What's insurance ? Mr Owl explains how
INSURANCE PROTECTS YOUR STUFF
Dr Allan Manning
National Library of Australia Cataloguing-in-Publication entry Author: Manning, Allan, 1954Title: What’s insurance? Mr Owl explains how insurance protects your stuff / written by Allan Manning ; illustrated by Gloria Lu. ISBN: 9780958094894 (pbk.) Target Audience: For primary school age. Subjects: Insurance--Juvenile literature. Property insurance--Juvenile literature. Dewey No. 368
Š Mannings of Melbourne Pty Ltd 2002-2011 All Rights Reserved No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, scanning, recording, or any other information storage system, without permission in writing from the publisher. Requests for permission to reproduce content should be directed to pulisher@mom.com.au or a letter of intent should be faxed to the Permissions Department on +61 3 9835 9966.
What's insurance ? Mr Owl explains how INSURANCE PROTECTS YOUR STUFF
Written by Dr Allan Manning Illustrated by Gloria LU
Contents Introduction
1
How & Why Insurance Started
2
How Property Insurance Works
19
Classes of Insurance
28
How Insurance Companies Pay Claims
33
Special Insurance Words
46
Want to Learn More?
48
Introduction You will have seen a lot on TV about storms, floods, fires and earthquakes. Insurance is often talked about too, but what’s insurance and how does it work? This book shows you how insurance protects people’s stuff.
Let’s start with these four words:
Look out for blue words as these are special words. You can look these up at the back of this book to find out their meaning.
Insurance, which is a financing service that protects against loss. Premium, which is the price you pay to buy insurance protection. Loss, which is when something bad happens that leaves you worse off. Risk, which is the chance of something bad happening.
1
How & Why Insurance Started
5000 years ago, in ancient China, farmers would travel by raft to the big towns on the coast to sell the crops they had grown on their farms.
2
The problem was that out of every 100 rafts that set sail each year, 2 or 3 rafts were lost in the rapids.
3
This meant 98 farmers were rich and 2 lost everything and were very poor.
4
Rather than put all their harvest on a single raft and risk losing everything...
5
...the farmers agreed to put one bag of rice or fruit on each of the 100 rafts. So when a few rafts were lost, it was only a small loss to all the farmers, not a big loss to one or two farmers.
This is what insurance is all about: Spreading the risk.
6
About 4000 years ago, the King of Babylon, King Hammurabi, listed 282 rules for his vast kingdom on a huge stone column.
7
He included 5 rules on insurance to protect his subjects.
This meant that if someone’s house burnt down, they got a new one for free. Or, if they were robbed, their stuff was replaced. Having this type of insurance allowed his kingdom to grow and protected his subjects if something bad happened to them.
People who have insurance today have the same protection.
8
Modern insurance, as we know it today, started in England. Why? Well let me tell you all about it and, while I do, try and imagine what it must have been like... Let’s travel to the City of London in the year 1666 which, as I’m sure you have worked out, is over 300 years ago! Did you know that back then most buildings were made of wood, with thatched straw roofs? Now, let’s stroll down Pudding Lane, where I know there’s a yummy bakery shop. The baker, whose name is Thomas Farriner, is so good that he’s the King’s baker!
9
It’s the night of 2 September 1666 and a lovely evening for a stroll. But, uh oh, what’s that we smell? No, it’s not fresh bread or jam tarts...it’s smoke! Oh no, the baker’s servant hasn’t put out the fire in the oven at the end of the day, and a spark has set fire to the building! The bakery shop is on fire and it’s soon out of control. What are we to do? I know! We should ring the fire brigade, shouldn’t we? Only, in 1666, there is no fire brigade, so people can only watch as nearly the whole City of London is burned to the ground. This fire, which started from one little spark, burned for 5 long days, and destroyed much of the City of London! They called it the ‘Great Fire of London’ and it’s known by this title to this day.
10
Charles II, who was the King of England at the time, finally sent in the army to help fight the fire. But, by this time, the Great Fire of London had destroyed 80% of the entire city! Can you imagine how much damage that is? Well, let’s have a look... 13,200 houses 87 churches and 6 chapels 52 halls More than 1,000 shops and businesses 5 bridges (including London Bridge) 2 famous prisons St Paul’s Cathedral
11
As there was no protection against loss, most people who lived in or had their businesses in London city lost all that they had. Can you imagine no longer having a home to come home to, no clothes to wear, no food to eat?
We’ve lost our house and everything in it! All our stuff is gone...
We’ll have to work hard to earn the money to buy new stuff...we can do it. But, what if it happens again?
12
One man, Nicholas Barbon, had a bright idea. He started a company to protect buildings against the risk of fire. This is how insurance companies and fire brigades came about!
If a house catches fire, we’ll send the fire brigade and the insurance will cover any loss.
Good idea, Mr Barbon! Dr Barbon was a doctor, but saw the need for insurance. His company, started in 1680, was first called the Fire Office, but the name was changed to the Phoenix Office in 1705.
13
It was such a good idea that other insurance companies were also started. Each had their own fire brigade and they put a fire mark on your home to show you were protected by insurance. You can see me pointing to the fire mark.
This picture of a sun was the fire mark for the Sun Fire office.
14
All these companies offered insurance so that their policyholders could replace their home and contents if damaged by fire. Here’s how it works: You pay us a premium, and we protect you with insurance.
15
I’m happy to pay my premium, as I want to be protected from the risk!
The idea spread to other countries like Australia and New Zealand, China and South Africa. In fact, it went all around the world!
The government now looks after the fire brigades, picking up on the good idea of Nicholas Barbon.
But insurance companies still pay money to their policyholders when they have a loss.
16
Today, insurance is a very big industry all around the world...and yet it started out as the idea of just one man following the devastation of the Great Fire of London! Can you tell me why people buy insurance? Of course! It’s to protect themselves in case of all sorts of loss like fire, flood, earthquake, storm, burglary and car accident, just to name a few
People around the world spend about $5 trillion on insurance protection each year!
17
Which is a lot of money and a lot of protection!
In Australia and New Zealand, insurance companies have paid over $25 billion in claims in just the last 12 months!
Fire
Flood
Storm
Earthquake
So now you know why insurance started, but do you know how it works?
18
How Property Insurance Works 1. Your stuff needs to be insurable before you can obtain insurance to cover it for loss or damage. So how do you know if your stuff is insurable? Simple! If you agree with these facts, then your stuff is insurable! FACT 1 The stuff is yours - it doesn’t belong to someone else. FACT 2 The stuff is able to be repaired or replaced if lost or damaged. FACT 3 The stuff is at risk of loss. FACT 4 The risk of loss or damage to your stuff must not be sure to happen, but just a possibility. While we could look at any stuff, how about we start by looking at your home?
19
Your home can be at risk from many kinds of loss. Below are just a few. Can you think of any other kinds of loss?
Fire
Storm
Theft
Earthquake Come back here later and have a think about the risk of loss for your other stuff. For now, let’s see how we go about getting insurance...
20
2. Your home is insurable and you want to insure it, so you contact an insurance company or an expert who sells insurance. This expert is called an insurance broker. They will ask you questions like: What is the full address of your home? How old is your home? How much is your home worth? Is it your home or someone else’s? How big is the home? Do you live in the home? Do you have a burglar alarm? What is the home made of? How long have you owned the home? Have you ever had an insurance claim?
21
3. The answers you gave to the insurance company will be considered against the facts and figures they have for other homes, and they will rate your risk against other homes to decide how much your premium will be. If the risk of loss to your home is less than other homes, then your premium will be lower than what other homeowners pay. But, your premium will be higher than what other homeowners pay if the risk to your home is greater, such as if the risk of loss includes bushfire or flood.
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22
4. There are often extra covers that you can buy. The insurance company or your insurance broker will ask you some more questions to determine what sort of covers you need to protect your home.
Will you need insurance for the contents of your home? Do you want cover in case of fire and perils (storm, hail, wind, earthquake, impact) damage? Accidental damage cover is available. Would you like to know more about this? Would you like cover for burglary? Do you want cover for flood? Is there any jewellery or other high value items that you use or take away from your home?
23
5. Once you have agreed the insurance cover required, the insurance company will let you know the premium that needs to be paid. Your insurance company will give you an insurance policy once you have paid the premium. The insurance policy is a contract. It tells you how much cover you have and the date the insurance runs out. You usually buy insurance one year at a time. The insurance policy also tells you about any causes of loss that your insurance does NOT protect you against and any property that is NOT insured.
INSURANCE POLICY
24
6. All done! You now have the comfort of knowing that your home is insured for the next 12 months! If you chose to insure your contents with your home, as many people do, then the contents of your home will also be protected by your insurance policy, and you can rest easy in your favourite chair, knowing that it too has been insured!
Having insurance doesn’t mean bad things won’t happen, but it does mean that you don’t need to worry about your stuff if something does happen!
25
So, now you’re insured and you’re happy because you know that you’re protected if something does happen. But what do you do when something bad happens?
Oh, no! My home has been burgled, and my bike has been stolen. Now what do I do?
Now you make a claim on your insurance.
26
Making A Claim on Your Insurance Ring your insurance company and tell them your bike was stolen from your home. Your insurance company will need to know how much it will cost to replace your stolen bike. They may send around a loss adjuster to speak with you and review your claim. Your insurance policy may show that an excess is required for a claim of this type. If it does, this means you will need to pay a small amount of money yourself towards replacing your bike. When your claim has been accepted by your insurance company, they will replace your stolen bike or give you the money to buy a new bike yourself. Now you know how insurance works and what to do when you have a claim, so let’s look at just some of the types of insurance that are available to protect your stuff!
27
Classes of Insurance There are many types of stuff and all sorts of insurance to protect it! Generally, there will be some type of insurance available for a risk when there are enough people that need protection against that risk. From your pet dog or cat to a space rocket, there is insurance to protect your stuff!
28
There is Home Insurance for your home and the stuff inside your home (including your bike).
There is Pet Insurance for your dog or cat, in case they sick.
Motor Insurance is for cars, trucks and motorbikes, and covers accident, fire or theft.
29
For example, Travel Insurance is great for people on holidays as it provides protection for them in case they get sick or lose their stuff! Travel Insurance will pay hospital bills if someone in the family needs hospital treatment. It will also pay if you lose your camera, but not if you lose your way!
??
30
Health Insurance protects you when you go to the hospital, a doctor or dentist.
You can buy Bicycle Insurance to cover expensive bikes or if you run into someone while riding.
Business Insurance protects your parents’ business in case something happens to their building, equipment, stock or other contents, or if they are sued by someone.
31
There are lots of types of insurance to protect all sorts of stuff!
On the very first commercial aeroplane flight in England, insurance was available for the plane, the passengers and in case they hit something on the ground! Insurance companies are so clever, making sure there is insurance for all types of stuff, but how does your claim get paid?
32
How Insurance Companies Pay Claims Every business has to make a profit to stay in business. To make a profit, an insurance company needs lots of policyholders, all paying premiums! All policyholders pay their premiums to their insurer, who treats the money collected as a pool. Some policyholders make claims against their insurer, and these claims are paid from the pool.
My premium is part of the pool. So is mine!
Other costs, called operating expenses, are also paid from the pool. Wages, rent and advertising on television are all operating expenses.
33
Insurance companies invest the money from the pool. The income from this investment should provide more money for the pool, and increase the profit for the insurance company. The more income an insurance company can make from investment, the more they have available to pay claims, and the less they need to charge their policyholders as premium. If an insurance company has paid for all the claims and operating expenses, but still has money leftover in their pool, they have achieved the goal of making a profit!
34
How about if there was a big earthquake or storm and many more people claimed, and they were all big claims. What would happen?
INS
UR CL ANC AIM E
Insurers buy insurance from a special insurer called a reinsurer, to protect themselves and their policyholders against extra big claims or major catastrophes where lots of people claim for the same event.
Just like an insurer, the reinsurer has a pool from insurance companies all around the world. They then have enough money to pay even the biggest claims.
35
So, that’s how today’s insurance protects your stuff. But what if you had a really unusual or complicated risk?
Let’s say, for example, you own a company that owns oil rigs.
Where in the world would you find insurance to protect against the risks to your oil rigs?
36
Or if your company wants to protect its oil tanker...
...or a fleet of delivery trucks?
37
What if you’re a professional sportsperson? Where would you find insurance for your sporting goods or for injury and sickness?
38
Maybe you own a huge company that manufactures stuff, and you want insurance to protect your company against all sorts of risks.
39
Perhaps you’re the Queen and you need insurance for all your jewellery!
Did you know that in 1990, there was a big fire at the Queen’s Windsor Castle. Bad things can happen to good people any time, anywhere. That’s why we ALL need insurance!
40
There are so many insurance companies, with so many policies, and the policies can be very complicated.
Your insurance has to be right, but how can you be sure you have the right insurance for your stuff?
Simple! You need an
insurance broker.
41
Insurance is one of the most complicated areas to understand and deal with. It takes a real expert to be able to advise on all the issues involved and to ensure that there is full protection if a loss occurs. No home to live in No car to drive No business income to pay wages or feed the family Insurance brokers are experts in insurance. They guide home and business owners in managing risk, working out what insurance they need and the best company to insure with, as well as helping with claims.
42
Claims Experts Insurance companies employ specialist claims staff and loss adjusters to help them work out if a loss is covered by the insurance and, if so, how much to pay. Brokers and policyholders can get assistance with their claim from an expert called a claims preparer. All are highly trained experts that ensure the policyholder has their claim paid fairly and as quickly as possible.
43
Insurance as a Career In Australia and New Zealand, there are over 100,000 people working in insurance. It is a great job because whatever it is that you like, you can work in that area. I love pets -> Pet Insurance l love boats –> Marine Insurance l love sport –> Sports Insurance I love planes -> Aviation Insurance I love solving mysteries -> Claims Adjuster
If your mum or dad, auntie or uncle, grandma or grandpa work in insurance, they are very special, as they help protect other people’s stuff!
44
Even better, insurance is pretty much the same the world over, and so once you get started you are able to work in lots of places...from the traditional birthplace of modern insurance, Lloyd’s of London, to just about any town or city in the world!
I insurance and what it does. I hope you do too!
The End 45
Special Insurance Words Bicycle Insurance Insurance that protects you against the loss of your bicycle.
Damage Physical harm to stuff that reduces the stuff’s value or usefulness.
Broker An expert in arranging the insurance between the insurance company and the policyholder.
Excess Also known as the ‘deductible’, this is the amount that the policyholder pays towards the claim.
Business Insurance Insurance that protects against losses to your business and business income.
Experts People that have a lot of skill, special knowledge and/or experience in a particular area.
Catastrophe A large event causing loss or damage to lots of people. Claim The policyholder’s request to the insurance company for the repair or replacement of their stuff after a loss. Claims Preparer An expert employed by the policyholder to assist in having the claim paid. Contract A legal document that shows the agreement between everybody involved. Cover Details of the losses that your insurance protects and for how much.
Health Insurance Insurance that protects you against loss due to injury or poor health. Home Insurance Protects against the loss of or to your home and/or the stuff inside your home. Insurance Protection against loss. Insurance Market A place where insurance companies sell insurance. Insurance Policy The contract between the insurance company and the policyholder, setting out what is and what is not insured.
46
Invest To make an investment. An investment is the use of money in the hope that it will make more money. Lloyd’s of London A unique insurance market where underwriters create insurance policies for large, unusual or complicated risks. Loss When something bad happens that leaves you worse off. Loss Adjuster An agent of the insurer who verifies insurance claims. Marine Insurance Insurance for risks involving ships, other sea-going vessels and their cargo. Motor Insurance Protects you against the loss of your car. Pet Insurance Insurance that protects you against loss when your pet needs medical treatment. Policyholder The person or company that buys an insurance policy. Pool A large amount of money.
47
Premium Money that the policyholder pays for their insurance policy. Profit This is the money remaining to a company from their income, after they have paid out all their expenses. Property Insurance Insurance for risks associated with buildings and their contents. Reinsurance Insurance for insurers. Risk The chance of something bad happening. Theft The act of taking stuff that doesn’t belong to you. Travel Insurance Protects you against loss during your holiday.
Want to Learn More? Visit these websites to learn more about insurance and those dedicated people that protect your stuff! Australian & New Zealand Institute of Insurance & Finance www.theinstitute.com.au Insurance Council of Australia www.insurancecouncil.com.au Insurance Council of New Zealand www.icnz.org.nz Lloyd’s of London www.lloyds.com LMI Group www.LMIGroup.com National Insurance Brokers Association www.niba.com.au The Insurance Brokers Association of New Zealand Inc www.ibanz.co.nz
48
Your Questions If you think of any questions, write them on this page and then ask your teacher, your parents or someone that you think is wise!
Insurance is not taught in any school and very few universities. Yet it is so important to have, and to have it right, when a loss occurs. This book has been written and illustrated in a fun and engaging way to explain the basics of general insurance to young people. It will help them to make sense of what happens and who helps out when a loss occurs, remembering that some type of insurable event is broadcast on television just about every night. The book has also been written to assist those in the general insurance industry when explaining to younger members of their family just what they do and why it is an important job.
Address
LMI Group
LMI Group House, 428 Burke Road, Camberwell PO Box 2116, Camberwell Victoria 3124 Telephone +61 3 9835 9900 Facsimile +61 3 9835 9966 Website www.LMIGroup.com