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CHAPTER 1

INTRODUCTION TO INSURANCE
Introduction to Insurance
Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for
payment. It is a form of risk management primarily used to hedge against the risk of a
contingent, uncertain loss. An insurer, or insurance carrier, is a company selling the insurance;
the insured, or policyholder, is the person or entity buying the insurance policy. The amount of
money to be charged for a certain amount of insurance coverage is called the premium. Risk
management, the practice of appraising and controlling risk, has evolved as a discrete field of
study and practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss in
the form of payment to the insurer in exchange for the insurer's promise to compensate
(indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract,
called the insurance policy, which details the conditions and circumstances under which the
insured will be financially compensated.

History

Insurance became far more sophisticated in Enlightenment era Europe, and specialized varieties
developed. Lloyd's Coffee House was the first marine insurance company. Property insurance as
we know it today can be traced to the Great Fire of London, which in 1666 devoured more than
13,000 houses. The devastating effects of the fire converted the development of insurance "from
a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher
Wren's inclusion of a site for 'the Insurance Office' in his new plan for London in 1667". A
number of attempted fire insurance schemes came to nothing, but in 1681, economist Nicholas
Barbon and eleven associates established the first fire insurance company, the "Insurance Office

for Houses", at the back of the Royal Exchange to insure brick and frame homes. Initially, 5,000
homes were insured by his Insurance Office.

At the same time, the first insurance schemes for the underwriting of business ventures became
available. By the end of the seventeenth century, London's growing importance as a centre for
trade was increasing demand for marine insurance. In the late 1680s, Edward Lloyd opened a
coffee house, which became the meeting place for parties in the shipping industry wishing to
insure cargoes and ships, and those willing to underwrite such ventures. These informal
beginnings led to the establishment of the insurance market Lloyd's of London and several
related shipping and insurance businesses. Leaflet promoting the National Insurance Act 1911.
The first life insurance policies were taken out in the early 18th century. The first company to
offer life insurance was the Amicable Society for a Perpetual Assurance Office, founded in
London in 1706 by William Talbot and Sir Thomas Allen. Edward Rowe Mores established the
Society for Equitable Assurances on Lives and Survivorship in 1762.It was the world's first
mutual insurer and it pioneered age based premiums based on mortality rate laying "the
framework for scientific insurance practice and development" and "the basis of modern life
assurance upon which all life assurance schemes were subsequently based".
In the late 19th century, "accident insurance" began to become available. This operated much like
modern disability insurance. The first company to offer accident insurance was the Railway
Passengers Assurance Company, formed in 1848 in England to insure against the rising number
of fatalities on the nascent railway system. By the late 19th century, governments began to
initiate national insurance programs against sickness and old age. Germany built on a tradition of
welfare programs in Prussia and Saxony that began as early as in the 1840s. In the 1880s
Chancellor Otto von Bismarck introduced old age pensions, accident insurance and medical care
that formed the basis for Germany's welfare state. In Britain more extensive legislation was
introduced by the Liberal government in the 1911 National Insurance Act. This gave the British
working classes the first contributory system of insurance against illness and unemployment.
This system was greatly expanded after the Second World War under the influence of the
Beveridge Report, to form the first modern welfare state

Principles
Insurance involves pooling funds from many insured entities (known as exposures) to pay for the
losses that some may incur. The insured entities are therefore protected from risk for a fee, with
the fee being dependent upon the frequency and severity of the event occurring. In order to be an
insurable risk, the risk insured against must meet certain characteristics. Insurance as a financial
intermediary is a commercial enterprise and a major part of the financial services industry, but
individual entities can also self-insure through saving money for possible future losses.

Types Of Insurance
Life Insurance
Life insurance is an insurance coverage that pays out a certain amount of money to the insured or
their specified beneficiaries upon a certain event such as death of the individual who is insured.
The coverage period for life insurance is usually more than a year. So this requires periodic
premium payments, either monthly, quarterly or annually.
The risks that are covered by life insurance are:

Premature death
Income during retirement
Illness

The main products of life insurance include:

Whole life
Endowment
Term
Investment-linked
Life annuity plan

Medical and health

General insurance
General insurance is basically an insurance policy that protects you against losses and damages
other than those covered by life insurance. For more comprehensive coverage, it is vital for you
to know about the risks covered to ensure that you and your family are protected from
unforeseen losses.
The coverage period for most general insurance policies and plans is usually one year, whereby
premiums are normally paid on a one-time basis.
The risks that are covered by general insurance are:

Property loss, for example, stolen car or burnt house


Liability arising from damage caused by yourself to a third party
Accidental death or injury

The main products of general insurance includes:

Motor insurance:
There are three common types of motor insurance available: third party; third party, fire and
theft; and comprehensive cover. The level of your coverage dictates what you can claim if your
vehicle sustains loss or damages.

