The organizational structure of the insurance companies, the role of each department in the company and the insurance activities. Chapter Eight – The Major Participants in the Insurance Industry in the Kingdom of Saudi Arabia.
The Risk
- Risk concept Learning objective
- Risk types
- Risk and insurance Learning objective
- Insurable Risks
- Frequent and degree of risks
- Main Perils and Hazard (contributing factor)
For example, if it says "weak risk" it means that the probability of the risk occurring is high. This will partly depend on the size of the risk (value of a building for example) and the degree of risk (ie the possibility of a loss occurring).
Reinsurance: Concept, Purpose, and Types
Types of Reinsurance contract from a technical point of view
This typically involves a deductible, usually quite substantial, that the insurer must pay before the reinsurer contributes to any claim. The Implementing Regulations to the Cooperative Insurance Companies Control Law of the KSA define non-proportional reinsurance as "the reinsurance contract when the insurer undertakes to assign certain risks in a certain amount that exceeds the amount of loss for which the insurer will decide to be liable and the reinsurance undertaking undertakes to accept to insure the assigned risks”.
Forms of reinsurance from a legal point of view
The reinsurer notices that the insurance company has agreed to certain insurance conditions that they do not want to reinsure. Therefore, reinsurers agree in advance to accept reinsurance contracts offered to them by the insurer.
Co-Insurance and Self-Insurance
The first company determines the premium and other conditions, can organize an inspection and review of the insured's premises and issue a policy, this insurer is called the "lead insurer". Self-insurance, as defined in the implementing regulations of the Act on the Supervision of Cooperative Insurance Companies in KSA, means: "Retention of any risk with structured assets, i.e.
Peace of mind
They are paying a relatively small known expense in exchange for potentially avoiding a larger unknown expense. They examine and invest in new loss detection methods, testing and development of firefighting equipment, new repair methods, use of flammable materials in consumer goods, car repair methods, crash testing, etc.
Avoids capital retention
The premium paid is a known expense, but in return policyholders receive a promise that if certain events occur, they will receive financial compensation. Insurance companies often combine their resources and invest significant amounts of money in an effort to reduce both the frequency and severity of losses.
Risk improvement
Insurance Benefits
If there was no insurance available, businesses would have to consider the impact of losses and the cost of fixing them. After identifying the concept, types and mechanism of risk that transfers the risk from possible aggrieved to insurance companies through the idea of insurance pool.
Encouraging new enterprises
Investments
Import/Export
Foreign Exchange
Create job opportunities
Chapter One
Revision questions
Practical questions
Answers of Chapter one Revision questions
- In order for the risk to be insurable, it has to have the following characteristics
- Causes that make the risk uninsurable
- Law of large numbers helps the insurance companies in determining
- Types of Reinsurance contract from a technical point of view
- Forms of Reinsurance from a legal point of view
- Insurers divided hazards into three kinds
The implementing regulations of the Law on the Supervision of Cooperative Insurance Companies in the KSA define a proportional reinsurer as "a reinsurance contract when the insurer undertakes to assign certain risks in a certain percentage already agreed upon by the reinsurer, and the reinsurer undertakes to accept the insurance of the assigned risks . The implementing regulations of the Act on the Supervision of Cooperative Insurance Companies define facultative reinsurance as “: reinsurance that occurs when the insurer foresees the risk for the reinsurer based on a case-by-case method.
Practical Question
Excluded perils are also specifically mentioned in the policy identifying the situation where sum assured or compensation is not required, eg "loss or damage caused by fire, except fire caused by explosion". Unnamed perils are perils that are not mentioned in the policy and are usually not covered.
Chapter Two
Insurance Principles
The nature of the subject matter of insurance, the circumstances and the facts surrounding it are considered material facts to the best of the insured's belief. Utmost good faith is a duty of disclosure, and all parties to the contract are obliged to disclose everything.
Introduction
Utmost good faith principle
Many insurance companies remind potential insureds to disclose all other information that could be important for insurance. Some of the disclosed information will relate to the subject matter of the insurance and it is mainly about physical hazards.
Insurable Interest Principle
A mortgagee has an insurable interest on his mortgagor's life limited to the amount of the debt. An insurer has an insurable interest on the insured's life limited to the sum insured.
Insurable interest bases
- Indemnity Principle
- Monetary payment
- Repair
- Replacement
- Reinstatement
- Agreed Value
- First Loss
- Average
- Sum Insured
- Deductibles
- Reinstatement (New for Old)
- Subrogation Principle
- Contribution Principle
- Contribution methods
- Non-contribution clause
- Proximate Cause Principle
- Fire insurance
- Personal accident insurance
- Breaking glass insurance
The principle of compensation is to ensure that the insured is in the same financial position after the loss as he was in immediately before the loss. The principle of compensation is to put the insured in the same financial position after the loss as he was at the time of the loss.
