Notesale: Turn your study into money

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Insurance Market and Practice
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The main parties involved are sellers, intermediaries and buyers
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Sellers are the insurance companies
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They
bring the buyer and the seller together to form a contract
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This happens especially when the item being
insured costs a lot of money where one company cannot take the entire burden
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Others include: Swiss Re, Hannover Re, and Gen Re
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The insurance companies work together with other organisations
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They are supported by intermediaries, reinsurers, other
institutes (eg MITC) , Courts, Arbitration Center, Doctors, lawyers, Architects, surveyors, Associations (
an entity that brings together students who have a common interest) there are 2 associations in Malta
AIB( Association of Insurance Brokers) which seeks the interest of the brokers and MIA (Malta Insurance
Association) which seeks the interest of the insurance companies ( or insurers)
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The Main Classes of Insurance
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It sells life policy which could be Endourment, Term and Life
Non-Life
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Personal is divided into Motor and NonMotor
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A personal policy is a
policy catering for the risks of an individual
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Commercial Lines is a department which specializes in the risks faced by a business, e
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fire,
liability, money, business interruption, fidelity guarantee, machinery policy
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This is because when
selling a life insurance policy, the time period involved is long, so it is a long-term contract
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Lecture 2
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1
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a
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Personal focuses on individuals and Commercial
focuses on businesses
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2
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Sellers
a
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These are insurance companies that can either be
proprietary or mutual
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b
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So if you buy a
life insurance from BUPA, you become part of the company
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It is part of
the company strategy that go towards the society
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In the UK there are Mutual Indemnity Association, which are
strong to insure Marine risks, especially Protection and Indemnity Clubs
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When there is a collision of 2 ships, the insurers of these ships only pay ¾ of the
loss
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c
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It is not the bank, but
the LLOYD’s market, it is a place
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It is a place where insurance transactions
can take place
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The Syndicates are a group of investors known as Names
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e
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Nowadays, the people behind the risk
are corporate companies
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The history of LLOYD originated
from Marine Insurance
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Captive Insurance is a type of self-insurance, because the company is transferring its portfolio to a
company that is on its own
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SO you have your own
insurance company ensuring the risk for your own company
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Where there is Risk, there has to be insurance
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SO banks and Insurance
companies have common interests, so there is Bancassurance
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Affinity Groups are groups that have large databases
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Once you have these people, you are in a position to do business
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The main intermediaries will be the
agents called Tied Insurance Intermediaries (TII)
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Lecture 3
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An insurer can have a direct contact or via an intermediary i
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the broker
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There are brokers that do re-insurance who broker
the risk to another re-insurer
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The salesman of the
insurance is known as a tied insurance intermediary
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TII sell insurance
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It is treated as its branch
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It is an extension of the company
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England insurers are an agent of Middle Sea
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The Insurane misght be loacl insurance principle or foreign insurance principle
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Foreign (insurers whose principle is based abroad
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An agent could have his own TII
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They are the same in terms as they are intermediaries and all reach the clients from the insurer
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(Bcom or
ACII or equivalent), but
you need an experience
in the market
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SO if
the broker makes a
mistake, he may be
sued by the client
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Basic product based
course
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Eg an
estate agent, travel
agent, mechanic, a
computer store
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They are going
to sell on behalf of the
principal

Commission / profit (20
to 30 %)
The principal is
responsible

Commission (10 to 15
%)
The principal is
responsible

The Insurance Environment
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Associations – Speak on behalf of members ex MIA , AIB, Malta association of risk managers
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Adjudicators – people who are settling disputes ex judges
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MFSA – the main regulator
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The MFSA is responsible for Licensing
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This is done by showing a qualification, have a clean
conduct, prove you are not a bankrupt person, and also declare your experience
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They would also Monitor and Supervise your activities
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On-site is when they go on site and see how you are working
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MFSA also
has the power to take decisions
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It has powers to restrict business, income and even wind the company down
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They do not interfere with a claim
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It also handles customer complaints
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Solvency – talks about the minimum requirements that the company must have to ensure the
court awards are respected
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The EU
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A company in Malta may set up a branch office or head office anywhere in the
European Union
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Lecture 4: The Law of Agency
Intermediaries hold a special relationship with the Principal, usually the insurance company
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Principal is that person who is requiring some sort of action, performance
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Whatever the Agent does, it is as if the principal has undertaken that action
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A mistake of the agent, will be borne by the Principal
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Created by stipulating terms and conditions
that is written down
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If the contract states that the agent can only sell products A,B and C and the agent sells D to the client,
the insurer would still have to pay the client, but the insurer might then sue his own agent
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But the
insurer can decide not to sue and still sell the product to the client
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It means the approval of an act or performance not
withstanding that this act was beyond the agency agreement
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Example, the Rotting tomatoes example were the principal sued the
agent for taking a decision when they couldn’t communicate
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Duties:






