation of Insurers
"IARB" = the Insurance Agents Registration Board
established by the HKFI to administer
the Code pursuant to Article 48 of its
Amended Articles of Association
"Individual Agent"

=

an Insurance Agent who is an individual,
natural person and who is not registered
as an Insurance Agency
"Insurance
Agency"
= an Insurance Agent operating as an
insurance agency business in the form of
a sole proprietor, a partnership or a
corporation
"Insurance Agent" = a person who holds himself out to advise
on or arrange contracts of insurance in or
from Hong Kong as an agent or subagent
of one or more insurers and for the
purposes of the Code includes: (i) an
Individual Agent; and (ii) an Insurance
Agency; but does not include a
Responsible Officer or a Technical
Representative of an insurance agent
"Line of Insurance
Business"
= (a) General Business (as defined in the
Insurance Companies Ordinance
(ICO));
(b) Long Term (excluding Linked
Long Term) Business (as defined in
theICO);
(c) Long Term (including Linked
Long Term) Business (as defined in
theICO); and/or
(d) Restricted Scope Travel Business
"MPF Code" = the Code of Conduct for MPF
Intermediaries issued by the Mandatory
Provident Fund Schemes Authority
("MPFA"), as amended from time to
time

6/19

"MPF
Intermediary"
= has the meaning assigned to it by the
MPF Code
"Principal" = an insurer to whom Part X of the ICO
applies. However, unless otherwise
stated, persons collectively represented
as a syndicate of Lloyd's should be
treated as one Principal for the purposes
of any insurance business relating to the
syndicate
"Registered
Person"

= a person who has been registered under
clause 15 or 30 of the Code as either:
(a) an Individual Agent;
(b) an Insurance Agency;
(c) a Responsible Officer of an
Insurance Agency; or
(d) a Technical Representative of an
Individual Agent or Insurance
Agency
"Responsible
Officer" in relation
to an Insurance
Agent which is an
Insurance Agency
= a person who, alone or jointly with
others, is responsible for the conduct of
the insurance agency business of such
Insurance Agent, not being a person
who:
(i) is also responsible for the conduct
of other business; and
(ii) has a subordinate responsible for
the whole of the insurance
agency business
"Responsible
Officer" in relation
to an Insurance
Agent which is an
Insurance Agency
formed outside
Hong Kong
= a person who, alone or jointly with
others, is responsible for the conduct of
the whole of the insurance agency
business of such Insurance Agent carried
on within Hong Kong, not being a person
who:-
(i) is also responsible for the conduct
of the insurance agency business
carried on by the Insurance Agent
elsewhere; and
(ii) has a subordinate responsible for
the whole of the insurance
agency business carried on by the
Insurance Agent within Hong
Kong

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"Restricted Scope
Travel Business "
= effecting and carrying out contracts of
travel insurance tied to a tour, travel
package, trip or other travel services
which the same travel agent arranges for
his clients, excluding any annual travel
insurance policies or any travel insurance
policies for tours, travel packages, trips
or other travel services which the travel
agent does not arrange for his clients
"Technical
Representative" in
relation to an
Insurance Agent
= a person (not being an insurance
subagent, who is classified as an
Insurance Agent for the purposes of the
Code) who provides advice to a policy
holder or potential policy holder on
insurance matters for such Insurance
Agent, or arranges contracts of insurance
in or from Hong Kong on behalf of that
Insurance Agent

(b) All words and expressions not defined in the Code carry the
meanings ascribed to them by the ICO. In the event of a conflict
between the Code and theICO, the ICO will prevail and the Code
will be invalid to the extent of any such inconsistency.

6.2.2b PART B: General Principles

(a) Functions of the IARB: subject to any general or specific
directions given to it by the HKFI as to the execution of its functions
under the Code, the IARB may do anything it considers necessary or
desirable for the purposes of implementing and administering the
provisions of the Code. Specifically, the IARB may:

(i) investigate any matters in respect of any application for
registration or renewal of registration of a proposed
Registered Person or Registered Person, or any complaints
against any Registered Person;

(ii) refer any matters or complaints received by it to any
Principal or Registered Person as appropriate for
investigation;

(iii) receive investigation reports from any Principal or Registered
Person relating to any matters or complaints;

(iv) require any Principal or Registered Person to take
disciplinary or other action in respect of a Registered Person;

(v) register Insurance Agents, Responsible Officers and
Technical Representatives as Registered Persons or revoke
such registration; and

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(vi) report to the IA where it appears to the IARB that any
Registered Person, Principal or insurer has breached Part X
of the ICO or the Code, or that any Registered Person is not
or has ceased to be a fit and proper person to be registered as
such.

(b) Guidance Notes: the HKFI/IARB may issue Guidance Notes from
time to time as to how it intends to exercise its powers and fulfil its
responsibilities under the Code.

(c) Interpretation of the Code: the Interpretation and General
Clauses Ordinance shall apply to the construction and interpretation
of the English language text and Chinese language text of the Code,
and the HKFI has the power to determine the meaning of both
versions and to resolve inconsistencies, if any, between them. Its
determination will be conclusive and binding.

6.2.2c PART C: Rules

(a) Confirmation of Appointment of an Insurance Agent by his
Principal or of a Responsible Officer or Technical Representative by
his appointing Insurance Agent must not take place until the IARBs
confirmation is obtained.

(b) Registration of Insurance Agents, Responsible Officers and
Technical Representatives

(i) The IARB, on behalf of the relevant Principal, may, upon
application in the prescribed manner and payment of the
prescribed fee, register an insurance agent as the insurance
agent of that Principal. It may, upon application in the
prescribed manner by an insurance agent and payment of the
prescribed fee, also register a person as a Responsible Officer
or Technical Representative of an insurance agent.

(ii) Each registration will be for a specified period, not
exceeding three years. A Principal may apply for re-
registration of an Insurance Agent, and an Insurance Agent
may apply for re-registration of his Responsible
Officer/Technical Representative, not earlier than 3 months
before the current registration expires. (Note: the appointees
are required to fulfil the fit and proper criteria (see 6.2.2e
below), including the requirement of the Continuing
Professional Development Programme.)


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(iii) The Registered Person has to disclose the registration
number that the IARB assigned to him if so requested, and
identify the number on his business cards, if distributed. He
also has to display his name and registration number on the
name plate put in front of the service desk or counter if he is
registered as engaging in the Restricted Scope Travel
Business and provides face-to-face insurance service at
service desk or counter.

(c) Cancellation of Registration: the appointing Principal or
appointing Insurance Agent, as the case may be, has to notify the
IARB within 7 days of an appointee ceasing to be an appointed
Insurance Agent of the Principal, or a Responsible Officer or
Technical Representative of the Insurance Agent and provide such
details as the IARB may require. When such notification is
received, the relevant registration of the appointee is deemed
cancelled and the IARB has to remove the Insurance Agent from the
relevant part of the register of Insurance Agents or remove the
Responsible Officer or Technical Representative from the relevant
part of the sub-register of Responsible Officers and Technical
Representatives, as the case may be.

(d) Representation of Principals by Insurance Agents is subject to
the following:

(i) A person must not act as or be registered as an Insurance
Agent for more than four Principals of whom no more than
two may be insurers who conduct Long Term Business;

(ii) for the purposes of (i) above, a composite insurer constitutes
two Principals, one general and one long term, unless the
Insurance Agents activities are restricted to either (i) General
Business or Restricted Scope Travel Business or (ii) Long
Term Business;

(iii) for the purposes of (i) above, a group of companies (see
Glossary) constitutes one Principal if their activities are
limited to either (i) General Business or Restricted Scope
Travel Business or (ii) Long Term Business; or two
Principals if their activities include both (i) General Business
or Restricted Scope Travel Business and (ii) Long Term
Business unless the Insurance Agents activities are restricted
to either (i) General Business or Restricted Scope Travel
Business or (ii) Long Term Business;

(iv) for the purposes of (i) above, a group of Lloyd's syndicates
constitutes:

6/23
(1) one Principal if the activities of the syndicates are
limited to either (i) General or Restricted Scope Travel
Business or (ii) Long Term Business;

(2) one Principal if the activities of the syndicates include
both (i) General or Restricted Scope Travel Business
and (ii) Long Term Business, but the insurance agent's
activities are restricted to just one of those activities;

(3) two Principals if the activities of the syndicates include
both (i) General or Restricted Scope Travel Business
and (ii) Long Term Business, and the insurance agent's
activities are not restricted to either (i) General or
Restricted Scope Travel Business or (ii) Long Term
Business.

(v) the Insurance Agent has to obtain the consent of his
Principal(s) prior to accepting an appointment to act as an
Insurance Agent for another Principal.

(vi) Subject to (i)-(iii) above, if a person is registered as an
agent of another Insurance Agent, he is deemed to act for
and has to register to represent all the Principal(s) of the
appointing Insurance Agent. In addition, he is deemed to
engage in and has to register for all appointed Line(s) of
Insurance Business of the appointing Insurance Agent.

(e) Representation of Insurance Agents by Responsible Officers
and Technical Representatives: A person must not act as a
Responsible Officer or Technical Representative for more than one
Insurance Agent.

(f) Obligations of Principals in respect of Insurance Agents: The
Principal has to ensure that the Insurance Agent:

(i) does not, at any one time, act for more than the maximum
number of Principals allowed;

(ii) is eligible to engage in a Line of Insurance Business in
respect of which the Principal is authorised to conduct and in
which he has appointed the Insurance Agent to engage;

(iii) meets the fit and proper criteria set out in the Code;

(iv) has his appointment confirmed by and is registered with the
IARB;



6/24
(v) is appointed as an Insurance Agent of the Principal in
writing by an agency agreement that requires the Insurance
Agent to comply with Part F (Minimum Requirements of
Model Agency Agreement) of the Code (see 6.2.2f below);

(vi) discloses his registration number upon request, and identifies
the number on his business cards, if distributed;

(vii) displays his name and registration number on the name plate
put in front of the service desk or counter if he is registered as
engaging in Restricted Scope Travel Business and provides
face-to-face insurance service at the service desk or counter;

(viii) complies with the Code;

(ix) has registered as an MPF intermediary with the MPFA where
the Insurance Agent also engages in selling or advising on
MPF schemes or their constituent or underlying funds; and

(x) has been licensed as a travel agent under the Travel Agents
Ordinance where the Insurance Agent is registered to engage
in Restricted Scope Travel Business.

(g) Obligations of Insurance Agents in respect of their Responsible
Officers and Technical Representatives: An Insurance Agent has to
ensure that any person acting as its Responsible Officer or Technical
Representative:

(i) does not, at any one time, act for more than one Insurance
Agent;
(ii) meets the fit and proper criteria for Registered Persons set
out in the Code;
(iii) is eligible to engage in a Line of Insurance Business in which
the Insurance Agent is eligible to engage;
(iv) has his appointment confirmed by and is registered with the
IARB;
(v) discloses his registration number upon request, and identifies
the number on his business cards, if distributed;
(vi) displays his name and registration number on the name plate
put in front of the service desk or counter if he is registered as
engaging in Restricted Scope Travel Business and provides
face-to-face insurance service at the service desk or counter;
and

(vii) complies with the Code.

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(h) Obligations of Responsible Officers: a Responsible Officer of an
Insurance Agent has to ensure that all Technical Representatives of
that Insurance Agent comply with the Code.

(i) Training of insurance agents has to be sufficiently provided by the
Principal so that a reasonable person receiving such training
would:

(i) be familiar with the requirements of the ICO and the Code;
and

(ii) be able to competently undertake the duties of an Insurance
Agent in accordance with the requirements of the ICO and
the Code.

(j) Training of Responsible Officers and Technical Representatives
has to be sufficiently provided by the Insurance Agent so that a
reasonable person receiving such training would:

(i) be familiar with the requirements of the ICO and the Code;
and

(ii) be able to competently undertake the duties of a Responsible
Officer or Technical Representative, in accordance with the
requirements of the Code.

6.2.2d PART D: Procedures

(a) The IARB has to maintain a register of Insurance Agents, and a sub-
register of Insurance Agents Responsible Officers and Technical
Representatives, whose appointments it has confirmed. The register
and sub-register have to be kept in a manner and form determined
by the IA and be available for public inspection at any time at the
website of the HKFI or during normal working hours at the HKFI's
registered office.

(b) Applications for confirmation of appointment and registration of
Registered Persons are in substance subject to the following:

(i) an application for registration as an Insurance Agent has to
be submitted by the relevant Principal, and an application for
registration as a Responsible Officer or Technical
Representative has to be submitted by the appointing
Insurance Agent;

(ii) they have to be in a manner and form prescribed by the
IARB;

(iii) the appointing Principal or the appointing Insurance Agent,
and the applicant, have to provide to the IARB such
additional, relevant information as the IARB may require;


6/26
(iv) the IARB is not required to consider an application unless it
is made in the prescribed manner and form, it is complete and
the information requested has been provided in full;

(v) if the appointing Principal or the appointing insurance agent
becomes aware of any changes in the circumstances of an
applicant who is the subject of a pending application which
may potentially affect the IARB's consideration of the
application, they have to notify the IARB forthwith of such
changes;

(vi) the applicant has to satisfy the IARB that he is fit and
proper to be or continue to be registered as a Registered
Person and, unless the IARB is so satisfied, it must not
confirm the appointment of the applicant as a Registered
Person.

(c) Procedures for Determining Fitness and Properness of
Registered Persons and Complaints against Registered Persons.

If the IARB becomes aware of any matter or complaint which may
involve a breach of the Code or render a Registered Person not fit
and proper to remain appointed and registered as a Registered
Person:

(i) the IARB may investigate the matter or complaint or refer it
to any Principal or Registered Person for investigation;

(ii) if the matter or complaint is referred to a Principal or
Registered Person for investigation, the Principal or the
Registered Person has to diligently and expeditiously
investigate the matter or the circumstances of the complaint,
and, if so requested by the IARB, report the progress and
findings of the investigation within 14 days of the date of
referral or such further period as may be specified by the
IARB. The IARB may request the Principal and/or the
Registered Person to conduct further inquiries;

(iii) if the IARB considers that it will likely take disciplinary or
other action if the matter or complaint is proven, it has to
provide (i) the respondent to whom the matter or complaint
relates and (ii) any Principal or appointing Insurance Agent
who will likely be adversely affected by such action, with an
opportunity to make representations in such a manner and
form as it considers appropriate and within 14 days or such
further period as it may specify, and the IARB has to consider
such representations;


6/27
(iv) when all representations concerning the matter or
complaint have been considered by the IARB and it is of
the view that either there has been a breach of the Code or
the matter at issue renders the respondent not fit and proper
to be or continue to be registered as a Registered Person, it
may take disciplinary or other action in the manner set out
in (v) below and/or require the Principal or any Registered
Person (including the respondent's appointing Insurance
Agent) to take disciplinary or other action in the manner
set out in (v) below;

(v) disciplinary or other action may include:

(1) issuing a reprimand to the relevant respondent ;

(2) suspending or terminating the appointment of the
relevant respondent;

(3) taking or refraining from taking such other action
(including refunding premiums paid by persons
affected by the conduct of the relevant respondent) as
the IARB thinks fit;

Any respondent whose appointment has been terminated in
these circumstances will have their registration cancelled
and will be barred from appointment and registration as an
Insurance Agent, a Responsible Officer or Technical
Representative for a period specified by the IARB;

(vi) when taking disciplinary or other action and/or when
requiring any Principal or Registered Person (including the
respondent's appointing Insurance Agent) to take
disciplinary or other action, the IARB has to serve upon:

(1) any party who is the subject of disciplinary or other
action; and

(2) any Principal or Registered Person (including the
respondent's appointing Insurance Agent) required to
take or otherwise likely to be adversely affected by
disciplinary or other action;

a notification of the disciplinary or other action and a
statement of the grounds thereof;



6/28
(vii) if a relevant Principal and/or Registered Person (including
the respondent's appointing Insurance Agent) fails to comply
with a requirement to take disciplinary or other action, the
IARB may report such failure to the IA and impose a further
requirement by way of disciplinary or other action on the
Principal or Registered Person (including the respondent's
appointing Insurance Agent) who has failed to comply; and

(viii) Registered Persons and Principals have to comply with any
directions issued by the IARB in connection with the conduct
of investigations or proceedings carried out in accordance
with the abovementioned procedures. The IARB may, in its
discretion, vary the procedures in any particular case where it
considers it appropriate to do so.

(d) The Code provides for an Appeals Tribunal, which is to determine
appeals against the IARBs decisions, in respect of which the
following apply:

(i) its decisions shall be final;

(ii) its members shall be persons (not being members of the
IARB) nominated by the HKFI and confirmed by the IA;

(iii) an appeal lies in the following circumstances;

(1) Where the IARB refuses to confirm an application for
registration under the Code, the applicant will be
entitled to appeal to the Appeals Tribunal; and

(2) Where the IARB determines to impose disciplinary or
other action under the Code, the party who is the
subject of the disciplinary or other action will be
entitled to appeal to the Appeals Tribunal;

(iv) any decision of the IARB which is subject to a right of
appeal will take effect 14 days after the party with a right of
appeal has been notified of the decision;

(v) any party with a right of appeal in respect of a decision of the
IARB may apply to it for a stay of the decision pending the
outcome of their appeal, which application may be granted at
its discretion. If an application for a stay is made prior to the
decision taking effect, the decision will not take effect until it
has determined the stay application. If an application for a
stay is made after the decision has taken effect, the decision
will continue in effect pending determination of the
application and the IARB, in deciding whether to grant a
stay, will consider whether a stay is reasonable and
practicable in the circumstances;

6/29
(vi) the Appeals Tribunal may determine its own procedures, but
otherwise an appeal has to be conducted and determined in
accordance with the Appeals Tribunal Proceedings Rules;

(vii) the Appeals Tribunal may confirm, vary or reverse the
IARB's decision being appealed or substitute such other
decision, consistent with the powers of the IARB, as it thinks
fit.

(e) Reports to the IA may be made by the IARB on any matters
concerning a complaint or an investigation under the Code, and such
disclosures if made in good faith will not incur any liability for the
IARB or its members towards any person concerned.


6.2.2e PART E: Fit and Proper Criteria for Registered Persons

(a) In considering whether a person is fit and proper to be or continue to
be registered as a Registered Person, the IARB may take into
account:

(i) whether that person has ever been declared bankrupt;

(ii) whether that person has ever been a controller, a director, a
company secretary or a senior manager of a corporation that
has become insolvent in Hong Kong or elsewhere;

(iii) whether the person has acquired educational or other
qualifications commensurate with his proposed
responsibilities or responsibilities as a Registered Person;

(iv) whether the person has ever been convicted of any criminal
offence in Hong Kong or elsewhere which may affect his
fitness, suitability or properness to be registered as a
Registered Person;

(v) whether the person has ever been found guilty of misconduct
in a profession, trade or industry to which he belongs or has
belonged;

(vi) whether the person has ever been subject to any order of the
court or other competent authority in Hong Kong or
elsewhere for fraud, dishonesty or misfeasance

(vii) whether the person has failed to conduct insurance agency
business in a manner complying with Part F: Minimum
Requirements of Model Agency Agreement, and Part G:
Conduct of Registered Persons (see 6.2.2f and 6.2.2g below),
of the Code, and/or the rules of the HKFI;

6/30
(viii) whether the person is or has ever been found not to have
complied with or to be in breach of this Code and/or the rules
of the HKFI;

(ix) whether the person possesses the qualifications specified in
clauses 61 to 70 (Minimum Qualifications for Persons to be
registered as Registered Persons) of the Code (see (d)
below);

(x) whether the person has been registered as an MPF
intermediary with the MPFA where the person is engaged in
selling or advising on Mandatory Provident Fund schemes or
their constituent or underlying funds;

(xi) if the person is or has been an MPF intermediary, whether
the person is found not to have complied with or is in breach
of the MPF Code;

(xii) in case where the person is a company, partnership or sole
proprietorship, whether the person has taken adequate
measures to ensure that each of its directors and employees,
as appropriate:

(1) has registered as an MPF intermediary with the
MPFA; and

(2) complies with the requirements as specified in the
MPF Code

where the director or employee is engaged in selling or
advising on Mandatory Provident Fund schemes or their
constituent or underlying funds; and

(xiii) such other matters as the IARB considers relevant in the
circumstances.

(b) The IARB may consider a person not fit and proper to be or continue
to be registered as a Registered Person if:

(i) his appointment as a Registered Person was terminated by a
Principal or appointing insurance agent pursuant to a
requirement imposed by the IARB or the IA; or

(ii) in the opinion of the IARB, by his words or actions, he has
manifested a material lack of understanding of the duties and
ethical responsibilities of a Registered Person.

