4ec5ebfi - Module 4, Insurance Insts.

8/14/2019 4ec5ebfi - Module 4, Insurance Insts.

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Amity School of Business

Amity School of BusinessProgram BBA (Gen)

VIth Semester

Course Banking & Financial Institutions

Faculty - Ms. Neelam Mehra


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Amity School of BusinessINSURANCE

Insurance is a guarantee of partial or complete indemnity against afinancial loss that will result if an event of a specified kind occurs.

The person seeking some surety against the possible loss is theinsured.

The person contracting to indemnify against the loss is the insurer.

The written contract of insurance is the policy; the price paid by the

insured in fulfillment of his part of the contract is the premium .

The amount paid when a loss has been incurred is the indemnity;and the person to whom the indemnity is paid is the beneficiary(who may or may not be the insured).


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INSURANCE AS RISK

TRANFER MECHANISM

The objective of insurance is to save the owner of the asset from the riskof its loss. In order to achieve this objective, risk is shared by andtransferred to another party. Thus insurance is a risk transfermechanism.

The insurance business is recognized as a tool to inculcate the habit ofsaving, and provide security and economic growth

Main principles of Insurance:

i. Utmost good faith

ii. Indemnity

iii. Subrogation

iv. Contribution

v. Insurable Interest

vi. Proximate Cause


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i) Utmost Good Faith (Uberrimae Fides)

It is the client duty to disclose all material facts to the risk beingcovered. A material fact is a fact which would influence the mind of aprudent underwriter in deciding whether to accept a risk for insuranceand on what terms. The duty to disclose operates at the time ofinception, at renewal and at any point mid term.

ii) IndemnityOn the happening of an event insured against, the Insured will beplaced in the same monetary position that he/she occupied immediatelybefore the event taking place. In the event of a claim the insured must:

Prove that the event occurred

Prove that a monetary loss has occurred Transfer any rights which he/she may have for recovery from another

source to the Insurer, if he/she has been fully indemnified.


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iii) Subrogation The right of an insurer which has paid a claim under a

policy to step into the shoes of the insured so as to exercise in hisname all rights he might have with regard to the recovery of the losswhich was the subject of the relevant claim paid under the policy upto the amount of that paid claim.

The insurers subrogation rights may be qualified in the policy.In thecontext of insurance subrogation is a feature of the principle ofindemnity and therefore only applies to contracts of indemnity sothat it does not apply to life assurance or personal accident policies.

It is intended to prevent an insured recovering more than theindemnity he receives under his insurance

iv) Contribution The right of an insurer to call on other insurerssimilarly, but not necessarily equally, liable to the same insured toshare the loss of an indemnity payment i.e. a travel policy may haveoverlapping cover with the contents section of a household policy.The principle of contribution allows the insured to make a claimagainst one insurer who then has the right to call on any otherinsurers liable for the loss to share the claim payment.I


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iv) Insurable Interest If an insured wishes to enforce acontract of insurance before the Courts he must have aninsurable interest in the subject matter of the insurance,which is to say that he stands to benefit from its preservationand will suffer from its loss.

i) Proximate Cause An insurer will only be liable to pay aclaim under an insurance contract if the loss that gives riseto the claim was proximately caused by an insured peril.This means that the loss must be directly attributed to aninsured peril without any break in the chain of causation.


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Amity School of BusinessTYPES OF INSURANCE

Types of insurance

Any risk that can be quantified can potentially be insured. A single policy maycover risks in one or more of the categories set out below. For example, autoinsurance would typically cover both property risk (covering the risk of theft ordamage to the car) and liability risk (covering legal claims from causing anaccident).

Few egs.. Vehicle insurance which protects you against financial loss if you have an

accident. It is a contract between you and the insurance company.

Home insuranceprovides compensation for damage or destruction of ahome from disasters.

Property insurance provides protection against risks to property, such as fire,theft or weather damage. This includes specialized forms of insurance such as fireinsurance, flood insurance, earthquake insurance, inland marine insurance orboiler insurance.


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Health insurance will cover the cost of medical treatments. Dental insurance gives coverage to individuals to protect them against dental costs

Workers compensation insurance replaces all or part of a worker's wages lost andaccompanying medical expenses incurred because of a job-related injury.

Casualty insurance insures against accidents, not necessarily tied to any specificproperty.

Life insurance provides a monetary benefit to a decedent's family or other designated

beneficiary, and may specifically provide for income to an insured person's family.

Life insurance policies often allow the option of having the proceeds paid to thebeneficiary either in a lump sum cash payment or an annuity.