Chapter Two
Answers of Chapter Two Revision questions
- What is material fact?
- Material Facts that are required to be disclosed are
- When Utmost Good Faith principle must be considered?
- When Insurable Interest is considered for all types of insurance policies?
- What is the relation between the reinstatement method and the Indemnity Principle?
- The Contribution Principle is subject to a number of methods. List these methods and explain how each one works
If there is an absence of insurable interest when the insurance commences, the contract may be considered invalid and if there is no insurable interest at the time of the loss, there will be no loss to the insured. This is because he has reduced the insured item value to get a reduced premium, but the indemnity will be the same as the actual value of the insured item.
Chapter Three
Insurance Contract
- Defining the insurance contract
- The main Insurance Contract Elements
- A fact that a person / group is at risk of either
- Compensation stated above has number of forms
- Technically, the insurance mechanism is highlighted as follows
- Insurance contract elements
- Identifying the contracted parties
- capacity of contracted parties
- Stages of the insurance contract until conclusion
- Insurance contract characteristics
- Obligatory to the two parties
- Indemnity Contract
- Proposal Forms and policy structure
- Heading
- Preamble
- Operative Clause
- Exclusions
- Conditions
- Cooperative profit sharing clause
- Signature
- Schedule
- Warranties and endorsements
- Cover Notes and Certificates of Insurance
- The Importance and the Content of Claim Forms
- The Importance and the content of Renewal Invitations
- Long-Term Agreements: Invitations
Clarifying the features of the insurance contract and the role of parties to the contract. Reference to the consideration of the insured (has paid or agreed to pay the premium) and the consideration of the insurer (will provide the insurance as described).
Chapter Three
Practical question
Answers of Chapter Three Revision questions
- State the insurance contract elements
- What is the rights and obligations capacity for natural and moral persons?
- Where can we find the defects of will in the insurance contract?
- State the eight sections of the insurance policy
- What are the typical questions on a property claim form that have to be answered and why it is important to answer it?
The relationship of the insured to the property - check the policy coverage and the insurable interest - Value of the property - check the sum insured and the average. The liability claim form will ask for details of the incident and the extent of injury or property damage to a third party as a guide to the size of the expected claim.
Chapter Four
Insurance products
- Insurance Products
- Individual Products
- Motor Insurance Third Party Liability
- Medical insurance for individuals
- Medical Malpractice insurance
- Homeowners insurance for individuals
- International Travel insurance
- Personal Accident insurance for individuals
- Corporate Insurance products
- Motor Vehicle insurance
- Medical insurance for companies
- Protection and Savings insurance
- Personal Accidents insurance for companies
- Property insurance for companies
- Engineering insurance
- Marine Insurance
- Energy Insurance
- A. Aircraft Hull Liability Insurance
- B. Airport Owners and Operators Liability Insurance
- D. Pilot Loss of License Insurance
- E. Aviation Personal Accident Insurance
- Aviation Insurance
Illustration of the most prominent features of the insurance products known and available in the Saudi market. This coverage is one of the most common forms of car insurance in the insurance market in Saudi Arabia.
Chapter Four
Answers of Chapter Four Revision questions
- State the coverage sections in the policy of comprehensive motor insurance
- State the types of coverage available in property insurance
- What is the coverage offered in Aircraft hull and liability insurance?
- What is the importance of aviation Insurance? What is the benefit of insuring aircraft hull and liability?
Coverage under this insurance includes both an increase in the costs of damage-related business as well as fixed labor costs and the extension of insurance coverage to additional risks. Coverage under this insurance includes an increase in the cost of non-life insurance as well as fixed labor costs and an extension of the insurance.
Chapter Five
Procedures and Policies of the Insurance Operation
- The default organizational structure of insurance companies
- Board of Directors
- Executive Committee
- Investment Committee
- Audit Committee
- The Nominations and Remunerations Committee
- Internal Auditor
- Actuarial Expert
- Senior management of the company
- Marketing for the insurance products of each company (marketing channels)
- The most important procedures of insurance operations in the Saudi market
- Selling insurance products (insurance sales channels)
- Reinsurance
- Financial operations
- Investment Process
- Personnel and administrative processes
Introduce the intern to the standard organizational structure of the insurance companies, management and work plan. Review the company's strategy, determine the objectives together with the company's management and submit them to the Board of Directors for approval.
