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Introduction
Insurance is a subject listed in the concurrent list in the Seventh Schedule to the Constitution of India where both centre and states can legislate. The insurance sector has gone through a number of phases and changes. Since 1999, when the government opened up the insurance sector by allowing private companies to solicit insurance and also allowing foreign direct investment of up to 26%, the insurance sector has been a booming market. However, the largest life-insurance company in India is still owned by the government. In India, insurance has a deep-rooted history. Insurance in various forms has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kautilya (Arthashastra). The fundamental basis of the historical reference to insurance in these ancient Indian texts is the same i.e. pooling of resources that could be redistributed in times of calamities such as fire, floods, epidemics and famine. The early references to Insurance in these texts have reference to marine trade loans and carriers' contracts. Insurance in its current form has its history dating back until 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer. At the dawn of the twentieth century, many insurance companies were founded. In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of companies should be certified by an actuary. However, the disparity still existed as discrimination between Indian and foreign companies. The oldest existing insurance company in India is the National Insurance Company Ltd., which was founded in 1906. It is in business. The Government of India issued an Ordinance on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies245 Indian and foreign insurers in all. In 1972 with the General Insurance Business (Nationalisation) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1st 1973.
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1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance
business.
1928: The Indian Insurance Companies Act was enacted for enabling the government to collect
1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding the interests
1956: 245 Indian and foreign insurers and provident societies were taken over by the central
government and they got nationalized. LIC was formed by an Act of Parliament, viz. LIC Act, 1956. It started off with a capital of ` 5 crore and that too from the Government of India.
The history of general insurance business in India can be traced back to Triton Insurance Company Ltd. (the first general insurance company) which was formed in the year 1850 in Kolkata by the British.
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1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to
1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of
1968: The Insurance Act improved for regulating investments and set minimal solvency levels and the
1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance
business in India. It was with effect from 1st January 1973. 107 insurers integrated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC was incorporated as a company.
Functions of Insurance
Basic functions of Insurance are as follows 1. 1.Primary Functions 2. 2.Secondary Functions 3. 3.Other Functions Primary functions of insurance
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Providing protection The elementary purpose of insurance is to allow security against future risk,
accidents and uncertainty. