INSURANCE

MANAGEMENT
Module-1
RISK
• Risk is defined as uncertainity of loss or damage
• Risk means exposure to danger
• In insurance practice ‘Risk’ is also used for peril or loss producing
events.
• From practical point of view, the whole process of risk can be
classified into:
• Financial and Non-Financial Risks
• Static and Dynamic Risks
• Fundamental and Particular risk
• Pure and speculative risk

Pure Risk refers to those conditions that involve the chances of loss or no loss

Pure Rsiks can also be classified further into:

1. Personal Risk
2. Property Risk
3. Liability Risk
4. Other risk
 INTRODUCTION TO INSURANCE

• There are enormous risks in every sphere of life.

• In other words, our life and property are not safe and
there is always a risk of losing it.
• A simple way to cover this risk of loss money-wise is
to get life and property insured.
• Insurance- Meaning and definition

• Insurance is a contract between two parties.

• One party is the insured and the other party is the insurer.

• Insured is the person whose life or property is insured with the insurer.

• That is, the person whose risks are insured is called insured.

• Insurer is the insurance company to whom risk is transferred by the insured.

That is, the person who insures the risk of insured is called insurer
• Some definitions of insurance
• According to Gosh and Agarwal, “insurance may be defined as a co-
operative form of distributing a certain risk over a group of persons who are
exposed to it’.
• According to Mc Gill, “Insurance is a process in which uncertainties are
made certain”.
• In the words of Jon Megi, “Insurance is a plan wherein persons
collectively share the losses of risks”.
• insurance is a device by which a loss likely to be caused by uncertain event and is
spread over a large number of persons who are exposed to it and who voluntarily
join themselves against such an event.
• The document which contains all the terms and conditions of insurance (i.e. the
written contract) is called the ‘insurance policy’.
• The amount for which the insurance policy is taken is called ‘sum assured’.

• The consideration in return for which the insurer agrees to make good the loss is
known as ‘insurance premium’.
• This premium is to be paid regularly by the insured. It may be paid monthly,
quarterly, half yearly or yearly.
Definition of insurance can be made of two points
1.Functional Definition
2.Contractual definition
Functional Definition
• Insurance is a co-operative device to spread the loss spread by a particular
risk over a number of persons, who are exposed to risk. Thus, the insurance
is
(a) a co-operative device to spread the risk
(b) the system to spread risk over a number of persons who are insured
against risk
(c) the principle to share loss of each member of the society
(d) methods to provide security against loss to the insured
Contractual definition
• Insurance has been defined to be that in which a sum of money as a
premium is paid in consideration of insurers incurring the risk of paying
a large sum upon a given contingency. Thus insurance is a contract
(a) a certain sum, called premium , is charged in consideration
(b) against the said consideration a large sum is guaranteed to be paid by
the insurer who received premium
(c) the payment will be made in a certain definite sum
(d) the payment is made only upon a contigency
Brief History of Insurance
• The growth of insurance industry is associated with the general growth of industry, trade and
commerce.

• The origin of insurance services may be traced back to 14th Century in Italy when ships
carrying goods were covered under different perils. Thus marine insurance become oldest insurance
practice.

• The systematic and orderly beginning of the insurance industry took place in UK at Lloyds
coffee house in Tower Street in London.

• In developing countries, insurance sector has assumed special significance as it has the potential to
speed up the rate of growth of the economy. Insurance Industry assists the development process of an
economy in several ways.

• Primarily, it acts as mobiliser of savings, financial intermediary promoter of investment activity,

stabilizer of financial market, risk manager and an agent to allocate capital resources efficiently.
Although the insurance industry has grown rapidly in the industrialized countries.
• The life insurance business was nationalized in 1956 and the general insurance industry in 1973
• The lack of competition has impeded the development of insurance industry in India, resulting in low
productivity and poor quality of customer services.
• The process of liberalization and globalization of the Indian economy started in right earnest in mid-
1980s. The market mechanism was the motivating factor underlying the new economic policy.
• In consonance with the new economic policy, insurance sector was opened up for the private
sector in 1999.
• The new competitive environment is expected to benefit the consumers, industry and the economy at
large.
• The consumer will have a greater choice in terms of number and quality of products, low premium
rates, efficient after sales services while the economy will benefit in terms of larger flow of savings,
increased availability of investible funds for long term projects and enhanced productivity
• Life Insurance had its beginning in ancient Rome, where citizens formed burial clubs that
would meet the funeral expenses of its members as well as help survivals by making its
payments.

• The first stock company to get into the business of insurance was chartered in England in 1720.

• In the year 1735 saw the birth of the first insurance company in American Colonies in
Charleston.

• In 1759, the Presbyterian Synod of Philadelphia sponsored the first Life Insurance
Corporation in America. However, it was after 1840 that Life Insurance really took off in a
big way.
• The 19th century saw huge developments in the field of insurance with the newer
products being devised to meet growing needs. The history of insurance in our
country is somewhat darken.
• The earliest reference of life insurance was available in the days of East India
Company, when the policies were taken only by the British officers. The policy
was issued by British officers in sterling currency.
• Oriental was the first foreign insurance company established in India in 1818.

• Foreigners, orphans and widows were become subject matter for the oriental
company.
• The company started accepting the Indians in 1934 due to the efforts of Babu
Muttylai seal. ‘Bombay Life’, a company had issued short term policies for 2-3
• Raja Ram Mohan Roy, the man who pleaded for protecting widows through
government insurance ‘Bombay Mutual Life Assurance Society was established
by some prominent citizens of Bombay in 1871.
• European merchant also started ‘Bombay Insurance Society’ in 1893 by voluntary
efforts. Mr. Curstjee Furdoonju was the first insured person of India.
• This policy was insured in 1848 by royal Insurance which started in 1845.

• It was the beginning of the Indian insurance venture.

Evolution of insurance
1. Marine insurance
- it’s the oldest form of insurance
-marine policies sold in the beginning of 14th century by Brugians
2. Fire insurance
After marine insurance, fire insurance developed in present form
-originated in Germany
-in the beginning of 16th century
-got momentum in England after great fire in 1666
• In india general insurer started working since 1850 with the establishment of
the triton insurance, calcutta
3.Life Insurance
• - first appeared in England in 16th century
• In india , Oriental Life insurance company started in 1818
• 4. Miscellaneous insurance
• its took the present shape at the later 19th century
• Accident insurance, fidelity insurance, liability insurance ,theft insurance
• Now crop insurance, cattle insurance, profit insurance etc are in demand
Basic terms used in insurance
Different terms are used in the insurance.
Insured
• The party or the individual who seeks protection against a specified task and entitled
to receive payment from the insurer in the event of happening of stated event is
known as
insured. An insured is normally a insurance policy holder.
Insurer
• The party who promises to pay indemnity the insured on the happening of
contingency is known as insurer. The insurer is an insurance company.
Beneficiaries
• The person or the party to whom the policy proceeds will be paid in the event of the
death or happening of any contingency is called beneficiary.
Contract
• An agreement binding at law between two or more parties is called contract.
Premium
• The amount which is paid to the insurer by the insured in consideration to
insurance
contract is known as premium.
• It may be paid on monthly, quarterly, half yearly, yearly or as agreed upon it is
the price for an insurance policy.
Insured sum
• The sum for which the risk is insured is called the insured sum, or the policy
money or
the face value of the policy.
• This is the maximum liability of the insurer towards the insured.
Peril

• A peril is an event that causes a personal or property loss by fire, windstorm,

• explosion, collision premature death, sickness, floods, dishonesty etc.

Hazard

• Hazard is a condition that may create, increase or decrease the chances of loss from a given peril.

Exposure

• An exposure is a measure of physical extent of the risk. An individual who owns a business house may be
subjected to economic loss and individual loss because of his business and personal exposure.

Cover note

• An unstamped document issued by or on behalf of insurers as evidence of insurance pending issue of

policy.
Damages

• Monetary compensation award at law for a civil wrong or breach of contract.

Indemnity

• Compensation for actual loss suffered is call indemnity.

Reinsurance

• Reinsurance is a method where by the original insurer transfer all or part of risk he has assumed to
another company or companies with the object of reducing his own commitment to an reducing
his own commitment to an amount that he can bear for his own account commensurate with his
financial resources in the event of loss.

• It was originally confined to offers and acceptances on individual risk known as facultative
reinsurance transactions.
• Double Insurance

• Double insurance implies that subject matter is insured in two or more insurance companies
(insurers) and the total sum insured exceeds the actual value of subject matter. In other words,
the same subject matter is insured in more than one insurer.

• No claim bonus

• The bonus is getting under the policy, if the claim is not reported during the policy period and
after that the time renewal (in time) then as per the policy term no claim bonus is avail for the
vehicle insurance policy and the rate of bonus is different in different general insurance
companies, and the maximum rate should be up to 50% as per the norms.
 Nature and Characteristics of Insurance
• Insurance follows important characteristics – These are follows

1. Sharing of risk
• Insurance is a co-operative device to share the burden of risk, which may fall on
happening of some unforeseen events, such as the death of head of family or on
happening of marine perils or loss of by fire.

2. co-operative device
• Insurance is a co-operative form of distributing a certain risk over a group of
persons who are exposed to it.
• A large number of persons share the losses arising from a particular risk.
3. Large number of insured persons
• The success of insurance business depends on the large number of persons Insured
against similar risk. This will enable the insurer to spread the losses of risk among
large number of persons, thus keeping the premium rate at the minimum.

4. Evaluation of risk
• For the purpose of ascertaining the insurance premium, the volume of risk is
evaluated, which forms the basis of insurance contract.
• 5. Payment of happening of specified event

• On happening of specified event, the insurance company is bound to make payment to the
insured. Happening of specified event is certain in life insurance, but in the case of fire,
marine of accidental insurance, it is not necessary. In such cases, the insurer is not liable
for payment of indemnity

• 6. Transfer of risk

• Insurance is a plan in which the insured transfers his risk on the insurer. This may be the
reason that may person observes, that insurance is a device to transfer some economic
losses would have been borne by the insured themselves.
• 7. Spreading of risk
• Insurance is a plan which spread the risk & losses of few people among a
large number of people.
John Magee writes, “Insurance is a plan by which large number of people
associates themselves and transfers to the shoulders of all, risk attached to
Individuals”.
8 . Protection against risks
• Insurance provides protection against risk involved in life, materials and
property. It is a device to avoid or reduce risks.
8 9. Insurance is not charity
• Charity pays without consideration but in the case of insurance, premium
is paid by the insured to the insurer in consideration of future payment.
10. Insurance is not a gambling
• Insurance is not a gambling. Gambling is illegal, which gives gain to one
party and loss to other. Insurance is a valid contact to indemnity against
losses.
• Moreover, Insurable interest is present in insurance contracts it has the
element of investment also.
11. A contract

• Insurance is a legal contract between the insurer and insured under which the
Insurer promises to compensate the insured financially within the scope of
insurance Policy, the insured promises to pay a fixed rate of premium to the
insurer.

12. Social device

• Insurance is a plan of social welfare and protection of interest of the people.
Rieged and miller observe “insurance is of social nature”.
13. Based upon certain principle
• Insurance is a contract based upon certain fundamental principles of insurance,
which includes utmost good faith, insurable interest, contribution, indemnity, causa
Proxima, subrogation etc, which are operating in the various fields of insurance.
14. Regulation under the law
• The government of every country enacts the law governing insurance business So
as to regulate, and control its activities for the interest of the people. In India
General insurance act 1972 and the life insurance act 1956 are the major enactment
in this direction.
15. Insurance is for pure risk only
• Pure risks give only losses to the insured, and no profits.

• Examples of pure Risks are accident, misfortune, death, fire, injury, etc., which are all the
sided risks and the ultimate results in loss.
• Insurance companies issue policies against pure risk only, not against speculative risks.

16. Based on mutual goodwill

• Insurance is a contract based on good faith between the parties. Therefore, both the parties
are bound to disclose the important facts affecting to the contract before each other.
• Utmost good faith is one of the important principles of insurance.
Importance of insurance
• Insurance plays significant role for not only an individual or for a family but it
has spread over the entire nervous system of the nation.
• According to the author, Dins dale, “No one in modern world can afford to be
without insurance.”
• Insurance provides various advantages to various fields. We can classify the
importance as under
I individual aspects:
• For an individual, the importance of insurance is laying in the following points:
1. Security for health and property
2. Encourage savings
3. Encourage the habit of forced thrift
• 4. Provide mental peace

• 5. Increase efficiency
• 6. Provision for the future
• 7. Awareness for the future
• 8. Credit Facility
• 9. Tax exemption
• 10. Contribution to the conservation of health
• 11. Cover for legal liability
• 12. Security to the mortgaged property
• 13. Poster economic independence
• II Economic aspects

• 1. Safety against risk

• 2. Protection to employees

• 3. Basis of Credit

• 4. Protection from the loss of key man

• 5. Encourage loss prevention methods

• 6. Reduction of cost

• 7. Promote foreign trade

• 8. Development of big industries

• 9. Increase in efficiency
III Social aspects
1. Stability in family life
2. Development of employment opportunity
3. Encourage alertness
4. Contributes to the development of basic facilities
IV National aspects
1. Increase the national savings
2. Helps in development opportunities
3. Develops the money market
4. Earns foreign exchange
5. Capitalizes the savings
Function of insurance

