INSURANCE

By : Shashank S Kadagi

INSURANCE

Definition of Insurance

It is a contract or agreement between tow parties by which one of them (called insurer) agree to indemnify the other (called insured) against a lost which may occur to the insured on the happening some event.

Terminologies used in Insurance

Policy : The insurance policy is a contract between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as the premium, the insurer promises to pay for loss caused by perils covered under the policy language.

An insurer is a company, selling the insurance.

An insured is the person or entity buying the insurance policy.

Premium is the price paid by the customer to the insurance company to purchase the contract .

Indemnity is the total amount that the insurance company has to pay on behalf of the claim of insured.

Re insurance The practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions

Contd…

Principle of Contract

Principle of Indemnity

Principle of Insurable interest

Principle of Utmost good faith

Principle of Contribution

Principle of Subrogation

Principle of Proximate cause

Principles of insurance

This means the insured cannot make a profit from an insurance claim.

Principle of Indemnity

To insure anything the Insured must have an insurable interest in the subject matter of insurance, i.e. he/she must benefit by its safety or be biased by its loss.

Principle of insurable Interest

The insured and the insurer are bound by a good faith, honesty and fairness.

Principle of utmost good faith

One can insurance the same propriety item with more then one insurance company, the insured can’t demand more then total loss from all companies put together

Principle of Contribution

Insurance company has the legal right to claim compensation from any other party that caused the accident.

Principle of Subrogation

The damage to the prosperity can takes place due to many causes the insurer company will look first cause of damage or the original cause of damage.

Principle of Proximate cause

Life insurance

General insurance:

Fire insurance

Marine insurance

Miscellaneous insurance

- Medical insurance.- Personal Accident insurance.- Group insurance.- Travel insurance.- Liability insurance.

Types of Insurance:

On periodic basis premium is paid by insured.

If the insured die within that time period, The nominee get a specified amount of money. There are two types of life insurance:

Life Insurance

• The most basic one.• Least expensive. • Open ended.

Term Life Insurance

Whole Life Insurance

• This type of policy never expires. • Premiums are usually based on your age.• You'll pay the same amount of premium for the rest of your

life. (Start young and the less expensive the premiums will be)

Insurance Agents Insurance agents are, in general, licensed to conduct business on behalf of insurance companies. Agents represent the insurer in the insurance process and usually operate under the terms of an agency agreement with the insurer. The insurer-agent relationship can take a number of different forms.

Insurance Intermediaries

Who is an Insurance Intermediary? An Insurance Intermediary means individual agents, corporate agents including banks and brokers –they intermediate between the customer and the insurance company. Insurance Intermediary also includes Surveyors and Third Party Administrators but these intermediaries are not involved in procurement of business. Surveyors assess losses on behalf of the insurance companies.

Surveyors and loss assessors Surveyors and Loss Assessors are service providers to a general insurance company, usually at the time of a fire or motor insurance claim. They carry out claim surveys and estimate the quantum of loss.

Insurance Brokers Insurance brokers typically work for the policyholder in the insurance process and act independently in relation to insurers. Brokers assist clients in the choice of their insurance by presenting them with alternatives in terms of insurers and products. Acting as “agent” for the buyer, brokers usually work with multiple companies to place coverage for their clients. Brokers obtain quotes from various insurers and guide clients in determining the adequate policy from a range of products.

A Third Party Administrator (TPA) is a person or organization that processes claims and performs other administrative services in accordance with a service contract, usually in the field of employee benefits. More specifically, a TPA is neither the insurer (provider) nor the insured (employees or plan participants), but handles the administration of the plan including processing, adjudication, and negotiation of claims, record-keeping, and maintenance of the plan.

Risk

Risk is an umbrella term for multiple types of risk associated with financial including financial transactions that include company loans in risk of default.

Classification of Risk’s

Systematic Risk Unsystematic Risk Credit or Default Risk Country Risk Foreign-Exchange Risk

Systematic Risk

• Systematic risk influences a large number of assets. A significant political event, for example, could affect several of the assets in your portfolio. It is virtually impossible to protect yourself against this type of risk.

Unsystematic Risk

• Unsystematic risk is sometimes referred to as "specific risk". This kind of risk affects a very small number of assets. An example is news that affects a specific stock such as a sudden strike by employees.

Credit or Default Risk

Credit risk is the risk that a company or individual will be unable to pay the contractual interest or principal on its debt obligations. This type of risk is of particular concern to investors who hold bonds in their portfolios.

Country Risk

Country risk refers to the risk that a country won't be able to honor its financial commitments. When a country defaults on its obligations, this can harm the performance of all other financial instruments in that country as well as other countries it has relations with. Country risk applies to stocks, bonds, mutual funds, options and futures that are issued within a particular country.

Foreign-Exchange Risk

When investing in foreign countries you must consider the fact that currency exchange rates can change the price of the asset as well. Foreign-exchange risk applies to all financial instruments that are in a currency other than your domestic currency. As an example, if you are a resident of America and invest in some Canadian stock in Canadian dollars, even if the share value appreciates, you may lose money if the Canadian dollar depreciates in relation to the American dollar.

Major Players In Insurance Sector In India

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