phases of development of insurance

7/29/2019 Phases of Development of Insurance

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Phases of Development of

Insurance


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Introduction

Insurance is a contract whereby, in return forthe payment of premium by the insured, the

insurers pay the financial losses suffered by

the insured as a result of the occurrence of

unforeseen events.

The term Risk is used to describe all the

accidental happenings which produce amonetary loss.


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Indian Insurance Sector The Britishers opened general insurance in India

around 1700

The first company known as the Sun Insurance

Office Ltd was set up in Calcutta.

In 1972, general insurance business wasnationalized by the GOI.

Insurance penetration in India is 4.6% in case oflife insurance and 0.61% in general insurance.


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Insurance Act, 1938 The act was bought in force on July 1st, 1939. The act was wide and more comprehensive.

It applies to all insurance businesses

This act prohibits persons to carry insurancebusiness until he is:A public company.

A society registered under the Cooperatives Act,1912.

A body corporate incorporated under the lay of anycountry outside India not being the nature of privatecompany.

Registration with RBI along with maintenance ofSubstantial deposit


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Continued

The law also emphasizes on issues like: Restriction of commission and prohibition of

rebating

Limitation of expenditure on commission

Licensing of Insurance Agent

Investments

Right to investigate

Prohibition of Loan


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Role of Insurance Risk is an uncertainty concerning the occurrence of a

loss

In insurance industry risk is defined to identify theproperty or life being insured

Risk Control Risk avoidance

Risk reduction

Risk Financing

Risk retention

Risk Transfer


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Principles of Insurance

Utmost good faith

Insurable interest

Indemnity

Subrogation

Contribution


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Utmost Good Faith

Uberrima fides is a Latin phrase meaning "utmost

good faith .This means that all parties to an

insurance contract must deal in good faith, making

a full declaration of all material facts in theinsurance proposal

Good faith- Let the buyer beware

Declaration of all material Information about the

subject mater of insurance


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Material Information is that information which enables

the insurer to decide:a) whether he will accept the risk and;

b) if so, at what rate of premium and subject to what terms and

conditions

Breach of duty of utmost good faith arises in twoways:

Non-disclosure of material facts- oversight, proposer thought its

not essential etc.

Misrepresentation- Intentional.


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Examples

Shriram applied for life insurance and states in the

application that he has not visited a doctor within the

last five years

However, six months earlier he had surgery for lung

cancer. So, the statement made by him is false,

material and relied on by the insurer


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Insurable Interest The legal right enjoyed by the owner of a property to

insure is called Insurable Interest. The insurance

will become null and void, without the insurable

interest.


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Can everything be insured?

It Must be capable of financial measurement

There must be large number of similar risks

The person applying for insurance must be

having insurable interest in the subject matter of

insurance

Existence of insurable interest is an essential

ingredient of any insurance contract


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Continued Legal right to insure arising out of a financial

relationship (recognised under law), between the

insured and the subject matter of insurance.

There must be certain property, right, interest or life

capable of being insured. That property/right/interest etc. must be the subject

matter of insurance.

The insured must be having benefits from the safety

or well being of the subject matter and would besuffering by its loss or damage.

The relationship between the insured and subject

matter of insurance must be recognised at law.


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Continued

Subject matter of insurance In case of fire policy building, stock etc.

In case of life assurance human life

In marine insurance ship or its cargo

In case of Life Insurance-

Unlimited insurable interest in own life

Unlimited insurable interest in the life of spouse


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Indemnity

The principle of Indemnity states that under the policy ofinsurance, the insured has to be placed after the loss in

the same financial position in which he was immediately

before the loss.


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Continued

Applicability:o When the losses suffered by the insured can be measured in

terms of moneyo It is practicable to place the insured in the same financial

position which he occupied before the loss

If the sum insured is less than the indemnity, only the suminsured is payable.

Property insurances- Condition of average- If there isunder insurance only proportionate value is payable.

Exceptions for Indemnity: Personal Accident


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Subrogation

Transfer of rights and remedies from the insuredto the insurer who has indemnified the insured in

respect of the loss.


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Example

Mr. House Owner has his house worth Rs.5 lacsinsured with M/s. Fire Insurer.

Assume that the house is totally destroyed by fire

due to the faulty wiring by Mr. Contractor.

Fire Insurer has to pay to House Owner Rs.5

lacs.

Fire Insurer can exercise its subrogation rights

against Contractor, after fully indemnifying HouseOwner.


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Contribution

The right of insurers who have paid a loss undera policy to recover a proportionate amount from

other insurers, who are liable for the same loss.


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Management of Insurance

Companies

Agents General Agents

Career Agents

Brokers

Corporate agents

Bancassurance

phases of development of insurance

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