INDIAN INSURANCE INDUSTRY

MEANING OF INSURANCE
Insurance is an arrangement by which a company undertakes to compensate a person, property,
company, or entity for a specific loss. The insurance company also compensates for illness damage or
death. Thus Insurance is the contract where by:

 Certain sum called premium is charged in consideration.

 Against the sale consideration a large sum is guaranteed to be paid by the insurer who received
the premium.

 The payment will be made in a certain definite sum Le. the loss or the policy amount whichever
may be.

 The payment is made only upon a contingency.

Basic Concept
1. Insured: Insured is a person or an institution that seek protection against certain risks

2. Insurer: The party who guarantees the insured to compensate for the loss in exchange of a premium
is termed as insurer.

3. Insurance: The legal agreement between the insured and the insurer is termed as insurance. It Is a
contract where the insurer undertakes to indemnify the insured against certain risk in consideration of a
sum called premium.

4. Premium: It is the price of insurance it is the money paid by the insured to the insurer for which
insurer undertakes to indemnify the loss.

5. Policy: The stamped document containing the terms and condition of the contract of insurance is
called policy.

Definition of Insurance
• Insurance is a contract by which one party, for a consideration called the premium assumes particular
risk of the other party and promises to pay to him or his nominee a certain or ascertainable sum of
money on a specified contingency- EW. Patterson

• Insurance is a cooperative form of distributing a certain risk over a group of persons who are exposed
to it. – Ghosh and Agarwal

• The collective bearing of risk is Insurance. - W. Beverideges

 • The term Insurance can be defined in both financial and legal sense. In financial sense: A social device
providing financial compensation for the consequences of adversity, the payments being made from the
accumulated contributions of all parties participating in the arrangement. The essence of Insurance this
is collective bearing of risks as it involves pooling of risks.

In legal sense: A contract under which the insurer in consideration of a sum of money paid
(premium) by the insured agrees to:

 Make good the loss suffered by the insured against a specific risk, or

 To pay a prefixed amount to the insured or his\her beneficiaries on the happening

of a specific event

NATURE/CHARACTERISTICKS OF INSURANCE
• Sharing of Risks- Insurance is a device to share the financial losses which may occur to individual or his
family on the happening of certain events

• Cooperative Device - Insurance is a co-operative device to spread the loss caused by a particular risk
over a large number of persons who are exposed to it and who agree to insure themselves against the
risk

• Value of Risk - Risk is evaluated at the time of Insurance. There are several methods of valuing the risk
Higher the risks, higher will be premium

• Payment on Contingency - If the contingency occurs, payment is made; payment is made only for
insured contingency. If there is no contingency, no payment is made. In life Insurance contract, payment
is certain because the death or the expiry of term will certainly occur. In other insurance contract like
fire marine, the contingency may or may not occur

• Amount of Payment of Claim- The amount of payment depends upon the value of loss occurred due
to the particular insured risk The insurance is there up to that amount. In life insurance insurer pay a
fixed sum on the happening of an event or within a specified time period. Example - In fire Insurance, if
fire occurs and half the property is destroyed, but the whole property is insured, then payment of claim
will be made only for that half building that is destroyed not the whole amount of Insured.

• Insurance is different from Charity - In charity, there is no consideration but Insurance is not given
without premium

• Large number of Insured Person - Insurance is spreading of loss over a large number of persons.
Larger the number of persons, lower the cost of insurance and amount of premium and in case lower
the number of persons, higher the cost of insurance and amount of premium.
• Insurance is different from Gambling - In gambling, there is no guarantee of gain, by bidding the
person expose himself to risk of losing. Whereas in insurance, by getting insured his life and property, he
protect himself against the risk of loss.

ESSENTIALS OF INSURANCE CONTRACT

1. Offer and Acceptance: There must be a "lawful offer' and a 'lawful acceptance of the offer There must
be two parties to an agreement, one making the offer and the other accepting it. The offer must be
definite, unambiguous and certain. It must be communicated. Acceptance must be absolute and
unqualified i.e, it should not be conditional It must be communicated to the offeror.

2. Intention to create legal relationship: There must be an intention among the parties that the
agreement should be attached by legal consequences and create legal obligations. Agreement of a social
or domestic nature does not involve any legal obligations so they are not a contract.

3. Lawful consideration: Consideration means something in return. An agreement is enforceable only

when each of the parties to it gives something and gets something consideration must be 'something of
value. It may be past, present or future.

4. Capacity of parties: The parties to an agreement must be competent to contract. Parties must be of
the age of majority and of sound mind and must not be disqualified from contracting by any law to
which they are subject. If any of the parties to the agreement suffers a from minority, lunacy, idiocy,
drunkenness, etc., the agreement is not enforceable
5. Free consent: One of the essentials of the valid contract is that there should be consensus ad idem,
i.e. they agree upon the same thing in the same sense at the same time and that their consent is free
and real. When there is no consent, there is no contract.

6. Lawful object: The object of the contract must be lawful. It should not be illegal immoral or opposed
to public policy. If the object of the agreement is performance of unlawful act, the agreement is
unenforceable, for example, an agreement to commit an assault or to beat a man has been held
unlawful and void.

7. Writing and registration: According to the Indian Contract Act, a contract may be oral or in writing.
But in certain special cases, it lays down that the agreement, to be valid, must be in writing or/and
registered. For example, it requires that an agreement to pay a time barred debt must be in writing and
an agreement to make a gift for natural love and affection must be in writing and registered.

8. Certainty: The terms of agreement must be certain and not vague, indefinite or ambiguous. For
example, A agree to sell B a hundred tons of oil" There is nothing whatever to show what kind of oil was
intended, the agreement is void for uncertainty.

9. Possibility of performance: A contract must be capable of performance. An agreement to do an act

impossible is itself is void.

10. Agreement not declared void: The agreement must not be have been expressly declared void by any
law in force in the country.

FUNCTIONS OF INSURANCE
Primary Functions
1. Certainty of compensation of loss: Insurance provides certainty of payment at the uncertainty of loss.
The elements of uncertainty are reduced by better planning and administration. The insurer charges
premium for providing certainty.

2. Insurance provides protection- The main function of insurance is to provide protection against risk of
loss. The insurance policy covers the risk of loss. The insured person is indemnified for the actual loss
suffered by him. Insurance thus provide financial protection to the insured. Life insurance policies may
also be used as collateral security for raising loans.

3. Risk sharing - All business concerns face the problem of risk. Risk and Insurance are Interlinked with
each other. Insurance as a device is the outcome of the existence of various risks in our day to day life. It
does not eliminate risks but it reduces the financial loss caused by risks. Insurance spreads the whole
loss over the large number of persons who are exposed by a particular risk.
Secondary functions:
1. Prevention of losses: The insurance companies help in prevention of losses as they join hands with
those institutions which are engaged in loss prevention measures. The reduction In losses means that
the insurance companies would be required to pay lesser compensation to the assured and manage to
accumulate more savings, which in turn, will assist in reducing the premiums

2. Providing funds for investment- Insurance provides capital for society. Accumulated funds through
savings in the form of Insurance premium are Invested in economic development plan or productivity
project.

3. Insurance increases efficiency: The Insurance eliminates the worries and miseries of losses. A person
can devote his time to other important matters for better achievement of goals. Businessman feel more
motivated and encouraged to take risks to enhance their profit earning. This also helps in improving
their efficiencies.

4. Solution to social problems: Insurance takes care of many social problems. We have insurance against
industrial injuries, road accident, old age, disability or death etc.

5. Encouragement of savings - Insurance not only provides protection against risks but also a number of
other Incentives which encourages people to Insure. Since regularity and punctuality of payment of
premium is a prerequisite for keeping the policy in force, the insured feel compelled to save

IMPORTANCE OR BENEFITS OF INSURANCE

IMPORTANCE
1. Security and Safety: It gives a sense of security and safety to the businessman. It enables him to
receive compensation against actual loss. He can concentrate on his business with a secure feeling that
in case of losses arising from Insurable risk his losses will be compensated.

2. Distribution of risk: Risk in insurance is spread over a number of people rather being concentrated on
a single individual.

3. Normal expected profit: An insured trader can enjoy normal margin of profit all the time. He is
protected from unexpected losses because of insurance

4. Easy to get loans: A trader can get bank loans easily if his stock or property is insured, as insurance
provides a sense of security to the lenders

5. Advantages of Specialization: Businessmen can concentrate on their business activities without

spending more time on safeguarding their property. The insurance companies, on the other hand, can
provide specialized insurance services.
6. Development of Social Sector: Insurance funds are available for economic development particularly
for the development of social sectors. Especially for a developing country like India. insurance funds are
an Important source for investing in Infrastructure projects (roads, power, water supply, telecom etc.)

7. Social cooperation: The burden of loss is shouldered by so many persons. Thus, insurance provides a
form of social cooperation.

Benefits to Individual
(a) Insurance provides security & safety: Insurance gives a sense of security to the policy holder.
Insurance provide security and safety against the loss of earning at death or in old age, against the loss
at fire, against the loss at damage, destruction of property, goods, furniture etc.

(b) Insurance provides Protection: Life insurance provides protection to the dependents in case of death
of policyholder and to the policyholder in old age. Fire insurance insured the property against loss on a
fire. Similarly, other insurance provide security against the loss by indemnifying to the extent of actual
loss.

(c) Encourage Savings: Life Insurance is best form of saving. The insured person must regularly save out
of his current income an amount equal to the premium to be paid otherwise his policy get lapsed if
premium is not paid on time.

(d) Providing Investment Opportunity: Life insurance provides different policies in which individual can
invest smoothly and with security, like endowment policies, deferred annuities etc. There is special
exemption in the Income Tax, Wealth Tax etc. regarding this type of investment.

Benefits to Business or Industry

(a) Shifting of Risk: Insurance is a social device whereby businessmen shift specific risks to the insurance
company. This helps the businessmen to concentrate more on important business issues.

(b) Assuring Expected Profits: An insured businessman or policyholder can enjoy normal expected
profits as he would not be required to make provisions or allocate funds for meeting future
contingencies.

(c) Improve Credit Standing: Insured assets are easily accepted as security for loans by the banks and
financial institutions so insurance improve credit standing of the business firm.

(d) Business Continuation: With the help of property insurance, the property of business is protected
against disasters and chance of closure of business is reduced
Benefits to the Society
(a) Capital Formation: As institutional investors, insurance companies provide funds for financing
economic development. They mobilize the saving of the people and invest these saving into more
productive channels.

(b) Generating Employment Opportunities: With the growth of the insurance business, the insurance
companies are creating more and more employment opportunities.

(c) Promoting Social Welfare: Policies like old age pension scheme, policies for education, marriage
provide sense of security to the policyholders and thus ensure social welfare.

(d) Helps Controlling Inflation: The insurance reduces the inflationary pressure in two ways, first, by
extracting money in supply to the amount of premium collected and secondly, by providing funds for
production narrow down the inflationary gap.

PRINCIPLES OF INSURANCE
1. Principle of utmost good faith: A contract of insurance is a contract of ‘Uberrima Fidei’ i.e., of
utmost good faith. Both insurer and insured should display the utmost good faith towards each other in
relation to the contract. In other words, each party must reveal all material information to the other
party whether such information is asked or not. There should not be any fraud, non-disclosure or
misrepresentation of material facts.

Example - in case of life insurance, the insured must revel the true age and details of the existing
illness/diseases. If he does not disclose the true fact while getting his life insured, the insurance
company can avoid the contract.

Similarly, in case of the insurance of a building against fire, the insured must disclose the details of the
goods stored. If such goods are of hazardous nature

A material fact means important facts which would influence the judgment of the insurer in fixing the
premium or deciding whether he should accept the risk, on what terms. All material facts should be
disclosed in true and full form.

2. Principle of Insurable Interest: This principle requires that the insured must have an insurable
interest in the subject matter of insurance. Insurance interest means some pecuniary interest in the
subject matter of contract of insurance. Insurance interest is that interest, when the policyholder get
benefited by the existence of the subject matter and loss if there is death or damage to the subject
matter.
For example - In life insurance, a man cannot insured the life of a stranger as he has no insurable
interest in him but he can get insured the life of himself and of persons in whose life he has a pecuniary
interest. So in the life insurance interest exists in the following cases:

-Husband in the life of his wife and wife in the life of her husband

- Parents in the life of a child if there is pecuniary benefit derived from the life of a Child

-Creditor in the life of debtor

-Employer in the life of an employee

-Surety in the life of a principle debtor

In life insurance, insurable interest must be present at the time when the policy is taken. in fire
insurance, it must be present at the time of insurance and at the time if loss if subject matter. In marine
insurance, it must be present at the time of loss of the subject matter.

3. Principle of Indemnity: This principle is applicable in case of fire and marine insurance only. It is not
applicable in case of life, personal accident and sickness Insurance. A contract of indemnity means that
the insured in case of loss against which the policy has been insured, shall be paid the actual cost of loss
not exceeding the amount of the insurance policy. The purpose of contract of insurance is to place the
insured in the same financial position, as he was before the loss.

Example - A house is insured against fire for Rs. 50000. It is burnt down and found that the expenditure
of Rs. 30000 will restore it to its original condition. The insurer is liable to pay only Rs. 30000.

In life insurance, principle of indemnity does not apply as there is no question of actual loss. The
insurer is required to pay a fixed amount upon in advance in the event of accident, death or at the
expiry of the fixed term of the policy. Thus, a contract of a life Insurance is a contingent contract and not
a contract of indemnity.

4. Principle of Contribution: The principle of contribution is a corollary to the doctrine of indemnity. It

applies to any insurance which is a contract of indemnity. So, it does not apply to life insurance. A
particular property may be insured with two or more insurers against the same risks. In such cases, the
insurers must share the burden of payment in proportion to the amount insured by each. If one of the
insurers pays the whole loss, he is entitled to contribution from other insurers.

Example - B gets his house insured against fire for Rs. 10000 with insurer P and for Rs 20000 with insurer
Q, a loss of Rs. 15000 occurs, P is liable to pay for Rs. 5000 and Qs labile to pay Rs 10000. If the whole
amount of loss is paid by Q then can recover Rs. 5000 from P.

5. Principle of Subrogation: The doctrine of subrogation is a corollary to the principle of indemnity and
applies only to fire and marine insurance. According to doctrine of subrogation, after the insured is
compensated for the loss caused by the damage to the property Insured by him, the right of ownership
to such property passes to the insurer after settling the claims of the insured in respect of the covered
loss.

Example - Furniture is insured for Rs. 1 lakh against fire, it is burn down and the insurer pays the full
value of Rs. 1 Lakh to the insured, later on the damage Furniture is sold for Rs. 10000. The insurer is
entitled to receive the sum of Rs. 10000.

A loss may occur accidentally or by the action or negligence of third party. If the insured suffer a loss
because of action of third party and he is in a position to recover the loss from the insurer then Insured
cannot take action against third party, his right is subrogated (substituted) to the Insurer on settlement
of the claim. The insurer, therefore, can recover the claim from the third party

If the Insured recovers any compensation for the loss (due to third party), from the third party, after he
has already been indemnified by the insurer, he holds the amount of such compensation as the trustee
if the insurer.

The insurer is entitled to the benefits out of such rights only to the extent of the amount he has paid to
the insured as compensation.

6. Principle of Causa Proxima: Causa Proxima means proximate cause or cause which, in a natural and
unbroken series of events, is responsible for a loss or damage. The insurer is liable for loss only when
such a loss is proximately caused by the peril insured against. The cause should be the proximate cause
and can not the remote cause. If the risk insured is the remote cause of the loss, then the insurer is not
bound to pay compensation. The nearest cause should be considered while determining the liability of
the insured. The insurer is liable to pay if the proximate cause is Insured.

Example - In a marine insurance policy, the goods were insured against damage by sea water, some rats
on the board made a hole in a bottom of the ship causing sea water to pour into the ship and damage
the goods. Here, the proximate cause of loss is sea water which is covered by the policy and the hole
made by the rats is a remote cause. Therefore, the Insured can recover damage from the insurer

Example - A ship was insured against loss arising from collision. A collision took place resulting in a few
days delay. Because of the delay, a cargo of oranges becomes unsuitable for human consumption. It was
held that the Insurer was not liable for the loss because the proximate cause of loss was delay and not
the collision of the ship

7. Principle of Mitigation of Loss: An insured must take all reasonable care to reduce the loss. We must
act as if the property was not insured.

Example - If a house is insured against fire, and there is accidental fire, the owner must take all
reasonable steps to keep the loss minimum. He is supposed to take all steps which a man of ordinary
prudence will take under the circumstances to save the insured property
TYPES OF INSURANCE
The different types of insurance have come about by practice within insurance companies, and by the
influence of legislations controlling the transacting of insurance business. Broadly Insurance may be
classified in to following categories:

• Classification from business point of view These are as such;

(a) Life Insurance

(b) General Insurance

 Classification from risk point of view: These may be classified as follows:

(a) Personal Insurance

(b) Property Insurance

(c) Liability Insurance

(d) Fidelity Guarantee Insurance

Classification from Business Point of view

a) Life Insurance: The life insurance contract provides elements of protection and investment after
getting insurance, the policyholder feels a sense of protection because he shall be paid a definite
sum at the death or maturity. Since a definite sum must be paid, the element of investment is also
present. In other words, life insurance provides against premature death and a fixed sum at the
maturity of policy. At present life insurance enjoys maximum scope because each and every person
requires the Insurance.

Life insurance is a contract under which one person, in consideration of a premium paid either in
lump sum or by monthly, quarterly, half yearly or yearly instalments, undertakes to pay to the person
(for whose benefits the insurance is made), a certain sum of money either on the death of the insured
person or on the expiry of a specified period of time.

Types of Life Insurance Policies in India

•Term Life Insurance

• Whole Life Insurance

• Endowment Policy

• Money Back Policy

•Savings & Investment Plans

• Retirement Plans

• Unit Linked Insurance Plans - ULIPS

• Child Insurance Policy

Term Life Insurance:

Term life insurance is a type of life Insurance that provides a death benefit to the beneficiary only if the
insured dies during a specified period. If the insured survives until the end of the period, or term, the
coverage ceases without value and a payout or death claim cannot be made. Term life insurance is
income replacement that remains active for a specified number of years. Term life insurance is the most
affordable type of life Insurance.

Benefits of Term Life Insurance Plans-

• Provides life coverage and financial security to the family of the insured at an affordable premium rate.

•Term insurance plans can be bought online in a simple and hassle freeway.

• As compared to other life insurance policies term insurance plans offer higher coverage at a minimum
premium rate.

• Term Insurance plans offer flexible payout options to the policyholder.

• The premiums paid towards the term insurance plans are eligible for tax exemption under section 80C
of Income Tax Act 1961.

• Term insurance plans also offer the option of additional rider benefit in order to enhance the coverage
of the policy.

Whole Life Insurance:

Whole life insurance is a type of life insurance that provides you coverage throughout your lifetime
provided the policy is in force. Whole life insurance policies also contain a cash value component that
increases over time. You can withdraw your cash value or take out loan against it as per your
convenience. In addition, in case of your unfortunate demise before you pay back the loan, the death
benefit paid to your beneficiaries will be reduced.

Benefits of Whole Life Insurance Policy -

• One of the major benefits of whole life insurance plan is that it provides coverage against death for the
entire life of the insured Is up to 100 years of age.
• Some whole life insurance plans offer the advantage of period payment to the insured. The whole life
insurance plans offer survival benefits to the insured in form of period payments.

• Tax benefit can be availed under section 80C and 10(10D) of Income Tax Act 1961.

• Whole life insurance plans offer loan facility to the policyholder.

• The whole life insurance plans can be bought online in a simple and hassle-free way.

Endowment Policy:
An endowment policy is defined as a type of life insurance that is payable to the insured if he/she is still
living on the policy's maturity date, or to a beneficiary otherwise. An endowment policy provides you
with a dual combination of protection and savings. In an endowment policy, if the insured dies during
the term of the policy, the nominee receives the sum assured plus the bonus or participating profit or
guaranteed additions, if any, the bonus or profit is paid for the number of years that the insured survives
in the policy term.

Benefits of Endowment Policy -

 Endowment plan provides the dual benefit of savings cum insurance coverage.

 Tax benefit can be availed under section 80C and 10(100) of Income Tax Act 1961,

 Endowment policy offers the benefit of long-term savings to the policyholder.

 Endowment plans also come with rider benefits to increase the coverage of the policy.

 Endowment plan also comes with an additional bonus facility as a terminal bonus and
reversionary bonus.

 As compared to the other investment options endowment plans are considered as a low risk
investment option.