(c) The IARB may consider a person not fit and proper to be or continue
to be registered as an insurance agent if:


6/31
(i) its appointed Responsible Officers or any of its Technical
Representatives would not be considered fit and proper to act
as an insurance agent if he applied as an individual; or

(ii) any of its controllers or directors would not be considered fit
and proper to act as an insurance agent if he applied as an
individual. For the purposes of this sub-clause, the
requirements specified in clauses 61(b) to (d) (see (d)(i)(2)-
(4) below) and 70 (see (d)(iii) below) of the Code are not
applicable to any controller or director not being an insurance
agent, a Responsible Officer or Technical Representative.

(d) Minimum Qualifications

(i) Minimum qualifications for a fit and proper Registered
Person are that:

(1) he has attained the age of 18;

(2) he is a Hong Kong Permanent Resident or Hong
Kong Resident whose employment visa conditions, if
any, do not restrict him from acting as an Insurance
Agent, a Responsible Officer or a Technical
Representative;

(3) he has completed education to a level of Form 5 or
equivalent unless he has been exempted under the
criteria specified in the Code;

(4) he has successfully passed the relevant papers of the
Insurance Intermediaries Qualifying Examination
(IIQE) recognised by the IA, unless he has been
exempted under the criteria specified in the Code;

(Note: an Insurance Agency is only eligible to engage
in the Line(s) of Insurance Business in which its
Responsible Officer is eligible to engage.)

and

(5) he complies with such rules and policies as may be
prescribed by the IA or the HKFI as applicable to him
from time to time.

(ii) A persons non-engagement in insurance-related work in the
insurance industry in Hong Kong for two consecutive years
after passing any of the papers will nullify the recognition of
his qualification in respect of such paper(s).

(iii) All Registered Persons have to comply with the requirements
of the Continuing Professional Development Programme in
such manner and form as specified by the IA.

6/32
6.2.2f PART F: Minimum Requirements of Model Agency Agreement

To appoint an Insurance Agent, a Principal has to do so under a
written agency agreement that meets the minimum requirements of a
model agency agreement adopted by the HKFI. The model agency
agreements, for selling long-term insurance and general insurance
respectively, are published on the HKFIs website. The minimum
requirements of these model agency agreements will be inclusion of the
Conduct of Registered Persons.

6.2.2g PART G: Conduct of Registered Persons

(a) Conduct of Registered Persons for General Insurance Business
and Restricted Scope Travel Business

(i) Business is to be conducted at all times in good faith and
with integrity.

(ii) The Registered Person has to co-operate with the IARB and
the Principal or Insurance Agent concerned to establish the
facts if there is a complaint concerning his conduct. The
complainant has to be informed that he should in the first
instance refer the complaint to the relevant Principal or
Insurance Agent. If the complainant is still dissatisfied, he
may refer the matter to the IARB.

(iii) The Registered Person should:

(1) ensure that he is registered with the IARB in respect of
the Line of Insurance Business to be engaged in prior
to conducting such business;

(2) before discussing insurance policies with any person,
identify himself as a Registered Person acting on
behalf of the Principal(s) or Insurance Agent he
represents;

(3) disclose his registration number upon request, and
identify the number on his business cards, if
distributed;

(4) display his name and registration number on the name
plate put in front of the service desk or counter if he is
registered as engaging in Restricted Scope Travel
Business and provides face-to-face insurance service
at the service desk or counter;


6/33
(5) give advice only where he is competent to do so or
seek advice from his Principal(s) or appointing
Insurance Agent when necessary;

(6) explain the policy cover recommended to ensure that
the potential policy holder understands what he is
buying;

(7) explain the specific differences to which he is
referring when making comparisons with other types
of policies;
(8) treat all information supplied by a potential policy
holder as confidential and disclose it only to the
Principal(s) or appointing Insurance Agent concerned,
and otherwise comply at all times with the Personal
Data (Privacy) Ordinance when dealing with personal
data provided by a potential or current policy holder;

(9) not make inaccurate or misleading statements about
any Principals or appointing Insurance Agent, or their
policies, or any other intermediaries;

(10) not make any charge additional to the premium
without disclosing to the policy holder, before the
policy becomes binding, the amount and purpose of
such charge; and

(11) not pay any part of any commission or discount
allowed to him to any partner, director or employee of
any insured as an inducement to place the business
with the Principal or appointing insurance agent, or
assist any other Registered Person to make such a
payment, unless prior written agreement and
approval of the payment by the insured is received.

(iv) When assisting with the completion of a proposal or
application, the Registered Person has to:

(1) refrain from influencing the potential policy holder,
and make it clear that the answers or statements given
are the latter's own responsibility; and

(2) explain to the potential policy holder the
consequences of fraud, non-disclosure and
inaccuracies, drawing his attention to the relevant
statements on the form.



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(b) Conduct of Registered Persons for Long Term Business

Many of the requirements for Registered Persons of Long Term
Business are identical with those indicated above. We shall not
repeat these, but make appropriate reference. Take special note,
however, of differences. Also please note that the sub-divisions
given below may not always correspond with those in the actual
Model Agreement (which should be referred to for full
understanding).

(i) as with (a)(i) above;

(ii) as with (a)(ii) above;

(iii) (1) as with (a)(iii)(1) above;

(2) as with (a)(iii)(2) above;

(3) as with (a)(iii)(3) above;

(4) as with (a)(iii)(5) above;

(5) as with (a)(iii)(6) above;

(6) as with (a)(iii)(8) above;

(7) as with (a)(iii)(9) above;

(8) as with (a)(iii)(10) above;

The following are requirements exclusive to Long Term Business
Registered Persons:

(9) make every reasonable effort to ensure that the
proposed policy is suitable to the needs and
resources of the potential policy holder as disclosed
to the Registered Person;

(10) explain the specific differences to which he is
referring when making comparisons with other types
of policies or forms of investment;

(11) not make inaccurate or misleading statements or
comparisons to induce an insured to replace existing
long term insurance with other long term insurance to
the insured's disadvantage;



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(12) not pay or offer to pay any rebate of premium,
commission or other incentive not specified in the
policy as an inducement to any potential long term
insurance policyholder unless specifically authorised
by a Principal; and

(13) comply with the requirements as specified in the MPF
Code where he engages in selling or advising on MPF
schemes or their constituent or underlying funds.

(iv) as with (a)(iv)(1) and (2) above;
(v) When selling policies related to long term business, the
Registered Person has to:
(1) explain the long term nature of the policy and the
consequences of early discontinuance and/or
surrender;
(2) explain the specific difference between guaranteed
and projected benefits in the case of an investment-
linked or participating policy;
(3) where projected benefits are illustrated, explain the
assumptions on which illustrations are based,
including any future bonus or dividend declaration,
and that projected benefits are not guaranteed;
(4) explain that any future dividends or bonuses with
participating (or with-profit) policies may be higher
or lower than those currently quoted, and that past
performance may not be a guide to future
performance;
(5) explain with linked long term business that the unit
value and the value of the policyholder's benefits
may fluctuate;
(6) unless specifically authorised by a Principal or
appointing Insurance Agent, use only sales proposals
and illustrative figures supplied by the Principal or
appointing Insurance Agent and has to use the whole
relevant illustration in respect of the policy being
discussed without adding to it or selecting only its
most favourable aspects;
(7) when authorised to prepare illustrations himself, use
only the assumptions authorised by the Principal or
appointing Insurance Agent.

Part G of the Code also prohibits the Registered Person from acting as an
authorised insurance broker or as the Chief Executive or Technical
Representative of an authorised insurance broker.

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6.2.2h Guidance Notes

As said, the HKFI/IARB may issue Guidance Notes from time to
time as to how it intends to exercise its powers and fulfil its responsibilities
under the Code of Practice for the Administration of Insurance Agents.
Below are summaries of the prevailing Guidance Notes that have been
issued under the Code. The full text of the Guidance Notes can be found
on the website of the HKFI.

(a) Guidelines on Misconduct (IARB GN4)

(i) Background

This Guidance Note is intended to help both insurers and
insurance agents comply with the Code and in particular Part
F of the Code. The phrase in good faith and with integrity
used in this Part cannot have a fully defined meaning;
however, it is clear that it is in the best interests of customers,
insurance agents and Principals to set out, from time to time,
certain guidelines which if followed, will provide comfort to
all concerned that all possible steps are being taken to
conduct business in good faith and with integrity. Failure to
comply may constitute a breach of the Code by either a
Principal/an insurance agent under Part C or an insurance
agent under Part F.

(ii) On no account will insurance agents ask customers to
sign blank or incomplete forms and any alterations to
forms must be initialled by the customers

In order to protect the insuring public against potential losses
arising from misrepresentation or forgery, insurance agents
should not request their prospective customers and/or clients
to sign blank forms or sign any documents relating to the
policy before they have been duly completed and any
alteration should be initialled by the customer.

(iii) An insurance agent selling a life assurance policy shall
ensure that the prescribed Customer Protection
Declaration (CPD) form is completed

It is an insurance agent's duty to present each policy with
complete honesty and objectivity. In the case where the
client is already a policyholder, this means that full and fair
disclosure of all facts regarding both the new cover and the
existing insurance is necessary. Policyholders should be
made fully aware of the estimated cost of replacing an
existing policy. In selling a life insurance policy, insurance
agents have to duly complete the Customer Protection

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Declaration (CPD) form as prescribed by the HKFI from
time to time and bring its contents to the attention of the
customer.

(iv) Principals must establish control procedures to monitor
insurance agents compliance with the Code

Principals will take all necessary steps to satisfy themselves
that insurance agents are complying with the Code and with
any Guidance Notes issued (as required by Part C).

(b) Guidelines on Handling of Premiums (IARB GN5)

(i) Background

This Guidance Note is intended to help both insurers and
insurance agents comply with the Code and in particular Part
F of the Code which stipulates that an insurance agent shall
at all times conduct business in good faith and with integrity.
Failure to comply may constitute a breach of the Code by
either a Principal/an insurance agent under Part C or an
insurance agent under Part F.

(ii) Handling of Premiums

Customers will want to pay their premiums in a variety of
ways, including cash, credit card, cheque and bank transfer.
It is up to the Principal to decide which methods are
acceptable, but the following methods are recommended:

Cheque in favour of the Principal; or

Credit card/direct deposit/bank transfer from the customer's
account to the Principal.

Any other method of payment or credit facilities extended to
an insurance agent should be subject to clear rules set out by
the Principal designed to avoid the mixing of customers
money with insurance agents' personal funds.



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(c) Guidelines on the Effective Date of Registration of Insurance
Agents, Responsible Officers and Technical Representatives
(IARB GN6)

(i) Background

This Guidance Note is intended to help both insurers and
insurance agents comply with the Code and in particular Part
C of the Code, which stipulates that the appointment of
insurance agents, Responsible Officers and Technical
Representatives shall be confirmed in accordance with the
Code.

(ii) Provisions of the Guidance Note

No prospective or current insurance agents, their Responsible
Officers or Technical Representatives shall hold themselves
out as engaging in the insurance agency business relating to a
Principal before the IARB confirms their relevant
registrations in writing by way of a Notice of Confirmation
of Registration.

A prospective or current insurance agent must take note that
it may be an offence under Section 77 of the ICO to hold
himself out as an insurance agent of a Principal before he is
registered by the IARB. Therefore, no person shall act or
hold himself out as an insurance agent for and on behalf of
any prospective appointing Principal before the date
specified by the IARB in the Notice of Confirmation of
Registration. Any breach may render that person liable to
criminal prosecution for an offence under Section 77 of the
ICO.

A prospective or current Responsible Officer or Technical
Representative of an insurance agent should also take note
that it may be a breach of the Code for him to hold himself
out as the Responsible Officer or Technical Representative of
such insurance agent before he is registered by the IARB.
Therefore, no person shall be a Responsible Officer or
Technical Representative of any prospective appointing
insurance agent before the date specified by the IARB in the
Notice of Confirmation of Registration. Any breach may
affect the fitness and properness of the Responsible Officer,
Technical Representative or insurance agent concerned.



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(d) Guidance Note on Compliance with the Requirements of the
Continuing Professional Development (CPD) Programme
(IARB GN7)

(i) Background

Part E of the Code stipulates that a Registered Person (RP)
should comply with the CPD requirements in such manner
and form as specified by the Insurance Authority (IA). This
Guidance Note aims to assist RPs to comply with the annual
CPD requirements. Those RPs who are registered as
engaging in Restricted Scope Travel Business only should
instead refer to the Guidance Note on Compliance with the
Requirements of the Continuing Professional
Development (CPD) Programme for Registered Persons
Who are Registered as Engaging in Restricted Scope
Travel Business (RSTB) Only.

For the purposes of this Guidance Note, any reference to
RP(s) should include insurance agent(s), responsible
officer(s) and technical representative(s).

(ii) CPD Requirements

The IA has specified that except for travel insurance agents,
their responsible officers (ROs) and technical
representatives, all RPs are required to earn 10 CPD hours
every year. Subject to compliance with other fitness and
properness criteria, the IARB should deem an RP having
complied with the CPD requirements as qualified for
maintaining his registration status for another 12 months if
he completes all 10 CPD hours for the assessment year
within that assessment year.

(iii) CPD Assessment

The Guidance Note details how RPs compliance with the
CPD requirements is assessed. It is important for RPs to get
familiar with the relevant provisions.

(iv) Maintaining CPD records and Monitoring CPD
Compliance

The Guidance Note lays down responsibilities of RPs,
insurance agents who have appointed TRs and all insurers to
maintain CPD records. It also lays down responsibilities of
insurance agents who have appointed TRs and all insurers to
monitor CPD compliance.

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(v) Consequence of Non-Compliance

In circumstances where an RP fails to meet the CPD
requirements, his registration should be revoked for 3 months
as a starting point by the IARB. Such RP should be required
to complete all outstanding CPD hours at the time of re-
registration.

In circumstances where an RP makes a false declaration in
reporting his CPD hours, his registration should be revoked
for 12 months as a starting point by the IARB. Such RP
should be required to complete all outstanding CPD hours at
the time of re-registration.

In circumstances where an RP fails to respond to a request of
the IARB to produce proof of compliance with the CPD
requirements, his registration should be revoked for a
specified period of time as determined by the IARB. The
future application for registration of such RP will not be
processed unless he can produce proof of compliance.

(e) Guidance Note on Restricted Scope Travel Business (IARB
GN9)

(i) Background

This Guidance Note aims to:

(1) provide waiver for a person who has not completed
education to a level of Form 5 or equivalent but wishes
to be registered with the IARB in order to be engaged in
Restricted Scope Travel Business only (the Applicant);
and

(2) facilitate the identification of the registration status of
insurance agents, Responsible Officers and Technical
Representatives engaging in Restricted Scope Travel
Business.

(ii) Waiver of Requirement for Form 5 or Equivalent
Education

This Guidance Note waives the requirement for Form 5 or
equivalent education as stipulated under clause 61(c) of the
Code in favour of an Applicant who complies with prescribed
criteria under the Guidance Note. Nevertheless, such a
waiver is no longer available to new applicants as the time
limits imposed by the Guidance Note have expired. Apart
from the requirements specified in Clause 61(c), the

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Applicant should meet the Minimum Qualifications for
Persons Acting as Insurance Agents specified in the Code.

Unless and until the Applicant has been successfully
registered with the IARB, he should not be engaged in
Restricted Scope Travel Business.

Should the Applicant wish to be engaged in any other lines of
business other than Restricted Scope Travel Business, he
should fulfil all the requirements specified in the Code,
including Clause 61(c).

(iii) Identification of the Registration Status of Insurance
Agents, Responsible Officers and Technical
Representatives Engaging in Restricted Scope Travel
Business

The IARB may consider a person not fit and proper to act or
continue acting as an insurance agent, a Responsible Officer
or a Technical Representative engaging in Restricted Scope
Travel Business, who provides face-to-face insurance service
at service desks or counters, if he does not show his name and
registration number, whether printed or in handwriting, on
receipts for premium on travel insurance directly arranged by
him for his clients.

(f) Guidance Note on Compliance with the Requirements of the
Continuing Professional Development (CPD) Programme for
Registered Persons Who are Registered as Engaging in
Restricted Scope Travel Business (RSTB) Only (IARB
GN10)

(i) Background

Part E of the Code stipulates that a Registered Person (RP)
should comply with the CPD requirements in such manner
and form as specified by the IA. This Guidance Note aims to
assist RPs who are registered as engaging in RSTB only to
comply with the annual CPD requirements. Those RPs who
engage in other line(s) of business should refer to the
Guidance Note on Compliance with the Requirements of
the Continuing Professional Development (CPD)
Programme.

For the purposes of this Guidance Note, any reference to
RP(s) should include insurance agent(s), responsible
officer(s) and technical representative(s).

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(ii) CPD Requirements

The IA has specified that: From 1 August 2008 onwards,
travel insurance agents, their responsible officers and
technical representatives are required to earn 3 CPD hours
every year.

Subject to compliance with other fitness and properness
criteria, the IARB should deem an RP who is registered as
engaging in RSTB only having complied with the CPD
requirements under Part E of the Code as qualified for
maintaining his registration status for another 12 months if he
completes all 3 CPD hours for the assessment year within
that assessment year.

(iii) CPD Assessment

The Guidance Note details how RPs compliance with the
CPD requirements is assessed. It is important for RPs to get
familiar with the relevant provisions.

(iv) Maintaining CPD records and Monitoring CPD
Compliance

The Guidance Note lays down responsibilities of responsible
officers (ROs), technical representatives (TRs), insurance
agents who have appointed TRs and all insurers to maintain
CPD records. It also lays down responsibilities of insurance
agents who have appointed TRs and all insurers to monitor
CPD compliance.

(v) Consequence of Non-Compliance

In circumstances where an RP fails to meet the CPD
requirements, his registration should be revoked for 3 months
as a starting point by the IARB. Such RP should be required
to complete all outstanding CPD hours at the time of re-
registration.

In circumstances where an RP makes a false declaration in
reporting his CPD hours, his registration should be revoked
for 12 months as a starting point by the IARB. Such RP
should be required to complete all outstanding CPD hours at
the time of re-registration.

In circumstances where an RP fails to respond to a request of
the IARB to produce proof of compliance with the CPD
programme, his registration should be revoked for a specified
period of time as determined by the IARB. The future
application for registration of such RP will not be processed
unless he can produce proof of compliance.

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(g) Guidance Note Applicable to Registered Persons Wishing to
Engage/Continue to Engage in Investment-linked Long Term
(ILLT) Insurance Business on or after 1 March 2010 (IARB
GN11)

(i) Background

This Guidance Note aims to assist Registered Persons (RPs)
to comply with the requirements to engage in ILLT insurance
business from 1 March 2010, on which date the enhanced
Paper V - ILLT Insurance Examination Paper (enhanced IL
Paper) under the Insurance Intermediaries Qualifying
Examination (IIQE) came into effect.

For the purposes of this Guidance Note, any reference to
RP(s) should include insurance agent(s), responsible
officer(s) (RO(s)) and technical representative(s) (TR(s)).

(ii) Contents

This Guidance Note sets out the requirement to pass the
enhanced IL Paper in order to be registered as engaging in
ILLT insurance business on or after 1 March 2010 and the
conditions for exemption from such requirement. It details
the transitional arrangements for RPs who were registered as
engaging in this line of business immediately before that date
(referred to in the Guidance Note as Serving Practitioners).
Serving Practitioners may choose to pass the enhanced IL
paper or comply with the additional CPD requirement of 20
extra hours, dedicated towards the additional modules of the
enhanced IL Paper, during the 2-year transitional period
commencing 1 March 2010. The transitional period expired
on 29 February 2012.

6.2.3 Minimum Requirements Specified for Insurance Brokers

These Minimum Requirements are as specified under Part X of the ICO
which brought into the regulatory regime a framework for the supervision of the
self-regulation by the insurance industry of insurance agents and brokers.

It is worth repeating at this stage the statutory definition of an insurance
broker:

a person who carries on the business of negotiating or arranging
contracts of insurance in or from Hong Kong as the agent of the
policyholder or potential policyholder or advising on matters related to
insurance.


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Persons falling within this definition must have either:

(a) obtained authorisation from the Insurance Authority (IA); or

(b) become a member of a body of insurance brokers approved by the IA.

6.2.3a Minimum Requirements Specified by the IA

These requirements are for (see also 6.2.3d):

(a) qualifications and experience;
(b) capital and net assets;
(c) professional indemnity insurance;
(d) keeping of separate client accounts;
(e) keeping proper books and accounts;

and that the applicant insurance broker is fit and proper to be an
insurance broker and that, in the case of the applicant body of insurance
brokers, the applicant body has adequate rules and regulations to ensure that
its members are fit and proper to be insurance brokers.
Note: 1 The IA has published guidelines to assist compliance with
the requirements of the ICO and, in particular, the minimum
requirements as specified by the IA. Failure to comply with these
guidelines may result in a person or body of insurance brokers not
being authorised/approved or having their authorisation/approval
withdrawn, as the case may be.

