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PCE – Part A(1) The Basic Of Insurance . Revision 01 (25/11/2011). INTRODUCTION OF INSURANCE. CHAPTER 1. UNFORTUNATE EVENTS OF RISK. Need for Income. Sources of Income. How Insurance Works?. Some forms of risk Pooling of Risk Concept of Insurance - PowerPoint PPT Presentation
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AIA.COM
PCE – Part A(1) The Basic Of Insurance
• Revision 01 (25/11/2011)
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2
INTRODUCTION OF INSURANCE
CHAPTER 1
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3
UNFORTUNATE EVENTS OF RISK
Need for Income Sources of Income
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4
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
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5
The Law of Large Numbers
• Large number of similar loss exposure
• Loss exposure must be independent
• Random or chance occurrence of losses
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6
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
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7
Functions of Insurance
Primary FunctionEquitable distribution of the financial losses of the few who
are insured among the many insuredSecondary 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
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8
Classes of Insurance
Life General
Premature Death
Retirement
Sickness
Disability
Motor Vehicles
Ship
Building
Liability
Personal Accident
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9
History of Insurance
• Earliest Beginning of Insurance
• Marine Insurance
• 1706 – Amicable Society for a Perpetual
Assurance
• 1762 – Equitable Assurance – Level Premium
System
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10
Insurance in Malaysia
• 18th Century – British System
• Principal document governing the conduct of
insurance business in Malaysia
–Insurance Act 1963
–Insurance Act 1996
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11
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.
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12
CHAPTER 2
NATURE OF RISK & RISK MANAGEMENT
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13
Concept of Insurance
Perils Losses
Fire Property
Profit/ Revenue
Lives (at times)
Illness Future Earnings
Medical Expenses
Negligence Court Awards
Legal Expenses
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14
Hazard
Physical HazardPhysical chance that increases the condition of loss
Moral HazardCharacter Defect in an individual that increases the chance of loss
Wooden Construction
Poor mechanical condition of a car
DishonestyCarelessnessUnreasonableness
Concept of Insurance
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15
• Fundamental
(Entire Economy)
• Particular
(Individuals)
Basic Categories of Risk
• Pure(Loss or No Loss)
• Speculative(Profit, Loss or No Loss)
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16
Methods of Handling Risk
Risk Avoidance
Loss Control
Loss Prevention
Loss Minimization
Risk Retention
Risk Transfer
Non Insurance Contract
Insurance Contract
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17
The Risk Management Process
CO NTRO L
IM PLEM ENTATION
SELECTIO N
EVALUATIO N
IDENTIFICATIO N
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18
Characteristic of Insurable Interest
Financial Values
Large number of similar risk
Pure risk only
No catastrophic losses
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19
Characteristic of Insurable Interest
Fortuitous losses
Insurable interest
Legal and not against public policy
Reasonable Premium
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20
CHAPTER 3
THE BASIC PRINCIPLES OF INSURANCE &
AN INTRODUCTION TO TAKAFUL
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21
Principles of Insurance
• Insurable Interest
• Utmost Good Faith
• Indemnity
• Subrogation
• Contribution
• Proximate Cause
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22
Insurable Interest
Subject Matter of Insurance
Subject Matter of the Insurance Contract
100K
Fire Insurance
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23
Insurable Interest
• When Must Insurable Interest Exist?
• Who Has Insurable Interest?
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24
UTMOST GOOD FAITH
Ordinary Commercial Contract Insurance Contract
Caveat Emptor Uberrima Fides
Disclose fully and accurately ALL MATERIAL FACTS
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25
NON DISCLOSURE MISREPRESENTATION
BREACHES OF UTMOST GOOD FAITH
VOIDABLE CONTRACT
UTMOST GOOD FAITH
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26
INDEMNITY
• General Insurance- Contracts of Indemnity
• Life & PA are not contracts of Indemnity
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27
INDEMNITY
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28
SUBROGATION
An insured who has indemnified an insured for a loss
may exercise the insured’s rights to claim from the
third party in respect of the loss
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29
PROXIMATE CAUSE
• Which amongst many cause of losses can be
taken to be the dominant cause of loss?
