INSURANCE COVERAGE AND ITS SIGNIFICANCE IN CORPORATE
RISK MANAGEMENT STRATEGIES
ARIZONA STATE UNIVERSITY
IEE 454 – RISK MANAGEMENT
WEEK 3
A. Introduction:
The wise phrase "life is a choice" is familiar to us, including in the business world, so we
must be wise in determining and deciding on choices. Every decision/choice must have
consequences and risks. The risk is something that must happen, but we do not know exactly
when and how the risk will happen to us. To be honest, risk is something that is not wanted,
not expected and wants to be eliminated, but it is clearly impossible to do, at least risk can be
minimized by managing it. One of the efforts is to transfer / transfer some or share the risk to
the insurance company. This is the way that is believed to be appropriate for this.
As an illustration, in the context of our journey either by land, sea or air, we never know
the potential risk of obstacles or accidents, so the travelers are insured by the travel manager.
If something happens beyond expectations, for example the risk of an accident, the victim
will receive compensation. Likewise, home security. In order to minimize the risk of being
insured, our children's education is insured, even now our organs can be insured, such as the
legs of famous soccer players starting to be insured.
B. Understanding Insurance:
The discussion of risk transfer in insurance will be more appropriate starting with an
understanding of some of the definitions of insurance. Insurance is an institution that can be
established on the basis of stabilizing business conditions from various risks that may occur,
with the hope that when the risk is transferred to the insurance company, the company
becomes more focused on running a business. The guarantee paid by the insurance company
is a claim to the customer.
Law No. 2 of 1992 concerning Insurance Business which was updated through Law No.
40 of 2014 concerning Insurance, states that Insurance is an agreement between two or more
parties, by which the insurer binds himself to the insured, by receiving an insurance premium,
to provide compensation to the insured due to loss, damage or loss of expected profits, or
legal liability to third parties that the insured may suffer, arising from an uncertain event, or
to provide a payment based on the death or life of an insured person.
The definition of insurance according to KUHD (Kitab Undang-Undang Hukum Dagang)
article 246 is an agreement in which an insurer associates himself with the insured by
receiving a premium, to compensate him for a loss, damage or loss of expected profit, which
he may suffer due to an uncertain event. This definition contains four elements, namely the
insured party (insured), the insurer (insurer), the event (accident) and the interest (interest).
Prof. Mehr and Cammack define insurance as a social tool to reduce risk by combining a
sufficient number of units exposed to risk, so that their individual losses are collectively
foreseeable, then foreseeable losses to be borne equally by those who join.
Another source explains that insurance is an agreement between the insured and the
insurer based on the principle of mutual trust and partnership. The insured party chooses to
pay a certain amount of premium as an effort to protect against losses that may occur in the
future. The insurance company will bear loss in the event of a risk experienced by the insured
(Grant, 2012). Insurance as a mechanism (or service) to transfer certain financial losses to the
insurer in exchange for an agreed fixed payment (premium). The premium must always be
paid before an insured risk claim is submitted to the insurer (Outreville, 1998).
C. Functions and Benefits of Insurance:
The functions of insurance (Rusman, 2018) can be mentioned among others:
1. Spreading the loss fairly:
Losses that may occur to the insured are distributed fairly by the insurance company in
accordance with the premium paid by the insured. The premium paid by each insured is
balanced with the amount of the possibility of loss and the amount of insurance money
that can be demanded by the insured to the insurer.
2. Reducing losses:
The insurer (insurance company) minimizes the possibility of a risk or the possibility of
decreasing the level of loss or limiting the loss that can occur. This happens because of
the recommendations given by the insurer after a survey of the insured's risk through an
underwriter. Underwriters play a role in assessing the level of risk and determining the
premium rate for that risk. The survey/assessment is carried out by examining the causes
and ways of preventing risk/loss through rescue efforts.
3. Providing assistance to financiers:
An investor has the possibility to cancel the plan to invest in a particular business
because he does not want to experience the risk of losing his investment if a problem
occurs in his business. Through insurance, the investor can avoid the uncertainty of the
possibility of risk (loss of investment), so that his attention can be focused on his
business activities. The investor pays a premium to the company insurance as the insurer
of the risk that he insured with a relatively small amount, so that he could divert the loss
funds as business capital.
4. Insurance investment:
Through premiums collected from the insured, the insurer can utilize these funds to be
used and developed as a profitable investment. The investment results can also be used
by insurance companies to reduce the cost of premiums charged to the insured.
The benefits that can be received if a person or institution participates in insurance
include the following:
1. Insurance is able to act as a risk neutralizer, meaning that when it occurs and the longer it
tends to get bigger, the insurance company tries hard so that the risks experienced by
individuals or companies are not getting higher, but are expected to be minimized to the
smallest point.
2. Insurance acts as a substitute for the agreed amount of loss or risk bearer when the
customer experiences risk / loss as needed.
3. Minimize the risk of mental and physical torment of the insured party due to trauma,
fear, and worry.
4. Generate optimum production levels, price levels, and price structures.
5. Improve the competitive position of small enterprises, and play a role in important loss
control activities.
D. Types of Insurance:
Participation in insurance can be very important as an effort to protect yourself and your
family from financial difficulties. It is necessary to carefully consider the type of insurance
that will be followed based on the insured risk. Some types of insurance (Insurance
Information Institute, 2010) are:
1. Vehicle Insurance:
Protecting financial losses caused by driving accidents, usually protects the insurance
policyholder from the losses stated in the policy as compensation for the premium paid by the
policyholder to the insurance company, concerning protection:
a. Damage to or loss of a vehicle owned by the policyholder.
b. The legal responsibility of the policyholder in injuring or damaging other people's
property due to an accident that occurs.
c. Treatment of injuries, rehabilitation, loss of income and funeral expenses due to accidents.
2. Home Insurance:
This insurance provides financial protection for policyholders due to disasters
experienced by policyholders. This protection covers property damage, liability and legal
responsibility for injury or damage to the property of the policyholder and their family due to
the actions of others. Many disasters are covered but some are excluded such as floods,
earthquakes or lack of maintenance. This insurance usually covers: The structure of the
house, personal belongings in the policyholder's home, liability protection and additional
living expenses if the policyholder has to evacuate from their home due to the disaster as per
the clause in the policy.
3. Business Insurance:
Business insurance includes four types of insurance, namely:
a. Property insurance covers protection in the event of loss or damage to property used in
the business. Property includes buildings, furniture, supplies, raw materials, machinery,
computers and other things that play a vital role in business operations.
b. Liability insurance which includes protection for losses incurred by the company due to
product failure, errors in providing services, damage to other people's property due to
company activities, and lawsuits aimed at the company because the company was
accused of environmental pollution.
c. Commercial vehicle insurance that provides protection for vehicles used in connection
with the company's business activities. This insurance has similarities with vehicle
insurance in terms of coverage, but commercial vehicle insurance has a higher coverage
value or special provisions for vehicles leased by companies including employee
vehicles used for business activities.
d. Workers' compensation insurance protects employers from lawsuits resulting from
workplace accidents and provides health care and compensation for loss of income for
employees injured in workplace accidents. Compensation due to work accidents is paid
by the insurance company.
4. Life Insurance:
Life insurance includes two types, namely:
a. Term Life:
Only paid if the insured dies within the insurance period stated in the policy. There are two
types of term life: a) level term, which has a fixed death benefit during the insurance period;
and b) decreasing term, which has a decreasing death benefit during the policy period as
stated in the policy clause, usually in multiples of one year.
b. Whole Life:
This insurance provides protection to the insured for life as long as the insured pays the
premium on time. This insurance can also be a source of emergency funds for policyholders
in the event of an unwanted event, this can be done because there is a portion of the premium
paid channeled into the savings component of the policy called cash value.
5. Annuities:
It is a financial product to increase retirement security (referring to the contract between an
individual and a life insurance company) and has components such as: tax deferral of
investment income from annuities, protection from creditors, variety of investment options,
lifetime income, tax-free transfers between investment options and benefits for heirs.
6. Long-term Care Insurance:
It is paid with the intention of helping individuals who are unable to carry out activities of
daily living without assistance or supervision due to cognitive impairment such as
Alzheimer's disease. Features of long-term care insurance are: nursing home care, assisted
living facilities and home care.
7. Disability Insurance:
This insurance is complementary to health insurance and aims to replace income lost as a
result of a person being unable to work due to their disability. The way to replace lost income
is in accordance with what applies in disability insurance, namely through programs:
employer-paid disability insurance, social security benefits for disabilities, individual
disability income insurance policies.
D. Transfer Risk:
In general, there are two forms of risk transfer carried out by individuals or companies,
namely:
1. Insurance company risk transfer:
Companies register themselves with insurance companies, can be done as a form:
a. Insurance of company-owned assets, such as buildings, vehicles, machinery and
others.
b. Life and health insurance for each employee who works for the company, so that the
employee is covered for costs if he/she experiences illness or work accidents, such as
free medical expenses.
2. Non-insurance company risk transfer:
The company will transfer the risks it experiences to other companies, which can be
done as:
a. The company transfers some of its work to other parties, on the grounds that if done
alone it is estimated that the results are not optimal or cannot be completed on time.
b. The company transfers some of its assets from cash to fixed assets, such as land and
buildings with the prediction of being profitable in the future,
c. The company entrusts a number of its valuable assets to a place that is considered safe
(safety box at the bank)
d. Diversifying assets (placing their assets in different places/forms.
E. Types of Risks that can be Covered Insurance:
The following mentions several types of risks related to the criteria for types of risks that
can fulfill risk transfer (an insurable risk) to insurance companies as described by Anderson
& Brown (2005) and in Jasindo Syariah (2020). Some of these requirements include:
1. Not against the public interest (not againts public policy).
2. Potential losses must be significant so efforts are needed to avoid losses of uncertain
magnitude by insurance.
3. There is no certainty of occurrence of the insured risk
(fortuitos).
4. The economic loss incurred must be quantifiable
(financial value) and beyond the control of the insured.
5. Risks that can be insured are pure risks only, which if they occur do not cause profit.
6. The insured loss must be independent. This means that if a policyholder suffers a loss, it
does not have a major impact on other policyholders. It also means that the risk is not
catastrophic.
7. Insured risks are of the same type in large numbers (homogenous exposures).
8. Insured has interest in object (insurable interest).
F. The Role of Insurance in the Control and Transfer of Risk :
In the previous chapter, it has been explained about several things contained in risk
control which include: a) avoiding risk (risk avoidance), b) reducing risk (risk minimization),
c) holding risk (risk retention), d) transferring risk (risk transfer), and e) sharing risk (risk
sharing). Furthermore, in the following subsections, the discussion will focus on the role of
insurance in risk control, risk transfer and risk sharing.
Referring to Law No.2 of 1992 concerning Insurance Business which was updated
through Law No. 40 of 2014 concerning Insurance, insurance companies have a significant
role in transferring and sharing risks fairly. Drawing a red thread from the Act, there are four
very important points included:
1. The existence of two parties consisting of the Insured and the Insurer
2. The existence of an engagement/agreement
3. Risk transfer
4. The existence of premiums paid as a consequence of risk transfer
In his book entitled Introduction to Insurance, In Asuransi Central Asia (2018) Rusman
argues about the risk transfer process in which the risk owner buys protection / protection
from the insurance company with the intention and purpose of transferring or transferring the
risk it has either partially or entirely to the insurance company. Thus, the risk of the
individual / insurance customer as the owner of the risk has been transferred to the insurance
company, so that when the insured risk occurs it will not disrupt the stability of the activities
or finances of the customer (both individuals and companies) owner of the risk. Such a
process is referred to as a risk transfer mechanism.
In the business world, risk transfer is a common and widely chosen risk management
technique to be implemented where the potential occurrence of risk/loss is transferred to a
third party, namely an insurance company (Abdullah, 2018). To compensate for the risk
borne, the company makes periodic payments to the appointed third party (Corporate
Finance Institute, 2015).
In the implementation of risk transfer, especially in business activities as mentioned
above, both individual customers and companies must consider several important things
(CNA Corporation, 2016) as follows:
1. Control the type and amount of liabilities assumed, given that the business may be part of
several contractual relationships at once.
2. Identify opportunities to manage risks by having others assume their responsibilities.
3. Effective liability management can lower overall costs, thus helping companies to remain
competitive in the market.
Risks in the business world are dynamic, constantly changing influenced by operating
factors and the location of the company, so that risk management strategies and insurance
techniques needed must always be adjusted (Beynon, 2013). This means that companies must
regularly review and evaluate risk management policies.
This regular review by the company of its risk management policies and the role of
partnering insurers in managing its risks is of great benefit, as it aims to ensure that the
company is using robust and effective risk management processes in the face of their
changing risks.
Furthermore, in his book Beynon (2013) argues about the great role of insurance in
managing risk, so as to minimize the risks owned by both individual customers and
companies. The role of insurance in managing these risks is as follows:
1. Provides benefits to the company's cash flow and ease of making claims.
2. Provide proof of insurance to regulators and consumers.
3. Minimize or even eliminate risk transfer costs.
4. Address the concerns of third parties or business partners over risks.
In addition to the role of insurance in risk management as described above, insurance also
plays a role in risk transfer, another role that can be provided from insurance is in terms of
risk sharing as described in the International Risk Management Institute (2020).
In an increasingly complex and competitive business world, risk sharing is taking
collective responsibility for the outcome of a given investment. The sharing of risk by
partners in a business reduces the amount of risk faced by one party. The more the number of
partners who share the risk, the smaller the risk faced by each partner (Abdullah, 2018).
In simple terms, Phillips (2017) explains that the premium paid by individual and
corporate customers or the insured is a form of risk sharing. The insured accepts the
responsibility to bear a small part of the risk and transfers most of the risk to the insurance
company. It is the insurance company that determines how much premium must be paid by
each insured who insures the same risk.
G. Summary Material:
1. Insurance is very instrumental in the risk management process, so insurance also plays a
role in the process of transferring and sharing risks owned by the insured.
2. The type of risk that can be borne by insurance companies must meet the requirements
called insurable risk which includes the following conditions: 1) significant; 2) measurable
(financial value) and out of control; 3) is a pure risk (pure risk only); 4) independent; 5)
has the same type and large amount (homogenous exposures); 6) uncertain; 7) the insured
has an insurable interest; and 8) not againts public policy.
3. The risk transfer process carried out by the insured is a common thing in the business
world which is done by paying premiums to the insurer so that when a risk occurs it does
not destabilize the life of the insured.
4. The insurance company takes responsibility for sharing the risk by determining the
amount of premium to be paid by each insured with the same type of risk, so that the more
insureds who share the risk, the smaller the risk that will be faced by the insured.
Practice And Evaluation:
1. Explain the types of risks that can be covered by insurance companies!
2. Explain the risk transfer mechanism from the risk owner to the insurance company!
3. Explain the things that must be considered by the insured in transferring his risk to the
insurance company!
4. Explain the risk transfer and risk sharing mechanisms carried out by insurance
companies!
PREMIUMS AND INSURANCE POLICIES
A. Introduction:
According to the Financial Services Authority (OJK) insurance is an agreement between
an insurance company (insurer) and a policyholder (insured) in which the insured pays a
premium to obtain coverage for risks or liabilities that may be suffered by the insured.
Insurance is one of the instruments for hedging when there is uncertainty of future risks. Both
risks due to illness, risk due to accidents until death, risk of loss of assets or other risks.
Everyone wants to be healthy, children's education guaranteed, old age needs met, but
humans never know what will happen in the future. The human task is to try to prepare
everything well, pray for the best. Insurance is a form of human endeavor to protect oneself,
family and loved ones to be able to live life well when the above risks befall humans.
Something that has been well planned also does not necessarily go as expected, let alone
never planned or prepared. In family financial management, after the main needs are met, the
next step is to prepare emergency funds, insurance and investment.
The difference between life insurance and general insurance lies in the coverage or
protection provided. If life insurance is protected or borne is the risk to the human soul when
it dies or stays alive depending on the product or insurance program taken. While general
insurance that is protected or covered is the risk attached to fixed assets such as houses,
factories or vehicles.
Based on fund management, there are conventional insurance and sharia insurance.
Conventional insurance uses a transfer of risk system, where the customer's risk is transferred
to the insurance company, with the compensation that the customer must pay a certain
amount of money (premium) to the insurance company. While the concept of sharia
insurance, is to use the ta'awuni system (sharing of risk), where fellow customers contribute
(infaq / tabarru') with a certain amount of funds intended to 'help' other customers who are hit
by a disaster. The contribution of customer funds is included in a special account (tabarru'
fund), and the Islamic insurance company has no right to take or utilize these funds. Another
thing that distinguishes sharia insurance from conventional insurance is the existence of DPS
(Sharia Supervisory Board) which is in the organizational structure of sharia insurance
companies and does not exist in conventional insurance companies.
In this chapter we will discuss insurance premiums and insurance policies. Insurance
premiums are dues that are routinely paid by customers to the insurance company for the
insurance product it has purchased. While an insurance policy is a legally valid document that
is proof of ownership of an insurance product.
In today's information age, all companies have official websites including insurance
companies. Prospective customers who want to know about products and systems in
insurance can go through the website and make sure the insurance company is registered with
the OJK. The business activities of insurance companies are supervised by the OJK. OJK as
an institution that oversees activities in the insurance sector, functions to realize a financial
system that grows sustainably and stably and can foster public confidence in the insurance
industry in Indonesia.
Based on data on public complaints to OJK, most complaints are related to insurance
products. So it is important for the community to ensure the legality of the company,
products, and articles in the insurance agreement stated in the insurance policy. For sharia
insurance companies, apart from being supervised by the OJK, their products and
management are supervised by the DPS (Sharia Supervisory Board). The aim is to ensure that
products and fund management are in accordance with sharia. All insurance companies must
have a license from the OJK as stipulated in the Financial Services Authority Regulation
Number 67 /POJK.05/2016 concerning Business Licensing and Institutionalization of
Insurance Companies, Sharia Insurance Companies, Reinsurance Companies, and Sharia
Reinsurance Companies. Until the first quarter of 2022 there were many insurance companies
that had been registered with the OJK, namely:
•
General Insurance: 71 Companies
•
Life Insurance: 53 Companies
•
Reinsurance: 7 Companies
•
Compulsory Insurance: 3 Companies
•
Social Insurance: 2 Companies
Here are tips for insurance so that the insurance chosen is not risky:
1. Choose the product according to your needs.
2. Choose a professional agent who has agency certification.
3. Choose an insurance company that has a good financial condition and is registered with
the OJK.
4. Make sure you have filled in the Insurance Closing Request Letter (SPPA) data
completely, honestly, clearly and do not sign it in a blank condition.
5. Make sure to read in detail about what benefits are provided, and what is excluded in the
policy.
6. Make sure to pay the premium immediately after receiving the policy.
In the above section, it has been stated that the need for insurance is very important to
protect yourself or assets from greater risks in the future. For example, the risk of illness that
requires high costs, the risk of dying in an accident or the risk of fire on the assets owned. By
having insurance, these risks can be replaced from the claim or coverage that we will receive.
Of course, the amount of coverage is highly dependent on the premium or contribution we
pay. According to OJK, premium is the amount of money set by an insurance or reinsurance
company to be paid based on an insurance / reinsurance agreement or based on law to obtain
insurance benefits. The greater the value of premiums or contributions that customers pay,
the greater the value of coverage or insurance benefits that will be received while still looking
at the risk profile.
The Indonesian Life Insurance Association (AAJI) in its performance report for the first
quarter of 2022 said that there was an increase in the total claims paid. The life insurance
industry posted a total revenue of IDR 62.27 trillion. The positive growth of the life insurance
industry is also shown through an increase in the number of insured reaching 75.45 million
people with a total sum insured of IDR 4,245.01 trillion. Meanwhile, the number of policies
increased by 17.4% to 20.87 million policies. The Indonesian population that has been
protected by life insurance until the first semester of 2022 is 73.9 million. This shows literacy
or public understanding of the importance of insurance products as an instrument for risk
management. Especially during the Covid-19 pandemic, the role of insurance was felt by the
people of Indonesia.
This is also supported by the results of a survey conducted by OJK in the National Survey
of Financial Literacy and Inclusion (SNLIK) in 2022. SNLIK 2022 was conducted from July
to September 2022 in 34 provinces covering 76 cities/districts with a total of 14,634
respondents aged between 15 and 79 years. Below are the results of the SNLIK survey which
experienced an increase in both financial literacy and financial inclusion in 2022 compared to
2019.
B. Premium or Contribution in Insurance:
Insurance premiums are dues that customers routinely pay to insurance companies for the
insurance products they have purchased. The term insurance premium is commonly referred
to for conventional insurance, and insurance contributions for sharia insurance. When a
customer has joined or purchased an insurance product, they have an obligation to pay
premiums or contributions according to the initial agreement regarding the amount and time.
1. Determination of Premium or Contribution Value:
Every individual who will buy or join an insurance product must consider many things.
Especially for those who are newly married, many needs await. The need for a place to live,
the need for a vehicle or preparation for childbirth. While as a new couple, it could be that the
income is also not too large. Whether buying or joining an insurance product can be an option
with many more urgent needs. This is where good financial planning is needed. The key to
the beginning financial openness between couples so that they can determine financial goals
together. This is the initial capital, openness and honesty from each partner to determine the
priority scale of financial goals to be achieved together. In financial planning we can adhere
to 10, 20, 30 and 40 in income allocation.
The illustration above is not a fixed number, but can be adjusted to the ability and
financial condition of each. But what the author wants to emphasize is the importance of
making allocations and planning from the start. Do not let every income run out for
consumption. Any amount of income must be saved. If the income is still lacking, the
solution is to look for other halal sources of income and reduce living costs or economize.
Future needs such as emergency funds, insurance, investment and savings have a big role in
the future. When the Covid-19 pandemic hit the world, emergency funds played an important
role. Health insurance has also helped people affected by illness. Because of the uncertainty
in the future, an insurance policy can be a means of protecting yourself and your family
against future risks.
Determining the value of premiums or contributions that customers will routinely pay
ideally follows future needs. Usually insurance companies have applications to make
illustrations that can calculate if someone joins an insurance product with a certain nominal at
a certain period of time will get a benefit of so many dollars.
Of course, the risk profile of prospective participants will also be seen. Starting from age,
smoker or non-smoker, professional risk, health history risk and others. But if meeting the
ideal aspects is difficult, then the ability to pay premiums is adjusted to the allocation in table
8.2 by adjusting existing income. There are several insurance products that only require an
insurance premium per month of IDR 200,000. Premium payments can also follow financial
conditions. If there is regular income every month, maybe the payment can be made every
month with an autodebit system to avoid forgetting. If there is other income specifically for
premium payments, for example from bonuses or remuneration received every semester or
every year, then premium payments can be made every semester or yearly. Nowadays in the
era of technology, there are many conveniences in transactions that help the process of
transferring funds. The key is discipline and looking at the ability and financial condition or
cash flow in each family.
In certain insurance products, the amount of premium paid is in accordance with the
underwriting calculation. The person who carries out the underwriting process is called an
underwriter. The main job of an underwriter is to analyze the risk of the prospective insured
whether the insurance application can be accepted according to the level of risk.
2. Choosing an Insurance Company:
Every prospective customer must understand that insurance needs are long-term needs. So
before joining or buying insurance products, prospective customers must ensure that the
insurance company is registered with the OJK. Visit the official website or communicate with
the contact person on the website. If there are testimonials from some customers can also be a
consideration. Insurance business trips with existing claim handling can also be noted. The
choice of conventional insurance or sharia insurance is a prospective customer's decision.
After understanding in detail and communicating with insurance agents, prospective
customers must intend their participation in insurance products until the agreement period is
completed so that the expected insurance benefits are optimal.
According to Darmawi (2016), insurable risks must meet the following conditions:
a. The potential loss is large enough but the probability is not high enough that the
insurance company can work as economically as possible (economic feasibility).
b. The probability of loss can be calculated.
c. The losses incurred are incidental.
d. Not the risk of a major, simultaneous disaster.
3. How to pay premiums:
In today's digital era, there are many conveniences in paying premiums or contributions.
Payments can be made by auto-debit, online payments, ATM payments and virtual accounts.
Because insurance participation is long-term, make sure customers pay premiums or
contributions on time according to the initial agreement. Premium payments can be made on
a monthly, tri-semester, semi-annual, annual or lump sum basis. Of course, it has been
considered with the financial cash flow of each customer, so that insurance premium
payments do not interfere with family finances. Every insurance company has a security
system for customer funds. As much as possible, payment of premiums or contributions
through the available system and not involving personal agencies or entrusting to certain
individuals as an effort to protect each other and avoid unwanted risks.
C. Policy Insurance:
According to the Decree of the Minister of Finance No. 422 of 2003, an Insurance Policy
is a deed of insurance agreement or other document that is equivalent to a deed of insurance
agreement, as well as other documents that constitute an inseparable unit with the insurance
agreement, which is made in writing and contains an agreement between the insurance
company and the policyholder. An insurance policy is proof of the policyholder's
participation in an insurance product issued by an insurance company. Insurance policies
include valuable documents that have legal force and stamped used by participants /
customers / policyholders for the purpose of obtaining stages, benefits or claims for
agreements that have been made by both parties (insurance companies and policyholders). So
this document needs to be kept in a safe place and it is better if the heirs or family are
informed of the ownership of the insurance policy so that if there is a risk in the future the
insurance benefits can be used.
According to OJK, an insurance policy is a contract or agreement as proof of risk transfer
from the insured to the insurer. There is a quote that says "Everything won't go as smooth as
planned", namely "Things don't always go smoothly as planned". Every life is always at risk,
insurance ownership as a form of human endeavor to face risks in the future so that the
continuity of life, health or education is guaranteed.