Fire/ Houseowners/ Householders insurance:


Home Insurance, or Houseowner / Householder Insurance as it is also known, is one of the most
important insurance policies you can buy in your adult life. Your home is one of the largest
financial investment youve made, and thats why its so important to protect it. There are three
main types of policies which you can buy to protect your home:

Personal accident insurance:


Personal Accident insurance or PA insurance is an annual policy which provides compensation in
the event of injuries, disability or death caused solely by violent, accidental, external and visible
events. It is different from life insurance and medical & health insurance.
You can either take a PA policy for yourself or a group policy for your family, protecting you and
them anywhere in the world, anytime of the day. PA insurance provides 24-hour worldwide
insurance protection.

Medical and health insurance:


Medical and Health Insurance (MHI), is an insurance policy which is designed to cover the cost
of private medical treatment, which can be very expensive, especially with hospitalisation and
surgery. MHI also ensures that you won't have to worry about the cost of seeking treatment
during emergencies. In addition, MHI also provides you with an income stream while you
undergo treatment.
Travel insurance:
Travel insurance coverage is usually limited to the period of your travel. However, some
insurance companies may offer various combinations of protection to cater to the specific needs
of customers, including long-term annual policies for a frequent traveller. A travel insurance can
be purchased for you and/or your family to insure against travel-related accidents, losses or
interruptions, such as

Insurance companies
Insurance companies may be classified into two groups:
Life insurance companies, which sell life insurance, annuities and pensions
products.
Non-life or property/casualty insurance companies, which sell other types of
insurance.
General insurance companies can be further divided into these sub categories.
Standard lines
Excess lines
In most countries, life and non-life insurers are subject to different regulatory
regimes and different tax and accounting rules. The main reason for the distinction
between the two types of company is that life, annuity, and pension business is
very long-term in nature coverage for life assurance or a pension can cover risks
over many decades. By contrast, non-life insurance cover usually covers a shorter
period, such as one year.
In the United States, standard line insurance companies are insurers that have
received a license or authorization from a state for the purpose of writing specific
kinds of insurance in that state, such as automobile insurance or homeowners'
insurance They are typically referred to as "admitted" insurers. Generally, such an
insurance company must submit its rates and policy forms to the state's insurance
regulator to receive his or her prior approval, although whether an insurance
company must receive prior approval depends upon the kind of insurance being
written. Standard line insurance companies usually charge lower premiums than
excess line insurers and may sell directly to individual insureds. They are regulated

by state laws, which include restrictions on rates and forms, and which aim to
protect consumers and the public from unfair or abusive practices. These insurers
also are required to contribute to state guarantee funds, which are used to pay for
losses if an insurer becomes insolvent.
Neither insurance consultants nor insurance brokers are insurance companies and
no risks are transferred to them in insurance transactions. Third party
administrators are companies that perform underwriting and sometimes claims
handling services for insurance companies. These companies often have special
expertise that the insurance companies do not have.
The financial stability and strength of an insurance company should be a major
consideration when buying an insurance contract. An insurance premium paid
currently provides coverage for losses that might arise many years in the future.
For that reason, the viability of the insurance carrier is very important. In recent
years, a number of insurance companies have become insolvent, leaving their
policyholders with no coverage (or coverage only from a government-backed
insurance pool or other arrangement with less attractive payouts for losses). A
number of independent rating agencies provide information and rate the financial
viability of insurance companies.

Insurance to be worthwhile for low-probability, catastrophic losses, but not for


high-probability, small losses. Because of this, consumers are advised to select
high deductibles and to not insure losses which would not cause a disruption in
their life. However, consumers have shown a tendency to prefer low deductibles
and to prefer to insure relatively high-probability, small losses over lowprobability, perhaps due to not understanding or ignoring the low-probability risk.

This is associated with reduced purchasing of insurance against low-probability


losses, and may result in increased inefficiencies from moral hazard.
CHAPTER 2
TRAVEL INSURANCE
Introduction to Travel Insurance
An insurance product designed to cover the costs and reduce the risk associated
with unexpected events during domestic or international travel. Travel insurance
usually covers the insured in two main categories: costs associated with medical
expenses and trip cancellations. Many online companies selling airplane tickets or
travel packages allow consumers to purchase travel insurance as an added service.
Some travel insurance policies may also cover damage to rented equipment, such
as rental cars, or even the cost of paying a ransom in the case of a kidnapping
When travelling, costs associated with unexpected events can be much higher,
which poses an increased risk to travellers. Travel insurance attempts to reduce
these risks. For example, insurance might cover the higher-than-normal medical
expenses in a foreign country, or pay for medical evacuation when necessary.
Travellers should pay attention to the policy, as insurers may exclude pre-existing
medical conditions. Some other events that might be covered are lost or stolen
luggage and fraud. The cost of a travel insurance policy may vary by destination;
trips to high-conflict zones or areas prone to bad weather could cost more.

