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CHAPTER 4

INSURANCE INDUSTRY AND INSURANCE INDUSTRY AND

MARKETMARKET

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LEARNING OUTCOMES :

At the end of chapter, the students should be able to :

Categorise insurance market in Malaysia and explain

its roles

List and explain other insurance market components

Explain organizational structure of insurance company

Identify various institutions and other insurance

organization

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CATEGORISE INSURANCE MARKET IN MALAYSIA AND EXPLAIN ITS ROLES

Insurance market : the facilities for buying and selling insuance.

A market is made up of components. Insurance market components are:

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INSURANCE MARKET COMPONENTS

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INSURANCE PROFESIONALS

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OTHER MARKET COMPONENTS

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ORGANIZATIONAL STRUCTURE

Insurance companies may be categorized in various ways : Functions performed Products sold (Life insurer , General Insurer,

Composite insurer) Territories When companies is organized by functions

performed, the departments commonly found are:

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THE DEPARTMENTS

INVESTMENT

UNDERWRITING

CLAIMS

MARKETING

SALES

CUSTOMER SERVICE

ACTUARIAL

ACCOUNTING

EDP

ADMINISTRATION

INSURANCE COMPANY

ADMINISTRATION DEPT. Provides & handles services commonly

used by many departments

Eg. Office services, building services &

personnel administration

Responsible for matters relating to the

company’s employees

Formulates company policies with respect

to the hiring, training & dismissal of

employees, determines salary scale with

labour unions, & ensures compliance with

relevant laws

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ELECTRONIC DATA PROCESSING DEPT.

It serves other departments by

establishing procedures & programs

that enable them to utilize the

computer in their work

Underwriting & policy preparation,

performing calculations required by

accounting & investment dept.,

maintaining all kinds of company’s

records, preparation of financial

statements & management

information reports.

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ACCOUNTING DEPT.

Responsible for billing & collecting

premium.

Company’s general accounting records,

prepare financial statements, maintain

budgetary control over departmental

expenses.

Comply relevant government

regulations and tax laws.

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SALES / AGENCY DEPT.

Identify field officers, recruiting, agents’ contract, motivating & supervising the sales force

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Marketing dept.• Provides support to sales

• Develop sales promotion

programmes, literature and kits

• Training of the sales force

UNDERWRITING DEPT.

Sets underwriting guidelines & selection criteria, selects risks &

determines premiums, terms & conditions of new businesses &

renewals

Fixes the amount for insurer’s retention and reinsurance

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Actuarial dept. Mainly found in life insurance companies

Design and pricing of new life insurance products,

calculate surrender values, paid-up policy values,

bonus rates for participating policies

INVESTMENT DEPT.

Main function – to invest all available

funds in a manner which ensures sufficient

returns, satisfies the company’s

requirement for liquidity and security &

comply relevant regulations

Invest in various portfolio – government

securities, shares & debentures, fixed

deposits with banks, investment in land &

buildings

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CLAIMS DEPT.

Processes claims

Verify the validity of claims, determine the

benefits and amount payable, and authorize

payment

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Customer Service dept. Provides assistance to the company’s

policyowners and beneficiaries.

Questions concerning policy coverage, make

changes requested by the policyowners – address,

beneficiaries designation, mode of premium

payment.

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CENTRALISE VS DECENTRALISE

Centralization

When an insurance company organizes its department on

functional basis, the basic functions and decision making tend to

be centralized at the head office

The branches act as sales outlets

Decentralization

When some functions are carried out at branches and granted

authority to make decision, decentralization exists

CENTRALISATION

Head Office

Underwriting Claims Sales

Northern Central Southern

Branch Off. Branch Off. Branch Off

Agency Agency Agency

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DECENTRALISATION

Claims Underwriting

Sales

Branch Off.

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CENTRALISE VS DECENTRALISE

ORGANIZATIONS RELATED TO GENERAL INSURANCE

Motor Insurers’ Bureau (MIB)

Insurance Mediation Bureau (IMB)

Unplaced Motor Pool (UMP)

Persatuan Insurans Am Malaysia (PIAM)

Insurance Brokers’ Association of Malaysia

(IBAM)

Association of Malaysian Loss Adjusters

(AMLA) 20

MIB

RTA 1987 requires a motor vehicle user to be insured against

liability in respect of death or personal injuries to any person

caused by or arising out of the use of motor vehicle on a road.

Compulsory motor insurance, to ensure compensation is paid

to the accident victim.

Yet, an innocent victim may be still uncompensated because :

The negligent driver is uninsured

His motor insurance is not valid

His insurer gone into liquidation

The negligent driver cannot be traced

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MIB Established in 1967.

Main function : to provide compensations to accident

victims where the uninsured driver are unable to meet

their liability from their own personal resources.

Making ex-gratia compensation to victims or their

dependents of hit and run cases, which ceased in 1984.

Funds accumulated from levies imposed on its members

(motor insurers).

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IMB Its objective is to provide an alternative

procedure to resolve disputes arising out of

policies of personal insurance.

It does not deal with third party claims.

The bureau has the power to make awards up

to RM100,000.

The award binds the members.

However, the policyholder is not bind with it.

They may seek remedy in a court of law if they

are dissatisfied.23

UMP

Provides insurance coverage at a reasonable cost

to certain classes of vehicles which insurance

companies are not willing to insure, due to adverse

claims experience.

High Risk Motor Inusurance Pool (1992).

Malaysian Motor Insurance Pool (1995).

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PIAM

Membership is compulsory on all general

insurers.

Its objectives are to: Establish a sound insurance structure in Malaysia

Collect and circulate information and statistics relating

to general insurance business

Make rules, regulations, tariffs and by-laws

Manage UMP and Fire Protection Association

Assist in whatever way within its capacity to reduce

losses and / or accidents and to prevent crime25

IBAM Registered under the Societies Act 1966.

Membership is mandatory to all insurance brokers.

To protect the interest of insurance brokers.

Its objectives are to :

Promote & establish a sound brokerage business in Malaysia

Promote & represent the interests of its members

Note events, statements & expressions of opinion affecting

members, advise them and represent their interest

Co-operate with other similar associations elsewhere in the

world

Work in conjunction with any legal body or association

appointed for consideration, framing, amendment or alteration

of any law relating to insurance

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AMLA

Its objectives are to :

Promote the establishment of a sound loss adjusting

structure in cooperation and consultation with the

authority.

Promote & represent the interests of its members by all

means & methods consistent with the laws.

Cooperate with other similar associations elsewhere in

the world.

Circulate information likely to be of interests to members,

collate & publish statistics and other relevant information

relating to loss adjusting.

Work in conjunction with any legal body or association

appointed for consideration, framing, amendment or

alteration of any law relating to loss adjusting.

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ORGANIZATIONS RELATED TO LIFE ASSURANCE

Life Insurance Association of Malaysia (LIAM)

National Association of Malaysian Life Insurance

Agents (NAMLIA)

The Actuarial Society of Malaysia (ASM)

The Malaysian Insurance Institute (MII)

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LIAM

Established in 1974

Responsible for the registration of life insurance

agents

Its major objectives are to:

Promote & represent the interests of the member

companies & the life insurance industry

Render service & assistance to member companies as may

be required

Circulate information likely to be of interests to members,

collate & publish statistics and other relevant information

relating to life insurance 29

NAMLIA

Set up in 1978

Life insurance agents & their supervisors

Safeguarding the interests of those engaged in life

insurance selling & sales management

Promote professionalism among its members

through collaboration with similar organizations

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MII Established in 1964

Promote human resource development in the insurance industry

through examination, training, informing, exchange and ideation

Its objectives are to :

Provide & maintain a central organization for promotion of

efficiency, progress & general development among persons

engaged or employed in the insurance industry

Encourage & assist in the study of any subjects relating to any

aspect of insurance business

Publish any newspaper, journals & leaflets desirable for the

promotion of the objectives of the institute

Establish a library for the purpose of the institute31

MII

Offer money or prizes for essays or research in any subject

relating to insurance

Organize & conduct courses, seminars, conferences &

workshops relating to insurance & the management of

insurance institutions

Undertake research in the fields of insurance & other

related subjects

Establish & operate trust funds for the purpose of

promoting the development of the insurance industry

Conduct insurance & insurance related examination &

award certificates, diploma, scholarship & prizes32