2 In certain cases, an insurance product will constitute a
collective investment scheme under the Securities and Futures
Ordinance, and therefore has to be authorised by the Securities and
Futures Commission (SFC) before it can be offered to the public
in Hong Kong.

6.2.3b Authorisation of Insurance Brokers

(a) The applicant can be a sole proprietor (individual person), a
partnership or alimited company.

(b) At the time of application for authorisation and any subsequent
renewal of authorisation, the IA has to be satisfied that the
applicant has complied and has continued to comply with all
relevant statutory provisions and, among others, the said minimum
requirements.

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(c) The applicant has to satisfy the IA that he is and will continue to be
fit and proper to be authorised as an insurance broker. The
applicant has to appoint a Chief Executive (CE). The CE has to
be fit and proper and has to meet the minimum requirements of
qualifications and experience as specified by the IA.

6.2.3c Approval of Bodies of Insurance Brokers

(a) The applicant has to satisfy the IA that it has complied and has
continued to comply with all relevant statutory provisions;

(b) That it has maintained appropriate rules and regulations for its
members to comply with the said minimum requirements; and

(c) The rules and regulations have to include eligibility of membership,
membership rules, code of conduct for members and disciplinary
procedures.

6.2.3d Specifics of the Minimum Requirements

(a) Qualifications and Experience

An insurance broker or the CE nominated by him is required to
have a minimum education standard of Form 5 or equivalent and
be aged 21 or above. Besides being Hong Kong Permanent
Residents or Hong Kong Residents whose employment visa
conditions, if any, do not prohibit engagement in insurance broking
business, they also have to have:

(i) any of the acceptable insurance qualifications specified in
the Minimum Requirements and a minimum of two years'
experience in the insurance industry occupying a
management position. In addition, if any of them intends to
engage in the long term (including linked long term)
insurance broking business, they have to have passed the
Investment-linked Long Term Insurance Paper of the IIQE,
unless exempted under the criteria specified in the
Minimum Requirements.

(ii) if they have none of those acceptable insurance
qualifications, a minimum of five years' experience in the
insurance industry of which at least 2 years is at
management position and passed the relevant papers of the
IIQE unless exempted under the criteria specified in the
Minimum Requirements.

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As regards a Technical Representative of an insurance broker,
besides being a Hong Kong Permanent Resident or a Hong Kong
Resident/a person who is permitted to work in Hong Kong and
whose employment visa conditions, if any, do not prohibit
engagement in insurance broking business, he must:

(i) have attained the age of 18;

(ii) have the minimum education standard of Form 5 or
equivalent unless exempted under the criteria specified in
the Minimum Requirements; and

(iii) have passed the relevant papers of the IIQE as if he was an
insurance broker unless he has an acceptable insurance
qualification specified in the Minimum Requirements or
has been exempted under the criteria specified in the
Minimum Requirements.

A person who met the relevant requirements of qualifications by
passing the relevant papers of the IIQE and became an authorised
insurance broker or a registered Chief Executive or Technical
Representative of an insurance broker, but who later ceased to
engage in insurance-related work in the insurance industry in Hong
Kong for two consecutive years, must pass the relevant papers
again before being authorised/registered again, unless exempted
under the criteria specified in the Minimum Requirements.

An insurance broker, his CE or Technical Representatives have to
comply with the requirements of the Continuing Professional
Development Programme in such manner and form as specified by
the IA.

(b) Capital and Net Assets

The requirements are:

(i) Unincorporated insurance broker has to maintain in his
insurance broking business a minimum net assets value of
HK$100,000 at all times.

(ii) Incorporated insurance broker has to at all times maintain
a minimum net assets value of HK$100,000 and a minimum
paid-up share capital of HK$100,000.

(iii) Determining minimum net assets is by excluding all
intangible assets (e.g. goodwill) and using accounting
principles generally accepted in Hong Kong.

6/47

(c) Professional Indemnity Insurance has to be maintained, each of
whose limits of indemnity per claim and per insuranceyear has to
be at least the greater of:

(i) two times the aggregate insurance brokerage income
relating to the 12 month period immediately before the date
of commencement of the professional indemnity insurance
(but the projected insurance brokerage income for the 12
month insurance period if in business for less than one
year); and

(ii) HK$3 million;

but no more than HK$75 million is required.

In the event that the limit of indemnity available is reduced as a
result of a claim to an amount below that determined in (i) above,
the insurance broker is required to have the cover reinstated to a
level not below the minimum determined limit. On the other
hand, where the limit of indemnity has been determined in
accordance with (ii) above, the policy has to provide for one
automatic reinstatement to a limit of indemnity of not less than
HK$3 million.

(d) Keeping of Separate Client Account in accordance with the
following:

(i) The client account has to be so designated and held for the
client.

(ii) Client monies must only be used for the purposes of the
client.

(iii) The client account means a current or deposit account
maintained in the name of the insurance broker with a
financial institution duly authorised under the Banking
Ordinance, the title of which contains the word client.

(iv) The insurance broker has to keep at least one client account.

(v) Monies received or held on behalf of clients have to be
deposited into the client account without delay.

(e) Keeping Proper Books and Accounts in accordance with the
following:


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(i) The insurance broker has to keep accounting and other
records which:

(1) sufficiently explain transactions;

(2) sufficiently reflect the financial position of the
business;

(3) enable true and fair view financial statements to be
prepared;

(4) can be conveniently and properly audited.

(ii) The records have to be in writing or in a form that can
readily be accessed and turned into writing, and in sufficient
detail to separately show particulars of:

(1) all transactions by the broker with, or for the account
of, insurers/reinsurers, his clients and the insurance
broker himself;

(2) all income received from brokerage, commissions,
interest and other sources, and all expenses,
commissions and interest paid by the broker; and

(3) all his assets and liabilities.

(iii) The records have to be retained for a period of not less than
7 years.

(f) Fit and Proper Test: an insurance broker is deemed to be not
fit and proper if in the case of a sole proprietorship or partnership,
the proprietor or any of the partners (including the CE), or in the
case of a limited company, any of its CE, directors or controllers,
is not fit and proper to hold such position, or if the CE or any of
his technical representatives is not confirmed and registered
pursuant to the relevant guidelines. The fundamental principles
relating to the fit and proper test of an insurance broker include
the following:

(i) Utmost Good Faith

(1) An insurance broker has to be of good character and
reputation.

(2) He has to, at all times, conduct his business with
utmost good faith and integrity.

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(3) He has to be independent and impartial in providing
advice to his clients.

(4) He should not give any misleading information or
make any false statements.

(5) He should not describe himself as an insurer or agent
of an insurer.

(6) He has to use his best endeavour to avoid conflict of
interest and should not allow his other business
interests, if any, to jeopardize his integrity,
independence or competence.

(7) He should not engage in twisting.


(ii) Due Care and Diligence

(1) An insurance broker has to exercise due care and
diligence in understanding and satisfying the insurance
needs and requirements of his clients.

(2) He has to take all reasonable steps to ensure that his
C.E., Technical Representatives and employees, who
are dealing with the policy holder or potential policy
holder, are competent as well as fit and proper persons.
He also has to ensure that his C.E. or Technical
Representatives are eligible to engage in the Line of
Insurance Business which he (the insurance broker) is
eligible to engage in. He should not employ any
insurance broker whose authorisation has been
withdrawn by the IA, or any person whose status as
appointed insurance agent or as authorised insurance
broker is being suspended by the Insurance Agents
Registration Board or an approved body of insurance
brokers or who has been deregistered by any of them.

(3) He should not appoint any C.E. or Technical
Representative who is not a fit and proper person.

(4) He has to terminate the appointment of his C.E. or
Technical Representative who has been determined by
the IA or an approved body of insurance brokers not to
be fit and proper.


6/50
(5) He has to explain the principle of utmost good faith to
his clients and make it clear that all answers and
statements given in completing the proposal form,
claim form, or any other material document are the
clients own responsibility.

(6) He has to advise his clients that incorrect answers or
information given in completing proposal forms, claim
forms or any other material documents may result in
the contracts of insurance being invalidated or void or
claims being repudiated.

(7) He has to explain the terms of the insurance contracts
to his clients and advise them of any exclusion clauses
that are incorporated into the contracts.

(8) He has to comply with all guidelines, codes of practice
and similar guidance materials that apply to him.

(9) He has to comply with such requirements as specified
in the Code of Conduct for MPF Intermediaries (MPF
Code) issued by the Mandatory Provident Fund
Schemes Authority (MPFA) where he engages in
selling or advising on Mandatory Provident Fund
schemes or their constituent or underlying funds.

(10) He has to take adequate measures to ensure that each
of his directors and employees has registered as an
MPF intermediary with the MPFA and complies with
such requirements as specified in the MPF Code,
where the director or employee engages in selling or
advising on Mandatory Provident Fund schemes or
their constituent or underlying funds.

(iii) Priority of Client's Interests

(1) An insurance broker has to place the interests of his
clients above all other considerations in providing
advice to them or in arranging contracts of insurance
for them.

(2) He should not prejudice his clients selection of
insurers by unreasonably limiting the choices of
insurers.

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(3) He should not be unreasonably dependent on any
particular insurer in transacting insurance broking
business.

(iv) Information from Client: An insurance broker should not
disclose any information acquired from any one client
except:-

(1) in the normal course of negotiating, maintaining or
renewing a contract of insurance for that client to the
extent that such disclosure is required for such
purposes;

(2) to other professional or commercial organisations in
connection with the contract of insurance for that
client, including but not limited to loss adjusters and
surveyors, security consultants and installation
companies, property and engineering surveyors
consultants and vendors, consulting engineers and
architects;

(3) with the written consent of that client; or

(4) with court order or with a view to complying with
obligations imposed upon him by law.

(v) Information for Client

(1) An insurance broker has to make adequate and
accurate disclosure of relevant material information in
dealing with his clients.

(2) If he, at the request of a client or as a result of
unavailability of suitable products locally, refers or
arranges a contract of insurance with an insurer
authorised elsewhere than in Hong Kong, he has to
advise the client of such status of the insurer and
obtain a written acknowledgement of the fact from the
client. Where the client is a corporate entity, he may,
in lieu of obtaining a written acknowledgement of the
fact, include a notice to the corporate client in the
cover note or placement confirmation. The notice and
acknowledgement have to follow prescribed
specimens.

(3) He has to disclose his association, if any, with the
insurer he is recommending to a client that may result
in a potential conflict of interests. It could be an
association arising from common shareholder/
director/controller.

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(4) If he is the employee/director/C.E./Technical
Representative of more than one insurance broker, he
has to disclose the capacity in which he is acting in
dealing with his clients.

(5) He has to disclose his registration number assigned by
the IA or an approved body of insurance brokers (as
the case may be) if so requested, and identify such
number on his business cards if they are distributed.

(6) In the event that a new long term insurance policy is
purchased, he has to comply with those requirements
that concern a Customer Protection Declaration, and to
deliver the new policy together with a copy of the
Customer Protection Declaration to his client without
delay.

(vi) Capabilities

(1) An insurance broker has to be capable of performing
his functions efficiently. In this regard, whether he,
inter alia, has ever been declared bankrupt or been a
controller, a director, an officer or a senior manager of
a corporation that has become insolvent will be taken
into account.

(2) He has to be mentally sound.

(3) He has not been convicted of any criminal offence
which may affect his fitness, suitability or propriety to
act as an insurance broker or found guilty of
misconduct by a professional body to which he
belongs or has belonged.

(4) He has to comply with all statutory obligations.

The above principles relating to the fit and proper test of an
insurance broker may, as appropriate, apply to the sole
proprietor in case of an insurance broker being a sole
proprietorship, any of the partners in case of an insurance
broker being a partnership, any of its directors or controllers
(within the same meaning as defined in Section 9 of the ICO)
in case of an insurance broker being a limited company, as if
he were an insurance broker.



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In considering whether the appointment of C.E. and
Technical Representative can be confirmed and registered by
the IA or an approved body of insurance brokers, as the case
may be, the following should, inter alia, be taken into
account:

(1) whether the prospective C.E. or Technical
Representative is fit and proper to act as an insurance
broker if he were to apply to be authorised as such. In
this connection, the above principles may, as
appropriate, apply to the prospective C.E. or Technical
Representative as if he were an insurance broker;

(2) whether the prospective C.E. has met the relevant
requirements for qualifications and experience (see
6.2.3d(a) above);

(3) whether the prospective Technical Representative has
met the relevant requirements concerning age,
residence status, right to work, employment visa
conditions, education standard and examination
achievements (see 6.2.3d(a) above);

(4) whether the C.E. or Technical Representative has
complied with the requirements of the Continuing
Professional Development Programme as specified by
the IA.

6.2.3e Annual Financial Statements and Auditor's Report

(a) Under Section 73(1) of the ICO, an insurance broker authorised by
the IA has to submit to the IA annual audited financial statements
in respect of the insurance broking business carried on by him
which show a true and fair view of the financial position of the
business as at the end of the financial year and of the profit or loss
for the period then ended.

(b) In addition, all insurance brokers authorised by the IA have to
submit to the IA an auditor's report confirming that in the auditor's
opinion the minimum requirements imposed upon the insurance
broker mentioned in 6.2.3d(b) through (e) above have been met.

(c) The auditor's report and audited financial statements mentioned in
(a) and (b) above have to be submitted to the IA within 6 months
after the close of the relevant financial period.


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(d) According to the Minimum Requirements, an approved body of
insurance brokers has to include in its membership rules and
regulations a requirement that each member has to submit to it,
within 6 months following the end of each financial year of the
member, audited financial statements and an auditor's report
(similar to the requirements in (a) and (b) above).

(e) Besides, an approved body of insurance brokers has to, within 6
months after the close of the relevant financial period, give the IA
an auditor's report stating:-

(i) whether it has received the financial statements and auditors
reports from each of its members in accordance with its
membership rules and regulations;

(ii) that he has reviewed all reports by auditors of members in
respect of the financial statements and the minimum
requirements, and none contained any adverse statement or
qualification except those listed by him in his report.

- o - o - o -

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Representative Examination Questions


Type A Questions

1 In the general rules for the authorisation of insurers under the Insurance
Companies Ordinance, the requirement concerning reinsurance is that it must be:

(a) adequate; .....
(b) sufficient to meet all liabilities; .....
(c) at least equal to the solvency margin; .....
(d) all be placed with Hong Kong reinsurers. .....

[Answer may be found in 6.1.1a]

2 Under the Code of Practice for the Administration of Insurance Agents, which of
the following boards may refer complaints against insurance agents to the relevant
principals for investigation?

(a) the Insurance Claims Complaints Board; .....
(b) the Insurance Agents Registration Board; .....
(c) the board of directors of the company which is an appointed insurance
agent; .....
(d) none of the above. .....

[Answer may be found in 6.2.2d(c)(i)]


Type B Questions

3 Under the Code of Practice for the Administration of Insurance Agents, which of
the following are permitted disciplinary actions against an insurance agent?

(i) Issue a reprimand
(ii) Suspend the agent's appointment
(iii) Terminate the agent's appointment
(iv) Other action deemed fit by the IARB

(a) (i), and (ii) only; .....
(b) (i), (ii) and (iii) only; .....
(c) (iii) and (iv) only; .....
(d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 6.2.2d(c)(v)]

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4 Which of the following should be included in the Conduct of Insurance Agents for
General Insurance Business and Restricted Scope Travel Business?

(i) Give advice only when competent to do so
(ii) Identify himself before business discussions
(iii) Explain policy differences when making comparisons
(iv) Explain policy cover and ensure the client understands what he is buying

(a) (i) and (ii) only; .....
(b) (i), (ii) and (iii) only; .....
(c) (iii) and (iv) only; .....
(d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 6.2.2]

[If still required, the answers may be found at the end of the Study Notes.]


7/1
7 ETHICAL AND OTHER RELATED ISSUES


7.1 INSURANCE INTERMEDIARIES' DUTIES TO POLICYHOLDERS

At the outset, it must be remembered that insurance intermediaries may be
either insurance agents or insurance brokers. Depending on the category involved,
the duties towards policyholders may be different. Of course, there are areas which are
common ground. These will include:

(a) absence of fraud: this is a common obligation on all;

(b) fair and reasonable behaviour: if not specifically covered by (a) above, then this
standard must at least be expected when considering ethical issues;

(c) take no unfair advantage of clients: especially of physical, mental or educational
deficiencies (again, this must be a matter of basic ethics);

(d) exert no undue influence: the role of the insurance intermediary is that of an
adviser, not a persuader or enforcer;

(e) all actions must be legal: the honourable insurance intermediary will not only keep
to the letter of the law, he will observe the spirit of the law and good insurance
practice;

(f) where the duties are governed or required by legislation, it is important to know
that a breach could involve criminal proceedings, with severe penalties.

All the above are virtually self-evident, but they are still important things to
remember in the context of this Chapter. Specifically, there are other matters that should
be borne in mind, according to whether the insurance intermediary is an insurance agent
or an insurance broker. We shall look at them in reverse order.


7.1.1 If the Insurance Intermediary is an Insurance Broker

(a) Relationship: the cardinal point to remember is that the insurance broker is
normally agent of the policyholder. All the legal obligations and duties
within agency law therefore apply to the insurance broker in relation to the
insured.

(b) Minimum Requirements: In addition to the requirements of agency law,
the minimum requirements discussed in 6.2.3 above have relevance here.
Without too much by way of repetition, some of the relevant points are
recalled below:

(i) special responsibilities regarding client's monies (see 6.2.3d(d)
above);
(ii) duty always to act in utmost good faith (6.2.3d(f)(i) above);
(iii) other duties under Fit and Proper Tests (also 6.2.3d(f) above).

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(c) Insurance Broker's general responsibilities: the insurance broker is seen
to be an expert in insurance. He must also be independent of any one
insurer. His client is the policyholder, who may expect impartial advice,
with his interests paramount.

(d) Professional liability: if, as a deemed expert, the insurance broker fails to
take reasonable care in his client's interests, he could well be guilty of
professional negligence. This would give the policyholder the right to sue
the insurance broker, who is required to be covered by a Professional
Indemnity Insurance (see 6.2.3d(c)).


7.1.2 If the Insurance Intermediary is an Insurance Agent

(a) Relationship: the relationship with the policyholder is quite different for
the insurance agent. His principal is normally the Insurer, not the Insured.
As such, his primary responsibilities are to the insurer, although of course
he is not exempt from the legal and ethical obligations discussed in 7.1
above.

(b) Minimum Requirements: as discussed, all insurance agents must be
appointed in writing and subject therefore to an Agency Agreement (see
6.2.2f). Such an agreement must include certain minimum requirements.
These will include a wide range of obligations towards both his Principal
and the policyholder (or prospective policyholder). These may be reviewed
in 6.2.2f.

Note: Please do revise the passage suggested. We do not repeat the
requirements here, but they are important and consist of knowledge
that will be expected in your examination.

(c) Professional liability: Tortious liability on the part of an insurance
intermediary may to some extent depend upon the degree of
knowledge/expertise expected of him, which in turn depends upon the
nature of the skills he has professed for undertaking on behalf of the
claimant the activity which has allegedly led to a loss to the claimant. As
the typical insurance broker will hold himself out as being an insurance
expert for the client, his duty of care to the client can be said to be onerous.
By contrast, if an insurance agent has not professed to his clients special
skills for undertaking an activity for them, he should be at a much lower
risk of being held liable to them for incompetent performance of such
activity. With in mind this contrast and the statutory imposition of
vicarious liability on an insurer for his appointed insurance agents conduct
in prescribed circumstances, it is understandable that unlike an insurance
broker an insurance agent is not statutorily required to buy and maintain
professional indemnity insurance.

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7.2 PROTECTION OF PERSONAL DATA

One of the consequences of the computer revolution has been the fear that the
speed, efficiency and capabilities of information technology will severely affect personal
privacy. This has been a worldwide concern and many jurisdictions, including Hong
Kong, have passed laws to safeguard the individual in this respect. The particular statute
for Hong Kong is the Personal Data (Privacy) Ordinance (the Ordinance).

7.2.1 Features of the Ordinance

(a) Scope: by international standards, this Ordinance is thorough, relating to
personal data without distinguishing between automatic and manual
personal data, and binding all persons and the Government as well. A body
has been established under the Ordinance to oversee its application, namely
the Office of the Privacy Commissioner for Personal Data (OPCPD).

(b) Definitions: the following terms are defined in the Ordinance:

(i) data - any representation of information (including an expression
of opinion) in any document and includes a personal identifier;

(ii) personal data - any data (including expressions of opinions)

(1) relating directly or indirectly to a living individual (data
subject);
(2) from which it is practicable for the identity of the individual
to be directly or indirectly ascertained; and
(3) in a form in which access to or processing of the data is
practicable.

