Pce.a.chapter1 8

PCE Part A(1) The Basic Of
Insurance
Revision 01 (25/11/2011)
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AIA confidential and proprietary information. Not for distribution.
CHAPTER 1
INTRODUCTION OF INSURANCE
1
UNFORTUNATE EVENTS OF RISK
Need for Income
Sources of Income
2
How Insurance Works?

Some forms of risk
Pooling of Risk
Concept of Insurance
Fund Has to Meet

Fund Can Become Deficit
Premium have to be adequate in Competitive
Market
3
The Law of Large Numbers
Large number of similar loss exposure

Loss exposure must be independent
Random or chance occurrence of losses
4
What is Insurance?
Protection against financial loss caused by
fortuitous events
Essential features of Insurance
Economic institution
Based on principle of mutuality or cooperation
Objective is to accumulate funds to pay claims
Only certain risk can be insured
5
Functions of Insurance
Primary Function
Equitable distribution of the financial losses of the few who
are insured among the many insured
Secondary Functions
Cost stabilization
Stimulates business
enterprise
Removes fear and worries
Reduction of losses
Means of saving
Sources of capital for
investment
Provides employment
for many
6
Classes of Insurance
Life
General
Premature Death
Motor Vehicles
Retirement
Ship
Sickness
Building
Disability
Liability
Personal Accident
7
History of Insurance
Earliest Beginning of Insurance

Marine Insurance
1706 Amicable Society for a Perpetual
Assurance
1762 Equitable Assurance Level Premium
System
8
Insurance in Malaysia
18th Century British System
Principal document governing the conduct of

insurance business in Malaysia
Insurance Act 1963
Insurance Act 1996
9
Role of an Insurance Agent
Bring financial relief

(aggrieved dependents)
Bring financial relief
(property loss)
Inculcate the discipline of savings
Provide other forms of insurance related services
to the public.
10
CHAPTER 2
NATURE OF RISK & RISK MANAGEMENT
11
Perils
Losses
Fire
Property
Profit/ Revenue
Lives (at times)
Illness
Future Earnings
Medical Expenses
Negligence
Court Awards
Legal Expenses
12
Hazard
Physical Hazard
Physical chance
that increases the
condition of loss
Moral Hazard
Character Defect in
an individual that increases
the chance of loss
Wooden Construction
Poor mechanical condition of a car
Dishonesty
Carelessness
Unreasonableness
13
Basic Categories of Risk

Fundamental
(Entire Economy)
Pure
(Loss or No Loss)
Particular
Speculative
(Profit, Loss or No
Loss)
(Individuals)
14
Methods of Handling Risk
Risk Avoidance
Loss Control
Loss Prevention
Loss Minimization
Risk Retention
Risk Transfer
Non Insurance Contract
Insurance Contract
15
The Risk Management Process
IDENTIFICATION
EVALUATION
SELECTION
IMPLEMENTATION
CONTROL
16
Characteristic of Insurable Interest
Financial Values
Large number of similar risk
Pure risk only
No catastrophic losses
17
Characteristic of Insurable Interest
Fortuitous losses
Insurable interest
Legal and not against public policy
Reasonable Premium
18
CHAPTER 3
THE BASIC PRINCIPLES OF INSURANCE
&
AN INTRODUCTION TO TAKAFUL
19
Principles of Insurance
Insurable Interest
Utmost Good Faith
Indemnity
Subrogation
Contribution
Proximate Cause
20
Insurable Interest
Subject Matter of Insurance
Fire
Insurance
100K
Subject Matter of the Insurance Contract
21
Insurable Interest
When Must Insurable Interest Exist?
Who Has Insurable Interest?
22
UTMOST GOOD FAITH
Ordinary Commercial Contract
Caveat Emptor
Insurance Contract
Uberrima Fides
Disclose fully and accurately

ALL MATERIAL FACTS
23
UTMOST GOOD FAITH

NON DISCLOSURE
MISREPRESENTATION
BREACHES OF UTMOST
GOOD FAITH
VOIDABLE
CONTRACT
24
INDEMNITY
General Insurance- Contracts of Indemnity
Life & PA are not contracts of Indemnity
25
INDEMNITY
CASH
REINSTATEMENT
METHODS OF
INDEMNITY
REPAIR
REPLACEMENT
26
SUBROGATION
An insured who has indemnified an insured for a loss
may exercise the insureds rights to claim from the

third party in respect of the loss
27
PROXIMATE CAUSE
Which amongst many cause of losses can be
taken to be the dominant cause of loss?
28
PRINCIPLES OF TAKAFUL OPERATION
TAKAFUL
TABARUK
MUDHARABAH
29
CHAPTER 4
Chapter 4
THE INSURANCE MARKET
30
INSURANCE MARKET: MAIN COMPONENTS
SELLERS
INTERMEDIARIES
BUYERS
31
MAIN COMPONENTS- BUYERS
Individuals
Association
Societies
Small Business Enterprises
Corporation
Public Enterprises
32
MAIN COMPONENTS: SELLERS
Life Insurer
General Insurers
Composite Insurers
Proprietary Company
Co-operative Society
33
MAIN COMPONENTS: INTERMEDIARIES
AGENTS
BROKERS
34
OTHERS COMPONENTS:SERVICE SPECIALIST
Doctors
Hospitals
Engineers
Marine and Cargo Surveyors
Loss Adjuster / Investigators
Loss Assessors
35
OTHERS COMPONENTS
Reinsures
36
ORGANIZATION STRUCTURE
Administration
Electronic Data Processing (EDP)
Accounting
Investment
Agency or Sales
37
ORGANIZATION STRUCTURE
Marketing
Underwriting
Claims
Customer Service
Actuarial
38
Insurance Related Institution:General insurance
Motor Insurers Bureau (MIB)

Insurance Mediation Bureau (IMB)
Persatuan Insurance Am Malaysia (PIAM)
Insurance Brokers Association of Malaysia (PIAM)
Association of Malaysia Loss Adjustor (AMLA)
39
Insurance Related Institution : Life Insurance
Life Insurance of Association of Malaysia

(LIAM)
National Association of Malaysia Life
Financial Advisors (NAMLIFA)
The Actuarial Society of Malaysia (ASM)
The Malaysian Insurance Institute (MII)
40
CHAPTER 5
CONSUMER PROTECTION
&
STATUTORY REGULATIONS
AT & D- Center for Learning Excellence

41
SELF REGULATION
OBJECTIVES:
Instill Discipline
Protection to Consumer
42
RELATED ASSOCIATION
General Insurance
PIAM
IBAM
AMLA
Life Insurance
LIAM
43
STATUTORY REGULATION
Enforcement of Insurance Act 1996 by
Director General of Insurance
Purpose of Regulation:
Protection of Public Interest
Promotion of Fairness & Equity
Fostering of Competence
Playing a Development Role
44
THE COMPANIES ACT 1965

THE PRINCIPAL IS REQUIRED TO:
Prepare & submit annual accounts
Methods of valuing assets
Method of valuing liabilities
Provision for depreciation
45
CHAPTER 6
THE INSURANCE CONTRACT

46
ESSENTIALS OF AN INSURANCE CONTRACT
Intention to create a legal relationship
Offer & Acceptance
Consent- Consensus Ad Idem
Consideration
Legal capacity to contract
Legality of the contract
47
DEFECTIVE CONTRACT
Can be classified into three fold:
VOID
VOIDABLE
UNENFORCEABLE
48
DEFECTIVE CONTRACT
VOID
Law held to be no contract at all

Totally invalid
Cannot be enforced in a court of law
49
DEFECTIVE CONTRACT
VOIDABLE
Valid at the beginning

Remain valid until the aggrieved
exercises to treat it void
party
50
DEFECTIVE CONTRACT
UNENFORCEABLE
Failure to comply with legal formalities
51
CHAPTER 7
LAW OF AGENCY

52
AUTHORITY OF AN AGENT
Express Authority
Implied Authority
Usual Authority
Apparent or Ostensible Authority
Ratification
53
CLASSES OF AGENT
SPECIAL AGENT
GENERAL AGENT
UNIVERSAL AGENT
54
DUTIES OF AN AGENT
NO conflict of interest
DO NOT disclose confidential information
DO NOT take any secret profit or bribe
DO NOT delegate duties to sub-agent
55
OBLIGATIONS OF THE PRINCIPAL
Pay remuneration &
Indemnify the agent
expenses as agreed or,
against consequences of
falling agreement as is
any act lawfully done,
customary; or falling a
within his authority, on
custom, to pay what is
behalf of his principal
reasonable
56
TERMINATION OF AGENCY
REVOCATION
RENUNCIATION
COMPLETION
EXPIRATION
57
TERMINATION OF AGENCY
MUTUAL AGREEMENT
DEATH, LUNACY OR BANKRUPTCY
OPERATION OF LAW
58
CHARACTERISTICS OF INSURANCE AGENTS
Insurance agents are agents of whom?

