Loading…
IIQEPrepStudyingPaper 1
Switch exam
MPF intermediaries
MPFMPF Intermediaries ExaminationIIQE Paper 1 · Topic 3
IIQE Paper 1 chapter 3, the heaviest chapter at 30% of the paper: insurable interest, utmost good faith and material facts, proximate cause, indemnity (with average, excess and franchise worked out), contribution and subrogation.
11 min read7 sections
Checked against the IA Paper 1 (Principles and Practice of Insurance) Study Notes, 2024 Edition (8th edition, Nov 2024; for exams from 17 Feb 2025), chapter 3, and its Relative Weight table (30%). Worked figures are our own. Reviewed 6 Nov 2026.. Independent prep, not endorsed by the Insurance Authority or the VTC.
Chapter 3 is 30% of Paper 1. If you are short of time, this is the chapter to master first. The six principles are insurable interest, utmost good faith, proximate cause, indemnity, contribution and subrogation.
Insurable interest is the legally recognised relationship between a person and the subject matter of insurance that gives that person the right to insure it. Three things must be present:
How it arises, with examples:
| Class of insurance | When insurable interest must exist |
|---|---|
Every note. Every question. One pass.
5 more sections of this note are part of Premium.
Passes from HK$148, pay once, no auto-renew
For life insurance, at the start of the policy only. For marine insurance, at the time of loss only. For other property and liability insurance, both at the start and at the time of loss. Without insurable interest the agreement is void.
A fact that would influence a prudent insurer in deciding whether to accept a risk, or on what premium and terms. Under utmost good faith the proposer must disclose every material fact, asked or not, before inception, at renewal and when altering the cover. Facts that reduce the risk need not be disclosed unless asked.
Amount payable = loss x (sum insured / value at the time of loss). For example, stock worth HK$800,000 insured for HK$600,000 is 75% insured, so a HK$200,000 loss pays HK$150,000. Average applies only to under-insurance; it never increases a claim.
An excess is always deducted from each claim. A franchise is not deducted: losses below it are not paid, and losses above it are paid in full (some wordings also pay a loss that just reaches it).
Contribution shares a loss between two or more insurers covering the same interest, peril and subject matter. Subrogation lets the insurer that paid a claim take over the insured's rights against a third party who caused the loss, recovering no more than it paid. Both protect indemnity, so neither applies to life or personal accident benefit policies.
| Life |
| At inception only. The policy stays valid if the interest later ends, for example after a divorce |
| Marine | At the time of loss only. A cargo buyer can insure before he owns the goods |
| Other property and liability | At inception and at the time of loss |
Assignment comes in two forms. Assigning the policy itself needs the assignee to have insurable interest, and outside life and marine cargo policies it needs the insurer's consent. Assigning only the right to the insurance money needs neither.
Trap: life and marine are opposites. Life needs interest at the start only; marine needs it at the loss only.
Takeaway: no insurable interest, no valid insurance. Life: inception. Marine: loss. Property: both.
Most commercial contracts need only ordinary good faith: do not lie, but you need not volunteer anything. Insurance needs utmost good faith: the proposer knows far more about the risk than the insurer, so he must disclose every material fact, whether or not the proposal form asks about it. The duty binds both parties: the insurer must not mislead the proposer either.
A material fact is one that would influence the judgment of a prudent insurer in deciding whether to accept the risk, or on what premium or terms. It can affect acceptance only, the premium only, or both. Examples: previous claims, a heart condition, storing flammable goods in a shop, a driving ban.
Unless the insurer asks, the proposer need not disclose:
When the duty applies: before the contract is concluded, at each renewal, and when the insured asks to alter the cover mid-term. At common law there is no duty to disclose facts that arise after the contract is concluded, although policy conditions often require mid-term notice of changes in risk. A life policy anniversary is not a renewal.
| Breach | What happened | Example |
|---|---|---|
| Fraudulent misrepresentation | False statement made knowingly or recklessly | Proposer says "no claims" while knowing he had three |
| Non-fraudulent misrepresentation | False statement made innocently or negligently | Proposer guesses his flat's floor area and gets it wrong |
| Fraudulent non-disclosure | Material fact deliberately withheld | Proposer hides a cancer diagnosis |
| Non-fraudulent non-disclosure | Material fact left out innocently or negligently | Proposer forgets a minor claim from four years ago |
Remedies for the aggrieved party: avoid the whole contract from inception (within a reasonable time of finding out), sue for damages in tort for fraudulent or negligent misrepresentation, or waive the breach and carry on. On avoidance, premiums are generally returned, unless the insured or his agent acted fraudulently.
A warranty is stricter. If the proposer warrants that all answers are true, any inaccuracy breaches it, material or not. For individual personal-lines policyholders, the insurers' Code of Conduct softens these strict rights (chapter 6).
Trap: a fact that makes the risk better need not be disclosed unless asked. Options saying "all facts" must be disclosed are wrong; it is all material facts.
Takeaway: disclose every material fact, asked or not, before inception, at renewal and on alteration. Breach makes the contract voidable.