(c) Data Protection Principles: any person who controls the collection,
holding, processing or use of personal data (data user) has to follow the fair
information practices stipulated in the six data protection principles laid
down in the Ordinance, as follows:

(i) Principle 1 - purpose and manner of collection of personal data:
it outlines the lawful and fair collection of personal data, also the
information that the data user should give to the data subject when
collecting personal data.

Example:
When insurance practitioners collect customers personal data, they
should provide the customers with a Personal Information
Collection Statement (PICS) stating clearly the purpose of collecting
the data, the classes of persons to whom the data may be
transferred, the consequences of failing to supply the data, and the
right of access to and correction of the data. The PICS should be
attached to documents such as insurance application forms.

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(ii) Principle 2 - accuracy and duration of retention of personal
data: the personal data should be accurate, up-to-date and kept no
longer than necessary.

In particular, if a data user engages a data processor, whether within
or outside Hong Kong, to process personal data on the data users
behalf, the data user should adopt contractual or other means to
prevent any personal data that has been transferred to the data
processor from being kept longer than is necessary for processing of
the data. The term data processor means a person who (a)
processes personal data on behalf of another person, and (b) does
not process the data for any of the persons own purposes. For the
Privacy Commissioner for Personal Datas (PCPD) recommended
means of compliance with the requirements, please see 7.2.1(d)
below.

Example:
If letters sent to a customer are always returned, it could be because
of an inaccurate mailing address. Insurance practitioners should
stop using that mailing address and update it.

(iii) Principle 3 - use of personal data: unless the data subject gives
consent, the personal data should only be used for the purposes for
which they were collected, or a directly related purpose.

Example:
Under general circumstances, insurance practitioners are not
allowed to disclose their customers personal data to other
companies for promotion of their products, unless prior prescribed
consent has been obtained from the customer.

(iv) Principle 4 - security of personal data: appropriate security
measures should be applied to personal data (including data in a
form in which access to or processing of it is not practicable) to
ensure that personal data are protected against unauthorised or
accidental access, processing, erasure, loss or use.

In particular, if a data user engages a data processor, whether within
or outside Hong Kong, to process personal data on the data users
behalf, the data user should adopt contractual or other means to
prevent unauthorised or accidental access to, processing, erasure,
loss or use of, the data that has been transferred to the data processor
for processing. For the definition of data processor, please see (ii)
above. Please see 7.2.1(d) below for the PCPDs recommended
means of compliance with the requirements.


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Example:
When using window envelopes to mail documents containing
customers personal data, insurance practitioners should ensure
that the customers sensitive data (e.g. identity card number) does
not show through the envelope window. If the letter is intended for
the recipient only, insurance practitioners should consider marking
Private and Confidential on the envelope and seal it.

(v) Principle 5 - information to be generally available: data users
should take all practical steps to ensure openness and transparency
about their policies and practices in relation to personal data, the
kinds of personal data they hold and the main purposes for which
personal data is used.

Example:
Formulate and maintain a Privacy Policy Statement, stating the
kinds of personal data held, purpose for using the personal data and
its personal data policies and practices, which can be displayed on
the website of the insurance practitioners company.

(vi) Principle 6 - access to personal data: data subjects have the rights
of access to, and of correction of, their personal data.

Example:
A customer has the right to ask an insurer to supply a copy of the
personal data contained in his insurance policy.

(d) How to Comply with Requirements of Data Protection Principles 2
and 4 where Processing of Personal Data is Outsourced to a Data
Processor: the PCPD recommends to data users the following means of
compliance with the requirements:

(i) Through contractual means

The primary means by which a data user may protect personal
data entrusted to its data processor is through a contract. In
practice, data users often enter into contracts with their data
processors for the purpose of defining the respective rights and
obligations of the parties to the service contract. To fulfil their
obligations under data protection principles 2 and 4 where
processing of personal data is outsourced to a data processor, data
users may incorporate additional contractual clauses in the service
contract or enter into a separate contract with the data processor.

The types of obligations to be imposed on data processors by
contract are numerous, including the following:


7/6
(1) Security measures required to be taken by the data
processor to protect the personal data entrusted to it and
obligating the data processor to protect the personal data by
complying with the data protection principles;

(2) Timely return, destruction, or deletion of the personal data
when it is no longer required for the purpose for which it is
entrusted by the data user to the data processor;

(3) prohibition against any use or disclosure of the personal
data by the data processor for a purpose other than that for
which the personal data is entrusted to it by the data user;

(4) the data users right to audit and inspect how the data
processor handles and stores personal data; and

(5) consequences of breach of the contract.

(ii) Through other means

Sometimes, a data user may not be able to enter into a contract with
its data processor to protect the personal data entrusted to it. The
Ordinance provides flexibility by allowing the use of other means
of compliance. The term other means is not defined in the
Ordinance. Generally, data users may engage non-contractual
oversight and auditing mechanisms to monitor their data processors
compliance with the data protection requirements.

(iii) Further good practice recommendations

Further good practice recommendations are made by the PCPD to
data users who engage data processors to process personal data on
their behalf:

(1) Data users should be transparent about their personal data
handling practices and, when collecting personal data, make it
plain to the data subjects, in clear and understandable
language, that their personal data may be processed by data
processors.

(2) If the data processors are not situated in Hong Kong, the
data users should make sure that their contracts are
enforceable both in Hong Kong and in the countries in
which the data processors are situated. The meaning of any
technical and legal terms to be used in the contracts such as
personal data, which may vary from one jurisdiction to
another, should be clearly defined to suit compliance with
the Hong Kong requirements.

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(3) Both data users and data processors should keep proper
records of all the personal data that have been transferred for
processing.

(4) Before entrusting any personal data to data processors for
system testing, data users have to consider whether use of
anonymous or dummy data by data processors can equally
serve the purpose.

(e) Direct Marketing: a new Part VIA of the Ordinance comprising
provisions relating to use of personal data in direct marketing and provision
of personal data for use in direct marketing has been introduced, with effect
from 1 April 2013.

(i) Interpretation of Part VIA: in this Part,

Direct Marketing is defined to include the offering, or advertising of
the availability, of goods, facilities or services through direct
marketing means;

Direct Marketing Means means

(1) sending information or goods, addressed to specific persons
by name, by mail, fax, electronic mail or other means of
communication; or

(2) making telephone calls to specific persons;

Marketing Subject, in relation to direct marketing, is defined to
include any goods, facility or service offered, or the availability of
which is advertised.

(ii) Data user to take specified actions before using personal data in
direct marketing

A data user who intends to use the personal data of a data subject in
direct marketing, or to provide it to others for use in direct
marketing should inform the data subject of certain prescribed
information (see below) and provide the data subject with a response
channel through which the data subject may indicate whether he
objects to the intended use or provision.

A data user who intends to use the data subjects personal data in
direct marketing for his own purposes is permitted to provide the
data subject with the prescribed information either orally or in
writing. However, the provision of personal data (whether for gain
or not) to another data user will be subject to the requirement that
the data user should provide to the data subject in writing the
prescribed information.

7/8
The prescribed information includes the kinds of personal data to be
used or provided, the classes of marketing subjects in relation to
which the data is to be used in direct marketing, and (where
appropriate) the classes of persons to which the data is to be
provided for direct marketing purposes. If the personal data is to be
provided for gain, the data user must inform the data subject the data
is to be so provided.

Presentation of the prescribed information by data users should be
done in a manner that is easily readable and understandable.

(iii) Grandfathering arrangement for pre-existing personal data

The abovementioned requirements for a data user to notify the data
subject of his intention to use the latters personal data in direct
marketing will not apply to personal data that the data user has,
before the entry into force of the new provisions concerned, used in
direct marketing in compliance with those requirements under the
Ordinance that existed before. This grandfathering arrangement
applies to use of any personal data of the data subject in relation to
the same class of marketing subjects if any of the data subjects
personal data has been so used before the commencement of the
new provisions.

(iv) Data user must not use personal data, or provide it to others for
use, in direct marketing without data subjects consent or
indication of no objection

A data user can only use a data subjects personal data, or provide it
to others for use, in direct marketing if he has provided the
prescribed information and response channel to the data subject and
received a reply from the data subject indicating that the data subject
consents or does not object to the data user doing so.

Where a data user intends to use a data subjects personal data in
direct marketing for his own purposes and provides the data subject
with the prescribed information either orally or in writing, the data
subjects reply to the data user indicating his consent or no objection
may reciprocally be given either orally or in writing. If the reply is
given orally, the data user must, before using the personal data in
direct marketing, confirm in writing to the data subject within 14
days from the date of receipt of the reply, the permitted kind of
personal data and the permitted class of marketing subjects.

Where a data user provides a data subjects personal data (whether
for gain or not) to others for use in direct marketing, he must, before
proceeding to provide the data, receive a reply in writing from the
data subject indicating that the data subject consents or does not
object to the data user doing so.

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(v) Data user must notify data subject when using personal data in
direct marketing for the first time

As before, a data user must notify a data subject of his opt-out right
when using personal data in direct marketing for the first time. The
maximum penalty for a contravention is a fine of $500,000 and
imprisonment for 3 years.

(vi) Data subject may require data user to cease to use personal data
or provide it to others for use in direct marketing

A data user must comply with a data subjects request at any time to
cease to use the data subjects personal data in direct marketing.

A data user must comply with a data subjects request at any time to
cease to provide the data subjects personal data to others for use in
direct marketing, and to notify any person to whom the data
subjects personal data has been so provided to cease to use the data
in direct marketing.

(vii) Penalty

Contraventions of the requirements under the new regulatory regime
are offences. For those contraventions that involve provision of
personal data for gain, the maximum penalty is a fine of $1,000,000
and imprisonment for 5 years. For other contraventions, the
maximum penalty is a fine of $500,000 and imprisonment for 3
years.

(f) Offence of Disclosure of Personal Data Obtained Without Data Users
Consent

(i) Offences and penalty: A person commits an offence if the person
discloses any personal data of a data subject which was obtained
from a data user without the data users consent, with an intent (a) to
obtain gain in money or other property, whether for the benefit of
the person or another person, or (b) to cause loss in money or other
property to the data subject.

A person also commits an offence if he discloses any personal data
of a data subject which was obtained from a data user without the
data users consent, and the disclosure causes psychological harm to
the data subject.

The maximum penalty for either offence is a fine of $1,000,000 and
imprisonment for 5 years.



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(ii) Defence: The Ordinance provides the following defence to any
person charged with any of the offences:

(1) he reasonably believed that the disclosure was necessary for
the purpose of preventing or detecting crime;
(2) the disclosure was required or authorised by or under any
enactment, by any rule of law or by an order of a court;
(3) he reasonably believed that the data user had consented to the
disclosure; or
(4) he disclosed the personal data for the purposes of a prescribed
news activity or a directly related activity; and had reasonable
grounds to believe that the publishing or broadcasting of the
personal data was in the interest of the public.

(g) Contravention of the Ordinance:

Data subjects may complain to the PCPD about a suspected breach of the
Ordinance and sue the wrongful data users for compensation for damage
(inclusive of injured feeling) they have suffered as a result of a
contravention of the Ordinance.

Complications are involved where an alleged breach occurred as a result of
a data users outsourcing of processing of a data subjects personal data to a
data processor. The data processor is not directly liable to the data subject
for infringing his personal data privacy. The aggrieved data subject may
seek recourse from the data user, who is liable as principal for the wrongful
act of its authorised data processor.

Where a complaint is brought by a data subject against a data user for its
data processors wrongful act or practice which has infringed his personal
data privacy, the contract made between the data user and the data
processor incorporating specific provisions on data protection can be
admitted as evidence of the data users compliance with data protection
principles 2 and 4. The data user may also bring an action against the data
processor by relying on any contractual terms that govern the data
processors obligations in data protection.

Apart from breaches of the Ordinance that may give rise to civil redress by
data subjects, there are a variety of offences under the Ordinance, including
the offence of non-compliance with an enforcement notice that has been
served by the PCPD.

(h) Exemptions: The right to privacy is not absolute. Clearly, criminals have
no right to expect total secrecy, and the normal conduct of business and
social life in a community demand that some information can be generally
or specifically available to those with a legitimate right to know.
Exemptions from the Ordinance include:

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(i) a broad exemption for personal data held for domestic or
recreational purposes;

(ii) exemptions on access by data subject for certain employment-related
personal data held by their employers;

(iii) exemptions from the subject access and use limitation
requirements where their application is likely to prejudice certain
competing public or social interests, i.e. security, defence and
international relations; prevention or detection of crime;
apprehension, prosecution or detention of offenders; assessment
or collection of any tax or duty; health; legal professional
privilege; news activities; statistics and research; and human
embryos, etc.

(i) User-friendly Materials for Use by Data Users and Insurance
Practitioners: apart from the Ordinance, insurance practitioners are
advised to read the guidance notes and information leaflets issued by the
relevant regulatory bodies for practical guidance on collection and use of
personal data, including the following:

(i) How Insurance Practitioners Can Protect Their Customers' Personal
Data jointly issued by the OPCPD and the Hong Kong Federation
of Insurers;

(ii) Guidance on the Proper Handling of Customers Personal Data for
the Insurance Industry issued by the OPCPD; and

(iii) New Guidance on Direct Marketing issued by the OPCPD.

7.2.2 Insurance Applications

The above relate to society generally, of which insurance is of course a part. In
order to assist the insurance industry in complying with the relevant requirements
of the Ordinance when handling the collection, storage, use and security of
customers personal data, and when handling customers data access requests, the
PCPD has published a guidance note titled Guidance on the Proper Handling of
Customers Personal Data for the Insurance Industry (the Guidance Note).
Insurance practitioners should find the Guidance Note useful as it covers real work
situations which they commonly encounter and which involve various key data
protection compliance issues.

The following are some of the practical tips that the Guidance Note offers to
insurance practitioners:

(a) Collection of customers medical data: insurers often collect customers
medical data on an application for life or health insurance or in processing
a claim under such insurance.

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(i) No collection of excessive data: collection of excessive data is
contrary to data protection principle 1. For example, in an insurance
claim for medical expenses incurred in relation to an operation to
remove a claimants tonsils, it may not be necessary to collect
medical data about a surgery performed on his knee ten years ago,
unless the insurer can show the relevancy of the data to the claim.

(ii) Lawful and fair means of collection: as required by data protection
principle 1, personal data should only be collected by means which
are fair and not prohibited under any law. In general, obtaining
information by deception or misrepresentation would not be
considered fair means of collection of data.

(b) Collection of Hong Kong identity card (HKIC) number and copy:
collection of an HKIC number (and other personal identifiers such as a
passport number) and an HKIC copy is regulated by data protection
principle 1 and the Code of Practice on the Identity Card Number and other
Personal Identifiers (PI Code) issued by the PCPD.

(i) HKIC number: a data user should not collect HKIC number (or
other personal identifiers) of an individual unless authorised by law
or permitted in the situations set out in paragraph 2.3 of the PI Code.
For example, an insurer may require the HKIC number of a
customer or beneficiary to ensure that an insurance claim is paid to
the right person.

(ii) HKIC copy: insurance institutions should comply with paragraph
3.2 of the PI Code in collecting an HKIC copy. For example, an
insurance institution may collect a copy of the identity card of an
individual who is a life insurance customer, as proof of compliance
with section 3 of Schedule 2 to Anti-Money Laundering and
Counter-Terrorist Financing (Financial Institutions) Ordinance.

(c) Engagement of private investigators in insurance claims: insurers may
appoint private investigators to investigate suspicious claims. While
private investigators are regulated by the Ordinance, insurers who appoint
private investigators should pay attention to the issue of vicarious liability
for the acts of their appointed private investigators.

(i) Lawful and fair means of collection: generally speaking, obtaining
information covertly would not be considered fair means of
collection of data. However, each case turns on its own facts and
there may be special circumstances which justify particular means
of collection. For example, collecting information about a
claimants activities by physical surveillance may be justified if
there is reasonable suspicion of a fraudulent insurance claim of
personal injury and there are no realistic alternatives to using such
means of collection in seeking evidence of the suspected fraud.

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(ii) Data is adequate but not excessive: in the course of investigating a
suspected false claim of personal injury, for instance, data in
relation to the claimants private life which is unrelated to the claim
should not be collected.

(d) Collection and use of personal data in direct marketing: the following
examples highlight some of the areas to which insurance practitioners
should pay attention:

(i) Lawful and fair means of collection: when an insurance practitioner
changes job to work for another insurance institution, he should not
make copies of the insurance policies or other information of his
former customers from the records of his former principal/employer.

(ii) No change in purpose of use of data: In example (i) above, using a
former customers personal data for marketing products or services
of the new principal/employer would unlikely be within the original
purpose for which the data was collected by the former
principal/employer.

(e) Access to, storage and handling of customers personal data by staff
and agents: in compliance with the requirement of data protection
principle 4, insurance institutions should implement security safeguards
and precautions in relation to the security of customers personal data held
by them or by their staff or agents, which should include the following:

(i) Secure transmission of documents containing personal data: When
transmitting documents containing personal data of customers,
insurance institutions and insurance practitioners should ensure that
the data is protected against unauthorised or accidental access by
unrelated parties. For example, in the case of transmission by mail
or via another person, sealed envelopes should be used, no sensitive
data (e.g. HKIC number) is visible through the envelope window,
and mail only intended for the eyes of the addressee should be
marked private and confidential.

(ii) Insurance agents or representatives working at home or outside
workplace: insurance agents and representatives often meet
customers in public places, taking with them policies and other
documents that contain the customers personal data. During the
process, they should ensure that the personal data is not seen, and
conversations concerning sensitive customer information are not
overheard by unrelated parties. On the other hand, insurance
institutions should provide clear policies and guidelines to the
relevant staff for handling customers data outside the workplace.

For more examples, please refer to the Guidance Note.

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7.3 ISSUES REGARDING EQUAL OPPORTUNITY

7.3.1 Legislation Addressing Discrimination

An Equal Opportunities Commission (EOC) exists to implement four
Ordinances, whose objectives are to eliminate discrimination on grounds of:

(a) sex, marital status or pregnancy (theSex Discrimination Ordinance, 1995);

(b) disability (theDisability Discrimination Ordinance, 1995);

(c) family status (theFamily Status Discrimination Ordinance, 1997); and

(d) race (theRace Discrimination Ordinance, 2008).

7.3.2 Fair Discrimination in Insurance

The insurance industry, like every other area of our society, must respect
the law regarding anti-discrimination. That said, in the practice of insurance
business, insurers will in certain circumstances differentiate between proposers in
ways that are legitimate, insofar as that is permitted by the Ordinances mentioned
above. An identical provision is contained in each of the first three Ordinances
(not including the Race Discrimination Ordinance) to the effect that the treatment
of a person in relation to insurance is not outlawed where the treatment (a) was
effected by reference to actuarial or other data from a reliable source, and (b) was
reasonable having regard to the data and any other relevant factors. The following
are instances of discrimination in insurance that are generally considered to be
legitimate:

(a) Life insurance: The premium charged for a life insurance is very much
affected by the life expectancy of the life insured at the time the insurance is
arranged. It is a biological fact that women, on average, live longer than
men. From this, insurers may:

(i) charge a lower premium rate for life insurances on women than for
men of the same age, health condition, etc., because on average the
policy benefit will not be paid so soon and/or more premium
payments are expected in the case of women; and

(ii) offer higher annuity benefit payments to men than to women of the
same age, health condition, etc., because on average fewer payments
will be made to men.

(b) Personal accident insurance: A person with a disability, such as impaired
eyesight or other serious medical condition, clearly represents a very
different risk from a person with a normal healthy body. This difference
could mean that insurers decline (refuse to insure) such persons, or impose
various underwriting measures (higher premium, additional policy
limitations, etc.).

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7.3.3 Unfair Discrimination in Insurance

The conducts of discrimination that are common throughout our society
(appointing only either sex, unfairly denying promotion to either sex, refusing to
employ the physically handicapped, sexual harassment and so on) may happen in
insurance situations as well. Below are two examples of unfair discrimination
with insurance:

(a) Motor insurance: charging higher premiums or imposing stricter terms on
women because of the widely held male prejudice to the effect that women
drivers are worse than men. (There have been statistics of accidents and
driving convictions in certain countries which seem to suggest that the
opposite is true!)

(b) Fire insurance: refusing to grant household insurance to a woman on the
grounds that she is divorced or a single parent.


7.4 PREVENTION OF MONEY LAUNDERING AND TERRORIST
FINANCING

7.4.1 What is Money Laundering

The term money laundering means an act intended to have the effect of
making any property:

(a) that is the proceeds obtained from the commission of an indictable offence
under the laws of Hong Kong, or of any conduct which if it had occurred in
Hong Kong would constitute an indictable offence under the laws of Hong
Kong; or

(b) that in whole or in part, directly or indirectly, represents such proceeds,

not to appear to be or so represent such proceeds.

