Faculty of commerce Insurance English section

Insurance is defined as
a) Is pooling of fortuitous losses by transfer of such risks to insurers.
b) Is a method of handling risk
c) Is a social device in which a group of individuals (called insured) transfer risk to another party
(called insurer) in order to combine loss expense and provides for payment of losses from funds
contributed (premiums) by all members who transferred risk.
d) Is a promise of compensation for specific potential future losses
e) All of the above
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2 fundamental services are provided by insurance are ………………. And ……………………………
1. Insurance helps individuals and organizations to prevent financial harm.
2. The reduction of uncertainty and worry about our inability to predict individual future outcomes
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Insurance work through the following :
a)Risk transfer Loss sharing Discrimination
b)Risk transfer Loss sharing
c)Risk transfer Discrimination
d) None of the above
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Explain law of large number??
If we have a coin and flip it:-
P1 = 1/2 = 0.5
P2 = 1/2 * 1/2 = 1/4
P3 = 1/2 * 1/2 * 1/2 = 1/8
P4 = 1/2 * 1/2 * 1/2 *1/2= 1/16
General equation : Pn = (1/2)n
Note: According to the law of large number, if we increase the number of transactions, the probability
will decrease.
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Requirements of an insurable risk

There must be a large number of exposure units

The loss must be accidental and unintentional

The loss must be determinable and measurable

The loss should not be catastrophic

The chance of loss must be calculable

The premium must be economically feasible

Losses that occurred would be fortuitous (matter of chance)

Losses would be definite ( in time, place, and amount)

Probability distribution of losses would be determinable

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Faculty of commerce Insurance English section
What are Requirements of insurance contracts?
1. There must be an offer and acceptance:-
- Offer and acceptance are basic elements to the creation of a contract. An agreement is reached
when one party makes an offer and the other party accepts it
2. There must be a consideration:-
- Consideration is the price each party demands for agreeing to carry out his part of the contract.
3. Its purpose must be legal:-
- If the contract does not have legal purpose, the contract would be contrary to public policy.
4. The contract must be in legal form :-
- Insurance contracts must be written and must conform to the requirements of the companies which
they are sold.
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List Basic parts of an insurance contract? And explain 2 of them
1. Declarations
2. Definitions
3. Insuring agreement
4. Exclusions
5. Conditions
6. Miscellaneous provisions

1. Declaration
The declarations section is the first part of an insurance contract.
Declarations are statements that provide information about property or activity to be insured.
Information contained in the declaration section is used for underwriting & railing purpose
The declaration section can be found on the first page of the policy.
The declarations page contains information concerning the identification of the insurer, name of the
insured, amount of insurance, amount of the premium, and other related information.

2. Definitions
Insurance contracts contain a page or section of definitions. Key words or phrases have quotation
marks ("…") around them or are in boldface type. For example, the insurer is frequently referred to
as "we" "our", or "us". The insured is referred to as "you" and "your".
The purpose of the various definitions is to define the meaning of keywords that coverage under the
policy

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Faculty of commerce Insurance English section
What are Characteristics of insurance contracts?
1. Insurance contracts are based on utmost good faith
The insureds are held to the highest standards of truth and honesty in providing information to the
underwriter because of utmost good faith of insurance contracts
2. Contracts of adhesion ‫اذعان‬
The insured does not specify the terms of coverage but accept the terms as stipulated
3. Contracts of indemnity
Pay no more and no less than the actual loss suffered by the insured
4. Personal contracts
You are insured against financial loss to you or to your property
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How insurance company operates??
The most important insurance company operations consist of :-
1. Rate making
2. Claim settlement
3. Underwriting
4. Re-insurance
5. Production
6. Investment
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Find the share of each company if T.P.A. L.E. 15,000,000 & premium rate 0.765%
Company A 33%, Company B 27%, Company C 19%, Company D remaining balance
Answer
Premium = 0.765% * 15,000,000 = 114,750

