INTRODUCTION Definition of insurance

From financial term

From legal term

From strictest term

INSURANCE

From investopedia

From general term

From info insurance

1. From general term Is the pooling of losses by transfer risk to the insurer who agree to indemnify insureds for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk.1

2. From info insurance Is the transfer of risk by an individual, such as yourself, or an organisation, or business, to the insurance company. You or your organisation will thus be known as the policy owner. The insurance company receives payment in the form of premium and will compensate you in the event of losses or damages that cause on you.2

1 2

George E.Rejda, 2008 http://www.insuranceinfo.com.my/learn_the_basics/insurance_made_clear.php

3. From financial term Is a financial arrangement that redistributes the cost of unexpected losses. The insurance arrangement involves the transfer of many different exposures to loss to one insurance pool, which combines the numerous exposures.3

4. From strictest term Is a arrangement that will recover the unexpected losses, as well as a contractual agreement in which one party agrees to compensate another party for losses.4

5. From investopedia Is a promise of compensation for specific potential losses in exchange for a periodic payment. Insurance is planned to protect the financial condition of an individual, company in the case of uncertainty. Some insurance are under regulate by law and insurance is a contract between the policyholder and the insurer (insurance company). The policyholder need to paid premium to the insurer in exchange of buying a protection when occur a specific unexpected losses.5 6. From legal term Is a contract by which one party in consideration of the price paid to him proportionate to

the risk provides security to the other party that he shall not suffer loss, damage or prejudice by the happening of certain specified event.

3 4

Michael R. S., 1996 Robert M. S., 2008 5 http://www.investorwords.com/2510/insurance.html

Characteristic of Insurance6

Pooling of losses

the losses are spread by a few group and not assure by certain group sp that the average losses is substituted to actual loss involve a large group of exposure unit so the prediction for future losses can be accurately be predict. average severity and average frequency must be estimate based on past time experience. when the insurer can predict the high accuracy for the expected losses in the future, they will charge the premium on a more reasonable price.

Payment of fortuitous losses

the losses that face by the policyholders must be uncertainty and unforeseen without any planning. the losses must be accidental. the losses are happen randomly based on the assumption that accident will occur.

pure risk are transferred from the policyholder to the insurer whose is in strong financial condition that able to paid the losses when accident happen. the risk transfer include premature death

Risk transfer

Indemnification

insurer is restored to his or her approximate financial position prior to the occurence of the loss. if you become seriously disabled. a disability income insurance policy will restore at least part of the lost wages.

George E. Rejda, 2008

Distribution of Insurance Premium Worldwide (1997)

2% 2% 31% Oceania North America Africa Asia 29% 1% Europe Latin America

35%

Table 1.1: Insurance premium insure by worldwide policyholder Difference between Life insurance and General Insurance7

Life insurance
indemnification is cover when the policyholder are death and compesate to the benificiary

General insurance
cover for the living and nonliving things like car

only cover for the human life.

indemnification is cover for the financial losses in uncertainty event like illness and accident

like example life assurance, endowment assurance, assurances for children, term assurance

like example fire insurance, motor insurance, theft insurance, health insurance, personal accident insurance

http://www.itrust.in/forum/life-insurance/life-insurance-and-general-insurance-difference-betweenthe/2184.page

Objectives of insurance planning8 To an individual

source of peace of mind provides risk cover is a profitable investment

1. Profitable investment Insurance are actually is a tool for hedge against the risk and tax saving, but at the same time it also help us to gain profit because the return and incentive that provide by the insurer are higher than the investment option. Besides that, part of the premium you paid is to get financial protection from risk. Like example, life insurance premium part of it are paid for premium and the rest are in saving and this is useful when you reach the end of the term and you will get back the saving plus the incentive because the insurance company had use the money to invest. If you have any uncertainty event, the insurer will also compensate to the beneficiary to reduce the financial problem that will faced.

Sahoo, S. C., 2009

2. Provides risk cover We buy insurance is to get the protection from the unforeseen event to make sure we do not suffer from the unpredictable losses and this is a unique where investment product that do not have. Insurance company will collect the premium from all the policyholder that face the same risk and the loss claim are come from the premium so that it can diversify the risk at the same time. It is really hard to predict how many losses you will face when happen accident or uncertainty event and through the insurance you can release some of the pressure due to there have compensation.

3. Source of peace of mind This can reduce the frustrated from the people due to scare of accident, burglary and etc because insurance company will responsible for the compensation if the accident really happen. Insurer has helps the individual on the life cycle start from the child birth to death especially nowadays environment become more complicated and full of unforeseen event. Through insurance, we will be more at ease and reduce the worry.

To Society9

Spreads risk

Accelerates the economy growth

Encourages foreign trade

Reduce the social problem

Sahoo S. C., 2009

1. Spreads risk Through the insurance, the community can spreads the risk and this can reduce the losses because it is pooling together. This is call as equitably which is the risk are share together among the policyholder.

2. Accelerates the economy growth Reduction of uncertainty has increase the economy growth due to the risk has bear in insurer site. Like example the employee insurance which will reduce the losses that will face by the company when there will happens an accident during working time. Besides, when there is an insurance coverage for certain business is also increase the credit worthiness.

3. Encourages foreign trade When the company are deal with foreign country sure expose to higher risk because they need to trade their goods to other country and there is a possibility that the goods will lost or cause by robbery. Besides, there is also a political risk which is the policy change to certain country and strict rule apply to the foreign trade. Through the insurance, the policyholder may not worry about this problem because the insurer will settle for it.

4. Reduce the social problem Nowadays modern world has created many problems like employee medical expenses, longevity, educational expenses, old age, disability and unemployment. Through the insurance, we have planning for the future and all of this problem will be reduces.

To business10

Instrument of employee's welfare

Credit enhance

Strengthening the business

1. Instrument of employees welfare Employee is one of the most important assets in a company because without them although you have all the raw materials you also cannot produce a product. So this is important to buy insurance for the employee to prevent them from injury especially the job that has includes the dangerous machine. In addition, the cost of insurance is quite reasonable and affordable for a company.

2. Credit enhance Insurance policy can be a collateral security that can use to borrow certain amount of money from the insurance company or financial institution. The amount of loan can be obtained with such pledging of policy with interest that will not exceed the cash value of the policy. If the borrower unable to repay the loan, the lender can surrender the policy and get back their money.
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Sahoo. S. C., 2009

3. Strengthening the business Nowadays insurance company have provide many types of insurance which include marine insurance, credit insurance, bad debt insurance which will reduce the risk for the company and company will have more time to operate their business. Because of this, the trading between the company increase and the profit also increase.

Benefits of insurance planning11

1. Indemnification for loss The policyholder and the families can be restored their former financial condition after the losses occur and maintain their financial security. Through the insurance they will be less likely to apply for welfare benefits or borrow money from their relative or friends. For the business perspective, the firm will remain their business and employee also will save their job as well. In addition, the community also benefit from it due to insurance is a tax deductable item.
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George E. Rejda, 2008

2. Reduction of worry and fear Worry comes from the uncertainty event because we will never know what will happen on tomorrow and this is a normal psychological problem that will face by most of us. Like example the family heads have life insurance, his family member will less likely to worry about the financial situation of their dependents in premature death.

3. Loss prevention Most of the insurance company have involved in numerous loss prevention programs and employ a large amount of person to manage their business. They are support the activity which involves the property and casualty: Highway safety and reduction of automobiles deaths Fire prevention Reduction of work-related injuries and disease Prevention of thefts Prevention and detection of arson losses Education programs on loss prevention

4. Enhancement of credit When there is rate at better credit risk, it guarantees that the loan will be repaid on time or the value of collateral is increase. Like example when a financial institution give housing loan to the borrower they sure acquire the borrower to buy insurance for the property to prevent damaged or destroyed. This is because the financial institution are holding the property as collateral and if the property are damaged it will be reduce the value of the property. Through the insurance, if have any damaged happen the borrower will get compensate without worry the fees to rebuild it.

Cost of insurance to society12

Cost of doing business

when buy insurance sure occur expenses which include administrative expenses, tax expenses, utility expenses etc. Due to this factor, the cost to society increased, but actually this is not wasteful because insurers involve in a wide variety of loss prevention activity. in addition, it also provide the job opportunity to the public.

Fradulent claims
some of the dishonest policyholder are trying to cheat the insurance company by faked slip- and- fall accidents. in addition some of them are take out life insurance policies on insureds are later reported as having died. This may cause the insurance company suffer a losses and also will increase the premium of all the policyholders.

Inflated claims
loss is not intentionally caused by the policyholder, but sometimes is due to the exceed claims from the actual financial loss. Like example, policyholder inflate the amount of damage in vehicle collision claims, disabled person often malinger to collect disability compesation and increase the amount and value of property stolen from a home or business.

Time consuming and effort spent

when you want to purchase an insurance sure you need to do a research look whether what you really need and compare the difference company benefits and disadvantages. Plus, you need to negotiate with the insurance broker and this is really take time especially for the business person.

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George E. Rejda, 2008

History and development of insurance in worldwide and Malaysia

Began in the early Roman and Babylonian in 2nd and 3rd millennia BC. More credence start 13rd and 14th century 17th and 18th century Lloyd Coffee House developed 1st insurance company Malaysia insurance industry start from 18th century based on British system The 1st oversea company in Malaysia in 1975, Union Insurance Society of Canton

Insurance has been start since in the Babylonian century due to that time many China traders are trade in the Babylonian but at the same time the river are rapids and the ship are in high risk when they want to trade their goods to there. So the Babylonian has created a new system which is very famous Code of Hammurabi, century 1750 BC and has been use widely in Mediterranean sailing merchants. When a trader borrow the loan from the lender, he will paid additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen.13

Actually the first legally insurer was start by Achaemenian monarchs and is the first who register insurance under government regulation. The insurance tradition was performed
13

http://en.wikipedia.org/wiki/History_of_insurance

each year in Nowruz (beginning of the Persian New Year) with the most important gifts that more than 10,000 Derrik (Achaemenian gold coin).They can register under the government office and if the losses occur the court will compensate twice of the amount that had insure.

After a thousand years later, Rhodes (one of the place in Greece) created the 'general average' which means that all the merchants paid the premium together to insure their goods being shipped. The collection premium can be used when the merchant goods are stolen or lost when in the process of shipping.

In 600 BCE, Greeks and Romans introduced the origins of health and life insurance. They have a community which is called benevolent societies to care their family member of deceased member by paid for the funeral expenses. in the late 17th century, "friendly societies" also existed in England at which people will donate money and used it when someone that is in emergency situation.

From the Malaysia perspective, our insurance industry has started from the 18th century which was based on British system because there is a few of British company in Malaysia operate. The Commercial Union was represented in Malaysia in 1882 by A. A. Anthony & Co. in Penang and later it operates in Ipoh as well.14

Although there had a few local company, but because lack of expertise it become not so well known. After Malaysia become independent in year 1953, the government was encouraged many local insurance company to improve their performance and increase their market share. With the New Economy Policy, the first overseas company to domestic was

14

Persatuan Insurance Am Malaysia, 1991

born which name as Union Insurance Society of Canton, the Royal Exchange and Guardian Assurance. Most of the insurance company that operate in Malaysia in the last century were represented by trading houses which acted as underwriting agents, indigenous insurers were equally active. Among the early indigenous insurance companies was the Khean Ghuan insurance company which was based in Penang.

But after the independent of Malaysia, some of the companies operated on an undeveloped situation with improper underwriting guidelines and they just leave their policyholder without any compesations. So in year 1963, government has introducing the Insurance Act, 1963 to reduce the problem and the office of the Director General of Insurance was given the task of regulating the insurance industry. Until today, the Governor of Bank Negara is also the Director General of Insurance.15

Career prospects in insurance industry16

Sales position

they are responsible for maximizing sales production while affording the best possible service to their clients. responsible for bringing in clients and servicing existing accounts.

Account producer
15 16

take part in seek out new business and have many experience to make sure all services are performed properly and tracking every aspect of client service. they need to understanding their clients and seeking the most equitable situation of their clients. qualification: bachelor of degree, strong verbal and interpersonal skill, high amount of client, strong writing skill, well-dressed.

http://www.manulife.com.my/life/Pages/PopularQuestions.aspx#02 Robert M. Schrayer, 2008

Account excecutive

responsible for the acquisition of new accounts and ensure that all services are function properly. their responsibilities are similar with the producer except they are less experience compare to the producer. qualify: bachelor of degree with prior experience, ability to analyze problem to understand client's needs, strong communication and writting skill.

Senior vice president of sales

they are encourage to collect more business to increase their company clients and also active works on client account renewals (customer loyalty). overlook all the expenses in the company and determine the salaries and benefits of sales producers they works in office but sometimes also need to visiting customer to ensure their account are handle properly. qualify: bachelor's degree and have more experience compare to account producer

Claims representative

responsible for the day-to-day duties stemming from property, casulty, worker's compesation and auto claims and become the third party between the insurer and the policyholders. they need to takes information from clients or producer and transfer the claim information to the insurance company department. in addition, they need to record the information into the file to keep as record. after the claims have confirm, they need to issue agency check to the clients qualify: high school education, strong verbal, interpersonal and written skills to deal with clients.

Claims manager

responsible for setting priorities in tasks and delegating them to the claim representative and review the losses with producer about the claims. besides, they need to reporting all claims to the company, appealing claims on behalf of clients, advising clients and managing claims representative. qualify: bachelor's degree, ability to organize, set priorities, delegate task, work without close supervision

Claims examiner

responsible for processing of group medical, dental, and vision claims for the benefit division of insurance company. they also responsible for determine the appropriate benefit levels in accordance with policy provisions nd communicate with clients that have problems. qualify: high school education, knowledge of medical terminololgy, strong verbal and written skill, able to organize assignment.

Marketing representative

works in personal lines, commercial lines and underwriting of difference type of insurance. in addition, they need to completing application of new orders, preparing biling orders, recommending the suitable policy to clients and conducting audits of clients insurance policy. qualify: bachelor's degree, strong financial, mathematical and writing skills, knowledge of policy forms and coverages, prior of experience is required

Actuary

responsible in calculating the probability of future payments of insurance claims by using statistical, financial and mathematic tool. they calcualte the frequency and severity of natural disaster and other incidents by using data to estimate the financial loss and recommend the insurer how much premium should be charge to the clients. qualify: bachelor's degree of finance and knowledge in financial and mathematical skills.

Agent

act as the representative because they need to explain the insurance plans and the various services they have and once clients agrees to take for the insurance policy, they need to servicing the client salaries for agent are different because depend on the commision basis qualify: high school education, aggresive and optimistic attitude and company will offer training programs for them.

Field representative

act as an third party that communicate with insurance company and agent. They need to provide the new information, updating procedure and policy to the agent. they must ensure that the agent are understand the developments within the company and advising agent. qualify: bachelor's degree, strong interpersonal and verbal skills and intimate knowledge of the insurance field.

Underwriter

make decision when want to accept or reject the application of insurance based on the previous data, they will determibe whether the customer is in higher risk and rates a customer how many premium should the customer paid. qualify: bachelor's degree, most posses sound judgement and a strong business skill and have extensive experience in insurance field.

Adjuster

also called as claims investigators which work as to determine the losses that are cover by the insurance company. adjuster can specific on certain claims or several claims based on the company required. they also need to determine the financial loss of the company when compesate to their client. qualify: bachelor's degree, strong verbal and interpersonal skills, writing skills and knowledge of law to explain to policyholders.

Loss control specialist

develop and implement safety progams that hold accidents to mimimun risk. they are usually done survey in certain area and identify the hazard and make a recommendation to reduce the uncertainty. qualify: bachelor's degree, knowledge of safety procedures, enginering, and occupational health, experience in insurance industry

Cost containmet specialist

work as design a specialized plan like health care cost management programs for employee benifits plan they need to work in hospital and other health care provider facilities, setting up hospital cost containment programs and research new programs. qualify: bachelor's degree, advance degree in health care administration and extensive knowledge of health care and employee benefits programs.

Attorney

assist the company in proper procedures and the methods of instituting legally insurance pratices they become an advocates to the company such as civil cases and presenting legal arguments in defense of their clients. become an advisor when consult about the legal right and obligation.

Accountant

prepare and analyze the financial reports to guide them toward a strong performance company. they will keep all the transaction record and maintain accounts payable and receivable of the company coordinate premium billing between the clients and the insurer.

Public relation staff Nursing and health personnel Human resources personnel

they need to help the insurance compnay to maintain a strong and positive image of the company they are communication specialist whose will prepare brochures, develop newsletter, career speech for the management team, write and place news release with the media. they need to make public know about this company and start to noted this company.

their job are need to answer the insurance company hot lines telephone. This is very important when policyholders are in emergency and try to contact them. they need to give a very clear direction to the policyholder what they should do now they need to have a very strong communication skills and know various type of language.

insurance company need a department to coordinating the hiring and replacement of workers. they need to employ new workers, administration of monthly wages, administration of payroll programs choose the most suitable worker to work at the right position to reduct the cost.