SCI BCP – Basic Concepts & Principles In General Insurance

Correct: Statement I is correct because general insurance requires insurable interest at both the inception of the policy and the time of loss. Statement II accurately reflects the principle of indemnity, which prevents the insured from profiting from a loss. Statement III correctly identifies the prudent insurer test used in Singapore to determine the materiality of a fact during the disclosure process.

Incorrect: The combination focusing only on the first two statements is incomplete because the definition of material facts provided is also legally accurate. The strategy of including the fourth statement is incorrect because subrogation rights generally arise only after the insurer has indemnified the insured. Pursuing a third party before claim settlement contradicts the fundamental mechanics of subrogation in Singapore. Choosing a combination that omits the requirement of insurable interest at inception fails to recognize the legal necessity of interest for a valid contract.

Takeaway: General insurance requires insurable interest at both inception and loss, while subrogation rights only arise after the insurer pays the claim.

Correct: The principle of indemnity ensures the insured is restored to the same financial position as before the loss. In Singapore, hospitalization expense claims are indemnity-based, meaning the insured cannot recover more than the actual financial loss. The doctrine of contribution then allows insurers to share the cost of the indemnity fairly.

Incorrect: The strategy of allowing full recovery from multiple policies for the same expense violates the core tenet of indemnity by allowing the claimant to profit. Focusing only on the payment of premiums ignores that insurance is a contract of indemnity, not a speculative investment. The method of treating expense-based claims as valued policies is incorrect because medical bills are quantifiable financial losses. Pursuing subrogation against another insurer is a misunderstanding of legal terms, as subrogation applies to third-party recoveries rather than sharing losses between insurers.

Takeaway: The principle of indemnity limits total insurance recovery to the actual financial loss, preventing profit from multiple policies covering the same expense.

Correct: Statement I is correct because insurance functions as a risk transfer mechanism where the insured pays a fixed premium to avoid uncertain large losses. Statement II is accurate as insurance provides financial security, which allows Singaporean businesses to engage in commercial activities they might otherwise find too risky. Statement IV is correct because insurance acts as a social device by pooling premiums from many participants to compensate the few who suffer actual losses.

Incorrect: The strategy of selecting only the first and second statements is incomplete because it ignores the fundamental social role of risk pooling in insurance. Including the third statement is incorrect because insurance is based on the principle of indemnity and specifically excludes the possibility of making a profit. The method of focusing only on risk transfer and social pooling fails to acknowledge the critical economic role insurance plays in business expansion.

Takeaway: General insurance provides economic stability and social protection by transferring individual risks to a collective pool managed by insurers.

Correct: The principle of Utmost Good Faith requires the proposer to disclose all material facts that would influence a prudent underwriter. Failure to disclose a material fact allows the insurer to avoid the contract entirely. This right exists even if the undisclosed fact is unrelated to the current claim being made. In Singapore, the Insurance Act reinforces this duty of disclosure for all general insurance contracts.

Incorrect: Relying solely on the lack of a medical connection between the non-disclosure and the claim ignores that the contract’s validity is compromised. The strategy of simply applying a retrospective premium loading is incorrect because a material breach usually renders the entire policy voidable from the start. Choosing to maintain the policy based on the applicant’s subjective belief of relevance fails to meet the objective legal standard of materiality. Pursuing a settlement while ignoring the non-disclosure would violate the fundamental principle of Uberrimae Fidei.

Takeaway: Material non-disclosure allows an insurer to avoid a policy from inception, even if the undisclosed fact did not cause the loss.

Correct: Under the principle of Utmost Good Faith and the Singapore Insurance Act, the proposer must disclose every material fact that would influence a prudent insurer’s judgment in fixing the premium. Since previous fires indicate a higher risk level, the insurer is entitled to adjust the premium or terms to reflect the actual risk being underwritten.

Incorrect: Relying solely on whether a claim was filed or a formal report was made ignores the fundamental definition of materiality in Singapore insurance law. The strategy of maintaining the original premium quote despite discovering undisclosed risks fails to protect the insurer’s right to receive a fair premium for the actual hazard. Choosing to treat all non-disclosures as criminal offenses that require immediate voidance is an incorrect interpretation of the Insurance Act, which generally makes such contracts voidable rather than automatically illegal.