Chapter Five
Answers of Chapter Five Revision questions
- List three characteristics that characterize in the Board of Directors in the insurance companies
- State functions and responsibilities of the Investment Committee
- One of the important jobs in the insurance industry is the actuary. Mention 4 of his tasks
- What is the underwriting function and how important it is to the insurance company
- The department that the insured will communicate with when he has a claim is the claims department. To what extent this department is important to the company’s
It may also have to pay non-outstanding claims if the premiums received are not sufficient to pay compensation if the underwriting is unprofessional. Insurance is to give a promise of compensation when the damage occurs, and the benefit of insurance is reflected when the claim for compensation is filed.
Chapter Six
Risks and Obstacles of Insurance Companies’ Operations
- Product development risk
- Underwriting risk
- Pricing risk
- Claims settlement risk
- Solvency risk
- Credit risk
- Information technology risk
- Defrauding insurance companies’ risk
- Internal Fraud
- Insurance brokers fraud
- Fraud by services providers to insurance companies
- Lack of qualified human resources
- Insurance awareness and education
- Reinsurance risk
- Reputation risk
- Non-compliance risk
- Changes in country risk
- Money-laundering and terrorism financing risk
- Layering
- Integration
Payment of a claim immediately after concluding the insurance contract (especially in life insurance cases). Novelty of the insurance sector in the Kingdom of Saudi Arabia, which led to the lack of accumulated experience in the field of human resources.
Chapter Six
Answers of Chapter Six Revision questions
- What are the stages of money laundering?
- List four indicators for internal fraud
- What is pricing risk?
- Insurance companies face fraud in different methods. List these methods and their effect on insurance companies
Taking into account all possible risks using appropriate tools to determine the price of the product. It is a risk that arises from the process by which the company tries to determine the right premium rate.
Chapter Seven
Customer Service According to the Insurance Market Code of Conduct
Section One: Introduction & Purpose
The purpose of these regulations is to establish high standards for work in the insurance field. The term «Authorized Companies» in these regulations refers to both insurance companies and insurance and reinsurance services companies, including insurance brokers and agents, insurance claims settlement specialist, loss assessor, loss adjusters and insurance advisers.
Section Two: General Requirements
Authorized companies shall adopt reasonable procedures to ensure the accuracy and clarity of information provided to customers and made available in writing. Introduce the trainee to part three of the regulations and the articles contained therein.
Section Three: Market Conduct Standards
Name of the fund manager, if the fund is not managed by the insurance company. Cancellations by the insurance company must be notified to customers in writing, including a reference to the relevant contractual cancellation condition and explanation of the underlying reasons for the cancellation.
Chapter Seven
Answers of Chapter Seven Revision questions
- List the key points of general requirements
- What elements should be included in the Insurance Policy?
- When disclosing information, what are the information that insurance company should provide to customers?
- When accepting (fully or partially) or denying a claim, how does the company handle the claim and respond to the claimant?
A description of the method of repayment of the premium payable to the insured upon cancellation and when it is payable. Notify the customer in writing of the claim acceptance or denial immediately after completion of the investigation, stating the following:
Chapter Eight
The Main Participants in the
Insurance Industry in the Kingdom of Saudi Arabia
The Purpose of Insurance Industry Control and Regulation
The lack of regulation in the past does not mean that the Saudi Arabian government has adopted a non-interventionist approach to the insurance industry. With the issuance of implementing regulations issued by the Minister of Finance on April 20 H), a new industry was born in the Kingdom.
Regulators and Supervisors
Insurance company auditors through the quality control unit of the auditors' work registered in the authority's registers. It concerns the activation of the cooperative health insurance implementation for all Saudis working in the private sector and their families.
Cooperative Insurance and Reinsurance Companies
Insurance and reinsurance companies are major participants in the insurance industry and insurance market in Saudi Arabia. Submitting these requirements to SAMA will result in the insurance company being licensed after completing the required licensing steps.
Chapter Eight
Answers of Chapter Eight Revision questions
- SAMA controls cooperative insurance companies in the Kingdom by taking on different roles. Mention five of them
- Mention three of the main obligations of health insurance companies
- What are the requirements for submitting a license application to SAMA?
- Identify insurance broker and what is the minimum capital required for licensing?
- The insurance advisor provides his services to the entity that will pay his fee – What are the benefits of having an insurance advisor in the sector?
We would like to add here that the minimum company capital required to license an insurance broker is SR 3 million. Statement of technical provisions for the proposed growth of the insurance business, certified by a qualified actuary.
Insurance Terminologies
Subrogation: The right of the insurer to act on behalf of the insured when suing third parties. Renewal notice: A renewal notice sent by the insurer to the insured before the end of the insurance period, informing him of the end date of the insurance.
Self Assessment Questions
Chapter One
Self-Assessment Questions
- Which of the following examples is speculative risk?
