INTRODUCTION TO

GENERAL INSURANCE
(PENGENALAN KEPADA INSURANS AM)

COURSE CODE: SJER3218

COURSE INFORMATION
Brief Introduction to General Insurance

Risk and Its Treatment

Different Definitions of Risk

Chance of Loss
Peril and Hazard
Classification of Risk
Major Personal Risks and Commercial Risks
Burden of Risk on Society
Techniques for Managing Risk

COURSE INFORMATION
The Insurance Mechanism

Definition and Basic Characteristics of Insurance

Characteristics of an Ideal Insurable Risk
Adverse Selection and Insurance
Insurance vs. Gambling
Insurance vs. Hedging
Types of Insurance
Benefits and Costs of Insurance to Society

COURSE INFORMATION
Fundamentals of Risk Management

Meaning of Risk Management

Objectives of Risk Management
Steps in the Risk Management Process
Identify, Measure and Analyze Loss Exposures
Appropriate Techniques for Treating Loss Exposures
Implement and Monitor Risk Management Program
Benefits of Risk Management
Personal Risk Management

COURSE INFORMATION
Risk Identification & Measurement

Outlines the basics of risk identification and

reviews basic material on probability and statistics

Pooling Arrangements and Diversification of

Risk

Explains how pooling arrangements diversify risk

and that pooling arrangements are the essence of
insurance transactions

COURSE INFORMATION
Insurance Pricing

Presents general factors affecting insurance

premiums. Highlights the incentives of insurers to
classify, discusses when classification is desirable,
explains the underwriting cycle and summarizes
insurance price regulation

Risk Aversion and Risk Management by

Individuals and Corporations

Presents basic theory on the demand for insurance

by individuals and businesses

COURSE INFORMATION
Legal Principles in Insurance

Principle of Indemnity
Principle of Insurable Interest
Principle of Subrogation
Principle of Utmost Good Faith
Requirements of an Insurance Contract
Distinct Legal Characteristics of Insurance
Contracts
Law and the Insurance Agent

COURSE INFORMATION
Analysis of Insurance Contracts

Basic parts of an insurance contract

Definition of the Insured
Endorsements and Riders
Deductibles
Coinsurance
Other-insurance provisions

COURSE INFORMATION
Insurance Company Functional Operations
Rate

making
Underwriting
Production
Claims settlement
Reinsurance
Investments
Other functions

COURSE INFORMATION
Insurance Company Financial Operations
Property

and Casualty Insurers Balance Sheet,

Income and Expense Statement, Measuring Profit
and Loss

Insurance Documents (in Malaysia)

COURSE INFORMATION
The Classes of General Insurance Business & Its

Practices (in Malaysia)

Automobile Insurance (in The United States)

Presents basic features of personal auto policies and

rating factors used in pricing these policies. Also
provides a detailed discussion of compulsory liability
coverage and no-fault insurance

COURSE INFORMATION
Homeowners Insurance (in The United States)

Presents basic features of homeowners policies and

rating factors used in pricing these policies. Also
provides a detailed discussion of the impact of
catastrophes on property insurance markets

Other Property and Liability Insurance Coverages

(in The United States)

Commercial Property Insurance Coverages (in The

United States)

INSURANCE IN BRIEF
What is Insurance?

Economic institution mutual cooperation formation

of common fund compensation to Insured or third
party against unforeseen losses;
Definition: Undertaking of risks by an insurance
company which agrees to indemnify the Insured for
specified losses upon their occurrence subject to the
payment of insurance premiums by the Insured;
Basic features: Pooling of losses, transfer of risks,
payment of fortuitous losses and indemnification of
losses.

INSURANCE IN BRIEF
Primary Function of Insurance: Equitable distribution of financial losses of the few who are insured
among the many insured.
Secondary Function of Insurance: Stabilization of costs managing the risks;
Stimulation of business enterprise transfer of risks;
Provision of security for expansion of business removal of fears
and worries of potential losses;
Reduction of losses both in frequency & security through risk
improvements and many others.