Takeaway: Material facts must be disclosed to allow insurers to accurately assess risk and determine the appropriate premium level.

Correct: Determining the proximate cause is a fundamental requirement to verify that the loss was triggered by a covered peril. The duty of utmost good faith remains central, as any prior non-disclosure discovered during investigation can invalidate the claim. Subrogation rights naturally arise once the insurer has provided indemnity, ensuring the insured does not profit by recovering from two sources.

Incorrect: The strategy of paying the full sum insured for partial losses incorrectly applies the principle of indemnity, which only covers the actual loss sustained. Simply conducting an investigation without considering subrogation rights ignores the insurer’s legal entitlement to recover funds from negligent third parties. Focusing only on proximate cause and non-disclosure fails to account for the post-indemnity rights that protect the insurer’s financial interests. Opting for a combination that excludes the necessity of determining the dominant cause of loss contradicts fundamental insurance principles regarding peril coverage.

Takeaway: Effective claims investigation validates the cause of loss, ensures indemnity limits are respected, and preserves the insurer’s right to subrogation.

Correct: The assertion regarding actual ignition is correct because insurance law requires fortuity and a flame for a fire claim. Reinstatement is a recognized method of providing indemnity under the Insurance Act and common law. The statement about vacancy is correct because such clauses are standard limitations in special peril extensions to manage increased risk in Singapore.

Incorrect: The strategy of including the claim about spontaneous combustion is incorrect because this is a standard exclusion unless an additional premium is paid for a specific endorsement. Relying on combinations that suggest natural heating is covered fails to recognize that fermentation is not considered a fire peril under Singapore standards. Focusing on combinations that omit the insurer’s right to reinstate property or the vacancy limitation fails to account for standard policy conditions and indemnity principles. Choosing to include the spontaneous combustion statement while omitting the requirement for actual ignition represents a fundamental misunderstanding of the fire peril definition.

Takeaway: Standard Fire policies require actual ignition for fire claims and exclude spontaneous combustion unless specifically endorsed, while allowing reinstatement as a method of indemnity.

Correct: The underwriter must consider the surveyor’s report as it contains material facts that influence the assessment of the risk. Under the principle of Utmost Good Faith, both parties must disclose all material facts. Requesting proof of remediation allows for an accurate risk classification. This ensures the premium reflects the actual hazard level of the heritage property.

Incorrect: Relying solely on the proposer’s verbal declaration ignores the objective findings of the surveyor’s report which is a critical material fact. The strategy of using only broad geographic tariffs fails to account for the specific physical hazards of the individual property. Choosing to decline the risk immediately without exploring remediation or adjusted terms overlooks the underwriter’s role in risk selection and classification.

Takeaway: Risk selection requires evaluating all material facts, including expert reports, to determine appropriate terms and classification for specific hazards.

Correct: In general insurance, the principle of insurable interest requires the insured to have a legal or equitable relationship with the subject matter at the time of loss. Since the legal title was transferred before the fire, the claimant no longer suffers a financial loss from the property damage. Under Singapore law and common insurance principles, the absence of this interest at the time of the incident renders the claim invalid.

Incorrect: The strategy of assuming that interest only needs to exist at the policy’s inception is incorrect because general insurance requires interest at both inception and loss. Relying solely on the fact that premiums were paid ignores the legal requirement for a financial stake in the subject matter. Choosing to treat the policy as automatically transferred to the new owner fails because insurance is a personal contract. Focusing only on the active status of the policy overlooks that indemnity is strictly limited to those who suffer an actual loss.

Takeaway: For general insurance claims to be valid, the insured must maintain a proven financial interest in the property when the loss occurs.

Correct: Statements I and II are correct because they reflect the fundamental purpose of co-insurance in maintaining equity among policyholders. The clause incentivizes the insured to declare the full value of the property to ensure the premium collected is commensurate with the total risk. By treating the under-insured party as a ‘co-insurer,’ the principle of indemnity is upheld as the insured only receives a payout proportional to the coverage they purchased.

Incorrect: The strategy of suggesting the clause only applies to total losses is incorrect because co-insurance is specifically designed to address partial losses where under-insurance is most common. Focusing only on the idea that partial losses are paid in full regardless of the sum insured ignores the pro-rata application of the average principle. Choosing to believe that under-insurance does not result in a claim reduction represents a misunderstanding of how insurers manage risk exposure. Opting for the view that this clause allows for intentional under-insurance without penalty contradicts the standard practice of general insurance in Singapore.

Takeaway: Co-insurance clauses penalize under-insurance by requiring the insured to bear a proportionate share of any loss, especially partial ones.

Correct: The principle of Utmost Good Faith requires the proposer to disclose all material facts that would influence a prudent underwriter’s assessment. Under Singapore law, both the history of fires and external physical hazards like neighboring flammable materials are considered material to the risk. This duty exists independently of the specific questions asked in the proposal form.

Incorrect: The strategy of only answering specific questions in the proposal form fails to meet the positive duty of disclosure required in insurance contracts. Focusing only on the insured’s own property is insufficient because external factors significantly alter the probability of a loss. Relying on the insurer to discover hazards through a site survey ignores the proposer’s legal obligation to volunteer material information. Choosing to omit unclaimed incidents is incorrect as the occurrence of the event itself is a material fact regarding risk quality.

Takeaway: Proposers must volunteer all material facts that would influence a prudent underwriter, even if not explicitly requested in the proposal form.

Correct: The principle of utmost good faith requires all parties to disclose every material fact that would influence a prudent underwriter’s assessment of the risk. In Singapore, the Insurance Act and industry codes emphasize that intermediaries must prioritize transparency and the legal validity of the contract over client relationships. Disclosing the hazardous material storage ensures the policy remains enforceable and protects the client from potential claim repudiation due to non-disclosure.

Incorrect: The strategy of waiting for written confirmation before notifying the insurer creates a dangerous gap in coverage where the policy could be voided for non-disclosure. Focusing only on increasing liability limits fails to address the underlying breach of the duty of disclosure regarding the nature of the risk. Pursuing an independent site visit before reporting the information delays the necessary communication and misinterprets the intermediary’s primary duty to act with transparency toward the underwriter.

Takeaway: Insurance professionals must ensure immediate disclosure of all material facts to uphold utmost good faith and protect the policy’s validity.

Correct: Statements I, II, and IV are correct because insurance serves society by pooling risks to compensate the few who suffer losses. It fosters economic stability by providing the certainty needed for investment. Furthermore, insurers promote safety and loss prevention, which benefits the community by reducing the overall frequency and severity of accidents.

Incorrect: The combination including statement III is incorrect because insurance is fundamentally different from gambling. While gambling creates a new risk for the sake of gain, insurance provides protection against an existing risk of loss. The strategy of including all statements fails because it ignores the principle that insurance is a risk-transfer mechanism, not a speculative venture. Focusing only on the first two statements is insufficient as it overlooks the significant role insurers play in encouraging safety and risk management.

Takeaway: Insurance serves society by pooling risks, providing economic certainty, and encouraging loss prevention, distinguishing it clearly from speculative activities like gambling.

Correct: Statement I is correct because the proposal form is the standard instrument used by insurers to gather material facts for risk evaluation and premium setting. Statement III is correct as the declaration clause legally binds the proposer to the accuracy of the information, forming the basis of the insurance contract.

Incorrect: The strategy of limiting disclosure only to questions asked in the form fails because the duty of Utmost Good Faith requires disclosing all material facts. Relying solely on the intermediary’s involvement to excuse inaccuracies is incorrect, as the proposer remains responsible for the contents of the document they sign. Focusing only on the questions provided ignores the legal requirement to volunteer information that would influence a prudent insurer’s judgment. Choosing to shift liability to the insurer for an agent’s clerical errors in the form is a common misconception that contradicts established agency principles in Singapore insurance law.

Takeaway: The proposal form is the basis of the contract, requiring the disclosure of all material facts regardless of the specific questions asked.

Correct: The principle of Utmost Good Faith, central to Singapore insurance law, requires the disclosure of all material facts. A material fact is any information that would influence a prudent insurer’s decision on premium or coverage. Even a small fire is material as it indicates potential underlying risks in the property’s electrical systems or safety protocols.

