THE INSURANCE MARKET

ANINDA NURUL SAVITRI (1306437725)AULIA AKBAR FARRAS

DHIANTI AFIFAH (1306388521)NADYA VERA MARGARETH (1306388622) SYARIFAH REIHANA FAKHRI (1306388635)

STELLA AMABEL (1306437712)

INSURANCE MARKET

• Marketplace is the place where goods and services are bought and sold. Where buyers and seller could freely conduct business transaction with one another.

• In this respect, insurance market is no different with any type of market. Insurance market operates whenever buyers and sellers happen to be

THE STRUCTURE OF INSURANCE MARKET

• BUYERS (POLICYHOLDER/INSURED)• INTERMEDIARIES• AGGREGATORS• INSURER• REINSURER

BUYERS

• PRIVATE INDIVIDUAL • PARTNERSHIP• COMPANIES• PUBLIC BODIES• ASSOCIATIONS AND CLUB

INSURERS

• a company wishing to transact insurance must be authorized by the Financial Services Authority (FSA)

• The FSA term for this is “insurance undertaking”

• Financial Services and Markets Act 2000 and with relevant European Union Directives

• Insurance companies are required to maintain defined level of solvency margins.

INSURER AS DEFINED BY OWNERSHIP

• Proprietary Companies• Mutual Companies• Mutual Indemnity Associations• Captive Insurance Companies

INSURERS AS DEFINED BY FUNCTION

• COMPOSITE COMPANIES

• SPECIALIST INSURANCES

LLOYD’S MARKET

What is Lloyd’s market?• Lloyd’s is an institution that provides facilities

for the placing of risks in its own market.• Lloyd’s is not a company, but a market where

the members join together as syndicates to insure risks.

SYNDICATES

What does syndicates mean in Lloyd’s market?• Syndicates are the groups of individuals or

corporate members who actually carry the risks of investment.

• Each Syndicate employs managing agent who manages the underwriting of one or more syndicates.

How Lloyd’s Market Work

ACCESSIBILLITY TO THE LLOYD’S MARKET

Before 2008, only Lloyd’s brokers can place business at Lloyd’s.

After the Legislative Reform Order 2008 came into place, no such rule is in effect anymore.

In addition to that, Lloyd’s has published guidance to the market on dealing with non-Lloyd’s brokers.

These changes allow Lloyd’s to develop its distribution strategy free of statutory provisions that do not apply to competitors.

LONDON MARKET

The London Insurance Market is a separate part of the UK insurance and reinsurance sector.

The main providers in this market are insurance and reinsurance companies, Lloyd’s syndicates, Lloyd’s service companies and protection and indemnity clubs.

It is the place where many sizeable or complex industrial risks from all over the world are placed.

CONTRACT CERTAINTY

London Market Principles (LMP) are specific procedures designed to ensure that all parties are fully aware of the coverage and terms of the policy, before taking a risk starts to be covered.

This term are more widely known as Contract Certainty.

Contract Certainty is achieved by the complete and final agreement of all terms between the insured and insurers before inception.

HOW LONDON MARKET WORK

INTERMEDIARIES

In legal terms, the customer is termed the principal, who hires an agent. To reach a contractual relationship between them, the help of intermediaries, or the third party is required.

Intermediary parties must adopt the status of an Appointed Representative(AR) or Introducer Appointed Representative(IAR) that has equivalent rules to those of the FSA.

APPOINTED REPRESENTATIVE

ARs are individuals or companies that are appointed by authorised parties under the terms of a contract.

An AR may act for more than one principal, provided that there is a suitable contract in place with each one.

INTRODUCER APPOINTED REPRESENTATIVE

An Introducer Appointed Representative is one whose scope of appointment by the authorised party is limited to effecting introductions and distributing what are termed ‘non-real time financial promotions’.

SERVICES PROVIDED BY INTERMEDIARIES

• Deciding the best market in which to place the risk;

• Negotiating terms and conditions

• Providing advice to the client

• Reviewing Client needs

• Risk Management Advice

• Assisting with the presentation of claims and recovering losses

F. Distribution Channels

Why Is Insurance Distribution Important?

• Marketing mix: the marketing process that involves decisions on product, price, promotion and place.

• The distribution of insurance is a very important component of the marketing mix because the choice of distribution channel will affect pricing and may even impact upon the shape of the product or its presentation.

