The Role of Insurance

8/14/2019 The Role of Insurance

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How it all startedHow it all started

Babylonia ( thats current day Iraq) 2100 BCBabylonia ( thats current day Iraq) 2100 BCChinese, Persians followedChinese, Persians followed

Friendly societies In Rome, England (preFriendly societies In Rome, England (pre1717 thth century)century)

Edward Lloyds coffee house in London (lateEdward Lloyds coffee house in London (late1680s)1680s) Lloyds of LondonLloyds of London


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The Role of InsuranceThe Role of Insurance Insurance Provides SecurityInsurance Provides Security

Security is peace of mind andSecurity is peace of mind andfreedom from worry.freedom from worry. Most of ourMost of oureconomic actions are for theeconomic actions are for thesatisfaction of something wesatisfaction of something weperceive as a need. One importantperceive as a need. One importantneed is aneed is a sense of securitysense of security forforthose whose well-being we arethose whose well-being we areresponsible for.responsible for.


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The Role of InsuranceThe Role of Insurance

Insurance Provides SecurityInsurance Provides Security

There are nearly universal problems such There are nearly universal problems suchas death, sickness, accidents, andas death, sickness, accidents, anddisability that might occur at any timedisability that might occur at any timewithout warning. Usually, these bringwithout warning. Usually, these bring

serious financial losses, as well asserious financial losses, as well asemotional distress within the family.emotional distress within the family.Insurance has been developed as aInsurance has been developed as apractical means to ease part of thepractical means to ease part of the

economic problems resulting from theeconomic problems resulting from theabove hazards.above hazards.


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Insurance Provides SecurityInsurance Provides Security

Life insuranceLife insurance

replaces the loss of thereplaces the loss of the

anticipated incomeanticipated income of a spouse and/or parentof a spouse and/or parentwho dies.who dies. Health insuranceHealth insurance reimbursesreimburses medicalmedicalexpensesexpenses that could be catastrophic.that could be catastrophic.

Disability insuranceDisability insurance

can fill part of the voidcan fill part of the void

when one iswhen one is unable to produceunable to produce income.income.AnnuitiesAnnuities can provide acan provide a guaranteed incomeguaranteed incomestreamstream when one ages beyond the capability towhen one ages beyond the capability toproduce earned income, or if a person's otherproduce earned income, or if a person's otherfinancial resources are exhausted.financial resources are exhausted.


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What is the main reasonWhat is the main reasonindividuals buy insurance?individuals buy insurance?

Individuals buy insurance to giveIndividuals buy insurance to givethem ------------and -------------.them ------------and -------------.


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The Nature of InsuranceThe Nature of Insurance

The purpose of any insurance is to The purpose of any insurance is toprovide economic protectionprovide economic protection against the losses thatagainst the losses that may bemay beincurredincurred due todue to chance eventschance events suchsuchas:as:

1.1. DeathDeath

22 . Disability. Disability33 . Medical expenses. Medical expenses4.4. Home or automobile damage, etc.Home or automobile damage, etc.


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The Nature of InsuranceThe Nature of Insurance

How does insurance satisfy theHow does insurance satisfy theneed for peace of mind?need for peace of mind?

____________ .____________ .

Ans. Insurance provides E______ PAns. Insurance provides E______ P

_________against losses that may_________against losses that maybe incurred due to chance eventsbe incurred due to chance eventsthat M ____or_____ occur duringthat M ____or_____ occur duringthe effective time of the contractthe effective time of the contractduring the effective time of theduring the effective time of the


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Basic InsuranceBasic Insurance

PrinciplesPrinciplesRisk PoolingRisk Pooling

Rather than face the risk of totalingRather than face the risk of totaling

our car and being required to replaceour car and being required to replaceit out of current income, we enter ait out of current income, we enter apool, joining others for a knownpool, joining others for a knownaffordable fee, thus sharing the risk affordable fee, thus sharing the risk

with other pool members. Thiswith other pool members. Thisconcept of transferring theconcept of transferring theindividual's risk to the pool is as oldindividual's risk to the pool is as oldas mankind first banding into tribes.as mankind first banding into tribes.


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Basic InsuranceBasic InsurancePrinciplesPrinciples

Law of Large NumbersLaw of Large NumbersIf the pool is small, there is the risk of AdverseIf the pool is small, there is the risk of Adverse

Selection meaning that there are too fewSelection meaning that there are too fewmembers in the pool to make accuratemembers in the pool to make accuratepredictions of the frequency of an occurrence.predictions of the frequency of an occurrence.

For example, if I take one die from a pair of For example, if I take one die from a pair of dice and roll it 10 times, I might well have 4dice and roll it 10 times, I might well have 4fives turn up out of the 10 rolls. However, if itfives turn up out of the 10 rolls. However, if itis rolled 100 times, 1000 times, 10,000 times,is rolled 100 times, 1000 times, 10,000 times,or 200,000 times, the sides will come upor 200,000 times, the sides will come upequally to 3 or 4 decimal points. Thus, itequally to 3 or 4 decimal points. Thus, itbecomes predictable. When the frequency of becomes predictable. When the frequency of the occurrence is accurately established,the occurrence is accurately established,

losses can be predicted and the amountlosses can be predicted and the amountneeded (premium) from each member of theneeded (premium) from each member of the


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Basic InsuranceBasic Insurance

PrinciplesPrinciplesWhat is the danger if the risk What is the danger if the risk pool is small? A_____ S______ .pool is small? A_____ S______ .

Basic principles of insuranceBasic principles of insuranceinclude: The P____ of risks, andinclude: The P____ of risks, and

the Law of L ______Nthe Law of L ______N ________. ________.


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MarketMarket

LeadershipLeadershipLICLIC (in PSUs)(in PSUs)

Market share : Approx. 82 %Market share : Approx. 82 % Total Premium : 127822 Rs Cr (2006-07) Total Premium : 127822 Rs Cr (2006-07)

ICICI PrudentialICICI Prudential (In Pvt. Sector)(In Pvt. Sector) ::Market share : Approx. 5.07 %Market share : Approx. 5.07 %

Total Premium : 7912 Rs Cr (2006-07) Total Premium : 7912 Rs Cr (2006-07)

New India Assurance Co.New India Assurance Co. (In PSUs)(In PSUs)Market share : Approx. 25%Market share : Approx. 25%

Total Premium : 5936 Rs Cr (2006-07) Total Premium : 5936 Rs Cr (2006-07)ICICI LombardICICI Lombard (In Pvt. Sector)(In Pvt. Sector)

Market share : Approx. 12.5%Market share : Approx. 12.5% Total Premium : 2989.07 Rs Cr (2006-07) Total Premium : 2989.07 Rs Cr (2006-07)


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Thank you!Thank you!

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The Role of Insurance