Incorrect: The strategy of linking disclosure only to financial losses or claims ignores the fact that materiality is based on risk assessment rather than historical costs. Focusing only on the specific questions in a proposal form fails to recognize the proposer’s positive duty to volunteer all material information under common law. The method of categorizing minor fires as operational wear and tear is a dangerous misinterpretation that could lead to the insurer voiding the policy for non-disclosure.

Takeaway: Utmost Good Faith requires the proactive disclosure of all facts that would influence a prudent insurer’s judgment of the risk.

Correct: General insurance is a risk transfer mechanism designed to provide indemnity for fortuitous losses. It aims to restore the insured to their financial position immediately prior to the loss event. Unlike investments, general insurance does not seek to generate a profit or capital appreciation for the policyholder.

Incorrect: Relying solely on the idea that insurance is a savings vehicle is inaccurate because general insurance premiums are consumed to provide protection. The strategy of treating insurance as a speculative investment fails to recognize that insurance requires an insurable interest. Choosing to equate insurance with investments regarding inflation ignores that insurance addresses specific perils while investments target wealth growth.

Takeaway: General insurance focuses on indemnity and risk protection, whereas investments prioritize capital growth and wealth accumulation.

Correct: The principle of Utmost Good Faith in Singapore requires the proposer to disclose every material fact that would influence a prudent insurer’s assessment. Both the previous fire and the neighbor’s hazardous activities are material facts because they directly affect the risk of fire. This duty requires the proposer to volunteer information even if the insurer does not specifically ask about those exact circumstances.

Incorrect: Focusing only on internal incidents fails to recognize that external hazards, such as a neighbor’s flammable storage, significantly alter the risk profile of the property. The strategy of waiting for a surveyor or only answering specific questions ignores the positive duty to volunteer all material information proactively. Relying solely on claims history to determine disclosure is incorrect because even non-claimed incidents indicate a higher frequency of risk. Choosing to omit the neighbor’s activities based on property boundaries ignores the legal definition of a material fact in insurance.

Takeaway: Proposers must proactively disclose all material facts that influence risk assessment, regardless of whether a claim was previously filed.

Correct: Statement I is correct because the death or serious injury of a close family member is a standard insured peril in Singapore travel insurance policies. Statement III is correct as trip interruption coverage is designed to indemnify the insured for additional travel expenses and pro-rated non-refundable costs when returning to Singapore early due to covered reasons.

Incorrect: The strategy of claiming for the full cost of a trip when portions are refundable fails because the principle of indemnity restricts recovery to the actual financial loss. Focusing only on a change of mind regarding weather is incorrect as travel insurance does not cover disinclination to travel. Relying on the idea that all expenses are automatically covered ignores the requirement that the cause of cancellation must be a fortuitous event specified in the policy wording.

Takeaway: Trip cancellation insurance provides indemnity for non-refundable expenses caused by specific unforeseen events, excluding losses recoverable from other sources or personal preferences.

Correct: Installing fire suppression systems represents risk reduction by lowering the potential severity of a fire. Combining this with an insurance policy effectively transfers the catastrophic financial risk to the insurer. The inclusion of a deductible signifies a conscious decision to retain a manageable portion of the risk. This integrated approach aligns with professional risk management standards in the Singapore insurance market.

Incorrect: Choosing to lease a property rather than own it is often mistaken for risk avoidance. However, the tenant still faces significant liability and operational risks. Relying solely on insurance without physical safety measures fails to address the underlying frequency and severity of potential losses. The method of total self-funding through a contingency fund ignores the capital efficiency gained through risk pooling. Focusing only on financial recovery without prevention measures can lead to uninsurable business interruption losses.

Takeaway: Professional risk management requires balancing physical loss control measures with financial strategies like insurance transfer and calculated risk retention.

Correct: In liability insurance, indemnity is achieved by the insurer paying the third party the amount the insured is legally liable to pay. This protects the insured’s assets from being depleted by the claim. The insurer steps into the shoes of the insured to settle the legal debt. This ensures the insured is restored to the same financial position as before the liability arose.

Incorrect: The strategy of paying the full policy limit regardless of actual loss violates the principle of indemnity by potentially providing a windfall. Simply providing a fixed sum benefit describes a contingency-based benefit rather than strict indemnity for actual financial loss. Focusing only on property repairs and bonuses ignores the primary purpose of liability coverage. Liability insurance specifically addresses the legal debt owed to the third party for their losses.

Takeaway: Liability indemnity involves the insurer settling the insured’s legal debt to a third party based on the actual financial loss suffered.

Correct: Statements I, II, and IV accurately describe the fundamental components of premium pricing in the Singapore general insurance market. The gross premium must account for both the expected loss and the operational cost of doing business. Risk assessment requires a dual focus on how often losses occur and the potential magnitude of those losses. Pure premium serves as the essential building block representing the statistical cost of risk before expenses.

Incorrect: The approach focusing only on I and II fails to recognize the specific definition of pure premium as the claim-only portion. Pursuing the combination that includes statement III is flawed because contingency loadings address statistical uncertainty rather than fixed acquisition costs like commissions. Opting for the combination of I and IV only overlooks the critical risk assessment process involving frequency and severity analysis.

Takeaway: Insurance premiums must cover expected claims and operational costs while reflecting both risk frequency and severity.

Correct: Statements I, II, and IV are correct. An endorsement is the formal document used in Singapore to record any agreed changes to a general insurance contract. Under standard legal interpretation, specific terms in an endorsement override the general printed conditions of the policy if a conflict arises. Furthermore, the principle of Utmost Good Faith remains a continuous duty that applies whenever the contract is varied or extended mid-term.

Incorrect: The strategy of limiting endorsements to only restrictive conditions is incorrect because they are frequently used to extend coverage or increase sums insured. Relying solely on the first two statements is insufficient as it fails to acknowledge the essential role of Utmost Good Faith in policy variations. Choosing the combination that includes all four statements is inaccurate because it incorporates the false premise that endorsements cannot be used to expand the scope of the original policy.

Takeaway: Endorsements are legal amendments that take precedence over standard policy wording and require the continued application of Utmost Good Faith.

Correct: The principle of Utmost Good Faith requires the proposer to disclose every material fact known to them. A material fact is information that would influence a prudent insurer’s decision-making process. Under the Singapore Insurance Act, the insurer has the right to avoid the policy if the insured fails to disclose such facts during the proposal stage. This right exists even if the non-disclosed information is not directly related to the specific cause of the subsequent claim.

Incorrect: The strategy of validating the claim because the non-disclosed fire was unrelated to the power grid failure fails to address the breach of contract at inception. Focusing only on the absence of specific questions in the application form is incorrect because the duty of disclosure exists independently of the questions asked. Opting for a proportionate payout based on premium differences is a common misconception that does not align with the standard remedy of avoidance for material non-disclosure.

Takeaway: Insurers may avoid a general insurance contract if the proposer fails to disclose material facts, regardless of the eventual cause of loss.

Correct: Statement I correctly identifies the duty of disclosure as a core component of utmost good faith, requiring the proposer to reveal material facts that influence a prudent insurer’s assessment. Statement III accurately describes the purpose of indemnity in preventing profit by restoring the insured to their pre-loss financial state. Statement IV correctly states that subrogation rights are exercised after the insurer has provided indemnity, allowing them to seek recovery from the party responsible for the loss.

Incorrect: The strategy of claiming insurable interest is only required at the time of loss is incorrect because general insurance requires interest at both inception and loss. Relying solely on combinations that include this timing error fails to meet Singapore’s regulatory standards for valid insurance contracts. Choosing to exclude the principle of indemnity is wrong because it is the essential rule that prevents an insured from profiting from a claim. Opting for combinations that omit the requirement for indemnity or include the incorrect timing of insurable interest results in an inaccurate application of insurance law.

Takeaway: General insurance requires insurable interest at both inception and loss to ensure the contract is legally valid and not a wager.

Correct: Insurance is a bilateral agreement where the insurer assumes the risk and generally cannot recover the claim amount from the insured. In contrast, a guarantee is a tripartite agreement involving the surety, the principal, and the obligee. The guarantor (surety) retains a legal right of recourse to be indemnified by the principal debtor if the guarantee is called upon.

Incorrect: The strategy of describing insurance as a tripartite agreement and a bond as a bilateral contract incorrectly identifies the number of parties involved in each legal structure. Relying solely on the idea that guarantees are gratuitous promises ignores the commercial reality of fees paid to banks or insurers for issuing bonds. Focusing only on the duty of disclosure fails because while the depth varies, both instruments rely on the integrity of the information provided during underwriting. Choosing to define the surety as primarily liable while the insurer is secondary liable reverses the fundamental legal obligations of these two distinct financial products.

