The Malaysian Insurance Institute

(35445-H)

30

Risk and Insurance

Objectives:
To develop a sound appreciation of the nature of risk, its assessment and management, to acquire a knowledge of the nature and function of insurance and a knowledge of basic statistical concepts relating to the insurance environment.

Learning Outcomes:
At the end of the course, student should be able to: 1. 2. 3. 4. 5. Define the nature of risk. Describe the essentials elements in insurance. Explain the various methods of measuring risk. Discuss the operational framework in the insurance industry. State the regulations governing the insurance industry.

Notes: The syllabus will be based on Malaysian law & practice. Reference is made to UK law & practice where applicable.

Syllabus:
1. Nature or Risk and Uncertainty
1.1 1.2 1.3 1.4 1.5 Meaning and concept of risk Classification of risk Responses to risk by individuals and corporations How risk affects the business environment and the cost of risk Perception of risk and the differences between perceived and actual risk

2.

Risk Assessment and Risk Management Techniques

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Definition of risk management Techniques of risk management, including risk identification, analysis, control and transfer Techniques used in risk identification, including physical inspections, flow charts, check lists and hazard and operability studies Limitations of each risk identification technique and the common features of risk identification Characteristics of risk data, both qualitative and quantitative Objectives and techniques of loss control management, including active and proactive measures Practical control of property, liability and pecuniary risks Basics of the utility theory and its application to insurance consumption

3.

Risk Financing
3.1 3.2 Methods of risk financing Use and the implications of using risk financing methods

4.

Risk Measurement
4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 Methods of data collection Identifying the appropriate techniques for representation of risk data Use of existing data bases and the creation of a risk data base Availability of published sources of data Graphic methods of constructing and displaying data, including graphs, bar charts, pie charts and pictograms Practical application of frequency distributions to present data Techniques of statistical risk measurement, including measurement of location, dispersion and skew Nature of probability and the methods of deriving probabilities Uses of probabilities distributions Main characteristics of normal distributions and their uses Calculation of standard/normal deviation Application to insurance of risk assessment measurement and techniques, including linear regression and correlation

5.

Risk Pricing
5.1 5.2 Basis of premium calculations for reinsurance contracts Pricing of direct risk and factors which influence the calculation of premium

6.

Capital Adequacy
6.1 6.2 6.3 6.4 6.5 Capital adequacy and solvency Monitoring Capital constraints Risk-based Capital Rating agencies

7.

Nature of Insurance
7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 7.13 7.14 7.15 Insurance as a risk transfer mechanism and how this is achieved Functions and benefits of insurance to the individual, companies and the community Nature of insurable risks and the essentials for a risk to be insurable Development of the main classes of insurance, including risks written at Lloyds Scope of the main classes of insurance in respect of property, pecuniary and liability risks to the person Application of life assurance and annuities to the needs of individuals Operation of, and reasons for, self-insurance Advantages and disadvantages of self-insurance schemes Historical development and role of government supervision of insurers Ways in which the government supervisors insurance Main provisions of the Insurance Act 1996 State regulation of insurers Supervision of intermediaries, including the Insurance Brokers Scope and purchase of compulsory insurance in Malaysia Case for and against the nationalization of insurance

8.

Structure of the Insurance Market

8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 Participants within the market place and their role, including buyers, sellers and intermediaries Forms of insurance company and the nature of Lloyds of London Organizational structures of insurance companies Nature of mutual indemnity associations Transaction of business at Lloyds by Malaysian insurers Categories of insurance intermediaries and the principal differences between them Organizations representing various sections of the market place Functions and duties of the loss adjuster Main participants within the reinsurance market Structure of the insurance markets in the principal industrialized nations Role and function of specialist consultants, including risk management consultants

9.

How Insurance Operates

9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11 9.12 9.13 9.14 Structure of proposal forms for business and personal insurances and their purpose Purpose of codes of insurance practice Structure of policies for the main classes of insurance Need for and use of insurance certificates, including statutory requirements Purpose and use of cover notes Process of renewing a policy, including granting days of grace Basic principles and the process of underwriting commercial, personal and life assurance risks Characteristics of physical and moral hazards Importance of risk surveys Need for and different methods of reinsurance, including proportional and non-proportional treaties Basis of premium calculations for reinsurance contracts Pricing of direct risks and factors which influence the calculation of premium Claims procedures, including notification by the insured, submission and handling of claims and claims settlements Arbitration conditions and the Financial Mediation Bureau

10.

Regulation and Supervision of the Insurance Industry

10.1 10.2 Development in the supervisory framework Risk based approach to supervision 10.3 10.4 Earning capacity Management quality Asset quality Solvency & capital adequacy

Market conduct examination Major aspects of current regulations relating to control of insurers: Insurance Act 1996 Takaful Act 1984 Offshore Insurance Act 1990 Anti Money Laundering Act 2001

 10.5 10.6 10.7 10.8 10.9

Companies Act 1965

Major aspects of current regulations relating to control of intermediaries Statutory means of protecting consumers in insurance investment business Role, purpose and operation of codes of practice in insurance Main requirements of codes of practice Compounding of offences Customer Complains Unit Financial Mediation Bureau Consumer Services Bureau Compensation and Expenses

10.10 Public complaints & complaints procedure

10.11 Reasons for establishing the Insurance Guarantee Scheme Fund 10.12 Role of Financial Mediation Bureau

Primary Texts
1. 2. Course book 510 : Risk regulation and capital adequacy. London The CII. Pre-Contract Examination for Insurance Agents - MII

Periodicals
1. 2. 3. 4. 5. 6. 7. Insurance Annual Report, Bank Negara Malaysia Asia Insurance Review. The Journal, The CII. Post Magazine. The Edge Daily. BNM Annual Report. BNM Takaful Annual Report.