Insurance Agents, Consultation & Services @ Petaling Jaya
These pages are specially for those who want to know some basic stuff
about insurance so as to make intelligent decisions. If you want to skip
these pages, feel free to go directly to the Product Selection page or
See Some of Our Products.
The short articles, prepared by our staff, are about risk and insurance.
If you are looking for some tips on how to become a savvy consumer,
PIAM has some useful resources here. If you are a business owner or
a company person, and want to understand about your company’s risk
position, please check here: Insurance for Companies.
A smart consumer is someone who knows and understands exactly what
he or she needs, and knows how and where to get it easily. In insurance,
for example, one consumer understands risk and the “need for protection”
long before he/she “needs to claim”. Another consumer wants to achieve
“perfect timing” to buy his insurance- so he plans to get insurance just
before he needs to claim. Who do you think is the smarter of the two
consumers? Why? Read on and learn more!
Insurance protects individuals, businesses and governments against risk.
We pay insurers premiums in return for the insurers paying our claims if
something goes wrong. The contributions of the many support the losses
of the few.
“Risk”, which means the likelihood of a loss, is faced continually by
individuals, organisations and society as a whole. Risk lies at all levels of
human and business activity.
Only the type and severity of risk varies from person to person, from
business to business, from situation to situation. This is a fact. Risks which
are ignored do not go away. Tragedies can happen anytime, to anyone,
because those risks are always there.
Our attitude to risk will affect our ideas of how to face those risks.
Experience may be the best teacher, but it is also the most painful and
costly way to learn about risk.
Therefore it is wise for us to examine closely the risks around us, our
family, our property, our business- at least to become aware of those risks.
We can then take proactive steps to protect ourselves against the possibility
of any misfortune messing up our lives and our finances. “If a parachute
isn’t there when you need it, it is too late to get it!”
Many people are not aware of the risks around them. Some of them are not
convinced this risk is real, and can turn into an actual loss if not addressed
early. Many misfortunes can be traced to some element of ignorance
or inaction about risk, until it is too late.
It is recognised by governments and industries that promoting risk awareness
among citizens and employees is one of the most effective ways to bring down
A financial loss is the final outcome of a chain of events which are linked by risk
factors. One way to picture the chain of events leading to a loss is shown below:
Hazard —> Peril —> Adverse Event —> Injury or Damage —> Loss.
Consider a simple example of a man who has walked on a slippery floor and
fallen down. The slippery floor is a hazard, which creates the peril of falling
down. Falling down is the adverse event. Falling down creates the risk of injury.
And the injury, if it happens, will result in a loss which will be small or large
depending on the severity of injuries.
This example illustrates an approach we can use to think logically about
risk in different situations in our life. We can then understand better the
nature of adversity without feeling worried and helpless about it.
Our awareness of risk enables us to manage and minimise risk and loss, by
appropriate action on our part, at every point in that chain of events. A
person who is risk-aware, and does something about it, will experience fewer
adverse events, enjoy peace of mind, manage loss better, and recover faster
from the loss if it happens.
Risk is a big subject. There are different types of risk and not all of them are
insurable. Think of the type of risk associated with airlines, crude oil tankers,
satellites, rock concerts, and offshore oil drilling, just to mention a few
examples. Each business mentioned is exposed to risks which affect hardware,
individuals, customers, organisations, company officers etc. It can get very
complex, involving legal, social, political, environmental issues. So, you get
the rough idea.
But here on this page we will focus on the common types of risk which affect
most of us – that is to say individuals, families and small business owners.
Pure risk is a risk in which there is only a possibility of loss or no loss—
there is no possibility of gain. Pure risk can be categorized as personal,
property, or legal risk.
Personal risks are risks that affect someone directly, such as illness,
disability, or death. Property risk affects either personal or real property.
Thus, a car theft or a house fire are examples of property risk. A property
loss often involves both a direct loss and consequential losses. A direct loss
is the loss or damage to the property itself. A consequential loss (also known
as indirect loss) is a loss created by the direct loss. Thus, if your car is
stolen, that is a direct loss; if you have to rent a car because of the theft,
then you have some financial loss— a consequential loss— from renting a car.
Legal risk (also known as liability risk) is a particular type of personal
risk that you will be sued because of neglect, malpractice, or causing injury
to another person or damage to someone else’s property. Legal risk is the
possibility of financial loss if you are found liable, or the financial loss
incurred just defending yourself, even if you are not found liable.
Most personal, property, and legal risks, being pure risk, are insurable.
That is because insurance companies can calculate what premium to charge
based on statistical patterns of past history.
Speculative risk differs from pure risk because there is the possibility of
profit or a loss. This characterizes most financial investments, business
undertakings, and gambling. Speculative risks are uninsurable, because such
losses are not considered entirely random- the number and size of such losses
are not predictable from past history.
Insurance is not investment. The premium is not an investment, the insured
is not investing, and a claim is not the proceeds of investment! The purpose
of insurance is to compensate or mitigate loss suffered by the insured, not
to “generate a profit” for the insured! The premium may be thought of as a
contribution towards the “sharing of losses”, which is the unique feature of
insurance. Some insurance products are “bundled” with savings or investment
products- in those products the investment element is an add-on to the
insurance element but is separate and distinct from the insurance element.
Uninsurable risks form an important class of risks in real life. For example
business loss and unemployment are uninsurable risks. Governments may step
in if such risks have major economic consequences. “Acts of God” (for example
a big tree falling and causing damage) may also be uninsurable, and this
affects ordinary folks. Knowledge, risk avoidance, and contingency planning
must be priorities to deal with uninsurable risks.