Obedience – Both parties will obey the terms of the contract
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You expect him to exercise
care and skill
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e
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An agent must not delegate
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Good faith – To work in the best interest of the client
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He can keep the commission but has to pass the premium to the principal,
as stated by the law
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He
cannot use that 100 euro for anything else, and only the commission can be kept
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Usually done in the form of
commission (generally 7%-15%)
Indemnity – It is putting someone in the same financial position prior to an expense
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Lien –if the principal is not honoring the agreement, the agent has a right to hold something
belonging to the principal
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Eg
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 Express – authority given by way of something stipulated in writing
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Eg you can sell life policies
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This could create a problem is an agent is selling motor
insurance and then this was stopped for business
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 Apparent – Seen as the principal and in certain cases the agent needs to act as if he is really the
principal
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 By Performance – may come to an end by way of performance
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 Lapse of time – it may have a time provision to terminate the agreement
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 Renunciation by the agent – The agent may apply to terminate the contract
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 Insanity – this means unable to take a decision
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 Frustration – the impossibility of acting
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 Bankruptcy – if the company becomes insolvent, it is a reason why the agency agreement
comes to an end
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Insurance is the selling of a promise
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At the end of the day we have to make sure
that companies are able to pay claims, therefore solvent
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The people who are operating the business are competent
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You don’t just become a broker; you have to pass a certain tests
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These are prior to be given a
licensee
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This means that you
need to have a system which enables to operate effectively
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the end result was that people were uncompensated
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We need a higher authority to control the market because it is the authority that makes
certain policies compulsory
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g
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The government runs its own national insurance contributions (around €1billion to pay out social
benefits) because it runs an insurance mechanism
Functions of MFSA:
 Regulate and supervise the conduct of the financial services industry in Malta
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 Encourage the highest possible standards of behaviour in the financial services industry
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 Encourage and support initiatives to improve standards of education and training in Malta’s
financial services industry
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 Carry out regular and proper inspections of licensed financial services business
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 Advise and assist, as appropriate, approved incoming finance businesses to settle in Malta and
contribute to national economic well-being
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 Communicate with and advise with national and international media in order to demonstrate
Malta’s commitment to global best practice and enhance its international reputation
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 Manage Malta’s Registry of Companies
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e
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It appoints the market players
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) to monitor these
insurance companies
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It ensures capital adequacy and solvency which is very important
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In fact at EU level there are a number of directives revised and we’re moving from Solvency 1 to
Solvency 2 to make sure that companies are able to pay
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It is the authority’s job to enforce rules and issue
directive
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Therefore it sets the operating parameter
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 Pillar I – requirement to follow certain formula, mathematical structure so that companies are
able to pay, the amount of capital in place to take up certain businesses, certain accounting
ratios that need to be in place
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The policies that are established and the
rules of the company (qualitative risk management and corporate governance)



Pillar III – the structure through which the company has to report its financial operations
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Pillar III seeks to ensure
transparency as insurers and reinsurers are now required to report on their extent of solvency
and their financial condition)

Lecture 6
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An
indemnity policy e
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a laptop can be given a value €600, it is permanently damaged/lost/stolen, the
insurance company will give you back the €600, putting you in the same financial position that that
person was before the loss (not better and not worse)
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When a person dies, we pay out a sum of money as a
compensation
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In practice we need to distinguish between
indemnity and benefit policies
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Can I insure the life of my neighbour? NO (unless the neighbour owes me money)
Can a child insure the life of a parent? YES
Can a borrower insure the life of a lender? NO, actually it is the other way round, the lender insures the
life of a borrower
Can a husband insure the life of his wife? YES
In the absence of indemnity a lump sum is agreed upon and paid upon
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Fortuitous
means unexpected (just in case)
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Another important aspect is its long-term nature – unlike most policies, life assurance is long-term which
means that when you take a life policy, you do so for a number of years, such as 25, 20 and even 40
years
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this is not
without its own problems
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Therefore, insurable interest must exist at inception
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If in 6 months you decide that from teacher
you go a soldier, it is irrelevant
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If you take a house policy, insurable interest must be conserved throughout the policy, unlike life
assurance which must be shown at its inception
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If the premium at
inception was fixed at €200, it will be €200 throughout, the reason is that it is a long-term contract,
there is no opportunity for revision, the company cannot increase your premium
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Life assurance covers death
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(A)

-

The life assured might be a person who has his life assured (B) but whose policy is paid by
somebody else (the policyholder)
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-

