PAA invanmar INSURANCE ASSOCIATIONACKNOWLEDGEMENT This study text has been prepared with the kind support of Insurance Institute of India, Mumbai and the valuable contribution of experienced professionals of Myanmar Insurance Industry. This work would not have been possible without the support of Members of ‘Training, Research and Development Cammittee of Myanmar Insurance Association. Myanmar Insurance Association is grateful to all those who relentlessly worked and assisted in this Important undertaking, which would contribute significantly for developing professionals in the Myanmar Insurance Industry. ‘Myanmar Insurance AssociationLIFE INSURANCE AGENT STUDY TEXT (1-01) FIRST EDITION - 2019 Printed September 2019 - 2000 copies ALL RIGHTS RESERVED. This study material is the copyright of the Myanmar Insurance Association. In no circumstances may any part of this material be reproduced. This is an indicative study material, Please note that the questions in the examination shall not be confined to this study material. Published by U Thaung Han, Secretary General, Myanmar Insurance Association, No. 53, #05- 18, 5" Floor, Strand Square, Strand Road, Yangon, Myanmar.Foreword [Link] Delighted to write this foreword for Life Insurance Agent Study Text which is published as an insurance agent study material in Myanmar for the first time. It was designed to correspond with the standards and practices of Myanmar insurance industry and the life insurance agency sector. Insurance Business Regulatory Board and Financial Regulatory Department adopted the policy of developing the agency sector to be professionally competent, and ethically sound in providing service to the insuring public as well as to the affiliated partners. Under the guidance of Insurance Business Regulatory Board, Financial Regulatory Department and ‘Myanmar Insurance Association initiated the plan to develop the study material for insurance agents with the kind support of the insurance Institute of India. in developing the material, experienced personnel of Myanmar insurance industry devotedly participated to contribute their knowledge and experience. This Study Text was the result of diligent and considerate efforts made by the parties involved in the project. ‘The Study Text contains the information valuable to prospects aiming to become qualified insurance agents. The contents of the study material provide readers the essential knowledge for a life insurance agent. The first few chapters explain about basic knowledge on what is insurance, risk management, agency career and regulatory matters. As customer service is an important aspect for insurance agents, a chapter elaborating customer service Is also provided. Later chapters give the requisite knowledge for insurance agents in practically discharging their functions, such as financial planning, life insurance products, health insurance products, premium calculations, claim process and basic selling techniques. The study text not only provides information on products and features currently available in Myanmar, it also gives information on products and features generally available in other markets, which will be useful for the readers to familiarize with. Liberalization of insurance business in Myanmar was initiated by the Government in 2012, and recently the market has been opened to foreign participation, It is envisaged that there will be significant development of the insurance sector in the near future. This will mean the high demand for service of the insurance agents. ‘With the development of the market and high demand for service, insurance agency segment needs to grow to cope with the situation. While increased capacity is commanded, the quality and efficiency of the agency force is necessitated at the same time. To improve the quality and efficiency of the service, professionalism of the individuals involved needs to be enhanced. This study material is intended to improve the professional quality of the prospective insurance agents and in turn to enhance their value and efficiency. | truly believe that the study material will contribute significantly to the progress of insurance agency sector in Myanmar. Dr Sandar Oo Chairperson Myanmar Insurance AssociationPREFACE Myanmar Insurance Association has developed this course material for Life Insurance Agents in consultation with the industry. The course material is prepared based on the syllabus approved by Insurance Business Regulatory Board. The study course provides basic knowledge of Life and Heelth insurance that enables agents to understand and appreciate their professional career in the right perspective. As insurance business operates in a dynamic environment in situations that are always changing, the agents will have to keep themselves abreast of changes in aw and practice, through personal study and participation in in-house training/seminars given by the insurers and the Myanmar Insurance Association. We thank insurance Business Regulatory Board for entrusting this work to Myanmar Insurance Association. The Association wishes all those who study this course gain knowledge and skills in their respective careers, Myanmar Insurance AssociationLIFE INSURANCE AGENT STUDY TEXT ABLE OF CONTENTS Chapter 1 m= The Concept of Insurance and its Evolution 11-18 Chapter 2. Insurance Agency as a Career 2/1-14 Chapter 3. = Principles of Insurance 3/1-12 Chapter 4m Risk Management 4f-ig Chapter 5m Legal and Regulatory Matters 5/l-t6 Chapter 6 ™ Financial Planning 6/-17 Chapter 7m Sales and Underwriting 1-17 Chapter 8 ™ Customer Service 8/19 Chapter 9 m Life Insurance Products 9/1-31 Chapter 10 ™ Health insurance 10/1-18 Chapter 11m Pricing and Valuation in Life Insurance 11/1-46 Chapter 12. m Insurance Documents 12/1-16 Chapter 13 ™ Insurance Claims 13/1-10 Chapter 14 m Basic Selling Techniques 14/1-19Chapter THE CONCEPT OF INSURANCE AND ITS EVOLUTION CONTENTS Learning Outcomes 2 Introduction rere 1. Understand, the Concept of Insurance... 4/2 2. Be Aware, How Insurance Evolved .... 1/5 3. Understand, How Insurance Works wn 1/6 4. Discuss, the Different Classes of Insurance .. iz SUMMARY esate enn ye Key Terms of Definitions 1/16eee) 1/2 _Life insurance Agent Study Text CHAPTER 1 ‘THE CONCEPT OF INSURANCE AND ITS EVOLUTION This chapter aims to make you understand the basics and nature of insurance, how it evolved, and how it operates today. After going through this chapter, you would be able to know, how insurance takes care of un-expected eventualities. a ues 1. Understand, the Concept of Insurance 2. Be Aware, How Insurance Evolved 3. Understand, How Insurance Works 4, Discuss, the Different Classes of Insurance 1. UNDERSTAND, THE CONCEPT OF INSURANCE ‘A. Need for Insurance: To understand the concept of insurance, first, we have to understand the need for insurance. The three situations, discussed below, will explain the need for insurance. Situation-1: imagine that, you own a car. Think of some of the risks, associated with your car. These can include ‘ The risk of damage to the car, due to any un-expected event. The risk of a car-accident and injury to the driver. % The risk of the car being stolen. 4 The risk of the carrunning-over some-one on the road, causing injury and the legal liability on the owner of the car, to compensate the injured ‘Shtuation-2: imagine that, you are working with a company. Think of some of the risks, related to your job. These can include: % The risk of un-timely death, due to some un-expected event or loss of income, for the remaining working life-span. In case of un-timely death, the responsibilities you leave behind, such as, chil education, children’s marriage, home-loans, etc. ~The risk of falling ill, and loss of income for a temporary time-period. + The risk of an accident, temporary disability or loss of earning capacity, for the remaining working lifeChapter 1 Concept of Insurance and its Evolution ee eet ee Situation-3: imagine that, you own a business. Think of some of the risks, associated with your business, These can include: The risk of damage to your premises or machinery, due to floods, fire, earth-quakes, etc. % The risk of damage to the raw materials or finished goods. 4 The risk of theft of stock or money. Do all the above risks, worry you? You need not panic, as insurance can provide a cover, against all the above risks. 1) Inthe first situation, motor insurance can provide you, with a cover against risks, related to your car. 2) Inthe second situation, life assurance can provide you, with a cover against risks, related to your life. If you fall sick, health insurance provides you, the medical costs. 3) Inthe third situation, fire insurance or property insurance can provide you, with a cover against risks, related to your business. So, to protect your-self from the risks, associated with the assets, and to continue enjoying the benefits from it, you need insurance. Assets are economic resources. Any-thing, tangible or in-tangible that is capable of being owned or controlled, to produce value, and that is held to have positive economic value, is considered an asset. Simply stated, assets represent ownership of value that can be converted into cash (although, cash it-self, is also considered an asset). B. Concept of Insurancé The business of insurance is related to the protection of the economic value of assets. An asset is valuable to the owner, because they get income or benefits from it, in the form of comfort and convenience. 1) Inthe first situation, owning the car as an asset, does not give the end-user, any monetary come, But, at the same time, the car provides the owner, comfort and convenience in transportation, 2), inthe second situation, a human life is an income-generating asset. 3) In the third situation, the business-owner can sell finished goods, and generate income. So, here, the business is an income-generating asset. This includes the premises and the contents of the building, like, machinery, raw material, and finished goods. Therefore, in all the above three situations, the owner would be interested in the continued enjoyment of the benefits from these assets. All the assets have time-lines, and cannot be expected to last for-ever. So, the benefits, provided by these assets, will last, only for a certain period of time. In the above situations, the car, as an asset, has a life-time of, say, 10 years or 15 years. Human beings work, until the age of 60 years, which is, the normal retirement-age. After retirement, the monthly salary Ta1/4_Ufe Insurance Agent Study xt Income benefit will not be available. During its life-time, the asset will be exposed to certain risks, such as. 1) The car canbe stolen. 2) Ahuman being can fall ill, or die. 3) The business can be destroyed by fire. if any of the above happens, the owner and those enjoying the benefits from these assets, will be deprived of the benefits, At the same time, there may be no immediate substitutes, ready. Also, any substitution would involve an un-foreseen economic burden. This may lead to an adverse or un-pleasant situation, In such situations, insurance comes in handy. insurance is a mechanism that helps to reduce, the financial effects of such adverse situations. An insurance company (referred to, usually as the insurer) promises to pay, to the owner (insured) or beneficiary of the asset, a certain sum of money (sum-assured), if a loss occurs, 50 that, they may try to ensure continuance of the financial benefits. The insured pays a certain amount (consideration), to the insurance company, for bearing the risk, which is known as, premium. Insurance can also be defined as a co-operative arrangement to spread the loss caused by a particular risk, over a lerge number of people who are exposed to it, in exchange for a small sum of money. Insurance can also be defined as a process of transferring the risk from some-one, who cannot bear to some-one, who has the capacity to bear for such risk, in return for a consideration In simple terms, insurance is: 1) A process of passing or transferring the risk of incurring loss, by the owner (who cannot bear the risk) of an asset; 2) To the other party (insurance company), who can bear the risk; 3) Inreturn fora consideration (called, premium). ‘An accident or an event, like fire, may happen or may not happen. The owner can take precautionary steps to prevent the event. But, still, there is a likelihood that the event may happen. There is a un-certainty, against which, the owner would like to safeguard him-self or her-self. Ifthe un-expected event does occur, there will be a situation where the owner will lose the benefits, he or she was deriving from the asset. itis in such situations that insurance steps-in, and assures the owner that, the benefits will be protected. The insurance company covers only those events that are possible to occur, but are not certain. If the occurrence of an event, at a given point of time, and its impact are certain, then the insurance company may not cover such events. In short, insurance means ‘loss of a few, shared by many’. Self-Test Question 1 Which of the following statement is incorrect concerning the asset? A. Owning the car as an asset, does not give the end-user any monetary income. But the car provides the owner, comfort and convenience in transportation.Chapter 1 Concept of Insurance and its Evolution ws B. A human life is an income-generating asset. . The business-owner can sell finished goods, and generate income. So, here, the business is an income-generating asset. D. Only tangible things like the building, machinery, raw material, and finished goods are considered as asset. 2. BE AWARE, HOW INSURANCE EVOLVED. Life is un-certain, and so are the businesses, Just as the life of a person is prone to various risks, businesses are prone to various risks. Persons and businesses need something to spread these risks, among all, who are exposed to similar risks; and transfer these risks to the ‘entities that have the capacity to bear them. This is how, the business of insurance evolved. The history of insurance is almost as old as the existence of humans. Some of the mile-stones, related to history of insurance, are: “ Over 5,000 years back, Chinese traders used insurance as a preventive measure against piracy. The cargo of each ship, used to be distributed among other ships, so that, if one ship gets lost or captured by pirates, the loss would only be partial. The first written insurance policy was on a Babylonian obelisk monument, with the code of King Hammurabi. The Hammurabi code was one of the first forms of written laws. The basic insurance gave the Babylonian traders, the protection against loss of cargo. * In 1666, the great fire of London destroyed more than 13000 houses. To counter such events in future, fire office, the first fire insurance company was started, in 1680, + Traders in London used to gather at Lloyd's coffee house, and agree to share the losses of goods, due to piracy; or the ship-sinking, due to bad weather, or other reasons. A. History of Insurance in Myanmar: In Myanmar, insurance began formally in the 18 century. The following are some of the historical milestones in history of insurance business in Myanmar. Year Event 11862 | Insurance was first introduced to Myanmar after the end of 1* Anglo-Burmese War. 1937 | The Burma National insurance Co.,Ltd. headed by Sir U Thwin as Chairman _ conducted Life, Fire and Motor insurance business. 1940 | The Burma Insurance Co., Ltd. headed by Dr U Satt as Chairman | conducted insurance businesses, In 1940 there were around 110 insurance companies including two Myanmar companies operating in Myanmar. /1955 | in addition to Myanmar insurance companies mentioned above, a third | Myanmar insurance company called Peoples’ insurance Co., Ltd. headed by Dr. | USein Ban as Chairman was formed to conduct life, fire and motor insurance. | 1950 | Union insurance Board Act was enacted by the Parliament. 1951 By virtue of the Insurance Companies Nationalization Act enacted in 1951, | Burma National insurance Co., Ltd. was nationalized and Union Insurance | Board (UIB) was formed.1/6 _Life insurance Agent Study Text 1952 | UIB conducted life insurance business for State employees. | 1957 | Life Insurance Prohibition Act was promulgated. 1957 | UIB conducted General Insurance business. 1959 | Government prohibited the conduct of life insurance business by other. companies except by UIB 1959 | Government prohibited the conduct of general insurance business by other companies except by UIB. UIB changed its name for several times before finally | named as Myanma Insurance. 1996 | Insurance Business Law was enacted. ic ae 1997 2013 jie aera ae . [2019 | Foreign insurance compani are allowed for operation in Myanmar. With the opening of the insurance market to private sector In 2013, a significant growth of insurance business was realized. Further development is expected with the opening of market to foreign insurance companies. Self-Test Question 2 ‘When was the first written insurance policy recorded? ‘A. When Chinese traders used insurance as a preventive measure against piracy over 5,000 years ago. B, The insurance policy found on a Babylonian obelisk monument, with the code of King Hammurabi, C. When fire office, the first fire insurance company was started, in 1680 after the great fire of London destroyed more than 13000 houses in 1666. D. When traders in London used to gather at Lloyd's coffee house, and agree to share the losses of goods, due to piracy; or the ship-sinking, due to bad weather, or other reasons. 3. UNDERSTAND, HOW INSURANCE WORKS The insurance industry works on the concept of pooling. Persons, who are exposed to similar risks, are brought together. The members in the group, agree that, if any one of them suffers 2 loss, the other group-members will share the loss, and compensate the person, who suffered the loss. The compensation is expected to put the person in the same place, financially, as he or she was, before suffering the loss. Instead of the persons from the group coming together, on their own, the insurance company acts as an intermediary, and brings them together. The members, who are exposed to the same risk, contribute money to a pool, which is maintained by the insurance company. Each member's contribution is known as a ‘premium’. When any member suffers a loss, the insurance company pays compensation from this common pool. In this way, the riskis spread, ‘among the members of the group, and the probable bigimpact on one, is reduced to smaller, manageable impacts on all, The larger the number of members in the group, the easier it is, to share the risk. The premium, paid by each member, is proportionate to the risk, he or she is exposed to.Chapter 1 Concept of Insurance and its Evolution 4/7 ‘A. How Marine Insurance Works Bea Person “A” is shipping the goods, worth kyats 10,000; and Person “BY is shipping the goods, worth kyats 20,000. in this case, the premium, paid by person “B”, will be higher than that, paid by person “A”. + Person “A” is shipping gold ornaments, and person “8” is shipping plastic ornaments. In this case, the premium, paid by person “A”, will be higher than that, paid by person “B’. 4 Person “A” is shipping the goods, for a transit of 1 day, and Person “B" is shipping the goods, for a transit-time of 1 month. In this case, the premium, paid by person “B”, will be higher than that, paid by person “A”. * Person “A” is shipping the goods, from a domestic city to a sea-port in that country, and Person “8” is shipping the goods, across the Pacific Ocean. In this case, the premium, paid by person “B", will be higher than that, paid by person “ [A fund is created from the premiums collected, and is used to settle the claims of members, who suffer losses, The maximum amount that 2 person can receive, is known as, the Sum Insured (S.1,). 8B. How Motor Insurance Works ‘There are 500 cars ina city. It Is expected that, on an average, 1% of the cars or 5 cars, may meet with an accident, in a year. The economic value of the loss, suffered by the owner of each car, is taken to be MMK 10,000,000. Let us see, how the premium will be calculated in the above scenario. | Total number of cars 500 | | Economic value of each car MMIK 10,000,000 | Number of cars expected to meet with an accident, 5 Total expected loss MMK 10,000,000 x S = MMK 50,000,000 | Number of car-owners, among whom, the loss is to be | 500 | distributed Loss that each car-owner has to bear MM 50,000,000 + 500 | = MMK 100,000 | Premium to be charged, per car-owner MMK 100,000 All the $00 car-owners can come together and contribute or share MMK 100,000 each, and build a common fund of MMK 50,000,000. This common fund of MMIK 50,000,000 can be used to pay MMK 10,000,000 to each of the car-owners, whose car meets with an accident. On)41/8 _ Life Insurance Agent Study Text In this way, the loss of 5 car-owners can be equally distributed among all the 500 car-owners. ‘The share (premium) of each car-owner comes to MMK 100,000. C. How Fire Insurance Works Ina village, there are 1,000 houses, each valued at MMK 10,000,000. It is expected that, on anaverage, 10 houses may catch fire, ina year. Let us see, how the premium will be calculated in the above scenario. Total number of houses 1,000 Value of each house | Mm 10,000,000 Number of houses, expected to catch fire, inayear | 10 Total expected loss | MMK 10,000,000 = 10 = | MMK 100,000,000 Number of houses, among which the loss is to be | 1,000 distributed | | loss that each house has to bear | MMK 100,000,000 = 1,000 = MMK 100,000 Premium, to be charged per house | MM« 100,000 All the 1,000 hause-owners can come together and contribute or share MMK 100,000, each, and build a common fund of MMK 100,000,000. This common fund of MMK 100,000,000 can be used to pay MMK 10,000,000, to each of the 10 house-owners, whose houses get destroyed due to fire. In this way, the loss of the 10 house-owners, can be equally shared by all the 1,000 house-owners. The share of each owner, comes to MMK 100,000 which works ‘ut to 1% of the house-value (MMIK 10,000,000). This is the same as the probability of risk, which is, 196 (10 houses burnt out of 1,000 houses). The contribution or share of MMK 100,000 per house-owner, would be the premium, and that would be fixed at 1% (probability of risk) of the insurance-cover (which is, equal to the value of the asset). In the above example, let us assume that, there are 1,000 houses, but of different values. In that case, the share of each house-owner would be 1% of the value of the house. If the ‘assumption was that, 20 (that is, 2%) out of the 1,000 houses, are likely to get damaged, the share would be 2% (which is, probability of risk) of the value of the house. The probability of risk would depend upon factors, such as, the nature of construction of the house (concrete or thatch-roofing work), its location (residential, commercial, or industrial area), goods-stored, ownership of vehicles, nature of use, and so on, The risk is measured in terms of percentages, and the share would be equal to that same percentage.Chapter 1 Concept of Insurance anc Evolution 9 —_ D, How Life Insurance Works Similarly, in the case of human beings, the premium will be influenced by the following factors: ‘Age For persons, belonging to a given age-bracket, say, 31 years to 40 years. Given that, all other factors are same in this age-bracket, the premium for the person, aged 31 years, will be the lowest; and the premium for the person, aged 40 years, will be the highest, The higher the age, the higher will be the premium. ‘Sex Insurance companies may charge different premiums for males and females, based on their exposure to risks in their work-places and longevity. Profession Persons, who are in the professions, where, the risk is more than ‘other normal professions; for example, persons, working in under- ground mines and explosive-factories, are exposed to higher risks, than persons in other professions, such as, the Information Technology (1.7) Industry, Habits Persons, who consume tobacco and alcohol, or smoke; will be charged higher premiums, compared to other persons. Health- Persons, in good health, will be charged lower premiums than the Conditfons persons, suffering from some diseases, disorders, and disabilities. Family History _ | If there is a family history of ailments, like diabetes, cancer, heart- problems, etc., then the person may be charged a higher premium, as compared to others. Premiums are worked out on the basis of probabilities. Apart from the above-mentioned factors, insurance companies take other things also into consideration, when determining the premium. These can include, hobbies of a person, such as: 1) Mountaineering 2) Paragliding 3) Watersports 4) Trekking The probability depends on the hazard. The company specifies the parameters of the hazard, and works out the appropriate premium. This will be the standard, against which, any insurance proposal will be measured. If the risk is assessed to be greater than the standard, it is described as sub-standard and a higher premium may be charged. E a if smoking is considered as a hazard, a standard pre ‘Smokers may be charged a higher premium. mm may be fixed for non-smokers.4/10 _ Life insurance Agent Study Text If the risk is assessed to be a lot higher than the standard, the insurer may also decline to accept the proposal for insurance, Een If the applicant is suffering from cancer (stage-4 or higher), they may not survive for a long- time. In this case, the insurance company may decline to accept the proposal for insurance, as the risk-involved is very high. Risks that are significantly lower than the standard risks are preferred by insurers. £. Probability of Risk Insurance companies arrive at the premium-to-be-charged, based on their past experience. The probability of risk will depend, partly on how frequently the peril may occur, and how ‘Severe its impact can be. How frequently perils, like earth-quakes or storms may occur, are not in any-one’s control. But, the extent of the damage will depend on the quality of construction of buildings, prior warning-systems and evacuation, quality of communication, how soon the local authorities take-up the relief-work, etc. As and when changes happen in such factors, the probabilities will change. The insurers take these factors into consideration, in arriving at the premiums. To be insurable, the loss must be: 1) Likely to occur by chance; 2), Identifiable in time (when it happened); 3) Quantifiable as an amount; 44) Significant in terms of amount. Insurers don’t accept petty losses of little value. Insurers lay-down the limits, below which, insurance will not be accepted; 5) Predictable reasonably well. This is made possible, through the use of probability theories. F, Transfer of Insurance Policy: Insurance is taken to compensate the losses, to the person taking the insurance policy. This means that, if the insured asset is transferred to another person, and it is damaged, the insurance company will not pay the new owner, unless, the insurance policy is also transferred. (However, in case of marine cargo insurance, the practice is different, which, you will study, later.) Let us understand this better with an example. U Be bought a new car. At the time of buying ‘the car, he bought motor insurance for his car. After using the car for three months, U Ba sold the carto U Hla, U Hla meets with an accident, while driving the car. U Hla makes a claim to the insurance company, through the motor insurance policy bought by U Ba, The insurance ‘company will not pay the claim, as the car has been transferred from U Ba to U Hia; but, the motor insurance policy has not been transferred from U Ba to U Hla. Transfer of the insuranceChapter 1 Concept of Insurance and its Evolution aii policy would need the consent of the insurance company. The motor insurance policy follows the person, not the property. G. Risk Pooling and the Law of Large Numbers The probability of damage forms the basis on which the premium is determined. The insurer would face no risk of loss if the actual experience was as expected. In such a situation, the premiums of the numerous insured would be sufficient to completely compensate for the losses of those who have been affected by the peril. The insurer would, however, face a risk if the actual experience was more adverse than expected and the premiums collected were not Sufficient to pay the claims. How can the insurer be sure about its predictions? This becomes possible because of a principle known as the “Law of large numbers”, It states. that the larger the size of the pool of risks, the actual average of losses would be closerto the estimated or expected average loss. To give a simple illustration, the probability of getting heads on a toss of the coin is 4. But how sure can you be that you will actually get two heads if you toss the coin four times? Only when the number of tosses gets very large and closer to infinity, the chance of getting heads once for every two tosses will become closer to one. It follows that insurers can be sure of their ground only when they have been able to insure a large number of insured. An insurer who has insured only a few hundred houses, likely would be worse affected than one who has insured several thousand houses. H. Important: Conditions for Insuring a Risk ‘When does it make sense to insure a risk from the insurer’ s point of view? Six broad requirements for a risk to be considered insurable are given below. 1) Asufficiently large number of homogeneous [similar] exposure units to make the losses reasonably predictable. This follows from the law of large numbers. Without this it would be difficult to make predictions. 2) Loss produced by the risk must be definite and measurable. It is difficult to decide the compensation if one cannot say for sure that a loss has occurred and how much it is. 3) Loss must be fortuitous or accidental. it must be the result of an event that may or may not happen. The event must be beyond the control of insured. No insurer would cover a loss that is intentionally caused by the insured. 4) Sharing of losses of the few by many can work only if @ small percentage of the insured group suffers loss at any given period of time. 5) Economic feasibility: The cost of insurance must not be high in relation to the possible loss; otherwise the insurance would be economically unviable, 6) Public policy: Finally, the contract should nat be contrary to publie policy and morality:1/12 _ Life insurance Agent Study Text ne a 1. The Insurance Contract Insurance involves 2 contractual agreement in which the insurer agrees to provide financial protection against specified risks for a price or consideration known as the premium. The contractual agreement takes the form of an insurance policy. Self-Test Question 3 In fire insurance, the probability of risk would not depend upon factors, such as: A. The nature of construction of the house. B, Its location (residential, commercial, or industrial area). C. Goods-stored in it. D. Value of the house. 4. DISCUSS THE DIFFERENT CLASSES OF INSURANCE. Diagram-2: Classes of Insurance: ces Insurance business is broadly classified into life assurance health insurance and general insurance. A. Life Insurance: Life assurance deals with covering the lives of human beings. In life assurance, the asset-i question-is the ‘economic value’ of the person. A person’s earning capacity depends on his or her skills, knowledge, ability, and other factors. The family, employer, and indirectly the users of products, created by this asset (human beings), enjoy value and benefits. A human life is an income-generating asset. But, this asset can be lost, through un-expected early death, or made non-functional, through illnesses or disabilities, caused by accidents. Death is certain, but its timing is un-certain. If death occurs very early in the career, insurance contributes to help those dependent on this asset.Chapter 1 Concept of Insurance and its Evolution at eed Just as “dying too early” Is a problem, “living too long” can also be a problem. Based on his expenses in the retirement-year, and factoring the rise in future inflation, and based on the life-expectancy (for example, 80 years), the person may have made financial arrangements, for the next 20 years. But, if the person lives too long, in this case, beyond 80 years, then he or she will run out of financial resources. Life assurance can help in safeguarding the persons, against such risks of longevity in the form of pension plans. jpolbcranirts tine densi ot S7oeiis Weal ie ieee el SE B. Health Insurance: Health insurance insures human lives against the financial losses arising out of un-expected accident or sickness or iliness resulting in hospitalisation and is offered through medical insurance, Death or disability arising out of an accident can also affect the income earning capacity of the insured (personal accident). Globalisation has resulted in movement of humans across the globe, and emergency medical situations or accidents cen occur for which overseas medical insurance is available. C. Non-life Insurance or General Insuran Non-life insurance or general insurance, deals with covering non-human objects, like animals, agricultural crops, goods, factories, cars, etc. In some countries, non-life insurance is also known as “property and casualty insurance” Nomlife insurance (General Insurance) also covers the losses, through individual behaviors, like fraud, burglary, non-fulfilment of promises (in the case of re-payment of mortgage loans), and negligence by professionals in their service. General insurance policies are mostly for 1 year, and are renewable. Non-life instirance (General insurance) business is further divided into three categories: 2) Fire insurance. 2) Marine insurance. 3) Miscellaneous (motor insurance, engineering, liability, burglary, fidelity) Fire insurance deals with al fire-related risks, and will include, damages due to riots, malicious acts, typhoons, cyclones, earth-quakes and consequential expenditures related to these events. Marine insurance deals with goods, being transported by sea, alr, rail, or road, as well as, al marine-related risks. ‘Apart from fire insurance and marine insurance, all other businesses are included in the miscellaneous class. These include motor insurance, engineering, liability, burglary, fidelity, etc. ‘Accidents and illnesses to human beings, are covered in health insurance or life insurance depending on regulations of the country concerned. E.g., accident and illness are covered under health insurance in india, But, these are covered in life assurance in many countries. In some countries, accidents and some critical ilinesses, are covered in life assurance, only as additional cover (riders), along with the main life assurance policy. ‘The economy is directly linked to the non-life insurance business. By having insurance:1/14 _ Life Insurance Agent Study Text 1) Trade and industry get some steadiness and stability. 2) Business-owners can concentrate on their businesses, without worrying about the vagaries of nature, like floods, earth-quakes, cyclones, etc. 3) Business-owners know that, in the event of natural calamities, the insurance companies will come to their rescue, to compensate the losses faced due to these perils. 4) Inthe absence of insurance companies, the business-owners will be exposed to the risk of losses due to these vagaries and will have to bear heavy losses, in the event of any natural calamity. 5) Insurance-arrangements increase the capacity of those affected, to cope with these losses and incidental problems. The business of general insurance is closely linked to international trade and industry. Insurance, along with banking, provides infrastructure for trade end industry to perform. Like banks, non-life insurance companies have associates in most of the countries that provide services, related to inspection, salvages, documentation, etc. Insurance introduces security, increases business-efficiency, and creates equitable distributions of losses. Insurance enhances credit-worthiness, capitalizes earning power, makes savings possible, and thus, investment. Insurance also reduces destitution, facilitates better health-care and D. Broad Scope of Insurance Business: The concept of insurance has been extended beyond the coverage of tangible assets. Examples are: a) if an exporter has exported goods, he or she faces the risk of, the importer in the other country defaulting on the payment. And, due to a time-lag of 2 few months between the exportation and receiving the payment, there can be risk of losses due to sharp appreciation in the domestic currency. These risks can be insured by export credit and guarantee insurers. 'b) Professionals like doctors, lawyers, accountants, and engineers, run the risk of being charged with negligence and subsequent liability for damages. ee ‘ An accountant can be sued by the client, if he or she faces a loss, because of wrong advice, # Anengineering company can be sued, if a bridge built byit, collapses claiming some lives. Adoctor can be sued, if a patient dies because of his negligence. The amounts, claimed in damages can be fairly large, and beyond the capacity of the individual to bear. These risks are insurable in the form of professional liability insurance products. In some countries, the voice of a singer or the legs of a dancer, can also be insured. Self-Test Question 4 Which of the following statement is incorrect? A. Health insurance insures human and animal lives against the financial losses arising out of un-expected accident or sickness or illness resulting in hospitalization.Chapter 1 Concept af Insurance and its Evolution ais B. Marine insurance deals with goods, being transported by sea, air, rail, or road, as welll as, all marine-related risks. C. Fire insurance deals with all fire-related risks, and will include, damages due to riots, malicious acts, typhoons, cyclones, earth-quakes and consequential expenditures related to these events. D. Apart from fire insurance and marine insurance, all other businesses are included in the miscellaneous class. These include motor insurance, engineering, liability, burglary, fidelity, etc.1/16 _Life insurance Agent Study Text a % Insurance is needed to protect one from the risks associated with an asset, and to continue earning the benefits from it. + Human Life is an Income Generating Asset. Insurance transfers the risk from the asset-owner to the insurance company, in return for a fee (premium). % The first written insurance policy was on a Babylonian obelisk monument, with the code of King Hammurabi. Insurance works on the concept of pooling, wherein, people exposed to the same risk, are brought together, by the insurance company. Insurance is mainly divided into 3 categories: life assurance health insurance and general. insurance. @ Insurance promotes trade and commerce. + Pou era eed Risk Asset Peril Hazard Fortuitous or Accidental Probability Risk Pooling Law of Large Numbers Soe eee eeChapter 1 Concept of Insurance and its Evolution air Answers to Self-Test Questions Self-Test 1 ‘The Correct Option is 0. Not only tangible things like the building, machinery, raw material, and finished goods are considered as asset. Self-Test 2 The Correct Option is 8. The first written insurance policy was found on a Babylonian obelisk monument, with the code of King Hammurabi. Self-Test 3 The Correct Option is D. Infire insurance, the probability of risk would not depend upon value of the house. It depends on the factors, such as nature of construction, its location and goods stored in it. Self-Test 4 The Correct Option is A. Health insurance does not insure animal ives. It only insures human lives against the financial losses arising out of un-expected accident or sickness or illness resulting in hospitalization. Self-Examination Questions ‘Question 1 There are 10,000 cars in a city. On an average it is expected that 1.5% of the cars or 150 cars meet with an accident, It is expected the loss suffered by each of the 150 car owners will be MMIK 10,000,000. How much will be the premium required to be contributed by each car owner to cover the losses? A. MMK 100,000 B, MMK 200,000 C._MMK 150,000 D. MMK 175,000 Question 2 Three main categories of insurance are: A. Life Insurance, Fire Insurance and Financial Insurance 8. Non-life Insurance, Motor Insurance and General insurance . Life Insurance, Non-life Insurance and Health Insurance D, Life insurance, General Insurance and Miscellaneous Insurance Question 3 When was the private companies allowed to participate in the insurance business? A, 2012 B. 2013 c. 1997 D. 19961/18 _ Life Insurance Agent Study Text a a Question 4 Choose the correct answer from the below statements: ‘A, Myanmar Insurance Business Law was promulgated in 1996 and Insurance Business Rules, in 1997 B, Myanmar Insurance Business Law was promulgated in 2012 and Insurance Business Rules in 2013 C. Myanmar Insurance Business Law was promulgated in 1999 and Insurance Business Rules in 2000 D. Myanmar Insurance Business Law was promulgated in 2014 and Insurance Business Rules In 2015 Question 5 Non-life insurance (General Insurance) business is further divided into three categories as below: ‘A. Fire insurance, Marine Insurance and Miscellaneous insurance 8. Marine insurance, Motor Insurance and Property insurance C. Miscellaneous Insurance, Motor Insurance and Engineering Insurance D, Fire insurance, Property Insurance and General Insurance ‘Answers to Self-Examination Questions Answer 1 The correct option is C. Answer 2 The correct option is C. Three main categories of insurance are Life Insurance, Nor-life Insurance and Health Insurance. Answer 3 Correct option is B Private companies are allowed to participate in insurance business in 2013. Answer 4 Correct option is A Myanmar Insurance Business Law was promulgated in 1996 and Insurance Business Rules in 1997 Answer 5 Correct option is A Non-life insurance (General Insurance) business is further divided into three categories as: 1) Fire insurance; 2) Marine Insurance; and 3) Miscellaneous insurance,Chapter INSURANCE AGENCY AS A CAREER CONTENTS Introduction 2/2 Learning Outcomes ..... 22 1. Insurance Distribution Channel a Eee a 2/2 2. Insurance Agency Profession 2/4 3. Recruitment, Training and Licensing of Agents .....0nnnsmnnnnnnin 218 SUMIMAFY orn wie Key Terms or Definitions 2fi2 CoreyPete) 2/2_Life Insurance Agent Study Text CHAPTER 2 INSURANCE AGENCY AS A CAREER Croan This chapter covers the topic on insurance agency as a career. The prospects in an agency career, the role of an agent and the requirements of being a good agent will be discussed. ea eerie 1. Insurance Distribution Channels 2. Insurance Agency Profession 3. Recruitment, Training and Licensing of Agents 1. INSURANCE DISTRIBUTION CHANNELS ‘A. Who is an Agent? Agent and principal: An agent is a person employed to do any act for another or to represent another in dealing with a third person. The person for whom such act is done or who is represented is called the principal. Insurance agent: Insurance agent means an individual or a corporation appointed by an insurer for the purpose of soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance. It may be seen that the agent is an intermediary who comes between the insurer and the customer. Insurance agents may sell one or more types of insurance, such as life, non-life (property and casualty) and health insurance. Depending on the country’s regulations, agents may be licensed/ authorized to sell both life and non-life products (composite agents) or either only life or non-life products, 8, Tied Agent and Independent Agent: in some countries, the agents are called tied agent — insurance sales agents who work exclusively for one insurance company. They can only sell policies provided by the company that employs them. But there are also independent agents who sell the policies of several companies. They match insurance policies for their clients with the company that offers the best rate and coverage, C. Insurance Distribution Channels Until a few years ago, the agency channel was the only one that was in trend and popular. Today there could be a range of other channels. It would be useful to know about some of these channels and how they work.Chapter 2 Insurance Agency as a Career 2/3 1) Individual insurance Agent individual Insurance Agent means an individual appointed by an insurer for the purpose of soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance. 2) Corporate Agency It is a variant of the individual agency model, Here a corporate entity, which has its own set of customers, and tries to reach out and sell insurance products. Regulations customarily require that the entity needs to set up a separate unit with a Principal Officer and trained manpower which has undergone compulsory training from an institute recognized by the regulator. 3) Bancassurance The term ‘bancassurance’ refers to the collaboration between banks and insurers to distribute insurance products to the same customers or customer base. It has emerged as an important distribution channel globally and has risen in a relatively short time due to the benefits it offered over other channels in terms of operational cost and efficiencies. This was due to the wide consumer network that banks had access to. Bancassurance is today the main distributing channel for life insurance products in many of the European nations. There are two broad Bancassurance models: a) One is where a bank becomes a corporate agent of an insurer and taps its customer base to sell insurance products. In this case the employees of the bank take up the task of selling the products of the insurance company; b) A referral model, where the bank supports the insurance company with its data base, while the sale of insurance products is done by the insurance company. Bancsassurance has gained much momentum as a preferred channel of marketing in some countries and is @ strong alternative to the agency channel. 4) Direct Marketing This is where the company directly markets to customers through its own sales force which is. made up of emplayees of the company. They may get a regular salary and incentives, based on their sales performance. Direct marketing may involve various approaches, such as: a) Telemarketing (through call centres for instance); b)_ Mail marketing; ©), Internet and web-based marketing; and d) Work site marketing, Here the insurer directly communicates and solicits business with the prospective customer without going through an intermediary. The presence of so many alternative marketing channels has nodoubt, made the marketplace more competitive and challenging. Nevertheless, insurance agents who have acquired competence in selling and are able to build greater relationships with their customers have continued to thrive and ascend to great heights in their profession. Self-Test Question 1 Which of the below statements is incorrect?aOCLEy 2/4 Life Insurance Agent Study Text A. An individual insurance agent is a representative of the insurance company and is governed by the agent-principal relationship. y is to the insurance ‘An individual insurance agent's primary relationship and responsi buyer and not the insurance company. C. Insurance broker, who represents the insured, generally does not have any contractual agreement to exclusively serve any one insurance company. D. Insurance broker is expected to represent the customer's interest when choosing the right product and company that would best fit the customer's particular needs. 2. INSURANCE AGENCY PROFESSION A. Rewards of an Agency Career in Insurance ‘The nature of the selling business in insurance is quite different from others. Unlike other products, insurance is intangible. One has to often create a need in the prospect’s mind and motivate the latter to buy insurance. This involves a very high level of concept selling and thus insurance sales persons are generally among the most accomplished of sales professionals. Since they are remunerated through commissions, the limit of earning is set by whatever premium revenues the agent generates. Apart from the scope to earn high incomes, an insurance agent can also attain a tremendous amount of jab satisfaction and social respect if one’s job is done in an ethical and professional manner. The rewards and recognitions can be listed as: 1) Being recognized by the society as a knowledge worker and a professional. 2) Being able to provide solutions to some of the most critical problems of people around is matter of immense social value that Insurance agents enjoy. Social prestige comes from being instrumental in financially helping out people who are affected by a misfortune. 3) Being able to help people by advising them to take the right policy to cover their risks can be a matter of immense personal satisfaction for insurance agents. 4) Agents deal with multiple clients and keep learning during their interactions. Over 3 period of time they become fairly knowledgeable in many areas simply by dealing with multiple experts, They can thus have the potential to be great community builders. 5) Finally, the insurance agency is one of the few occupations where one can be an entrepreneur where it calls for little financial investment. One is master of oneself and has the freedom that comes from being one’s own employer. B, Unique Advantages of Insurance Agents Insurance agents have unique advantages of working as per thelr own career ambitions: 1) If an agent wishes to have a regular commission income, he will meet a fixed number of prospects or a fixed number of existing customers for renewal. 2) Ifhe wants to earn more commission, he will step up his efforts depending on his appetite for growth. He may even decide to be more active in some months and less active in other months based on his other priorities. ‘The work-life balance that one can achieve when one is working as per his own career ambitions, is @ plus point for insurance agents.Chapter 2 Insurance Agency as a Career 2/5 C. Requirements for Success in the Insurance Agency Profession Let us now review on what kind of qualities or traits would contribute to success in the career as an insurance agent or advisor. 1) Fire in the Belly Perhaps the most important requirement is what we call ‘fire in the belly’. itis difficult to sustain in the profession unless one has a massive hunger to excel and have significantly better financial standing in the process. Success has a price and one can pay that price only when there is sufficient fire within. 2) Positive Setf-image Unless one feels good inside, itis difficult to attract others to oneself. Many agents give up ‘the job due to rejection, the sense of uncertainty and the loss of self-esteem are just too much ‘to bear. 3) Ability to Relate with and Communicate with People To be a top producer, one would need to be at home with the persons who are one’s prospective customers, These may often be individuals with lots of money and egos, difficult to please and demanding in nature. The ability to relate and connect with people is a great gift. It calls for an ability to feel what other people feel and put oneself in the other's shoes. ‘The whole business is, after all, about reaching out to others, making friends and influencing people. A sales person succeeds only when he or she extends affection and care to as wide a Circle as possible. Almost everyone has to be a friend. At the same time, one has to learn to take it in stride when others do not reciprocate ~ when they say no. 4) What Makes a Good Salesman in 1964, an interesting study on “What makes a good salesman” was published in Harvard Business Review. The authors, David Mayer and Herbert M. Greenberg, after seven years of intensive field research, came up with an interesting insight. ‘[Link] salesman should have two basic qualities: empathy and ego drive, a) Empathy is the ability to feel as the other person does in order to be able to sell him ‘a product or service. A sales person needs to be more sensitive to what goes on in the customer's mind and adopt one’s approach and communicate accordingly. b) Ego drive refers to the sales person's intense drive and effort to make the sale, not merely for the money to be gained, but because it is @ personal need one simply has to fulfil In other words, great sales people typically have a massive hunger to excel and to improve their financial standing in the process. They also have an entrepreneurial spirit —the ability to see their work as an exciting adventure and look forward to @ job environment where security comes from the ability to achieve results. They also have the ability to relate and connect with people. They are comfortable in networking with others, making friends and influencing them. D. Ethics and Market Conduct Ethics is derived from the ancient Greek word ethos, which means customs or habits. In popular language, the term ‘Ethics’ is used to denote a set of principles for morally correct behaviour. An ethical person is one who has character, who lives by principles and demonstrates morally correct behaviour. It essentially means not just doing what one has 32/6 _Life Insurance Agent Study right to do, but to ensure that one does the right things. In the work place it implies acting with honesty and integrity in one’s all dealings with customers and all other associates. 1) Ethics at work 2) Some very basic ethical principles to be followed: j. Do good and avoid harm; ii. Be fair; ili, Keep your word; iv. Be true to yourself. b) Remember, every action of ours creates obligations to six constituencies: i, The prospect; ii, The company; iil, The profession; Iv. Allied professionals; v. Oneself and others related to us; and vi. Society and its laws. E. Mis-selling and its implications In recent years, the issue of mis-selling has acquired much significance and has been the subject of much outcry. This is in part due to the crisis of confidence arising in the industry with respect to problems of market conduct. Mis-selling may take various forms — like policies being sold without proper reference to the needs of the buyer or his/her risk appetite; benefits to be received being illustrated without spelling out what is the price/cost the customer actually has to pay; benefits of investment linked policies illustrated, but the customer not told that these benefits are not guaranteed but depends on investment performance of the insurer. Mis-selling has multiple impacts that are adverse to all participants. The companies and the industry as a whole get a bad name and this is reflected in loss of business and decline of growth. Agents and other sales persons, who have mis-sold, sooner or later lose all their credibility in the market as customers who have had bitter experiences with these individuals, badmouth about them to others. Finally, the general loss of confidence of customers can result in life insurance no longer being a product people want to buy. This can have serious soclal consequences because It also results in large sections of people who need the benefits of insurance being denied it. F. Code of Ethical Conduct Code of ethics and market conduct for agents: Let us look at the code of ethics and market conduct for agents prescribed by the Insurance Business Regulatory Board (IBRB), These are listed below. 1) Every insurance agent shall: a). Identify himself and the insurance company of whom he is an insurance agent;2) Chapter 2 Insurance Agency as a Career 2/7 b) ¢) a) h) Show the agency identity card to the prospect, and also disclose the agency appointment letter to the prospect on demand; Disseminate the requisite information in respect of insurance products offered for sale by his insurer and take into account the needs of the prospect while recommending 2 specific insurance plan; ‘Where the insurance agent represents more than one insurer offering the same line of products, dispassionately advice the policyholder on the products of all insurers whom he Is representing and the product best suited to the specific needs of the prospect; Disclose the scales of commission in respect of the insurance product offered for sale, if asked by the prospect; Indicate the premium to be charged by the insurer for the insurance product offered for sale; Explain to the prospect the nature of information required in the proposal form by the insurer, and also the importance of disclosure of material information in the purchase of an insurance contract; Bring to the notice of the insurer every fact about the prospect relevant to insurance underwriting, including any adverse habits or income inconsistency of the prospect, within the knowledge of the agent, in the form of a report (called “insurance agent’s confidential report”) along with every proposal submitted to the insurer, and any material fact that may adversely affect the underwriting decision of the insurer as regards acceptance of the proposal, by making all reasonable enquiries about the prospect; Render necessary assistance to the policyholders or claimants or beneficiaries in complying with the requirements for settlement of claims by the insurer. No insurance agent shall a) b) ¢) d) e) f) e) h) Solicit or procure insurance business without being licensed as an agent and appointed to act as such by the insurer; Share the commission allowed by IBRB with other persons; ‘Mis-sell any insurance product by providing wrong information on insurance benefits and policy terms and conditions deviating from what has been described in the policy; Demand any monies from the prospects or insured or claimants or beneficiaries in soliciting the insurance policy or assisting in expediting claim process; Induce the prospect to omit any material information in the proposal form; Induce the prospect to submit wrong information in the proposal form or documents submitted to the insurer for acceptance of the proposal; Behave ina discourteous manner with the prospect; Interfere with any proposal introduced by any other insurance agent; Force a policyholderto terminate the existing policy and to affect a new proposal from him within three years from the date of such termination.2/8. Life Insurance Agent Text G. Professionalism 1) Characteristics of Professionals if we look at some of the professionals we meet regularly like doctors, lawyers or chartered accountants, we would notice certain distinctive characteristics: a) Firstly, they have been qualified through an extensive process of education and possess a sound amount of knowledge that has been systematically acquired; b) Secondly, we would observe that they bring a high degree of technical skill to what they do. They adhere to certain accepted rules of practice which has been scientifically derived by the profession over long years of experience. Though doctors and surgeons may have various degrees of skill, they follow a certain tried and tested procedure which is objective; ) Thirdly they adhere to a high degree of ethical standards. In particular this means putting the customers’ interests above self-interest and also adherence to morally correct conduct and behavior; d) A fourth characteristic of professionalism is a commitment to lifelong learning and continuous professional development. Many professions typically have professional bodies or associations that have been set up to promote the interests of the profession, including supporting and enabling their members to continually improve their knowledge and enhance their skills. Self-Test Question 2 In 1964, Harvard Business Review published a study on “What makes a good salesman”. The authors came up with an interesting insight. They found that a good salesman should have two basic qualities. Which are those two qualities? A. Affection and zeal to succeed. B, Patience and pro-activeness. ¢. Empathy and ego drive D, Hunger for growth and self-confidence. 3. RECRUITMENT, TRAINING AND LICENSING OF AGENTS \BRB has promulgated the regulations with regard to agent recruitment, training and licensing. The regulations were designed with a view to bring in an element of professionalism into the insurance agency business. Let us consider some of these. A. Agent Regulations 1) Mandated Minimum Requirements of an Agent a) Individual Agents: In order to be licensed, an individual must: i. Bean Ordinary Resident of Myanmar; fi, Be at least 18 years of age; ili Pass Basic Education High School Exam (lower educational qualification standard may be considered if the applicant is particularly suitable as an agent); iv. Have not committed any violation of criminal law and be in good character;Chapter 2 Insurance Agency as a Career 249 v. Have passed within the last 12 months the qualifying examination stipulated by IBRB; vi. Have not committed an act for which a license may be denied under the law; and fed the application, appropriate fees, and any other information required b) Corporate Agents: In order to be licensed, a corporate agent must: Be a business entity incorporated under the Myanmar Companies Law, 2013, or other applicable laws of Myanmar; ji, Bea business entity actually running for business; lil, Have separate department headed by a Principal Officer to take charge of the business of insurance selling and/or soliciting; iv. Have at least three (3) staff who would be dealing with the business of insurance selling and/or soliciting. These staff must fulfill the requirements for individual agents as stated above; v. Have not committed an act for which a license may be denied under the aw; and vi, Have submitted the application, appropriate fees, and any other information required by IBRB. 2) Training Insurance agents must undergo required training in accordance with the syllabus and training period stipulated by IBRB. In addition to the initial training, continue professional development is also important for the insurance agents. Employers also are increasingly placing greater emphasis on continuing professional education as the variety of products sold by insurance agents increase. Changes in regulations, insurance products and other areas related to insurance can affect the way in which agents conduct business. 3) Examination ‘After completing the practical training required as above, the applicant needs to take the ‘examination, conducted by exemination body approved by IBRB. 4) Appointment of Insurance Agent by an Insurer a) An applicant seeking appointment as an insurance agent of an insurer shall submit an application to the Relevant Official of the insurer in a prescribed form devised by the insurer. b) On satisfactory verification by the Official, the applicant shall be granted appointment within a specified time provided all documents from the applicant are satisfactorily received and are in order. The Official shall allot an agency code number to the appointed agent which shall be prefixed by the abbreviation of the insurer's name. ¢c) The agency appointment/etter shall lay down all terms of appointment and conditions governing appointment and functioning of the applicant as insurance agent along with code of conduct. ery2/20 Life Insurance Agent Study Text B. Guidelines on Persistency for Individual Agents Persistency during a period has been defined as “proportion of policies remaining in force at ‘the end of the period out of the total policies in force at the beginning of the period.” In other words, persistency is the percentage of business retained without lapsing or without being surrendered. Low persistency means high lapsation and vice versa Persistency scores could be computed premium-wise as well as policy number-wise. It has been observed that the quality of sale does impact the persistency rate of the policies. If the ‘quality of sale has been high or good (which means that the solution offered is based on the need(s) of the client), the policyholder would not want to lapse or surrender the policy and eventually, its persistency would be higher and vice versa, C. Agency Function 1) The agency function consists of two distinctive tasks: a) Building a relation with the customer — which inspires trust and confidence; b) Providing expert financial advice to the customer — which enables the latter to meet his or her needs for insurance in the most appropriate manner. 2) Stages in the development of an agent: Let us see how these two functions evolve as an agent advances on a career path towards success and becomes a sales champion. An agent's development could indeed be envisaged as progressing through three stages: a) Asa Peddler This is the stage when an agent has circle of personal contacts where he tries to push one or two products and their benefits. He is largely ‘shaking hands’ and getting customers to buy what he has, Sometimes the agent is lucky - the prospect has been looking for 4 particular product or solution or sometimes insurance may be taken asa personal favour. b) Asa Respected Professional Advisor or Consultant in the Field of insurance ‘The second stage is set when the agent goes beyond mere ‘hand shake’ into ‘hand holding’. He no longer just tries to peddle off the products that he has but now is actively interested in the client’s needs — asks and seeks to understand the client's needs, displays knowledge of products and services and is skilled at offering advice that is unbiased and in the best interests of his or her client. This is also the stage when the agent begins to cultivate deeper relationships with a larger and larger circle of clients and begins to earn a stream of renewal commissions from the circle of clients that he has built. Productivity mounts as thé agent is now able to achieve a higher conversion rate (turning prospects into buyers). Blind groping Bives way to working to a pian— he is now engaged more and more in various kinds of personal and community service and other activities, building goodwill and acquiring a reputation for professionalism. He gets continual referrals and is the person to contact when peaple want to plan their life cycle investments ¢) As Social Entrepreneur The third stage is when the agent progresses to become a sort of social entrepreneur = providing insurance advice and other personal financial services. The enterprise2/12 Life Insurance Agent Study Text Anagentis one whois licensed/authorized to be a salesman for insurance, and appointed by insurance company. He/she is paid commissions for soliciting, procuring and continuance of the business. & Apart from individual agency, other insurance channels include: Corporate agency © Brokers © Bancassurance © Direct marketing. 4 Through an agency career, apart from the scope to earn high incomes, an insurance agent can also attain a tremendous amount of job satisfaction and social respect if one’s job is done in an ethical and professional manner. 4 Qualities that would contribute to success in the career as an insurance agent or advisor include: © Fire in the belly * Positive self-image © Ability to relate and communicate with people. + Agood salesman should have two basic qualities: empathy and ego drive. % Majorarea of unethical behaviour in the insurance sector: © Misrepresentation. 4 IBRB has laid down the regulations for recruitment, training and licensing of insurance agents. 4 The Agency Function consists of two distinctive tasks: '* Building a relation with the customer — which inspires trust and confidence ‘+ Providing expert financial advice to the customer ~ which enables the latter to mect his or her needs for insurance in the most appropriate manner. Corporate agency ‘© Bancassurance © Professionalism + PersistencyChapter 2 Insurance Agency as a Career 2/ua thrives on a 360-degree relationship with a large circle of customers, and may even help the clients to secure services of other enterprises/service providers with which one is networked. When you decide to take up a career in insurance agency, you must enter with a vision. You must go beyond asking how much you can make and begin to ask ‘how you can serve and make a difference to your customers’. If you set out with such purpose, success and satisfaction in the agency career will certainly be yours, Self-Test Question 3 Proportion of policies remaining in force at the end of the period out of the total policies in force at the beginning of the period is referred to as . ‘A. Persistency. B. Consistency. C. Uniformity. D. Reliability.Chapter 2 Insurance Agency as a Career 2/13 Answers to Self-Test Questions Self-Test 1 ‘The Correct Option is B. An individual insurance agent's primary relationship and responsibility is to the insurance company and not the insurance buyer. Self-Test 2 The Correct Option is C. ‘Two basic qualities salesman should have are Empathy and ego drive, Self-Test 3 The Correct Option is A, Proportion of policies remaining in force at the end of the period out of the total policies in force at the beginning of the period is referred to as Persistency. Self-Examination Questions Question 1 An insurance agent is typically a representative of. A, Customer B. Insurance Company C. Government D. IBRB Question 2 Direct marketing involves which of the below? A. Telemarketing B. Insurance agents ©. Bancassurance D. All of the above Question 3 Which is not an insurance distribution channel? A. Agency B. Bancassurance C. Multilevel Marketing. ‘D. Direct Marketing Question 4 Requirement for long term success in insurance agency profession do not include: A. Fire in the Belly B. Positive self-image ©. Ability to connect D. Getting business at any cost2/14 Life Insurance Agent Study Text L Question 5 ‘An agent is paid commissions for soliciting, procuring and continuance of the business by: A. Insuring Public 8. Insurer C. Insured D. Government Answers to Self-Examination Questions Answer 1 The correct option is B. ‘An insurance agent is typically a representative of insurance company. Answer 2 The correct option is A. Direct marketing involves telemarketing, mail marketing, internet and web based marketing and work site marketing Answer 3° Correct option is C Multilevel Marketing is not a distribution channel. Answer 4 Correct option is D Getting business at any cost is not ¢ requirement for long term success Answer 5 Correct option is B ‘An agent is paid commissions for soliciting, procuring and continuance of the business by the insurer.Chapter PRINCIPLES OF INSURANCE Introduction ... = 3/2 Learning Outcomes 3/2 1. Insurable Interest .cnermne 3/2 2. Utmost Good Faith wn. 3/4 3. Proximate Cause sen : 3/5 4, indemnity 2. st 3/7 5. Contribution... 3/8 6. Subrogation 3 F 3/8 SUMMALY werner 3/10 Key Terms or Definitions..... bes 3/10 Cre)3/2 _ life Insurance Agent Study Text CHAPTER 3 PRINCIPLES OF INSURANCE emer estou This Chapter aims to explain the various principles, which form the foundation of insurance. ta ee 1. Insurable Interest 2. Utmost Good Faith 3. Proximate Cause 4, Indemnity 5. Contribution 6. Subrogation 1, INSURABLE INTEREST The word ‘interest’ can have 2 number of meanings. In the insurance context, it means a financial relationship to something or someone. There are a number of features to be considered with ‘insurable interest’, as mentioned below. Definition Insurable interest is a person's legally recognized relationship to the subject matter of insurance that gives them the right to effect insurance on it. Since the relationship must be a legal one, a thief in possession of stolen goods does not have the right to insure them. A. Importance of insurable interest Insurable interest is very important. It forms the legal basis for deciding whether the insurance can be taken or not, An insurance agreement is void without insurable interest. For insurable interest to exist, the following criteria must be satisfied: 1) There must be some person, property, liability or legal right (e.g. the right to repayment bya debtor) capable of being insured; 2) That person, etc. must be the subject matter of the insurance (that is to say, claim payment is made contingent on a mishap to such person, etc.); 3) The proposer must have the legally recognized relationship to the subject matter of insurance, so that financial loss may result to him if the insured event happens. (However, insurable interest |s sometimes legally presumed without the need to show financial relationship. For example, any person is regarded as having an insurable interest in the life of their spouse.) Note: A financial relationship alone is not sufficient to give rise to insurable interest. For instance, 3 creditor is legally recognized to have insurable interest in the life of his debtor, but is not allowed to insure the debtor's property despite his financial relationship to it, unless the property has been mortgaged to him.Chapter 3 Principles of Insurance 38 B. Effect of insurable Interest (How It Arises) Insurable interest arises in a variety of circumstances, which may be considered under the following headings: 1) Insurance of the Person: everyone has an insurable interest in his own life, limbs, etc. One also has an insurable interest in the life of one's spouse. Further, one may insure the life of one’s child or ward (in guardianship) who is under 18 years of age, and a policy so effected will not become invalid upon the life insured turning 18. 