7.4.2 What is Terrorist Financing

The term terrorist financing means:

(a) the provision or collection, by any means, directly or indirectly, of any
property

(i) with the intention that the property be used; or

(ii) knowing that the property will be used,

in whole or in part, to commit one or more terrorist acts (whether or not the
property is actually so used); or


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(b) the making available of any property or financial (or related) services, by
any means, directly or indirectly, to or for the benefit of a person knowing
that, or being reckless as to whether, the person is a terrorist or terrorist
associate; or

(c) the collection of property or solicitation of financial (or related) services,
by any means, directly or indirectly, for the benefit of a person knowing
that, or being reckless as to whether, the person is a terrorist or terrorist
associate.

7.4.3 Vulnerabilities in Insurance Industry

The insurance industry is vulnerable to money laundering (ML) and
terrorist financing (TF). The inherent characteristics of insurance products may
give rise to ML risks unique to the insurance industry. When a life insurance
policy matures or is surrendered, funds become available to the policy holder or
other beneficiaries (e.g. an assignee, where the policy has been assigned; or a
trustee, where the policy has been placed in trust). The beneficiary to the contract
may be changed possibly against payment before maturity or surrender, in order
that payments can be made by the insurer to a new beneficiary. A policy might be
used as collateral to purchase other financial instruments. These investments in
themselves may only be one part of a sophisticated web of complex transactions
with their origins elsewhere in the financial system.

Examples of those long term insurance contracts that are vulnerable as a
vehicle for laundering money or financing terrorism include:

(a) unit-linked or with profit single premium contracts;

(b) single premium life insurance policies that store cash value;

(c) fixed and variable annuities; and

(d) (second hand) endowment policies.

Long term insurance intermediaries are important for distribution,
underwriting and claims settlement. They are often the direct link to the policy
holder and therefore, intermediaries should play an important role in anti-money
laundering (AML) and counter-financing of terrorism (CFT). The same
principles that apply to insurers should generally apply to insurance
intermediaries. The person who wants to launder money or finance terrorism may
seek an insurance intermediary who is not aware of or does not conform to
necessary procedures, or who fails to recognise or report information regarding
possible cases of ML or TF. The intermediaries themselves could have been set up
to channel illegitimate funds to insurers.



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7.4.4 Stages of Money Laundering

There are three common stages in the laundering of money, and they
frequently involve numerous transactions. A financial institution (FI) should be
alert to any such sign for potential criminal activities. These stages are:

(a) Placement: the physical disposal of cash proceeds derived from illegal
activities;

(b) Layering: separating illicit proceeds from their sources by creating
complex layers of financial transactions designed to disguise the sources,
subvert the audit trail and provide anonymity; and

(c) Integration: creating for criminally derived wealth an impression of
apparent legitimacy. In situations where the layering process succeeds,
integration schemes effectively return the laundered proceeds back into the
general financial system and the proceeds appear to be the result of, or
connected to, legitimate business activities.


7.4.5 Legislation on Money Laundering and Terrorist Financing

An inter-governmental body named Financial Action Task Force
(FATF) has been formed to set international AML standards, and to combat
terrorist financing. As a member of the FATF, Hong Kong is obliged to
implement the AML requirements as promulgated by the FATF, and it is
important that Hong Kong complies with the international AML standards in order
to maintain its status as an international financial centre.

The four main pieces of legislation in Hong Kong that are concerned with
ML/TF are the Anti-Money Laundering and Counter-Terrorist Financing
(Financial Institutions) Ordinance (AMLO), the Drug Trafficking (Recovery of
Proceeds) Ordinance (DTROP), the Organized and Serious Crimes Ordinance
(OSCO) and the United Nations (Anti-Terrorism Measures) Ordinance
(UNATMO). It is very important that FIs and their officers and staff fully
understand their respective responsibilities under the different legislation.

7.4.5a Anti-Money Laundering and Counter-Terrorist Financing
(Financial Institutions) Ordinance (AMLO)

The AMLO imposes requirements relating to customer due
diligence (CDD) and record-keeping on FIs and provides relevant
authorities (RAs) with powers to supervise compliance with these
requirements and other requirements under the AMLO. In addition, section
23 of Schedule 2 requires FIs to take all reasonable measures (a) to ensure
that proper safeguards exist to prevent a contravention of any requirement
under Parts 2 and 3 of Schedule 2; and (b) to mitigate ML/TF risks.


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The AMLO makes it a criminal offence if an FI knowingly
contravenes a specified provision, subject to a maximum penalty of
imprisonment for 2 years and a fine of $1 million. Anther offence is for an
FI to contravene a specified provision with intent to defraud any RA, with
imprisonment for 7 years and a fine of $1 million upon conviction as the
maximum penalty.

The AMLO also makes it a criminal offence if a person who is an
employee of an FI or is employed to work for an FI or is concerned in the
management of an FI knowingly causes or permits the FI to contravene a
specified provision in the AMLO, subject to a maximum penalty of
imprisonment of 2 years and a fine of $1 million upon conviction. Another
offence is for such a person to, with intent to defraud the FI or any RA,
cause or permit the FI to contravene a specified provision in the AMLO,
with imprisonment for 7 years and a fine of $1 million upon conviction as
the maximum penalty.

RAs may take disciplinary actions against FIs for any contravention
of a specified provision in the AMLO. The disciplinary actions that can be
taken include publicly reprimanding the FI; ordering the FI to take any
action for the purposes of remedying the contravention; and ordering the FI
to pay a pecuniary penalty not exceeding the greater of $10 million or 3
times the amount of profit gained, or costs avoided, by the FI as a result of
the contravention.

7.4.5b Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP)

The DTROP contains provisions for investigation of assets that are
suspected to be derived from drug trafficking activities, freezing of assets
on arrest and confiscation of proceeds from drug trafficking activities upon
conviction.

Under the DTROP, a person commits an offence if he deals with
any property knowing or having reasonable grounds to believe it to
represent any persons proceeds of drug trafficking. The highest penalty for
the offence upon conviction is imprisonment for 14 years and a fine of $5
million. Filing a report to the Joint Financial Intelligence Unit (JFIU) in a
prescribed manner provides a statutory defence to such an offence in
respect of the acts disclosed in the report.

The DTROP also makes it an offence if a person fails to disclose, as
soon as it is reasonable for him to do so, his knowledge or suspicion of any
property that directly or indirectly, represents a persons proceeds of, was
used in connection with, or is intended to be used in connection with, drug
trafficking. Such an offence carries a maximum term of imprisonment of 3
months and a fine of $50,000 upon conviction. Once an employee has
reported his suspicion to the appropriate person in accordance with the
procedure established by his employer for the making of such disclosures,
he has fully satisfied the statutory obligation.

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Tipping off is another offence under the DTROP. A person
commits this offence if, knowing or suspecting that a disclosure has been
made, he discloses to any other person any matter which is likely to
prejudice any investigation which might be conducted following that first-
mentioned disclosure. The maximum penalty for the offence upon
conviction is imprisonment for 3 years and a fine.

7.4.5c Organized and Serious Crimes Ordinance (OSCO)

The OSCO creates an offence of ML in relation to proceeds of
indictable offences. The highest penalty for the offence upon conviction
is imprisonment for 14 years and a fine of $5 million. Filing a report to
the J FIU in a prescribed manner provides a statutory defence to such an
offence in respect of the acts disclosed in the report.

The OSCO also makes it an offence if a person fails to disclose, as
soon as it is reasonable for him to do so, his knowledge or suspicion of
any property that directly or indirectly, represents a persons proceeds of,
was used in connection with, or is intended to be used in connection with
an indictable offence. Such an offence carries a maximum term of
imprisonment of 3 months and a fine of $50,000 upon conviction. Once
an employee has reported his suspicion to the appropriate person in
accordance with the procedure established by his employer for the
making of such disclosures, he has fully satisfied the statutory obligation.

Tipping off is another offence under the OSCO. A person
commits this offence if, knowing or suspecting that a disclosure has been
made, he discloses to any other person any matter which is likely to
prejudice any investigation which might be conducted following that
first-mentioned disclosure. The maximum penalty for the offence upon
conviction is imprisonment for 3 years and a fine.

7.4.5d United Nations (Anti-Terrorism Measures) Ordinance
(UNATMO)

The UNATMO is principally directed towards implementing
decisions contained in Resolution 1373 dated 28 September 2001 of the
United Nations Security Council (UNSC) aimed at preventing the
financing of terrorist acts. Besides the mandatory elements of the UNSC
Resolution 1373, the UNATMO also implements the more pressing
elements of the FATFs special recommendations on TF.

The UNATMO criminalises any act of providing or collecting
property and of making property or financial (or related) services
available to terrorists or terrorist associates. The highest penalty for
either of these offences upon conviction is imprisonment for 14 years
and a fine. Filing a report to the J FIU in a prescribed manner provides a
statutory defence to any of such offences in respect of the acts disclosed
in the report.

7/20
The UNATMO also make it an offence if a person fails to disclose,
as soon as it is reasonable for him to do so, his knowledge or suspicion
that any property is terrorist property. This offence carries a maximum
term of imprisonment of 3 months and a fine of $50,000 upon conviction.
Once an employee has reported his suspicion to the appropriate person in
accordance with the procedure established by his employer for the
making of such disclosures, he has fully satisfied the statutory obligation.

Tipping off is another offence under the UNATMO. A person
commits this offence if, knowing or suspecting that a disclosure has been
made, he discloses to any other person any matter which is likely to
prejudice any investigation which might be conducted following that
first-mentioned disclosure. The maximum penalty for the offence upon
conviction is imprisonment for 3 years and a fine.


7.4.6 Guideline on Anti-Money Laundering and Counter-Terrorist
Financing

7.4.6a Introduction

The Office of the Commissioner of Insurance (OCI) has issued a
Guideline on Anti-Money Laundering and Counter-Terrorist Financing
(Guideline) to give guidance on the subjects to authorised insurers,
reinsurers, appointed insurance agents and authorised insurance brokers
carrying on or advising on long term business (IIs), with effect from 1
April 2012. The Guideline was published under section 7 of the AMLO
and section 4A of the Insurance Companies Ordinance (ICO).

Intended for use by FIs and their officers and staff, the Guideline
provides guidance which is no different from that provided by other RAs
under their respective regulatory regimes.

The purposes of the Guideline are to:

(a) provide a general background on the subjects of money laundering
and terrorist financing (ML/TF), including a summary of the main
provisions of the applicable anti-money laundering and counter-
financing of terrorism (AML/CFT) legislation in Hong Kong; and

(b) provide practical guidance to assist FIs and their senior management
in designing and implementing their own policies, procedures and
controls in the relevant operational areas, taking into consideration
their special circumstances so as to meet the relevant AML/CFT
statutory and regulatory requirements.

It must be emphasised that the contents of the Guideline are neither
intended to, nor should be construed as, an exhaustive list of the means of
meeting the statutory and regulatory requirements.

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The Guideline provides guidance in relation to the operation of the
provisions of Schedule 2 to the AMLO (Schedule 2). This will assist FIs
to meet their legal and regulatory obligations when tailored by FIs to their
particular business risk profile. Departures from this Guidance, and the
rationale for so doing, should be documented, and FIs will have to stand
prepared to justify departures to the RAs.

A failure by any person to comply with any provision of the
Guideline does not by itself render the person liable to any judicial or other
proceedings but, in any proceedings under the AMLO before any court, this
Guideline is admissible in evidence; and if any provision set out in this
Guideline appears to the court to be relevant to any question arising in the
proceedings, the provision must be taken into account in determining that
question.

In addition, a failure to comply with any provision of this Guideline
by IIs may reflect adversely on the fitness and properness of their directors
and controllers, and may result in a disciplinary action being taken against
the non-complying IIs.

7.4.6b AML/CFT Systems

According to the Guideline, FIs must take all reasonable measures to
ensure that proper safeguards exist to mitigate the risks of ML/TF and to
prevent a contravention of any requirement under Part 2 or 3 of Schedule 2.
To ensure compliance with this requirement, FIs should implement
appropriate internal AML/CFT policies, procedures and controls
(AML/CFT systems).

The Guideline specifies various factors that FIs should take into
consideration when setting up an AML/CFT system. The controls to be put
in place should cover: senior management oversight; appointment of a
Compliance Officer and a Money Laundering Reporting Officer;
compliance and audit function; and staff screening and training.

7.4.6c Group AML/CFT Policy for Business Conducted Outside Hong
Kong

The Guideline sets out guidance for circumstances where an FI
conducts business outside Hong Kong. A Hong Kong-incorporated FI with
overseas branches or subsidiary undertakings should put in place a group
AML/CFT policy to ensure that all branches and subsidiary undertakings
that carry on the same business as an FI in a place outside Hong Kong have
procedures in place to comply with the CDD and record-keeping
requirements similar to those imposed under Parts 2 and 3 of Schedule 2 to
the extent permitted by the law of that place. The FI should communicate
the group policy to its overseas branches and subsidiary undertakings.

7/22
When a branch or subsidiary undertaking of an FI outside Hong
Kong is unable to comply with requirements that are similar to those
imposed under Parts 2 and 3 of Schedule 2 because this is not permitted by
local laws, the FI must:

(a) inform the RA of such failure; and

(b) take additional measures to effectively mitigate ML/TF risks
faced by the branch or subsidiary undertaking as a result of its
inability to comply with the above requirements.

Suspicion that any property in whole or in part directly or indirectly
represents any persons proceeds of an indictable offence, should normally
be reported within the jurisdiction where the suspicion arises and where the
records of the related transactions are held. However, in certain cases, e.g.
when the account is domiciled in Hong Kong, reporting to the JFIU may be
required in such circumstances, but only if section 25A of OSCO/DTROP
applies.

7.4.6d Risk-based Approach (RBA)

The Guideline requires FIs to, in determining the extent of CDD
measures and ongoing monitoring required, take a risk-based approach.
The general principle of an RBA is that where customers are assessed to be
of higher ML/TF risks, FIs should take enhanced measures to manage and
mitigate those risks, and that correspondingly where the risks are lower,
simplified measures may be applied. The use of an RBA has the advantage
of allowing resources to be allocated in the most efficient way directed in
accordance with priorities so that the greatest risks receive the highest
attention.

7.4.6e Customer Due Diligence (CDD)

The AMLO defines what CDD measures are and prescribes the
circumstances in which an FI should carry out CDD. As indicated in the
AMLO, FIs may also need to conduct additional measures or could
conduct simplified CDD depending on specific circumstances. The
Guideline sets out the expectations of RAs in this regard and suggests ways
that these expectations may be met. Wherever possible, the Guideline gives
FIs a degree of discretion in how they comply with the AMLO and put in
place procedures for this purpose.

7.4.6f Ongoing Monitoring

The Guideline stresses that effective ongoing monitoring in an FI is
vital for understanding of customers activities and is an integral part of an
effective AML/CFT system. Effective ongoing monitoring helps FIs know
their customers and detect unusual or suspicious activities. The Guideline
gives guidance on how to achieve effective ongoing monitoring.

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7.4.6g Financial Sanctions

The United Nations Sanctions Ordinance (UNSO) gives the Chief
Executive the authority to make regulations to implement sanctions decided
by the Security Council of the United Nations (UNSC) and to specify or
designate relevant persons and entities. These sanctions normally prohibit
making available or dealing with, directly or indirectly, any funds or
economic resources for the benefit of or belonging to a designated party.
RAs circulate to all FIs designations published in the government Gazette
under the UNSO.

While FIs will not normally have any obligation under Hong Kong law
to have regard to lists issued by other organisations or authorities in other
jurisdictions, an FI operating internationally will need to be aware of the
scope and focus of the relevant financial/trade sanctions regimes in those
jurisdictions. Where these sanctions may affect their operations, FIs should
consider what implications exist for their procedures, such as the
consideration to monitor the parties concerned with a view to ensuring that
there are no payments to or from a person on a sanctions list issued by an
overseas jurisdiction.

The Chief Executive can, in response to an application from an FI,
license exceptions to the prohibitions on making funds and economic
resources available to a designated party under the UNSO.

7.4.6h Terrorist Financing and Proliferation Financing

The Guideline summarises the laws concerning CTF. To fulfill Hong
Kongs obligations under the relevant international laws, the UNATMO
was enacted, which gives the Secretary for Security (S for S) powers to
freeze suspected terrorist property and to direct that a person shall not deal
with the frozen property except under the authority of a licence.
Contraventions are subject to a maximum penalty of 7 years imprisonment
and an unspecified fine.

It is an offence under the UNATMO for any person to make any
property or financial services available, by any means, directly or indirectly,
to or for the benefit of a terrorist or terrorist associate except under the
authority of a licence granted by S for S. It is also an offence for any person
to collect property or solicit financial (or related) services, by any means,
directly or indirectly, for the benefit of a terrorist or terrorist associate.
Contraventions are subject to a maximum sentence of 14 years
imprisonment and an unspecified fine. The S for S can, in response to an
application from an FI, license exceptions to the prohibitions to enable frozen
property and economic resources to be unfrozen and to allow payments to be
made to or for the benefit of a designated party under the UNATMO.

Where a person is designated by a Committee of the UNSC as a
terrorist and his details are subsequently published in a notice under section
4 of the UNATMO in the Government gazette, RAs will circulate the
designations to all FIs.

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It is an offence under section 4 of the Weapons of Mass Destruction
(Control of Provision of Services) Ordinance (WMD(CPS)O), for a
person to provide any services where he believes or suspects, on reasonable
grounds, that those services may be connected to WMD proliferation.

FIs may draw reference from a number of sources including relevant
designation by overseas authorities. The RA may draw FIs attention to
such designations from time to time. FIs should therefore ensure that they
have an appropriate system to conduct checks against the relevant list for
screening purposes and that this list is up-to-date.

7.4.6i Database Maintenance and Screening (Customers and
Payments)

The Guideline reminds FIs to take measures to ensure compliance
with the relevant regulations and legislation on TF. The legal obligations of
FIs and those of its staff should be well understood, and adequate guidance
and training should be provided to the latter. FIs are required to establish
policies and procedures for combating TF. The systems and mechanisms
for identification of suspicious transactions should cover TF as well as ML.

It is particularly vital that an FI should be able to identify and report
transactions with terrorist suspects and designated parties. To this end, the
FI should ensure that it maintains a database of names and particulars of
terrorist suspects and designated parties which consolidates the various lists
that have been made known to it. Alternatively, an FI may make
arrangements to have access to such a database maintained by third party
service providers.

FIs should ensure that the relevant designations are included in the
database. Such database should, in particular, include the lists published in
the Gazette and those designated under the US Executive Order 13224. The
database should also be subject to timely update whenever there are
changes, and should be made easily accessible by staff for the purposes of
identifying suspicious transactions.

Comprehensive ongoing screening of an FIs complete customer base
is a fundamental internal control to prevent TF and sanction violations, and
should be achieved in specified manners.

FIs should have some means of screening payment instructions to
ensure that proposed payments to designated parties are not made, and be
particularly alert to suspicious wire transfers.

7/25
Enhanced checks should be conducted before establishing a business
relationship or processing a transaction, where possible, if there are
circumstances giving rise to suspicion.

In order to demonstrate compliance with the above requirements for
screening of customer bases, screening of payment instructions, and
enhanced checks, the screening and any results should be documented, or
recorded electronically.

If an FI suspects that a transaction is terrorist-related, it should make
a report to the JFIU. Even if there is no evidence of a direct terrorist
connection, the transaction should still be reported to the JFIU if it looks
suspicious for other reasons, as it may emerge subsequently that there is a
terrorist link.

7.4.6j Suspicious Transaction Reports

Once knowledge or suspicion of ML/TF or terrorist property has
been formed, FIs should apply the following general principles laid down
in the Guideline:

(a) in the event of suspicion of ML/TF, a disclosure should be made
even where no transaction has been conducted by or through the FI;

(b) disclosures must be made as soon as is reasonably practical after the
suspicion was first identified; and

(c) FIs should ensure that they put in place internal controls and systems
to prevent any directors, officers and employees committing the
offence of tipping off customers or any other person who is the
subject of the disclosure. FIs should also take care that their line of
enquiry with customers is such that tipping off cannot be construed to
have taken place.

The Guideline suggests an effective way of recognising unusual and
suspicious activities, i.e. by knowing enough about customers, their
circumstances and their normal expected activities to recognise when a
transaction or instruction, or a series of transactions or instructions, is
unusual.

FIs are required to ensure sufficient guidance is given to their staff
(including appointed insurance agents in this context) to enable them to
form suspicion or to recognise when ML/TF is taking place, and to identify
and assess the information that is relevant for judging whether a transaction
or instruction is suspicious in the circumstances.

Where an FI has formed a suspicion that particular transactions relate
to ML/TF, it should take into account the risk of tipping off when
performing the CDD process. It should ensure that their employees are
aware of and sensitive to this issue when conducting CDD.

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Furthermore, the Guideline gives guidance on timing and manner of
suspicious transaction reports, internal reporting system, recording of
internal reports and reports to the JFIU, and post reporting matters. A list of
indicators of suspicious transactions and examples of ML schemes are
appended to the Guideline for reference purposes.

7.4.6k Record-keeping

The Guideline stresses the importance of record-keeping to
compliance with general legal and regulatory requirements. It gives
guidance on retention of records relating to customer identity and
transactions, and control of intermediaries record-keeping.

In relation to record-keeping obligations by individual insurance
agents, the Guideline points out that individual insurance agents who are
appointed agents of an insurer are usually required to provide all customer
and transaction related documentation to the insurer directly, and they do
not have the capacity to maintain such documents. Under this arrangement,
and from the perspective of meeting the record-keeping requirements set
out in Part 3 of Schedule 2, these individual agents are considered to have
deposited the required records and documents at the premises of the
insurer. As the individual insurance agents remain responsible for
compliance with all record-keeping requirements, they should ensure that:

(a) the insurer to which they provide the records and documents has
systems in place to comply with all the record-keeping requirements
under the AMLO; and

(b) such records and documents are accessible from the insurer without
delay upon request by an RA.

7.4.6l Staff Training

According to the Guideline, the staff (including appointed insurance
agents in this context) of any FI should be trained in what they need to do
to carry out their particular roles in the FI with respect to AML/CFT. This
is particularly important before new staff commence work. FIs should
implement a clear and well-articulated policy for ensuring that relevant
staff receive adequate AML/CFT training. The timing and content of
training packages for different groups of staff will need to be adapted by
individual FIs for their own needs, with due consideration given to the size
and complexity of their business and the type and level of ML/TF risk.
Training should be provided so frequently as is sufficient to maintain the
AML/CFT knowledge and competence of the staff.

Apart from what staff should be made to know, the Guideline also
provides guidance on the training techniques and tools that may be used.
In addition, adequate records of training should be kept and the
effectiveness of the training monitored.

7/27
7.4.6m Wire Transfers

The Guideline provides guidance on wire transfers, which primarily
applies to authorised institutions and money service operators. Other FIs
should also comply with section 12 of Schedule 2 and the guidance on wire
transfers if they act as an ordering institution or beneficiary institution as
defined under the AMLO.

7.5 PREVENTION OF CORRUPTION

Corruption is an individuals act of abusing his authority for personal gain at the
expense of other people.

Administered by the Independent Commission Against Corruption (ICAC),
the Prevention of Bribery Ordinance helps the business sector maintain an
environment that is conducive to efficiency and fair competition. It protects principals
against agents abuses of authority for personal gain. Under Section 9(1) of the
Ordinance, an agent (normally an employee), when conducting his principal's business
or affairs, should not seek or accept an advantage without the permission of his
principal. The offeror of advantage commits an offence under Section 9(2) of the
Ordinance. Section 9(3) of the Ordinance provides that any agent who, with intent to
deceive his principal, uses any receipt, account or other document which is false or
erroneous commits an offence. Each of the offenders is subject to a maximum penalty
of imprisonment for 7 years and a fine of $500,000.

The ICAC offers free and confidential corruption prevention services to
organisations. For example, Best Practice Packages covering a wide range of topics
have been developed to provide both public corporations and private sector companies
with user-friendly guidelines on plugging corruption loopholes. The ICAC also
provides free, confidential corruption prevention advice to individual organisations.

To make insurance intermediaries better understand the importance of anti-
corruption and ethics management, the ICAC offers a large variety of anti-corruption
training courses and activities to the insurance industry. It has issued a booklet named
the Practical Guide on Professional Ethics for Life Insurance Intermediaries in
collaboration with the Office of the Commissioner of Insurance, the self-regulatory
bodies of the insurance industry and various professional associations of insurance.
The objectives are to enhance the vigilance of the life insurance industry against
potential corruption and fraud, and to strengthen insurance companies ability to
manage the ethical conduct of their staff, so that the risks of violations of laws and
regulations are reduced, contributing to long-term success.

Insurance intermediaries are encouraged to get familiar with the substance of
the Ordinance, the best practices suggested by the ICAC (including the module on
Verification of Insurance Claims), and the Practical Guide on Professional Ethics for
Life Insurance Intermediaries, with a view to preventing corrupt conduct both within
and outside their organisations. Other services of the ICAC should also be used as
much as is necessary. In dealing with clients or other third parties, insurance
intermediaries should guard against violating the Ordinance. Corruption cases should
be reported to the ICAC in person, by phone or by letter.

7/28
7.6 PREVENTION OF INSURANCE FRAUD

Fraud is of course dishonesty or cheating. Since insurance is a process
involving a high element of trust, there is ample scope for the dishonest person to take
advantage.

Insurance fraud may take any of a large number of forms. Usually, we tend to
associate the term with dishonest claims, from relatively small matters, such as having a
cheap watch stolen and saying that it was an expensive one, to elaborate swindles
involving arson or faked death certificates. There have even been examples of large life
insurance being arranged and then having the person concerned murdered for the
insurance money.

Fraud, however, may arise at other than the claims level. Obtaining insurance by
the deliberate falsification of material information, or knowingly hiding bad features, is
equally fraud. Of course, this is a form of breach of utmost good faith (see 3.2 above), but
often it is difficult to prove such things later.

Although fraud may be committed by anyone involved with insurance
(policyholder, insurance intermediary or even the insurer), we shall concentrate on the
customary understanding of the proposer or insured seeking an illegal advantage against
the insurer. The comments below refer specifically to the role of the insurance
intermediary in this subject area.

7.6.1 Beware of Becoming Partners in Crimes

Undoubtedly all of us know that we must refrain from carrying out
criminal activities, or we may face criminal prosecution and even civil action.
For instance, an insurance intermediary who misappropriates premiums that
have been collected on behalf of his principal is liable to prosecution for theft,
and to civil action by the principal to recover the stolen money and for damages
such as loss of interests. It is also common knowledge that, apart from the
actual perpetrator(s), a secondary party to the crime (see the next paragraph
for its definition) is also punishable by law. However, a general knowledge
cannot be assumed that the secondary party and the principal perpetrator (or
just principal) can be equally responsible for the same crime. This 7.6.1
introduces the criminal law of secondary parties so as to enhance the ability of
insurance intermediaries to identify potential criminal activities and to prompt
them to take extra care in distancing themselves from such activities. It will be
seen that the discussions here are not restricted to the offence of fraud and
offences involving fraud, in view of the fact that the law of secondary
participation is generally applicable to all offences.

Depending on the nature of participation, a participant in crime can
either be in the capacity of a principal or a secondary party (alternatively known
as secondary participant and accessory). Where there are more than one
principal and they should be jointly responsible, they are also known as joint
principals. A secondary party to an offence is one who aids, abets, counsels or
procures the commission of that offence. Without going into details about these
four legal terms, it is sufficient for the purposes of these Study Notes to mention

7/29
that secondary participation almost invariably consists simply in assisting or
encouraging the commission of the crime.

It surprises almost anyone who is new to this area of the law to know
that it is generally immaterial whether a defendant is alleged to have
participated in the crime as principal or as secondary party, as he is equally
responsible either way. Not too many people, it is also believed, realise that
participation by inactivity can be as culpable as participation by acting. Where
the defendant has the right to control another persons actions and he
deliberately refrains from exercising the right, such inactivity may constitute a
positive encouragement to that other person to carry out an illegal act, and
therefore an aiding, etc. Let us say, an insurance agent Mr Wong (who is an
appointed insurance agent of Insurer A alone) solicits insurance business from a
prospective client for Insurer B, with his up-line manager Miss Chiu (who is
also an appointed insurance agent of Insurer A) standing by and watching. If
Miss Chiu knows that Mr Wong is not an appointed insurance agent of Insurer
B, then her failure to stop Mr Wong very likely constitutes aiding and abetting
the commission of the offence under s 77(1) of the Insurance Companies
Ordinance.

The final aspect of the law of secondary participation to be discussed
here is the mens rea (or guilty mind) of the defendant at the time of aiding, etc.
that must be proved as one of the elements of the crime. Neither an intention to
gain from the commission of the crime nor from the conduct of aiding, etc. is
required. What is required is an intention to aid, etc., which conduct he knew to
be capable of assisting or encouraging the commission of the crime. Such an
intention, it should be noted, is not the same thing as an intention that the crime
be committed. Let us say, an insurance intermediary issues to a client, at the
request of the latter, an inflated premium receipt for a private car insurance
policy, which receipt he realises might be presented to the latters employer for
the purposes of over-claiming living costs allowance. By so doing, the
insurance intermediary can still be held to be an aider and abettor, even if he is
indifferent whether the client cheats his employer by use of the bogus receipt as
planned.

7.6.2 The Insurance Intermediary and Examples of Insurance Fraud

As stated, fraud takes many forms. We do not talk about deliberate
collusion and dishonesty on the part of insurance intermediaries. The illegality
and unethical nature of that is self-evident. Below are examples where the
insurance intermediary may be approached or tempted to assist in insurance fraud:

(a) Arranging the insurance: it often happens that the insurance intermediary
possesses or is supplied with information which could have an adverse
effect upon an application or proposal for insurance. This information
could even mean that the risk is uninsurable. Under no circumstances
should that information be omitted or misrepresented. Doing this with the
intention of misleading the insurer is fraud.


7/30
Remember, by law and ethics, an insurance intermediary is bound to
exercise the duty of utmost good faith in such matters, whatever the
practical consequences for the proposed insurance.

(b) Fraudulent claims: it is not the responsibility of the insurance
intermediary to become a detective or a law-enforcement officer, but
there is a common duty not to assist fraud and to report evidence or
suspicions of it. Concerning claims, this may mean suspicious
circumstances, doubtful medical or other documentary evidence or even
verbal communications which clearly indicate that all is not correct with a
particular claim.

Note: A word of caution must be given. Fraud is a most serious matter and to
allege it is something that must not be done lightly. It is the insurer's
primary duty to investigate claims, and certainly only he can allege fraud.
The insurance intermediary's role is to assist the insurer, and indeed the law,
in resisting attempted fraud and in revealing fraud, but this is a matter of the
greatest sensitivity, as will be readily appreciated.

7.6.3 Practical Steps in Preventing Fraud

As with all matters involving illegal activities, perhaps the most important
advice in preventing fraud is firstly to be aware that it can happen. Of course, we
must not become paranoid about this, but the possibility that it can arise is always
a good beginning in fraud prevention. Additionally:

(a) Vigilance: suspicious actions, like sudden increases in sums insured with
no or inadequate explanation, apparently inordinate amounts of insurance,
and so on, should put the insurance intermediary on guard.
(b) Diligence: sometimes fraud can arise when records are inadequately kept
or unnecessary delays occur. Keeping up to date with actions and record
keeping is not only good business, it is an excellent fraud prevention
exercise.
(c) Communication: whether representing the insured or the insurer, the
insurance intermediary should always keep in close touch with the insurer,
especially where there may be suspicious circumstances.
(d) Integrity: by law, contract and all recognised ethical behaviour, insurance
agents and brokers have to maintain the highest moral standards.
Remembering this at all times will almost automatically supply all
necessary guidance in this area. Insurance agent, insurance broker or
insurer, we are all the enemy of fraud.
- o - o - o -

7/31
Representative Examination Questions


Type A Questions

1 The Personal Data (Privacy) Ordinance for Hong Kong applies to:

(a) the public sector only; .....
(b) the private sector only; .....
(c) both the public sector and the private sector; .....
(d) neither the public sector nor the private sector. .....

[Answer may be found in 7.2.1(a)]

2 Legislation has been enacted in Hong Kong regarding equal opportunity. Which
of the following are areas where discrimination may arise have been made the
subject of an appropriate Ordinance?

(a) sex; .....
(b) pregnancy; .....
(c) physical disability; .....
(d) all of the above. .....

[Answer may be found in 7.3.1]


Type B Questions

3 Which of the following are among the recognised principles of Data Protection?

(i) Access to personal data
(ii) Security of personal data
(iii) Purpose and manner of collection
(iv) Information to be generally available to the data subject

(a) (i) and (ii) only; .....
(b) (i) and (iii) only; .....
(c) (ii) and (iv) only; .....
(d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 7.2.1(c)]

7/32
4 Which of the following are among the types of insurance commonly used in
money laundering activities?

(i) Fire insurance
(ii) Purchased annuities
(iii) Motor insurance
(iv) Unit-linked single premium contracts

(a) (i) and (ii) only; .....
(b) (ii) and (iii) only; .....
(c) (ii) and (iv) only; .....
(d) (i), (iii) and (iv) only. .....

[Answer may be found in 7.4.3]

[If still needed, the answers may be found at the end of the Study Notes.]


(i)
GLOSSARY

Abandonment () A practice effectively restricted to marine insurance, whereby
the assured surrenders all rights in the subject matter insured to the insurer, in return
for a total loss settlement. 3.4.6


Academic Classification of Insurance A method of
classifying insurance business, often used for examination and educational purposes
(insurance of the person, insurance of property, insurance of pecuniary interest and
insurance of liability). 5.1.3


Acceptance (law of contract)()One of the elements of a contract,
where one party agrees to accept an offer. 2.1.3(b)


Accounting and InvestmentThose functions of insurers which
concern the receipt and payment of monies and the effective and productive use of
accumulated funds. 4.10


Actuarial Support The contribution of actuaries in insurance, in such
matters as premium rating, loss reserving and valuation of liabilities. 4.9


Adequate Reinsurance () One of the requirements under the
Insurance Companies Ordinance for an insurer wishing to be authorised, or to remain
to be authorised, in Hong Kong. 6.1.1e


Administrator () Put simply, he is a person appointed to manage the
property of another. 3.1.4(b)


Agency () Principal and agent relationship. 2.2.1


Agency by Estoppel () An application of the doctrine of
estoppel to an agency situation is where a person, by words or conduct, represents or
allows it to be represented that another person is his agent, in which case he will not be
permitted to deny the authority of the agent with respect to anyone (third party) dealing
with the agent on the faith of such representation. 2.2.3(d)


Agent () A person acting on behalf of a principal. 2.2(a)


(ii)
Agreed Value Policy () Property insurance where it is agreed at
policy inception that the item(s) concerned have, throughout the currency of the
contract, the value stated in the policy. Mostly used with items that tend not to
depreciate, e.g. jewellery and antiques, and in marine insurance. 3.4.8(c)


All Risks () A form of property insurance cover where all causes of loss
are insured unless specifically excluded. 1.1.1 Note 2


Ancillary Functions of Insurance () Indirect benefits,
consequences and results of insurance (as opposed to its direct intentions and
objectives). 1.2(b)


Annual Financial Statements and Auditor's Report
A requirement upon all insurance brokers, under Section 69 of the
Insurance Companies Ordinance, is that they have to submit an annual audited
financial statement representing a true and fair picture of the business profit or loss for
the period then ended. 6.2.3e


Annuity () A contract whereby an insurer promises to make a series of
periodic payments (annuity benefit payments) to a designated person (payee)
throughout the lifetime of a person (annuitant) or for an agreed period, in return for a
single payment or a series of payments made in advance by the annuity purchaser.
Very often, the payee, the annuitant and the annuity purchaser are the same person.
5.1.1(a)


Apparent Authority () The authority of an agent may be apparent instead
of actual, where it results from a manifestation of consent, made to third parties by the
principal. This doctrine is distinct from the doctrine of estoppel in that it applies where an
agent is allowed to appear to have a greater authority than that actually conferred on him,
whereas the doctrine of estoppel applies where the supposed agent is not authorised at all
but is allowed to appear as if he was. 2.2.3(b)


Appeals Tribunal () A body of members nominated by The Hong
Kong Federation of Insurers and confirmed by the Insurance Authority, to hear
appeals by applicants in respect of applications for registration under the Code of
Practice for the Administration of Insurance Agents or by any party who is the subject
of any disciplinary or other action imposed by the IARB under the Code. The
Tribunal's decision is final. 6.2.2d(d)



(iii)
Approved Bodies of Insurance Brokers Associations of
insurance brokers approved by the Insurance Authority under Section 70 of the
Insurance Companies Ordinance (at present consisting of the Hong Kong
Confederation of Insurance Brokers and the Professional Insurance Brokers
Association Limited). 5.5.2


Assignment of Policy (Insurance Contract) (()) The
transfer of rights under a contract of insurance, whereby another person becomes the
policyowner in respect of the same subject matter of insurance. 3.1.6


Assignment of the Right to Insurance Money () The
transfer of the right to insurance money to a third party, who then acquires the right to
sue the insurer under the contract. 3.1.6


Average (in marine insurance) (): partial (i.e. non-total) loss. 3.4.7(a) Note


Average (in non-marine insurance) (): a policy provision which imposes a
penalty for under-insurance when a claim arises. 3.4.7(a)


Bailee A bailee of goods is a person taking possession of the goods
with their owners consent, where there is no intention to transfer ownership. 3.5.3


Breach () Failure to fulfil an obligation, perhaps in connection with contractual
terms, or related to agency relationship. 2.1.3, 2.2.5(c)


Capacity 1 Capacity to Contract: The legal ability to
enter into a contract, without which, the proposed contract will be defective. 2.1.3(d)
2 Underwriting Capacity: The practical, financial
ability of an insurer to accept proposed business, with or without the assistance of
reinsurance. 4.8(b)


Captive Insurer () It primarily underwrites its founders own
risks. The founder, or parent company, may be one company, several companies, or
an entire industry. (Note: a captive insurer, more strictly defined in the ICO, is
subjected to less stringent statutory supervision than an ordinary insurer.) 6.1.1b(d)


Cash Payment () A method of providing an indemnity, or paying the
policy benefit. 3.4.4(a)



(iv)
Claims/The request by the insured for indemnity or policy
benefit under his insurance. Alternatively, claims made by a third party against the
insured of a liability policy. The term claims is also used to refer to an insureds act
of asking for payments of benefits under his policy. 4.7


Claims (Denial of) () A section within the Code of Conduct for Insurers
relates to guidelines to be followed when rejecting insurance claims. Broadly, these
guidelines call for a fair and reasonable approach and good communication with the
claimant as to the reasons for the denial, etc. 6.1.2c(b)


Claims Outstanding ( ) Put simply, they are claims which, as at a
particular date, remain unpaid. The term is defined in much greater detail in the ICO.
6.1.1c(a)(ii)


Classification of Risk () Categorising risks for a particular purpose.
1.1.2


Client AccountPart of the Minimum Requirements Specified for
Insurance Brokers is that they should maintain at least one client account, so that
clients money is kept separate from the insurance brokers money and used only for
the purposes of the client. 6.2.3a(d)


Client Servicing (see Customer Servicing) 4.2


Code of Conduct for Insurers () Implemented by The
Hong Kong Federation of Insurers in May 1999, this code lays down recommended
practices for insurers. The code only applies to insurance for personal policyholders
resident in Hong Kong, effected in their private capacity only. 6.1.2


Code of Practice for the Administration of Insurance Agents (
) Issued by The Hong Kong Federation of Insurers with the approval of the
Insurance Authority in accordance with the provisions of the Insurance Companies
Ordinance, this has 7 parts (A to G) covering a wide range of expectations and
requirements in the subject of administration of insurance agents. 6.2.2


Collectability () Whether or not arranged reinsurance is
likely to prove effective (i.e. whether the reinsurers can or will pay their shares of
loss). It in fact is not a technical term. 6.1.1e


Complaints and Disputes () This important topic is given guidelines
and recommended practices in the Code of Conduct for Insurers, and includes such
matters as the existence of appropriate structures for receiving and dealing with
complaints, both internally and externally. 6.1.2e

(v)
Composite (Insurer) (()) Originally designating an insurer
which transacted more than one type of business, the term now is likely to mean an
insurer which transacts both types of insurance business as per the Insurance
Companies Ordinance (i.e. Long Term Business and General Business). 5.2.1(c)


Contract () A legally enforceable agreement. 2.1.1


Counter-OfferAn offer made by the original offeree to the original
offeror, proposing a contract on different terms from those originally offered by the
latter (thus legally destroying the original offer). 2.1.3(b)


Customer ServicingAlso known as Client Servicing,
this involves all aspects of communication with existing policyholders and potential
policyholders, including public relations, complaints handling and correspondence. 4.2


Deeds A deed is a written instrument signed, sealed and delivered. 2.1.2(b)


Deemed () Treated as. 2.2.1


Defective Contracts Contracts which, for one reason or
another, are void, voidable or unenforceable, as the case may be. 2.1.3


Duties owed by Agent to Principal () Responsibilities
deemed to apply, or individually specified, such as obedience to legitimate orders, the
exercise of due care and skill, etc. 2.2.4


Duties owed by Principal to Agent () Corresponding
responsibilities deemed to apply, or individually mentioned, such as payment of
agreed remuneration, etc. 2.2.5


Electronic Transactions OrdinanceLegislation which from April
2000 (amongst other things) allows electronic information submission when
supplying details required by the Insurance Authority. 6.1.1f(c) Note 1


Emotional (Risk) An uncertainty that leads to grief and
sorrow if realised. 1.1.1(c)


Employees' Compensation Insurance () Compulsory insurance
in Hong Kong which relates to the statutory liability of an employer to pay specified
compensation in respect of an employees death or injury arising out of and in the
course of his employment. 5.1.1(b)

(vi)
Endorsement () A document that an insurer issues to add policy provisions
to an existing policy. 4.6(d)


Equal Opportunity () A concept that has received particular legislative
attention in Hong Kong, with Ordinances passed with a view to eliminating
discrimination on various grounds, such as sex, marital status, disability, race, etc.
7.3.1


Equity That body of rules formulated by the courts to supplement the
rules and procedure of the common law. 3.5.1


Excepted (Excluded) Peril () A cause of loss excluded by the terms of the
insurance (e.g. suicide under a personal accident insurance), or by statutory
provisions. 3.3.2(b)


Excess () A policy provision requiring the insured to bear the first amount,
up to the prescribed amount, with each and every claim; in other words, the insurance
is only liable in excess of the prescribed amount. 3.4.7(b)


Executor () Person named in a will whom the testator wishes to
administer the estate. 3.1.4(b)


Fair Discrimination in Insurance () J ustified differential
practices adopted by insurers to meet the realities of situations, e.g. charging men
more premium in life insurance than women of the same age, health condition, etc.
Thus, this is no breach of the relevant anti-discrimination legislation.
7.3.2


Fidelity Guarantee An insurance guarantee to a person against the
dishonesty of another person (perhaps, an employee of the first person). 5.1.1(b)


Financial Risk () An uncertainty producing a loss measurable in
monetary terms if realised. 1.1.1(a)


Fit and proper () A common phrase in regulatory instruments,
indicating that the individual occupying or wishing to occupy a certain position is
suitable and acceptable from a regulatory point of view.
6.1.1d, 6.2.2e, 6.2.3a


(vii)
Fitness and Properness of Registered Persons () A
range of requirements and limitations concerning the criteria for this subject are
contained in Part E of the Code of Practice for the Administration of Insurance
Agents. 6.2.2e


Franchise () A rare policy provision whereby the insured is not covered for
any loss not exceeding or attaining the specified franchise, but is covered in full if the
loss exceeds or attains the franchise, depending on the wording used. It could be
related to a time, rather than an amount, so that (for example) no hospitalisation
compensation or benefit is payable for less than three days stay, but compensation for
the full period is payable for longer stay. 3.4.7(c)


Fraud (Insurance) () Fraud against the insurer is possible in a
number of ways. These could involve the insurance intermediary, concerning the
arrangement of the insurance or in connection with a claim. 7.6


Fraudulent Misrepresentation () A breach of utmost good faith,
arising from the fraudulent provision of false or inaccurate material facts. 3.2.5(a)


Fraudulent Non-Disclosure () A breach of utmost good faith,
arising from a fraudulent omission to provide a material fact. 3.2.5(c)


Fundamental Risk () That type of risk whose causes are outside the
control of any one individual or even a group of individual, and whose outcome affects
large numbers of people. 1.1.2b(ii)


General Business () One of the two major divisions of insurance
classified under the Insurance Companies Ordinance (ICO). It consists of a very
wide range of different types of insurance, with seventeen classes in the ICO. 5.1.1(b)


General Insurance () Another term for General Business, denoting
insurance other than long term insurance. 5.1.1(b)


Group of Companies () For the purposes of clause 22(b) of the
Code of Practice for the Administration of Insurance Agents, the term means that the
relationship between the companies is that of subsidiary and holding company or
they are the subsidiaries of another company, with subsidiary and holding
company having the meanings attributed to them by Sections 2(4)-(7) of the
Companies Ordinance. 6.2.2c(d)(iii)

(viii)
Guidelines on Handling of Premiums ()
The Insurance Agents Registration Board has published this set of guidelines,
recommending the method of payment of premiums. 6.2.2h(b)


Guidelines on Misconduct () Another set of guidelines
issued by the Insurance Agents Registration Board, recommending procedures and
appropriate actions to avoid potential losses arising from misrepresentation and
forgery, etc. 6.2.2h(a)


Guidelines on the Effective Date of Registration of Insurance Agents,
Responsible Officers and Technical Representatives
These include reference to the fact that holding
oneself out to be an insurance agent, Responsible Officer or Technical Representative,
before being registered by the Insurance Agents Registration Board is an offence
against the Insurance Companies Ordinance or a breach of the Code of Practice for the
Administration of Insurance Agents. 6.2.2h(c)


Hong Kong Confederation of Insurance Brokers One of
the two approved bodies of insurance brokers in Hong Kong, whose members are
deemed to be authorised insurance brokers. 5.5.2(a)


Hong Kong Federation of Insurers (HKFI) () The
central market body, representing majority of the authorised insurers in Hong Kong.
A major objective of the HKFI is to promote and advance the interests of insurers and
reinsurers transacting business in Hong Kong, and its mission statement further states
that the HKFI exists to promote insurance to the people of Hong Kong and build
consumer confidence in the insurance industry. 5.5.1


Indemnity () An exact financial compensation, restoring the insured to the
same financial situation he occupied immediately prior to the loss. A standard
understanding of all insurances except life and personal accident (but its application or
non-application may be modified by contractual terms). 3.4.1


Indemnity (How Provided) () Exact compensation to the
insured may be provided by a cash payment, by repair or replacement, or by
reinstatement. The non-marine practice is that this will be at the insurer's option. 3.4.4


Insurable Interest () The legal right to insure. The relationship with the
subject matter of insurance that gives the right to effect insurance. 3.1.1


Insurable Risk () A threat of loss that meets the necessary criteria for
feasible insurance cover. 1.1.1

(ix)
Insurance Agent () An agent in an insurance contract, usually
representing the insurer and remunerated by commission on the premium paid. 2.2


Insurance Agents Registration Board (IARB) () The
body set up by The Hong Kong Federation of Insurers to register insurance agents and
to handle complaints against insurance agents pursuant to the Code of Practice for the
Administration of Insurance Agents. 6.2.2a(a), 6.2.2b


Insurance Broker () An insurance intermediary who arranges insurance
on behalf of the intended or actual insured. Remunerated by commission (or
brokerage) paid by the insurer. 2.2(a)


Insurance Claims Complaints Bureau () Has a membership of all
authorised insurers underwriting personal insurance in Hong Kong. Its primary
function is to handle complaints from personal policyholders, in respect of claims
affecting personal insurances. 6.1.4


Insurance Claims Complaints Panel () Consisting of an
independent Chairman and four members, only two of which are nominated by The
Hong Kong Federation of Insurers, the Panel may hear and adjudicate on claim-
related complaints from personal policyholders. No fee is involved for the
policyholder, win or lose. 6.1.4a


Insurance Companies Ordinance (ICO) () The primary
legislation in Hong Kong for regulating the insurance industry. Despite its title, the
ICO also contains provisions relating to the regulation of insurance intermediaries in
Hong Kong. 6.1.1


Insurance Intermediaries () In Hong Kong these consist of insurance
agents (usually representing the insurer) and insurance brokers (usually representing
the insured). Separate regulatory rules and provisions apply to each group. 2.2(a)


Insurance Intermediaries Duties to Policyholders (
) With this topic, there are common areas for both insurance agents and
insurance brokers. In addition there will be separate requirements upon each, the
former especially involving the requirements of the agency agreement. 7.1


Insurance of Legal Rights () Also called pecuniary insurance, this
covers the infringement of rights or the loss of future income, e.g. fidelity guarantee
and business interruption insurance. 3.1.4(d)

(x)
Insurance of Liability Insurances where the subject matter is the legal
liability of the insured for death, injury or property damage to third parties, e.g. public
liability insurance and motor car (third party) insurance. 5.1.3(c)


Insurance of Pecuniary Interests The insurance of financial
interests, not conveniently falling within the traditional categories of property
insurance, liability insurance or insurance of the person. Includes fidelity guarantee
and business interruption insurance. 5.1.3(d)


Insurance of Property Insurances where the subject matter is physical
property, e.g. motor car (own damage) and fire insurance. 5.1.3(b)


Insurance of the Person Insurances where the subject matter is the
life, limb or health of the person insured e.g. life insurance and personal accident
insurance. 5.1.3(a)


Insurance Sales The activity of an insurer in connection with
marketing, product liaison and general monitoring of the results of product
development. 4.4


Insured Peril () A cause of loss insured by the policy. An insured peril
must always be involved before a valid claim can arise. 3.3.2(a)


Insurer () That party to an insurance contract who carries the risk. Insurers
usually are corporations, though individual insurers are also found in the London
market. 1.1.2a


Intention to Create Legal Relation An important element
in simple contracts, whereby the parties must have intended the agreement to have
legal consequences in the event of breach. 2.1.3(f)


Invalid (Contract) An agreement that has no legal effect. 2.1.3


Inwards Reinsurance Reinsurance of part or all of another insurer's
risks, resulting in reinsurance premium coming in. 5.1.4(b)


Joint Tortfeasors J oint wrongdoers in cases of common action,
agency or vicarious liability. 3.6.4(b)(iii)(2)


(xi)
Legality (contract) () An essential requirement with contracts,
that the proposed agreement is not contrary to any aspect of law; otherwise, the
contract is generally unenforceable. 2.1.3(e)


Life Insurance () The major type of Long Term Business and forming
the leading class of insurance, by premium volume, in Hong Kong. 5.1.1(a)


Long-tail Business Classes of insurance where claims under a
policy may arise and develop over a long period of time, perhaps a number of years
after the expiry of the period of insurance, e.g. most liability insurances. 4.9(b)


Long Term Business () One of the two major divisions of insurance, as
per the Insurance Companies Ordinance. The dominant categories within this division
concern life insurance contracts. It is long-term because policies are normally not
annual contracts, but last for a number of (sometimes many) years. 5.1.1(a)


Loss Prevention () The lowering of the frequency of identified losses.
1.1.3(c)(iii)


Loss Reduction () The lowering of the severity of identified losses.
1.1.3(c)(iii)

Management of Insurance Agents () Forming Part IV of the
Code of Conduct for Insurers, this section provides guidance on various relevant
issues, including registration, complaints, adequate support, etc. 6.1.2d


Marine Clause A clause in a fire policy to the effect that any
marine insurance covering the same loss should pay for the loss and the fire policy
will pay towards any remaining uncompensated loss after the marine policy has
responded. 3.5.5(c)


Market Co-operation Whilst competition is strong among insurers,
there is considerable inter-company co-operation, especially seen in the central
representative body for insurers, The Hong Kong Federation of Insurers. 5.3(c)


Marketing and Promotion Conscious contact with the
public to maintain public relations and promote the company's interests. 4.3


Material Fact () A fact that would influence the judgement of a prudent
underwriter as to the acceptance of a risk or the premium on which it is to be
accepted. 3.2.3

(xii)
Minimum Requirements Specified for Insurance Brokers
Minimum Requirements are specified under Part X of the Insurance
Companies Ordinance for compliance by persons applying to become authorised
insurance brokers and by existing authorised insurance brokers. In addition to the
requirements that insurance brokers be fit and proper and the approved bodies of
insurance brokers must have rules and regulations to ensure that its members are fit
and proper, the Insurance Authority has stipulated five requirements, including
qualifications and experience, capital, net assets, etc. 6.2.3


Model Agency Agreement () A principal must appoint an
insurance agent under a written agency agreement, which must at least meet the
minimum requirements of The Hong Kong Federation of Insurers' model agency
agreement, as outlined in Part F of the Code of Practice for the Administration of
Insurance Agents. 6.2.2f


Money Laundering A matter of international concern, where illegally
obtained money is processed through various methods in order to cleanse it. One
method adopted was by the use of insurance contracts, and in addition to legislation
covering the issue, the Office of the Commissioner of Insurance has given specific
guidelines to help combat this illegal practice. 7.4.1


More Specifically Insured A provision which is effectively a
non-contribution clause, so that any insured item (e.g. under a household contents
insurance) which has a more specific insurance (e.g. an all risks policy covering that
item alone) is excluded from the less specific insurance. 3.5.5(b)


Motor Insurers' Bureau of Hong Kong (MIB) An
industry organisation of which all authorised motor insurers in Hong Kong must be
members. Funded by a levy on motor insurance premiums, it exists to implement the
intentions of compulsory motor insurance, by compensating eligible victims for death
or injury claims required to be covered by compulsory motor insurance, but where for
some reason the insurance does not exist or is defective. 5.5.3(b)


New for Old Cover () Claims settlements are not
subject to deduction for wear and tear, depreciation, etc. An expression found mostly
with personal lines property insurance, with some items (e.g. clothing) not subject to
this provision. 3.4.8(b)

Non-Contribution Clause A provision in an indemnity policy to
avoid contributing to a claim settlement in the event of a double insurance. 3.5.4(b)


Non-fraudulent Misrepresentation () A breach of utmost good
faith, arising when one party innocently or negligently gives to another party an
inaccurate or untrue representation of a material fact. 3.2.5(b)

(xiii)
Non-fraudulent Non-Disclosure () A breach of utmost good faith,
arising when one party innocently or negligently fails to give to another party material
facts. 3.2.5(d)


Obligee There are three parties to a suretyship: the surety, the
principal and the obligee. It is the obligee in whose favour the suretyship is issued.
That is to say, when there is failure on the part of the principal to fulfil an obligation
to the obligee, the surety will pay the obligee. 2.1.2(b)


Offer (contract) () An essential element in a simple contract,
constituting the proposed terms of the intended contract. 2.1.3(a)


Offeree The person to whom a contract offer is made. 2.1.3(b)


Offeror The person making a contract offer. 2.1.3(a)


Ordinary Good Faith () The common law duty not to lie or deliberately
mislead the other party in a contract. However, this duty does not require the
disclosure of all facts known, but only in response to specific questions. 3.2.1


Outwards Reinsurance Reinsurance of insurers own business
with a reinsurer, thus resulting in reinsurance premium having to be paid out.5.1.4(a)


Paid-up Capital (/) Shares for which no amount remains
on call (i.e. all the money due for them has actually been paid to the company).
6.1.1a&b, 6.2.3d(b)


Participating Policy Every year a life insurer will determine the
amount of its divisible surplus, if any. Dividends will be paid out of the divisible
surplus to holders of its participating policies. 4.7(a)(v)


Particular Risk () A risk where the consequences are potentially of
limited application, i.e. affecting relatively few people or a relatively small area
(although the consequences for those concerned may be fatal or very serious).1.1.2b(i)


Performance Bond A guarantee that a construction contract will be
carried out. 5.1.1(b)

(xiv)
Peril () The cause of a loss. This is important in connection with the
application of proximate cause. 1.1.1Note 2, 3.3.2


Personal Data Protection () A subject of international importance,
with the advances in computer technology. The specific legislation dealing with the
issue in Hong Kong, which includes any applications in insurance, is the Personal
Data (Privacy) Ordinance. 7.2


Physical (Risk) () An uncertainty resulting in death or injury if
realised. 1.1.1(b)


Policy () A written/printed instrument most often issued to an insured as an
evidence of the insurance contract. 2.1.1


Policy Condition Policies often contain a collection of provisions
which provide a framework for the policy explaining some of the relationships, rights
and duties of the insured and the insurer. Such provisions are termed Policy
Conditions. 3.5.5


Policy Limits () Policy provisions which determine the maximum
amount of insurance recovery, e.g. sum insured. 3.4.7(d)


Powers of Intervention () The statutory teeth given to the regulatory
authorities to take action in appropriate circumstances. The options available range
from various restrictions and limitations to liquidation of the insurer concerned. 6.1.1g


Practical Classification of Insurance The categorisation of
insurance business best suited to the internal organisation of the insurer (perhaps, for
example, using the source of business as the category: direct, broker produced and
agent produced). 5.1.2


Premium The consideration payable by the insured for an insurance.
4.6(d)

Primary Functions of Insurance () The direct objectives and
intentions of insurance, e.g. transferring risk and compensating losses. 1.2(a)

Principal () The person for whom an agent acts. 2.2(a)

(xv)
Product Development The invention and introduction of new
forms of cover, either as an individual product or as a portfolio development (package
of cover). 4.1


Product Research Monitoring and developing existing and new
products to keep in line with trends and market competition. 4.1(c)


Professional Indemnity Insurance A liability insurance
covering professional people (doctors, lawyers, insurance brokers, etc.) for legal
liability in respect of injury, loss or damage caused through their negligence. 6.2.3d(c)


Professional Insurance Brokers Association One of
the two approved bodies of insurance brokers in Hong Kong, whose members are
deemed to be authorised insurance brokers. 5.5.2(b)


Professional Negligence A failure of the expected degree of
professional competence, resulting in death, injury or loss to a third party. Resulting
claims may be covered by various forms of professional indemnity insurance. 7.1.1(d)


Professional Reinsurer An insurer that only transacts
reinsurance business. 5.1.4

Proposal Form (or Application Form) A standard form on which a
proposer of insurance is required to supply the insurer with material information.
2.1.3(a)

Proposer () A prospective insured who completes a proposal form when
seeking insurance; may also be known as an applicant. 2.2(a)


Proximate Cause () The dominant or effective reason for a loss, which must
be ascertained to determine whether that loss constitutes a valid claim under an
insurance contract or not. 3.3


Pure General Business () When an authorised insurer in Hong
Kong is described as doing Pure General Business, that means it transacts only
general (not long term) business. 5.2.1(b)


Pure Long Term Business () When an authorised insurer in
Hong Kong is described as doing Pure Long Term Business, that means it transacts
only long term (not general) business. 5.2.1(a)


Pure Risk () An uncertainty that can only result in either a loss or no
change. 1.1.2a(i)

(xvi)
Quantum The amount of loss, or the amount recoverable from the insurer.
4.7(c)(ii)

Rateable Share The proportion of a loss to be paid by the
respective insurers in a contribution situation, i.e. where more than one insurer is
involved with providing indemnity to the same insured. 3.5.5(a)


Ratification () A retrospective act of adopting a contract or a transaction by
someone who was not bound by it originally because it was entered into on his behalf
but without his authority. 2.2.2(b)


Register of Insurance Agents () A register to be maintained by the
Insurance Agents Registration Board, as prescribed by the Insurance Authority and available
for public inspection at The Hong Kong Federation of Insurers office or website. 6.2.2d(a)


Registered Person () A person who has been registered under the Code
of Practice for the Administration of Insurance Agents as either an Individual Agent;
an Insurance Agency, a Responsible Officer of an Insurance Agency; or a Technical
Representative of an Individual Agent or Insurance Agency. 6.2.2a(a)


Regulation of Insurance Intermediaries () This is partly by
the Government and partly by the insurance industry itself, consisting of legislative
requirements and various codes and other self-regulatory measures. 6.2


Reinstatement (Property insurance) (()) As a method of
providing an indemnity, it means the restoration of the insured property to the condition
it was in immediately before its destruction or damage. 3.4.4(d)


Reinstatement Insurance () Property insurance where the settlement
basis for claims is effectively new for old (i.e. no deduction for depreciation, etc.) if
the damage is reinstated (or made good). 3.4.8(a)


Reinsurance An insurance used to transfer all or part of the risk
assumed by an insurer under one or more insurance contracts to another insurer. 4.8


Renewal The continuation of an insurance contract for a further period
(legally constituting a new contract). 4.5(b)


Replacement () A method of providing an indemnity, by the insurer providing
a substitute item for the one lost/damaged. 3.4.4(c)

(xvii)
Reporting Requirements Under the Insurance Companies
Ordinance, every insurer has to submit annually to the Insurance Authority its
financial statements in prescribed form. There are additional separate requirements
for insurers transacting general and long term business respectively. 6.1.1f(c)


Reserve An amount subtracted from a firms retained earnings for a
general or specific purpose. (A firms retained earnings represent its cumulative net
income since it was established, less the total dividends (or drawings, in the case of
unincorporated businesses) that have been paid to owners over its entire life.) 4.9(b)


Responsible Officer () More fully defined in the Code of Practice for the
Administration of Insurance Agents, such a person is responsible for the conduct of an
insurance agency business. 6.2.2a(a)


Revocation The cancellation of an agency agreement by either
party (which must be subject to legal and specific contractual terms). 2.2.6(b)


Risk () Uncertainty concerning a potential loss. 1.1

Risk Avoidance Elimination of the chance of loss of a certain kind
by not exposing oneself to the peril. 1.1.3(c)(iii)