Takeaway: Insurance is a two-party risk transfer, whereas a guarantee is a three-party agreement where the guarantor can seek reimbursement from the principal.

Correct: Under the principle of indemnity, the insurer restores the insured to their pre-loss financial position. Once the insurer pays the claim, they acquire subrogation rights to pursue the negligent third party. If multiple policies cover the same risk, the paying insurer uses the principle of contribution to recover a rateable proportion from the other insurer. This ensures the insured does not profit from the loss while distributing the financial burden fairly among liable parties.

Incorrect: The strategy of allowing the insured to keep both the insurance payout and the third-party recovery violates the principle of indemnity by allowing the insured to profit. Choosing to delay the claim payment until other insurers contribute ignores the insured’s right to seek full indemnity from any single liable insurer. Pursuing a requirement where the insured must litigate against the contractor before receiving insurance funds contradicts the fundamental purpose of providing prompt financial protection. Focusing only on the second insurer while ignoring the negligent contractor fails to properly exercise the insurer’s legal right to subrogation.

Takeaway: Subrogation allows insurers to recover from negligent third parties, while contribution allows them to share the loss with other insurers.

Correct: Public Liability Insurance is a contract of indemnity where the insurer compensates the third party for actual financial loss caused by the insured’s negligence. Under Singapore’s legal framework, this includes compensatory damages and legal fees, capped at the policy’s limit of indemnity. This ensures the claimant is restored to their pre-loss position while protecting the insured’s assets from legal claims.

Incorrect: The strategy of paying every demand immediately fails because the insurer only owes indemnity when the insured is legally liable for the incident. Focusing only on the insured’s business reputation is incorrect as Public Liability policies specifically cover third-party bodily injury and property damage rather than the insured’s own financial losses. The method of providing superior replacements violates the principle of indemnity, which seeks to restore the claimant to their pre-loss position without providing a profit or betterment.

Takeaway: Public Liability Insurance provides indemnity for legal liabilities to third parties, limited to actual compensatory losses and agreed policy caps.

Correct: Statement I is correct because intermediaries have a professional duty to conduct a fact-find and ensure product suitability for the client’s specific needs. Statement III is correct as the Code of Conduct requires transparency regarding any interests or relationships that might influence the intermediary’s recommendation. These requirements ensure that the client’s interests are prioritized over the intermediary’s commission goals. Adhering to these principles maintains the integrity of the Singapore insurance industry and aligns with MAS fair dealing outcomes.

Incorrect: Relying solely on the intermediary for the accuracy of a proposal form is incorrect because the legal duty of disclosure remains with the proposer. Choosing to assume full liability for a client’s misrepresentation misinterprets the legal relationship, as the insured must verify and sign the proposal. The strategy of omitting exclusion clauses to simplify the sales process is a breach of the duty to explain all essential terms. Pursuing a sale by highlighting only benefits while ignoring limitations violates the principle of transparency and fair dealing required in Singapore.

Takeaway: Intermediaries must provide suitable recommendations and disclose conflicts while ensuring clients remain responsible for the accuracy of their own material disclosures.

Correct: In Singapore, insurance policies are typically contracts of adhesion because the insurer prepares the terms without negotiation from the insured. Consequently, the legal principle of contra proferentem applies, meaning any ambiguous language is interpreted against the insurer. The aleatory nature of the contract means that the obligations of the parties depend on a fortuitous or uncertain event. This justifies why the premium paid is usually much smaller than the potential claim amount.

Incorrect: The strategy of suggesting that premiums must be refunded if no loss occurs fundamentally misinterprets the aleatory nature of insurance. Focusing only on equal bargaining power ignores the reality that adhesion contracts are drafted unilaterally by the insurer. The method of claiming that adhesion prevents the enforcement of all undiscussed exclusions is legally inaccurate under Singapore law. Pursuing the idea that insurance is a guaranteed investment regardless of loss ignores the core principle of risk-based indemnity.

Takeaway: Adhesion contracts resolve ambiguities against the drafter, while aleatory contracts involve an exchange of values based on uncertain future events.