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Tuesday 2 October 2012

Progress Check Answers Progress Check Answers


Principles and Practices of Insurance


Module 1

1-a
2-c
3-a
4-b
5-d
6-c
7-c
8-a
9-b
10-a
11-b
12-d
13-a
14-b
15-a
16-c

Module 2

1-c
2-c
3-d
4-c
5-d
6-a
7-d
8-c
9-a

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Principles and Practices of Insurance


10-b
11-d
12-d
13-c
14-c
15-c
16-b
17-b
18-c
19-c

Module 3

1-d
2-d
3-b
4-b
5-b
6-a
7-c
8-b
9-d

Module 4

1-a
2-c
3-b
4-d
5-a
6-c
7-d
8-a
9-c


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Module 5

1-c
2-c
3-b
4-a
5-a
6-d
7-a
8-c

Module 6

1-a
2-d
3-c
4-d
5-d
6-b
7-c
8-a
9-d

184

Module 7: Market Code of Conduct Regulation (MCCR)


After studying this module, you should be
able to:

-Define MCCR

- Identify what sectors of the insurance market
MCCR is applied
- Understand the minimum standards required by
MCCR


Principles and Practices of Insurance


Introduction

Insurance contract is nothing but a piece of paper which promises to
pay in the event of an insured contingency actually happens.

So in every country there will be regulations in place to protect the
customer against deficiency in service in terms of delayed issuance or

poor quality of documentation as well as non payment, delayed payment
or short payment of claims.

Saudi Arabian Monetary Agency, the Insurance regulator for the
Kingdom of Saudi Arabia has introduced Market Code of Conduct

Regulation (throughout this courseware, we will refer to this regulation as
MCCR) which will not only regulate marketing and selling of insurance
products but also stipulates codes for insurers and service providers
for a fair and transparent conduct of business and dealing with the
customers.

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Principles and Practices of Insurance


Why is MCCR an integral part of any insurance market?
7.1 - Introduction to MCCR
The code stipulates minimum standards that should be met by the
insurance companies and the service providers.
It may, sometimes, so happen that the insurance company’s internal
standard for customer service may be more stringent than the minimum

standard set by SAMA in this Regulation. Any Regulator will welcome

such a move as this only goes towards improving service delivered to
the customer and enhancing customer delight.

The following are the Service Providers who come under the scope
of MCCR Insurance Brokers, Insurance Agencies, Claim Settlement
Specialists, Loss Assessors/Adjusters, Insurance Advisors, Third Party
Administrators
In the above list of Service Providers, one service provider in the
insurance value chain is missing. Can you name them? Why MCCR is
not applicable to them?
Since Customer Service depends entirely on how efficiently the company

is organised to deliver that service, it is necessary that they establish
appropriate internal checks and controls and put in place systems and
procedures to not only ensure delivering excellent customer service but
also monitor the delivery as well.

Systems and procedures will also mean that companies maintain

adequate records like premium register, cover note control register,

certificate register, claim intimation and settlement registers etc so

that at any point of time, information can be retrieved for appropriate
customer service.


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Principles and Practices of Insurance


Since the service providers like loss adjusters and third party

administrators represent an insurance company and act as face of that

company while dealing with the public, in case of any deficiency in

service on the part of service providers, the credibility of the insurance

company who the service provider is representing will be affected. So

the insurance company will have to ensure that the service providers

have necessary controls and systems in place for efficient delivery of

customer service on their behalf.

7.2 - General Requirements
Integrity: Though it is expected that the companies will generally act
in a fair and transparent manner in all their dealings with the customer,

Regulator and the general public, the MCCR has codified this in the

form of general requirement.

The companies and the service providers are required to have an internal
document which sets out the systems and procedures for conducting and
transacting the business in a fair and transparent manner. Wherever, such

steps and procedures are not codified, they have to adopt internationally

accepted best practices for conduct of business.

What is the purpose behind codifying steps in conducting the business
in a fair and transparent manner?
Skill, Care and Diligence: In order to provide efficient customer service,

the companies should have necessary technical skills and competence.

Competence has to be developed through periodic training in technical
subjects, customer service and also regularly updating the employees
through internal communication of the happenings in the Market in

KSA and the world over.

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Principles and Practices of Insurance


It is the duty of a company to keep the employees’ skills and insurance
knowledge up-to-date? Discuss the ways in which a company can do
that.
MCCR expects all customers to be treated alike and no company can
deny renewing or cancel an insurance policy without giving a valid
reason for doing so.

Protecting customers’ personal data is very important and companies
should ensure that such data is not allowed to be abused or misused.

What are the ways in which personal data can be protected?
Any premium collected by the brokers or the agent must be immediately
deposited with the insurance company.

Can you think of two specific reasons why the premium should be
deposited with the insurance company immediately?
The brokers/agents can also the deposit the premium in the bank

account specifically for this purpose and should not appropriate this

money for any other purpose.

The only exception for the above rule is that they can withdraw their
commission from this account but only after getting the necessary
authorisation from the Insurer in writing to this effect.


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Principles and Practices of Insurance


Can the broker/agent treat the money in the premium account as
security against any sums receivable from the Insured?
Since the service providers like brokers, agents, loss adjusters, TPAs

etc represent the company and deal with the customers on behalf of
the company, it is essential that the insurance company enters into a
contract with these service providers setting out the procedures, rights
and responsibilities of each party and also the establishment of systems
controls for effective delivery of service by these providers to the
customers on their behalf.

7.3 - Conduct Standards
To ensure that the customers are not put to difficulty, MCCR insists that

the insurance policy application and contract wordings must adhere to
some minimum standards.

MCCR lists of the following as minimum standards:

1. The proposal form and the policy document must be bilingual –
both in Arabic and English.
2. The sentence structure and the language used should be simple and
should be easily understandable by laymen.
3. They should be printed in clear readable text.
4. There is also a mention about the legendary small print in insurance
policies and MCCR specifically prohibits these documents to be in
fine print.

Further guidelines:
MCCR also provides further guidelines as regards the proposal form
and the policy document.
The policy form must contain:


1. A disclosure statement indicating that the policy contract is the entire
contract
2. A description of Insured’s duties after a loss has occurred
3. A description of claims and disputes handling procedures.
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Principles and Practices of Insurance


Any amendment to the policy should be done only after receiving a
written request for the same from the Insured and also these amendments
should be made only by way of endorsement.


Policy Cancellation:
Another requirement of MCCR is that cancellation of insurance
policies should be made simple and that the terms must be fair to the
customer.


Every policy must contain cancellation terms which will include


a. conditions under which the Insurer has the right to cancel the policy
b. conditions under which an Insured can cancel the policy
c. Notice period required for cancellation by both the parties
d. The method of refunding the premium , if applicable on cancellation
and
e. A description of cash surrender value, if applicable (in case of
Protection & Savings insurance)

Free Look Clause:

A FREE LOOK clause has to be incorporated in all Protection &
Savings which should provide a minimum of 21 days period from the
date of delivery of the policy to the Insured.
Free Look period is the right of an Insured to examine an insurance
policy for a stated period, in this case 21 days, and if the Insured is not

satisfied of its suitability and benefits to him, to return the policy and

receive a refund of the initial premium.

In some markets, the refund is in full whereas, in the Kingdom, the
regulator has stipulated that a pro-rated amount will be retained by the
Insurer for the period for which they had assumed risk after deducting
the expenses incurred by them on medical examination.

In case of Unit Linked Plans, the Insurer is also entitled to make
appropriate adjustments to take the changes in the price of the Units
into consideration.


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Principles and Practices of Insurance


Discuss the issues associated with 100 % refund of premium under Free
Look Clause
Advertising and Promotion:
Companies should use their advertising campaign judiciously and should
not communicate inaccurate statements about the company, products,


price, coverage, benefit etc.

Defamatory statements about competition:
They should not also target their competitors in their advertising
campaign.


Information on companies’ offering:
The companies must disclose some minimum pre-acceptance
information to the customers:


1. Whether they are Insurers or intermediaries
2. Whether there exists any other relationship between the Insurer and
the intermediary other than the brokerage/commission
3. The nature and range of products and services they can offer.
Information from/to the customers:
Companies are obliged to seek information from customers to assess
their insurance needs depending on the products and services which
they are interested.


Since insurance contracts are based on the duty of utmost good faith,

Insurers should draw the attention of the customers to their duty to
disclose relevant and accurate information.

Companies have to take care that the advice given to clients adequately

meets their needs. They should provide sufficient information to enable

customers to make informed decisions when purchasing insurance
products and services.

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Principles and Practices of Insurance

Churning:
Companies should inform the Insured of the consequences when he


wants to replace the existing P & S insurance with a new one.

Obligation of brokers:

The brokers are Insured’s representative and hence have to get the best
possible term for their clients. They do this by obtaining quotes from
several insurance companies.
When they obtain such quotes and recommend one, they have to indicate
the reasons for recommending any particular insurance company. The

justification should include a comparison of the terms and conditions

offered by each insurance company, and if the broker would earn more
commission on the recommended contract this must be explained to
the customer.

Obligation of Insurers:

The first step before accepting a business from the proposer is to

provide the important terms and conditions of the product in which
the proposer is interested.

Some of the key information required to be furnished to the proposer

includes:

1. Benefits, exclusions, and deductibles.
2. The coverage period.
3. All related costs, including premiums and any other fees.
4. The terms of payment covering the periodicity of payment, grace
period, implications of discontinuing the premium and any other
related details.
5. The claims and complaints handling procedure.
6. The obligations of each party under the insurance policy.
7. The cancellation and renewal rights and conditions.
8. The requirements for carrying out policy alterations.
9. Any aspect of the policy where the insurance company has the right
to change something once cover has commenced such as benefit

charges and policy fees on protection and savings business.
10.Any unusual restriction or condition attaching to the customer.


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Principles and Practices of Insurance


Which principle of insurance casts the above obligations on the part of
the Insurer? How?
In addition to the above, companies must provide the following
information with
regard to protection and savings insurance products:

1. Type of plan – Participating, non participating or investment linked.
2. Basis of participation in profit in case of participating – cash bonus,
deferred bonus, reversionary bonus, terminal bonus etc.

3. Plan illustration providing the sum insured, surrender value and paid
up value over the term of the plan.
Insurance cover should not be back-dated on any insurance product.
Why?
Confirmation of coverage:
It is the duty of the Insurer to provide written confirmation confirming


the coverage as soon as a contract is concluded.

What are the ways in which a written confirmation can be given
evidencing the contract?
When an application for insurance is taken without a premium payment,
the Insurer should provide a receipt to the customer indicating that

coverage will commence at the date the policy is issued and the first

premium is paid.

Insurers are obliged to provide the full policy documentation to
customers after entering into an insurance contract promptly.

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Principles and Practices of Insurance


It is mandatory on the part of the Insurers to obtain the customers’

signature confirming the contents, understanding, and receipt of the

full policy documentation.

How does a counter signature from the customer help?
Policy coverage to employees and close relatives:
Insurers should avoid covering the assets and liabilities of their employees
which will include the owner, Board of Directors, management and
staff including their close family members. In case, this requires to be
done, then the full premium needs to be collected before the cover
commences.

Close family members will mean wi(fe)ves, children, parents, brothers
and sisters.

Premium Collection:

Insurers can collect premium on a transaction only if it is finalised.

Insurance companies are considered to have received the premiums
once the premiums are received by the agents or brokers.

The agent of an Insurer collected the premium cheque and posted it to
the company. While the cheque was in transit, a claim occurred. Is the
insurance contract is valid and the claim payable?
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Principles and Practices of Insurance


Claims handling:
Whether the Insurer handles claims directly or through outsourcing,
the following are some of the activities which are expected of them/
handling agency:


A. Respond to claims filing in a prompt manner.
B. Provide claims forms showing all the information or steps required
by the customer (including the beneficiary under a protection and
savings policy) to file the claim.

C. Acknowledge to the customer the receipt of the claim and any missing
information and documents within ten (10) days from receiving the
claim’s application form.
D. Provide adequate guidance to the customer in filing the claim and
information on the claims handling process.

E. Inform customers of the progress of filed claims, at least every
fifteen (15) working days (as per article 44 of the Implementing
Regulations).

F. Handle claims in a fair manner.
G. Appoint a claims or loss adjuster when necessary, and notify the
customer of such an appointment within three (3) working days.
H. Conduct a reasonable investigation of claims within a reasonable
time period.
I.
Notify the customer in writing of the claim acceptance or refusal
promptly after completing the investigation, stating the following:
1. For accepted claims (full or partial acceptance):
-Settlement amount.
- How the settlement amount was reached.
- Justification if reduced settlement is offered.
- Justification in case any part the claim is not accepted.
2. For denied claims:
- Written reason for denying the claim under question.
-Copies of documents or information that were used in reaching
the decision, if requested.

J.
Explain the appeal or complaints process, if the settlement is not
accepted by the customer.
K. Forward the claims settlement payment without undue delay upon
receiving all required information and documentation.
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Principles and Practices of Insurance


Insurance companies are obliged to settle the claims within fifteen days

from the date of receiving all requested and necessary documents and
when that is not possible, provide an explanation, with reason(s) for
such delay.

Credit Control
Full payment terms must be agreed in writing at the outset of the
policy, and the insurance company should promptly cancel a policy,
after appropriate warnings, and thirty (30) days notice, if payments are
not made. Premiums must be paid separately from, and may not be
offset from, claims payments.

Complaints Handling
Complaints handling and resolution are important constituents of after
saes service.

Companies have to put in place a fair, transparent, and accessible
complaints handling process, and inform customers of the complaints

filing procedures.

Cancellation
Cancellation of policies must conform to the cancellation conditions

specified in the policy terms and conditions.

Cancellations by the insurance company must be notified to customers

in writing, including a reference to the relevant contractual cancellation
condition and explanation of the underlying reasons for the cancellation.
In such cases, the balance premium has to be returned on pro-rated basis.

The policyholder may also cancel the policy in which case he will be
entitled for a refund on short period scale as per the schedule given in
the policy.

Can the insurance company cancel a policy where a valid claim has
occurred?
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Principles and Practices of Insurance


Renewal and Expiry
Companies must inform customers of the policy renewal or expiry date
in a timely manner to allow customers to arrange continuing insurance
coverage.

For all protection and savings contracts, insurance companies should
provide an annual statement to their customers which include the
following information:

A.Projected maturity value, or value at age eighty-five (85) for the whole

policy.

B. Current sum insured on main and supplementary benefits.
C. Total premiums paid in the previous year.
D.Policies linked to investment funds should show the value of the
units in each fund.

Distribution of Surplus:

A key aspect of the introduction of regulated insurance in the Kingdom
is the cooperative nature of the industry. Therefore the regulations require

that Saudi Insurers must operate on this cooperative basis. One of the main

points which distinguish cooperative insurance from a traditional insurance
model is the distribution of surplus funds to the policyholders.

The key to the distribution of surplus funds lies in how the net surplus
is calculated.

This calculation is made in the following steps:
Step1: Earned Premium + income generated from reinsurance
commissions and other insurance operations.
Step2: Incurred Claims = (claims outstanding at the end of the year +
claims paid – Claims outstanding at the beginning of the year)
Step3: Total Surplus = (Difference between Step 1 and 2) – Marketing
expenses – Administrative expenses – technical provision –
general operating expenses
Step4: Net Surplus = Step 3 (+/-) Policyholder’s investment return –
expenses relating to management of policyholder’s investment fund
10% of the net surplus is to be distributed to the policyholders directly
either in the form of a direct payment or as reduction in premium for
the next year
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Principles and Practices of Insurance


The remaining 90% of the Net Surplus is to be transferred to the

shareholders income statements.

Twenty percent (20%) of the net shareholders’ income is to be set
aside as a statutory reserve until reserve amounts are equal to 100%
of the paid capital.

Insurers have to document the mechanism they have to put in place
to comply with article seventy (70) of the Implementing Regulations,

and submit this document to SAMA for approval.

This document should then be freely available to customers and
Members of the Public.

7.4 Appendix
Draft dated 05.01.2008 of the Market Code of Conduct Regulation

to be implemented by Insurers and Insurance Service Providers in the
Kingdom of Saudi Arabia – introduced by Saudi Arabian Monetary

Agency (English version)


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Principles and Practices of Insurance

Part 1
Introduction


Purpose

1. This Code presents the general principles and minimum standards
that should be met by insurance companies, including branches
of foreign insurance companies, and insurance service providers
licensed by SAMA in their dealings with their existing and potential

customers.

2. The objective of This Code is to promote high standards of business
conduct within the insurance industry.
3. This Code must be read in conjunction with articles 12, 15, 16, 19,
22, 24, 25, 26, 37, 43, 44, 45, 46, 49, 51, 52, 53, 54, 55, 56, 71, 77,
78, and 80 of the insurance Implementing Regulations.
Definitions

4. The terms used in This Code shall have the same meaning as per
article one (1) of the insurance Implementing Regulations, unless
mentioned otherwise.
Scope and Exemptions

5. The term “Companies” in This Code is intended to include: insurance
companies, insurance brokerages, insurance agencies, insurance
claims settlement specialists, loss assessors (loss adjusters), and
insurance advisors.

6. Reinsurance activities are exempted from the provisions of This
Code.
Compliance Measures

7.
Companies must establish appropriate internal controls and
procedures to ensure and monitor compliance with This Code,
including the compliance of all contracted companies.
8.
Companies must maintain adequate records to demonstrate
compliance with This Code, including but not limited to, reasons
for early termination or non-renewal of insurance policies, claims
records and complaints records.
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Principles and Practices of Insurance


Supervision of Other Contracted Companies

9. Insurance companies are responsible for ensuring that all persons
dealing with customers on their behalf, including their own staff
and other licensed agents who sell the company’s products and
services, perform their duties in compliance with this Code.
Non-Compliance

10. Non-compliance with the requirements set forth in This Code will
be deemed a breach of the licensing conditions and may subject the
companies to enforcement action.
11. Companies should promptly inform SAMA of any circumstances
that may restrict their ability to adhere to the requirements herein.

Structure of This Code

12. The market conduct requirements are outlined in Parts 2 and 3 of
this Code:
A. Part 2 -General Requirements, which are principle-based.
B. Part 3 -Conduct Standards, which stipulate the companies’ minimum
conduct requirements across the customer relationship lifecycle,
which includes pre-sales, sale, and post-sale conduct guidelines.

Part 2
General Requirements

Integrity

13. Companies must act in an honest, transparent and fair manner, and
fulfill all of their obligations to customers, which they have under the
laws, regulations, and SAMA guidelines. Where these obligations have
not been fully codified, companies may follow internationally accepted

best practices.

Skill, Care, and Diligence

14. Companies must act within their area of competence in dealing
with customers. For this purpose, competence is acquired through
training, experience, and working with experts in the field.

15. It is the duty of each company to keep their, and their employees’, skills
and knowledge of the insurance business upto-date and be informed
of the products and services offered by the company, or companies,
they represent and the intended use of these products and services.
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Principles and Practices of Insurance


Non-Discrimination

16.
Companies must not unfairly discriminate between customers,
whether existing or potential customers, and must provide credible
reasons for denying, canceling, and not renewing insurance
policies.
Adequate Resources

17. Companies must take reasonable care in maintaining adequate
managerial, financial, operational, and human resources to carry

out their business and serve their customers.

Disclosure Information to Customers

18.
Companies must communicate all relevant information to
customers in a timely manner to enable them to make informed
decisions.
19. Companies must take reasonable measures to ensure the accuracy
and clarity of the information provided to customers and make
such information available in writing.
Data Protection

20. Companies must, at all times, ensure that customer personal data
is protected. This means that the data:
A. Must be obtained and used only for specified and lawful
purposes.

B. Must be kept secure and up to date.
C. Must be provided to the customer upon his written request.
D. Must not be disclosed to any third party, without prior
authorization from SAMA, other than the companies’ auditors and

actuaries.

Security of Customer Assets

21. Companies must ensure the security of customers’ assets held on
their behalf. Any premiums collected by the broker or agent must
either be placed in a separate bank account (the premium account)
that has been established for that purpose, or passed directly
to the insurance company as is required under the contractual
arrangement with the insurance company. The only payments that
can be deducted from the premium account are:
A. Premium payments to a licensed insurance company.
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Principles and Practices of Insurance


B. Commission payments where the insurance company authorizes
the broker or agent to make premium payments net of commission.
The premium account must not be treated as the property of the
broker or agent in any sense. In particular, it must not be used as
security for any loan, and it must be clearly beyond the reach of the
broker or agent’s creditors.
Conflict of Interest

22. Companies should take reasonable measures to identify and address
conflicts of interests to ensure fair treatment to all customers. Where
conflicts of interest arise, the companies must disclose such conflicts to

the customer and must not unfairly place its interests above those of its
customer.

Contracting Service Providers

23. Companies that use the services of other parties, including other
companies, must have a contract in place setting out the terms and
conditions for the provision of services, the rights and responsibilities
of each party and the extent of the liability that each party has to the
other.
Part 3
Conduct Standards

Section A: Policy Forms and Rates

Policy Wording and Packaging

24.
The wording of the insurance policy application and contract
forms must adhere, at a minimum, to the following:
A. Written in both Arabic and English.
B. Use simple language and sentence structure, when possible.
C. Printed in clear, readable text, with no fine print.
25.
The printed insurance policy application and contract forms
must adhere to requirements set in article 52 of the Implementing
Regulations, and include:
A. A disclosure statement indicating that the policy contract is the
entire contract.
B. A description of the insured’s duties after a loss has been
incurred.
C. A description of the claims handling and dispute handling
procedures.


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Principles and Practices of Insurance


Policy Amendments

26. An insurance policy contract shall be amended only after a written
request submitted by the policyholder and to which the insurance
company agrees followed by an endorsement issued by the insurance
company to the policyholder.
Policy Cancellation

27.
Companies should include cancellation terms that are fair to
customers and are reasonable and appropriate with regard to the
product. The cancellation conditions must be clearly stated in the
policy contract, including:
A. Conditions permitting the insurance company to cancel the
policy.
B. Conditions permitting the policyholder to cancel the policy.
C. Cancellation notice requirements, including notice period. In
any case, the Policyholder should be afforded a minimum period
of thirty (30) days before the effective date of cancellation by the
companies (as per article 54 of the Implementing Regulations).
D. A description of the refund of premium due to the policyholder
on cancellation of the policy and when it would be payable.
E. For Protection and Savings insurance, in addition to (D) above, a
description and illustration of the cash surrender value, if applicable,
for each year of the plan.

“Free Look” Clause
(Protection & Savings Insurance Products)


28. Every policy for protection and savings insurance should provide
at least a twenty-one (21) day Free Look period from the date of
delivery of the insurance contract for the policyholder to review the
contract to assess its suitability and whether it provides the benefits
described by the agent or broker. The policy will be deemed to be
fully in force and this provision will be deemed to be waived by
the policyholder, if the policyholder does not inform the insurance
company within the period that the policy will be returned. If the
policyholder deems the policy unsuitable, the insurance company
must be notified in writing within the Free Look period and a refund
of premiums paid to the customer subject only to the following:

A. Deduction of the expenses incurred by the insurance company
on medical examination of the customer.
B. Deduction of a proportionate risk premium for the period of
cover.
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Principles and Practices of Insurance


C. In respect of a unit linked plan, the insurance company shall also
be entitled to make an appropriate adjustment to take account of
changes in the unit price.
Pricing

29. Companies must apply the pricing structure submitted to and
approved by SAMA as part of the product approval application.

Discrimination

30. Companies’ underwriting criteria and practices must not be unfairly
discriminatory.
Section B: Advertising and Promotion
Honest Representation

31. Companies must not communicate any statements or advertising,
directly or indirectly, that are inaccurate, misleading, exaggerated,
or deceptive, including but not limited to information on:
A. Name of the company issuing the insurance policy.
B. Financial status of the insurance company issuing the policy.
C. Coverage of the policy.
D. Benefits or advantages promised by the policy.
E. If the advertising includes the policy pricing, then it should
indicate whether the price is inclusive of all fees.
Defamatory Statements

32. Companies should not include in their advertising any false or
defamatory statements on other companies.
Section C: Pre-sale Customer Contact
Information about the Companies’ Offering

33. Companies must disclose, at a minimum, the following information
to each customer prior to accepting an application for an insurance
contract:
A. Whether they are an insurance company, or are acting on behalf
of an insurance company, or acting on behalf of the customer.
B. Any financial relationship between a broker and the insurance
company other than the normal commission agreements. In
particular if there is any cross-ownership, or both parties have
owners in common, the customer should be informed.


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C. The nature and range of products and services they can
provide.
Customer Needs Assessment

34. Companies must seek information from customers as might
reasonably be expected to assess their insurance needs in relation
to the products and services in which they indicated an interest.
Companies are not required to determine customers’ insurance
needs beyond the specific products and services in which customers
have indicated an interest, except with regard to protection and
savings contracts (see article 41 below).

35. Customers should be informed of their duty to disclose relevant
and accurate information.
Advice to Customers

36. Companies must ensure that the advice given to clients adequately
meets their needs.
37. Companies must provide sufficient information to enable
customers to make informed decisions when purchasing insurance
products and services, including:

A. An explanation of how the proposed advice meets their needs.
B. If different options are identified, the difference in the benefits,
coverage, and costs of such options.

Avoidance of Churning

38. Companies should not advise a customer to replace an existing
protection and savings policy with a new one, unless it fully justifies

the recommendation and make it clear that a second set of initial
charges will be incurred, and the agent will earn initial commissions
on the new product.

Quotations to be Obtained from More than One Insurance
Company

39.
Insurance brokers must make reasonable efforts to obtain
quotations from several licensed insurance companies, and indicate
the reasons for recommending any particular insurance company.
For contracts other than protection and savings, if the insurance
company recommended by the broker has not provided the cheapest
quotation, the broker must provide details of the cheapest quotation
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to the customer, and a full justification for his recommendation.
The justification should include a comparison of the terms and

conditions offered by each insurance company, and if the broker
would earn more commission on the recommended contract this
must be explained to the customer.

Section D: Sale of Insurance Products and Services
Disclosure to Customers

40.
Prior to accepting an application for an insurance contract,
the companies must provide customers with the key terms and
conditions of the product and service to be purchased, including
but not limited to:
A. The name of the insurance company underwriting the policy.
B. Benefits, exclusions, and deductibles.
C. The coverage period.
D. All related costs, including premiums and any other fees.
E. The terms of payment covering the periodicity of payment,
grace period, implications of discontinuing the premium and any
other related details.
F. The claims handling procedure.
G. The complaints handling procedures.
H. The obligations of each party under the insurance policy.
I. The cancellation rights and conditions.
J. The renewal rights and conditions.
K. The requirements for carrying out policy alterations.
L. Any aspect of the policy where the insurance company has the
right to change something once cover has commenced such as benefit

charges and policy fees on protection and savings business.

M. Any unusual restriction or condition attaching to the customer.
N. The postal address, telephone, fax and email contact details of
the insurance
company.
41. In addition to the above, companies must provide the following
information with regard to protection and savings insurance
products:
A. Whether the plan is participating, non-participating or an
investment linked plan.
B. In case of participating, the basis of participation in profits i.e.,
cash bonus, deferred bonus, reversionary bonus, terminal bonus
etc.


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C. Plan illustration providing the sum insured, surrender value and
paid-up value over the term of the plan. The illustration should
show these values at the end of each of the first five (5) policy
years, five (5) yearly thereafter, and at maturity date if appropriate
or up to age eighty-five (85) if not.

D. If benefits are not fully guaranteed, the customer should be
provided with three illustrations with gross investment return rates
of 3%, 5% and 7% p.a.

E. The extent of any investment or expense guarantees. It should
be clearly stated that values shown are for illustrative purposes only
unless the investment and expense charges are fully guaranteed.
F. For non-linked plans, where applicable, a breakdown of the
premiums and charges by main cover, supplementary cover and
any other cover or services provided.
G. When presenting information related to past performance,
the basis on which the performance was calculated together with
a statement that past performance is not indicative of future
performance.
H. If the policyholders’ funds may be invested in a range of linked
investment funds, a description of the investment funds, which
should include, at a minimum:
1. A description of the asset classes the fund may invest in.
2. A risk or volatility rating for each fund.
3. If the fund is measured against a benchmark, details of that
benchmark.
4. Geographical spread of the investments.
5. A statement of any concentration of investments into particular
types of investments.
6. The currency that the fund is priced in.
7. The frequency that the fund is priced.
8. The name of the fund manager, if the fund is external to the
insurance company.
9. Past performance of the fund, subject to the same comments as
stated in (g) above.
42. Companies selling savings and protection contracts should
complete a client fact find containing sufficient information to fully
back-up the product recommendation made. The fact find must be
signed by the client, and retained on the clients file. In the event
of any dispute over the appropriateness of the contract sold, the

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contents of the fact find will be taken fully into account. If the fact
find is not on the file, or is poorly or partially completed, this is

likely to lead to the dispute being resolved in favor of the client.

43. Insurance brokers should disclose to the customer at the point
of sale the full commissions and/or fees earned for the services
provided from all sources.
44. Companies that represent the insurance company in arranging the
insurance contract must disclose to the customer all commissions,
fees, and any other remuneration received from arranging the
insurance contract.
45. Insurance cover may not be back-dated on any insurance product.
No insurance company, or employee of an insurance company may
provide evidence of cover on a product unless the customer has
committed to taking out a full annual policy that complies with the
minimum standards set for that policy.
Customer Obligations

46. Prior to entering into an insurance contract, the companies must
inform customers of their key obligations under the insurance
contract to pay premiums in a timely manner and to provide full and
honest disclosure of all relevant information needed to determine
the insurance needs and underwrite the risk. The customer should
only be expected to advise the companies of information that a
reasonable person would regard to be relevant.
Confirmation of Coverage

47. Upon entering into an insurance contract, companies must
promptly provide customers with official written confirmation of

the insurance coverage. In case the full documentations are not
available, the companies must issue temporary evidence of coverage

confirmation, which can be legally used as a proof of coverage.

48. When an application for a compulsory insurance product such as
motor or health is taken with a premium payment, a receipt should
be provided to the customer indicating that coverage commences
at the date the application was completed.
49. When an application for insurance is taken without a premium
payment, a receipt should be provided to the customer indicating
that coverage will commence at the date the policy is issued and the
first premium is paid.


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Documentation

50. Companies must promptly provide the full policy documentation
to customers after entering into an insurance contract. Companies
must obtain the customers’ signature confirming their revision,
understanding, and receipt of the full policy documentation.

Related Parties

51. No insurance policy shall be issued or renewed by an insurance
company to any of its owners or members of the Board of
Directors, Senior and Executive Managers, and their related parties
except after the payment of the full premium (as per article 49
of the Implementing Regulations). Related parties shall be taken
to mean close family members, wives, husbands, children, parents,
brothers and sisters.

Premium Collection

52. Companies must not collect premiums or fees for transactions that are
not in the process of being provided or have not yet been provided.
53. Insurance companies are considered to have received the premiums
once the premiums are received by the agents or brokers.
Section E: Post-sale Customer Servicing
After-Sale Service

54. Companies must provide after sales services to customers in a
timely and appropriate manner, including responding to their
inquiries, administrative requests, and requests for amending the
insurance policies. In particular, companies must:
A. Provide certificates of coverage when requested by the
customer.

B. Provide written confirmation of any amendments to the policy
and any additional amounts due.

C. Issue receipts for any amounts received, unless payment is made
by credit card or other form of automated bank transfer when the
bank records will suffice.

D. Issue refunds or other charges due to customers.
55. Companies must promptly notify customers of any changes in the
disclosures or conditions made to the customers at the time of entering
into the insurance contract. This includes changes in the companies’
contact details and changes in the claims filing procedure.

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Principles and Practices of Insurance


Claims Handling

56. For companies whose licensed activities include claims handling,
they must:
A. Respond to claims filing in a prompt manner.
B. Provide claims forms showing all the information or steps required
by the customer (including the beneficiary under a protection and
savings policy) to file the claim.

C. Acknowledge to the customer the receipt of the claim and any
missing information and documents within ten (10) days from
receiving the claim’s application form.
D. Provide adequate guidance to the customer in filing the claim
and information on the claims handling process.

E. Inform customers of the progress of filed claims, at least every fifteen
(15) working days (as per article 44 of the Implementing Regulations).
F. Handle claims in a fair manner.
G. Appoint a claims or loss adjuster when necessary, and notify the
customer of such an appointment within three (3) working days.
H. Conduct a reasonable investigation of claims within a reasonable
time period.
I. Notify the customer in writing of the claim acceptance or refusal
promptly after completing the investigation, stating the following:
1. For accepted claims (full or partial acceptance):
- Settlement amount.
- How the settlement amount was reached.
- Justification if reduced settlement is offered.
- Justification in case any part the claim is not accepted.
2. For denied claims:
- Written reason for denying the claim under question.
- Copies of documents or information that were used in
reaching the decision, if requested.
J. Explain the appeal or complaints process, if the settlement is not
accepted by the customer.
K. Forward the claims settlement payment without undue delay
upon receiving all required information and documentation.
Claims Settlement

57. Insurance companies must settle claims within the time period
indicated in article 44 of the Implementing Regulations, and when
that is not possible, provide an explanation, with reason(s) for such
delay.
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Principles and Practices of Insurance


Credit Control

58. Companies may not provide excessive credit to customers. Full
payment terms must be agreed in writing at the outset of the policy,
and the insurance company should promptly cancel a policy, after
appropriate warnings, and thirty (30) days notice, if payments are
not made. Premiums must be paid separately from, and may not be
offset from, claims payments.
Complaints Handling

59. Companies must put in place a fair, transparent, and accessible
complaints handling process, and inform customers of the
complaints filing procedures.
60. Upon receiving a complaint, companies must carryout the
following:
A. Acknowledge the receipt of the complaint.

B. Provide an estimate of the time to address the complaint.
C. Provide the customer with the contact reference to follow up on
the filed complaint.

D. Inform customers on the progress of the filed complaint.
E. Address the claims in a prompt and fair manner within ten (10)
working days of receiving the complaint.
F. Notify the customer, in writing, whether the complaint is
accepted or rejected, and the underlying reasons for the decision
and, if applicable, any offered compensation.
G. Explain the dispute filing process to escalate the complaint to
the committees established by article 20 of the law on supervision
of cooperative insurance companies.

Cancellation

61. Cancellation of policies must conform to the cancellation
conditions specified in the policy terms and conditions. Cancellations
by the insurance company must be notified to customers in writing,

including a reference to the relevant contractual cancellation
condition and explanation of the underlying reasons for the
cancellation.

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Principles and Practices of Insurance

62. Amounts due to customers as a result of the cancellation of
a
policy must be paid without undue delay, and must be calculated in
accordance with the provisions of article 54 of the Implementing
Regulations.
Renewal and Expiry

63. Companies must inform customers of the policy renewal or expiry
date in a timely manner to allow customers to arrange continuing
insurance coverage.
64.
For all protection and savings contracts, insurance companies
should provide an annual statement to their customers which
includes the following information:
A. Projected maturity value, or value at age eighty-five (85) for the
whole policy.

B. Current sum insured on main and supplementary benefits.
C. Total premiums paid in the previous year.
D. Policies linked to investment funds should show the value of the
units in each fund.
Distribution of Surplus

65. An insurance company must document the mechanism it will put
in place to comply with article 70 of the Implementing Regulations,
and submit this document to SAMA for approval. This document

should then be freely available to customers and Members of the
Public.


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