2) Insurance of Property (physical things): the most obvious example arises in absolute ownership. Executors, administrators, trustees and mortgages, who have less than absolute ownership, may respectively insure the estate, the trust property and the mortgaged property. Bailees (i.e. persons taking possession of goods with the consent of the owners or their agents, but without their intention to transfer ownership) may insure ‘the goods bailed. 3) Insurance of Liability: everyone facing potential legal liability for their own acts or omissions may affect insurance to cover this risk (sometimes insurance is compulsory), such liability being termed ‘direct liability’ or ‘primary liability’. Insurance against vicarious liability is also possible, where, for example, employers insure against their liability to members of the public arising from negligence, etc. of their employees. 4), Insurance of Legai Rights: anyone legally in a position of potential loss due to infringement of rights or loss of future income has the right to insure against such a risk. Examples include landlords insuring against loss of rent following a fire. Note: Anyone (agent) who has authority from another (principal) to effect insurance on the principa’s behalf will have the same insurable interest to the same extent as the principal. For instance, @ property management company may have obtained authority from the individual owners of a building under its management to purchase fire insurance on the building. There is no question of a fire insurance effected under such authority being void for lack of insurable interest, even if itis the property management company (rather than the property owners) which is designated in the policy as the insured. C. Proof of insurable Interest 1) With life insurance, insurable interest is only needed at policy inception. At the time of ‘making the claim, itis not necessary to prove insurable interest. marine insurance, insurable interest is only needed at the time of occurrence of loss. 3) Insome cases, insurable interest is needed at the time of taking policy and also at the time of making the claim. The above marine insurance rule is probably applicable to other types of indemnity contracts as well. D. Assignment and Nomination ‘Assignment’ is a legal term that generally means a transfer of property. the person or policyholder who transfers the title on the assets or property is known as the ‘Assignor’ and the person to whom the title on the assets or property is transferred is known as ‘Assignee’. In insurance, Assignment is generally done to provide security against loan. ‘There are two types of assignment. Conditional Assignment and Absolute Assignment. Conditional Assignment: in this type of assignment, the rights, title and interest in the policy automatically revert back to the assignor on the occurrence of the specified conditions suchPeer) 3/4 _ Life Insurance Agent Study Text as: on the death of the assignee before the death of the assignor; the assignor survives the date of maturity of the policy; the loan is repaid. Absolute Assignment: in this type, the rights, title and interest of the assignor passes completely to the assignee. ‘Nomination’: is the right provided to the policyholder to appoint a certain person, who will receive the benefits of the palicy in case of the policyholder’s death during the policy term. Self-Test Question 1 Which of the below statements is incorrect with regard to proof of insurable interest? A. With life insurance, insurable interest is only needed at policy inception, B. With marine insurance, insurable interest is only needed at the time of occurrence of loss, C. Insome cases, insurable interest is needed at the time of taking policy and also at the time of making the claim. D. With marine insurance, insurable interest is needed at the time of taking the policy. 2. UTMOST GOOD FAITH A. Ordinary Good Faith ‘At common law, most types of contracts are subject to the principle of good faith, meaning that the parties have to behave with honesty and such information as they supply must be substantially true. However, it is not their responsibility to ensure that the other party obtains all vital information which may affect his decision to enter into the contract, or may affect the terms on which he would enter into the contract. For example, if only after you have boarded a double-decker and paid the fare do you find that no seats on it are vacant, you will have no grounds for complaint. In technical terms, you are not entitled, in such circumstances, to avoid your contract with the bus company for its failure to voluntarily disclose to you the fact that all the seats have been taken on the bus. B. Utmost Good Faith The concept of Utmost Good Faith “Uberrima Fides” is defined as involving “a positive duty to voluntarily disclose, accurately and fully, all facts material to the risk being proposed, whether requested or not”. Insurance is subject to @ more stringent common law principle of good faith, often called the principle of utmost good faith. It means that each party is under a duty to‘reveal all vital information (called material facts) to the other party, whether or not that other party asks for it. E.g. A proposer of fire insurance is obliged to reveal the relevant loss record to the insurer, ‘even where there is not a question on this on the application form. Insurance contracts are agreements made in the utmost good faith, which implies a standard of honesty greater than that usually required in most ordinary commercial contracts. The insurance policy is voidable if utmost qood faith is not observed by both parties.Chapter 3 Principles of Insurance 3/5 C. Material Fact 1) Material Fact: ‘Every circumstance which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will accept the risk’ is the material fact. 2) Facts that need not be disclosed: In the absence of enquiry, certain facts need not be disclosed: i) matters of common knowledge; li) facts already known, or deemed to be known, to the insurer; ii) facts which diminish the risk, D. Duty to Disclose Material Facts 1). Duty of Disclosure of the proposer/insured: a) In life insurance, the duty of disclosure ends with the completion of the contract, meaning that duty of disclosure ends as saon as the life insurance contract is signed. Any change in material fact after the contract is signed does not have to be disclosed. b) In nontlfe insurance, the contract will stipulate whether changes are required to be disclosed or not. In the case of nonlfe insurance at the time of renewal, duty of disclosure will arise again, 2) Duty of Disclosure of the Insurer: Technically, the insurer has the same duty. Policyholders are not aware of the benefits and obligations of the policy; insurance ‘companies have the duty to disclose these facts. Self-Test Question 2 In life insurance, the duty of disclosure ends: A. Assoon as the life insurance contract is signed. B. When the life insurance contract expires. C. atthe time of renewal of the policy. D. When insurer says disclosure is no longer needed. 3. PROXIMATE CAUSE ‘A. Meaning and Importance of the Principle The proximate cause of a loss is its effective or dominant cause. It is important to find out which of the causes involved in an accident is the proximate cause. A loss might be the combined effect of a number of causes. For the purposes of insurance claim, one dominant cause must be singled out in each case, because not every cause of loss will be covered. B. Types of Peril In search of the proximate cause of a loss, we often have to analyze how the causes involved have interacted with one another throughout the whole process leading to the loss. The conclusion of such an analysis depends very much on the identification of the perils (ie. the causes of the loss) and of their nature. All perils are classified into the following three categories: 1) Insured peril: \t is not common that a policy will cover all possible perils. Those which are covered are known as the ‘insured perils’ of that policy. Eg. fire, flood, earthquake etc. specifically mentioned in the policy as peril covered.3/6 Life insurance Agent Study Text Se a a BRR SE 2) Excluded peril: This is ¢ peril that would be removed from cover by an exclusion, E.¢. fire damage caused by war is irrecoverable under a fire policy because war is an excepted peril of the policy. 3) Uninsured peril: This is a peril that is neither insured nor excluded. A loss caused by an uninsured peril is irrecoverable unless it is an insured peril that has led to the happening of the uninsured peril. E.g. raining and theft are among the uninsured perils of the standard fire policy. . Application of the Principle The principle of proximate cause applies to all classes of insurance. We should note the following rules: 1) There must always be an insured peri! involved; otherwise the loss is definitely irrecoverable. 2) fasingle cause is present, the rules are straightforward: if the cause is an insured peril the loss is covered; ifit is an uninsured or excepted peril, itis not. 3) With more than one peril involved, the position is complex, and different rules of proximate cause are applicable, depending on whether the perils have happened as a chain of events or concurrently. The general rules are: 2) ifthe uninsured perils arising directly from insured perils, the loss is covered, e.g. water damage (uninsured peril) proximately caused by an accidental fire (insured peril) in the case of a fire policy; b) if the insured perils arising directly from uninsured perils, the loss from the insured peril is covered. E.g. fire (insured peril) damage proximately caused by a careless act of the insured himself or of a third party (uninsured peril) in the case of a fire policy. 4) Other Features of the Principle: a) Neither the first nor the last cause necessarily constitutes the proximate cause. b) More than one proximate cause may exist. For example, the dishonesty of an employee and the neglect on the part of his supervisor of a key to a company safe ‘may both constitute proximate causes of a theft loss from the safe. ©) The proximate cause need not happen on the insured premises. Suppose a fiat insured under a household policy is damaged by wateras a result of a fire happening upstairs. The damage is recoverable under the policy, although the insured flat has. never been on fire. 4) Where the proximate cause of a loss is found not to be an insured peril, it does not necessarily mean that the loss is irrecoverable under the policy. Self-Test Question 3 The principle of proximate cause applies to: A. Life insurance only. B. Allclasses of insurance. C. Nomife insurance only. D. Life insurance or non-life insurance depending on the policy wordiChapter 3 Principles of Insurance 3/7 4. INDEMNITY A. Definition Indemnity is compensation for damages or loss, and in the legal sense, it may also refer to an exemption from liability for damages. The concept of indemnity is based on @ contractual agreement made between two parties, in which one party agrees to pay for potential losses or damages caused by the other perty. In insurance context, indemnity means the insurance company compensates the insured only to the extent of loss. In other words, insurance should place the insured in the same financial position after the loss, as they enjayed before it. No more or no less. This principle ensures that insurance cannot be used to make profit. 