% of Company D = 100% - (33%+27%+19%) = 21%

Company T.P.A. Premium

A (15,000,000*33%) 4,950,000 37,867.5

B (15,000,000*27%) 4,050,000 30,982.5

C (15,000,000*19%) 2,850,000 21,802.5

D (15,000,000*21%) 3,150,000 24,097.5

Total 15,000,000 114,750

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Faculty of commerce Insurance English section
Is Insurance Haram or Halal? Discuss different point of views and which do you agree with?
Most kinds of insurance should be considered permissible (halal).
Insurance is defined as a social device in which a group of individuals (called insured) transfer risk to another
party (called insurer) in order to combine loss expense and provides for payment of losses from funds
contributed (premiums) by all members who transferred risk.
1st point of view (People who agree that insurance is halal)
1. Islam did not limit people to certain types of contracts known in the early days of Islam, but left the door
open to the creation of new types of contracts, which need time, when the necessary conditions in the
contractual system in Islam, such as those required in compromise and place and reason.
2. The insurance system is a process related to the employment of people in their livelihood. Islam has
initiated the necessary transactions for living and for all time, place its own types of transactions and the
insurance process in our time achieve many economic interests.
3. Islam is built on the left to say: "God wants you easy and does not want you hardship" (verse 183 of Surat
al-Baqarah) and also saying "and strive in God the right of his jihad is Ajtakm and what made you in the
religion of embarrassment" Verse 75 of Surat Al-Hajj).
4. Insurance of all kinds applies to the idea of solidarity and cooperation and Islam urges cooperation on the
ground for saying: "And cooperate on righteousness and piety and do not cooperate in sin and aggression."
(‫واجهه النظر الوالى )المؤيدين ان التأمين حللا‬
‫ لكنه ترك الباب مفتوححا أمام خلق أنواع جديدة من‬، ‫ لم يحصر السإلم الفراد إلى أنواع معينة من العقود المعروافة في اليام الوالى للسإلم‬. ١
.‫ مثل تلك مطلوب في حل واسإط واالمكان واالسبب‬، ‫ عندما تكون الشرواط اللزامة في النظام التعاقدي في السإلم‬، ‫ التي تحتاج إلى واقت‬، ‫العقود‬
، ‫ لقد شرع السإلم في المعاملت الضروارية للعيش والجميع الواقات‬.‫ نظام التأمين هو عملية ذات صلة بتوظيف الشخاص في معيشتهم‬.2
.‫واواضع أنواعه الخاصة من المعاملت واعملية التأمين في عصرنا تحقيق العديد من المصالح القتصادية‬
‫ح‬
‫ من سإورة البقرة( واأيضا قوله "وانسعى في سإبيل ا حق‬183 ‫ "إن ا يريدك سإهلح وال يريد منك المشقة" )الية‬:‫ بني السإلم على اليسار ليقولا‬.3
."‫ من سإورة الحج‬75 ‫جهاده هو أجتقم واما جعل أنت في دين الحرج "الية‬
‫ "واالتعاوان على البر واالتقوى واعدم‬:‫ وايحث السإلم التعاوان على الرض لقوله‬، ‫ ينطبق التأمين بجميع أنواعه على فكرة التضامن واالتعاوان‬.4
."‫التعاوان في الخطيئة واالعدواان‬
nd
2 point of view (People who agree that insurance is haram)
1. Insurance from forbidden haram due to its natural ways of earning profit known as selling and buying or
what is acquired in industry and agriculture.
2. The system of cooperation is not cooperation on righteousness and piety because the rich believes in a
great deal of money, which gives the end of the disaster a greater amount than that of the needy poor who
believes in a small amount.
3. The insurance system is not required and it is possible that Islamic governments will replace it with
another system that is in line with the provisions of the Islamic Sharia.
4. The insurance is an act of misappropriation of people's wealth, in which there is an element of usury that
is not equal to the two variables in the contract of insurance between the parties. The element of gambling is
that the payment of compensation from the insured is dependent on the occurrence of the danger. The
believer does not guarantee loss unless the agreed reason is achieved. The money that the believer will pay,
and all this is forbidden in Islamic law.(‫واجهه النظر الثانيه )المؤيدين ان التأمين حرام‬
.‫ التأمين من الحرام البين بسبب منافاته لطرق الكسب الطبيعية المعروافة كالبيع وا الشراء أوا ما يكتسب بالصناعة وا الزراعة‬1.
‫ نظام التعاوان ليس من التعاوان على البر وا التقوى لن الغني فيه يؤمن بمبل كبير فيعطى ند الكارثة مبلغا أكبر عن ذلك الذي يحصل عليه‬.2
.‫الفقير المحتاج الذي يؤمن بمبلغ ضئيل‬
‫ نظام التامين ليس مما دعت إليه الضروارة وا من الممكن أن تعمل الحكومات السإلمية على إبداله بنظام آخر يوافق وا يتماشى مع نصوص‬.3
. ‫الشريعة السإلمية‬
‫ وا فيه عنصر المقامرة لن دفع‬، ‫وا فيه عنصر الربا لعدم تساواي البدلين في عقد التامين بين الطرفين‬، ‫ التامين أكل لموالا الناس بالباطل‬.4
‫فالمؤمن ل يضمن الخسارة إل إذا تحقق السبب المتفق عليه وا فيه عنصر المراهنة لجهالة المالا‬، ‫العوض من المؤمن معلق على واقوع الخطر‬
.‫ وا كل هذا محرم في الشريعة السإلمية‬، ‫الذي سإيدفعه المؤمن‬

