CHAPTER 1:

THE LIFE
ASSURANCE
MARKET

PREPARED BY:
JOEAIZA JUHARI
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HISTORY BACKGROUND
OF THE LIFE INSURANCE
INDUSTRY
 The life insurance concept was conceived as early as
2,800 BC when it was being applied by merchant to
protect themselves against the loss of their property.

 The first recorded life insurance contract in England was

dated 1583 and it was on the life of William Gybbon.

 The earliest mortality table was compiled in 1693 by

Halley.

 The level premium system was conceptualized and it

began to be applied to the transaction of life insurance
business in 1755.
THE LIFE INSURANCE MARKET
 As the business grew, the government started to
step in by regulating the operation of the business
and provided measures in safeguard the interest of
the policyholders
 The Friendly Societies and Industrial or Home Service
Insurance then came into being mainly to protect the
needs of the lower class of society especially the
working people.
 The 1950’s witnessed a spiraling growth in the
insurance industry.
 The first rumblings of the insurance industry in
Malaysia did not take place until the 18th
century.
 The insurance infancy then was mainly based on the
British System because of the advent of
colonialism.
 In relation to this, the government stepped in
to remedy the situation by introducing the
Insurance Act 1963 and appoint a Director
General of Insurance to regulates and
supervised the insurance industry.
 Since then, the government also encourage
the insurance industry to project a Malaysian
identity.
 New Economic Policy, lead to the
restructuring of foreign based companies to
meet the local equity participation.
 At present, ………………….life insurance
companies operates in Malaysia.
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THE LIFE INSURANCE MARKET

 WHAT IS LIFE
8

INSURANCE?
 It is a business of providing payment of sums
of money at dates in the future.

 It depends on the satisfaction of specified

condition contingent on the death survivor or state
of health of the person insured.

 It is a policy insuring payment of money on death or

on the happening of any contingency dependent on
the termination or continuance of human life.

 Insurance is a matter of savings. There is no other

savings that will get as fast as insurance policies.

THE LIFE INSURANCE MARKET

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MARKET
SEGMENTATION
1. The children’s market
2. Young adult market
3. Family and mature age market
4. The business insurance market
5. Professional insurance market
6. The retirement market
7. The savings market
a) Those which provides compensation for death
or disability
b) Those which provide and investment medium

THE LIFE INSURANCE MARKET

FACTORS INFLUENCING 10

LIFE INSURANCE
BUSINESS
 PHYSICAL HAZARD
 Factor contribute to the loss – age, physical,
hobbies, history etc

 OCCUPATIONAL HAZARD
 Pilot, crane operator etc

 MORAL HAZARD
o Good faith, relationship attitude etc

THE LIFE INSURANCE MARKET

 10 REASON WHY SAVING WITH LIFE
INSURANCE IS A BETTER IDEA?
1. The savings that provide large mature sum
2. The saving that secure your child’s educational needs
3. The saving that provides you with retirement income
4. The saving that creates and immediate fund or estates
5. The saving that comes with consistent rewards
6. The only saving that continues to grow no matter what
happens
7. The only saving that provides tax relief
8. The only saving that protected
9. The only saving where the benefit are tax exempted
10. The only saving that ensure your complete peace of
mind (morale)
LIFE INSURANCE BODIES
 Malaysian Insurance Institute (MII) 1964
 Life Insurance Association Malaysia (LIAM) 1974
 National Association of Malaysian Life Insurance
Agent (NAMLIA) 1976
 The Insurance Training Centre or Pusat Latihan
Industry (PLIM) 1977
 Actuarial Society Malaysia (ASM) 1966

These bodies are considered to have played a

significant role in the development and growth
of the life insurance industry in our country.
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THE LIFE INSURANCE MARKET

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THE LIFE INSURANCE MARKET

REGULATION AND
SUPERVISION
 Some of the statutory laws which affect life insurance
business are:-
 INSURANCE ACT 1996
 MALAYSIAN INCOME TAX ACT 1967
 CIVIL LAW ACT 1972
 BANKRUPTCY ACT 1967
 UNCLAIMED MONEY ACT 1965
 ESTATE DUTY ENACTMENT 1941
 REAL PROPERTY GAINS TAX ACT 1976
LIFE INSURANCE MARKET
 Sellers
1. Three classes of insurance business:-
a) Life Insurance
b) General Business
c) Composite
2. Insurance Intermediaries:-
a) Agents
b) Brokers
 Buyers
1. Individuals
2. Parents
3. Business Person
 INSURANCE INTERMEDIARIES
AGENTS

a. Is a person who represents an insurance company in the
performance of any functions covered by the terms of the agency
agreements.
b. May be authorized to solicit insurance business, collect
premiums, issue cover notes and etc.
c. May be able to issue policies and settle claims on behalf on
insurers
d. Remunerated through payment on commission
 BROKERS
a. Individual or firm whose full time occupation is the placing
insurance with insurance companies.
b. An agent who normally acts on an insured.
c. To advice his clients on the most suitable covers at the most
economic cost.
d. Expected to have in depth knowledge of insurance and therefore
are subject to professional liability
e. Helps in presenting claims and getting them settled.
f. Remunerated through payment of commission by the insurer.
g. Commission rates paid to brokers are higher than that paid to
insurance agents.
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MAIN SECTION OF THE LIFE

ASSURANCE MARKET
A. Proprietary companies
B. Mutual companies
C. Companies/Societies transacting
Home Service Business
D. Insurance Intermediaries for sales
E. Organization of the insurance
companies
THE LIFE INSURANCE MARKET
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A. PROPRIETARY COMPANIES

 Owned by shareholders or stockholders

 Limited liability company with a subscribed
or guaranteed capital
 Any profits made belong to the
shareholders or stockholders
 They run a composite business – transact
all classes of insurance (life and general)

THE LIFE INSURANCE MARKET

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B. MUTUAL (COOPERATIVE)
COMPANY
 Owned by policyholders – do not have
stockholders
 Normally operates in Great Britain
 Incorporated under the Companies Act
 Some of them were constituted under a
Deed of Settlement
 The whole profits after proper provision for
reserves, to the with profits policies by way
of bonuses
THE LIFE INSURANCE MARKET
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C. COMPANIES/ SOCIETIES
TRANSACTING HOME SERVICE
BUSINESS

 Door to door business (collected)

 Company usually employ a collector
(authorized person) to collect the premium
within an authorized authority
 Premium is paid at shorter intervals of less
than 2 months

THE LIFE INSURANCE MARKET

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D. INSURANCE INTERMEDIARIES FOR

SALES
 Sales organization and set up vary from company
to company
 The designation given to field staff also vary
 Starting from agents who are remunerated by
way of commission, there could be difference
levels of field supervisors designated as
Inspectors / Agency supervisors/Senior
inspectors/Divisional sales officer
 Intermediaries work on salary or salary cum
overrider or overrider
 Branch offices are set up to supervise the sales
efforts (headed by branch manager)
THE LIFE INSURANCE MARKET
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E. ORGANIZATION OF INSURANCE
COMPANIES

 Divided into head office and branches

 No standard organization pattern
 Network based operation
 No uniformity of practice
 Method of organization:
i. Zonal/regional : miniature H/O under the
control of a zonal manager.
ii. Branches : branch manager is responsible for
his branch and sub-offices.

THE LIFE INSURANCE MARKET

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MARKETING OPERATION
A. The principal marketing functions
B. Marketing research
C. Advertising
a) Definition and objectives
b) Buyers, sellers and intermediaries
c) Advantages of advertising
d) Advertising media

THE LIFE INSURANCE MARKET

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A. PRINCIPAL OF MARKETING
FUNCTION
 Defined as a major specialized activity or group of
activity which is performed in the marketing goods and
services.
 Modern marketing concept:
I. Marketing research and information
Research and analysis relating to the external environment,
consumers, products, sales and advertising
I. Product planning
Matching the products’ specifications, pricing, performance
and servicing to customer needs through improvement
and development
I. Sales and distribution
Selection of distribution channels
I. Advertising and promotion
Advertise via media (press, television, radio, cinema,
outdoor poster) and direct promotion to customer (point
THE LIFE INSURANCE MARKET
of purchase display material, trade promotion
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B. MARKETING RESEARCH

THE LIFE INSURANCE MARKET

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C. ADVERTISING
 Definition
 Any paid form of non-personal presentation and
promotion of ideas, goods or services by an
identified sponsor

 Purpose
 To promote sales
 To promote high awareness amongst the public
of a product or service
 To enable the advertiser to meets the demand of
consumer at a price which is acceptable to them
and liable to him

THE LIFE INSURANCE MARKET

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 Objectives
 To assist salesman
 To create reputation for services reliability
 To increase market share
 To reach sections of market at home and
overseas

 Advantages
a) All adviser (insurer and brokers) the larger the
sale, the lower the unit cost
b) To build a brand image
c) Give all information than the purchaser’s needs
d) Create goodwill among customer and improve
staff morale
THE LIFE INSURANCE MARKET
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 Advertising media
 National newspaper
 Regional newspaper
 Magazines
 Commercial television
 Commercial radio
 Sales promotion

THE LIFE INSURANCE MARKET

 LIFE INSURANCE 30

SELLING
1. FINANCIAL SATISFACTION
a) Unlimited income

2. JOB SATISFACTION
a) Independence
i. Not bind to any one particular place like.
ii. Does not await for the business to come.
iii. Not subject to stringent control from his supervisor.
b) Help to individual and society
i. Creates security in the event of the bread winner being
faced with laid up and unable to work.
ii. Some form of social work.
iii. Influencing and persuading the prospect to take up a life
policy is caring for the would be widows and orphans of
society.
c) Achievement and appreciation
i. When a large business solicited during the years gets
him a proper appreciation; his capabilities and abilities
are recognized and acknowledged.

d) Personal development
i. Learning news things, meeting new people,
encountering new problem.
ii. Take place continuously.

e) No age constraint
i. Anybody of any age can apply to join the life insurance
sales job provided he is healthy and reached certain
desirable educational level.
ii. Even stops working, still receives commission on
business transacted earlier.
 LIFE INSURANCE SALESMANSHIP
(K.A.S.H)
 Four element required of the life insurance agent in a
selling career are:-
1. KNOWLEDGE
a) Trained and provide with acknowledge of the products,
the importance of life insurance and technique and skills
of closing the business.
b) Able to calculate the premium under each policy plan.
c) Able to handle proposal forms and any other documents
or sales aid.

