CHAPTER 6

The General Structure of

Insurance Industry

INS200
RISK AND INSURANCE
Prepared by:
Sylviannie Jimius
Chapter Contents:
6.0 The general structure of insurance industry
6.1 Components of insurance market
6.2 Other market components
6.3 Types of insurance companies
6.4 Types of insurance associations
6.5 Types of insurance institutions
INSURANCE DEVELOPMENT IN MALAYSIA
Main point
Increasing demand for insurance
Certain insurance were made
compulsory by statute
Newly improved product of
insurance
Reasonable premiums
Increasing number of insurance
companies
Explanation
• Increasing number of accidents, natural
disasters etc.
• People often seek for security
• People are becoming more aware of
insurance
• The development of various forms of
insurance was accompanied by a measure
of government supervision.
• Owner of an automobile is obliged to buy
insurance etc.
• Combines or comprehensive policies
• Insurance + saving or investment etc.
• Insurers have collated statistics & have
access to data collected by government &
other bodies
• Create competitive environment
• More choices available to consumers
6.1 Components of insurance
market
• These are the
people or
companies who
need insurance
Intermediaries
• They include • These are the
individuals, business companies who
or public • These are the provide insurance
enterprises, middlemen in services
associations and insurance market • They include private
societies • They include agents insurers, state
and brokers insurer and Syarikat
Takaful Sdn. Bhd.
Buyers

Sellers
 … continue
AGENTS VERSUS BROKERS
Agent
• A person who represents an
insurance company
• Agent may be authorized to find
clients, collect premiums, and issue
cover notes on behalf of an insurer
• Insurance agents are remunerated
through payment of commission by
insurer
• Bound with the terms of agency
agreement
Broker
• An agent who represents
policyholder
• Brokers’ job is to advise clients on
the most suitable covers at the most
economic cost, help presenting claims
and getting claims settled
• Insurance brokers are remunerated
through payment of commission by
insurer
• Brokers must have in-depth
knowledge of insurance thus are
subject to professional liability
… continue
SELLERS: TYPES OF INSURANCE COMPANIES

Proprietary Insurance Companies

• Is owned by shareholders & profits earned belong to the shareholders
Mutual Insurance Companies
• Is owned by its policyholders and profits earned may be shared by
policyholders in the form of lower premium or policy bonus
Specialist Insurance Companies
• Underwrites one type of insurance business only
Life Insurance Companies
• Underwrite life insurance business only
General Insurance Companies
• Underwrites general insurance business only
Composite Insurance Companies
• Underwrites both life and general insurance business
The Government
• Also acts as an insurer, such as the establishment of SOCSO Scheme
 6.2 Other market components
1. SERVICE SPECIALISTS
Loss Adjusters

• These are independent parties appointed by insurer to survey

any loss that has occurred
• They investigate the cause and extent of the loss then report their
findings and recommendations to the insurer
• With the help of the findings and recommendations, the insurer will
decide whether the loss is covered and if so, the amount of
compensation required

Loss Assessors

• These are independent parties employed by insured/client to

assess the extent of the loss and calculating loss settlement
figures
• Usually used when it is difficult to assess the extent of the loss
• The assessor does not deal with claims
… continue

Engineers

• They are engineering firms appointed by insurer to report on

risk or claims on boilers, pressure vessels, lifts, cranes and etc

Marine and Cargo Surveyors

• They are specialists appointed by insurer to survey ships and

cargoes that have been damaged and to report on the cause
and extent of loss
 … continue
2. REINSURERS

• Insurers frequently reinsure or “cede” all or part of the risks

underwritten by them so that the burden of paying claims,
particularly those involving large amounts, will be shared by the
reinsurers.

• Reinsurance, therefore is the insurance when insurers purchased

to cover risk underwritten by them.

• An insurer can purchase reinsurance from the following:-

- A locally incorporated reinsurance company E.G. Malaysian
nasional Reinsurance Berhad (MNRB)
- Local reinsurers who underwrite some insurance business
together with direct business
- Foreign professional reinsurers
… continue

OTHER MARKET COMPONENTS: THE CHANNEL STRUCTURE OF

THE INSURANCE INDUSTRY

Buying Insurance Protection

Buyers of Insurers Reinsurers

Insurance
Intermediaries

Meeting buyers’ needs

 … continue
OTHER MARKET COMPONENTS: INSURANCE INDUSTRY

Insurance Companies Insurance Associations Insurance Institutions

• Proprietary • Persatuan Insurans • Motor Insurers

Companies Am Malaysia (PIAM) Bureau (MIB)
• Mutual Companies • Insurance Brokers • Insurance Mediation
• Captive Insurance Association Malaysia Bureau (IMB)
Companies (IBAM) • Unplaced Motor Pool
• Specialist Companies • Association Of • The Malaysian
• Life Insurance Malaysian Loss Insurance Institute
Companies Adjusters (AMLA) (MII)
• General Insurance • Life Insurance
Companies Association Of
• Composite Companies Malaysia (LIAM)
• The Government
 6.3 Types of insurance
companies
1. PROPRIETARY COMPANIES
• They have authorized and issued share capital to which is original shareholders
subscribed.
• The shareholders share the profits of the company by way of dividends and their
liability is limited to the value of their normal shares.

2. MUTUAL COMPANIES
• The policyholders who share any profits made own mutual companies.
• They do not share profits of the company by way of dividends, but they enjoy lower
premiums/ higher life assurance bonuses.

3. CAPTIVE INSURANCE COMPANIES

• A parent company may form a subsidiary company to underwrite certain of its
insurable risks.
• To obtain the full benefit of the group’s risk control technique by paying premiums
based on its own experience, of the direct insurer’s overheads and obtaining a
lower overall risk premium level by purchasing avoidance reinsurance at lower cost.
… continue
CAPTIVE INSURANCE COMPANIES: REASONS FOR
PERFORMING

• Instances when insurance cannot be purchased from commercial

insurance company for business risk

• Premium paid are deductible as business expense for tax purpose

• Can be obtained through the international reinsurance market at

more favorable premium at higher limits of coverage

• Investment return can be obtained directly on its invested capital

… continue
4. SPECIALIST COMPANIES
• Companies that underwrites one type of insurance business. E.G
engineering insurance companies

5. LIFE INSURANCE COMPANIES

• Underwrite life insurance business only

6. GENERAL INSURANCE COMPANIES

• Underwrite non-life business

7. COMPOSITE COMPANIES
• Underwrite both life and general business

8. THE GOVERNMENT
• The government also acts as an insurer, as under the Employment
Social Security Acts all employed persons whose salary is below
RM1,000 must contribute to the SOCSO Scheme
 6.4 Types of insurance
associations
1. Persatuan Insurans Am Malaysia (PIAM)

• The PIAM is an association of general insurers (in accordance with the

Insurance Act 1996) which has been approved for by the Minister

• Therefore, the membership of PIAM is compulsory for all general insurers in

Malaysia

• The main objectives of PIAM are:

• To establish a sound insurance structure in Malaysia
• To collect and circulate information and statistics relating to general
insurance business and
• To make rules, regulations, tariffs and by-laws in consultation with the
Director of General of Insurance for implementation by the members.
… continue
INSURANCE ASSOCIATIONS: TYPES

2. Insurance Brokers Association Malaysia (IBAM)

• The Insurance Brokers Association of Malaysia was formed to represent the

brokers operating in Malaysia

• It acts as a guide for its members for practicing broking in a professional manner

• The body also represents its members for co-operation with other bodies,
associations and authorities to serve the interest of its members

• The main objectives of IBAM are:

• To provide means to discuss members’ problem of common interests
• Negotiate with other insurance association, regulatory bodies and authorities
• To ensure the employee of members and professionally qualified with insurance
law and practice
• To promote the healthy growth of insurance industry in line with national
objectives
… continue
INSURANCE ASSOCIATIONS: TYPES

3. Association of Malaysian Loss Adjusters (AMLA)

• Was formed to manage those engaged in the profession of loss

adjusting who are employed in insurance loss adjusters’ company
licensed under the Insurance Act 1996

• The main objectives of AMLA are:

• To advance the study and profession of Loss Adjusters
• To promote the profession by compelling the observance of strict
rules of professional conduct by members of the association
• To cooperate with other similar association in other parts of world
… continue
INSURANCE ASSOCIATIONS: TYPES

4. Life Insurance Association of Malaysia (LIAM)

• The Association represents Life Insurance companies operating in Malaysia

• It serves as a regulatory organization for trade as well as a center for interaction

of views with its members

• Life insurance association of Malaysia also associates itself with insurance

education and represents the life assurance companies for discussion with the
government on insurance legislation and related matters

• The main objectives of LIAM are:

• To promote public understanding and appreciation of life insurance
• To improve the image of life insurance industry through self regulations
• To give support to the regulatory authorities in developing a strong and
healthy industries
… continue
INSURANCE ASSOCIATIONS: TYPES

5. Other Associations

• Actuarial Society of Malaysia

• National Association of Malaysia Life Insurance Agents

• Insurance Underwriting Agents Association of Malaysia (IUAAM)

• National Insurance Association of Malaysia (NIAM)

• Fire Protection Association of Malaysia
 6.5 Types of insurance
institutions
1. MOTOR INSURERS BUREAU (MIB)

• The Road Transport Act 1987 requires vehicle users to be insured for
liability for personal injuries to other road-users

• The intention is to ensure that all injured victims will get compensation
from the negligent drivers

• MIB has been established in 1967 by motor insurers to create a central

fund maintained by motor insurers whereby victims will get compensation

• However, with effect from 1987, MIB has ceased paying compensation on
hit and run cases
… continue
INSURANCE INSTITUTIONS: TYPES

2. INSURANCE MEDIATION BUREAU (IMB)

• The establishment of IMB in Malaysia has been initiated by Persatuan

Insurance Malaysia (PIAM)

• The objective of IMB is to provide an alternative procedure to resolve

dispute arising out of policies of personal insurance
• The IMB, however does not deal with third party claims.
• The bureau has the power to make awards up to RM100,000. Such
award will be binding upon the members against which it is made.
… continue
INSURANCE INSTITUTIONS: TYPES

3. UNPLACED MOTOR POOL

• The main objectives of the Unplaced Motor Pool was to render a kind
of social services by providing at a reasonable cost insurance
coverage to certain classes of vehicles which traditional insurance
market was not willing to insure in view of its adverse claims
experience

• Change the name to Malaysian Motor Insurance Pool on 1st October

1995
… continue
INSURANCE INSTITUTIONS: TYPES

4. THE MALAYSIAN INSURANCE INSTITUTE (MII)

• The Malaysian Insurance Institute conducts both basic and advanced level
courses and examination in insurance industry

• Some of the objectives of the institute are:-

• To provide and maintain a central organization for promotion of efficiency,
progress and general development among persons engaged or employed in
the insurance industry.
• To encourage and assist in the study of any subjects relating to any aspect
of insurance business
• To hold conference and meetings for the discussion of professional affairs,
interest and duties related to insurance.
• To conduct classes or courses of education related to insurance.
• To collect classes or publish statistical or other information of services or
interest to persons employed in insurance business.
• To ascertain the law and practices relating to all things connected with
insurance.
• To conduct professional insurance examination.
END OF CHAPTER