The document provides an introduction to insurance concepts, including the basic principles of insurance, risk management, the insurance market and regulatory framework. It discusses key insurance concepts such as insurable interest, utmost good faith, indemnity, subrogation and proximate cause. It also introduces the role of agents and intermediaries and the importance of marketing and after-sales services in the insurance industry.

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AIA.COM
PCE – Part A(1) The Basic Of
Insurance
• Revision 01 (25/11/2011)

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INTRODUCTION OF INSURANCE
CHAPTER 1

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UNFORTUNATE EVENTS OF RISK
Need for Income Sources of Income

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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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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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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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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

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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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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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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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CHAPTER 2
NATURE OF RISK & RISK MANAGEMENT

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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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Concept of Insurance

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• Fundamental
(Entire Economy)
• Particular
(Individuals)
Basic Categories of Risk
• Pure
(Loss or No Loss)
• Speculative
(Profit, Loss or No
Loss)

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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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The Risk Management Process
C O N T R O L
I M P L E M E N T A T I O N
S E L E C T I O N
E V A L U A T I O N
I D E N T I F I C A T I O N

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Characteristic of Insurable Interest
 Financial Values
 Large number of similar risk
 Pure risk only
 No catastrophic losses

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Characteristic of Insurable Interest
 Fortuitous losses
 Insurable interest
 Legal and not against public policy
 Reasonable Premium

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CHAPTER 3
THE BASIC PRINCIPLES OF INSURANCE
&
AN INTRODUCTION TO TAKAFUL

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Principles of Insurance
• Insurable Interest
• Utmost Good Faith
• Indemnity
• Subrogation
• Contribution
• Proximate Cause

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Insurable Interest
Subject Matter of Insurance
Subject Matter of the Insurance Contract
100K
Fire
Insurance

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Insurable Interest
• When Must Insurable Interest Exist?
• Who Has Insurable Interest?

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NON DISCLOSURE MISREPRESENTATION
BREACHES OF UTMOST
GOOD FAITH
VOIDABLE
CONTRACT
UTMOST GOOD FAITH

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INDEMNITY
• General Insurance- Contracts of Indemnity
• Life & PA are not contracts of Indemnity

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REINSTATEMENTREINSTATEMENT
REPLACEMENTREPLACEMENT
REPAIRREPAIR
CASHCASH
METHODS OF
INDEMNITY
METHODS OF
INDEMNITY
INDEMNITY

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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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PROXIMATE CAUSE
• Which amongst many cause of losses can be
taken to be the dominant cause of loss?

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TAKAFUL
TABARUK MUDHARABAH
PRINCIPLES OF TAKAFUL OPERATION

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THE INSURANCE MARKET
Chapter 4
CHAPTER 4

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INSURANCE MARKET: MAIN COMPONENTS
SELLERS
INTERMEDIARIES
BUYERS

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MAIN COMPONENTS- BUYERS
• Individuals
• Association
• Societies
• Small Business Enterprises
• Corporation
• Public Enterprises

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MAIN COMPONENTS: SELLERS
• Life Insurer
• General Insurers
• Composite Insurers
 Proprietary Company
 Co-operative Society

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MAIN COMPONENTS: INTERMEDIARIES
• AGENTS
• BROKERS

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OTHERS COMPONENTS:SERVICE SPECIALIST
• Doctors
• Hospitals
• Engineers
• Marine and Cargo Surveyors
• Loss Adjuster / Investigators
• Loss Assessors

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OTHERS COMPONENTS
• Reinsures

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ORGANIZATION STRUCTURE
• Administration
• Electronic Data Processing (EDP)
• Accounting
• Investment
• Agency or Sales

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 Marketing
 Underwriting
 Claims
 Customer Service
 Actuarial
ORGANIZATION STRUCTURE

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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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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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CONSUMER PROTECTION
&
STATUTORY REGULATIONS
AT & D- Center for Learning Excellence
CHAPTER 5

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SELF REGULATION
OBJECTIVES:
•Instill Discipline
•Protection to Consumer

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RELATED ASSOCIATION
• PIAM
• IBAM
• AMLA
• LIAM
General Insurance Life Insurance

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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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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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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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DEFECTIVE CONTRACT
Can be classified into three fold:
 VOID
 VOIDABLE
 UNENFORCEABLE

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DEFECTIVE CONTRACT
VOIDVOID
 Law held to be no contract at all
 Totally invalid
 Cannot be enforced in a court of law

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DEFECTIVE CONTRACT
 Valid at the beginning
 Remain valid until the aggrieved party
exercises to treat it void
VOIDABLEVOIDABLE

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DEFECTIVE CONTRACT
 Failure to comply with legal formalities
UNENFORCEABLEUNENFORCEABLE

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LAW OF AGENCY
AT & D- Center for Learning Excellence
CHAPTER 7

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AUTHORITY OF AN AGENT
• Express Authority
• Implied Authority
• Usual Authority
• Apparent or Ostensible Authority
• Ratification

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CLASSES OF AGENT
 SPECIAL AGENT
 GENERAL AGENT
 UNIVERSAL AGENT

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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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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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TERMINATION OF AGENCY
• REVOCATION
• RENUNCIATION
• COMPLETION
• EXPIRATION

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• 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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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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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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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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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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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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CHARACTERISTICS OF INSURANCE AGENTS
• PREMIUM COLLECTIONS
–E.g. Home service life policy

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CHARACTERISTICS OF INSURANCE AGENTS
• THE CREATION OF THE
RELATIONSHIP
• THE EXTENT OF THE AGENT’S
AUTHORITY

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MARKETING
&
AFTER SALES SERVICES
AT & D- Center for Learning Excellence
CHAPTER 8

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SALES VS. MARKETING
• Often do not meet
consumer needs
• Developed &
Marketed with the
consumers’ need
in mind
Sales Oriented
Products
Market Oriented
Products
Vs.

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• Planning & Controlling
• Market Identification
• Product Development
• Pricing
• Selection of Distribution Channel
• Promotion
FUNCTIONS OF THE MARKETING DEPARTMENT

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Sales
Interview
Handling
Objections
Sales
presentation
Closing
Prospecting
THE SELLINGTHE SELLING
PROCESSPROCESS

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CONSUMER BUYING DECISION PROCESS
Problem Recognition
Information Search
Evaluation of alternative
polices
Purchase
Post-Purchase evaluation

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PERSONAL SELLING
• Product knowledge
• Market selling
• Selling techniques
Order processing
Creative selling
Missionary selling
Agent has to gain expertise in: