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PCE – Part A(1) The Basic Of Insurance

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

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PCE – Part A(1) The Basic Of Insurance

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

  2. INTRODUCTION OF INSURANCE CHAPTER 1

  3. UNFORTUNATE EVENTS OF RISK Need for Income Sources of Income

  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

  5. The Law of Large Numbers • Large number of similar loss exposure • Loss exposure must be independent • Random or chance occurrence of losses

  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

  7. 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 Functions of Insurance

  8. Classes of Insurance Life General Premature Death Motor Vehicles Retirement Ship Sickness Building Disability Liability Personal Accident

  9. History of Insurance • Earliest Beginning of Insurance • Marine Insurance • 1706 – Amicable Society for a Perpetual Assurance • 1762 – Equitable Assurance – Level Premium System

  10. Insurance in Malaysia • 18th Century – British System • Principal document governing the conduct of insurance business in Malaysia • Insurance Act 1963 • Insurance Act 1996

  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.

  12. CHAPTER 2 NATURE OF RISK & RISK MANAGEMENT

  13. Perils Losses Fire Property Profit/ Revenue Lives (at times) Illness Future Earnings Medical Expenses Negligence Court Awards Legal Expenses Concept of Insurance

  14. Hazard Physical Hazard Physical chance that increases the condition of loss Moral Hazard Character Defect in an individual that increases the chance of loss Wooden Construction Dishonesty Carelessness Unreasonableness Poor mechanical condition of a car Concept of Insurance

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

  16. Methods of Handling Risk Risk Avoidance Loss Control • Loss Prevention • Loss Minimization Risk Retention Risk Transfer • Non Insurance Contract • Insurance Contract

  17. The Risk Management Process

  18. Characteristic of Insurable Interest • Financial Values • Large number of similar risk • Pure risk only • No catastrophic losses

  19. Characteristic of Insurable Interest • Fortuitous losses • Insurable interest • Legal and not against public policy • Reasonable Premium

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

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

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

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

  24. UTMOST GOOD FAITH Ordinary Commercial Contract Insurance Contract Uberrima Fides Caveat Emptor Disclose fully and accurately ALL MATERIAL FACTS

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

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

  27. INDEMNITY

  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

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

  30. PRINCIPLES OF TAKAFUL OPERATION TAKAFUL TABARUK MUDHARABAH

  31. THE INSURANCE MARKET Chapter 4 CHAPTER 4

  32. INSURANCE MARKET: MAIN COMPONENTS SELLERS INTERMEDIARIES BUYERS

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

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

  35. MAIN COMPONENTS: INTERMEDIARIES • AGENTS • BROKERS

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

  37. OTHERS COMPONENTS • Reinsures

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

  39. ORGANIZATION STRUCTURE • Marketing • Underwriting • Claims • Customer Service • Actuarial

  40. Insurance Related Institution:Generalinsurance • 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)

  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)

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

  43. SELF REGULATION OBJECTIVES: • Instill Discipline • Protection to Consumer

  44. PIAM IBAM AMLA LIAM RELATED ASSOCIATION General Insurance Life Insurance

  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

  46. THE COMPANIES ACT 1965 THE PRINCIPAL IS REQUIRED TO: • Prepare & submit annual accounts • Methods of valuing assets • Method of valuing liabilities • Provision for depreciation

  47. CHAPTER 6 THE INSURANCE CONTRACT AT & D- Center for Learning Excellence

  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

  49. DEFECTIVE CONTRACT • Can be classified into three fold: • VOID • VOIDABLE • UNENFORCEABLE

  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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