The Nature of The Nature of InsuranceInsurance

Insurance = replace the (certainty/uncertainty) of risks with (certainty/uncertainty).

Concept of risk transfer:

Insurance = a device to transfer the risk from

____________ to____________.

The Nature of The Nature of InsuranceInsurance

an individual a group

Concept of Pooling of Concept of Pooling of RisksRisks

Pooling of risks is the sharing of losses by all

members of a group.

Importance of InsuranceImportance of Insurance

1. To the modern business world:– Enable the existing firms to continue the business

– Encourage new business ventures

– Help small businesses

– Reduce reserve requirement

– Assist in credit provision

Importance of Importance of InsuranceInsurance

A meansof saving

A meansof saving

Protect

family incomeProtect

family income

2. To private persons:

Importance of InsuranceImportance of Insurance

3. To the whole economy:– Reduce the possibility of loss

– Provide funds for the econom

y

– Get invisible earnings

Fundamental Insurance Fundamental Insurance PrinciplesPrinciples

• Utmost good faith

• Insurable interest

• Indemnity– Subrogation– Contribution

• Proximate cause

Insurable Risks and Non-Insurable Risks and Non-Insurable RisksInsurable Risks

Within human controlBeyond human control

Probability of loss: incalculableProbability of loss: calculable

Against public policyConsistent with public policy

Loss: no basis for computingLoss: measurable in $

Non-insurable risksNon-insurable risksInsurable risksInsurable risks

Insurable Risks and Non-Insurable Risks and Non-Insurable RisksInsurable Risks

Non-insurable risksNon-insurable risksInsurable risksInsurable risks

Risk: too small or too frequent

Risk: not too small or too frequent

Resulted from warNot resulted from war

Insured: no insurable interestInsured: insurable interest

• Insurance underwriters– Assess insurance applications

– Determine premium rate

• Insurance agents– Sales representative of a particular insurance

company

• Insurance brokers– Sales representative of different insurance

companies

MiddlemenMiddlemen

Procedures of Obtaining Procedures of Obtaining an Insurance Policyan Insurance Policy

1. Making an application to insure

2. Making an offer to the insured quotation

3. Signing of cover note or letter of acceptance

4. Payment of premium

5. Issue of insurance policy

1. Informing the insurance company

2. Providing the proof of loss

3. Investigation of claims

4. To be indemnified

Procedures of ObtainingProcedures of Obtainingan Insurance Claiman Insurance Claim

• Reinsurance

• Over-insurance

• Under-insurance

• Deductible clause

• No claim bonus

Some Common Some Common Insurance Insurance

TerminologiesTerminologies

Types of InsuranceTypes of Insurance

FireInsurance

FireInsurance

LifeAssurance

LifeAssurance

MarineInsurance

MarineInsurance MPFMPF

AccidentInsuranceAccidentInsurance

AviationInsuranceAviation

Insurance

InsuranceInsurance

• Fire insurance on domestic and business premises policies

• Household policies

• Consequential loss policies

• Special perils policies

• Declaration policies

FireFireInsuranceInsurance

FireFireInsuranceInsurance

• Whole life policies

• Term life policies

• Endowment policies

• Life annuities

LifeLifeAssuranceAssurance

LifeLifeAssuranceAssurance

• Hull insurance

• Cargo insurance

• Freight insurance

• Shipowner’s liability insurance

• Valued policies

• Voyage policies

• Time policies

• Floating policies

MarineMarineInsuranceInsurance

MarineMarineInsuranceInsurance

• Accidental damage while in flight• Liability to passengers• Liability to lives and properties on the

ground

AviationAviationInsuranceInsuranceAviationAviation

InsuranceInsurance

• Motor insurance

• Public liability insurance

• Employees’ compensation insurance

• Credit insurance

• Fidelity guarantee insurance

• Medical and sickness insurance

AccidentAccidentInsuranceInsuranceAccidentAccidentInsuranceInsurance

• Came into full operation on 1st Dec, 2000.

• Launched under the need for retirement protection.

• All employees and self-employed persons aged 18-65 are required to participate.

• Both the employer and the employee have to make a contribution.

Mandatory Mandatory Provident FundProvident Fund

Mandatory Mandatory Provident FundProvident Fund

Local Insurance Local Insurance IndustryIndustry

• Governed by the Office of the Commissioner of Insurance

• Ruled by the Insurance Companies Ordinance

• Self-regulatory

the Hong Kong Federation of Insurers