What Is Insurance

 Insurance is the protection granted to an

individual, institution or indeed the traders
against financial losses that may be caused
by of the occurrence of risks
 It is based on probabilities – the risks may or
may not occur
 Insurance aims at
restoring/indemnifying/compensating the
insured should the risk occur
Common Terminologies Used In Insurance
 Proposer: One applying for or seeking
insurance cover.
 Insured: One who is covered by an

Insurance Company
 Insurer: Insurance company providing

the insurance cover

 Proposal Form: Application form for

insurance
Common Terminologies Used In
Insurance Cont.
 Policy: A written contract of insurance between the
insurer and the insured, containing all the terms,
conditions and warranties of the insurance cover, and as
well as the amount of premium, sum insured and the
expiry date of the contract among others.
 Premium: Non-refundable small amount of money
contributed to the Insurance Company in return for
insurance cover.
 Third Party: One who is affected, but not part of the
insurance contract.
The Importance Of Insurance

 It protects the insured against financial loss

 by providing compensation
 thereby providing traders with the confidence to
engage in big business ventures
 Insurance is an invisible export that brings
foreign exchange.
 The Importance Of Insurance Cont.

 Life assurance provides a family saving plan as it

mostly benefits the dependants, should the assured die.
 Insurance protects the insured against claims from the
injury, death or damage to property of the third parties.
 It protects employers against financial loss arising from
claims from employees who may die or be injured while
on duty.

A house bought after receiving monetary

compensation from an Insurance
company.
 How Insurance Operates.

 Insurance operates on the basic rule of “Pooling Of

Risks”.
 Pooling of risks is:
 when many insured persons pay premium to the
insurance company, thereby creating a pool (piling
up/collection) of funds, from which the company pays
out compensation to those who suffer losses.
How Insurance Operates Cont.
 Insurance is successful with the collection of
more premiums but the occurrence of fewer
risks
 The lucky ones (the fortunate), who do not
receive anything, pay for the unfortunate.
 The insured persons/institutions must not all
suffer a loss at the same time, as there
cannot be enough funds in the pool to pay
every one
 The claims of the few are paid from that pool.
 Because there are more people contributing to
the pool than there are making claims, there is
always enough to pay the claims – even large
single claims like when someone is
permanently disabled as a result of a car
collision, or many smaller claims like those
resulting from a natural disaster.
Why should one insure

One of the main reasons one should insure

is to protect one’s belongings and assets
against financial loss.
When one has earned and accumulated
property, protecting it is prudent.
The law also requires us to be insured
against some liabilities. That is, in case we
should cause a loss to another person, that
person is entitled to compensation.
 Non-life insurance companies have
products that cover property against Fire ...
Industries also need to protect themselves by
obtaining insurance covers to .
 Life insurance is also known as long term
insurance or life assurance. ... of loss to
assets like car, house, accident etc. is
covered under General or Non-life
Insurance.
 Need of life insurance.
 Risks and uncertainties are part of life's great adventure --
accident, illness, theft, natural disaster - they're all built
into the working of the Universe, waiting to happen.
 Insurance then is man's answer to the vagaries of life. If
you cannot beat man-made and natural calamities, well, at
least be prepared for them and their aftermath.
 These unforeseen events are defined as "risk" and that is
why insurance is called a risk cover.
 Hence, insurance is essentially the means to financially
compensate for losses that life throws at people -
corporate and otherwise
Benefits of insurance

 Indemnification: the direct

advantage of indemnification for
unexpected loss. Organizations
suffering loss are at lease
moved closer to their prior
position.
reduction of uncertainty
 prior to the purchase of insurance, the
potential insured bears the risk associated
with possible uninsured damage or exposure
to liability. As a consequence an insured who
is aware of exposure to risk is uncertain
about the outcome. The insurance transfers
financial consequence of loss to other loss
related services according to the provisions
of the insurance agreements. This
substitution would be expected to reduce the
insured’s anxiety and uncertainty.
Funds for investment
 as insurance premiums are normally
are paid in advance of loses and held
by insurers until the time of claim
payment, which allows insurer to
invest these funds until claims are
paid, which increases the economy of
the country.
Loss control
 the writing of insurance gives the
insurance industry a direct interest in loss
control. Ex: an insurer that writes theft
insurance may provide financial incentive
to install theft-prevention devices through
reduced premiums or more favorable
settlement of losses occurring when such
devices are installed.
Aid to small business
 insurance can allow a small business to engage
in activities requiring resources that are beyond
its capacity. A regulation requiring business to
demonstrate financial responsibility for work
related injury offers an example. The resources
of smaller employer are less likely to meet this
test, in which case, the purchase of worker's
compensation coverage offers an alternative for
satisfying the requirement.
 DISTINGUISHING CHARACTERISTICS OF
INSURANCE CONTRACTS:
 Insurance contracts are distinctive. They have
some unique elements or characteristics:
 1. Principle of indemnity
 2. Rules of insurable interest
 3. Limiting recovery to actual cash value
 4. Subrogation in insurance
 5. Doctrine of adhesion
 6. Reasonable Expectations
 7. Personal contact
 8. Doctrine of utmost good faith
 9. Aleatory contract concept
 1. Insurer’s services
 2. Avoids raising costly external funds
 3. Avoids financial distress
 4. Reduce tax payments.

Insurer’s services: insurers provides loss control services and almost always
provide claims processing services. The key issue is bundling loss control
and claims processing services with an insurer’s promise to pay claims is
the least –cost way of purchasing the services demanded by the firm.
Avoids raising costly external funds: when in built reserves may not be
sufficient to pay all uninsured losses, the firm must find a way to pay
losses fro future cash flows or else declare bankruptcy.the use of bank
borrowings or new security issues to pay losses does not imply that the
loss is borne by the bank or the new investors, is borne by the firm’s
future cash flows will be use d to repay the bank or the new
investors.usage of external funds to pay losses can be costly. Use of
internal funds to pay uninsured losses implies that fewer internal funds will
be available to finance new projects.
 Avoids financial distress:a firm can experience financial distress
when it has difficulty meeting its obligations arising due to no-insurance
and, there fore has relatively high probability of bankruptcy can impose
costs on parties who have contractual relationships with the rim such
as employees, lenders, suppliers and customers.
As the claims of bondholders, employees, customers and suppliers
must be paid before the shareholders of the firm receive any funds,
effects the shareholders in different ways.
 Tax benefits: when calculating its taxable income, a non-insurance
company can deduct only losses that were paid during the year. In
contrast, a company with insurance can deduct the discounted value of
incurred losses, which equals losses paid during the year plus the
change during the year in the discounted value of its liability for unpaid
claims.Corporations can obtain tax benefits from insuring depreciated
property. The purchase of property insurance has two effects:
1. The firm is able to deduct the insurance premium when calculating
taxable earnings regardless of whether a loss occurs.
2. If a loss occurs, the firm will have to recognize a capital gain equal to
the insurance indemnity payment. If the income tax rate exceeds the
capital gains tax rate, the income tax savings from deducting the
premium exceeds the expected capital gains tax payment.
 By reducing risk through , firms might find it optimal to use more debt
financing.the additional debt financing generates additional interest tax
shields.

 Evolution of insurance:
 Marine insurance: is the oldest form of insurance.and policies of the
present form were sold in the beginning of he 14th century by the Brugians.
 Fire insurance: it has been observed in Anglo-Section Guild form for the
first time where the victims of fire hazards were given personal assistance
by providing necessaries of life.it has been originated in Germany in the
beginning of 16th century.the fire insurance got momentum in England after
1666 and with colonial development of England, fire insurance spread all
over the world in its present form. In India general insurance started
working since 1850 with the establishment of Triton insurance.
 Miscellaneous insurance: took the present shape at the later part of 19th
century with the industrial revolution in England. Accident insurance,
fidelity insurance, liability insurance and theft insurance were important
forms of insurance at that time. Now insurances such as cattle insurance,
crop insurance profit insurance etc., are taking place .
Kinds of insurance
Business point of view:
Life insurance: subject matter of insurance is human beings.the insurer
will pay the fixed amount of insurance at the time of death or at the
expiry of certain period. This insurance provides protection to the family
on premature death or give adequate amount at the old age when the
earning capacities are reduced.
General insurance: includes property insurance, liability insurance and
other forms of insurance. Fire and marine are called property
insurance. Motor, theft, fidelity and machine insurance include the
extent of liability insurance. Fidelity insurance come under liability
insurance where by the insurer compensates the loss to the insured
when he is under lability of payment to the third party.
Social insurance: is to provide protection to the weaker sections of the
society who are unable to pay the premium or the insurance. Pension
plans, disability benefits, unemployment benefits, sickness insurance
and industrial insurance are the forms of social insurance. Social
insurance is obligatory duty of the nation.
 Risk point of view: Insurance is divided into property, liability and
other forms.
 Property insurance: property of a person/business is insured against a
certain specified risks. The risk may be fire or marine perils, theft of
prepperty or goods, damage to property at accident.
 Marine insurance: provides protection against loss of marine perils.
Insures ship, cargo and freight.
1.ocean marine insurance.
2.inland marine insurance.
 Fire insurance: covers risks of fire.
 Miscellaneous insurance: the property, goods, machine, furniture,
automobile, valuable articles, etc., can be insured against the damage
or destruction due to accident or disappearance due to theft.
 Liability insurance: general insurance also includes liability insurance
covering awards, settlements, and defence costs for injuries third
parties.
Some of General insurance types:
 Export-credit
 State employees insurance
 Crop insurance
 Flood insurance
 Cash in transit insurance
 Health insurance
 Engineering insurance
 Public liability insurance
Principles of insurance
A contract of insurance comes into existence when there is an offer or
proposal on one side and acceptance of the same by the other. It has
to accept all the essential elements of simple contract.
The competent person must be of he age of majority according to law and
sound mind.
Premium is consideration that must be given for commencement of
insurance contract.
The object of the contract should be lawful
Free consent among the partners
Utmost good faith

it requires that the both parties

involved in an insurance contract
should make disclosure of all
material facts and figures relating
to the subject matter of the
insurance contract.
the insured’s duty is to disclosed all
material facts known to him but unknown
to the insurer.
similarly the insurer’s duty of utmost good
faith is disclosing the scope of the
insurance at the time of the contract.
Any concealment, misrepresentation
fraud or mistake concerning the material
facts to the risk should be disclosed.
 Insurable interest: the insured must
have insurable interest in the subject
mater of insurance. With out insurable
interest the contract of insurance is void
and unenforceable. A person said to
have an insurable interest in the subject
matter has to have benefit from its
existence and prejudice by its
destruction.
The insured should have insurable interest
in the subject matter if insurance at the
following times:
 In life insurance at the time of taking policy
 In fire insurance both at the time of taking
policy as well as at the time of loss
 In marine insurance at the time of loss and an
assured need not have in insurable interest at
the time of effecting marine insurance.
Indemnity: The assured, in case of loss
against which the policy has been insured,
shall be paid the actual amount of loss not
exceeding the amount of policy.
All contracts of insurance except life,
personal accident and sickness insurance
are contracts of indemnity.
Causa Proxima: The active efficient case that
sets in motion a chain of events which brings
about a result, without the intervention.if any
force started and working actively from a new
and independent source.proximate cause means
the closely and directly connected of the perils
insured against with losses.
 Mitigation of loss: In the event of some mishap to the insured property
the insured must make necessary effort to safeguard his remaining
property and minimize the loss as much as possible.
 Subrogation: the transfer of all the rights and remedies available to the
insured in respect of the subject matter to the insurer after indemnity
has been effected. It implies substitution of the insurer in place of the
insured in respect of the latter’s rights and remedies.
 The potential for the growth and spread of insurance is high due to stronger
economic growth, rapid ageing of populations, and a weak social security and
pension system.
 Less than 7 percent of Indian population has life insurance cover –
compared to 45 percent in Singapore, 81 percent in USA and 100 percent in
Japan.
 Insurance penetration as measured by premium as percent of GDP stood at
2.32 for India in 2000 compared to 16.86 in South Africa, 13.05 percent for
South Korea and 10.92 percent for Japan.
 According to Sigma report by Swiss Re although China and India accounted
for just 2.2 percent of global insurance premiums, their huge economies and
population size are supposedly capable of creating ample opportunities for
insurance.
 A well developed insurance sector promotes economic growth by
encouraging risk-taking activity, and also has potential as a mobilizer of long
term contractual savings, which are crucially needed for infrastructure
provisioning.
 Life insurance activity in its modern forms started in India in 1818 to provide
for English widows. The first Indian Life Insurance Company, the Bombay
Mutual Life Assurance Society started business in 1870. The rapid growth
of Life Insurance in India took place during the 1920s and early 1930s.
 Insurance regulations began in India through the passing of two acts
 The Life Insurance Companies Act of 1912 and
 Provident Fund Act of 1912.
 The first comprehensive legislation was introduced with Insurance Act of 1938 that
provided strict state control over insurance business in the country.
 The LIC came into being in a principally urban insurance scenario in 1956 when
the government of India brought together over 240 odd private life insurers and
provident societies under one nationalized monopoly corporation to raise the much
needed funds for rapid industrialization.
 Prior to 1973, general insurance business was provided by private companies and
restricted their operations mainly to organized trade and industry in large cities.
 Nationalization of general insurance business in India came in to existence with
amalgamation of 107 companies. these were merged into four companies. They
are
 The National Insurance Company Limited.
 The New India Assurance Company Limited.
 Oriental Insurance Company Limited.
 United India Insurance Company Limited.

 The General Insurance Corporation (GIC) was formed as a separate company in

1972.
 Insurance penetration, defined as premium as percent of GDP, is one
of the commonly used parameter for comparing the spread of insurance
across countries.
 Problem of adverse selection arises when a seller of insurance cannot
distinguish between buyers type that is whether the buyer is a low risk
or high risk type. The problem of moral hazard in selling insurance
arises when unobservable action of buyer aggravates the risk for which
insurance is bought. Example, when an insured car driver exercises
less caution in driving, compared to how he would have driven in the
absence of insurance exemplifies moral hazard.
 Whether insurance should remain a state monopoly is a moot question
before globalization. When traditionally public sector business have
allowed private entry, why must insurance remain a state monopoly?
 A state monopoly has a little incentive to innovate or offer a wider range
of products, at fair prices and attractive commission rates.
 Competition brings more products with extensive risk categorization,
better technology, and better consumer service including faster
settlements.
 The insurance reforms committee headed by R.N.MALHOTRA
recommended that private insurers be allowed to coexist with state
controlled LIC & GIC, along with setting up of a regulatory body.
 Nationalization of insurance companies under single umbrella brought
with it the public sector bureaucracies, cumbersome procedures, and
inefficiencies. Though the early 90’s brought forth liberalization on all
major economic fronts, the insurance was left untouched till the passage
of insurance regulatory and development authority(IRDA)bill in 1999.
 Challenges: large scale operation and bureaucracies entangled in the public
sector companies.
 Lack of interest to venture into the rural areas to sell crop insurance or any
other insurance by state owned insurance companies.
 Lack of penetration in pension segment despite LIC bought in pension
premium to the tune of 22 million.innovative measures to convert the pension
products into lucrative savings instruments.
 Another potential area insufficiently served was the health insurance and
other personal insurance products such as house holders, shopkeepers,
personal accident, travel insurance and professional indemnity covers.
The foreign investors are finding the Indian market more attractive because even
a small share of growing market is lucrative.
The other reason as to why the global insurers are interested in investing their
funds is the nature of the operations over a wide geographical are would
eliminate sudden dips in earnings due to the unexpected risk spread.
 Effects of globalization:
 (1) More job opportunities: Opening of the insurance sector to the foreign
investors has led to a renaissance in the Indian economy. Job opportunities show
bright signals. The people working in insurance sector in India are approximately
the same as in the UK, which is 1/7th of Indian population. There is the new
concept of ‘bancassurance’ that has paved the way for more job opportunities in
the financial sector. There is a growing demand for specialists in the area of
marketing, finance and human resource management apart from the demand for
technical expertise from professionals in underwriting and claims management
subjects.
 (2) Inflow of foreign capital: There has been a huge inflow of funds into the country
with foreign capital splurging in the Indian insurance companies as start up capital.
 (3) The technology transfer: Apart from the above monetary aspects there would
also be revolution in the transfer of technologies and knowledge from the global
participants in the fields of training, risk management, underwriting, introduction of
new policies, etc.
 (4) Wide distribution channel: The channel of distribution is widened once the
products offered are many. For instance, the seller at the point of sale itself can
offer insurance for durable consumer items such as a television or a refrigerator.
In such cases, the non-financial sectors also join in distributing the insurance
products and benefit mutually.
 Insurance sector reforms:

 In 19193, Malhotra committee, headed by former finance secretary and

RBI Governor, R.N.MALHOTRA was formed to evaluate the Indian
insurance industry and recommended its future direction .
 The committee was setup with an objective of complementing the
reforms in the Indian financial sector. The reforms were aimed at “
creating a more efficient and competitive financial system suitable for
the requirements of the economy keeping in mind the structural
changes currently under way and recognizing that insurance is an
important part of the overall financial system where it was necessary to
address the need for similar reforms”.
Insurance sector reforms:
Malhotra Committee was constituted with the following objectives:
(a). To suggest the structure of the insurance industry, to assess its strengths
and weaknesses of insurance companies in terms of the objectives of
creating an efficient and viable insurance industry, which will have a wide
reach of insurance services, a variety of insurance products with a high
quality of services to the public and servicing an effective instrument for
mobilization of financial resources for development.
(b). To make recommendations for changing structure of insurance industry,
for changing general policy framework etc.
(c). To take specific suggestions regarding LIC and GIC with a view to
improve functioning of LIC and GIC.
(d). To make recommendations on regulation and supervision of the
insurance sector in India.
(e). To make recommendations on role and functioning of surveyors,
intermediaries like agents etc. in the insurance sector.
(f). To make recommendations on any other matter which are relevant for
development of the insurance industry in India.
In 1994, the committee submitted the report and made the
following recommendations:
 Government’s stake in the insurance Companies to be brought down to
50 percent.

 Government should take over the holdings of GIC and its subsidiaries so
that these subsidiaries can act as independent corporations.

 All the insurance companies should be given greater freedom to operate.

 Private Companies with a minimum paid up capital of Rs. 1 billion should

be allowed to enter the industry.

 No company should deal in both Life and General insurance through a

single entity.

 Foreign companies may be allowed to enter the industry in collaboration

with the domestic companies.
 Postal Life Insurance should be allowed to operate in the rural market

 Only one State Level Life Insurance Company should be allowed to

operate in each state.

 The Insurance Act should be changed.

 An Insurance Regulatory body should be set up.

 Controller of Insurance should be made independent.

 Mandatory Investments of LIC Life Fund in government securities to be

reduced from 75 percent to 50 percent.

 GIC and its subsidiaries are not to hold more than 5 percent in any
company (The current holdings to be brought down to this level over a
period of time).
 LIC should pay interest on delays in payments beyond 30 days.

 Insurance companies must be encouraged to set up unit linked pension

plans.

 Computerization of operations and updating of technology to be carried

out in the insurance industry.

 It was decided to allow competition in a limited way by stipulating the

minimum capital requirement of Rs.1 billion.

 Foreign equity participation was to be restricted to only 40%.

 Committee felt the need to provide greater autonomy to insurance

companies in order to I prove their performance and enable them to act
as independent companies with economic motives., for this purpose, it
had proposed setting up an independent regulatory body.
 The RDA bill was drafted keeping the Malhotra Committee
recommendations which sought to give a statutory status to the interim
insurance regulatory authority and amend the 1938 Insurance Act, the
1956 Life Insurance Corporation Act and the 1972 General Insurance
Business (Nationalization) Act open up the sector.
 The RDA bill fixed minimum capital requirement for life and general
insurance at Rs. 100 crore and for reinsurance firms at Rs. 200 crores.
 In 1999, the bill was passed in parliament and IRDA was formed to
regulate and promote insurance business in India.

Insurance Regulatory and Development Authority (IRDA).

The IRDA Act 1999 seeks to open up the insurance sector for private
companies with a foreign equity of 26%.
The role of IRDA can be seen as comprising the three functions:
(1) The protection of consumers interest.
(2) To ensure financial soundness of the insurance industry.
(3) To ensure healthy growth of insurance market.
Objectives of IRDA

The main objectives of the Insurance Regulatory and Development

Authority are:

(1) To take care of the policy holders’ interest.

(2) To open the insurance for private sector.

(3) To ensure continued financial soundness and solvency.

(4) To regulate insurance and reinsurance companies.

(5) To eliminate dishonesty and unhealthy competition.

(6) To supervise the activities of intermediaries.

Duties and Powers of IRDA
For smooth running of insurance business, the regulatory authority has
been vested with adequate power and duties.
The duties and powers of the IRDA are:
(1) To regulate, promote and ensure orderly growth of the insurance
business.

(2). To exercise all powers and functions of the controller of insurance.

(3). To protect the interest of the policy holders in settlement of claims and
terms and conditions of policies.

(4). To promote and regulate professional organizations connected with

insurance business.

(5). To call for information from, undertake inspection and conduct

investigations including audit of the insurer, intermediaries and other
connected organizations and persons.
(6). To control and regulate the rates and terms and conditions that may be
offered by the insurers in respect of general insurance matters, not so
controlled by the Tariff Advisory Committee under Section 64(U) of the
Insurance Act.

(7). To prescribe the manner and form in which accounts will be

maintained and submitted by insurers and intermediaries

(8) To regulate investment of funds.

(9). To regulate margins of solvency.

(10). To adjudicate disputes between insurers and intermediaries.

PLAYES IN THE INSURANCE MARKET

Life Insurers
(1). Life Insurance Corporation of India Ltd. (LIC)
(2). Allianz Bajaj Life Insurance Co. Ltd.
(3). Birla Sun Life Insurance Company Ltd.
(4). HDFC Standard Life Insurance Company Ltd.
(5) ICICI Prudential Life Insurance Company Ltd.
(6). Tata AIG Life Insurance Company Ltd.
(7). SBI Life Insurance Company Ltd.
(8). OM Kotak Mahindra Life Insurance Company Ltd.
(9). Max New York Life Insurance Co. Ltd.
(10). ING Vysya Life Insurance Company Ltd.
(11). Aviva Life Insurance Company Ltd.
(12). AMP Sanmar Assurance Company Limited.
(13). MetLife India Insurance Company Private Limited.
Non-Life Insurers

(1). Bajaj Allianz General Insurance Company Limited.

(2). ICICI Lombard General Insurance company Ltd.
(3). IFFCO-TOKIO General Insurance Co. Ltd.
(4). National Insurance company Ltd.
(5). New India Assurance Company Ltd.
(6). Oriental Insurance Company Ltd.
(7). United India Insurance company Ltd.
(8). Tata AIG General Insurance company Limited.
(9). Royal Sundaram General Insurance company Limited.
(10). Cholamandalam General Insurance company Limited.
(11). Reliance General Insurance company Limited.
(12). HDFC Chubb General Insurance Ltd.
 NEW DIMENSIONS IN INSURANCE MARKET:
 Reinsurance
 Bancassurance
 Alternative Risk Transfer
 Insurance Securitization
 Insurance Derivatives
 Catastrophe Bonds
 Weather Derivatives
ART Techniques
ART is the alternative and gradual process for transfer of local risk to
capital Market –
(1) Insured to Insurer,
(2) Insurer to Re-insurer,
(3) Re-insurer to Retrocession or
(4) Re-insurer to Capital Markets (through SPV)

Differences between reinsurance products and ART products:

(1) ART starts where the scope of traditional reinsurance and retrocession
closes up.
(2) Insurance and reinsurance arrangements are annual contracts where
ART products are long term contracts.
(3) Conventional insurance or reinsurance is the process of risk underwriting
or risk spreading while ART is the technology of risk financing with a
long term contract between investors and insurers or re-insurers for risk
financing through bonds, securitization, swaps options, etc.
(4) Insurance or reinsurance is a contract covering a specific and single
risk but ART covers the entire portfolio of risk with adjustments and
returns to the corporate investors.

(5) Insurance and reinsurance arrangements are traditional for centuries

while ART products are innovative and untraditional technology
bridging the gap between the underwriters and the investors with
additional financial strength for underwriters and returns for investors.
To ensure that we can afford to pay
that compensation, the law requires
us to buy liability insurance so that
the responsibility of paying the
compensation is transferred to an
insurance company.
.  Who should buy general insurance?

Anyone who owns an asset can buy insurance to

protect it against losses due to fire or theft and so
on.
Each one of us can insure our and our
dependents’ health and well being through
hospitalization and personal accident policies.
To buy a policy the person should be the one
who will bear financial losses if they occur.
This is called insurable interest.
IMPORTANCE OF LIFE INSURANCE

 No one likes to think about the need

for life insurance, but if you were no
longer in the picture what would
happen to the people who depend on
you for financial support?
 Studies show that the premature death of a
household’s breadwinner can have a significant
negative impact on a family’s financial
security.
 Even if the deceased has some life insurance,
the amount is often inadequate. Almost half of all
American households (48 million people) either
don’t own life insurance or feel they need more
coverage
 Life insurance is an essential part of any financial
program
 Life insurance also offers living benefits
 Most people think of life insurance only as a legacy —
something left behind after they die. But many policies
offer benefits that can be used during your lifetime, such
as:
 Accelerated death benefit
 If diagnosed as terminally ill, the insured may request
payment of the life insurance policy’s face amount
instead of the death benefit being paid to a beneficiary.
 Portability
Under most group policies employees can
take their life insurance protection with them
when they leave the company or retire and
take advantage of group rates and the
convenience of
 Here are some guidelines to help you decide if life
insurance is the right choice for you:

 Children
 Beginning Families
 Established Families
 Young Single Adults
 Non-Child Working couples
 Elderly
NEED AND IMPORTANCE OF NON
LIFE INSURANCE
Non Life Insurance

Your valuable possessions in life - your

home, business, and vehicle are exposed to
various hazards. Also, emergency medical
expenses can put you under serious financial
stress. Travelling too involves risks such as
accident, loss of baggage and passport and
medical expenses.
 Deutsche Bank is committed to provide you
with time-tested and trusted financial
solutions that give you all the security you
need. We offer you Non-Life Insurance
solutions from Bajaj Allianz General
Insurance Company Limited
 Fundamental elements of insurance
Utmost good faith
The general rule in the contract is that each
party to the contract is entitled to make the
best bargain he can. The rule of caveat
emptor i.e. let the buyer beware, does not
apply to them and non disclosure of material
facts would go to the root it bring regarded
as fatal to the validity of the contracts.
Contracts of the insurance are based on the
rocky foundation of almost good faith.
 when the assured does not make a
completely disclosure of the everything which
is the material for the insurer to know I order
to judge whether he should accept the risk,
what premium he should charge, the insurer
can avoid the contract.
 Any fact is the material that has the bearing
on the risk and could materially affect the
insurer in deciding the contract or not
Example:

A person made a proposal to an insurance company

for insurance on his life for Rs 50000. He truthfully
answered various question on the proposal form
and disclosed all the material facts. A few days latter
but before the proposal was accepted by the
insurance company, the person was taken ill with
pneumonia.
Two days later he died because of the
pneumonia and the company learned of his
illness for first time. Held, the company was
not liable to pay the claim as notice of illness
which amounted to the material alteration in
the risk between the date of the proposal and
its acceptance was not given.
Insurable interest
 Insurable interest is necessary to support
every contract of insurance. It is the legal right
of a person to insure. It means that the
assured must be in a legally recognized
relationship to what is insured so that he will
suffer a direct financial loss on the happening
of the event insured. It exists where a person
"is so circumstanced with respect to the
subject-matter of the policy as to have benefit
from its existence or prejudice from its
destruction
 It is the existence of insurable interest in a
contract of insurance which distinguishes it
from a wagering agreement.
 It is not the owner alone, to take the case of
fire or marine insurance, but every person
who would suffer direct financial loss if the
properly or goods were damaged or
destroyed, who has insurable interest.
 Thus A has no insurable interest in the house
belonging to B and as such cannot insure it. But if
the house is mortgaged with A he can insure it, if he
I desires, in order to protect his interest. Likewise, A
cannot insure the life of B. But if he has some
pecuniary interest in the life of B, he can insure Bs
life.
 In life insurance, insurable interest must be
present at the time when the insurance is
affected, in fire insurance, it must be present
both at the time of insurance and at the time
of the loss of the subject matter. In marine
insurance, it must be present at the time of
the loss of the subject matter.
Causa proxima.
The assured can recover the loss only if it is
proximately caused by any of the perils insured
against. This is called the rule of causa proximo.
The rule is causa proximo non remota spectator i.e.,
the proximate or immediate and not the remote
cause is lo looked to.
And if the proximate cause of the loss is
a peril insured against, the assured can
recover the amount of the loss from the
insurer. Every loss that clearly and
proximately results, whether directly or
indirectly, from the event insured
against is within the policy.
Examples,
 (a) A ship carrying the cargo of oranges collided
with another ship. As a result of collision, cargo was
mishandled and there took place some delay. The
cargo consequently deteriorated. Held, damage to
the cargo was not the direct result of collision but of
the delay and mishandling, and as such the assured
could not recover the loss.
 (b) A ship was insured against damage by enemy
action. It was damaged by passing over a
torpedoed ship. Held, no damage could be
recovered as the loss in this case was not due
directly to enemy action but to the torpedoed ship.
(c) The cargo of rice in a ship was destroyed by sea-
water flowing in the ship through a hole made by
rats in a bathroom lead pipe. Held, the underwriter
was liable as the damage was due to a peril of the
sea. The proximate cause of the damage in this
case is sea-water. , If, however, the loss is caused
directly by rats or vermin, the underwriter will not be
liable.
(d) A ship carrying meat was delayed by a storm in
consequence of which it became decomposed and
had to be thrown overboard. Held, the loss of meat
was not a loss by the perils of the sea.
Risk must attach.
 The insurer receives the premium in a contract of
insurance for running a certain risk. If for any reason
the risk is not run, the consideration for which the
premium was given fails. In such an event the
insurer must return the premium. The premium is
also to be returned even where the risk is not run or
could not be run due to the fault, will or pleasure of
the assured.
Mitigation of loss.
 In the event of some mishap to the insured property,
the assured must take all necessary steps or
measures as may be reasonable for the purpose of
averting or minimizing a loss .He must act as an
uninsured prudent person would act under similar
circumstances in his own case, if he does not do so,
the insurer can avoid the payment of loss attributable
to his negligence. In short, he is bound to do his best
under the circumstances, but he is not bound to do so
at the risk of his life.
 Contribution
 Where there are two or more insurances on
one risk, the principle of contribution applies
as between different insurers. The aim of
contribution is to distribute the actual amount
of loss among the different insurers who are
liable for the same risk under different
policies in respect of the same subject-
matter.
 In case of loss, anyone insurer may pay to the
assured the full amount of the loss covered by the
policy. Having paid this amount, he is entitled to
contribution from his co-insurers in proportion to the
amount which each has undertaken to pay in .case
of loss of the same subject-matter.
The right of contribution arises when (1) there
are different policies which relate to the same
subject matter; (2) the policies cover the
same peril which caused the loss; (3) all the
policies are in force at the time of the loss;
and (4) one of the insurers has paid to the
assured more than his share of loss
Subrogation.
The doctrine of subrogation is a corollary to the
principle of indemnity and applies only to fire and
marine insurances. According to it, the insurer, on
making good the loss, is entitled lo be put into the
place of the assured. He succeeds all the ways and
means by which the assured might have protected
himself against the loss.
Whenever, therefore, an assured has received full
indemnity in respect of his loss, all rights and
remedies which he has against third persons must
be held and exercised for the benefit of the insurer
until he (the insurer) recoups the amount he has
paid under the policy
 In simple words, (his insurer steps into the shoes of
the assured when he has paid the amount of the
policy to the assured or he is entitled to every right
of the assured.
 If at a subsequent time the assured recovers more
than the full indemnity, i.e., both from the insurer
and from the person responsible fir the loss, he
holds the excess recovered in trust for the insurer,
and the insurer is entitled to recover from the
assured any sum which he may have received in
excess of the loss actually sustained by him.
Example.

A insures his goods with B for Rs. 1, 000. The

goods are damaged by fire caused by C, a
miscreant. A recovers the loss from B and
subsequently he succeeds in recovering this loss
from C also.He must hold the amount recovered
from C in trust for B. The principle of subrogation is
subject to the following limitations: (1) the insurer is
subrogated to only the rights and remedies available
to the assured in respect of the thing to which the
contract of insurance relates.
 Premium
Premium is the consideration paid by the
assured to the insurer for the risk undertaken
by the latter. It may be in cash or kind. But
usually it is in the form of cash. It is
determined by the insurer by taking into
account the average of losses and the
contributions (in the form of premiums) that
he receives. Besides taking into account the
special circumstances affecting risk in a
particular case, the insurer also keeps a
margin for his overhead and other expenses
and profit.
 Example.
 Suppose there are 10,000houses in a locality and
the owners of 8,000 of them decide to get their
houses insured. Experience shows that every year
two houses (on
average) catch fire. Let us assume that each house
is valued at rs.2,00,000. This means the average
loss arising from fire to the houses in any year will
work out to be Rs. 4,00,000. If the insurer fixes up
the rate of premium at, say, Rs. 100 per house, his
total receipts from premium will aggregate to Rs.
8,00,000.
Out of this sum, he will make good the loss of the
assured, meet overhead expenses and will be left
with some profit. It is simple common sense that if
some houses are subject to more than ordinary risk,
the insurer would charge some additional premium
to protect himself against that extra risk. The
premium in marine insurance is also fixed on like
considerations. In life insurance, the premium is
based on the average rate of mortality.
Re-insurance
Every insurer has a limit to the risk that he can
undertake. If at any time a profitable venture comes
his way, he may insure it even if the risk
involved is beyond his capacity. Then in order to
safeguard his own interest, he may insure the same
risk either wholly or partially with other insurers. This
is called re-insurance. The reason for re-insurance
like the reason for original insurance is the necessity
of spreading the risk.
Double insurance
 Where the assured insures the same risk with two or
more independent insurers, and the total sum
insured exceeds the value of the subject-matter, the
assured is said to be over-insured by double
insurance. There is over-insurance where the
aggregate of all the insurances exceeds the total
value of the assureds' interest at risk. If there is no
express condition in a contract of insurance, both
double insurance and over-insurance are perfectly
lawful
Example.

