Definition of insurance:
“Insurance is a system that aims to reduce the risk facing the individual or the establishment and in which the insured obtains an undertaking in his favor or in the interest of others from the other party, which is the insurer, under which he pays a certain amount when the risk is realized in return for paying the insurance premium, provided that the insurer collects similar risks and forecasts the value Financial obligations arising from its realization. “
Types of establishments :
The establishments differ according to the main objective for which they are established, and according to which the activity they carry out is determined. Most economists have agreed to divide the establishments according to their activity into the following types:
– Agricultural establishments.
– Industrial establishments
– Commercial establishments (intermediate establishments).
Types of insurance companies:
Insurance establishments, which directly provide insurance services, are divided into two main groups:
First: Non-commercial insurance group:
This group includes three sub-groups of non-commercial establishments, which are:
1. Cooperative Insurance Authorities:
This group consists of the following establishments:
A. Mutual insurance organizations with pure shares.
B. Mutual insurance bodies with premiums offered.
C. Insurance Contract Exchange Bodies.
Dr.. Sibling associations.
2. Social Security Bodies.
3. Governmental Insurance Bodies.
Second: Commercial Insurance Group:
This group includes the following establishments:
1. Individual establishments. 2. Establishments for individuals belonging to groups. 3. Joint-stock insurance companies. The following is an explanation of these facilities:
First: Non-commercial insurance group:
This group includes three types of establishments, each of which aims to perform the insurance service, either for the benefit of a group of individuals or confirmation of the spirit of cooperation among them , which is the cooperative insurance group , or for the benefit of the weak class in society to protect them from the dangers they are exposed to, and at the same time they are not Able to bear it or confront it by regular means, which is the social insurance group , or for various economic and social considerations that require the intervention of states to play the role of the insurer when insurers fail or do not accept to cover some of the important risks from the national point of view, which is the government insurance group .
The following are the most important aspects related to these three groups:
First Group: Cooperative Insurance Group:
Mutual insurance (cooperative) bodies are bodies owned by policyholders where there are no shareholders or capital owners. These bodies are considered one of the oldest types of insurance organizations that were established with the intention of providing insurance services to their members at a cost price, whereby a certain group of individuals exposed to similar risks agree to share the loss that occurs to any of them as soon as it occurs.
The most important characteristic of reciprocal insurance organizations is the following:
1. Wearing their capital, but what governs the performance of the insurance service is the agreement between the members of the body
2. The goal of these reciprocal (cooperative) bodies is cooperation between the individuals belonging to them to confront the risks that exist for any of them. .
3. The integration of the personality of the insured and the trustee.
4. It manages these member bodies themselves, and they may seek the help of some experts in insurance in case of need for these experts and their unavailability among its members.
5. The administrative organization of these bodies is simple and uncomplicated.
There are four different mutual insurances. These bodies differ among themselves with regard to the method of formation and management of the organization and the method of paying their shares in the loss. The four bodies are:
1. Mutual insurance bodies with pure shares.
2. Mutual insurance bodies with advance premiums.
3. Bodies for the exchange of insurance contracts.
4. Sibling Associations.
The following are the most important aspects of each body separately:
1. Mutual insurance bodies with pure shares:
These bodies are formed with the joining of a certain group of individuals exposed to a similar risk with the intention of participating in bearing the financial loss that affects any of them as a result of the realization of the risk agreed upon between them. For example, a group of merchants agree to participate in bearing the financial loss arising from fire accidents or theft that the commercial shops owned by these members are exposed to. From this standpoint, these members wait until the covered accident is achieved in accordance with this agreement, then the realized financial loss is estimated and distributed to the group of participating members and each member will claim his share in the compensation due.
The commission is managed by the knowledge of its members, as the members elect the so-called board of trustees, which is responsible for managing the body. A technical general secretary is appointed, usually an expert in administration and insurance work, whose task is to estimate losses, determine members ’shares, and claim each member’s share in order to pay the compensation due. Usually, the Commission issues an insurance policy for each member, but the premiums or the method of paying the premiums are not mentioned in it, but rather the member’s pledge to bear a certain share in the loss that occurs to the members due to the realization of the risks agreed upon among the members of the Commission.
And when the insured accident occurs to one of the members, the member must inform this in writing to the general secretary, who in turn forms a committee of technicians to estimate the loss and after approval of it, the loss and expenses are allocated to the registered members of the body at the time of the accident. Then it is sent in the request for the share of each member so that the due compensation is paid as soon as possible. In the event that the member withdraws from the authority, he must pay his share in the losses that have been realized up to the date of his withdrawal.
The method of requesting their shares after the accident and the loss occurred resulted in impeding the work of the authority, whether from the point of paying the regular expenses or from the point of paying the shares to their beneficiaries, and from here these bodies began to demand their members for an initial share presented with the intention of spending on the project so that the work of the authority would not be disrupted due to the absence of A financial balance.
2. Mutual insurance bodies with advance premiums:
Mutual insurance organizations with presented premiums do not differ in their nature, method of management, or purpose of their formation from pure insurance organizations. Where it includes a specific group of individuals exposed to a similar risk in order to participate in bearing the losses that occur to any of them due to the realization of the common risk exposed to it. The only difference between the bodies with the advance premiums and the others with pure shares is that the first charges contributions or installments submitted by its members at the beginning of the agreement to join the membership of the body. These provided installments help the Authority’s management in paying the losses and expenses first when they are due without waiting until the losses are estimated and allocated, and each member is required to pay his share and at the end of each fiscal year the calculations that took place during the year are settled so that the members demand (or refund to them) the differences of these Settlement. If the compensations paid exceed the collected premiums, members are required to pay the differences in these compensations. But if the collected premiums exceed the compensation paid, either the difference is refunded in cash to the members or used to pay the next year’s installments for those who wish to continue in the membership of the Commission. Although insurance companies with advanced premiums solved many of the financial problems that faced the organizations with pure shares, collecting the premiums in advance has placed an additional administrative and technical burden on the administration, represented in the necessity to preserve these funds collected in advance and invest them in the aspects that achieve the maximum Possible return while ensuring the preservation of the assets of these funds.
3. Insurance contract exchange bodies: It
is one of the cooperative insurance bodies, where a group of individuals exposed to similar risks joins the members exchange insurance services among themselves. Each member insures the members of the group from a certain risk in exchange for seeking insurance for himself from the rest of the members. Each member of them subscribes to a set of conditions known as the underwriters agreement, and each member is then called the subscriber. The agreement sets out the insurance conditions, the relationship between the subscribing members, and other data that may not be contained in the insurance policy itself. The agreement also contains a condition called the insurer’s liability clause, which stipulates that the insurer means each subscriber from among the group members separately, and the entire organization is not considered a single believer. Accordingly, each subscriber has multiple responsibilities due to the multiplicity of the subscribing members, and this responsibility is always limited to the limits stipulated in the subscribers’ agreement.
The Insurance Contracts Exchange Commission is managed by a legal agent who is recommended to be appointed by the elected advisory committee from the rest of the members. This legal agent may be an individual, an office or a company. It is required that the legal agent has sufficient experience in the administration and insurance business. It performs premium collection, compensation payments, reinsurance and investment operations. In addition to his role in searching for new members to strengthen the financial position of the authority. The legal agent is rewarded with a certain percentage of the collected premiums as well as a percentage of the investment income. However, he is not legally responsible for the members ’compensation as he is not considered the insurer. In the Insurance Contracts Exchange Commission, a special account is opened for each member that makes him a creditor with the premiums collected from it and the interest on its investment and owes his share in the realized losses and administrative expenses. At the end of the year, a settlement is made whereby each member is given the balance of his credit account and he is required to pay his debit balance.
4. Brothers Associations:
They are social organizations formed mainly to provide social services to a specific group of individuals, united by a certain craft or a religious or social bond. Then these associations see the possibility of providing insurance services to their members next to their basic work and the nature of life and health insurance prevails over the insurance business provided by the brotherhood associations.
Of course, these associations do not seek to profit from their business, but only serve their members
The second group: social insurance authorities:
Social insurance is a compulsory insurance system declared by the state or others or both, and it is based on the principle of double social solidarity between participants in this system in order to achieve a specific social goal, which is to protect the weak class in society from the dangers they are exposed to and their inability to protect themselves. The law determines the value of contributions and benefits, the beneficiaries, and the body that carries out the insurance.
Third Group: Governmental Insurance Authorities:
Governments usually intervene in the insurance market when there is an urgent need. Among the most important of these reasons are the following:
1. The absence of other insurance facilities.
2. The inability of the existing insurance establishments, or their failure to cover some important risks to the national economy.
3- Competing with commercial insurance companies to ensure the proper performance of the insurance service and to achieve a balance of interest between the insured, insured and society. In this type of facility, the primary objective is not profit, but rather to provide the best possible insurance coverage for risks.
From the administrative point of view, these establishments are managed almost in the same way as those of commercial insurance companies. The only difference is in the technical aspect, especially with regard to coverage rates.
Second: Commercial Insurance Group:
Commercial insurance establishments are distinguished by special features that distinguish them from other establishments, the most important of which are:
1. They depend on a large capital that is consistent with the volume of activity.
2. It aims to develop cooperation between the owners of risk units in addition to making a profit.
3. In these facilities, there is a separation between the personality of the insured and the personality of the trustee.
4. The management of these establishments is based on professional administrative competencies, and these establishments depend on specialized expertise in performing the insurance process, such as advertising and marketing experts, risk examination and acceptance experts, investment experts, actuaries and loss adjustment experts.
5- The administrative organization differs from one establishment to another according to its size, types of insurance it deals in and the circumstances surrounding it.
The following are the most important commercial establishments and their various aspects:
Individual commercial establishments:
These facilities represent the first image of the insurer’s separation from the trustee, and these establishments appeared at the beginning of the professionalization of the insurance profession, but after a not long period, the role played by these establishments diminished and their owners subsequently shifted from playing the insurer’s role to acting as a mediator between the insured and the insured The reasons for this shift are as follows: One of the most important features of insurance establishments is the necessity for them to have financial confidence and personal confidence. However, the individual is usually limited in his ability to accumulate a huge capital consistent with what is required for insurance operations. Thus, in most cases he will not enjoy the required financial confidence and in some cases where he may have The individual is a large capital, the second element of trust, which is personal confidence, will not be available due to human nature, which characterizes a person with a limited age, which does not gain him the required personal confidence elements.
2. As a result of the great economic and social development, the size of the risks dealt with has become so great that individual insurance establishments cannot provide adequate protection for the risk units that face these risks.
3. These establishments cannot employ the necessary insurance expertise to carry out the burdens of the insurance process to the required degree of competence, due to their limited capacity, whether financially or in terms of the size of their activity.
4. The failure of these establishments to depend on the competent regulator, and this is due to the fact that the owner of the facility is the one who manages it himself in most cases, and he may not rely on a professional as a result of the lack of financial capabilities he has to obtain this specialized expertise
. Steadfastness in competition before joint-stock insurance companies, which enjoy most of the elements of success that are not available in individual establishments.
Enterprises of individuals belonging to groups:
These facilities emerged as a result of the factors that led to the decline of individual insurance establishments, because if the individual does not enjoy the advantages that enable him to provide insurance service, then a group of individuals joins a group of their own that is more capable than the individual to provide insurance protection. The system of this group depends on the contribution of each member in covering part of the risk presented to the group, each according to his ability.
The system in this way enables individuals belonging to this group to exercise the insured’s private role and in a way that makes them gain financial and personal confidence, in addition to their ability to deal with risks of large size, with the possibility of using specialized experts in the performance of the insurance service.
The Lloyd’s of London is one of the most important groups that give a clear idea of this type of facility. In what follows, we will present the most important aspects of this group.
Lloyd’s of London:
This group was formed in 1688 to carry out marine insurance business for profit, and allows each member to underwrite a portion of the risk commensurate with his financial capabilities.
The representative body of the group does not carry out insurance business, but rather the members carry out these activities depending on the insurance broker of this group, and the mission of the organization is limited to assisting members in obtaining data, as well as supervising and controlling the members’ work, and examining and accepting new members in the body while monitoring their behavior. And their insurance capacity, the Authority also assigns agents to it in the seaports, who provide it with important data and intent reports necessary for members, as well as study insurance documents and work to solve their problems.
And the insurances that are given through this body are marine insurance, and abnormal insurances such as insurance on the artists’ fingers and the vocal cords of the singers.
Lloyd’s insurance procedures:
Insurance is contracted with the Lloyds Commission by following the following procedures:
1. The insurance applicant searches for a Lloyd’s broker and asks him to cover the risk, as risks can only be accepted in the Lloyd’s Commission through one of the Lloyd’s brokers registered with the Authority.
2. The broker prepares the risk card in the name of the insured indicating all the specifications of the risk to be insured and its value. If the risk is marine, for example, the type of shipment, the name of the vessel carrying it, the date of its establishment, and the name of the port of shipment and arrival.
3. The broker passes the card to the members or underwriting agents. Each of them accepts the part he wants to cover, and the broker continues to offer the card until the risk is fully covered.
4. The broker calculates the installment necessary to cover the risk in addition to the amount of the commission owed to him, as well as the distribution of subscribers’ shares in this risk according to their share in the coverage.
5. In the event that the insured risk is realized, the owner of the goods shall notify the broker after ascertaining the reality of the loss and the responsibility of the insurers thereof, by notifying the subscribers of the value of what belongs to each of them in this loss, and he shall collect it and deliver it to the beneficiary.
Joint Stock Insurance Companies:
A joint stock company is an enterprise owned by shareholders who share a profit or loss. Shareholders choose the members of the board of directors who are responsible for the success of the company’s financial policies. The joint-stock companies are the predominant characteristic of insurance business in general and general insurance business (property and liability) in particular in most parts of the world. The conditions that must be met to form joint-stock companies – for the purpose of carrying out insurance business – do not differ much from the conditions that must be met in companies that do commercial or industrial business.
However, the legislator has stipulated some additional conditions in the joint-stock insurance companies in order to emphasize the financial confidence that these companies must have in order to ensure the preservation of the funds of policyholders. As it is known for commercial and industrial companies that the money that falls at the disposal of the project management is the money of the founders (shareholders), while in joint-stock insurance companies, the majority of the funds available for investment are from the rights of the policyholders and not the money of the project owners. The world must observe the following:
1. The minimum capital: The
legislator in most countries of the world stipulates the necessity of the availability of a minimum capital for joint-stock insurance companies, whether it is the paid-up capital or the capital subscribed to, but the legislator differs from one country to another in determining the minimum capital Where the legislator is affected when determining this limit by the following factors:
The first factor: the type of insurance practiced by the company. The second factor: the size of the economic and financial market. 2. The minimum number of founding members: The legislator stipulates the necessity of the availability of a minimum number of founding members of the company. This number varies from three to twenty members according to the following factors: The first factor: the degree of economic progress. It is noticed in countries that are economically lagging that this number is small due to scarcity Specialists in the production process in this country. And to encourage the legislature to establish these companies. As for the economically developed countries, as a result of the availability of many insurance experts there, the number is relatively large. The second factor: the type of insurance
The legislator intervenes by reducing or increasing the minimum number of founding members of the joint-stock insurance company to encourage a certain type of insurance or to reduce another type. It is also natural that the minimum number of founders in a joint-stock insurance company that practices one type of insurance differs from the minimum number in another company that practices all types of insurance.
In addition to the previous factors some other factors, such as the country’s economic system and the size of its economic and financial market.
3. Type of insurance practicing:
The legislator may intervene with regard to determining the type of insurance practiced by insurance companies to ensure that there is no conflict between the different types of insurance, and in this regard the legislator may specify the joint-stock insurance company to deal in one type of insurance, and it may allow it to combine two or more types with certain conditions such as stipulating the necessity Separation between the funds invested in each type separately, and the legislator may allow combining different types of insurance without any conditions.
The legislature in most countries determines the types of insurance, and in this case, it may specify certain types.
4. Steps for licensing an insurance company: The
legislator intervenes in the text on certain steps that must be followed in order for the joint-stock company to be licensed to start its business. These steps are:
a. Observing the minimum number of founding members of the joint-stock insurance company as determined by the legislator.
B. Presenting the company’s basic law, taking into account that it does not violate any text that the legislator has stated.
C. Subscription to the capital, taking into account its minimum, according to the type of insurance to be undertaken.
Dr.. Depositing part of the capital, and its percentage shall be stipulated in the law, in the place specified by the legislator, whether in a bank or in the government treasury.
E. After completing the previous procedures, the founding members may apply for a license to the competent authority specified by the law, and when the license is made, the company is registered with the joint-stock insurance companies.
Characteristics of insurance companies:
The nature of the insurance operation as a future service differs from other types of activity. This difference results from the presence of some features that distinguish the establishments that perform this service from other establishments.
Among the most important characteristics that distinguish insurance establishments are the following:
First: Enjoying financial and personal confidence:
The nature of the activity practiced by the insurer makes him need this confidence in its financial and personal form. The insured, when contracting with the insurer, pays installments for a period that may extend to many years and may be paid once, and the insurer undertakes in exchange for these installments to pay the insurance amount or the amount of compensation in case the danger is realized. The insured against him, and in this case there is no guarantor for the trustee’s funds with the insurer except the financial confidence in the insurance facility so that he does not demand any other guarantee. Therefore, the governments of different countries intervene to provide this financial confidence by stipulating a minimum amount of capital and reserves to approve the establishment of an insurance company.
This minimum varies according to the type of insurance practiced and the size of the economic market and is related to financial confidence and personal confidence, and that is the result of the extended period of many documents for long periods of time, which necessitates the need for the insured to remain in the practice of his activity during this period, and this is not always available to a normal person, but is usually available For the legal person, and this reason is considered one of the most important reasons that led to the rapid failure of individual projects that played the role of the insured at the beginning of insurance operations. Although a natural person may have financial confidence, the other side, which is personal confidence, is not available to him as a result of the limited age of the person, and this is why the shift in the role that the natural person plays from carrying out the job of the insurer to mediating between the insurer and the public of trustees, in the form of an agent Producer or middleman.
Second: These establishments perform a future service that the need for it is not generated until the causes of it are realized:
This characteristic is considered one of the most important characteristics of insurance establishments, as it greatly affects the various aspects of the insurance facility, whether in terms of marketing this service, pricing it, or from an administrative point of view, as well as when measuring the efficiency of the performance of the insurance facility. As a result of the fact that the final product of this facility is intangible, and this therefore needs advertising, advertising and promotion means consistent with the nature of this service, in addition to the necessity of the availability of a certain type of vendors of this service with special expertise, and the pricing of this service is not subject to the rules of ordinary commodity pricing. And the laws of supply and demand, but this pricing depends on indicators that reflect the conditions of the society that deals with this facility in the past and in the present, and extrapolation of the future, as this is done by exploiting the statistics of risk units in the past in order to rely on them after adjusting them to suit the new circumstances and future conditions.
Third: Insurance facilities are one of the most important savings vehicles in different societies:
This results from the fact that insurance establishments as a result of their dealings with a future service, this leads to the formation of accumulated premiums year after year, and this necessarily entails that the insurance companies invest the technical reserves formed from the proceeds of these premiums in various aspects of investment in order to achieve the principles of investment, the most important of which is preserving These reserves, in addition to an adequate return from them, taking into account the preservation of the purchasing power of the money for these investments, all while not neglecting the existence of a part of them that has liquid cash to meet the claims when they are due.
Thus, insurance facilities are considered one of the most important savings vehicles that all countries of the world rely on to overcome economic crises and stimulate investments in areas that each country needs, in a manner that does not conflict with protecting the rights of policyholders.
Fourth: Insurance establishments rely on distinguished expertise:
The insurance process is distinguished from the stage of announcing its nature and marketing until reaching the stage of settling losses and performing claims, by relying on specialized technical expertise and distinct from other experiences in commercial and industrial projects or other service projects. With regard to advertising, we find that there is a difficulty in marketing an intangible service such as insurance, and if we add to that this service is linked to dangers that humans naturally avoid thinking about. The matter requires the presence of insurance experts who specialize in advertising, defining and simplifying insurance for the public of trustees, using many direct and indirect means.
In the next stage – the marketing stage – we find that this stage depends on mediators who have special characteristics, the most important of which is the ability to persuade and develop personal relationships, and the stage of examining and accepting risks requires experts in this process as it depends on the decisions they make, which may be Accepting certain risks, rejecting some of them, or accepting others, with an additional premium.
Also, the pricing stage depends on the presence of actuaries, whose specialization is one of the difficult mathematical disciplines that require extensive scientific and practical studies spanning several years, leading to the ability to determine the appropriate price for each risk.
Also, the loss settlement phase depends on technicians in this process who have experience that helps them determine the amount of claims, especially in the case of property and liability insurance, in which it depends on several principles of its own, such as The principle of compensation, the principle of participation, and the principle of solutions in rights .
Therefore, we find that insurance establishments are distinguished by the presence of specialized expertise in every stage of the insurance process, in addition to the regular experiences that exist in other projects such as public relations employees, accountants, legal … etc.
Fifth: The return of insurance establishments is linked to the documents and not to the fiscal year:
Most commercial and industrial projects and service projects can determine the return of their activity at the end of each financial year, but commercial insurance establishments may face the problem of not being able to accurately determine this return until after the expiry of the documents, either by the payment of claims or by the expiry of their period, and given that most insurance policies are characterized by length Duration and the fixed and variable expenses related to these documents cannot be calculated accurately until after the end of the document, so it is difficult in this case to determine the annual return of insurance facilities, and this has a significant impact on the accounting procedures and processes of insurance facilities, which differ significantly from the organizational procedures and accounting processes for projects Other.
Sixth: The variation of insurance establishments in their size and organizational form:
This discrepancy occurs as a result of the existence of many insurance establishments, which differ in terms of type and size, as they vary from reciprocal associations to a group of commercial establishments, which may be in the form of an individual establishment or individuals belonging to a group or joint stock companies, in addition to social insurance facilities and establishments. Governmental insurance. Also, we find that each of these establishments is administratively formed according to its own circumstances, which affects the organizational form of each of them.