Money Back Policy:

 Money back policy gives you money during the policy tenure. A money back policy gives you a
percentage of the sum insured at regular intervals during your policy term If you live beyond the
term of the policy then you will receive the remaining portion of the corpus and the accrued
bonus also at the end of the policy term.

 But in case of an unfortunate event before the full term of the policy is over the beneficiaries
are entitled to receive the entire sum assured regardless of the number of instalment paid out
Money back policies are the most expensive insurance option offered by Insurance companies
as they offer return to the insured during the policy tenure.
 Benefits of Money Back Policy-

 Money back policies are low-risk savings options which also offer the benefit of life
coverage.

 Money back policy offers regular income to the policyholder in particular intervals of time in
form of survival benefit.

 Tax benefit can be availed under section 80C and 10(10D) of income Tax Act 1961.

 Money back policy helps the Insured to fulfil the short-term financial goals of life.

 Additional rider benefits are offered under the policy in order to increase the coverage of the
policy.

 Money back plans also come with an additional bonus facility.

 Money back plans offer risk free returns to the policyholder.

Savings & Investment plans:

• Savings & Investment Plans provide you the assurance of lump sum funds for you and your family's
future expenses. While providing an excellent saving tool for your short term and long-term financial
goals, these plans also assure your family a certain sum by way of an insurance cover. This is a broad
categorization which covers both the traditional and unit linked plans.

Benefit of Savings and Investment plans-

• Savings investment plans offer the benefits of market linked returns to the policyholder.

• These plans not only provide an opportunity to create corpus over a long period of time but also offers
life protection to the family of the insured in case of any eventuality,

• Tax benefit can be availed under section 80C and 80D of Income Tax Act 1961.

• Savings Investment plan helps to fulfil the shirt-term and long-term financial goals of life.

Retirement Plans:
• A savings and investment plan that provides you with income during retirement is called
Retirement Plan. Retirement plans are offered by life insurance companies in India and help you to build
a retirement corpus. On maturity, this corpus is invested for generating a regular income stream which
is referred to as pension or annuity.

Benefits of Retirement Plan-

• Helps the insured to create a financial cushion for future so that they can secure the life after
retirement

• The policyholder is entitled to gain tax benefit under section 80C of Income Tax Act 1961.

• During the vesting age, the policyholder receives the monthly pension.

• Retirement plan helps the insured to achieve the long-term financial goals of life.

Unit Linked Insurance Plans – ULIPS:

• Unit linked insurance plans are a type of life insurance plan that provide you with a dual
advantage of protection and flexibility in investment. A unit-linked insurance plan (ULIP) is type of life
insurance where the cash value of a policy varies according to the current net asset value of the
underlying investment assets. The premium paid is used to purchase units in investment assets chosen
by the policyholder.

Benefits of Unit Linked Insurance Plan-ULIP

• ULIP plan offers the dual benefit of investment cum insurance coverage.

• ULIP offers the facility to switch between funds

• The premium paid towards ULIP plans is eligible for tax benefit under section 80C of Income Tax Act.

• Additional rider benefits are offered under the policy in order to increase the coverage of the policy.

• ULIP plans allow the insurance holder to make a partial withdrawal within the tenure of the policy.

Child Insurance Policy:

• A child insurance policy is a saving cum investment plan that is designed to meet your child's
future financial needs. A child insurance policy allows your kids to live their dreams. Child insurance
policy gives you the advantage to start investing in the children's plan right from the time the child is
born and provisions to withdraw the savings once the child reaches adulthood. Some child insurance
policies do allow intermediate withdrawals at curtain intervals.

Benefits of Child Plan-

• Secure the future of the child financially even in the absence of the parents.

• Child insurance plans offer premium waiver benefit in case of demise of the insured during the tenure
of the policy,

• Tax benefit can be availed under a different section of Income Tax Act 1961.

• A secured loan be availed under the child insurance plan

• Offers flexible premium payment options.

b) GENERAL INSURANCE
GENERAL INSURANCE: Insurance contracts that do not come under the ambit of life insurance are
called general insurance. The different forms of general insurance are fire, marine, motor, accident
and other miscellaneous non-life insurance.

A General Insurance Policy will pay for the losses that may occur during the policy period only.

• A policy or agreement between the policyholder and the insurer which is considered only after
realization of the premium.

• The premium is paid by the insured who has a financial interest in the asset covered.

• The insurer will protect the insured from the financial liability in case of loss.

Types Of General Insurance

Following are the different types of General Insurance in India:

• Motor Insurance

• Home Insurance

• Travel Insurance

• Health Insurance

• Marine Insurance

• Commercial Insurance

Motor insurance:
• Insurance for the damage or theft of your motor vehicle, two-wheeler, three-wheeler or four-wheeler,
is covered under this type of insurance. The damage caused to the vehicle can be caused natural or
man-made circumstances, the extent of which would change from policy to policy

• Under the Motors Vehicle Act, motor Insurance is mandatory in India. New motor vehicles come with
third-party Insurance right from the showroom itself
Home insurance:
• Home and household insurance protects your home and the items inside it. A home insurance policy
would also cover natural and man-made circumstances. The contents that are covered under a home
insurance policy would depend on the type of policy you buy.

Travel insurance:
 Another popular type of general insurance is travel insurance, which covers your trips abroad. Travel
insurance can be taken to cover loss or theft of your valuables as well as documents. Some travel
insurance policies also cover flight delays and medical emergencies, Travel insurance can be taken
for personal as well as business trips

Health insurance:
• It is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured.
Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care
provider directly.

Marine insurance:
• Coverage against loss of or damage to a ship, and In-transit cargo loss or damage over waterways

Commercial insurance

• Coverage for businesses for protection against potential losses through unforeseen circumstances like
theft, liability, property damage, and for coverage in the event of an interruption of business or injured
employees.

Classification from Risk Point of view

a. Personal insurance

Personal insurance is any insurance that protects you from having to pay out of pocket for accidents,
illness or damage to your property. To get insurance, you agree to pay a monthly or annual premium in
return for a payout when you need it. It includes Car insurance, Home and renters insurance, Life
insurance, Travel insurance, Disability insurance, Critical illness insurance, Landlord insurance.

b. Property insurance

It provides protection against most risks to property, such as fire, theft and some weather damage. This
includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance,
and home insurance.
c. Liability insurance

It also called third-party insurance is a part of the general insurance system of risk financing to protect
the purchaser (the "Insured") from the risks of liabilities imposed by lawsuits and similar claims and
protects the insured if the purchaser is sued for claims that come within the coverage of the insurance
policy.

d. Fidelity coverage

It is a type of insurance that will protect a business owner against the theft of money, property, forgery
or fraud by an employee. It will guarantee that if a business owner or employer suffers any loss due to
employee dishonesty, the chosen insurer will share this loss as long as they are within the limitations
prescribed by the contract.

 Social Insurance

Social insurance provides protection to the weaker sections of the society who is unable to pay the
premium. It includes pension plans, disability benefits, unemployment benefits, sickness Insurance and
industrial Insurance.

REINSURANCE
Reinsurance is the transfer of insurance business from one insurance to another. Reinsurance is an
arrangement whereby an original Insurer who has insured a risk Insures part of that risk again with
another Insurer, that is to say, reinsurance a part of risk in order to diminish his own liability. The insurer
transferring the business is called the principle or 'ceding or 'original of fire and the office to which the
business is transferred is called for "reinsurer' or guaranteeing office'. It is also a contract of indemnity;
Reinsurance is a contract between the reinsured (the insurer) and the reinsurer.

Example: Mr. X, a factory owner, approached an insurance company A' for an insurance of an amount of
Rs. 40 crores. Company 'A' has two options before it. It can reject the risk or accept the entire risk and
share a part of the risk with other insurer. In case, the company 'A' decides to assume the risk, by
retaining Rs. 20 crores worth of insurance with it and seeking assistance of other Insurer for the excess
of his own limit. I.e. for the balance of Rs. 20 crores. The excess for which the company 'A' is
approaching the other insurer is called "Reinsurance".

FEATURES
1. It is primarily a wholesale insurance where one insurance company insures with other insurance
company.

2. The insurance company may insure the same risk wholly or partially.

3. The original insurer agrees to transfer part of his risk to other insurance company on the same terms
and conditions.

4. Original insurer cannot insure the risk with a reinsurer, more than the sum assured, originally by the
insured.

5. Reinsurance can be applied to all kinds of insurance.

6. In the event of fire, the insured is entitled to get the amount of claim only for the original insurer and
not from reinsurer.

7. The contract of reinsurance is also a contract of indemnity, therefore it consists of same essential
features of contract.

8. Reinsurer pays the claim only when the insurer pays to the insured.

9. Reinsurer is not liable to the insured because there is no contract between reinsurer and the insured.

10. The original insurer should intimate to the reinsurer about the alternation, if any, made in terms and
conditions with the insured.

11. If the original policy comes to an end the policy of reinsurance also comes to an end.

Types of Reinsurance
1. Facultative Coverage

This type of policy protects an insurance provider only for an individual, or a specified risk, or contract. If
there are several risks or contracts that needed to be reinsured, each one must be negotiated
separately. The reinsurer has all the right to accept or deny a facultative reinsurance proposal.

2. Reinsurance Treaty

Unlike a facultative policy, a treaty type of coverage is in effect for a specified period of time, rather than
on a per risk, or contract basis. For the duration of the contract, the reinsurer agrees to cover all or a
portion of the risks that may be incurred by the insurance company being covered.
3. Proportional Reinsurance

Under this type of coverage, the reinsurer will receive a prorated share of the premiums of all the
policies sold by the insurance company being covered. Consequently, when claims are made, the
reinsurer will also bear a portion of the losses. The proportion of the premiums and losses that will be
shared by the reinsurer will be based on an agreed percentage. In a proportional coverage, the
reinsurance company will also reimburse the insurance company for all processing, business acquisition
and writing costs. Also known as ceding commission, such costs may be paid to the insurance company
upfront.

4. Non-proportional Reinsurance

In a non-proportional type of coverage, the reinsurer will only get involved if the insurance company’s
losses exceed a specified amount, which is referred to as priority or retention limit. Hence, the reinsurer
does not have a proportional share in the premiums and losses of the insurance provider. The priority or
retention limit may be based on a single type of risk or an entire business category.

5. Excess-of-Loss Reinsurance

This is actually a form of non-proportional coverage. The reinsurer will only cover the losses that exceed
the insurance company’s retained limit. However, what makes this type of contract unique is that it is
typically applied to catastrophic events. It can cover the insurance company either on a per occurrence
basis or for all the cumulative losses within a specified period.

6. Risk-Attaching Reinsurance

Under this type of contract, all policy claims that are established during the effective period of the
reinsurance coverage will be covered, regardless of whether the losses occurred outside the coverage
period. Conversely, no coverage will be given on claims that originate outside the coverage period, even
if the losses occurred while the reinsurance contract is in effect.

7. Loss-occurring Coverage

This is a type of treaty coverage where the insurance company can claim all losses that occur during the
reinsurance contract period. The important factor to consider is when the losses have occurred and not
when the claims have been made.

Advantages Of Reinsurance
1. Reinsurance boost Insurance Business- The major advantage of reinsurance is that it assists in the
boom of insurance business. It enables every Insurer to accept Insurance business as the total risk will
be distributed among other reinsurers, If there is no reinsurance, the insurer may not be willing to take
up risks, particularly when the risk exceeds beyond his capacity to manage.

2. Reinsurance reduces the risks- The prime principle of insurance is to reduce risk As the risks are
spread across wider area, the loss of the individual is minimized which gives the insurer the secured feel.
The revenue of insurance companies is stable due to reinsurance. It also helps the insurance companies
to gain knowledge about various types of risks and the basis of rating the risks in the future.

3. Reinsurance Increases Goodwill of Insurer- Reinsurance helps to boost the overall confidence and
goodwill of insurer. When the insurer develops confidence, he understands the nature of risks Involved
beyond his capacity. So reinsurance increases goodwill of an insurer.

4. Reinsurance Limits the Liability- Reinsurance motivates the insurers to undertake and spread the
risks. Hence the liability of insurer is limited to the maximum.

5. Reinsurance Stabilizes premium Rates -The premium rates of insurance are stabilized by reinsurance.
Generally, the premium rates are calculated on the basis of the loss experienced by the insurer in the
past, due to the risk concerned. Reinsurance takes into account of all these data and fixes the premium
rate according for various types of risks under mutual agreement. Thus reinsurance stabilizes the
fluctuations in the premium rates of various types of risks.

6. Reinsurance Protects the Insurance Funds- The insurance funds of the insurer are well protected due
to reinsurance. Additional security and peace of mind is an added advantage of reinsurance for the
insurer and the company that offers the Insurance.

7. Reinsurance Reduces Competition- The competitions between inter company is reduced as everyone
work in a cooperative manner and with the helping tendency in the insurance business. Thus
reinsurance helps to control competition and increase overall moral of the employees in the insurance
business.

8. Reinsurance Reduces profit fluctuations- The reinsurance plans reduce, to a considerable extent the
violent fluctuations in the profits of the company. If on the other hand, heavy risks are retained by the
original insurer; his profits are greatly upset due to a heavy single loss.

9. Reinsurance encourages new enterprises- It encourages the new underwriters, who In their early
period of develop to have limited retentive capacity. In the absence of reinsurance facility, the
tremendous growth of new enterprises in doubtful.

10. Reinsurance Minimizes dealings- Due to the reinsurance scheme, the insurer is required to indulge
in the minimum dealings with only one Insurer. In the absence of insurance facility, the insured will have
to approach several Insurers to enter into various individual insurance on the same property. This
involves considerable cost, loss of valuable time and slower down the peace of protection cover.

Double insurance
It is a type of insurance where the same subject matter is insured more than once. In such cases the
same subject is insured, but with different insurers. The method of double insurance is considered a
legal act.
When the insured (client) insures the same risk with two or more independent insurers and total sum
exceeds the value of the subject matter, it is called double insurance. If the aggregate of all the
insurance exceeds the total value of the insured risk is over insurance, if there is no express condition in
the contract double insurance or over insurance is legally valid. In the case of life insurance, double
insurance is profitable because the insured can get full policy money under all policies.

Rules of double insurance:

1. Recovery of actual loss: A man may insure with as many insurers as he pleases and up to the full
value of his interest with each one. If a loss occurs, he may claim payment from the insurers in such
order as he may think fit, but in no event is he entitled to recover more than his loss, because a contract
of insurance is a contract of indemnity only. This right to sue his insurers in any order he likes is a
valuable right for the assured. It protects him against loss in the event of one or more of the insurers
becoming insolvent.

2. Excess amount recovered to the be held in trust: If an assured recover more than the value of his
interest in case of loss, he holds the excess amount recovered for the insurers according to their
respective rights inter se, as a trustee.

3. Liability of Insurers Contribution: The insurers as between themselves are liable to contribute to the
loss in proportion to the amount for which each one is liable. If an insurer pays more than his ratable
proportion of the loss, he has a right to recover the excess from his co-insurers who have paid less than
their ratable proportion.

4. No limit on Life Insurances: In case of Life Insurance, an assured may take any number of policies on
his life and for any amount.
DIFFERENT BETWEEN DOUBLE INSURANCE AND REINSURANCE

SOCIAL INSURANCE:
Social insurance has been developed to provide economic security to weaker sections of the society who
are unable to pay the premium for adequate insurance. The following types of insurance can be
included in social insurance

(1) Sickness Insurance: In this type of insurance medical benefits, medicines and reimbursement of pay
during the sickness period, etc. are given to the insured person who fell sick.

(2) Death Insurance: Economic assistance is provided to dependents of the assured in case of death
during employment. The employer can transfer his liability by getting insurance policy against
employees.

(3) Disability Insurance: There is provision for compensation in case of total or partial disability suffered
by factory employees due to accident while working in factories. According to Employees Compensation
Act, the responsibility to pay compensation is vest with the employer. But the employer transfers his
liability on the Insurer by taking group Insurance policy

(4) Unemployment Insurance: In case insured person become unemployed due certain specific reasons,
he is given economic support till he gets employment

(5) Old-age insurance: In this category of insurance, the insured or his dependents is paid, after certain
age, economic assistance

MISCELLANEOUS INSURANCE:
The process of fast development in the society gave rise to a number of risk or hazards. To provide
security against such hazards, many other types of insurance also have been developed. The important
among them are:

1. Vehicle insurance on buses, cars, trucks, motorcycles, etc. and made compulsory so that the losses
due to accidents can be claimed from the insurance company,

2. Personal accident insurance by paying an annual premium Rs.12 on policy worth Rs.12,000. In case of
accidental death or total/partial disability, a fixed amount as per conditions of insurance, is paid to the
Insured.

3. Burglary insurance against theft dacoity etc.

4. Legal liability insurance (insurance whereby the assured is liable to pay the damages to

property or to compensate the loss of personal injury or death. This is in the form of fidelity guarantee
Insurance, automobile Insurance and machines etc.)

5. Crop insurance (crops are insured against loss due to heavy rains and floods, cyclone. draughts, crop
diseases, etc.)

6. Cattle insurance (Insurance for indemnity against the loss of cattle from various kinds of diseases)

7. In addition to the above, insurance plans are available against crime, medical insurance, bullock cart,
jewellery, cycle rickshaw, radio, TV, etc.

LEGAL FRAMEWORK FOR INSURANCE BUSINESS IN INDIA

 ACTS/REGULATIONS GOVERNING BOTH LIFE AND GENERAL INSURANCE BUSINESS IN INDIA

The following acts regulates the insurance business in India :

 Insurance Act, 1938

 IRDA Act, 1999 & Regulations passed thereunder

  Insurance Amendment Act, 2002

 Exchange Control Regulations (FEMA)

 Indian Stamp Act, 1899

 Consumer Protection Act, 1986

 Insurance Ombudsman Rules, 2017

 Labour Law legislations

 REGULATIONS GOVERNING/AFFECTING LIFE INSURANCE BUSINESS IN INDIA

The following Acts govern/regulate the life insurance business in India :

1. LIC Act, 1956.

2. Amendments to LIC Act.

 REGULATIONS AFFECTING GENERAL INSURANCE BUSINESS IN INDIA

The following Acts affect, circumscribe or regulate in some way or the other, some aspect of the
General Insurance Business in India :

 General Insurance Nationalization Act, 1972

 Amendments to GIN Act, 1972

 Multi-Modal Transportation Act, 1993

 Motor Vehicles Act, 1988

 Inland Steam Vessels Amendment Act, 1977

 Marine Insurance Act, 1963

 Carriage of Goods by Sea Act, 1925

 Merchant Shipping Act, 1958

 Bill of Lading Act, 1855

 Indian Ports (Major Ports) Act, 1963

 Indian Railways Act, 1989

 Carriers Act, 1865

 Indian Post Office Act, 1898.

PRINCIPLES GOVERNING MARKETING OF INSURANCE PRODUCT
Insurance products come in a variety of forms and are advertised and marketed using a variety of
methods to entice customers Insurance companies need to market their products because they are in
competition with other insurance for the same customers. Many time they only thing that distinguishes
a company's product is price as well as advertising message. The marketing of insurance products can be
done directly by an insurance carrier as well as an agent or company representative.

The following principles are to be adhered by the insurance companies while marketing their
insurance products:

1. Provide promotional materials such as pamphlets that customers can take with them. These can be
provided at an agency as well as a promotional or company event.

2. Use a company representative to explain and promote a product or service that insurance agent can
sale at their agencies. Many insurance use company representatives that go to their agent offices
regularly.

3. Buy a local television ads during a sporting event or other type of widely watched event There are
many commercial that appear on television for either an insurance company products services or local
agent

4. Take out an ad in the local newspaper or in magazine. Many people still read newspaper and
magazine but decide carefully before spending money on an add.

5. Who is your ideal client? A young family, a high risk driver, good credit bad credit? Define them. Make
sure you have the right products to fit their needs at a competitive rate. Then figure out where you can
find large groups of these people at inexpensive rates. And start marketing

6. Have a professional Insurance Agency Facebook page. Clients want to be able to reach you in the
methods they use most. Social media is important for that reason alone.

7. Start speaking at local organization meetings. One favourite topic such as 5 ways to save money on
insurance

8. Create a website that generates quotes. Make sure that the site has a blog and that you are posting
on it at least twice a month. This improves your Goggle ranking and shows that you are an Insurance
expert

9. Use direct mail to advertise a specific product or market a particular Insurance agent In an area. Many
insurance agents send a post card or a letter to customers to promote their services or policy savings

10. Advertise on website or use Popular services such as goggle ad words,

11. Do a semi-annual marketing campaign to clients who need a Personal Umbrella Policy.

12. Host a free seminar for your clients. Choose a topic like retirement planning or financial planning for new parents, etc.