Insurer ~ Qui Facit Per Alium Facit Per Se
Insured ~ Assisting clients on filling up the
application form
59
THE INSURANCE ACT, 1996 [SECTION 151]

A person who is authorized by an insurer to be its
insurance agent and who solicits or negotiates a
contract of insurance in that capacity shall be deemed,
for the purpose of the formation of the contract, to be
the agent of the insurer and the knowledge of that
insurance agent shall be deemed to be the knowledge
of the insurer
Law of Agency p.p 7/6
60
shall not apply..

Where there is collusion or connivance between
the insurance agent and the proposer in the
formation of the contract of insurance
61
shall not apply..cont

Where a person has ceased to be an insurance
agent of a insurer and it has taken reasonable
steps to inform, or bring to the knowledge of,
potential policy owners and the public in general of
the fact of such cessation
62
THE INSURANCE ACT, 1996 [ SECTION 150 (4) ]
No licensed insurer or insurance agent, in order to

induce a person to enter into or offer to enter into a
contract of insurance with it or through him
shall make a statement, which is misleading, false
or deceptive, whether fraudulently or otherwise
63
THE INSURANCE ACT, 1996 [ SECTION 150 (4) ]
shall fraudulently conceal a material fact; or

in the case of an insurance agent,, use sales
brochures or sales illustration not authorized by the
licensed insurer
PENALTY: ONE MILLION RINGGIT
64
PREMIUM COLLECTIONS
E.g. Home service life policy
65
THE CREATION OF THE
RELATIONSHIP
THE EXTENT OF THE AGENTS

AUTHORITY
66
CHAPTER 8
MARKETING
&
AFTER SALES SERVICES

67
SALES VS. MARKETING
Sales Oriented
Products
Market Oriented
Vs.
Products
Often do not meet

consumer needs
Developed &
Marketed with the
consumers need
in mind
68
FUNCTIONS OF THE MARKETING DEPARTMENT
Planning & Controlling
Market Identification
Product Development
Pricing
Selection of Distribution Channel
Promotion
69
Sales
presentation
Prospecting
THE SELLING
PROCESS
Sales
Interview
Closing
Handling
Objections
70
CONSUMER BUYING DECISION PROCESS

Problem Recognition
Information Search
Evaluation of alternative
polices
Purchase
Post-Purchase evaluation
71
PERSONAL SELLING
Agent has to gain expertise in:
Product knowledge
Market selling
Selling techniques
Order processing
Creative selling
Missionary selling
72

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PCE Part A(1) The Basic Of

AIA confidential and proprietary information. Not for distribution.

UNFORTUNATE EVENTS OF RISK

Need for Income

How Insurance Works?

Fund Has to Meet

The Law of Large Numbers

Large number of similar loss exposure

Only certain risk can be insured

Earliest Beginning of Insurance

18th Century British System

Principal document governing the conduct of

Role of an Insurance Agent

Bring financial relief

Poor mechanical condition of a car

Basic Categories of Risk

Methods of Handling Risk

The Risk Management Process

Characteristic of Insurable Interest

Large number of similar risk

Pure risk only

Characteristic of Insurable Interest

Utmost Good Faith

Subject Matter of the Insurance Contract

When Must Insurable Interest Exist?

Who Has Insurable Interest?

UTMOST GOOD FAITH

Ordinary Commercial Contract

Disclose fully and accurately

UTMOST GOOD FAITH

Life & PA are not contracts of Indemnity

An insured who has indemnified an insured for a loss

may exercise the insureds rights to claim from the

Which amongst many cause of losses can be

taken to be the dominant cause of loss?

PRINCIPLES OF TAKAFUL OPERATION

AIA confidential and proprietary information. Not for distribution.

THE INSURANCE MARKET

INSURANCE MARKET: MAIN COMPONENTS

MAIN COMPONENTS- BUYERS

MAIN COMPONENTS: SELLERS

MAIN COMPONENTS: INTERMEDIARIES

OTHERS COMPONENTS:SERVICE SPECIALIST

Marine and Cargo Surveyors

Loss Adjuster / Investigators

Insurance Related Institution:General insurance

Motor Insurers Bureau (MIB)

Insurance Related Institution : Life Insurance

Life Insurance of Association of Malaysia

AT & D- Center for Learning Excellence

THE COMPANIES ACT 1965

Prepare & submit annual accounts

Methods of valuing assets

Method of valuing liabilities

Provision for depreciation

THE INSURANCE CONTRACT

AT & D- Center for Learning Excellence

ESSENTIALS OF AN INSURANCE CONTRACT

Intention to create a legal relationship

Offer & Acceptance

Consent- Consensus Ad Idem

Legal capacity to contract

Legality of the contract