INSURANCE

WHAT IS AN INSURANCE?

Insurance is a contract, represented

by a policy in which an individual or
entity receives a financial protection
or reimbursement against loses
from an insurance company.

The company pools clients risks to

make payments more affordable for
the insured.

The insurance act of 1938 was the

first legislation governing all forms
of insurance
 Insurance as a transfer

E
system
transferring of risks from
Insured to IC which is

L
financially sound and has
capacity and willingness to
take risks.

Insurance as a business
E
insurance primarily attempts
to meet its costs and M
E
expenses from premium that
it earns and also make a
reasonable margin of profit

N
for its own sustainability.

Insurance as a contract
An insurance policy is a
T
legally enforceable contract.
The contract is between IC
and the Insured.
S
 INSURANCE MECHANISM

RIGHTS AND RESPONSIBILITIES

1. Sharing of Risk:
Insurance is a device to share the financial losses which might befall on an individual F
or his family on the happening of a specified event.
2. Co-operative Device: E
An insurer would be unable to compensate all the losses from his own capital. So, by
insuring or underwriting a large number of persons, he is able to pay the amount of
loss.
A
3. Value of Risk:
If there is expectation of more loss, higher premium may be charged. So, the
probability of loss is calculated at the time of insurance.
T
4. Payment at Contingency:
Since the life insurance contract is a contract of certainty, because the contingency,
U
the death or the expiry of term, will certainly occur, the payment is certain.
R
5. Amount of Payment:
In life insurance, the purpose is not to make good the financial loss suffered. The E
insurer promises to pay a fixed sum on the happening of an event.
S
ADVANTAGES OF INSURANCE
1. Providing Security:
There is always a fear of sudden loss. If a bread-bringing member of the
family dies prematurely, the family is provided with money to continue with its
livelihood.

So, insurance gives security to both individual and business-man. There are
schemes providing for unemployment, sickness, accident, health and old age
insurances. These schemes are helpful for poor people and help in
establishing social justice.
2. Spreading of Risk:
The basic principle of insurance is to spread risk among a large number of
people. A large number of persons get insurance policies and pay premium to
the insurer. Whenever a loss occurs, it is compensated out of funds of the
insurer. The loss is spread among a large number of policy-holders.
3. Source for Collecting Funds:
In India, Life Insurance Corporation of India provides large funds to the
industries for long-term investments. These funds are productively used in
exploiting natural resources which accelerates industrial growth of a country.

The employment opportunities are also increased by big investments made

by insurance companies. So, insurance has become an important source of
capital formation.
4. Encourage Savings:
Insurance does not only protect risks but it provides an investment channel
too. The amount of policy is paid to the insured or to his nominees.

In case of fixed time policies, the insured gets a lump-sum amount after the
maturity of the policy.
5. Encourage International Trade:
International trade involves many risks in transporting goods from one
country to another. Insurance provides protection against all types of sea-
risks. It has helped the development of international trade on a large scale.
DIFFERENCE BETWEEN LIFE AND
GENERAL INSURANCE
DETERMINANTS OF PREMIUM PRICING
Type of coverage
Amount of coverage
The Personal Information of the
Insurance Policy Applicant
Competition in the Insurance Industry
and Target Area
The Underwriting process
Analysis of actuaries: mortality and
sickness tables
FACTORS
MEANING AND BRIEF ON PREMIUMS
■ A premium is defined as the amount
I of money the insurance company is
going to charge you for the insurance
N policy you are purchasing. The
insurance premium is the cost of your
S insurance.
U ■ It's the specified amount of payment
required periodically by an insurer to
R provide coverage under a given
insurance plan for a defined period of
A time. The premium compensates the
N insurer for bearing the risk of a
payout should an event occur that
C triggers coverage. The most common
types of coverage are auto, health,
E and homeowners insurance.
PREMIUM MEANING
P The principle of
The Principle of
utmost good
proximity of
R cause
faith –
Uberrimae Fides

I
N The Principle of
The Principle of
Insurable
Subrogation
C Interest

I
P The Principle of The Principle of
Contribution Indemnity
L
E
S
 TYPES OF RISKS IN
INSURANCE
BIG UPDATES IN THE INSURANCE INDUSTRY

THE MEGA PSU MERGER

The government may be planning a merger of all state-owned general insurers

into one entity.
The government's idea is to have an entity similar to the Life Insurance
Corporation of India (LIC) in the non-life sector.
The process will require approvals from the regulatory bodies, a go-ahead from
the labour unions as well as the competition commission.
 Reaching a consensus

` •In the Budget of 2018-19, then finance minister Arun Jaitley announced a merger of National Insurance, Oriental Insurance and United Insurance into one
entity. The idea was to subsequently list the merged entity. However, the process has been stretched due to lack of consensus among the merger
contenders about the structure of the deal, which is now being ironed out.

Improvement of solvency ratio

•All insurance companies are required to maintain a solvency ratio of 150 percent at all times. However, high claims ratios in segments like crop insurance
and third-party motor insurance, solvency margins of a few state-owned insurers have either slipped below 150 percent or just meet the minimum
requirement. A combined entity will not have such issues and will be able to have adequate liquidity to pay claims.

Clearance from regulatory authorities

•Once the modalities of the merger have been worked out, it will be essential to get regulatory permission from the insurance regulator as well the
Competition Commission of India. With this, the combined entity will come into existence.

Merger into one body

•When the three insurers have been merged into one entity, the next step will be to initiate a merger with New India Assurance. A new consultant will have
to be appointed for the process of the final merger. When the merged entity is amalgamated with New India Insurance, the country's largest general
insurer will be born. This insurer will be worth almost Rs 2.5 lakh crore with 59,000 employees across 82,000 offices.

Final regulatory clearance

•Once the final merger plan is approved by the company boards, the insurance regulator (IRDAI) as well as the Securities and Exchange Board of India, will
have to give a go-ahead for the deal. This is because New India Assurance is already listed on the stock exchanges.
THANK YOU