Two Types Of Distribution Channels

1. Direct distribution channel• Employees of insurer sell the insurance

products• Direct mailing techniques

2. Indirect distribution channelIntermediaries paid by the insurer to promote products on the insurer’s behalfi.e.: agents, brokers, consultants or advisers.

Direct Marketing ChannelsAdvantages Disadvantages

For Insurers Reduced costs for insurersBecause no intermediaries are needed

Significant advertising and promoting costs

For Buyers Greater ease and speed for buyer to obtain insurance

There is only one company’s product available, unless several telephone calls are made

There is no independent advice available regarding suitability and no independent assistance in the event of a claim for buyers

Indirect Marketing ChannelsAdvantages Disadvantages

For Insurers The intermediary will earn commission, resulting in an incentive to sell the product on the insurer’s behalf, and the insurer benefits from any promotional activity

More cost needed for paying intermediaries

Independent intermediaries will provide advice to their client (the buyer) about a whole range of things (best premiums and best range of cover). This benefits the insurers that are being advised to clients.

For Buyers There is independent advice available

Less ease and speed to obtain insurance

Many choices of insurance companies

Insurance Distribution Channel in the UK

1. Direct– Direct marketing– Online distribution– Company sales staff– Home service agents

2. Indirect– Distribution agents– Distribution brokers– Consultants or advisers

Insurance Distribution Channel in Indonesia

1. Direct– Direct marketing– Online distribution

2. Indirect– Distribution agent– Distribution broker– Bancassurance distribution

Distribution Channel in the Indonesian Insurance Law (Law No. 40 year 2014)

• An insurance broker is recognized under the Indonesian Insurance Law (Law No. 40 year 2014)

• An insurance broker must be registered by the Financial Services Authority/OJK (art. 27)

• The payment of a premium by an insurance company may be paid directly to the reinsurer, or paid through a reinsurance broker firm. (art. 29 (2))

G. Aggregators

Aggregators

• An aggregator collects and analyses information from different data sources.

• It is the term used for information retrieval for goods and services on the internet -> web based extraction tools that facilitate gathering information from different sources, without the permission or knowledge of the data source.

How Do Aggregators Work?In the aspect of insurance,

market aggregators cooperate with

intermediaries and insurers to access their pricing for

different risks.

They provide a set of quotations from a

number of insurance providers for buyers in

their own website

The buyer then can approach the insurance company and purchase

their insurance at competitive rates.

Examplewww.comparethemarket.com

Aggregatorin the UK vs in Indonesia

• Aggregators are recognized in the UK, as there are many aggregator media in society.

• Aggregators are a newly recognized tool in Indonesia, with the increasing number of Indonesian aggregator media.

H. Reinsurance

Reinsurance

Like individuals, corporations and public bodies may feel the need to transfer risk, so do

insurers.Then, this is done by using the services of

reinsurers.Reinsurers are often limited liability companies.

Reinsurance is found in both the UK and Indonesia.

Purpose of Reinsurance

1. To smooth out the highs and lows of the claims experienceReinsurance helps by spreading the cost of very large losses over a period of time.

2. To provide improved customer serviceReinsurance enables insurers to accept much more than their own net capacity, especially with large risks.

3. To protect the portfolio of an insurance companyInsurers to protect the effects of very large losses arising from a single cause. i.e. weather related claims

4. To provide support for insurers entering new areas of businessSpecial agreements between insurers and reinsurers exist in situations when insurers decide to begin a new class of business to provide automatic facility and extra capacity

Reinsurance in the UK

• The UK has a long-established reinsurance market with Llyod’s market having renowned expertise in placing reinsurance business.

• Reinsurance is governed under the Financial Services and Markets Act 2000 (FSMA).

• There are two separate authorities responsible for regulating insurers and reinsurers:– The Prudential Regulation Authority (PRA): supervises prudential

issues;– The Financial Conduct Authority (FCA): supervises conduct.

• Permission of reinsurance companies are granted under Part 4A of FSMA where both the PRA and FCA are satisfied the applicants meet various minimum threshold conditions.

