Insurance is risk transfer through risk pooling. When persons having similar assets exposed to similar risks contribute into a common pool of funds it is known as pooling. Insurance reduces burdens by removing fear, worry, and anxiety about the future and thus encourages free investment of capital in businesses. Insurance is defined as sharing of the losses of a few who are unfortunate to suffer such losses, amongst those exposed to similar uncertain events / situations.
Insurance is risk transfer through risk pooling. When persons having similar assets exposed to similar risks contribute into a common pool of funds it is known as pooling. Insurance reduces burdens by removing fear, worry, and anxiety about the future and thus encourages free investment of capital in businesses. Insurance is defined as sharing of the losses of a few who are unfortunate to suffer such losses, amongst those exposed to similar uncertain events / situations.
Insurance is risk transfer through risk pooling. When persons having similar assets exposed to similar risks contribute into a common pool of funds it is known as pooling. Insurance reduces burdens by removing fear, worry, and anxiety about the future and thus encourages free investment of capital in businesses. Insurance is defined as sharing of the losses of a few who are unfortunate to suffer such losses, amongst those exposed to similar uncertain events / situations.
Insurance is risk transfer through risk pooling. When persons having similar assets exposed to similar risks contribute into a common pool of funds it is known as pooling. Insurance reduces burdens by removing fear, worry, and anxiety about the future and thus encourages free investment of capital in businesses. Insurance is defined as sharing of the losses of a few who are unfortunate to suffer such losses, amongst those exposed to similar uncertain events / situations.
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Chapter - 1
Chapter 1 Introduction to Insurance Chapter Summary:
Insurance is risk transfer through risk pooling.
When persons having similar assets exposed to similar risks contribute into a common pool of funds it is known as pooling. The thumb rules of insurance are: Don�t risk more than you can afford to lose Consider the likely outcomes of the risk carefully Don�t risk a lot for a little
Topics Covered:
Evolution of insurance How insurance works Risk management techniques Insurance as a tool for managing risk Role of insurance in society Definitions:
Asset: anything that confers some benefit and has an economic value to its owner. Risk: It is an uncertain of possibility of loss or damage. Only uncertain risks are covered by insurance. Insurance: may be defined as sharing of the losses of a few who are unfortunate to suffer such losses, amongst those exposed to similar uncertain events / situations.
History of Insurance:
The idea of insurance took birth thousands of years ago, yet the business of insurance as we know it today, goes back to just two or three centuries.
The earliest kind of risk covered through insurance was:Losses due to misadventures at sea The forerunner to other kinds of insurance :Marine Insurance The origin of insurance business as practiced today, is traced to:The Lloyd�s Coffee House in London The first life insurance company in IndiaThe Oriental Life Insurance Co. Ltd (set up as an English Company) The first non-life insurerThe Triton Insurance Co. Ltd. The first Indian insurance companyThe Bombay Mutual Assurance Society Ltd., formed in 1870 in Mumbai When was life insurance nationalised in India1st September 1956 when LIC was formed When was non-life insurance nationalised in India1972 with General Insurance Business Nationalisation Act (GIBNA) When was Malhotra Committee set up In 1993 and it submitted its Report in 1994 When was IRDAI set upIn April 2000 with the passing of IRDA Act 1999 The oldest insurance company which still existsNational Insurance Company Limited (Founded in 1906) Important Legislations:
The Insurance Act, 1938 � the first comprehensive legislation to regulate the conduct of insurance companies in India. Life Insurance Act, 1956 to nationalise life insurance business in India General Insurance Business Nationalisation Act (GIBNA), 1972 IRDA Act, 1999 Insurance Act, 2015 Insurance Act, 2015 defines an Indian Insurance company as a company in which the aggregate holdings of equity shares by foreign investors, including portfolio investors, do not exceed forty-nine percent of the paid up equity capital and which is Indian owned and controlled.
A foreign insurance company can engage in reinsurance through a branch established
in India. The term �re-insurance� means the �insurance of part of one insurer�s risk by another insurer who accepts the risk for a mutually acceptable premium.�
Insurance industry today:
The insurance industry of India consists of 53 insurance companies of which 24 are
in life insurance business, 29 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. [Position as on 28th February, 2016]
Out of 29 non-life insurance companies, there are six public sector insurers, which include two specialised insurers namely Agriculture Insurance Company Ltd for all kind of agriculture insurance like crop Insurance, plant and yield insurance and Export Credit Guarantee Corporation of India for Credit Insurance.
There are five (5) private sector insurers registered to underwrite policies exclusively in Health, Personal Accident and Travel insurance segments. These are:�
Star Health and Allied Insurance Company Ltd.
Apollo Munich Health Insurance Company Ltd. Max Bupa Health Insurance Company Ltd. Religare Health Insurance Company Ltd. Cigna TTK Health Insurance Company Ltd. In addition to 53 insurance companies, there is sole national re-insurer, namely, General Insurance Corporation of India (GIC-Re).
How insurance works?
Persons exposed to the same risk come together and agree that if anyone of them suffers a loss the others will share the same.
Example: if one farmer�s cow dies due to accident or sickness, all the farmers in the village contribute to share the loss and help the farmer financially to purchase another cow.
Different type of risks can be identified and a sufficiently large group of similar risks can be formed. A fund can be created out of contributions by the members of this group.