A insures his house worth Rs. 50,000 with B

for Rs.40,000 and with C for Rs. 30,000.
There is double insurance.If he insures his
house with B and C for Rs. 25,000 each,
there is no double insurance.
Players in life and non life insurance

There are only two types of players in both

life and non life insurance. They are as
follows:

 Insurer or Assurer
 Insured or Assured
Insurer or Assurer

The party bearing the risk is known as insurer

in life insurance and assurer in general or
non life insurance.
Insured or Assured

The party whose risk is covered is known as

insured in life insurance and assured in
general or non life insurance.
Risk appraisal
 Risk appraisal is a simple concept used by life insurance
companies to assess a fair premium cost for people who
purchase their products.
 Life insurance is based on a rather uncomplicated premise. It is
easier for a group of people to share the cost of an unexpected
death than for a single individual to bear the inevitable burden.
 The intent of risk appraisal is to fairly evaluate each individual so
that all persons in similar situations fall in the same category and
as a result pay the same premiums for life insurance had
insurance companies not done this everyone would pay the
same and that would be unfair.
 Insurance companies therefore create criteria
which would organize their policy owners in
.

groups based on the results, after obtaining

information regarding each applicant.
 Policy owners with similar evaluation results are
placed in the same category and equally in the
risks and rewards of that group.
 The intent here is to avoid having one group of
policy owners subsidize a group that would be a
greater risk. The insurance company, through
the process of risk appraisal therefore
determines how to best issue a policy(under
what terms) and at what price.
.

 Risk appraisal helps the life insurance

company determine whether the amount of
insurance applied for is justified by the
applicants financial situation. They want to
know your annual income, personal and
business. If large amounts of insurance are
requested they may want to see a personal
balance sheet (assets and liabilities) or a
financial statement
.

 Through risk appraisal all these things are

taken into consideration and an applicant is
put into a group based on these criteria, and
if a policy can be issued and an appropriate
premium is then determined. The lower the
risk the lower the premium charged, the
higher the risk the higher the premium
charged.
Risk Appraisal Criteria
Financial Requirements
 Proof Of Income - Helps in determining if the

policy applied for is justified

 Tax Returns - Also to prove income.

 Personal Balance Sheet - Sometimes

required.
 Business Financial Statements - For business

life insurance - buy sell agreements, key

person insurance
Personal Requirements
.

 Driving Record - Moving violations, accidents etc.

 Smoking Information - Does applicant now smoke,

what do they smoke - cigarettes or cigars. Has

applicant smoked in the past year or two.
 Drug Use - Asked on application, but investigated

also if indicated.
 Airplane Flying - Number of hours etc.

 Skydiving - Details and frequency.

 Bungee Jumping - Frequency.

Selection
 Selection is a process in which members of a
population reproduce at different rates, due to
either natural or human-influenced factors.
The result of selection is that some
characteristic is found in increasing numbers
of organisms within the population as time
goes on.
Types and subtypes
 Selection is hierarchically classified into
natural and artificial selection Natural
selection is further sub classified into
ecological and sexual selection
.

Patterns of selection
 Aspects of selection may be divided into

effects on a phenotype and their causes. The

effects are called patterns of selection, and
do not necessarily result from particular
causes (mechanisms); in fact each pattern
can arise from a number of different
mechanisms.
.

 Stabilizing selection favours individuals with

intermediate characteristics while its
opposite, disruptive selection, favours those
with extreme characteristics; directional
selection occurs when characteristics lie
along a phenotypic spectrum and the
individuals at one end are more successful;
and balancing selection is a pattern in which
multiple characteristics may be favoured
Mechanisms of selection.
.

 Distinct from patterns of selection are

mechanisms of selection; for example,

disruptive selection often is the result of
disassortative sexual selection, and balancing
selection may result from frequency-
dependent selection and over dominance.
 Selection is hierarchically classified into

natural and artificial selection. Natural

selection is further sub classified into
ecological and sexual selection
.
Life insurance products including unit
linked plans
 A policy, which provides for life insurance
where the policy value at any time varies
according to the value of the underlying
assets at the time. ULIP is life insurance
solution that provides for the benefits of
protection and flexibility in investment. The
investment is denoted as units and is
represented by the value that it has attained
called as Net Asset Value (NAV).
 In today’s times, ULIP provides solutions for
insurance planning, financial needs, financial
planning for children’s future and retirement
planning.
ULIP distinguishes itself through the multiple
benefits that it provides to the consumer
plan is a one-stop solution
providing
 Life protection
Investment and Savings
Flexibility
Adjustable Life Cover
Investment Options
Transparency
 Options to take additional cover against
Death due to accident
Disability
Critical Illness
Surgeries
Liquidity
Tax planning
LIFE INSURANCE PRODUCTS
INCLUDING UNIT LINKED
PLANS
Reliance Market Return Plan
Tata AIG - Invest Assure Gold
Kodak Flexi Plan
HDFC Unit-linked plan
Bajaj Allianz ULIP Policy
Unit Linked Insurance Plans
Non life insurance products
including unit linked plans
Birla Sun Life Insurance - Press Release
KARVY - Insurance
Insurance : Wealth Management - Retail Banking - YES BANK
Kotak Safe Investment Plan
Amsure Insurance Agency Limited
domain-b.com : Types of insurance
Axis Bank - Personal - Insurance - Life Insurance - Met Growth
Buy Life Insurance,LIC India,ULIP,Pension Plan,Term
Insurance,ICICI FAQ
 Conclusion

Insurance can be summed up as

“Praying for the best …
…being PREPARED for the
WROST”.