Scope of cover
The scope of cover and scale of benefits differ between insurance companies and
you should shop around to ensure that you purchase a policy which best meets
your requirements.
The coverage commonly provided under a travel insurance policy include:
Personal accident
Medical and its related expenses
Loss of baggage, personal effect and money
Loss of passport
Personal liability
Delayed baggage
Travel delay
Hijacking
Repatriation
You can take a travel policy for you and/or your family members. If you purchase a
family policy, coverage for each family member is apportioned from the total sum
assured. In the case of a claim, compensation payable will be in accordance to the
portion allocated to each member and should not exceed the sum assured in total.

Please note that if you are above a certain age limit, you may not be able to obtain
a travel insurance policy.
Understanding the policy benefits
Personal accident you are normally covered for death and total permanent
disablement for a period within 365 days after the occurrence of the accident. The
compensation will be paid according to a scale of benefits and may differ from one
insurance company to another.
Medical and related expenses coverage for hospitalisation, hospital or surgical
expenses, outpatient medical expenses, as well as daily allowances up to a
maximum number of days, should you be hospitalised for more than 24 hours.
Loss of travel deposit or curtailment of journey you will be reimbursed for
expenses incurred due to loss of travel or accommodation expenses paid due to
cancellation or curtailment of the journey.
Loss of baggage, personal effects and money this covers accidental loss or
damage to your baggage, clothing, personal effects, and even money, caused by the
carrier.
Loss of passport you will be reimbursed for additional hotel charges, travel and
other expenses incurred in the country you visited, while obtaining the replacement
of a lost passport. Such loss must be reported to the police within 24 hours.
Personal liability should you cause accidental bodily injury to a third party or
loss or damage to the property of a third party, the insurer will indemnify you for
the legal liability.

Delayed baggage if your baggage is lost or misplaced for at least 12 hours from
the time of arrival at your destination, you will be reimbursed for expenses
incurred to purchase essential items of clothing or personal effects.
Travel delay you will be paid a sum of money, according to a schedule, if your
flight or voyage is delayed for more than 12 hours due to reasons beyond your
control.
Hijacking the insurer may make daily payments up to a specified maximum
number of days, if your journey is interrupted for more than 12 hours due to an act
of hijack.
Repatriation in the event of accidental death of the insured, the insurer will
reimburse the insureds legal representative for the cost of returning the remains
home.
Policy exclusions
Losses caused by certain events are excluded from the cover. Some common
exclusions include:
War risks
Suicide and insanity
AIDS
Provoke murder or assault
Childbirth or miscarriage
Hazardous sports
In addition, there are exclusions involving events such as baggage delay and loss

of baggage and personal effects due to seizure or destruction under quarantine or


custom regulation. You are advised to always read carefully and understand your
policy exclusions.

Important points to note when buying travel insurance


Personal effects
Check with your insurance company on the personal effects that can be covered
under travel
insurance as the coverage differs between insurance companies.
Beneficiary
You are advised to nominate a beneficiary and ensure that your beneficiary is
aware of the travel insurance policy that you have purchased.
Multiple insurance
If you have purchased more than one travel insurance policies, in the event of your
demise and disablement, you or your beneficiary, as the case may be, will be
compensated for each policy.
However, for certain losses such as medical expenses which are compensated on
reimbursement basis, you will only be compensated once for the actual loss
suffered. Foreign affiliates Ensure that your insurance company has a good
network of foreign affiliates which can provide you with the necessary assistance
when required
Medical and emergency assistance

It is important to check whether your insurance company provides 24-hour


emergency hotline service.
What should you do in the event of damage/loss
Contact the medical and emergency assistance hotline
Certain travel policies cover 24-hour emergency hotline service which provides
you with access to assistance such as medical advice, referrals, medical
evacuations and travel related matters such as lost passport and baggage.
Notify the authorities
If your insured belongings are lost or damaged, you must take all reasonable
measures to protect, save and recover them, and must also promptly notify the
local police, hotel, transportation company or transportation terminal authorities,
whichever is applicable.
Notify your insurer as soon as possible
You should submit the claim form with all supporting documents such as your
original policy, the medical report, police report and any relevant documents to
support the claim as soon as possible to your insurance company. You should check
the time frame for claim notification stipulated in your policy.