• Insurance becomes very useful in today’s life. It plays significant role

in this competitive era. According to Sir William Beveridge the
functions of insurance can be divided into three categories.
• 1) Primary functions
• 2) Secondary functions
• 3) Indirect functions
Primary function
1. To provide protection
• The most important function of insurance is to provide protection against risk
of loss.
• It is one check the reality of the misfortune happening, and pays the cost of
damages of losses.
2. To provide certainty
The future is totally uncertain. Any misfortune happening may occur at any
stage of life. The amount of loss and time of losses both are uncertain.
Insurance provides certainly towards the losses. The policy holders pay the
premium to get certainty
3. Distribution of risk
• It is a co-operative effort where the risk is distributed among the group of People.
• Thus, no one have to bear the losses occurred due to uncertainty.
Secondary function
1. Helps in economic progress
• Insurance plays an important role in economic progress. It gives fully certainty to the
industrialists towards the risks.
The entrepreneurs can more concentrate on Innovative and profitable techniques of the
production. They should not require Thinking over the risks.
• The industrialists can establish new industries in environment. Thus, industries have got
development in economic and commerce of the nation.
2. Insurance prevents losses
• Insurance plays vital role in preventing the losses.
• The amount of premium is minimized by using such appliances like the fire
extinguisher. If one uses interior Machinery which may be caused for misfortune,
the amount of premium will be high.
• Thus, indirectly,insurance provides help to minimize the chances of risks.
Indirect function
1. A forced savings
• Life insurance is also a method of savings in India.
• Income tax act gives relief in payment of income tax because
government wants to habituate general public to save money.
• It encourages the habit of thrift and savings among the people. Thus,
it becomes compulsory savings to people of nation.
2. Promote foreign trade
• It is compulsory to take marine insurance policy in foreign trade in India.
• Foreigners can’t issue the foreign trade bill unless the cargo is fully
insured. Thus Foreign trade is totally depends upon the insurance sector
of the nation. It gives relief to entrepreneurs from the uncertainty of
foreign trade.
3. Others
• Insurance provides certainties towards risks in entrepreneurship. It gives
Confidence in general public. It is one of the important source of
investment which develops the trade and commerce of the nation.
Insurance and Social Security

• The path of insurance has been evolved to look after the interests of
people from uncertainty by providing certainty of compensation at a
given contingency.
• The insurance principle comes to be more useful in modern affairs. It
not only serves the ends of individuals,or of special groups of
individuals, but also tends to spread through and renovate modern
social order or social security.
Role of insurance in social security
empowerment.

A. Social security to individuals

1. Insurance provides security and safety

• The insurance provides safety and security against the loss on a particular event.
• Eg. In case of life insurance, payment is made when death occurs or the term of
Insurance is expired.
• The loss to the family at a premature, death and payment in old age are
adequately provided by insurance.
• In other words, security against premature death and old-age sufferings are
provided by life insurance. Similarly, the property of Insured is secured against
loss on a fire in fire insurance.
2. Insurance offers peace of mind

• The security wish is the prime motivating factor.

• This is the wish, which tends To stimulate to work more.
• If this wish is unsatisfied, it will create a tension which May manifest
itself in the form of an unpleasant reaction causing reduction in “work.
• By means of insurance, feeling of insecurity may be eliminated.
3. Insurance protects mortgaged property

• At the death of the owner of the mortgaged property, the property is taken
over by the lender of money and the family is deprived of the use of the
property.
• At The damage or destruction of the property, he will lose his right to get the
loan repaid.
• The insurance will provide adequate amount to the dependents at the early
death of the property-owner to pay- off the unpaid loans.
• Similarly, the mortgagee gets adequate amount at the destruction of the
property.
4. Insurance eliminates dependency

• What would happen at the death of the husband or father, the annihilation of
family needs no elaboration.
• Similarly, at destruction of property and goods, the Family would suffer a lot.
• It brings reduced standards of living and the suffering may go to any extent of
begging from the relatives, neighbours, or friends. The economic
Independence of the family is reduced or, sometimes, lost totally.
• The insurance is here to assist them and provide adequate amount at the Time
of sufferings.
5. Life insurance encourages saving

• The elements of protection and investment are present only in case of

life Insurance.
• In property insurance, only protection element exists. In most of the
life Policies elements of saving predominates. These policies combine
the programs of Insurance and savings.
6. Life insurance fulfils the needs of a person
• The needs of a person are divided into:
a. Family needs,
b. Old-age needs,
c. Re-adjustment needs,
d. Special needs, and
e. The clean-up needs

B. Social security to business

• The insurance has been useful to the business society also. Some of
the uses are discussed below
1. Uncertainty of business and losses if reduced

• In business, commerce and industry a huge number of properties are employed.

• With a slight slackness or negligence, the property may be turned into ashes.
• The accident may be fatal not only to the individual or property but to the third
party also.
• New construction and new establishment are possible only with the help of
Insurance.
• In absence of it, uncertainty will be to the maximum level and nobody would
like to invest a huge amount in the business or industry.
2. Business efficiency is increased with insurance

• When the owner of a business is free from the impact of losses, he will
certainly devote much time to the business.
• The carefree owner can work better for the maximization of the profit
• . The new as well as old businessmen are guaranteed payment of certain
amount with the insurance policies at the death of the person; at the
damage, destruction, or disappearance of the property or goods.
• The insurance, removing the uncertainty, enable the businessmen to
concentrate more in business.
3. Key man indemnification

• Key man is that particular man whose capital, expertise, experience, energy,
ability to control, goodwill and dutifulness make him the most valuable asset
in the business and whose absence will reduce the income of the employer
till the time such employee is not substituted.

• The death or disability of such valuable lives will, in many instances, prove a
more serious loss than that by fire or any other hazard.

• The Potential loss to be suffered and the compensation to the dependents of

such employee require adequate provision, which is met by purchasing
adequate life-policies.
4. Enhancement of credit

• The business can obtain loan by pledging the policy as collateral for the loan.
• The insured persons are getting more loans due to certainty, of payment at their
death.
• The amount of loan that can be obtained with such pledging a policy will not
exceed the cash value of the policy.
• In case of death, this cash value can be utilized for settling the loan along with the
interest.
• If the borrower is unwilling to repay the loan and interest, the lender can
surrender the policy and get the amount of loan and interest thereon repaid.
5. Business continuation

• In a business, particularly partnership business may get discontinued at

the death of any partner, although the surviving partners can restart the
Business.
• But in both the cases the business and the partners will suffer
economically.
• The insurance policies provide adequate funds at the time of death. Each
partner may be insured for the amount of his interest in the partnership
and his dependents may get that amount at the death of the Partner.
3.Uses to society

1. Wealth of society is protected

The loss of particular wealth can be protected with the insurance. Life insurance
provides the loss of human wealth.
like all the assets can be protected with insurance. Each and every member will
have financial security against old age, death, damage, destruction and
disappearance of his wealth including the life wealth.
Through prevention of economic losses, instances protects the society against
degradation.
2. Economic growth of the country
For the economic growth of the country, insurance provides strong hand and mind,
protection against loss of property and adequate capital to produce more wealth.
The agriculture will experience protection against losses of cattles, machines, tools
and crop.
• This sort of protection stimulates more production in agriculture ,in
industry, the factory premises, machines, boilers and profit insurance
provide more confidence to start and operate the industry welfare of
employees create a conductive atmosphere to work. Adequate capital
from insurers accelerate the production cycle.
• Similarly, in business, too the property and human material are
protected against certain losses, capital and credit are expanded with
the help of insurance. Thus the insurance meets all the requirements of
the economic growth of a country
3. Reduction in inflation
The insurance reduces the inflation in two ways.
1) by extracting money in supply to the amount of premium
collected
2)by providing sufficient fund for production narrow down
inflationary gap
• In Indian context 5% of the money in supply was collected in form of
premium. The share of premium contributed to the total investment of
the country was about 10 %.
• The two main causes of inflation namely increased money in supply
and decreased production are properly controlled by insurance
business need and selling.
Basic Principles of Contract of
Insurance

• Contract of insurance have all the essential elements of general

contract.
• According to section 2(h) and section 10 of the Indian Contract Act
1872, a valid contract must have the essential elements of offer and
acceptance, consideration, legal parties, sound mind and free consent
of the parties.
• Further, Insurance transactions need be governed by special
principles in order to protect the interests of the contracting parties,
particularly the customer.
• It is in view of this that the contracts are governed by certain special
basic legal principles.
• These make insurance contracts very unique and different from other
kinds of commercial contracts.
• there are, differences between life and general insurance with regard
the application, of the principles.

• Following are the important essential elements or principles of a valid

contract of insurance
• 1. Nature of contract – General to all contracts
Special principles of insurance contract
• 2. Insurable interest
• 3. Utmost good faith
• 4. Indemnity
• 5. Causa proxima
• 6. Contribution
• 7. Mitigation of loss
• 8. Subrogation
1. Nature of Contract
• The nature of contract is a fundamental principle of a contract of insurance
required for a valid contract.
Essential elements of a valid contract are:
• a. Agreement (offer and acceptance) –insurance is an agreement between
insurer and insured. Proposal is made by one party and accepted by other.
• b. Lawful consideration- premium is consideration for insurance contract
• c. Lawful objects- object of insurance is lawful and not against to public
policy. It is for public welfare
• d. Free consent- consent of parties to contract should be free. I.e., not
by means of coercion, undue influence, fraud, misrepresentation etc.
• e. Competent parties (legal capacity of parties)- parties to an
insurance contract should be competent to contract. Ie, they should
not be idiot, lunatic, minor, insolvent etc.
• f. Consensus ad idem- parties to contract should understand the
subject matter of insurance in same sense.
• g. Possibility and certainty of performance etc.
2. The principle of insurable interest
• The existence of insurable interest is an essential ingredient of any
insurance contract.
• Insurable interest is the pre-requisite for insurance.
• A general definition used for insurable interest is “The legal right to
insure arising out of financial relationship, recognized under law,
between the insured and the subject matter of insurance.”
• Therefore, just as the owner of a house or a factory has an insurable
interest in the house or factory, the bank that has lent
money for the construction of the house or the factory too has an
insurable interest in these to the extent of the outstanding loan
amount since in the event of the damage or destruction of the
property, the bank stands to lose a part or the whole of the money lent.
• A person who wants to insure must have insurable interest in the
property to be insured.
• The essentials of insurable interest are:

• 1. There must be a property capable being insured.

• 2. Such a property must be subject matter of interest
• 3. The insured should have a legal relation to the subject matter
insurable interest could arise in a number of ways such as ;
Ownerships, Mortgagee, Trustee, Bailee, Lessee etc.
• In fire insurance, the insurable interest must exist throughout the
contract. It must exist
• a. At the inception i.e. while placing the proper for insurance.
• b. During the term of the policy, i.e. the interest should not cease
during the period of insurance.
• c. At the time of loss i.e. in the event of fire accident the insured
should continue to have the interest in the property to claim
insurance money.
• Referring to life insurance, a person is deemed to have insurable
interest on his own life to an unlimited extent, as in the event of his
pre-mature death, there will be loss of his future earnings of
individual.
• Spouses are presumed to have insurable interest in each other’s life.
• However in case of other members of the family, insurable interest is
not presumed to exist.
• A person cannot, therefore, insure, say his brother or sister though
they may dependent on him.
3. The Principle Of Utmost Good Faith
• The principle of utmost good faith is mostly discussed in the context of
the duty of the insured towards the insurer, though it is equally
applicable to the insurer’s duty towards the insured.
• In insurance contract, the prosper is the only person who is deemed to
have known all the facts of the subject matter of insurance and the
insurer is to completely rely on what the proposer has disclosed.
• The proposer, should therefore, furnish all material facts concerning
the property proposed insurance which would enable the insurance
company to decide the appropriate rates and the terms and condition.
• The duty of disclosure of material facts continues throughout the
contract and the insured should advice the insurance company
wherever change occurs in the property insured.
4. The Principle Of Indemnity
• The object of insurance is to place insured in the same financial
position as was just before the loss.
• This principle prevents the insured from making a profit out of loss
and ensures public interest at large.
• For example, if a machinery insured and is destroyed by fire, the
insurance company will make good to loss by taking into
consideration the depreciation and wear the tear of the machinery
having been in use by the insured for some time.
• It will not be true indemnity to pay the price of new machinery as the
insured has enjoyed the use of the machinery for some years.
• If the insurance company pays him the money to get new machinery,
it may tempt him to set fire to the sofa so that he could get new
machinery for old at insurance cost.
• For a building damaged by fire measure of indemnity is the cost of
repairing the building to its pre-fire condition.
• For machinery the measure of indemnity is the cost of repair, if the
machinery is destroyed by fire the market value of such a machine
after taking in to consideration wear and tear and depreciation.
• For stock in a retail shop the measure is the cost of replacement at
wholesale rate
• For manufacturer it is the cost of labour, fuel, and overheads.
• The indemnity is for the net loss suffered by the insured and
therefore, if there by any salvage of the damaged property, the value
of the salvage is deducted from the amount of loss.
• In the case of personal accident policies it is not possible to place a
value on life as such. Hence personal accident policies are called
benefit policies.
• There are four methods of indemnification and they are.
• 1) Cash payment
• 2) Repair
• 3) Replacement
• 4) Reinstatement
• In case of life insurance, however, the economic value of a human life
cannot be measured precisely before death. It could in fact be
unlimited.
• Hence, life insurance cannot strictly be a contract of indemnity.
• This does not however, mean a person can be granted life insurance
for an unlimited amount.
5. The Principle Of Subrogation
• Subrogation is principle, which applied to all contracts of indemnity.
• It means that after payment of the loss the insurer gets the right of
taking all steps to recover any money in compensation from a third
party.
• Technically speaking “Subrogation is the right, which an insurer gets,
after he has indemnified the loss, to step into the shoes of the insured
and avail himself of all the rights against their party in respect of loss
indemnified.”
• The subrogation principle prevents the insured of collecting the twice
of the same loss at first instance, and wrong doer would escape
liability at second.
• It strengthens the areas of insurer in cases of possibility of one
recovery of misdoings, stealing or damaging made by third party and
recovering the goods indemnified.
• 6. Contribution
• The contribution is the right of an insurer who has paid a loss under a
policy to recover a proportionate amount from other insurer who is
liable for the loss.
• Such situations only arise
• (a) When different insurer has agreed to contribute the loss by way of
collecting proportionate premium.
• (b) The policies are in existence at the time of loss.
• (c) The policies are legally enforceable at law.
• (d) The interest covered under all the policies are same, and affected
in favour of a common insured.
• Indemnity is also governed by the principle of contribution.
• The insurer is required to contribute proportionately loss to the
extent of its interest.
• If a property has been insured with more than one insurer, in the
event of a loss the insured will get a proportionate part of the loss
from each insurer, so that the insured does not make a profit out of
the settled claim.
• 7. The Proximate Cause
• The proximate cause can be defined as “the active efficient cause that
sets in motion a train of events which brings about a result, without the
intervention of any force started and working actively from a new
independent force.”
• In other words, it specifies the indemnification of losses concurrent with
the perils specified under insurance contracts and not in general.
• Properties are exposed to various perils like fire, earthquake, explosion,
perils of sea, war, riot, civil commotion and so on, and policies of
insurance covering various combinations of such perils can be procured.
• Policies of insurance usually afford protection against some of these
perils, expressly exclude certain perils from the cover, and by
implication other perils are covered.
• The insurer’s liability under the policy arises only if the cause of the
loss is a peril insured against and not as expressly excluded or other
peril.
• 8. Mitigation of Loss
• Mitigation of loss is applied in valid insurance contract.
• In the event of some mishap or accident to the insured property, the
insured must make necessary effort to safeguard his remaining
property and minimise the loss, as much as possible.
• If he does make any reasonable efforts to reduce the loss, insurer will
be liable for payment of all loss resulting from the peril insured
against.
• If he is negligent to preserve the property, the insurer may avoid the
payment of loss.
CLASSIFICATION OF INSURANCE
• we can classify insurance into 2 groups’ i.e. life insurance and nonlife
insurance.
• I. Life Insurance
• It is governed by the LIC act 1956. It is contract in which the insurer,
inconsideration of payment of premium compensate to a person on
death or on the expiry of certain period whichever is earlier.
• II. General Insurance
• General Insurance covers a wide range of services. Section 6(b) of the
insurance act 1938 defines General Insurance. It includes all the risks
except life. Its classification is:
• Marine Insurance
• Fire Insurance
• Personal Accident Insurance( Health Insurance)
• Vehicle Insurance
• Miscellaneous Insurance includes:
• Fidelity Guarantee Insurance
• Crop Insurance
• Bulgary Insurance
• Flood Insurance
• Cattle Insurance
• Cash in Transit Insurance
• A. Marine Insurance
• Marine insurance is the oldest insurance which was introduced long
back to compensate on sea and to compensate the loss due to various
sea perils or loss of the ship etc.
• In today’s context, marine insurance is an important part of trade and
commerce and is a significant part of global insurance business.
• Marine play a key role in international trade. Law relating to Marine
Insurance Act 1963.
• According to section 3 of marine insurance act, 1963 defines marine
insurance as, a contract where by an insurer undertakes to indemnify
the assured against marine losses that is to say the losses incidental to
marine adventure.
Kinds of insurance
The commonly known insurance covers can be
categorized as follows.
1. Life Insurance
2. Non-Life Insurance

Life Insurance
a. Endowment
b. Money back
c. Pension
Non-Life Insurance
a. Property
b. Liability
c. Health
• Personal Insurance

Personal insurance includes insurance of human life

which may suffer loss due to death, accident and
deceases.

Therefore it is classified into life insurance , personal

accident insurance and health insurance
• Life insurance pays death benefits to
beneficiaries when the insured dies

• Personal accident insurance pays incase of

accidents

• Health insurance covers medical expenses

because of sickness or injury
 Property insurance
Property insurance indemnifies property owners
against the loss or damage of real or personal
property.

• Marine insurance
• Fire insurance
• Cattle insurance
• Crop insurance
• Machinery insurance
• Theft insurance
• Liability Insurance
Liability insurance covers the insured’s legal
liability arising out of property damage or bodily
injury to others.

Covers risks of third party, compensation to

employees, liability of automobile owners, and
reinsurances.

1. Automobile Insurance
2. Workers Compensation
3. Aviation Insurance
 Fidelity/Guarantee Insurance

• Insurance against loss by reason of the dishonesty or

nonperformance of an employee of the insured.
• Fiduciary insurance- contract based on trust

• Credit insurance -risk of credit transactions

• Privilege Insurance - in the form of benefits

Health Insurance
 System of assurance to make contingencies of health
care expenses.
 To provide protection against financial loss by un
foreseen sickness.
 To meet cost of good medical care.

 Relieves anxiety and tension.

Forms of Insurance Available
 Indemnity Insurance: where the insurer first pay
to the hospital and claim is made. E.g. Jeevan
Asha II, Asha Deep II, Mediclaim.
 Cashless Claim Facility: TPAs who bear the
expenses on behalf of insurance company.
Patients need not to pay directly as a rule e.g.
Bajaj Alliance.
 CBHI (Community Based Health Insurance).
 Government Insurance
• Social Insurance Programs

• Financed entirely or in large part by

contributions from employers and/or employees

• Benefits are heavily weighted in favor of low-

income groups

• Eligibility and benefits are prescribed by statute

• Examples:
• Social Security, Unemployment. 2-94
Life Insurance
• It is a contract in which the Insurer, in consideration of a certain
premium, either in a lump sum or in any other periodical payments, in
return agrees to pay to the assured, or to the person for whose
benefit the policy is taken, a stated sum of money on the happening
of a particular event contingent on the duration of human life.
Benefits of life insurance
• Superior saving plan- unlike any other savings plan, a life insurance
policy affords full protection against risk of death.

• Encourage savings habits

Long term savings can be made in a painless manner.
• Suitable for raising loans
• Tax relief

• Economic protection

• Investment element

• Helpful to the government-provides long term funds

to the government for different development
schemes.
• Features of Life Insurance Contracts
A. Contract
• It is a contract relating to human life

• The contract provides for payment of lump sum

money

• The amount is paid at the expiration of a certain

period or on death of a person.
 Essentials of a Valid Contract

• Offer and acceptance

• Consensus ad idem
• (“meeting of the minds”)
• Parties competent to contract
• Consideration
• Legality of purpose
 B. Insurable Interest

The person proposing for insurance must have

interest in the continued life of the insured and
would suffer pecuniary loss if the insured person
dies. This is known as Insurable Interest.
• In Life Insurance the presence of insurable
interest is essential at the time of effecting
the Contract of Insurance.

• If there is no insurable interest, the contract

becomes wagering and hence illegal.
• Insurable interest

In own life Others life

proof is not required proof is required

Family relation business relation

 Proof not required
• There are only two such cases where the presence of
insurable interest is legally presumed and therefore
need not be proved

a. Wife has insurable interest in the life of her

husband.

B. Husband has insurable interest interest in the life of

his wife.
 Proof required
• Business relationship
• The creditors have insurable interest on the life
of his debtor.

• Business partners have insurable interest in the

lives of other partners to the extent of their
financial interest in the partnership

• Employers have insurable interest in the lives of

employees who are key to the profitability of
the business.
 - A trustee has insurable interest in respect of the
interest of which he is a trustee because at the
survival of the other person the trustee is benefited
and at his death he will suffer.

- A surety has insurable interest in the life of his

principal; if the principal is dead the surety is
responsible for payment of outstanding loan.
Family relation

• The insurable interest may arise due to family

relationship if pecuniary interest exists between
policy holders and life assured. The interest must be
based on value and not more sentiments.
C. Doctrine of utmost good faith
• In Life Insurance contracts, a very high degree
of good faith is required to exist between the
parties to the contract, viz., the insurer and the
insured. This is called the principle of utmost
good faith (Uberrima fides)

• It is the duty of the proposer to disclose the

material information for proper assessment of
risk by the insurer
 Warranties

• A warranty is a statement that becomes part of the

insurance contract and is guaranteed by the maker to
be true in all respects.

• A clause describing warranty becomes part of the

contract. Any breach of warranty even if minor allows
the insurer to deny the claim
D. Assignment and nomination
• The policy in life insurance can be assigned freely for a
legal consideration or love and affection. Notice for
this purpose must be given to the insurer.
• The holder of a policy of life insurance may nominate
a person or persons to whom the money secured by
the policy shall be paid in the event of his death.
Nomination can be cancelled before maturity , for
that notice to be given to the insurer.
E. Proximate cause

• The efficient or effective cause which causes the loss is called

proximate cause. it Is the real and actual cause. If that cause is
insured insurer need to pay.
F. Return of premium

• Premium once paid cannot be refunded.

Classification of Life Insurance
policies
• Whole Life Insurance
• Term Insurance
• Endowment Insurance
 Whole Life Policy
The whole life policy will mature only on the
death of the insured. This kind of policy is
done to protect the dependents of insured
in which low premium is paid up to his life

Intended to provide Life Insurance

protection over one’s lifetime – provides
for payment of the assured amount upon
the insured’s death regardless of when it
occurs.
The payment of assured sum is a certainty; only the time of
the payment of the assured sum is an uncertainty.
Types of Whole life policy

• Ordinary whole life policy : Under the ordinary whole

life policy premiums are payable throughout the life
of the insured and the insured sum is payable to his
dependents or nominee only after his death.
Limited premium whole life policy : Under the
limited premium whole life policy, the premium is
paid for a limited or selected period (say up to 20
years) but the policy will mature for payment only on
the death of the insured
• Single premium whole life policy : Under this policy,
the insured is liable to pay the total premium once in
a life but the insured sum is payable to his
dependents only after his death.

• Convertible whole life policy: The convertible whole

life policy gives the option to the insured for
conversion into endowment policy after the expiry of
five years of the policy.
Term Insurance

The term insurance policy is used for short term

ranging from one year to specified number of years
and will nature for payment only on the death of
insured within the period, but if he survives, nothing
is payable may be regarded as temporary insurance
and premium for term insurance is relatively low.
 Types of term insurance

• Ordinary term policy : The ordinary term policy is

used for very short period of years and the
premium is generally paid in one installment called
the straight premium. The insured sum is payable
only if death occurs within the term.

• Renewal term policy : This policy can be renewed

after the expiry of the term without medical
examination but a different rate of premium is
applicable to the age at the time of renewed.
• Convertible term policy – This policy can be
converted into whole life or endowment.
Endowment Insurance
Endowment policy is issued for a fixed
period and the premium is payable during
that period only. The insured sum is payable
to policy holder after the expiry of the
period or to his nominee on his death which
ever is earlier. This type of policy is most
popular because it provides financial
security on old age sufferings.
• The following are the different types of
endowment policies.

• Ordinary Endowment policy : The ordinary

endowment policy will mature for payment on the
survival of the date or his death within the
endowment policy which ever is earlier.
• Pure Endowment policy: The pure endowment policy
will mature for payment, only if the insured person
survives up to the endowment period otherwise the
insured sum is not payable by the insurance company.
• Double Endowment policy : Under this policy, if the
insured survives up to the endowment period, he will
get double the sum insured or only the insured sum is
payable on his death within the endowment period.
• Anticipated Endowment policy : Under this policy, a
part of sum insured is paid at certain intervals during
the endowment period and the balance of insured
sum is paid at maturity period.
• Deferred Endowment policy : Under this policy, after
the expiry of specified period, the insured sum is
payable to insured person or nominee. The sum is
payable only after the end of specified time, so there
is no major factor of when the insured died.
• Joint life Endowment policy : This policy is taken on
the life of two or more persons and will mature for
payment on the expiry of the endowment period or
on the death of any one of the life insured before the
endowment period.
Other life policies
There are other life policies also. Some of there are as follows:

Multi purpose life insurance policy which

provides several benefit under one insurance
contract, such benefits are old age benefits,
regular income maintenance, children education,
cost benefit, marriage cost benefit etc.

• Employee life insurance which is taken by the

employer to provide security and safety of
employee for better performance and
productivity.
 UNIT LINKED INSURANCE PLANS

• It has emerged as one of the fastest growing

insurance products. It is a combination of an
investment fund. The premium amount is invested in
the stock market.
Benefits
• Better for long-term investment option.
• ULIPs generally provide higher returns as large portion
of the funds are invested in equities.

• There is also flexibility and the assured can choose

levels and extent of cover needed.
• There is also option of switching over from one fund
to another if it does not seem to be profitable .
Group Life Insurance
• There are groups of people who share
something in common and are connected by
some underlying similarity like occupation,
profession, employment, social purposes or
even entertainment can have a similar need for
life insurance which can be met by a single
insurance contract.

• These categories of products that cover the risk

of a contingency dependent on the life of a
group of persons, come under the group life
insurance.
What is an annuity?
• An annuity is an amount of money paid to someone at some regular
interval.

• Most people think in terms of annuity products: an agreement or

contract for one person or organisation to pay another (the annuitant)
a stream or series of payments (annuity payments).

133
Annuity payments and products
• A public pension is a stream of income paid at regular intervals.

• The pension benefits paid by a defined-benefit pension plan is a

stream of income paid at regular intervals.

• An annuity product is a contract, different from an annuity payment.

134
Annuitization
• Financial economics: people better off if a large share
of their retirement income is annuitized (protect
against longevity risk)

• Until recently people where heavily annuitized

through public pensions and DB pension plans.

• They both provide a constant stream of income at

retirement or annuity payment.

135
Relevance of annuity products
• Recent changes in public pensions: lower RR.

• Shift from DB to DC funded pension plans

• Need to buy annuity products to protect against risks,

especially longevity risk (the likelihood of outliving one’s
resources).

136
Relevance of annuity products
• Some countries in LA and CEE have introduced DC
personal plans as main source of retirement income.

• At retirement, pension wealth is the form of a lump-sum.

Retirement income is not annuitized.

• Annuity products could help in bridging the accumulation

and the pay-out phase.

137
Type of annuity products
• There are several dimensions to classified annuity products.

• According to the type of guarantees they provide.

138
According to how they financed
• Single premium
• Flexible premium (e.g. contributions)
• Fixed
• Variable

139
According to primary purpose
• Immediate pay-out
• Deferred (accumulation)

140
According to the underlying
investment
• According how annuity products create future value

• Fixed: guarantee a return and a specific payout at retirement.

• Variable: returns and payment depend on how your portfolio

performs

• Equity-index

141
According to the nature of the
payout commitment
• The duration of the payout

• Life: payout last for the life time of the annuitant

• Fixed-tem or certain: e.g. 10 years

• Temporary: payout last for the earlier of the two

• Guarantee: payout last for the later of the two

142
According to the providers
• Qualified annuities: the provider during both the accumulation and
the pay-out phases is the same (annuities as vehicles attached to
certain retirement plans, 401(k)s, IRAs)

• Non-qualified: providers are separate entities

143
According to …
• People covered
• Single
• Joint-survivor
• Way annuity is purchased
• Individual
• Group
• Other feature
• Enhanced or impaired
• Inflation indexed
• Tax advantages

144
 Several dimensions to classify
annuities
How they are financed Primary purpose Underlying investment
• Single premium • Immediate pay-out • Fixed
• Flexible premium (contributions) • Deferred (accumulation) • Variable
• Fixed • Equity-indexed
• Variable

Nature of the pay-out Providers People covered

commitment (accumulation or payout phase) • Single
• Fixed-term or annuity certain • Qualified • Joint-and-survivor
• Life annuity • Non-qualified
• Temporary annuity
• Guarantee annuity

Way the annuity is Others

purchased • Tax advantages
• Individual • Enhanced vs impaired annuities
• Group • Inflation indexed annuities

145
 Annuity products and
guarantees
• What distinguishes the different type of annuity products is the type
of guarantees they provide
• These guarantees determine the size of the risks involved in annuities:
• Longevity risk.
• Investment risk.
• Interest rate risk.
• Inflation risk.

146
Annuity products and risks
• Life, deferred and fixed annuity. This is the annuity
product that replicates a DB plan

1. Impact of LR on the total amount of annuity

payments (liabilities)
(LR: uncertainty regarding future mortality and life
expectancy outcomes)
2. The interaction btw the risks involved (interest rate
and LR): super-additivity.

147
INSURANCE COMPANY OPERATIONS

• The most important insurance company operations consist of the

following:
• Ratemaking
• Underwriting
• Production
• Claim settlement
• Reinsurance
Insurers also engage in other operations, such as accounting, legal
services, loss control, and information systems.
RATING AND RATEMAKING
• Ratemaking refers to the pricing of insurance and the calculation of
insurance premiums .
• A rate is the price per unit of insurance.
• An exposure unit is the unit of measurement used in insurance pricing,
which varies by line of insurance.
• The person who determines rates and premiums is known as an actuary .
• An actuary is a highly skilled mathematician who is involved in all phases
of insurance company operations, including planning, pricing, and
research.
• UNDERWRITING
• Underwriting refers to the process of selecting, classifying, and pricing
applicants for insurance .
• The underwriter is the person who decides to accept or reject an
application.
• Statement of Underwriting Policy: Underwriting starts with a clear
statement of underwriting policy.
• An insurer must establish an underwriting policy that is consistent
with company objectives.
• PRODUCTION
• The term production refers to the sales and marketing activities of insurers.
• Agents who sell insurance are frequently referred to as producers .
• Life insurers have an agency or sales department. This department is
responsible for recruiting and training new agents and for the supervision of
general agents, branch office managers, and local agents.
• Property and casualty insurers have marketing departments. To assist agents
in the field, special agents may also be appointed.
• A special agent is a highly specialized technician who provides local agents in
the field with technical help and assistance with their marketing problems.
• CLAIMS SETTLEMENT
• Every insurance company has a claims division or department for
adjusting claims. the basic objectives in adjusting claims, the different
types of claim adjustors, and the various steps in the claim-settlement
process.
• Basic Objectives in Claims Settlement:
• Verification of a covered loss
• Fair and prompt payment of claims
• Personal assistance to the insured
• REINSURANCE
• Reinsurance is an arrangement by which the primary insurer that initially writes
the insurance transfers to another insurer (called the reinsurer) part or all of the
potential losses associated with such insurance .
• The primary insurer that initially writes the insurance is called the ceding
company .
• The insurer that accepts part or all of the insurance from the ceding com pany is
called the reinsurer .
• The amount of insurance retained by the ceding company for its own account is
called the retention limit or net retention .
• The amount of insurance ceded to the reinsurer is known as the cession
Life Insurance

• Life insurance (or life assurance, especially in the Commonwealth of

Nations) is a contract between an insurance policy holder and an insurer or
assurer, where the insurer promises to pay a designated beneficiary a sum
of money upon the death of an insured person (often the policy holder).
• Life insurance contract may be defined as the contract, whereby the
insurer in consideration of a premium undertakes to pay a certain sum of
money either on the death of the death of the insured or on the expiry of
a fixed period.
• Depending on the contract, other events such as terminal illness or critical
illness can also trigger payment.
• The policy holder typically pays a premium, either regularly or as one lump
sum.
• The benefits may include other expenses, such as funeral expenses.
Life-based contracts tend to fall into two major categories:
• Protection policies: designed to provide a benefit, typically a
lump-sum payment, in the event of a specified occurrence.
A common form—more common in years past of a protection-policy
design is term insurance.
• Investment policies: the main objective of these policies is to
facilitate the growth of capital by regular or single premiums.
Features of Life Insurance Contract
• 1. Nature of general contract
• 2. insurable interest
• 3.Utmost Good faith
• 4.Warranties
• 5.Proximate cause(its not applicable)
• 6. Assignment and Nomination
• 7.Return of premium
8. Terms of policy
• 9. Other features
a. Aleatory contract
b. A unilateral contract
c. Conditional contract
d. A contract of adhesion
e. Not a contract of indemnity
f. doctrine of subrogation is also not applicable
• Aleatory contract: Means contract depends on chance. In ordinary
contract equal value is approximately exchanged by both parties; but
in life insurance, the full sum may be payable if all premiums are not
paid.
• Unilateral contract: in life insurance here only insurer makes an
enforceable promise.
• Conditional contract: Life insurance contract is conditional contract
because the insurer shall pay the assured sum only when the contract
is continuing by payment of premium.
• Contract of Adhesion: Contract of adhesion means that terms of the
contract are not arrived by mutual negotiation between parties as in
the case of ordinary contracts. The proposer is not in a position to
bargain about the terms of contract because these terms are already
determined
Advantages of Life Insurance

The following are the main life insurance advantages:

• Return on Investment:
Advantages of life insurance as an investment. Whenever you visit a financial advisor
for financial planning you can see that most of them suggest you go for life insurance.
They encourage you to invest in life insurance so that you and your loved ones are not
only protected but also a considerable amount of returns can be obtained from the
policy.
Many life insurance schemes in India provide decent returns as well as bonuses that
no other investment tools offer.
Life insurance is considered one of the safest tools for investment as the money
invested is returned to you or your family at the time of maturity or as a death
benefit.
•Death Benefit:
In case of any unexpected event to you, which results in the loss of
income to the family, the insurance company provides compensation in
the form of the death benefit to the family.
The nominee of the insured receives the death benefit as well as the
accrued bonus if any, depending on the type of the policy.
The death benefit can be claimed as a lump sum or monthly benefit, in
which the monthly benefit option can be a boon for the family having
old age people or disabled people.
•Financial Security:
This is the main advantage of life insurance. The main purpose of life
insurance is financial protection.
• If the sudden demise of the insured can put the family in jeopardy.
With no regular income, the family may soon face a financial crisis.
• Having a life insurance policy helps your family come out from any
financial crisis after your sudden demise.
• Income tax exemption:
• The premiums paid under the life insurance policy are eligible for
income tax exemption under section 80C.
• At present under this section of income tax, you can avail of a
maximum tax deduction of Rs.1.5Lakh.
• Additional Coverage:
• Additional coverage is also called riders.
• The riders allow you to increase the coverage and get comprehensive
coverage.
• Riders may include coverage against personal accident, waiver of
premium payments, critical illness, loss of income due to a disability,
etc.
• Loan availability:
• In the event of any emergency such as a college fee or property
purchase, the loan can be availed against your life insurance policy.
• These days almost all insurance companies are providing this option.
When you apply for a loan a certain amount of your sum assured is
provided as the loan amount.
• Retirement Income:
• Life insurance policies can also be taken for the purpose of regular
income after retirement.
• These policies are called annuity policies and are available with every
life insurance company.
• If you take an annuity policy and pay a premium till your retirement
age, then after your retirement monthly income is paid to you by the
insurance company.
Disadvantages of Life Insurance
• High premium for aged people
• Difficult to calculate the returns
• Complex Policies
• Insurance Companies May Not Pay the Benefits:
• Awareness of Exclusions, Hidden clauses:
Unexpected Eventualities in Life
insurance
• Life insurance against accidental death
• Life insurance against murder
• Life insurance against suicide
• Life insurance for retirement
How General insurance works

• When you buy a policy you make regular payments, known as

premiums, to the insurer. If you make a claim your insurer will pay out
for the loss that is covered under the policy.

• If you don’t make a claim, you won’t get your money back; instead it
is pooled with the premiums of other policyholders who have taken
out insurance with the same insurance company. If you make a claim
the money comes from the pool of policyholders’ premiums.
What Is Oil And Energy Insurance?

• Oil and energy insurance is a series of policies designed to protect

companies involved in the production and distribution of oil and natural gas.
• It includes General Liability, Property Damage, Business Interruption, and
Workers’ Compensation Insurance.

• The three main stages of oil and gas production are:

• Upstream: Business operations involved in the exploration, extraction, and

production of oil and natural gas. Operations are mainly underground or
underwater using wells to locate and pull the raw materials to the surface.
• Midstream: The category of oil and gas operations where raw
materials are stored, transported, and marketed in wholesale sectors.
Midstream operations include transportation pipelines, terminals, and
treatment centres.

• Downstream: Responsible for refining crude oil, purifying raw

natural gas, and distributing final petroleum products to retail
distributors, businesses using petroleum products, and consumers.
Oil & Energy Risk Insurance

• This insurance policy can be purchased by producing corporates in business of

Oil & Energy.

• Scope of Comprehensive covers -

• Offshore / Onshore constructions / Erections ( Builders Risks )

• Production / Operation Cover - Well head platform/ process platform.
• Exploratory Drilling (Offshore - Jack Up Rigs, Drilling Rigs, Semi
Submersibles etc. Onshore- Fixed Land rigs, Mobile Land Rigs, Work-over
Land rigs)
• Seismic Survey
• Single Buoy Mooring ( SBM )
Satellite insurance
• Satellite insurance is a specialized branch of aviation insurance in
which, as of 2000, about 20 insurers worldwide participate directly.
• Others participate through reinsurance contracts with direct providers.
• It covers three risks:
• relaunching the satellite if the launch operation fails;
• replacing the satellite if it is destroyed, positioned in an improper
orbit, or fails in orbit;
• and liability for damage to third parties caused by the satellite or the
launch vehicle
• In 1965 the first satellite insurance was placed with Lloyd's of London
to cover physical damages on pre-launch for the "Early Bird" satellite
Intelsat I.
• In 1968 coverage was arranged for pre-launch and launch perils for
the Intelsat III satellite.
• Satellites are very complex machines which are manufactured and
used by governments and a few larger companies.
• The budget for a typical satellite project can be in excess of billions of
dollars and can run 5–10 years including the planning, manufacturing,
testing, and launch.
• Types of coverage
• Insurance available for satellites is divided into two sections, satellite
coverage and ground risk coverage.

• Satellite risk
• Satellite risk coverage is insurance against damage to the satellite
itself.
• There are four basic types of coverage available in this section.
• Pre-launch insurance provides coverage for loss or damage to the
satellite or its components from the time they leave the manufacturer's
premises, during the transit to the launch site, through testing, fueling,
and integration with the launcher up until the time the launcher's
rocket engines are ignited for the purpose of the actual launch.
• Launch insurance provides coverage for the period from the
intentional ignition of the engines until the satellite separates from the
final stage of the launch vehicle, or it may continue until completion
of the testing phase in orbit.
• Coverage typically runs for a period of twelve months, but is limited
to 45–60 days in respect to the testing phase in orbit.
• Launch failure is the greatest probability of satellite loss and
approximately 7% of satellites have failed on launch.
• Coverage while in orbit provides for physical loss, damage, or even
failure of the insured satellite while in orbit or during orbit placement.
• Elements of risk attached to satellites during orbit are damage caused
by objects in the hostile space environment, extremes of temperature,
and radiation.
• Because it is not typically possible to repair a satellite once it is
physically placed in orbit, the coverage is basically granted as a
product guarantee.
• Third party liability is the final section of the policy, and is a
statutory requirement of the Government of the nation where the
launch will take place, regardless of the nationality of the satellite
owner.
• A special license must be provided to the regulating authorities before
a launch can take place.
• Coverage usually runs up to 90 days following the actual launch.
• Loss of revenue coverage is also available but is not purchased often.
• Ground risk
• As many ground stations are run by large government entities such as
NASA, failure on the part of the insured is rare.
• In cases where failure occurs due to events which are beyond the
control of the insured (such as an earthquake), coverage provides for
the cost of hiring premises, replacing computer systems, software
backup, and other items necessary to resume operations.