COURSE:
PRINCIPLES OF INSURANCE
Lecturer: Le Quy Duong, PhD
Email: duonglq@neu.edu.vn
Mobile: 0966973642
Part 2.
THE PRIVATE INSURANCE INDUSTRY
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Content
Types of Insurers and Marketing systems
Insurance Company Operations
Insurance Markets
TYPES OF INSURANCE
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Social Insurance
Concept
Micro-insurance
Private
Insurance
Private insurance: includes life insurance, health
insurance and general insurance
Maximize profits
 Based on the insurance needs
 Devices by insurance enterprises

 Characteristics of private insurance:
 Financial service (Financial intermediary)
 Protects risks (finances for insured losses)
 Bases on the principle of the large number
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 Environment of private insurance:
 Depends on the development of the economy
 Depends on the regulation environment
 Depends on insurance needs
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 Marketing systems
 Agents:
an agent is someone who legally represents the
insurance company and has the authority to act on the
insurance company’s behalf
 Brokers: a broker is someone who legally represents the insured
even though he or she receives a commission from the insurer
 Others
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Insurance agents and brokerage enterprises
When insurance agents breach the insurance
agency contracts, causing damage to the
legitimate rights and interests of the insured, the
insurance enterprises shall still have to bear the
responsibility for the insurance contracts
concluded by the insurance agents. Then the
insurance agents shall have to refund to the
insurance enterprises the amounts the latter have
paid to the insured.
Operations of insurance company
Rate making
Investment
Underwriting
Production
Claim settlement
Reinsurance
Rate making
Rate making refers to the pricing of insurance and
the calculation of insurance premiums.
 Total premiums charged must be adequate for
paying all claims and expenses during the policy
period
 Rates and premiums are determined by an actuary,
using the company’s past loss experience and
industry statistics
Underwriting
Underwriting refers to the process of selecting,
classifying, and pricing applicants for insurance. There
are three important principles:
 The underwriter must select prospective insureds
according to the company’s underwriting standards
 Attain an underwriting profit
 Underwriting should maintain equity among the
policyholders
Production
Production refers to the sales and marketing activities
of insurers
 Agents are often referred to as producers
 Life insurers have sales departments
 Property and liability insurers have marketing
departments
Claim settlement
The claim process begins with a notice of loss
Next, the claim is investigated
A claims adjustor determines if a covered loss has occurred
and the amount of the loss
The adjustor may require a proof of loss before the claim is
paid
The adjustor decides if the claim should be paid or
denied
Policy provisions address how disputes may be resolved
Reinsurance
Reinsurance is an arrangement by which the primary
insurer that initially writes the insurance transfers to
another insurer part or all of the potential losses
associated with such insurance
 The primary insurer is the ceding company
 The insurer that accepts the insurance from the ceding
company is the reinsurer
 The retention limit is the amount of insurance retained by
the ceding company
 The amount of insurance ceded to the reinsurer is known as
a cession
Investment
 Because premiums are paid in advance, they can be invested
until needed to pay claims and expenses
 Investment income is extremely important in reducing the
premiums and offsetting unfavorable underwriting
experience
 Life insurance contracts are long-term; thus, life insurance
companies tend to invest in long-term assets
 In contrast to life insurance, none-life insurance contracts
are short-term in nature, non-life insurance companies tend
to invest in short-term assets.
INSURANCE MARKET
 Types of insurance market
 Life insurance market
 Non-life insurance market
 Reinsurance market
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INSURANCE MARKET
Stakeholders in insurance market
Regulators
Insurers
Insured
Insurance
market
Insurance
association
Intermediate
Reinsurers
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INSURANCE MARKET
 Regulators:
Ministry of Finance (Insurance supervisory authority)
 State Securities Commission
 Central Bank

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INSURANCE MARKET
 Insurance Association Organization
Non-profit organization
 Supports for the strengthen of the markets

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INSURANCE MARKET
 Insurers

Form of insurers:
Financial group
 Life insurer
 Non-life insurer
 Bancassurer
 Reinsurer
 Public insurer
 Mutual organizations
 Captive insurer
 Self-insurance

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INSURANCE MARKET
 Insurers

Form of insurers:
Financial group: offers financial services tailored to the needs of individuals and
businesses: insurance, savings, retirement, loans and etc.
 Life insurer: sell insurance products related to life and death events
 Non-life insurer: sell insurance products protecting property or providing protection
against claims resulting from injuries and damage to people and/or property.
 Bancassurer: a bank that sells insurance products

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INSURANCE MARKET
 Insurers

Form of insurers:
Reinsurer: provide insurance to insurance companies
 Public insurer: an insurance company run and owned by government
 Mutual organizations: an insurance company that is owned by policyholders
 Captive insurer: a wholly-owned subsidiary insurer that provides risk-mitigation
services for its parent company or a group of related companies
 Self-insurance: loss retention

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