Risk Financing No matter how effective the loss control measures
an organisation takes, there will remain some risk of the organisation being adversely
affected by future loss occurrences. A risk financing programme is to minimise the
impact of such losses on the organisation. It uses tools like: risk assumption, risk
transfer other than insurance, self-insurance, insurance, etc. 1.1.3(c)(iii)


Risk Management (as used by insurers) (()) Ways and
means of improving the insured loss potential of risks that are insured. 1.1.3


Risk Management (not as used by insurers) (())
In banking and other financial service areas, the reference is to the control of
speculative risks. As a separate field of knowledge and discipline, it refers to the
identification, quantification and methods of dealing with all types of risk, pure and
speculative. 1.1.3


Risk Transfer () Finding another party to promise in advance to bear the
consequences of ones exposure to risk. 1.1.3(c)


Salvage (in maritime law and marine insurance): This term is used to mean (a) (
) a reward payable to a person (salvor) who has successfully rescued ships or
other maritime property from perils of the sea, pirates or enemies by the property
owners, or (b) () such a rescue. 3.4.5 Note

(xviii)
Salvage (in non-marine insurance) (): what is left of the subject matter of insurance,
following damage, e.g. the wreck of a car, which may still have some scrap value. 3.4.5


Section Limit () A policy provision limiting the amount payable under a
particular section of the policy. 3.4.7(d)(ii)


Short-tail BusinessClasses of insurance where claims arise and are
notified in a relatively short time-scale, e.g. fire insurance and motor (own damage)
insurance. 4.9(b) Note


Simple Contract It is a contract created verbally, or by writing not
under seal. It can also be inferred from conduct. 2.1.2(a)


Single Article Limit () A property policy provision stipulating that
the policy liability in respect of any one article should not exceed a specified sum
called the single article limit, unless separately subject to its own sum insured.
3.4.7(d)(i)

Solvency Margin () The extent to which assets exceed liability.
Insurers in Hong Kong must have a solvency margin which does not fall below the
relevant amount (minimum required sum) at all times. 6.1.1a(b)


Speculative Risk () A risk which offers the possibilities of gain and loss.
1.1.2a(ii)


Statutory Classification of Insurance () The categorisation of
insurance classes in accordance with statute (the Insurance Companies Ordinance),
which broadly divides insurance into Long Term Business and General Business. 5.1.1


Stop-Lists Risks identified by the insurer as being of a type or class
not to be offered insurance cover (e.g. comprehensive motor insurance to young
drivers of high-powered motor cars). 4.5(e)


Subject Matter of Insurance Where the Subject Matter of
Insurance is lost, damaged, injured, or the like, the insurance policy will pay the
insured according to the extent to which his interest in it will have been affected. It
can be property, the person, potential liability or legal right. 5.1.3

Subrogation The common law principle allowing an insurer to acquire
and exercise for his own benefit any recovery rights the insured may possess against
third parties in respect of the loss for which the insurer has indemnified the insured.
3.6

Subrogation - How ArisingSubrogation may arise in tort,
under contract, under statute or in salvage. 3.6.2

(xix)
Subrogation - Rights LimitedThe insurer may not retain
under subrogation more than he paid as an indemnity. 3.6.4(b)(i)


Sum Insured () The limit of the insurer's liability under the policy. 3.4.7(d)


Suretyship () A suretyship contract is one whereby the surety is obliged to pay
the obligee in the event of the principals failure to fulfil an obligation to the obligee.
It is the principal who pays the contract price. 2.1.2(b), 5.1.1(b)


Target Risks 1 General insurance: the term may be used to refer
to large, hazardous risks. 4.5(d)
2 Life insurance: risks that are especially attractive
to the insurer (e.g. healthy school teachers) and therefore actively sought by insurance
agents. 4.5(d)


Technical Representative (Insurance Agents) (( ) )
More fully defined in the Code of Practice for the Administration of Insurance
Agents, such a person (not being an insurance subagent) provides advice to actual or
potential policyholders on insurance matters for an insurance agent, or arranges
contracts of insurance in or from Hong Kong on behalf of that insurance agent.
6.2.2a(a)


Technical Representative (Insurance Brokers) )
More fully defined in the Minimum Requirements Specified for Insurance Brokers,
such a person provides advice to actual or potential policyholders on insurance
matters for an insurance broker, or negotiates or arranges contracts of insurance in or
from Hong Kong on behalf of an insurance broker for actual or potential
policyholders. 5.2.2


Termination of Agency () An agency relationship may be brought
to an end on various grounds, including mutual consent. 2.2.6


Third Party () A person, not being the insured or the insurer, who might be
involved in a claim as a claimant against the insured or a potential source of
subrogation. 2.2.1


Tontine () An unusual type of Long Term Business, where the policy
benefit is payable to the last survivor of a specified insured group of persons. 5.1.1(a)


Tort () The law of tort is notoriously difficult to define. In simple words, it is a
kind of civil wrong (especially negligence) giving rise to a possible claim against the
wrongdoer. It is the most important source of subrogation rights of insurers.
3.2.6(b), 3.6.2(a)

(xx)
Training and Development An important area of company
activity, both with inside and field staff. Especially important with insurance agents,
whom the insurer is under a duty to train. 4.11


Transparency An important word in regulatory matters, indicating that
information should be freely available and the public should be able to understand
procedures and implications. Specifically, for example, from J une 2000 the Insurance
Authority is allowed to disclose financial and statistical information of individual
insurers and Lloyd's if they deem it to be in the interests of policyholders or the
public. 6.1.1f(d)


Trustee () A person who is holding property on trust for another.
3.1.4(b)


Underwriting The process of determining the insurability of a risk and
the terms to be applied. 4.5


Unenforceable Contract A contract which cannot be
enforced (or sued on) in a court of law. 2.1.3


Unfair Discrimination in Insurance () This relates to the
application of different terms which are not justified by the technical merits of the
risk, e.g. charging higher premiums for women drivers in motor insurance. 7.3.3


Uninsured Peril () A cause of loss which is not specifically excluded
from policy cover, but it is not specifically included either, e.g. raining under a
standard fire policy. Damage from an uninsured peril may be recoverable, if
proximately caused by an insured peril, e.g. water damage caused in fighting a fire.
3.3.2(c)


Unit-linked Business (or Linked Business) ( ( ))
The policyowners contributions (after deductions for expenses and premiums) are
used to buy units in an investment fund, so that the value of the product is linked to
the value of the units. 5.1.1(a)


Utmost Good Faith () The common law duty upon both parties in an
insurance contract to reveal all material information to the other party, whether or not
such information has been specifically requested. 3.2


Valued Policy () A valued policy a policy effected on a valued basis is
commonly issued in marine insurance. A sum called agreed value is specified in the
policy, which will be taken as the value of the subject matter insured throughout the
currency of the policy. 3.4.8(c)

(xxi)
Vicarious Liability () A persons liability at law for the acts and
omissions of another, e.g. the principal, in respect of his agent's actions. 2.2(c)


Void Contract An agreement devoid of any legal effect. 2.1.3


Voidable Contract Although it has full legal effect, a
voidable contract may be declared void as from inception, at the option of the
aggrieved party. A temporary situation demanding selection by that party within a
reasonable time, failing which the contract will become valid. 2.1.3


Waive (a breach) ()) Effectively an act of forgiveness, where a
breach of policy condition or other contractual requirement is disregarded actively
or passively - by the aggrieved party, so that the contract remains unaffected by the
breach. 3.2.2 Note 2, 3.2.6(c)


Warrant () To make a formal declaration as to the truth and accuracy of
information supplied. 3.2.2 Note 1


Warranty () An absolute undertaking by the insured to do, or to refrain from
doing, some specified thing(s), or an absolute affirmation as to the truth and
completeness of information supplied. 3.2.2 Note 1, 6.1.2c(b)(iii)

(1)
INDEX

Abandonment
3.4.6
Academic classification of insurance
5.1.3
Acceptance (law of contract) ()
2.1.3(b)
Accessory
7.6.1
Accounting and investment
4.10
Actuarial investigation report
6.1.1f(c)
Actuarial support
4.9
Adequate reinsurance
6.1.1e
Administrator
3.1.4(b)
Advertising
4.3(c)
Agency
2.2.1
Agency by estoppel
2.2.3(d)
Agent
2.2(a)
Agreed value policy
3.4.8(c)
Agreement
2.1.1
All risks
1.1.1 Note 2
Ancillary functions of insurance
1.2(b)
Annual financial statements and auditor's
report


6.2.3e
Annuity
5.1.1(a)
Anti-Money Laundering and Counter-
Terrorist Financing (Financial
Institutions) Ordinance (AMLO)

7.4.5a
Apparent authority
2.2.3(b)
Appeals Tribunal
6.2.2d(d)
Application form
2.1.3(a)
Approved bodies of insurance brokers
5.5.2
Assignment
3.1.6
Assignment of policy (or insurance
contract)


3.1.6
Assignment of the right to insurance
money


3.1.6
Authority of necessity
2.2.3(c)
Average (marine)
(non-marine)


3.4.7(a) Note
3.4.7(a)
Bailee
3.5.3
Breach
2.1.3, 2.2.5(c)
Capacity to contract
2.1.3(d)
Capital redemption policies
5.1.1(a)
Captive insurer
6.1.1b(d)
Cash payment
3.4.4(a)
Claims /
4.7
Claims (denial of)
6.1.2c(b)
Claims outstanding
6.1.1c(a)(ii)

(2)

Classification of risk
1.1.2
Client account
6.2.3a(d)
Client servicing
4.2
Code of Conduct for Insurers
6.1.2
Code of Practice for the Administration of
Insurance Agents

6.2.2
Collectability
6.1.1e
Commissioner of Insurance
6.1.1
Complaints and disputes
6.1.2e
Composite (insurer)
5.2.1(c)
Compulsory insurances
4.1
Consideration
2.1.3(c)
Contract
2.1.1
Contribution
(how arising)


3.5
3.5.3
Corollary (of indemnity)
3.6.1
Corporate Governance
6.1.1d
Counter-offer
2.1.3(b)
Customer servicing
4.2
Damages
3.6.2(a)
Deductible
3.4.7(b)
Deeds
2.1.2(b)
Deemed
2.2.1
Defective contracts
2.1.3
Directly or indirectly
3.3.4(a)
Disability Discrimination Ordinance
7.3.1(b)
Double insurance
3.5.1
Drug Trafficking (Recovery of Proceeds)
Ordinance (DTROP)

7.4.5b
Duties owed by agent to principal
2.2.4
Duties owed by principal to agent
2.2.5
Electronic Transactions Ordinance
6.1.1f(c) Note 1
Emotional (risk)
1.1.1(c)
Employees' compensation insurance
5.1.1(b)
Endorsement
4.6(d)
Equal Opportunity
7.3.1
Equity
3.5.1
Excepted (excluded) peril
3.3.2(b)
Excess
3.4.7(b)
Executor
3.1.4(b)
Fair discrimination in insurance
7.3.2
Family Status Discrimination Ordinance
7.3.1(c)
Fidelity guarantee
5.1.1(b)
Financial Action Task Force
Financial (risk)


7.4.5
1.1.1(a)
Financial statements
6.1.1f(c)

(3)

Fit and proper directors and controllers
6.1.1d
Fit and proper insurance brokers
6.2.3a
Fit and proper Registered Persons
6.2.2e
Franchise
3.4.7(c)
Fraud (Insurance) ()
7.6
Fraudulent misrepresentation
3.2.5(a)
Fraudulent non-disclosure
3.2.5(c)
Functional classification
5.1.3
Fundamental risk
1.1.2b(ii)
General business
5.1.1(b)
General business return
6.1.1f(c)
General insurance
5.1.1(b)
Group of companies
6.2.2c(d)(iii)
Guidance Note Applicable to Registered
Persons Wishing to Engage/continue to
engage in Investment-linked Long
Term (ILLT) Insurance Business on or
after 1 March 2010
201031
/

6.2.2h(g)
Guidance Note on Compliance with the
Requirements of the Continuing
Professional Development (CPD)
Programme

6.2.2h(d)
Guidance Note on Compliance with the
Requirements of the Continuing
Professional Development (CPD)
Programme for Registered Persons who
are Registered as Engaging in Restricted
Scope Travel Business (RSTB) Only

6.2.2h(f)
Guidance Note on Restricted Scope
Travel Business

6.2.2h(e)
Guidelines, authorised insurers
6.1.1a
Guidelines, underwriting
4.5(c)
Guidelines on Complaint Handling
6.1.3
Guidelines on Handling of Premiums

6.2.2h(b)
Guidelines on Misconduct
6.2.2h(a)
Guidelines on the Effective Date of
Registration of Insurance Agents,
Responsible Officers and Technical
Representatives

6.2.2h(c)
Hong Kong Confederation of Insurance
Brokers

5.5.2(a)
Hong Kong Federation of Insurers
(HKFI)

5.5.1
Indemnity
(How provided)


3.4.1
3.4.4


(4)

Insurable interest
(When needed)


3.1.1
3.1.5

Insurable risk
1.1.1
Insurance agent
2.2, 6.2.1
Insurance Agents Registration Board
(IARB)


6.2.2a(a), 6.2.2b
Insurance broker
2.2(a),, 6.2.1
Insurance Claims Complaints Bureau
(ICCB)

6.1.4
Insurance Claims Complaints Panel (the
Panel)


6.1.4a
Insurance Companies Ordinance (ICO)
6.1.1
Insurance intermediaries
2.2(a), 5.4
Insurance intermediaries' duties to
policyholders

7.1
Insurance of legal rights
3.1.4(d)
Insurance of liability
5.1.3(c)
Insurance of pecuniary interests
5.1.3(d)
Insurance of property
5.1.3(b)
Insurance of the person
5.1.3(a)
Insurance sales
4.4
Insured peril
3.3.2(a)
Insurer
1.1.1
Intention to create legal relation
2.1.3(f)
Interpretation and General Clauses
Ordinance

6.2.2b(c)
Invalid (contract)
2.1.3
Inwards reinsurance
5.1.4(b)
J oint principal
7.6.1
J oint tortfeasors
3.6.4(b)(iii)(2)
Legality (contract) ()
2.1.3(e)
Life insurance
5.1.1(a)
Long-tail business
4.9(b)
Long term business
5.1.1(a)
Loss prevention
1.1.3(c)(iii)
Loss reduction
1.1.3(c)(iii)
Management of Insurance Agents
6.1.2d
Marine Clause
3.5.5(c)
Market co-operation
5.3(c)
Marketing and promotion
4.3
Material fact
3.2.3
Mens rea
7.6.1
Minimum Requirements Specified for
Insurance Brokers

6.2.3
Model agency agreement
6.2.2g
Money laundering
7.4.1


(5)
More specifically insured
3.5.5(b)
Motor Insurers' Bureau of Hong Kong
(MIB)

5.5.3(b)
New for old cover
3.4.8(b)
Non-contribution clause
3.5.5(b)
Non-fraudulent misrepresentation
3.2.5(b)
Non-fraudulent non-disclosure
3.2.5(d)
Non-material fact
3.2.3(b)
Obligee
2.1.2(b)
Offer (contract) ()
2.1.3(a)
Offeree
2.1.3(b)
Offeror
2.1.3(a)
Office of the Commissioner of Insurance
4.9(b)
Ordinary good faith
3.2.1
Organized and Serious Crimes Ordinance
(OSCO)

7.4.5c
Outwards reinsurance
5.1.4(a)
Paid-up capital, authorised insurance
brokers

6.2.3d(b)
Paid-up capital, authorised insurers

6.1.1a&b
Participating policy
4.7(a)(v)
Particular risk
1.1.2b(i)
Performance bond
5.1.1(b)
Peril
1.1.1 Note 2, 3.3.2
Personal Data (Privacy) Ordinance
7.2
Personal data protection
7.2
Physical (risk)
1.1.1(b)
Policy
2.1.1
Policy condition
3.5.5
Policy limits
3.4.7(d)
Powers of intervention
6.1.1g
Practical classification of insurance
5.1.2
Premium
4.6(d)
Prevention of Bribery Ordinance
7.5
Primary functions of insurance
1.2(a)
Principal
7.6.1
Principal
2.2(a)
Principal perpetrator
7.6.1
Privacy Commissioner for Personal Data
7.2.1(a)
Product development
4.1
Product research
4.1(c)
Professional indemnity insurance
6.2.3d(c)
Professional Insurance Brokers
Association

5.5.2(b)
Professional negligence
7.1.1(d)
Professional reinsurer
5.1.4


(6)

Proposal form
2.1.3(a)
Proposer
2.2 (a)
Proximate cause
3.3
Public relations
4.2(b), 4.3(a)
Pure general business
5.2.1(b)
Pure long term business
5.2.1(a)
Pure risk
1.1.2a(i)
Quantum
4.7(c)(ii)
Race Discrimination Ordinance
7.3.1(d)
Rateable proportion
3.5.2
Rateable share
3.5.5(a)
Ratification
2.2.2(b)
Register of insurance agents
6.2.2d(a)
Registered Person
6.2.2a(a)
Regulation of insurance intermediaries
6.2
Reinstatement
3.4.4(d)
Reinstatement insurance
3.4.8(a)
Reinsurance
4.8
Renewal
4.5(b)
Repair
3.4.4(b)
Replacement
3.4.4(c)
Reporting requirements
6.1.1f(c)
Reserve
4.9(b)
Responsible officer
6.2.2a(a)
Revocation
2.2.6(b)
Risk
1.1
Risk avoidance
1.1.3(c)(iii)
Risk-based approach
Risk financing


7.4.6d
1.1.3(c)(iii)
Risk management
1.1.3
Risk transfer
1.1.3(c), 1.2(a)
Salvage (marine)
3.4.5 Note
Salvage (non-marine)
3.4.5
Secondary participant
7.6.1
Secondary party
7.6.1
Section limit
3.4.7(d)(ii)
Sex Discrimination Ordinance
7.3.1(a)
Short-tail business
4.9(b) Note
Simple contract
2.1.2(a)
Single article limit
3.4.7(d)(i)
Solvency margin
6.1.1a(b), 6.1.1c
Speculative risk
1.1.2a(ii)
Statement of assets and liabilities
6.1.1f(c)(ii)
Statutory classification of insurance
5.1.1
Stop-list
4.5(e)
Subject matter of insurance
5.1.3


(7)

Subrogation
(how arising)
(rights limited)



3.6
3.6.2
3.6.4(b)(i)
Sum insured
3.4.7(d)
Suretyship
2.1.2(b), 5.1.1(b)
Target risks
4.5(d)
Technical representative (insurance
agents)

6.2.2a(a)
Technical representative (insurance
brokers)
)
5.2.2
Termination of agency
2.2.6
Terrorist financing
7.4.2
Third party
2.2.1
Tipping off
7.4.5b, c, d
Tontine
5.1.1(a)
Tort
3.2.6(b), 3.6.2(a)
Training and development
4.11
Transparency
6.1.1f(d)
Trustee
3.1.4(b)
Underwriting
4.5
Underwriting capacity
4.8(b)
Unenforceable contract
2.1.3
Unfair discrimination in insurance
7.3.3
Uninsured peril
3.3.2(c)
United Nations (Anti-Terrorism
Measures) Ordinance

7.4.5b
United Nations Sanctions Ordinance
(UNSO)


7.4.6g
Unit-linked business
5.1.1(a)
Utmost good faith
(breach of)
(extension of common law duty)



3.2
3.2.5 & 3.2.6
3.2.2 Note 1
Valued policy
3.4.8(c)
Vicarious liability
2.2(c)
Void contract
2.1.3
Voidable contract
2.1.3
Waive (a breach)
3.2.2 Note 2,
3.2.6(c)
Warrant
3.2.2 Note 1
Warranty
3.2.2 Note 1
6.1.2c(b)(iii)
Weapons of Mass Destruction (Control of
Provision of Services) Ordinance
(WMD(CPS)O)
(
)
7.4.6h



Representative Examination Questions


Answers


QUESTIONS

CHAPTER 1 2 3 4


1 (d) (a) (b) (d)


2 (a) (c) (d) (d)


3 (c) (a) (d) (a)


4 (a) (c) (d) (d)


5 (d) (c) (b) (c)


6 (a) (b) (d) (d)


7 (c) (d) (d) (c)




ACKNOWLEDGEMENTS



Gratitude is given to the representatives of the following organisations
for their contributions towards these Study Notes:


Office of the Commissioner of Insurance
The Hong Kong Federation of Insurers
The Insurance Institute of Hong Kong Limited
Vocational Training Council
Insurance Training Board
The Hong Kong Confederation of Insurance Brokers
Professional Insurance Brokers Association
The Hong Kong General Insurance Agents Association Limited
The Life Underwriters Association of Hong Kong Limited
General Agents & Managers Association of Hong Kong Limited
LOMA Society of Hong Kong


Appreciation also goes to the Institute of Professional Education And
Knowledge of the Vocational Training Council for the original writing and
development of the Study Notes.