Insurance policies contain information about :
a. Policy Number:
It is usually listed at the top of the insurance policy. This policy number is the basis
when making premium payments or further contributions.
b. Name and address of the insured:
Name and address in accordance with the KTP of the participant / customer / insured.
In the insurance policy, stamp duty is affixed along with the signature and seal of the
insurance company which shows that the document has legal force.
c. Type of program/product:
This is a product that participants participate in. For example: Takaful Dana
Pendidikan/fulnadi is an education insurance product in sharia insurance. There are
unit-linked products (a combination of protection and investment), health insurance,
work accident insurance, education insurance, fire insurance, loss insurance and others.
d. Agreement period:
It usually starts from the finished policy until the policy agreement is completed. For
example, the agreement period is January 20, 2008 to January 20, 2024.
e. The amount of premium paid.:
For sharia insurance, the premium value paid is usually divided directly into two
accounts. Namely a savings account and a tabarru' fund account. The amount of
premium or contribution to be paid is written in rupiah followed by the payment period.
For example, the premium amount is Rp700,000, paid every January 20 and July for 15
years.
f. Description of Benefits:
The insurance policy also explains the description of the benefits of the product. So that
every customer or participant who buys an insurance product should read and
understand the benefits of the insurance product to be purchased. The goal is to avoid
mistakes or low literacy to the detriment of oneself. The following is an example of the
benefits listed in the education insurance policy of an Islamic insurance company:
1. If during the agreement period the participant experiences a disaster, the
beneficiary will receive a Savings Account Balance (SRT) as well as compensation
of 100% x MTA (died due to an accident) or 50% x MTA (died due to illness or
total permanent disability due to an accident), the beneficiary receives Stages and
Scholarships according to the plan (attached) from the time the Participant
experiences a disaster up to 4 years at College (PT) and the policy is premium-free.
2. If the participant and the grantee live within the agreement period, there will be a
stage at the time of school entry and a scholarship every year for 4 years at the PT
according to the attachment.
g. Amount of coverage:
The sum insured is the amount of money that will be received with the existing risks in
accordance with the agreement in the insurance policy.
h. Period of coverage:
The period of coverage is the time or length of coverage according to the agreement in
the insurance policy.
i. Premium/Contribution amount and stamp duty:
The amount of premium or contribution that the policyholder must pay during the
agreement period.
j. Name of heir:
The name of the beneficiary is the party who will receive the benefits or grants from the
policy owned if the policyholder dies.
D. Summary Material:
1. Insurance is a necessity for individuals who already have an income. Because the truth
is that life is full of uncertainty, so it is the duty of humans to plan their financial
management as well as possible.
2. Having an insurance product is an effort to manage risk from uncertainty in the future.
Owning an insurance policy is as important as an emergency fund to maintain financial
health.
3. Some insurance is to protect human life and some is to protect assets owned. For
example, education insurance, life insurance and health insurance are insurance to
protect the risks that occur to humans when sick, dead or in an accident. While
insurance to protect assets such as vehicle insurance, home insurance, building
insurance and other assets.
4. Insurance is a need for every individual to get protection or protection for health, life,
education and assets owned.
5. Insurance is a long-term agreement. Premiums or contributions are paid regularly by
participants or customers according to the agreed insurance period to obtain optimal
insurance benefits. The amount of premium or contribution followed should be adjusted
to the expected benefits in the future and also the ability to pay so as not to disturb the
financial health of the family.
6. An insurance policy is a valuable document that needs to be kept well. Family members
or heirs need to be informed if someone has an insurance policy. This aims to submit
claims in order to obtain benefits if risks occur.
7. Tips for choosing insurance products:
a. Choose insurance products according to your needs.
b. Choose an insurance agent who has agency certification.
c. Choose an insurance company that has a healthy financial condition and is
registered with the OJK.
d. If you want a sharia product then choose a sharia insurance company.
Practice And Evaluation:
1. Explain the benefits of having an insurance product?
2. What are the steps that need to be taken to choose an insurance company so that the
premiums and benefits match the customer's needs?
3. What information is contained in an insurance policy document?
4. What considerations do potential customers need to make before joining or buying an
insurance product?
5. Analyze some cases of complaints from the public related to insurance? What is the majority
of the problem, and what do you think is the solution?
