Types of Insurance Business 保險業務的種類

Statutory Classification of Insurance 保險的法定類別

Schedule 1 to the Insurance Ordinance (Cap. 41) divides insurance business into two broad groups: long term business and general business. An insurer must be authorised by the Insurance Authority (IA) and may carry on only the classes for which it is authorised. Authorisation can be limited to some of the classes within a group.

Long term business has nine classes, A to I: (A) life and annuity; (B) marriage and birth; (C) linked long term; (D) permanent health; (E) tontines; (F) capital redemption; and (G) to (I) retirement scheme management categories I, II and III. These policies usually run for many years and often contain a savings or investment element.

General business has 17 classes: accident, sickness, land vehicles, railway rolling stock, aircraft, ships, goods in transit, fire and natural forces, damage to property, motor vehicle liability, aircraft liability, liability for ships, general liability, credit, suretyship, miscellaneous financial loss and legal expenses.

Watch out for this point: accident (class 1) and sickness (class 2) protect people, but by statute they are general business, not long term business. Permanent health (class D), by contrast, is long term business.

Practical Classification of Insurance 保險的實務類別

In practice, insurers and the market usually split business first into life and non-life (general) insurance, and then into the traditional underwriting departments: fire (property), marine and aviation, motor, and accident (also called miscellaneous or accident and liability, covering personal accident, liability, employees' compensation, theft, glass and similar risks).

This classification reflects how insurers organise themselves, where underwriting expertise sits and market custom. It is not a legal requirement, so different companies may draw the lines slightly differently. A single policy, such as a household comprehensive policy, may combine cover from several departments.

The market also often groups business by type of customer: personal lines (such as home, private car and travel insurance) and commercial lines (such as property all risks, public liability and employees' compensation insurance).

Academic Classification of Insurance 保險的學術類別

The academic classification groups insurance by what is protected, normally into four categories: (1) property insurance, covering loss of or damage to physical property, such as fire, motor own damage and cargo; (2) pecuniary insurance, covering financial loss that is not itself physical damage, such as business interruption, credit, fidelity guarantee and money insurance; (3) liability insurance, covering the insured's legal liability to pay compensation to third parties, such as public liability, product liability and employees' compensation; and (4) insurance of the person, covering a person's life or body, such as life, personal accident and medical insurance.

This grouping helps show how the principles of insurance apply. Property, pecuniary and liability insurance are contracts of indemnity: recovery is limited to the actual loss, and subrogation and contribution apply. Death and disablement benefits under life and personal accident policies are usually fixed sums (benefit policies), because a life cannot be valued in money, so the principle of indemnity does not apply.

Note that business interruption insurance is usually triggered by physical damage, but what it protects is lost profit. Academically it is therefore pecuniary insurance, not property insurance.

Reinsurance 再保險

Reinsurance is an arrangement under which an insurer (the ceding company) transfers some or all of the risks it has accepted, together with a corresponding share of premium, to a reinsurer. It is the insurance of insurers. A reinsurer may in turn pass on risks it has accepted to other reinsurers, which is called retrocession. Reinsurers carrying on business in Hong Kong must also be authorised and supervised by the IA.

The main purposes of reinsurance are to spread risk, to increase capacity (so that the insurer can accept large risks beyond its own financial strength), to stabilise underwriting results, to protect against catastrophe losses and to draw on the reinsurer's technical expertise.

By method, there is facultative reinsurance, arranged risk by risk with both sides free to offer or decline, and treaty reinsurance, under which a defined class of business is ceded and accepted automatically under a pre-agreed contract. By how losses are shared, there is proportional reinsurance (such as quota share and surplus, where premiums and claims are shared in proportion) and non-proportional reinsurance (such as excess of loss, where the reinsurer pays only losses above the insurer's retention).

There is no contract between the original insured and the reinsurer. The ceding company stays fully liable to its policyholders even if a reinsurer cannot pay, and a policyholder cannot claim directly from the reinsurer.