8. Implications Indemnity cannot apply to all types of insurance. Some types of insurance deal with ‘losses’ that cannot be measured precisely in financial terms. Both Life Insurance ond Personal ‘Accident insurance are dealing with death of or injury to human beings, and there is no way that the loss of a life or part of a human body, can be measured precisely in money terms. Thus, indemnity cannot normally apply to these classes of business, However, medical expenses insurance, which is often included in personal accident and travel insurance policies, is indemnity insurance unless otherwise specified in the policies. Life and personal accident insurances involve benefit policies rather than policies of indemnity, Since indemnity cannot normally apply, the policy can only provide a benefit in the amount specified in the policy for death or for the type of injury concerned. . How Indemnity is Provided It is common for property insurance policies to specify that the insurer may settle a loss by any one of following four methods: 1) Cash payment: This is the most convenient method, at least to the insurer. 2), Repair: Payment to a repairer is the norm, for example, with motor partial loss claims, 3) Replacement: With new items, or articles that suffer little or no depreciation, giving the insured a replacement item may be a very suitable method, especially if the insurer can obtain @ discount from a supplier. 4), Reinstatement: This is a word that has a number of meanings in insurance. As a method ‘of providing an indemnity, it means the restoration of the insured property to the condition it was in immediately before its destruction or damage. Note: The term ‘reinstatement’ overlaps in meaning with ‘repair’ and with ‘replacement’. Self-Test Question 4 insurance context, indemnity means: A. The insurance company compensates the insured only to the extent of loss. B. Insurance should place the insured in the same financial position after the loss. CC. This pri D. All of the above. iple ensures that insurance cannot be used to make profit.3/8 _ Life Insurance Agent Study Text 5. CONTRIBUTION A. Principle of Contribution ‘This is corollary of the principle of indemnity. This principle ensures that if there is more than one insurance policy involve in a claim for a same subject matter of insurance, the insured cannot recover its loss from all the insurers to gain more than what he lost. The insured cannot make a profit. Under this principle, each insurer involves will pay its proportionate share of the loss. However, the principle of contribution does not apply to life insurance and personal accident policies since loss of life and human suffering cannot be fully assessed. B. Applicability Contribution will only apply if indemnity applies. Thus, if a person dies whilst insured by two or more separate life insurance policies, each has to pay in full, because the life insurances are not subject to indemnity. 6. SUBROGATION A. Definition Subrogation is the exercise, for one’s own benefit, of rights or remedies possessed by another against third parties. As a corollary (a consequence of an established principle) of indemnity, subrogation allows proceeds of claim against third party be passed to insurers, to the extent of their insurance payments, At common law, an insurer’s subrogation action must be conducted in the name of the insured. From this, it will easily be seen how subrogation seeks to protect the parent principle of indemnity, by ensuring that the insured does not get paid twice for the same oss. B. When It Arises ‘Subrogation rights arise in several manners as follows: 1) In tort: This usually arises where a third party negligently causes 2 loss indemnifiable by a policy. For example, a fire insurer, after paying 2 fire loss, discovers that the fire was caused by a negligent act of a neighbour of the insured. Itsues the neighbour in the name of the insured for damages recognized by the law of tort. 2) In contract: This arises where the insured (perhaps a landlord) has @ contractual right (perhaps under a tenancy agreement) against another person (perhaps a tenant) for an insured loss, After indemnifying the insured for the loss, the insurer may exercise such right against that other person in the name of the insured. 3) Under statute: if a person is injured at work, his employer, if any, will have to pay an employee compensation benefit to him in accordance with the provisions of the Employees’ Compensation Law. The law will then grant subrogation rights to the indemnifying employer against another person who is liable to the employee for the injury. In turn, the employer has to pass these rights to the insurer who has paid the employee compensation benefit for or on behalf of the employer.Chapter 3 Principles of Insurance 3/9 . Applicability As with contribution, subrogation can only apply if indemnity applies. Thus, if the life insured of a life policy is killed by the negligence of a motorist, the paying life insurer will not acquire ‘subrogation rights, as this payment is not an indemnity. Self-Test Question 5 Contribution and subrogation can apply: ‘A. Toall insurance claims that involve third-party neglegent act. B. Only ifindemnity applies. C. Tolife insurance policy. 1. Non of the above is correct.Peery 3/20. Life insurance Agent Study Text ——— ee le CSc) * Insurable interest: is a person's legally recognized relationship to the subject matter of insurance that gives them the right to effect insurance on it. It is very important as it forms the legal basis for deciding whether the insurance can be taken or not. + Assignment: is a legal term that generally means 2 transfer of property. + Nomination: is the right provided to the policyholder to appoint a certain person who will receive the benefits under the policy in case of his death during the policy term ‘ Utmost Good Faith “Uberrima Fides”: is defined as involving “a positive duty to voluntarily disclose, accurately and fully, all facts material to the risk being proposed, whether requested or not”. ‘Material Fact: ‘Every circumstance which would influence the judgment of 2 prudent insurer in fixing the premium, or determining whether he will accept the risk’ is the material fact. “Duty of Disclosure of the proposer/insured: In life insurance, the duty of disclosure ends with the completion of the contract, meaning that duty of disclosure ends as soon as the life insurance contract is signed. in non-life insurance, the contract will stipulate whether changes are required to be disclosed or not. In the case of non-life insurance at the time of renewal, duty of disclosure will arise again, ‘ Duty of Disclosure of the Insurer: Technically, the insurer has the same duty. As policyholders are not aware of the benefits and obligations of the policy, insurance companies have the duty to disclose these facts. * The proximate cause of a loss: is its effective or dominant cause. It is important to find out which of the causes involved in an accident is the proximate cause. A loss might be the combined effect of a number of causes. For the purposes of insurance claim, one dominant cause must be singled out in each case, because not every cause of loss will be covered, 4 Indemnity: js compensation for damages or loss. in insurance context, Indemnity means the insurance company compensates the insured only to the extent of loss. In other words, insurance should place the insured in the same financial position after the loss, 2s they enjoyed before it. oA sie Utmost Good Faith insurable interest Idemnity © Pe ° + * Assignor and Assignee Contribution SubrogationChapter 3 Principles of Insurance 3/11 Answers to Self-Test Questions Self-Test 1 The Correct Option is D. ‘With marine insurance, insurable interest is only needed at the time of occurrence of loss. Self-Test 2 The Correct Option is A. Intife insurance, the duty of disclosure ends as soon as the life insurance contract is signed. Self-Test 3 The Correct Option is B. The principle of proximate cause apolies to all classes of insurance. Self-Test 4 ‘The Cotrect Option is 0. In insurance context, indemnity means all stated in A, B and C. Self-Test S ‘The Correct Option is B. Contribution and subrogation can only apply if indemnity applies. Self-Examination Questions Question 1 Which of the below statement is incorrect? ‘A. insurable interest is a person's legally recognized relationship to the subject matter of insurance, B. Insurable interest gives a person the rightto effect insurance on It. C. A thief in possession of stolen goods also has the right to Insure them. D. An insurance agreement is void without insurable interest. Question 2 Under the principle of Utmost Good Faith “Uberrima Fides”: ‘A. Proposer or insured has the duty to reveal vital information (the material facts) publicly. B. Proposer or insured has the duty to reveal vital information (the material facts) to insurer when requested by insurer, ©. Each partyis under a duty to reveal all vital information (material facts) to the other party, whether or not that other party asks for it. D. The insurance policy is voidable if utmost good faith is observed by both parties. Question 3 ‘The proximate cause of a loss means: ‘A. Effective or dominant cause involves in an accident or occurrence. B. An occurrence which is nearest to the policyholder’s {insured’s) premises . Acause invelves in an accident but excluded in the policy.3/12 _Life Insurance Agent Study Text. D. Every cause leading to a of loss coverred by the policy. Question 4 With regard to principle of proximate cause which of the below statement is incorrect? A. There must always be an insured peril involved; otherwise the loss is definitely irrecoverable. 8. Ifa single couse is present, if the cause is an insured peril, the loss is covered; C. Ifa single cause is present, ifthe cause is an uninsured orexcepted peril, itis not coverred. D. If the uninsured perils arising directly from insured perils, the loss is not covered, e.g water damage (uninsured peril) proximately caused by an accidental fire (insured peril) in the case of a fire policy; Question 5 ifthe life assured of a life policy is killed by the negligence of a motorist: A, The paying life insurer will acquire the subrogation rights. B. The paying life insurer will not acquire the subrogation rights as this payment is not an indemnity. C. The paying life insurer and legal heirs of the deceased life assured will share the payment from negligent motorist. D, The negtigent motorist will pay the legal heirs of the deceased life assured and life insurer will not make any payment regardless of the policy conditions. Answers to Self-Examination Questions Answer 1 The correct option is C. A thief in possession of stolen goods does not have the right to insure because he owns them illegally. Answer 2 The correct option is C. Each party to an insurance contract is under a duty to reveal all vital information (material facts) to the other party, whether or not that other party asks for it. Answer 3 Correct option is A. ‘A proximate cause is an effective or dominant cause involves in an accident or occurrence. Answer 4 Correct option is D If the uninsured perils arising directly from insured perils, the loss is covered, e.g. water ‘damage (uninsured peril) proximately caused by an accidental fire (insured peril) in the case ofa fire policy. Answer 5 Correct option is B. The paying life insurer will not acquire the subrogation rights as this payment is not an indemnity.