WELCOME

Group 2

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Team Members
1. SUDIPTA BARUA (ID: 19306047)
2. MD AL AMIN TALUKDER (ID: 19306111)
3. MD OBAIDUL HASAN (ID: 19306009)
4. IFTEKHAR MAHMUD IRFAN (ID: 19306077)
5. ABDUR ROUF (ID: 19306100)
6. AYSHA SIDDIQUEA (ID: 19306102)
7. MORIOM AKTER (ID: 19306106)
8. SAMIHA SULTANA EMA (ID: 19306110)
9. DIPONKOR DAS (ID: 19306090)
10. NAHIDUZZAMAN NAHID (ID: 19306131)

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Management of
General
Insurance
Chapter 2 & 3
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Introduction
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees
to compensate another party in the event of a certain loss, damage, or injury.

Insurance coverage can be defined as a contract in the form of a financial protection policy.
Main 3 components of insurance :
1. Premium
2. Policy limit
3. Deductible

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Insurance as transfer
As a transfer system, insurance enables a person, family or business to transfer the costs of losses to
an insurance company.

A Loss exposure can give rise to three types of losses:

1. Property Loss
2. Liability Loss
3. Human and Personnel Loss

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Insurance as A business
As a business, insurance primarily attempts to meet its costs and expenses from the premium that it
earns and also make a reasonable margin of profit for its own sustainability. As a business
organization, it provides jobs to millions of people in life and non-life insurance companies,
agencies, brokerage firms.
The business of insurance offers several benefits to individuals and families and to the society as a
whole such as:
1. Payments for the costs of covered losses
2. Reduction of the insured's financial uncertain
3. Efficient use of resources
4. Support for credit

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Insurance as a contract
As a contract, an insurance policy is a legally enforceable contract. The contract is between the
insurance company and the insured. Through insurance policies, the insured transfers the costs of
losses to insurance company. In return for the premiums paid by the insured, the insurers promise
to pay for the losses covered under the policy. Insurance Coverage can be defined as a contract in
the form of a financial protection policy.
Four basic types of insurance:
1. Property insurance
2. Liability Insurance
3. Life Insurance
4. Health Insurance

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Requirements of an Insurance contract
To be legally enforceable, an insurance contract must meet these four requirements:

1. Offer and acceptance: the applicant for insurance makes this offer, and the company accepts

or rejects the offer.

2. Consideration: A consideration is the value given to each contracting party.

3. Capacity: This requirement of a valid insurance contract is that each party to a contract must

be legally competent

4. Legal Purpose: an insurance policy that encourages or promotes something illegal and

immoral is contrary to public interest and cannot be enforced

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The Principle Of Utmost Good Faith

1. It implies that in a contract of insurance, the concerned contracting parties must rely on each

others honesty. However, some of the following facts need not be disclosed: -

2. Facts of public knowledge.

3. Facts of law.

4. Facts covered by policy conditions.

5. Circumstances which diminish the risk.

6. Facts which are known or reasonably should be known to the insurer.

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Principle Of Insurable Interest
Insurable interest simply means "right to insure". The policyholder must have a monetary interest in
the property, which he has insured.

Essentials of insurable interest –

• There must be some property, right, interest, liability or potential liability capable of being
insured.
• It is this property, right etc. which must be the subject matter of insurance.
• The relationship between the insured and the subject matter of insurance must be
recognized at law.

Three main categories of application of insurable interest are mentioned below:

• Life
• Property
• Liability

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Principle of Indemnity
The dictionary meaning of 'indemnity' is 'the protection or security against damage or loss or security
against legal responsibility.
The principle of indemnity ensures that the insurer is liable to pay up to the amount of loss and not
more than that. In other words it implies that the insured should not derive any unwarranted benefit
from a loss.

Importance Of The Principle Of Indemnity

(1) The principle of indemnity is important in the sense that it ensures that the insured does not
derive any undue benefit from the loss.
(2) The principle of indemnity also aims to control moral hazard. It is possible that the insured may
try to secure the maximum amount through dubious and unfair means.

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Principle of Indemnity
Indemnity in practice:
Even though the property is fully covered, all covered losses are not actually paid in full amount of
loss since it would contravene the provisions and implications of the principle of indemnity. They are:

Actual cash value (acv)

The actual amount of payment to be made by the insurer for the loss is based on ACV of the
property, which is insured. Usually ACV is determined using the following three methods:

1. Replacement cost less depreciation

Thus actual cash value = (replacement cost - depreciation)

2. Fair market value (FMV) 2

Fmv, which is the price that would normally be determined in a free market oaring a transaction
entered into by a willing buyer and a willing seller, can be taken as acv where replacement cost
cannot be determined.

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Principle of subrogation & Contribution
Principle of subrogation:
Subrogation is defined under the Marine Insurance Act, 1963. It says that the insurer (which is the
insurance company) pays for a loss to the insured (an individual or company) due to the
wrongdoing of a third party, then the insurer has the authority to subrogate the rights of insured
and therefore is able to prosecute a suit against the wrongdoer for the recovery of the amount it had
paid to the insurer.
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Principle of Contribution
Contribution is the right of an insurer to call upon others similarly, but not necessarily equally liable to
the same insured to share the cost of an indemnity payment. This principle of contribution enables
the total claim to be shared in a fair way.

Formula = (Amount underwritten by the insurer amount of loss)/total sum insured.

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Principle of proximate cause
Proximate cause literally means the nearest cause or direct cause. In Insurance parlance it relates

to the immediate cause of the mishap which resulted in the loss.

Example of proximate cause

In the case of Total Broad Hurst Lee and Co. vs London Lance-shire Fire Insurance company

the fire was caused by an earthquake. Here earthquake was not part of covered risk hence the

insurer was not liable as the loss was proximate to an excepted peril.

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