2. ATTITUDE
a) Determined and develop an enthusiastic attitude for the
business.
b) Positive-minded
c) Professional
3. SKILL
a) Prospecting – Look for new potential clients
b) Approaching people, conducting interviews,
handling objections and in closing the business.
c) Planning to ensure the a goal to be achieved.

4. HABIT
a) Develop sound working habits, remit all premium
and send receipt without delay.
b) Regular prospecting, regularly making
approaches talks and conducting interviews in a
motivating sequence which includes an attempt
to close at every interviews.
c) Record keeping on a regular basis.
BENEFIT OF INSURANCE
 FACTORS INFLUENCING LIFE
INSURANCE PRODUCT CHANGES AND
INNOVATION

i. Economic Concerns
 High inflation and interest rates
 Returns form life insurance investments
 Uncertain economic conditions

ii. Consumerism
 Satisfaction
 Fair deal
 Increase in consumer awareness
 Influence from the media
iii. Changing Demographic and Social Customs
 Changes in the age proportion
 New product or plan for different groups
 The role of women is changing

iv. Technology
 Information and communication technology
continue to make astounding progress
 Application of new technology to improve product
and services
 Enough capabilities to handle large volume of
business transaction

v. Competition
 There is a growing numbers of product offered
 New life offices being formed
 Competition from investment companies
 NEEDS FOR LIFE
INSURANCE

1. Death needs
2. Retirement needs
3. Disablement needs
4. Women’s needs
5. Children’s needs
6. Business needs
 TYPES OF INSURANCE
POLICIES
 Whole life insurance
 Endowment insurance
 Term assurance
 Disability insurance
 Group insurance
 Annuity plan
 WHOLE LIFE INSURANCE

 Contract that provide for the payment of

sum insured on DEATH
 Combine insurance protection with
savings element
 Premiums are paid throughout your life
 The money including bonuses will be
paid upon death or suffer total
permanent disability
 PURE ENDOWMENT
 Provide for the payment of the sum
insured and bonuses on the survival to the
end of the specified policy term
 Provided that the insured still living
 No payment in respect of insured death
unless by increasing the premium
 Focus on saving and investment
 TERM LIFE INSURANCE
 Contract that pays the sum insure upon death of the
insured
 Earliest and simplest type of life insurance
 Offer protection for a limited premium only (short
term)
 Focus in the event of death
 No elements of savings
 Renewable
 Three types:-
 Convertible Term Insurance
 Decreasing Term Insurance
 Increasing Term Insurance
 ENDOWMENT
 Contract that provide payment of sum
insured on death or prior the attainment of
a specific age
 Policy may be issued to mature when the
insured reach certain age or full payment
being made on the person earlier death
 Focus on both living and death
 Considered as the best policy
 ANNUITY PLAN
 Provide an income to the annuitant
during life or specified period
 Series of payment paid to you until you
pass away
 Includes:-
 Immediate annuity
 Deferred annuity
 DISABILITY INSURANCE
 Contracts that provide regular benefit
upon the occurrence of a disability, which
can arise from either accidents or illness
 Aimed at protecting against the more
serious type of injury (Example: One that
disable for a long period of time)
 Initial waiting period apply before the
loss is paid under policy
 Commonly issue with a non cancellation
clause
 Insurer has no right to cancel the policy
 GROUP INSURANCE

 Contracts provides coverage to groups

of people under one master policy
 Generally to provide cover on the lives
of employees, members of union
 Provide death and disablement cover
 Premium rates are fixed each year
SUPER ANNUATION SCHEME
 Special group scheme design to provide
benefit on or after retirement of an
employed person
 It may be contributory or non contributory
scheme
 Set up as funds and administered by
appointed trustees
 Fund is sometimes entrusted to life office
for investment purposes under a method
called deposit management or
administration type scheme
 TWISTING
 Definition – To discontinue a policy/change to other
policy in the same company/other company.

 Disadvantages of twisting are:-

a) Every time a policyholder moves his basic insurance
from one life office to another, he must commence
again the qualifying period before this insurance will
become eligible for a surrender value and come under
the non-forfeiture system
b) The amount of annual premium under an existing
policy may be lower than that called for by a new
policy having the same or similar benefits. Any
replacement of the same time of policy will normally be
at higher premium
c) Since the initial cost of life insurance policies are
charged against the cash value in the earlier
policy years, the replacement of an old policy by a
new one results in the policyholder sustaining the
burden of these costs twice

d) The suicide clause and incontestable clause (if

any) begin anew in a new policy being denied by
the company, which would have been paid under
the policy that was replaced