In practice this fund is managed by an Insurance Company (Insurer). The amount an
insurance company collects as expected contribution from the group members (Insured) in advance to create the fund is called Premium. From this fund, they pay to the person who suffers a loss
Insurance reduces burdens:
Burden of risk refers to the costs, losses and disabilities one has to bear as a result of being exposed to a given loss situation / event. Risk Burdens Primary Burden of Risk Secondary Burden of Risk Consists of losses that are actually suffered by households and business units as a result of pure risk events. Consists of costs and strains that at one has to bear merely from the fact that one is exposed to a loss situation.Even if the event does not happen, these burdens have still to be borne.
Risk Management Techniques:
Risk avoidance Risk control Risk retention Risk financing Risk transfer Insurance vs. Assurance:
Terms used interchangeably, but there are subtle differences between the two:
Insurance refers to protection against an event that might happen whereas assurance refers to protection against an event that will happen. Insurance provides cover against a risk while assurance covers an event that is definite e.g. death, which is certain, only the time of occurrence is not certain. The term assurance is used generally in life insurance.
Role of Insurance in Economic Development:
The funds (premium) collected by the insurance companies are invested in ventures which would benefit the society at large which helps the economy. Insurance removes fear, worry, and anxiety about the future and thus encourages free investment of capital in businesses. Indian insurers operate in more than 30 countries. These operations earn foreign exchange.
Insurance and Social Security:
The Employees State Insurance Act, 1948
Rashtriya Swasthya Bima Yojana [RSBY] Pradhan Mantri Jan Dhan Yojana (PMJDY) Pradhan Mantri Suraksha Bima Yojana [PMSBY] Pradhan Mantri Jeevan Jyoti Bima Yojana [PMJJBY] Atal Pension Yojana [APY] Pradhan Mantri Fasal Bima Yojana[PMFBY] The insurance industry itself offers on commercial basis, insurance covers which have the objective of social security. For example, Janata Personal Accident and Jan Arogya and Crop Insurance etc.
Questions Which among the following is the regulator for the insurance industry in India
Insurance Authority of India
Insurance Regulatory & Development Authority of India Life Insurance Corporation of India General Insurance Corporation of India Which among the following is the secondary burden of risk?
Business Interruption Cost
Goods damaged cost Setting aside reserves as a provision for meeting potential losses in the future Hospitalisation cost as a result of heart attack Which among the following is method of risk transfer?
Bank FD Insurance Equity Shares Real Estate Which among the following scenarios warrants insurance?
The sole bread winner of a family might die untimely
A person may lose his wallet Stock prices may fall drastically A house may lose value due to natural wear and tear Lloyds Coffee House is regarded as the place where insurance started the way it is practised today. Lloyds is located in __________.
Bangalore Singapore London Dubai Risk transfer through risk pooling is called _____________.
Savings Investments Insurance Transfer The measures to reduce chances of occurrence of risk are known as _____________.
Risk retention Loss prevention Risk transfer Risk avoidance By transferring risk to insurer, it becomes possible:
To enjoy from floods
To enjoy and make money from insurance To enjoy a fire in the factory To enjoy peace of mind and plan one�s business more effectively In the insurance context �risk retention� indicates a situation where ___.
Possibility of loss or damage is not there
Loss producing event has no value Property is covered by insurance One decides to bear the risk and its effects Which of the following statement is true?
Insurance protects the asset
Insurance prevents its loss Insurance reduces possibilities of loss Insurance pays when there is loss of asset Out of 400 houses, each valued at Rs.20,000/- on an average 4 houses get burnt every year resulting in a combined loss of Rs.80,000/-. What should be the annual contribution of each house owner to make good this loss?
Rs.100/- Rs.200/- Rs.80/- Rs.400/- Which of the following statements is true?
Insurance is a method of sharing the losses of a �few� by the �many�
Insurance is method of transferring the risk of an individual to another individual Insurance is a method of sharing the losses of �many� by a few Insurance is a method of transferring the gains of a few to the many Before acceptance of a risk, the insurer arranges a survey and inspection of the property. Why?
To assess the risk for rating purposes
To find out how the insured purchased the property To find out whether other insurers have also inspected the property To find out whether neighbouring property also can be insured Chance of loss is referred to as _________.
Luck Risk Bad luck Peril Insurance deductible is an example of ___________.
Risk mitigation Risk avoidance Risk transfer Risk retention Cost of risk is determined by ________________.
Probability only Impact only Probability and impact Timing of risk How does insurance help in easing access to credit?
Insurer provides free credit
Banks lend easily if an application is backed by insurance Person who can pay insurance is assumed to be creditworthy Regulations mandate provision of credit to the insured To which of the following does the Employees State Insurance Act, 1948 apply.
Employees of Central Government
Employees of State Government Employees of Public Sector manufacturing companies Industrial employees as notified by the Government Which of the following provide Social Security?
Crop Insurance Scheme (RKBY)
Janata Personal Accident Jan Arogya All the above Which of the following statements is true?
Insurance facilitates free investment of capital in business
Insurance encourages commercial and industrial development Insurance contributes to national productivity All the three above Insurance plays an important role in the economic development of a country through____ Capital Protection Removal of Anxiety Sharing of Risk Expertise All the above Copyright � 2011 - All Rights Reserved - HRD Foundation-India