The beneficiary is the person who is going to receive the money
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If the beneficiary is not declared in the policy, then the
proceeds will be given according the legal heirs of that person
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This policy can be bought as a stand alone policy and as a group (employees) and even as a joint basis
(husband and wife)
Term assurance (level term) works on this basis: E
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a policy that is for 20 years and there is a sum
assured agreed upon which is €20,000 and this depends on how much you afford to pay the premium
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If there is no death within this term, nothing will be paid out
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This is taken out mainly when you have a loan outstanding
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Decreasing term is when you take out a loan in year 1 for €20,000 every year you need less protection
until it comes to €0, the loan balance is decreasing when you repay a loan and so you take assurance to
reflect the sum outstanding to the bank
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g
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it is the cheapest of
the products, because the premium is cheaper because the sum assured is decreasing
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Under term policy, the assurance company will charge a level premium every year to cover the risk of
death during a term, for example 20 years
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A variation of this arrangement
could be a decreasing term policy which also pays out a sum of money in the event of death during the
term
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The premium will be cheaper in a decreasing term than
in a term assurance
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A Iife policy for 20 years is taken out and you have a sum assured for €20,000, the
Endowment will still pay out but it will only pay either upon death or upon the expiry (the policyholder
survives the whole term) of the policy whichever comes first
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The downside of this is that the premium is more expensive
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This is mainly done when retired people would want to leave some sum of money to
their dependants
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It is one thing if you start the policy at 118, another if
you start at 45 and another if you start the policy at 60 years of age
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If the policy is cancelled in its
early years, nothing happens the insurer will retain the premiums
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If you stop the policy after a certain
amount of years, you’ll get what is known as the surrender value so treat a life policy as a document
which is cashable
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Lecture 7 Continuation of Life and related products
Annuities are suitable if you have a capital sum of money
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The annuities lie
between a product of Insurance and a product of Investment product
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An annuity is the payment of a capital sum
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This is
used when a minor inherits or is awarded by the court a sum of money, so the guardian invests in
annuity so the minor will find money in the future, and he/she would have regular income
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(No one in Malta offers
annuities)
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There is another product where it keeps on paying out until death, which ever come first, referring to
the date the annuity ends
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This a 3rd pillar type of product
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They are
being paid from the contributions of those being employed, and is run by the Government
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So, you are paying for your own pension by the employer
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Pillar 3 is voluntary, which is a private pension
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This is to pay money up to retirement and then you are guaranteed a salary for
the rest of your life
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(a benefit policy is one which pays out a lump sum of money
in case of a covered contingency)
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It is an annual policy, unlike life insurance
which runs for a number of years
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This policy could be bought stand-alone, ie could be a
product which is sold alone, Or, in combination with other products
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It is also one which is geographically bound, ie, the policy will
operate only if the accident occurs within a specified geographical location(Local, Europe, worldwide)
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It covers the policy holder in terms of an accident
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If you are run over by a car, it is outwardly as it is external, violent is when you are seriously injured, and
it is visible
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To fall off a ladder is also an accident
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The heart attack is the more
dominant in this case so this event would not be covered
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No cover as it is not violent
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If
there was a Personal accident policy, it would pay
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2
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4
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5
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(% from the Continental Scale
of Benefits table)
6
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This is when the injury
is preventing you from working, but you are going to heal
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7
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Eg a broken arm for a builder, but
you can still perform supervisory duties, or a watchman at night
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It Is one which seeks to replace lost income
and therefore it is an indemnity based policy
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It would pay for Injury, illness or disease, unlike an accident policy
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If you do not recover, up to death, Or, if you don’t
recover and you survive, until retirement
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It would pay for lost income and pays for up to ¾ of your income
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It pays up to you recover, death up to
retirement
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For every policy that we
undertake, there is always a contingency being insured, in this case it’s between deaths, accident, injury
and against illness or a disease
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Indemnity is to put the person
exactly where he was before the accident happened
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You can have 4 personal accident
policies at once or even more, and if a person dies, all have to be paid out because there is no
contribution
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Insurers have a
right to reassess the risk and so they can improve covers, increase/decrease premium, impose an
excess, etc…
Occupational is if you are under a group policy, then you probably will have occupational cover (to be
covered during your course of employment)
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Health Insurance/Medical Insurance
We need health insurance because it is more efficient, more personalized care, and it’s quick
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It is mostly occupational, and given as a perk with certain employer’s schemes and
generally covers members of the family
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It is not a cheap policy as it generally is 500 euro per annum
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Pecuniary Insurance Class
Pecuniary insurance is another class that incorporates those policies that are seeking to protect the
financial aspects of the risk, particularly, money insurance, credit insurance, business interruption
insurance, legal expenses and fidelity guarantee insurance
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It is important because it covers cash,
cheques and other financial assets of the organisation
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It is insured between A) within
office hours and B) Outside Office hours
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You can have money in the bank, and also in transit (between the business and the bank)
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It can also be in transit between the owners house and the
business
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The Insurer would
then sue the debtor who did not pay the debt for the amount he was supposed to pay
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(Subrogation)

