Insurance foundation training handout _____________________________________________________________________________________ INSURANCE OVERVIEW – PRINCIPLES, PRACTICES, PROCESSES & ORGANIZATION Document Change Control Create Application Extensions Technical Design-Document Control-Change Record Change Record Date Author Version Change Reference 28-Jun-11 S.R. Vijai 1.0 Initial version Reviewers Name Date S.R. Vijai Approval Created By: Creation Date: 28-Jun-11 Approved By: Approval Date: 1 Insurance foundation training handout _____________________________________________________________________________________ Table of Contents 1 INSURANCE – PRINCIPLES ............................................................................................................ 4 1.1 FUNDAMENTAL CONCEPTS ............................................................................................................ 4 1.1.1 Risk ........................................................................................................................................... 4 1.1.2 Peril........................................................................................................................................... 4 1.1.3 Hazard....................................................................................................................................... 4 1.1.4 Risk management ..................................................................................................................... 4 1.1.5 Risk management process ......................................................................................................... 6 • Identifying and Analyzing loss exposures .................................................................................... 6 • Examining Loss Risk Management Techniques ........................................................................... 6 • Selecting the most appropriate technique...................................................................................... 6 • Implementing the most chosen technique ..................................................................................... 6 • Monitoring and modifying the Risk Management Program.......................................................... 6 1.1.6 Benefits of risk management .................................................................................................... 6 1.2 DEFINITION OF INSURANCE ............................................................................................................ 6 1.2.1 Essential Elements of Insurance ............................................................................................... 7 1.2.2 Peculiarities of Insurance .......................................................................................................... 7 1.3 PRINCIPLES OF INSURANCE ............................................................................................................ 7 1.3.1 Essentials of Contract ............................................................................................................... 7 1.3.2 Insurance Contract – Principles ................................................................................................ 7 2 INSURANCE – PRACTICES ............................................................................................................. 8 2.1 INSURANCE – HISTORY .................................................................................................................. 8 2.2 GENERAL STRUCTURE OF INSURANCE MARKET PLACE .................................................................. 9 2.3 OVERVIEW OF FLOW OF DOCUMENTS / INFORMATION ...................................................................10 2.4 PRODUCT STRUCTURE AND TYPES ................................................................................................13 2.4.1 Product Structure .....................................................................................................................13 2.5 REGULATORY MECHANISM ..........................................................................................................14 2.5.1 Role of insurance regulator ......................................................................................................15 2.5.2 Rate regulation - ......................................................................................................................15 2.5.3 The European Insurance and Occupational Pensions Authority (EIOPA)...............................16 2.5.4 Country specific regulators ......................................................................................................16 2.5.5 Insurance Providers in Europe .................................................................................................16 2.5.6 Types of insurance providers ...................................................................................................18 2.5.7 Ratemaking ..............................................................................................................................19 2.5.8 The insurer’s solvency .............................................................................................................19 2.5.9 Solvency surveillance ..............................................................................................................19 2.5.10 Consumer Protection ...........................................................................................................20 2.6 TYPES OF INSURANCE ...................................................................................................................20 3 INSURANCE – PROCESSES ............................................................................................................22 3.1 PRODUCT DEVELOPMENT & ACTUARIAL ......................................................................................23 3.2 SALES AND MARKETING ...............................................................................................................23 3.3 N.B. AND UNDERWRITING: ...........................................................................................................23 3.3.1 Underwriting – Information Processing ..................................................................................23 3.4 SERVICE AND POLICY ADMINISTRATION ......................................................................................25 3.5 CLAIMS: ........................................................................................................................................25 3.5.1 Claims – Information Processing .............................................................................................25 3.6 ENTERPRISE OPERATIONS .............................................................................................................26 3.6.1 Investment ...............................................................................................................................26 3.6.2 Reinsurance and Co-insurance.................................................................................................26 3.6.3 Reinsurance .............................................................................................................................27 2 Insurance foundation training handout _____________________________________________________________________________________ 3.6.4 Why reinsurance? ....................................................................................................................27 3.6.5 Proportional (Pro-Rata) Reinsurance .......................................................................................27 3.6.6 Non-Proportional Reinsurance ................................................................................................27 3.6.7 What is reinsurance program? .................................................................................................28 3.6.8 Core reinsurance process .........................................................................................................28 3.6.9 Additional Critical Operations .................................................................................................28 3.6.10 Reporting .............................................................................................................................28 4 THE ORGANISATION OF INSURANCE INDUSTRY .................................................................29 5 ROLE OF IT IN INSURANCE INDUSTRY ....................................................................................31 6 FINANCIAL RATIOS ........................................................................................................................33 7 REFERENCES ....................................................................................................................................34 3 Insurance foundation training handout _____________________________________________________________________________________ 1 INSURANCE – PRINCIPLES 1.1 Fundamental Concepts 1.1.1 Risk It is a condition arising out of uncertainty leading to a possibility of adverse deviation from a desired outcome. Speculative – possibility of loss, gain, no change Pure – possibility loss or no change but no possibility of gain Dynamic – Resulting due to changes in economy. Static - not linked with economy Fundamental – effecting a large section of society, impersonal in origin & consequences and are beyond control of individuals. Particular - felt by individuals Pure and static risk,