Reinsurance in Indonesian Insurance Law (Law No. 40 year 2014)

• Reinsurance is recognized as one of the insurance business. (art. 1 point 4 Insurance Law)

• Reinsurance Brokerage Business is a consulting service business and/or intermediary in the placement of reinsurance. (art. 1 point 14 Insurance Law)

• The business scope of reinsurance is the risk of another insurance company. (art. 2b)

• A reinsurance company can only organize a Reinsurance Business (art. 2 par. (3))

• The Ministry of Finance determines the general policy for the development of the use of insurance and reinsurance (art. 57 (2))

• The Financial Services Authority/OJK controls and manages reinsurance (art. 65)

Types of Reinsurer in the UK

• Specialist reinsurance companies• Lloyd’s syndicates• Insurance companies that also act as insurers

They provide reinsurance for:• Insurance companies• Lloyd’s syndicates• Other reinsurers

Process of Reinsurance

Insurer Reinsurer Reinsurer

Buys insurance

Reinsuring

Buys reinsurance

Retroceding

Professionals in Insurance

Underwriters

• Main Functions:• Assess the risk that people bring to the pool • Decide whether or not to accept the risk • Determine the terms conditions and scope of

cover to be offered • Calculate a suitable premium to cover

expected claims, provide a reserve, meet all expenses and provide a profit.

Claims Personnel

• Deal quickly and fairly with all claims submitted• Be able to distinguish between real and fraud

claims • Assess the cost of a claim so realistic value is

placed upon it priot to payment • Determine whether others, such as loss

adjusters, need to be involved • Be able to settle claims with the minimum of

wastage

Loss Adjusters• Loss adjuster is an expert in processing claims from start to finish.

Straightforward small claims are usually negoriated and settled by in house claims staff, but larger claims are handled by loss adjusters.

• They investigate circumstances surrounding a claim • Determine whether and to what extent the policy covers the loss • Facilitate any emergency measures, eg. For the protection of the

property• Negotiate amounts claimed • Negotiate specialist suppliers • Make reccomendation for settlement to insurer.• Their aim is to negotiate a settlement that is fair to both insurer and

insured

Loss Assessors

• Experts in dealing with insurance claims• Appointed by an insured to prepare and

negotiate claim on their behalf.• Their fees are paid by the insured but these

costs do not form part of the insure’s claim and cannot be recovered from the insurer

Surveyors and those providing forensic services

• Risk assessment. • Determine exact cause of loss or damage• Establish seat of fire and its origins • Determine whether there is fraud or

deliberate act• Determine whether any lack of maintenance

contributed to damage• Determine proximate cause

Actuaries

• Professionally qualified people who applies probability and statistics to problems of insurance, investment, financial and risk management and demography.

• Techniques applied by actuaries include the probability of loss and prediction of claim numbers and future values.

Risk Managers

• The systematic identification, analysis and economic elamination or control of risks that threaten the business

• Provides guidance on the best practice in these areas to management

• The transfer of appropriately identified risks by contract or insurance.

Compliance Officers

• Ensure that their firm abides by the rules and regulations set down by the FSA.

• Communicates the company’s policy to members of staff, including the organization of any associated training

• Complete returns regularly required by FSA for governance financial and complaints

• Reviewing business process to ensure they are appropriate and compliant

• Maintain the company’s compliance manual • Checking that all stages of business process are being

performed in accordance with the compliance manual.

Relation to Law no. 40 / 2014• CHAPTER XII • PROFESSIONAL SERVICE PROVIDER FOR INSURANCE COMPANIES • Article 55• (1) Professional services provider for the Insurance Company consists of: • a. actuarial consultants; • b. public accountant; • c. Assessor; and • d. Other professions are defined by the Financial Services Authority Regulations. • (2) To be able to provide services for the Insurance Company, provider of

professional services referred to in subsection (1) must be registered in the Financial Services Authority.

• (3) Further provisions on the requirements and procedures for registration of professional service providers referred to in paragraph (1) and (2) regulated in the Financial Services Authority

Market Organizations

There are 10 Market organizations

Association of British Insurers (ABI)

• The ABI represents the collective interests of the UK’s insurance industry. The Association speaks out on issues of common interest, helps to inform and participate in debates on public policy issues, and also acts as an advocate for high standards of customer service in the insurance industry.

International Underwriting Association of London (IUA)

• The IUA’s mission is “To promote and enhance the business environment for international insurance and reinsurance companies operating in or through London”.

British Insurance Brokers Association (BIBA)

• BIBA Mission Statement• To represent and protect the best interests of

our insurance broker and intermediary members.

London Market Regional Committee (LMRC)

• It aims to provide a strong voice on behalf of BIBA’s London market broker community to the Financial Services Authority, European regulators, the Government and other stakeholders.

London and International Insurance Brokers Association (LIIBA)

• LIIBA’s Mission is to ensure that London remains where the world wants to do business by continuing the transformation of market processes and maintaining the highest professional standards.

Institute of Insurance Brokers (IIB)

• The IIB was formed in 1987 as a professional association for over 1.000 insurance broking firms throughout the UK. It is a trade body and represents its members interests to Government, regulatory authorities, the EEA commission and other relevant bodies worldwide. It is a non profit distributing organization, limited by guarantee

Lloyd’s Market Association

• The purpose of the LMA is to identify and resolve issues which are of particular interest to the Lloyd's market. We work in partnership with the Corporation of Lloyd’s and other market-related associations to influence the course of future market initiatives.

Chartered Insurance Institute (CII)

• The CII works hard to maintain public confidence and trust in the financial services market.

Chartered Institute of loss Adjusters (CILA)

The role of the Chartered Institute of Loss Adjusters• The Institute plays a pivotal role in leading the profession in the UK

and overseas. With the backing of its members it ensures that the profession receives the high profile recognition it deserves.

• The Institute is self-regulating and totally committed to its core values of standard setting, examination and professional conduct.

• The Institute helps to shape the future of the profession.• Its Committees and Specialist Interest Groups address key issues

facing members and act as hubs disseminating information. It also has regular contact with National and European Government bodies and other insurance and business associations.

Faculty and Institute of Actuaries

• Actuaries provide commercial, financial and prudential advice on the management of assets and liabilities especially where long term management and planning are critical factors

Insurance Organizations in Indonesia

Insurance council of Indonesia (Dewan Asuransi Indonesia)

• DAI consists of all insurance companies, life insurance and reinsurance that has a business license in Indonesia.

• Although there is no law that such requires, it become an unwritten agreement that all companies must be members of DAI. DAI contained Losses Division, Life Division and Reinsurance Division.

• DAI duties as defined in Article 7 of the Articles of Association are:- Continuous education in order to establish an Insurance Human Resources quality.

- Carrying out research and development activities that benefit members and insurance business- Managing publications in the field of insurance in order to improve the quality of human resources of the Insurance and increase insurance awareness of society.- Coordinate cross-association and,- Other tasks deemed important and Necessary by the board based on the development of insurance business

Members of DAI• Asosiasi Asuransi Umum Indonesia (AAUI) such as PT. Allianz

Utama Indonesia, PT. AXA Indonesia• Asosiasi Asuransi Jiwa Indonesia (AAJI) such as PT. Prudential

Life Assurance, PT. Commonwealth Life• Asosiasi Asuransi Jaminan Sosial Indonesia (AAJSI) such as PT.

Jasa Raharja, PT Asabri• Asosiasi Penilai Kerugian Asuransi Indonesia (APKAI) such as PT

Adjusterindo Pratama, PT. General Adjuster Indonesia• Asosiasi Perusahaan Pialang Asuransi & Reasuransi Indonesia

(APPARINDO) such as PT. Asia Finance Risk, PT. Adi Pratama Asia• Asosiasi Asuransi Syariah Indonesia (AASI) such as PT. Asuransi

Central Asia, PT. Asuransi Sinar mas

Extraordinary Member

• Indonesia Insurance Senior Executive Association (ISEA)

• Asosiasi Ahli Manajemen Asuransi Indonesia (AAMAI)

• Perhimpunan Ahli Manajemen Kesehatan Indonesia (PAMJAKI)

• Asosiasi Broker Asuransi Indonesia (ABAI) consists of all Brokerage firm companies that have a business license in Indonesia.

• Asosiasi Perusahaan Adjuster Indonesia (APAI) consists of all Loss Adjuster companies that have a business license in Indonesia.

• Asosiasi Ahli Manajemen. Asuransi Indonesia (AAMAI) Consists of professional (individual) who hold or holds a professional in the field of insurance. AAMAI establishment is to comply with the legislation with respect to the requirements of experts must be employed by all insurance companies , in headquarters and branch offices