Business interruption insurance
The payment of the shortfall in profit as a result of an insured loss
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The black shaded area represents what the insurance company pays
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This policy covers all those fees covering
a case, negotiating a court cases to sue and to defend your case
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Fidelity guarantee
Covers theft by insiders
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Lecture 9: Property Policies
The clients for this policy are individuals owning a house hold, ie personal insurance
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In both the categories we either use a Fire and Special Perils policy, or an All risks policy
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The policy will only provide cover only if 1 of these occur
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The peril that occurred has to be named!
In all Risks the basis is different
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Everything is
covered, ANY cause! So long as it is not excluded… obviously there are exclusions
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It encompasses events beyond the named perils
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An
example of exclusion is rest, humidity, wear and tear
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In the UK you can purchase a Fire policy only, if you want
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When you buy a
fire only policy it would cover 3 perils: fire, lightning and explosion
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If any of the perils mentioned in the fire and special perils policy, give loss damage or destruction of
items covered in the property insurance( buildings, fixtures and fittings, furniture, tools, equipment,
plant, machinery, computers) (The sum insured is the monetary terms of the sum insured), they are
covered by the insurance
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A plant is a huge
engineering project which is constructed to generate something
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Here we are covering the assets used to build and the liability
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Motor Insurance
This is compulsory, if you are driving a vehicle on a public road
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The
motor vehicles policies can be private or commercial
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Age plays an important role in this
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There are 3 cover: Third
party, third party fire and theft, and comprehensive
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Third party means death, bodily injury or property damage
to other people
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Insurers offer different options, one of them is third party together with some own damage
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Comprehensive includes accidental
own damage
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The basis of
how this works is that it is all risk covering accidental damage to the property being transported, and
could be insured per trip, for 3rd party goods being carried, ex furniture movers, or own goods
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Cargo
The sea voyage is marine insurance, but marine insurance can start from the point the goods leave the
warehouse of the seller until the point hey reach the consumer, so it covers the good along the way
even with a vehicle on the road
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Hull
Insures pleasure craft and ships
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Liability
The damage caused by the vessel to 3rd parties, be them other boats, other vessels, pontoons, people
who are swimming and hit by vessels
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A risk is shared
when the sums insured is very high, when there is a new risk (because the insurance company does not
have experience of that risk eg space shuttles and space ventures at the beginning)
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The advantages of sharing risk:
1
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It brings stability ( in profits, because when there is a loss, it can be re insured, and keep stable
profits)
3
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To save guard catastrophes ( to save up for unexpected losses)
5
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Co-insurance
a
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So this company
would be responsible for the premium, prepare the documents, so it the leader
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B and C are followers so they take a portion of the premium and pay a
portion of the risk
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If there is a claim, the broker has to arrange an
agreement for the payment to be received from all 3 companies ( responsible only for
their share)
2
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The client comes forward with a risk to the insurance company with a 100% share
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If something happens, that insurance company is obliged to pay the claim in full
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( as reinsurance market is available only to ins companies)
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Munich-Re
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There could also be a ratio measured in “lines”
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The re –insurance agreements can be:
Facultative – it is a one off contract, when they need (meta jkollom bzonn)
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2
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This is more favourable than a 1
off
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Claims Process
Onus of proof-who is obliged to prove that a loss has occurred and to prove the amount that was lost is
with the insured
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This obligation is put on the insured on the claim condition
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Notificationa
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A claim is an
unfortunate event, and injury etc… The insured must notify the insurer as soon as it is
reasonably possible
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ASAP is important because the
insurers might need to mitigate the loss (send a repairer for example)
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Witnesses may also be required who might assist in
proofing the loss or even official reports from the fire brigade for eg, or the police
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Checks
a
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In the proposal form, there will be details of
what was insured
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They also check the policy, as there will be the date of cover, the perils, a risk
of exclusions that apply, a list of conditions to be followed, and warranties are still in
force
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(avg loss = sum
insured/ value at risk)
3
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See if subrogation applies – the right to sue a third party for the loss
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b
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All benefits under the policy will be lost and
there can be criminal procedures
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Settlement
a
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Indemnity pays an amount less wear and tear
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Usually insurers pay cash, or by repairing, or by
replacining
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Arbitrations
a
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6
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Once full indemnity, the salvaged items belong to the insurance company
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He surveys the loss, go on site, try to fit in the case in the cover that has been provided and
recommends how the loss should be settled
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A loss assessor is appointed by the insured, when there is a complex claim to be submitted
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Other professionals that assist when a loss arises are lawyers, doctors, experts, police and architects are
known as the arbitrators
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A camera bought for 700 in the year 2000 is today worth 1000
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An on indemnity basis , we pay 500
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The duty to take all reasonable steps to prevent further loss will be formed on a;
a
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Condition – correct answer
c
...
policy



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