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30
TAKAFUL
TABARUK MUDHARABAH
PRINCIPLES OF TAKAFUL OPERATION
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31
THE INSURANCE MARKET
Chapter 4CHAPTER 4
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32
INSURANCE MARKET: MAIN COMPONENTS
SELLERS
INTERMEDIARIES
BUYERS
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33
MAIN COMPONENTS- BUYERS
• Individuals• Association• Societies• Small Business Enterprises• Corporation• Public Enterprises
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34
MAIN COMPONENTS: SELLERS
• Life Insurer• General Insurers• Composite Insurers
Proprietary Company Co-operative Society
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35
MAIN COMPONENTS: INTERMEDIARIES
• AGENTS
• BROKERS
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36
OTHERS COMPONENTS:SERVICE SPECIALIST
• Doctors
• Hospitals
• Engineers
• Marine and Cargo Surveyors
• Loss Adjuster / Investigators
• Loss Assessors
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37
OTHERS COMPONENTS
• Reinsures
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38
ORGANIZATION STRUCTURE
• Administration
• Electronic Data Processing (EDP)
• Accounting
• Investment
• Agency or Sales
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39
Marketing
Underwriting
Claims
Customer Service
Actuarial
ORGANIZATION STRUCTURE
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40
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)
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41
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)
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42
CONSUMER PROTECTION
&
STATUTORY REGULATIONS
AT & D- Center for Learning Excellence
CHAPTER 5
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43
SELF REGULATION
OBJECTIVES:
• Instill Discipline
• Protection to Consumer
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44
RELATED ASSOCIATION
• PIAM• IBAM• AMLA
• LIAM
General Insurance Life Insurance
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45
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
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46
THE COMPANIES ACT 1965
• Prepare & submit annual accounts
• Methods of valuing assets
• Method of valuing liabilities
• Provision for depreciation
THE PRINCIPAL IS REQUIRED TO:
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THE INSURANCE CONTRACT
AT & D- Center for Learning Excellence
CHAPTER 6
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48
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
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49
DEFECTIVE CONTRACT
Can be classified into three fold:
VOID VOIDABLE UNENFORCEABLE
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50
DEFECTIVE CONTRACT
VOID
Law held to be no contract at all Totally invalid Cannot be enforced in a court of law
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51
DEFECTIVE CONTRACT
Valid at the beginning Remain valid until the aggrieved party
exercises to treat it void
VOIDABLE
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52
DEFECTIVE CONTRACT
Failure to comply with legal formalities
UNENFORCEABLE
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53
LAW OF AGENCY
AT & D- Center for Learning Excellence
CHAPTER 7
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54
AUTHORITY OF AN AGENT
• Express Authority
• Implied Authority
• Usual Authority
• Apparent or Ostensible Authority
• Ratification
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55
CLASSES OF AGENT
SPECIAL AGENT
GENERAL AGENT
UNIVERSAL AGENT
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56
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
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57
OBLIGATIONS OF THE PRINCIPAL
• Pay remuneration &
expenses as agreed or,
falling agreement as is
customary; or falling a
custom, to pay what is
reasonable
• Indemnify the agent
against consequences of
any act lawfully done,
within his authority, on
behalf of his principal
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58
TERMINATION OF AGENCY
• REVOCATION
• RENUNCIATION
• COMPLETION
• EXPIRATION
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59
• MUTUAL AGREEMENT
• DEATH, LUNACY OR BANKRUPTCY
• OPERATION OF LAW
TERMINATION OF AGENCY
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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”
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61
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
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62
THE INSURANCE ACT, 1996 [SECTION 151]
shall not apply…..
Where there is collusion or connivance between the insurance agent and the proposer in the formation of the contract of insurance
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63
THE INSURANCE ACT, 1996 [SECTION 151]
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
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64
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
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65
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
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66
CHARACTERISTICS OF INSURANCE AGENTS
• PREMIUM COLLECTIONS
–E.g. Home service life policy
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67
CHARACTERISTICS OF INSURANCE AGENTS
• THE CREATION OF THE
RELATIONSHIP
• THE EXTENT OF THE AGENT’S
AUTHORITY
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68
MARKETING
&
AFTER SALES SERVICES
AT & D- Center for Learning Excellence
CHAPTER 8
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69
SALES VS. MARKETING
• Often do not meet
consumer needs
• Developed &
Marketed with the
consumers’ need
in mind
Sales Oriented Products
Market Oriented ProductsVs.
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70
• Planning & Controlling
• Market Identification
• Product Development
• Pricing
• Selection of Distribution Channel
• Promotion
FUNCTIONS OF THE MARKETING DEPARTMENT
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71
SalesInterview
Handling Objections
Sales presentation
Closing
Prospecting
THE SELLING PROCESS
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CONSUMER BUYING DECISION PROCESS
Problem Recognition
Information Search
Evaluation of alternative polices
Purchase
Post-Purchase evaluation
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73
PERSONAL SELLING
• Product knowledge
• Market selling
• Selling techniques
Order processing
Creative selling
Missionary selling
Agent has to gain expertise in: