PCE Learning Material_1

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1. INTRODUCTION TO
INSURANCE
1.1 Introduction
Misfortune
Some Form Of Loss
Emotional
(Human Grief) Financial
Cannot be made good by any
conceivable compensatory system
Can be arranged through the institution of
insurance
Emotional Trauma
Financial Loss
1
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Why Insurance ?
1.2 Importance Of Insurance
Shared by
Individual
Financial
Losses
Members
of a group
facing
similar risk
= Insurance
(Loss Sharing Arrangement)
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The Concept of Insurance
Explained
1.3 How Insurance Work
Houseowners
or term life
# 1
#2
#3
.
.
.
# 999
# 1000
Premiums
RM200
RM200
RM200
RM200
RM200
Combined
Contributions
(Premiums)
1000
X
RM200
=RM200,000
Claims
Expenses
&
Other
Outgoes
Profits
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Essential Features Of
Insurance
1.4 What Is Insurance
* It is an economic institution .
* It is based on the principle of mutuality or co-operation.
* Its objective is to accumulate funds to pay for claims as a
result of the operation of specific risks.
* Only certain risks can be insured against, whose
occurrence can be confidently estimated with certain
degree of accuracy
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The equitable spread of the financial losses of a few who are
insured among the many insured .
•Cost Stabilisation – to avoid the necessity of having to freeze capital to
provide financial protection against losses.
•Stimulates Business Enterprise – risk transfer mechanism for large scale
commercial & industrial enterprises
* Removes Fear and Worries of losses – to establish confidence
* Reduction of Losses
* Means of Saving – Endowment Plan –both protection & savings
* Sources of Capital For Investment
* Provides Employment For Many – employment opportunities
1. Primary Function
2. Secondary Function
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1.5 Functions Of Insurance
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1.6 Classes Of Insurance
Classes Of Insurance
Life Insurance General Insurance
Risk Covered by General InsuranceRisk Covered by Life Insurance
A) Life insurance defined as a
contract which pays an agreed
sum of money on the happening
of a contingency (event),or of
a variety of contingencies,
dependent on human life .
A) Any other form of insurance business
other than life insurance business .
* Premature death
* Income for retirement
* Sickness or Disability
* Motor Vehicles
* Marine and Aviation
* Products or goods sold
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1.7 Historical Aspect Of Insurance
* The earliest beginning of insurance was in the field of
Marine Insurance
* The insurance industry in Malaysia is patterned according
to the British System
* Insurance Business in Malaysia is controlled by the
Government through the enactment of Insurance Act
1963/1996
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2. Nature Of Risk And Its Management
Risk
Definition Of
RISK
* An uncertain loss
* The possibility of loss
* The exposure to danger
* The subject matter of insurance
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Perils And Their Losses
2.1 Concept Of Risk
Negligence
Illness
PERIL
Fire Property
Profit/Revenue
Lives
LOSSES
Future Earnings
Medical Expenses
Court Awards
Legal Expenses
Leads to
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3 Measurements of
Risk
Priori Probability Judgmental ProbabilityEmpirical Probability
Determined by the total
number of known
possible events
Example : Dice
Determined by the basis of
historical data
(Law of Large Number)
Determined by the
judgement of a person
predicting the outcome
(When there’s a lack of
historical data or credible
statistics
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2.2 Related Concepts
2 Major Types Of Hazards
Physical Hazard Moral Hazard
Is a physical chance that
increases the condition of
loss
*Poor mechanical
condition of a motor car
Is a character defect in an
individual that increases the
chance of loss
*Dishonesty, carelessness
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2.3 Basic Categories Of Risk
Distinguishing Risk From The Following Concepts
Loss Is a reduction or
disappearance of
economic value
Peril Is a cause of loss Hazard Is a condition
that increase the chance
of loss
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BASIC CATEGORIES OF RISK
Fundamental Risks
Speculative Risks
Pure Risks
Particular Risks
- It affects the entire economy and a large number
of people. Exp :Typhoon, wars, earthquakes
-It affects only individuals and not the entire
community - Exp :In road accident
Loss or
- No Loss. Exp :Risk of premature death
- Loss or
- No Loss or
- Gain. Exp :Investment in stock market
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RISK MANAGEMENT
Avoiding Risk
Transferring Risk
Accepting Risk
Controlling Risk
-we can avoid risk of financial loss in the stock
market – by not investing it at all
-Taking steps to prevent or reduces losses eg,
banning smoking / installing smoke detectors
- accepting or retaining risk. Eg. Assuming all
financial responsibility for that risk – insurance
- can afford to reduce their standard of living
-Transferring risk to another party / shifting.
eg. Insurance coverage – be used to cover
property damage risk , liability risk and
personal risk.
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3.The Basic Principle Of Insurance And An
Introduction To Takaful
3.1 Principles Of Insurance
Is the legal right to insure which arise from the
legitimate financial interest an insured has in a
subject matter of insurance.
A) Insurable Interest
General Insurance Contracts
Insurable interest must exist at
the beginning & at the time of
loss .
Life Insurance Contracts
Insurable interest must exist at the
beginning only
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ASSIGNMENT
* Transfer of rights and liabilities by one person to another .
* Prior written consent from the insurer is needed for an assignment to be
valid .
* Substitution of the insured by a new insured ,a new contact is created
between the insured and the assignee of the original policy .
The alteration is termed Novation
Exception Of Prior Consent
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Transfer by
will or
operation of law
Life Policies
Marine
Policies
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B) The principle Of Utmost
Good Faith
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I .Commercial Contracts
(The principle of Utmost Good Faith does not apply)
* No need for parties to disclose information not requested .
* Make best bargains as long as it does not mislead the other.
* The legal principle governing such contracts is caveat emptor
(let the buyer be aware) .
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Breach Of Utmost Good Faith
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Non Disclosure Misrepresentation
Breach Of Utmost Good Faith
Voidable Contract
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C) Indemnity
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* The principle of indemnity requires the insurer to restore the
insured to the same financial position as he had enjoyed
immediately before the loss
General Insurance contracts
are contracts of indemnity
where insurable interest is
measurable .
Personal Accident Life
Insurance contracts are not
strictly contracts of
indemnity where insurable
interest is unlimited .
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D) Subrogation
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* An insurer who has indemnified an insured for loss may
exercise the insured’s rights to claim from the third party in
respect of the loss .
* To prevent the insured from getting more than indemnity when
he has to or more avenues to recover his loss .
* Is considered as corollary of indemnity, a natural consequence
of indemnity. Since subrogation arises when indemnity arises,
it is not applicable to non-indemnity contract.
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Essentials of
Contribution
* 2 or more policies of indemnity
must be inforced .
* The loss involves a common
subject matter covered by the
policies .
* The policies must cover a
common peril which give uses
to the loss.
* The policies must cover a
common interest .
E) The Principle Of Contribution
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F) The Principle Of Proximate Cause
•Onus of proof of loss rests on the insured – thus when a
loss is the result of many causes the proximate cause – that
is the dominant or effective cause, it must be identified
and attributed as the cause of the loss.
* Insured has to prove the loss .
* The insurer is not liable for an uninsured or excluded
peril - not mentioned in the policy therefore not covered.
Also policy contracts which have been expressly excluded
from the policy.
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3.3 The Formation of Takaful Companies
Takaful Companies
* Provide insurance based on a system that is in accordance
with Islamic religion Law or Syariah
Takaful Act 1984
4 Parts
Part I:Business
Classification
Part II:Mode & Conduct
Part III: Power Vest In
Bank Negara
Part IV :Administration
and enforcement
of matters
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Syariah Supervisory Council
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* The function is to advise operations to ensure that it does not
involve in any element which is not approved by the Syariah.
* Member of council are Muslim jurisprudents .
* Decisions of the council must always follow the ruling of
Syura or mutual consultation and agreement .
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3.4 Principles Of Takaful Operation
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1. The Concept Of Takaful
A method of joint guarantee among groups to share the burden of
unexpected financial losses that may fall upon any of them .
2. The Concept Of Tabaruk
“Tabaruk” means to donate. The participants of takaful plan make an
aqad (agreement) to deposit as donation a certain proportion of takaful
contribution or installment into a risk fund .
3. The Principle of Mudharabah
“Mudharabah” (Trustee Profit-Sharing) is defined as a contractual
agreement between provider of capital and entrepreneur for the purpose
of business venture whereby both parties agree on a profit sharing
arrangement.
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4.5.1General Insurance Related Institutes
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* MIB - Motor Insurers’ Bureau
Provides compensation to victims of motor accident.
* IMB - Insurance Mediation Bureau
Provides an alternative procedure to resolve disputes arising from
personal insurance policies .
* UMP - Unplaced Motor Pool
Provides a reasonable cost of insurance coverage to certain classes of
vehicles in view of its adverse claim experience.
* PIAM - Persatuan Insurans Am Malaysia
The membership of PIAM is compulsory for all general insurance in Malaysia.
* IBAM - Insurance Brokers’ Association Of Malaysia
To protect the interest of insurance brokers.
* AMLA - Association Of Malaysian Loss Adjusters
An association for loss adjusters approved by the minister .
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* LIAM - Life Insurance Association Of Malaysia
The representative body of life insurance companies.
It consists of 18 companies .Responsible for the
registration of life insurance agents .
* NAMLIFA - National Association Of Malaysia Life Insurance
Financial Advisors
An association for life insurance agents and tier
supervisors .
* ASM - The Actuarial Society of Malaysia
To promote studies and researches Actuarial subjects
and allied aspects of life insurance .
* MII - The Malaysian Insurance Institute
Conducts courses and examinations in insurance
related discipline for those who are in the insurance
industry .
4.5.2 Life Insurance Related Organisation
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6.The Insurance Contract
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6.1 Law Of Contract
* An insurance contract is a legally binding agreement
between an insured and an insurer .
Essential Legal Requirements Of Insurance Contracts
1. Intention to create legal relationship
2. Offer and acceptance
3. Consent-consensus ad idem
4. Consideration
5. Legal Capacity to contact
6. Legality of the contact
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1. Intention To Create A Legal Relationship
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* Parties to an agreement intend to be legally bound
2. Offer And Acceptance
* The offer and acceptance must be voluntary
* Offer :Proposer
Accept :Insurer
* The insurer may not accept a proposal on its original
terms but may offer to provide insurance on different
terms Counter Offer .
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3. Consent - Consensus ad idem
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* Parties to the agreement must agree upon every material
term of the agreement totally .
* Consensus ad idem, that is of one mind .
4. Consideration
Insured
(Policyholder)
Insurer
(Company)
Consideration : Premium
Consideration : Agreed
Sum Insured
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5. Legal Capacity To Contract
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* Who has legal capacity to enter into a contact ?- Everyone .
* Section 41, Insurance Act 1963 (section 153, Insurance Act
1996) minor aged 16 can enter into a legally binding insurance
contact .
* Section 41, further provides that a minor aged 10 to 16 may
enter into insurance contract with written consent of his
parents or guardian .
6. Legality Of A Contract
* An agreement should be created for a legal purpose .
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DEFECTIVE CONTRACTS
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Void Contract Unenforceable ContractsVoidable Contract
•Totally invalid
- no contract at all
* Not enforceable in
a court of law which
has no consideration.
* Remain valid until the
aggrieved party exercises
the option to treat it void .
* An insurance contract is
voidable if the insured fails
to observe the duty of
disclosure during
negotiation or breach a
warranty .The contract is
valid until the insurer
exercises the option to treat
it void.
* It arises out of failure
to comply with legal
formalities .
•Eg. The need for
certain contracts to be
in writing – fails to
comply with the
statutory provision
Requiring.
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Insurance Act 1996 Section 151
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* The knowledge of an agent who relates to any matter
concerning the acceptance of risks by the insurer shall be
deemed the knowledge of the insurer.
* This section shall not apply -
- Agent has been terminated and the insurer has taken
all reasonable steps to inform policy owners and the
public in general of such cessation .
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Insurance Act 1996 Section 150 (4)
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Any person who induces or attempts to induce
another person to enter into any contract of
insurance with an insurer shall be found guilty and
liable to
Penalty : 1 Million Ringgit Malaysia .
3434

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8. MARKETING & AFTER SALES SERVICES
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8.1 Sales
Sales Versus Marketing
Definition of Marketing :-
The management process responsible for identifying,
anticipating and satisfying customer requirement
profitably .
- Sales-oriented products often don’t meet consumer needs
- Market-oriented products are developed & marketed with
the consumers’ need in mind .
35

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Functions Of The Marketing Department
* Planning & Controlling
* Market Identification
* Product Development
* Pricing
* Selection Of Distribution Channel
* Promotion
36

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The Selling Process
* Locating The
Prospective
Customer
* Conducting The Sales
Interview
* Creating A Sales
Presentation
* Closing The Sales
* Handling Objections
37

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Selling Techniques
Order Processing Missionary SellingCreative Selling
Is Useful in
situations where
customer is able
to recognise his
need immediately
-agent identified
a need, draws his
attention & make
the sale.
Is need when
customer is
unaware of his
needs.Agent to
help to uncover his
needs and
recommend
policies to meet
those needs.
Is used where
selling is done
indirectly by
establishing good
will between the
agent and his
Customers, eg
thru technical
assistance &
good after-sales
service 38

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8.2 After Sales Services
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Benefits :
* The chance of lapse or business flowing elsewhere could be
minimised .
* The client’s new needs for insurance coverage could be
recognised and a sale quickly made, thus enhancing the
agent’s business .
* The reputation of the insurer as a service-oriented
organisation is enhanced
39

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Premium Notice
- A reminder to policyholder to pay
premium
Policy Register
- A legal requirement for insurer to
maintain up to date register of all
policies issued .
Premium Receipt
- Insurer issue an official receipt upon
receiving the premiums .
Grace Period
- Due premium shall be paid within a
specified period -30 days from
the due date .
40

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Introduction to Medical & Health Insurance
OverviewOverview ofof
Medical & Health InsuranceHealth Insurance
CharacteristicsCharacteristics ofof
Medical & Health InsuranceHealth Insurance

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1. INTRODUCTION & CONCEPT OF
MEDICAL & HEALTH INSURANCE
1.1 Introduction
Adverse changes
In health
Medical Expenses / Treatment
Accident
Occurrences
Critical Illness
Occurrences
Medical reimbursable after the effective
date of the policy
Medical reimbursable after policy inforced
more than than 30 days after effective date
Accidental Occurring
Illness Occurring
42
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Why Medical & Health Insurance ?
1.2 Importance Of Medical & Health Insurance
Shared by
Medical
Expenses
Pooling of
resources
from all
policy-
holders
= Health &
Medical
Insurance
(Claims Sharing Arrangement)
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43

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Why NOT Medical & Health Insurance ?
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44
Truth of the matter is, people are
living longer. However, living
longer does not mean living better
What if suffering longer period of
chronic illness or disability?
Who will take care of you while
long-term nursing care is needed?
Moreover, how about healthcare
cost? $$$?

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What is Medical & Health Insurance?
•Health or Medical Insurance
–Sometimes known as “Accident and Health”, “A&H” or
“Accident & Sickness”
–Designed to ease the financial burden caused by adverse
changes in health.
–Is a device whereby money is collected from a pool of
contributors or policyholders and whenever a valid health
insurance claim is made by the policyholders, money is
paid out from this pool.
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Principles & Practices
of Medical & Health Insurance
•These apply in the same manner in which they are
applicable to non-medical & health insurance: -
–Insurable Interest - Offer & acceptance
–Utmost Good Faith - Underwriting
–Indemnity - Policy processing
–Subrogation - Claim administration
–Contribution - Reinsurance
–Proximate Cause
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Guidelines Applicable
to Medical & Health Insurance
•Section 12 (2) of the Insurance Act 1996 JPI/GPI 16 issued by BNM on
24 December 1998 – for the conduct & compliance for policy sold in
Malaysia.
•On 5 May 2003 – JPI 12/2003 ‘Minimum Standard on Product Disclosures
& Transparency in the Sales of Medical & Health Insurance Policies was
issued.
- Checklist indicating confirmation that the intermediary has clearly
highlighted aspects of the products to the proposer
- The right of the proposer to surrender his policy for cancellation during
the ‘cooling off’ period.
- The duty of the insurer to highlight certain important features of the
products; and
- Insurers launching new medical & health insurance policies or making
amendments to existing products effective 1 Oct 2003 are required to
lodge with BNM an actuarial certificate for such products at least 30 days
before offering the product to the public.
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Categories
• Medical & Health insurance policies may be divided into
the following 2 categories:-
1) Indemnity polices
An indemnity policy places the insured in the same
financial position as before the occurrence of the insured
risk, subject to maximum limits of the insured amount.
An example is hospitalisation & surgical insurance.
2) Benefits policies
A benefit policy pays a pre-determined sum of money if
an insured event occurs during the policy period.
Examples are Hospitalisation cash benefit plans, critical
illness insurance & disability income insurance
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Some Features
• Claim Payment does not terminate coverage. The payment of a
claim does not result in the termination of a policy, except in the
event of death claim. It provides for the claims up to the stipulated in
policy Example; Per disability limit / Overall limit / Lifetime limit.
• The Insurance Risk increase with Time as it involves morbidity.
Generally, the risks increases with age. (probability of the disability
resulting from an accident / illness). Other external factors such as
occupation & environment also affecting the risk.
• ‘Cashless’ Hospital Admission arrangement – admission to a
panel hospital is by the issuance of a letter of guarantee & hospital
deposit may be eliminated. Upon discharge from hospital – insured
only pays for non-reimbursable charges, others will be taken care by
insurer. Usually, it is merely value added services provided by
insurers to certain eligible policyholders.
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Type of Medical & Health Insurance
Medical & HealthMedical & Health
Group PoliciesGroup Policies
Individual HealthIndividual Health
PoliciesPolicies
Premium are usually age bandedPremium are usually age banded
& increase with age& increase with age
Policies issued to groups ofPolicies issued to groups of
three or more personsthree or more persons

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Individual Health Insurance
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• Provides cover against medical expenses of
only one person or family.
• May be bought directly from an insurance
company, or via an insurance company
agent.
• The risk potential determines eligibility and
cost of the insurance.
• Riskier than group insurance
51

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Types of Medical and Health
Insurance Coverage
• Medical Expense Insurance
• Hospitalization & Surgical Insurance
• Major Medical Expenses Insurance

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Medical Expense Insurance
• Provides reimbursement of the insured’s
eligible medical costs.
• Insurers market three basic medical expense
policies :
1.Hospital-Surgical policy
2.Major-medical policy
3.Comprehensive medical policy

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Hospital & Surgical
Insurance
• Provides cover against loss from medical expense
incurred
• 16 specific benefit provisions
1. Hospital Room & Board
2. Intensive Care Unit
3. Hospital Miscellaneous Services
4. Surgeon’s Fees
5. Operating Theatre Fees
6. Anesthetic Fees
7. Ambulance Fees
8. In-hospital Physician’s Visits

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Hospital & Surgical
Insurance
9. Pre-Hospitalization Specialist Consultation
10. Post- Hospitalization Treatment
11. Pre-Hospitalization Diagnostic Tests
12. Emergency Accident – Outpatient Treatment
Some policies may be extended to cover the followings:
13. Daily Cash Allowance at Government Hospitals
14. Out-patient Cancer Treatment
15. Out-patient Kidney Dialysis
16. Organ Transplant
17. Insured Child’s Daily Guardian Allowance

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Major Medical Expense Insurance
• Design to cover a broad coverage & substantial protection from large
unpredictable healthcare expenses with benefits applying to virtually all
kinds of health care prescribed by the physician.
• It Includes benefits for the same medical expenses that are covered by
H&S policies.
• Provides coverage for expenses like: -
– Receiving out patient treatment
– Employing private-duty nurses
– Renting or purchasing expensive treatment equipment and medical
supplies
– Purchasing prescribed medicine
• It covers virtually all types of medical expensed whether incurred in or
out of a hospital ‘As Charged’ policies in Malaysia.
• It includes imposing benefit as Per Disability Limits & Overall Annual
Limits

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Expense Participation
• Is sharing in the cost of medical expenses with the
insured.
• Enables insurer to keep premium rates to a lower
level.
• Two common expense participation methods are :
– Deductibles
Requires the policyholder to pay a pre-agreed amount
first before the balance of eligible expenses are
reimbursed or paid by the insurer. Fixed amount typically
in the range of RM1,000 to RM5,000

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Expense Participation
(con’t)
– Corridor Deductible
Is a flat amount which the insured must pay above the
amount paid by the hospital-surgical policy before any
benefits are payable under the major medical policy.
Amount normally between RM 300.00 or RM 500.00
– Coinsurance/ Percentage Participation
Under this method, the insured pay a specified percentage
of all the eligible medical expenses, in excess of the
deductible, which he or she incurs as a result of a
sickness or injury.
Most of the major medical policy has this kind of
arrangement.

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Group Medical & Health Insurance
The contract - One master policy (single policy) issued
for many insured lives. Coverage issued to employer-
employee groups as an employee benefits scheme
Premium Calculated - Yearly premium with high
protection at low cost – less expensive when underwriting
a group of people
Limited use of evidence of insurability - Simplified
Underwriting – as long as they eligible for coverage
Group Size - Guideline issued by BNM JPI/GPI 16 –
24/12/1998 -a group policy is one that covers a group of
3 or more lives

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The contract
– A single policy called a master contract is
issued to the group policyholder to cover a
group of individuals who have a defined
relationship to the policy holder, such as:
• Employer-employee
• Association/cooperative/union member
• Debtor-creditor

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Contributory Scheme
where the employee pays certain % or all the
premiums
It requires the participation of at least 75% of
the eligible members of the group
Non-Contributory Scheme
where the employer pays all the premiums
It covers all eligible members of the group

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Medical & Health Insurance
Underwriting
AntiAnti -- SelectionSelection
MedicalMedical
FactorsFactors
OccupationalOccupational
FactorsFactors
Final Underwriting ActionFinal Underwriting Action
Modified CoverageModified Coverage
Renewal UnderwritingRenewal Underwriting

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Medical & Health Insurance
Underwriting
What is Underwriting?
Defined as a process of assessment & selection of risks
determine the premium & term & conditions to be apply”
What is the Purpose of Underwriting?
- To ensure that sufficient funds are/will be available to pay
claims occurrence, insurer has to :-
- Guard against anti-selection
- Charge a premium that is commensurate with the
risk transferred

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– Occurs when a high risk applicant submits a
proposal for insurance
– The actual loss will be greater than the expected
loss.
– Premium is charged based on expected loss
– The amount collected will not be adequate to
pay claims if anti-selection exists.
Underwriting - What is Anti-Selection?

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Underwriting - Risk Selection Process
Medical Factors - Considerations of both history and current
physical conditions for the probability of future problems that causes
disability income & result in medical expenses for hospitalization &
treatment.
Financial Factors - The financial status of the applicant is a prime
consideration in underwriting.
Disability income coverage will be issued to a specified percentage of
the applicant’s earned income.
Occupational Factors - Morbidity rates vary considerably according to a
person’s occupation.
- Class 1 - Least hazardous occupations. Mostly professionals.
- Class 2 - Requires more physical activity than Class 1. Examples
would be second hand car dealers.
- Class 3 - Light manual duties or skilled work is involved like
plumbers and mechanics.
- Class 4 - Heavy manual duty or near accidental hazards like
construction workers and agricultural laborers
Age & Sex (gender) - Morbidity rates generally increase with the age
(grow older)

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Sources of Underwriting Information
1. Application form
2. Agent’s statement
3. Medical or paramedical examinations
4. Attending Physician Statements (APS)
5. Hospital medical records

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Final Underwriting Action
Standard Issue:
– Decision to approve as applied for
– Policy will not contain any special exclusions
or reductions in benefits.
Declination Of Issue:
– Decision to decline
Substandard/ Modified Issue:
– Modifying in terms of additional riders,
premiums or benefits

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Issuing Modified Coverage
Exclusion Endorsements – Riders (Waivers)
– The rider excludes a particular disability or medical
expense
Extra Premiums (premium loadings)
– Additional premiums usually ranges from 25 to 100
percent of the standard premium.
Change of Benefits (modified benefits)
– Modifying the benefits like changing a smaller amount
of indemnity or a longer elimination period.

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Renewal Underwriting
Some form of renewal underwriting is
necessary for adequate control of the
insurer’s claim experience.
The degree of renewal underwriting that
may take place is limited by the renew
ability provision of the policy.

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Optional Renewable Policies
Information that could lead an insurer to take
adverse action on an optionally renewable policy
comes from many sources, including information
developed:
– At the time of a claim
– During the underwriting of a new application
for insurance
– During the reinstatement of another policy

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The insurer may choose to modify an optionally
renewable policy rather than to decline renew
ability. The modification may be:
– An exclusion endorsement or loading of
premium because of a given physical
impairment
– An increase in the basic premium because of a
change to a more hazardous occupation
– An increase in elimination periods to avoid
small, repetitious claims
Optional Renewable Policies

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Guaranteed Renewable Policies
Limited to the rescission of the policy
during the contestable period (material
misrepresentation during the period)
May be subject to premium rate changes if
the insurer has had to pay out more in
claims that it expected

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Non Cancelable Policies
An insurer does not have the right to
increase premium rates for such policies
under any circumstances
Premium rates are specified and guaranteed
in the policy
Guaranteed to be renewable until the
insured’s age reaches maturity
However, insurer may have to take action
to discontinue further sale of the product

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Payment of Premium
& Termination of a Policy
Modes of Premium Payment
– Monthly, quarterly, semi yearly and annually
– Premiums paid annually are always lower
Billing arrangements
Warranty/Grace Period
– Allows the insured 31 to 61 days to pay the premium
after its due date
Policy automatically terminated
- on the death of Insured / Person
- on Policy Anniversary – insured maximum
eligibility age
- if total benefits paid out under policy exceed
maximum limit specified in benefit schedule

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Conditionally Renewable
A conditionally renewable medical & health
insurance policy grants an insurer a limited
right to refuse to renew a health policy at
the end of a premium payment period.
It must be based on one or more specific
reasons stated in the policy contact given to
the insured

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PolicyPolicy
DocumentsDocuments
PolicyPolicy
FormForm
ProposalProposal
FormForm
EndorsementEndorsement
RenewalRenewal
NoticeNotice
Proof of Medical &Proof of Medical &
Health InsuranceHealth Insurance
Premium PaymentPremium Payment
for Tax Relieffor Tax Relief
Chapter 4 – Policy Documents

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Policy Administration
Documents used in the conduct of medical
& health insurance business :-
– The Proposal Form
– The Policy Form
– Endorsement
– Renewal Notice
– Proof of medical & health insurance premium
payment for tax relief

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Section 149 of the Insurance Act 1996
provides for the control by and the
lodgment of proposal forms, policies and
brochures of insurers with Bank Negara
Malaysia
Section 149 also provides that Bank Negara
Malaysia may specify a code of good
practice in relation to any description of
proposal form, policy or brochure
Policy Administration

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- A document in the form of questionnaires
– Assist the insurer in gathering information
required to assess a risk
– Enables the insurer to consider application
speedily and accurately
– Frequently used in relation to simple risks
where information can be furnished in a
structured format
The Usefulness of Proposal Form

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The Structure of a Proposal Form
Contents of a Proposal Form
Disclosure Statement as per Requirements of
Insurance Act, 1996
Questions of a General Nature
Risk Address
Proposer’s Occupation
Previous and Present Insurance
Specific Questions relating to Health Insurance
Declaration
Signature

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The Policy Form
A document drafted by the insurers
Not the contract of insurance but represents
the written evidence of it
Has to be stamped in accordance with the
provisions of the Stamp Act
– Otherwise it cannot be used as evidence in
court
Scheduled typed form are frequently used
Endorsement – Form part of the policy

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Renewal Notices
The Practice in Relation to Medical & Health
Insurance Products – sold on annually renewable
basis & thus subject to renewal by the insurers at
the end of the policy period.
– No legal obligation on the part of the insurer
– The insurers to advise the insured that his policy is due
to expire on a particular date
– The notice incorporates all relevant particulars of the
policy
– A note advising the insured to disclose any material
alterations in the risk since the inception of policy
– The usual business practice is to send a Premium
Notice Reminder to the policy holder

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Entitle up to RM 3000 for premiums paid for
education or medical insurance
– This is over and above the RM 5000 deduction from
taxable income already allowed for premiums paid in
respect of life insurance policies and contributions to
approved retirement schemes.
Inland Revenue Board guidelines:-
– Health insurance policy coverage should be for a period
of 12 months or more
– The coverage should be related to the medical treatment
or benefit payment for TPD resulting from disease or
accident
A copy of the health insurance policy must be submitted with the Tax
Return Form, to qualify for tax allowance.
Documents for Tax Relief for Medical &
Health Insurance Premium Payments

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Claim Procedures
Notification of LossNotification of Loss
Checking of CoverageChecking of Coverage
Investigation of the ClaimInvestigation of the Claim
SettlementSettlement
of Claimof Claim
Repudiation of LiabilityRepudiation of Liability
DisputesDisputes
Negotiation andNegotiation and
CompromiseCompromise
VALID NOT VALID

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Medical & Health
Insurance Claims
Notification of Loss
– The insured must give the insurer written notice
of claims for any loss covered
– notice have to be given within 30 days after the
occurrence.

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Proof of Loss / Claim
The insured is required to furnish written
proof of loss, in the case of a claim for
disability benefits, within a stipulated
timeframe (eg 90 days) after the termination
of the period for which the insurer is liable.
Affirmative proof like original
hospitalization bill and claim form is
required for hospital or medical claim

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Checking Coverage
Conditions for a Valid Claim
– Is the policy in force?
– Has premium been paid?
– Is the loss caused by an insured peril?
– Is the subject matter affected by the loss the
same as that insured under the policy?
– Has notice of loss been given without undue
delay?
Claims Register (Section 47 Insurance Act 1996)

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Investigation of a Claim
The validity of a Claim
– Existence of loss
– Loss is caused by a peril insured under the
policy
– Loss does not fall within the scope of an
exclusion of the policy
– The person making the claim is the rightful
claimant

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Claim Documents
General information required in all Claim Forms
– Identity of the insured
– The insured’s interest in the loss
– Circumstances of and extent of loss
Medical & Health Insurance Claim Forms
- comprises a claimant’s or insured’s statement and an
attending physician’s statement. However, the format may
be different with each insurer.
Settlement of Medical & Health Insurance Claim
- having reviewed the considerations applicable
- having made the decision to pay the claim
- computing the amount payable & issue claim payment

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Repudiation of Liability by Insurers
There was no loss or damage as reported
The loss or damage for which a claim has
been made was not caused by a peril or was
excluded by the policy
The policy has been rendered void as a
result of a breach in condition (implied or
express) or warranty

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Usually there are two ways in which
rejections are normally handled:
– By letter to the policyholder from the claims
office
- By letter from the claim office to the agent,
instructing the agent to contact the insured
personally and to notify the insured of the
rejection and explain the reason.
Repudiation of Liability by Insurers

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Disputes
Disputes between claimants and insurers generally
may involve one of the two issues:
– The question of whether the insurer is liable
– The quantum of loss, if the insurer is liable
When a dispute arises, it may be resolved through
the following channels:
– Negotiation and compromise settlement - discussion
– Litigation – claimant unhappy – take court action
– Arbitration – pertaining to insurance polices - a clause
– Mediation – eg Financial Mediation Bureau – a centre
to air consumer complaints against all financial
institutions regulated by BNM.

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Negotiation and Compromise Settlement
Litigation
– Court action between the insured and the insurer
Arbitration
– An out of court settlement unless it involves a huge
claim or an important point of principle
– Speedier and less costly than court action
Mediation
– Set up by the Insurance Mediation Bureau (IMB)
– Offers free investigation and mediation services to
policyholders in insurance disputes

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16. Life Insurance Preliminaries
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16.2 Characteristics Of Life Insurance Products
1. Life Insurance Contracts Are Long-Term
Contracts
With Usually Level Premium .
* The long-term nature of the contract requires the insurer to adopt a
cautious view of the many factors which enter into the premium rate
calculations. Principal amongst these factors are the following :-
- mortality
- expenses
- rate of investment returns
- tax
* Legislative requirements in the form of minimum statutory reserves
and solvency margins must be maintained .
94

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2. Both Parties Must Observe The Principle Of Uberrima Fides.
Utmost good faith has to be observed by both parties, the insured and the insurer.
3. Life Insurance Contracts Are Aleatory Contracts.
* One party provides something of value to another party in exchange for a promise
that the other party will perform a stated act if a specific, uncertain event occurs .
* The claim amount is determined at the very beginning of the contract.
4. Insurable Interest
* The purchaser of a life insurance policy must stand to suffer a financial loss on the
death of the person on whose life the life insurance policy has been bought .
* Insurable interest exist :
- Every person is considered to have an unlimited interest in
♠ his or her own life
♠ their spouse’s life
- Parent Child (below age of majority)
- Creditor Debtor
- Employer Employee
- Partner Partner (in business)
* It needs to exist only at the inception of the insurance .
95

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5. Payment Of A Terminates Life Insurance Contract .
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In life insurance, with the exception of permanent health insurance policies, the
settlement of a claim terminates the contract .
6. The Risk To Be Insured Increases With Time .
For life insurance, mortality risk increases with age and hence with the duration
of the contract .
7. The Basic Principles Of Insurance As Applied To Life
Insurance.
* Insurable Interest
* Utmost Good Faith
* Indemnity
* Subrogation
* Contribution
* Proximate Cause
(Discussed in Chapter 3)
96

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Risk Covered By Life Insurance
Policies
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* Premature Death
* Temporary Disability
* Permanent Disability
* Retirement Benefits
* Financial Guarantees
97

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17.1 Introduction
3 Kinds Of Life Insurance Contracts
- Ordinary – Term, Whole Life, Endowment and Annuities
- Home Service – for lower income class of the population –
WL/END Plan / premium payments collected weekly
- Group Insurance
* Non -Participating Contracts
- Mainly for protection purposes / SA is guaranteed
* Participating Contracts
- Mainly used for protection & saving .
The total coverage / benefit is generally made up of a
guaranteed benefit, regular bonuses and a final bonus.
17. Life Insurance Products
98

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Term Insurance / Level Term Insurance
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•Also known as Temporary life insurance protection for a
specific period of time called policy term. Premiums payable
are relatively low and it does not provide any surrender
value.
• Policy benefit is payable only in the event of death or
becomes total and permanent disabled of LA within the
stipulated terms of the policy and nothing is payable if the
LA survives the term.
*It also act as an additional protection for financial or
mortgage loan, as a means of protecting mortgage
obligations. 9999

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Whole Life Assurance
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1. Ordinary Life Policy
- Protection provided for the whole duration of Life with the sum assured
including any accrued bonuses.
- Participating or non - participating .
- Provides the cheapest from of permanent protection .
- Payment of premiums need to be continued until the death of the life
assured.
- This policy comes with non-forfeiture provisions for eg. surrender value,
automatic premium loan and paid-up value.
2. Limited Payment Whole Life Policy
- Sum Assured is payable only upon death or TPD, but premiums are
payable for a limited number of years only .
- It is eligible for non-forfeiture provisions, eg surrender value & paid up
value.
100

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Endowment Assurance
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Uses of Endowment Assurance:
1. As an incentive to save in a systematic manner.- putting aside a moderate sum
each year with a view of having all the accumulation available at the end of a fixed
period.
2. As a convenient and easy means of providing for old age.- when policy mature
3. As a means of hedging against the possibility of untimely death- despite
premature death of disability of the LA
4. As a means of accumulating a fund for specific purposes.- children educational
needs
Anticipated Endowment Assurance
* Installment cash payments by the insurance to the policyholder payable at regular
intervals during the terms of the policy .
* An additional benefits that the full sum assured shall be payable in the event of the
life assured’s death during the term of the policy.
* If the assured survives till the end of the term, he will be paid only the sum
assured less the instalment payments 101

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Types of Annuities
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* SINGLE LIFE IMMEDIATE ANNUITY
- Annuitant pays a lump sum as the purchase price & in return he starts to
receives the annuity payments immediately for as long as he lives.
* GUARANTEED IMMEDIATE ANNUITY
- Annuity will be paid for a fixed number of years, thereafter as long as
the annuitant is alive.
- If annuitant dies during this period, the annuity payments will continue
to be paid until the end of the guaranteed period.
* DEFERRED ANNUITY-paid one lump sum at entry
- Annuity payment will not start immediately but will commence only on
the attainment of specific age or defined period called deferred period.
- Annuity payments are made throughout the life of the annuitant of a
specified amount until death.
* JOINT LIFE ANNUITY – that provides a specified amount of:
- Annuities granted on two or more lives.
- Annuity payments stop on the first death. 102

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* LAST SURVIVOR ANNUITY
- It is issued on two or more lives and provides for annuity payments to be
made until the date of death of the annuitant.
* REVERSIONARY ANNUITY
- Annuity commences at the death of the assured person, to be paid
throughout the life time of the annuitant (or nominee), eg wife on the death
of her husband.
* ANNUITY CERTAIN
-In return for the payment of a certain sum of money, the annuitant received
a yearly, half yearly or quarterly payment for a specific number of years.
Types of annuity contracts
103

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Permanent Health Insurance (PHI)
* It provides for an income during periods of sickness or disability on a long term basic .
* The income provided is limited to a maximum of 2/3 or 3/4 of the insured’s earnings.
* It cannot be cancelled by the insurer because of an adverse claims experience.
* It is usually arranged with a “deferred period”. During this period of disability no benefits
are payable. (1 month, 6 months or 12 months)
Dread Disease Covers
A dread disease contract pays out a lump sum on the diagnosis of any of a number of specified
diseases.
The benefit can take either of these 2 main forms :-
- It may provide an acceleration of all or part of any death benefit, or
- It may be an additional benefit .
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Investment Linked Policies
* Premium divided into the following components .
- expenses related
- mortality and/or morbidity cost related,
- investments related.
104

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Group Insurance
* Insure lives in large groups at low rates of premium and often without
medical examination.
* It covers all or a certain class or classes of employees of a company.
* Group term life insurance is a yearly renewable term insurance.
* It may extend to cover employee’s spouse and eligible children.
Requirements :-
* Minimum number must be 10.
- Non -contributory
- Contributory
Eligibility :-
* All full time employees between the ages of 16 and 55 and actively at
work on the effective date of the plan are eligible to join .
105

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Evidence of Insurability :-
* If individual amount of insurance is less than the Free Cover Limit, no
medical underwriting is necessary .
Amount of insurance :-
- Fixed amount for all
- Classified according to salary or occupation
Calculation of premium :-
- by age and sex
* A master policy is issued to the employer. A certificate of insurance is
issued to each employee.
* ‘Experience Rating’ is applied for large schemes of 2000 lives or more.
Group Insurance
106

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Disability Benefits
Before attainment of age 60, the assured become disabled and unable to engage in
any occupation or perform any work for remuneration or profit, the insurer will
- waive all future premiums
-pay the sum assured together with any bonus attached .
Sickness Benefits
-Hospitalization Benefits.
- Surgical And Nursing Fees Benefits.
Supplementary Benefits
Accidental Death Benefit
*This rider provides for payment of specified sums if the life assured should sustain
any body injury due solely and directly caused through external, violent and visible
means.
* Double Accident Benefit.
107

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Types Of Family Takaful
Business
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Objective :
1) Protection in the form of matual financial assistance to participants
against misfortune of their untimely death .
2) An investment to provide for some future financial need if they survive
the plan .
Supplementary benefits :
1) Permanent Total Disability
2) Personal Accident
3) Hospitalization Benefit
108

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Types Of Family Takaful Plan
1) Family Takaful Plans with term of
a) 10 years
b) 15 years
c) 20 years
d) 25 years
e) 30 years
f) 35 years
2) Takaful Mortgage Plan
3) Takaful Plans For Education
4) Group Takaful Plan
5) Health And Medical Takaful Plan
109

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Operation Of Family Takaful
Plans
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• The Participant signs a takaful contract with the
takaful company based on the principle of
mudharabah .
• The Participant decides on the amount for takaful
installment which includes the proportion of tabaruk
to be paid regularly to the company .
• These installments are then credited into a fund
known as the ‘Family Takaful Fund’
110

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Contribution = PA + PSA
= (Saving / investment) + Tabaruk
= (Saving / investment) + risk premium
PSA = the amount credited into the PSA is made with the
intention of tabaruk to be pooled into a risk fund, and
company use the fund to make payment of takaful
benefits to the heir of any participant who may die
before reaching the term of the plan .
Participant’s
Special
Account
PA = the main function of the PA is for saving and investments
Participant’s
Account
111

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Family Takaful Benefit
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Divided into 3 main portions : Death Benefit
Maturity Benefit
Surrender Value
It shall be paid to participant depending on 3 cases :
• Case 1: The participant dies before the term of the takaful plan.
Death
Benefit
Amount of
Death benefit
defined
by plan
Accumulated
value of the
Participant’s PA
= +
112

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•Case 2 : The participant survives to the end of the term of the takaful plan
Maturity
Benefit
Total Accumulated
value of
participant’s PA
Share of
surplus from the
risk fund at maturity
= +
•Case 3 : The participant terminates the contract .
Only amounts to the accumulated value of
participant’s Personal Account
113

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POLICY CONDITIONS
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Contract : An intangible and a legally
binding agreement between
the concerned parties .
114

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(a) Privileges
Days Of Grace
- Days allowed for the premium payment (30 days) after due date
- The coverage under the policy continues during the days of grace
Surrender Value
-It is attached to a life insurance policy after premiums have been paid
for a certain minimum number of years .
Home service policy : 6 years or more
Ordinary policy : 3 years or more
115

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Policy Loans
Paid-up Policy
After premium have been paid for a minimum period, loans are generally
up to 85% or 90% of the acquired cash value of a policy .
A paid-up policy (also known as free policy) uses the cash value available
As a single premium to provide for an insurance on the original terms, but
a reduced sum assured .
116

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Non-Forfeiture Conditions
* A valuable privilege to assure who overlooks the payment of the
premium or is temporarily unable to meet it .
* It only comes into play after the policy has acquired a cash value .
Automatic Premium Loan
- premium is paid automatically as it falls due .
- the automatic premium loan provides for a continuation of the
insurance cover.
- Insurance protection decreases each time the amount of loan increase .
Paid-up Policy
- once converted, no further premium are required.
- all riders and supplementary benefits are cancelled .
- participating policy will crease to participate in future profits .
117

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Extended Term Assurance
- exchange the acquired cash value
for a paid-up term insurance for the
full sum assured .
- the need for insurance protection
continues, but financial capacity
impaired .
118