- Insurance deals with risk on the basis of
- The law of large numbers assists insurers because
- For risk to be insured, it must be
- One of the physical hazard factors for buildings
- Public interest can be defined as
- What is meant by “a peril”?
- What is meant by “a hazard”?
- The difference between moral and behavior hazards is that
- Why is it necessary for a risk to be financially measured in order to be insured?
Why is it necessary for a risk to be measured financially in order to insure.
Chapter Two
Utmost good faith principle can be defined as
Utmost good faith principle applies on
Material fact is a fact that
The age of the insured is a material fact in
Insurable interest can be defined as
When insurable interest in the general insurance should be present?
What are the available options for providing indemnity?
Who has the power to choose indemnity method?
Chapter Three
- One feature of the insurance contract is mandatory, and this obligation is
- The comprehensive definition of the insurance contract must include
- In order for the insurance contract to be entered into, it must have
- The consent element of the insurance contract concerns
- Insurance contract parties are
- One of the following is considered a defect of will in the insurance contract
- The subject matter of insurance must be
- The purpose element in the insurance contract is
- One of the characteristics of the insurance contract is that it is an indemnity contract, this means
- Probability in the insurance contract means
- One of the following is considered a standard product to insured individuals
- One of the standard coverage for corporate insurance
- Marine insurance is one of the insurance coverage for companies that covers
- Fidelity insurance compensates the insured in case
- Limits in motor insurance third party liability in Saudi Arabia
- Insurance of contractors’ all risk is within the insurance products covering
- Additional coverage on motor insurance
- Damage to contractor’s equipment can be covered within
- One of the main coverages of aviation risks
- In order to make insurance companies accept the insurance of inventory corruption in the cooling equipment, the following insurance coverage must be available
- The main committee that reports to the Board of Directors of the insurance company is
- One of the major operations in the insurance companies is the underwriting process, which means
- The regulatory compliance officer in the insurance company is responsible for
- The process of reinsurance in insurance companies means
- One of the following is considered a major selling channel in insurance companies
- The department that relates to the principle of compensation in insurance companies is
- One of the functions of reinsurance department in insurance companies is
- Selling through an insurance agent is an example of
- The process of identifying the insurance applicant is known as
- The minimum permitted rating of reinsurance companies to which insurance companies must comply with in accordance of the instructions of the Saudi Arabian
- AAA B. BBB
- Insurance fraud is defined as
- Solvency of insurance companies means
- External fraudsters on insurance companies can be
- Reasons why Saudi employees of insurance companies are unstable and move to work in other fields
- One of the following is a negative effect of solvency
- To prepare for countering insurance risk, insurance companies do one of the following
- One of the risks related to changes occurring in countries and affecting insurance companies’ performance
- One of the following is a product development risk that insurance companies face
- One of the following is a procedure followed by insurance companies to face underwriting risk:underwriting risk
- Identifying and applying proper mechanisms for the development of appropriate precautions; is one of the procedures undertaken by insurance companies to face
- The main purpose of these regulations
- Integrity is one of the general requirements in the regulations and it states
- Article 52 stipulates that (The Insurance Policy shall be written in a clear way that can be read by the public at large, and shall contain the following)
- Free Look period provision
- If the funds of policyholders can be invested in a set of investment funds associated with a unit, the investment funds must be described and their description should
- Authorized companies should not give inaccurate, misleading, exaggerated, or deceptive data or advertisements, directly or indirectly, including but not limited to
- One of the information that insurance companies must disclose before accepting the customer’s request to obtain an insurance policy
- Authorized companies must provide timely and appropriate post-sale service to customers post-sale, including response to their queries, administrative requests,
- To settle claims, authorized companies must do the following
- One of the following is an insurance and reinsurance services provider
- Council of Cooperative Health Insurance is a body that supervises and regulates insurance companies. One of the following is a main task of the council
- The body that grants license for the actuary
- Claim settlement specialist is an insurance and reinsurance services provider that do the following
- The sum insured of the medical insurance policy set by the Council of Cooperative Health Insurance is
- One of the Implementing Regulations issued by Saudi Arabian Monetary Authority and is related to risks faced by insurance companies
- One of the functions of the General Secretariat of the Council of Cooperative Health Insurance
- One of the main obligations of health insurance companies
- Under the Law and with Capital Market Authority (CMA)’s Supervision, insurance companies are required to offer shares to the public for trading by
- When there is a non-Saudi company partner to any insurance company, it must obtain the license from
The financial situation of the insurance company issuing the insurance policy, which is not important to customers. Among the data that insurance companies must disclose before accepting the customer's request to take out an insurance policy: the customer's request to take out an insurance policy:
Answers to Self Assessment Questions
Chapter One Answers