Annuities provide a stream of payments and are generally classified as insurancebecause they are issued by insurance companies and regulated as insurance and

require the same kinds of actuarial and investment management expertise that lifeinsurance requires.

Annuities andPensions that pay a benefit for life are sometimes regarded asinsurance against the possibility that a retiree will outlive his or her financial resources.In that sense, they are the complement of life insurance and, from an underwritingperspective, are the mirror image of life insurance.


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Property insurance provides protection against risks to

property, such as fire, theft or weather damage. This

includes specialized forms of insurance such as fire

insurance, flood insurance, earthquake insurance, inland

marine insurance or boiler insurance.


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TYPES OF INSURANCE

COMPANIES

Insurance companies may be classified into two groups:

Life insurance companies, which sell life insurance,

annuities and pensions products.

Non-life, General, or Property/Casualty insurance

companies, which sell other types of insurance.


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Life Insurance Companies in India

Life Insurance Corporation Aviva Life Insurance Bajaj Allianz Life Insurance Birla Sun-Life Insurance

HDFC Standard Life Insurance ING Vysya Life Insurance Life Insurance Corporation Max New York Life Insurance MetLife Insurance Om Kotak Mahindra Life Insurance

Reliance Life Insurance Sahara India Life Insurance SBI Life Insurance TATA AIG Life Insurance ICICI Prudential Ltd


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General Insurance Companies ANZ Insurance Bajaj Allianz General Insurance Cholamandalam General Insurance Employee State Insurance

Export Credit Guarantee Corporation ICICI Lombard General Insurance IFFCO-Tokio General Insurance National Insurance Oriental Insurance

Peerless Smart Financial Royal Sundaram Alliance TATA AIG General Insurance


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Amity School of BusinessINSURANCE SECTOR

Challenges facing Insurance Industry

Threat of New Entrants: The insurance industry has been budding with newentrants every other day. Therefore the companies should carve out nicheareas such that the threat of new entrants might not be a hindrance. There isalso a chance that the big players might squeeze the small new entrants.

Power of Suppliers: Those who are supplying the capital are a big threat.For instance, if someone as a very talented insurance underwriter is

presently working for a small insurance company, there exists a chance thatany big player willing to enter the insurance industry might entice that personoff.

Power of Buyers: No individual is a big threat to the insurance industry andbig corporate houses have a lot more negotiating capability with theinsurance companies. Big corporate clients like airlines and pharmaceuticalcompanies pay millions of dollars every year in premiums.

Availability of Substitutes: There exist a lot of substitutes in the insuranceindustry. Majorly, the large insurance companies provide similar kinds ofservices be it auto, home, commercial, health or life insurance.


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HISTORY OF INSURANCE

SECTOR IN INDIA

The insurance sector in India has come a full circle from being an open competitive

market to nationalization and back to a liberalized market again.Tracing the developments in the Indian insurance sector reveals the 360-degree turnwitnessed over a period of almost 190 years.

The business oflife insurance in India in its existing form started in India in the year1818 with the establishment of the Oriental Life Insurance Company in Calcutta.

Some of the important milestones in the life insurance business in India are:

1912 - The Indian Life Assurance Companies Act enacted as the first statute toregulate the life insurance business.

1928 - The Indian Insurance Companies Act enacted to enable the government tocollect statistical information about both life and non-life insurance businesses.

1938 - Earlier legislation consolidated and amended to by the Insurance Act with the

objective of protecting the interests of the insuring public.

1956 - 245 Indian and foreign insurers and provident societies taken over by thecentral government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act,1956, with a capital contribution of Rs. 5 crore from the Government of India.


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HISTORY OF INSURANCE

SECTOR IN INDIA contd..

The General insurance business in India, on the other hand, can trace its roots to the

Triton Insurance Company Ltd., the first general insurance company established in theyear 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business in India are:

1907 - The Indian Mercantile Insurance Ltd. set up, the first company to transact allclasses of general insurance business.

1957 - General Insurance Council, a wing of the Insurance Association of India, frames a

code of conduct for ensuring fair conduct and sound business practices.

1968 - The Insurance Act amended to regulate investments and set minimum solvencymargins and the Tariff Advisory Committee set up.

1972 - The General Insurance Business (Nationalization) Act, 1972 nationalized thegeneral insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. the National InsuranceCompany Ltd., the New India Assurance Company Ltd., the Oriental Insurance CompanyLtd. and the United India Insurance Company Ltd. GIC incorporated as a company.


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4ec5ebfi - Module 4, Insurance Insts.

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