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Reinstatement Condition
- enables a person to apply for reinstatement
of the contract, notwithstanding that the
days of grace and the period of non-
forfeiture have both expired .
- policies reinstated subject to evidence of
health .Company reserves the right to
impose its own terms .
119

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(b) Restrictive Conditions
Suicide Clause
If the insured commits suicide within a stated period of time
(1 year or 2 years) from the date of inception or reinstatement ,the policy
becomes void (may refund all premium paid).
Foreign Travel & Residence
Most policies do not impose any restriction on travel or foreign residence .
120

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Occupation And Dangerous Hobbies
Additional premiums may be charged for occupational risks.
Example : motor racing, policeman etc...... .
Incontestability Clause
The insurer cannot deny liability on a policy after 2 years of
its issue on the grounds of misrepresentation or non-
disclosure alone unless he can prove that such
misrepresentation ,non-representation or non-disclosure was
fraudulently made by the insured.
121

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( c) Conditions Explaining The Contract
Admission of Age
Documents generally accepted as proof of age :
• official certificate of birth .
• school leaving certificate .
• extract from service record of government ,Semi-Government, Public
sector undertakings and reputed Commercial firms .
• certified extract from Baptism Register .
• Identity Card .
• International Passport .
• Statutory declaration by the life assured or by an elderly relative where
the birth certificate has been lost or destroyed or duplicate copy is not
obtainable.
122

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Misrepresentation of Age
-Age understated The amount of money payable would be such
sum, as the premium paid would purchase
according to the true age .
- Age overstated Excess premium paid could be refunded or
higher sum be payable.
Under Section 15 (C) of the Insurance Act, 1963
- A policy shall not be canceled by reason only of a
misstatement of the age of the life assured.
123

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Assignment of a life policy
The legal rights vested under a life insurance policy may be transferred by
an assignment .
Absolute Assignment
-one does not leave any right
with the assignor except
paying of premiums if he
chooses to pay.
Conditional Assignment
- assignor can revoke all the rights
If the assignee dies before the
payment becomes due under
the policy or if the life assured
survives till the maturity date of
an endownment policy.
Assignment can be carried out by :
- writing
- an endorsement or a separate deed.
- a written notice of the assignment served to the insurer.
- registration by the insurer to establish the order of priority in a claim
when a policy has multiple assignments.
124

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Practice Of Life Insurance New Business –
Selection Of Lives And Other Issues
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Risk Management
The Risk Factor - Mortality
• Age
• Sex
• Occupation
• Social Status
• Ethnicity
• Geographical Location
• Marital Status
• Personal Habits & Family History
• Avocation
• Foreign Residence
125

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Selection Of Lives To Be Insured
• The insurer has to select the lives to be insured to avoid anti-selection.
This is principally done through the process of underwriting .
Financial Underwriting (Seek to discover the presence of moral
hazard)
The proposal form will be checked for the following :-
* the existence of insurable interest.
* the earning capacity ,financial standing .
* whether the insured maintains multiple insurance policies.
* whether the proposer has been turned down by any insurer.
Medical Underwriting (seek to assess the extent of physical hazard)
* if there is any unusual features in the proposal ,supplementary
questions, medical report ,or further medical examination is
required.
* if proposer is in good health , he would be offered coverage at normal
terms.
* if proposer is not in good health ,he would be considered as a sub-
standard life or as an impaired life.
126

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For sub-standard lives :-
* Charge extra premium.
* Charge a debt or a lien I.e. reduce the amount payable in the event of
death .
* Offer an alternative contract.
• Decline or postpone coverage .
Non – Medical Underwriting
* The advances in medicine ,together with the rising costs of obtaining
medical evidence and the need to process increasing volumes of business
quickly, led to the issuance of policies for which medical evidence is not
required.
* This privilege is usually given only to the permanent forms of insurance
such as whole life and endownment insurance, and age related limits on
the sum insured when imposed.
127

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The Role Of The Agent In The Underwriting Process Of Non-Medical
Insurance
The insurers rely on the integrity, loyalty and good judgment of their
agents to ensure that the proposers for non-medical coverage disclose all
material information honestly.
“ Cooling Off ” period
The insured within 15 days of receipt of the policy can return the policy
with a notice in writing objecting to a term or condition of the policy and
the insurer then has to refund the premium .
Loading Letter
A letter indicating the loading is issued to the proposer as a counter-offer if
there is an extra loading on the proposal. If the proposer agrees, he will be
required to return a copy of the letter of consent to the company .
128

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Backdating Of Commencement Date
It may be backdated to an earlier date, usually
up to a maximum of six months. The purpose
is to benefit the proposer for paying the
premium applicable to a lower age .
129

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Practice Of Life Insurance - New Business
- Premium Rating
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Quantifying The Risk
Pooling Of Similar Risk
When a large number of similar risks are combined into a group there will
be less uncertainty about the amount of loss likely to be incurred within a
certain period .
Law Of Large Number
When a large number of lives are insured, the fluctuation in the rate of
death from year to year, under normal circumstances will not be very
significant .
The Past Forms A Guide To The Future
The mortality statistics of insured lives give the results of the experience
of the past, and these are used as a guide to chart the mortality trend for
the future .
130

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20.2 Costing
The Risk
For the purpose of premium calculation ,the following factors need to be
considered :
Mortality
Investment Returns
Expenses
- Initial expenses
- Renewal expenses
- Termination expenses
Tax
Other Factors
- Financing costs
- Reinsurance costs
- Bonus loading (participating
policies)
- Cost for options and guarantees, if
any
- Cost for maintaining statutory
reserves and solvency margins .
131

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Birthday :21 March 1965
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Calculation Of Age
•Age Last Birthday Calculations :
31March 21, 1996December 31, 1996
29March 21, 1994January 1, 1995
30March 21, 1995May 20,1995
Age Last BirthdayLast Birthday
Reference Date
(Date of the
proposal submitted)
132

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Birthday :21 March 1965
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32March 21, 1997December 31, 1996
30March 21, 1995January 1, 1995
31March 21, 1996May 20,1995
Age Last BirthdayLast Birthday
Reference Date
(Date of the
proposal submitted)
•Age Next Birthday Calculations :
133

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Thank YouThank You
&&
All the BestAll the Best

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