GENERAL INSURANCE IN BRIEF

What is General Insurance?
General insurance provides cover against risks usually not covered
by life insurance.
It is usually made for a period of 1 (one) year or less and at the end of
the period are renewable by mutual consent of the insurer and the
insured.
End of policy period insurer reassesses the risk and the premium
rate may be changed: Change in the nature of the individual risk to be insured;
Notification of changes as part of utmost good faith.
Most general insurance contracts are contracts of indemnity.
Usually, there will be a large number of small claims and very few
extremely large claims.

GENERAL INSURANCE IN BRIEF

What is General Insurance?
More than 1 (one) claim can be made in each year of insurance under
the same policy.
The insured risk may not rise in line with the duration of insurance
and in fact, it may decrease due to better safety measures taken by
the insured e.g. installation of water sprinklers.
Basic principles governing the conduct of general insurance
business:

Insurable Interest;
Utmost Good Faith;
Subrogation;
Contribution;
Proximate Cause.

GENERAL INSURANCE IN BRIEF

Several main General Insurance classes (in Malaysia):

Fire & Perils

Marine

Hull & Machinery, Collision Liability, Cargo and Freight etc.

Motor

Fire, House owners, Householders, Consequential Loss, Industrial

All Risks

Private Cars, Commercial Vehicles (including Special Types) and

Motorcycles

Miscellaneous Accident

Burglary, All Risks, Money, Plate Glass, Fidelity Guarantee, Bonds

etc.

GENERAL INSURANCE IN BRIEF

Several main General Insurance classes (in Malaysia):

Liability

Engineering

Employers Liability, Public Liability, WC, FWCS etc.

Electronic Equipment, CAR, EAR, Machinery Breakdown etc.

Aviation

Hull and Liability etc.

GENERAL INSURANCE IN BRIEF

General Underwriting:-

Underwriting process of assessment and selection of

risks and the determination of premium, terms and
conditions.
Purpose anti selection, adequacy of premium charged.
Process identification, evaluation of risk and selection
of risks through proposal forms, additional
questionnaires and survey.

GENERAL INSURANCE IN BRIEF

Determination of Premiums, Terms and Conditions

Premium is the price for insurance. For majority classes

of insurance, the premium charged is the premium rate
per unit coverage x by the number of units of coverage
required = % rate of the sum insured / limit of liability =
RM premium.
Coverage, risk improvement (pre-acceptance), warranties
(control hazards), exclusions, restricted cover and excess.

GENERAL INSURANCE IN BRIEF

Confirmation of Acceptance
If acceptable, a letter or cover note will be issued as a temporary
cover whilst the policy is issued.
Assume risk on 100%, co-insurance, reinsurance basis.
Rating
Simple formula:

Total Losses / Total Value of Risk x 100 = Rate per RM 100 sum insured

Gross premium rate:

Pure premium rate (expected claim cost)

Expenses and commission margin*
Contingency margin (provision for variation in losses)*
Profit margin* (* In the form of %)

GENERAL INSURANCE IN BRIEF

Minimum premium
Short period or pro-rata

Premium warranty (60 days), 7 days (Agents) or Cash

Before Cover (CBC)

Tariff rating:Revise Fire Tariff (including discount)
Revise Motor Tariff

Others (Non-Tariff):-

All Risks Basic Fire rate + 25%

Other than All Risks - Ongoing market rate

GENERAL INSURANCE IN BRIEF

Insurance Documents: Proposal form information gathering, completed and duly signed
for assessment of risk being proposed (excluding Marine Cargo and
Large Risks);
Cover note temporary policy as evidence of an insurance contract
whilst the actual policy is issued;
E-cover note motor insurance business;
Certificate of insurance normally issued when insurance is made
compulsory by law e.g. RTA, Marine;
Policy not the contract of insurance but represents written
evidence of it. It has to stamped;
Endorsement amendments / alterations to the policy;
Renewal notice, Claim form, Discharge form etc.