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Faculty of commerce Insurance English section

Explain in brief Rate making and claim settlement. Also, what are steps of claim
settlement?

1. Rate making
Rate making refers to the pricing of insurance. The pricing of insurance differs from the pricing of
other products because the insurance company does not know in advance what its actual costs are
going to be.
The premium charge for the insurance may be inadequate for paring all claims and expenses during
the policy period.
It is only after the period of protection has expired that the company can determine its actual losses
and expenses.
Insurance company does not insure all properties at the same price because each property has its own
conditions.
Insured losses + loss adjustment expense
Pure premium =
Number of exposure units
Pure
Gross rate = premium
1- expense rate

2. Claim settlement
Claim settlement is the process of paying insured after losses occur.
The person who adjust a claim is known as claim adjustor and the major types of adjustors are :
Agents – company adjustor – Public adjustor

Steps in settlement of a claim

There are several important steps in settling a claim:
Notice of loss must be given
The claim is investigated
A proof of loss may be required
A decision is made concerning payment
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Insurance versus Gambling
Gambling Insurance
- The risk of loss is created by the transaction - The risk exists without the transaction
itself
- Gambling creates a new speculative risk - Insurance is a technique for handling an existing risk
If you pay $300 to an insurer for a fire insurance, the
For example : If you bet $300 on horse race, a risk of a fire is transformed to the insurer by contract
new speculative risk is created - Insurance is always socially productive, since neither
the insurer nor the insured is placed in a position
- Gambling is socially up productive, since the
where the gain of the winner comes at the expense of
gain of the winner comes at the expense of the
the loser.
loser
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Faculty of commerce Insurance English section

Explain in brief underwriting, also define underwriter and list sources of underwriting??

Underwriting
Underwriting refers to the process of selecting and classifying applicants for insurance
The underwriter is the person who decides to accept or reject an application
The fundamental objective of underwriting is to produce a profitable book of business.

Sources of Underwriting information

The most important sources of underwriting information are:-
Application
Agent's report
Inspection report
Physical inspection
Physical examination and attending physician's report
Medical Information Bureau (MIB)
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Define production – An agent ??
The term Production refers to the sales and marketing activities of insurers. Agents who sell insurance are
frequently referred to as producers.
An agent is someone who represents the insurer and has the authority to act on the insurer's behalf.
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Define reinsurance and what are its reasons??Also what are its types?
Reinsurance is the shifting of part or all of the insurance originally written by one insurer to another
insurer.
The insurer that initially writes the business is called the ceding company. The insurer that accepts part or
all of the insurance from the ceding company is called the reinsurer.

Reasons for reinsurance

Increase underwriting capacity
Stabilize profits
Reduce the unearned premium reserve
Provide protection against a catastrophic loss

Types of reinsurance
There are 2 principal forms of reinsurance (1) facultative and (2) treaty

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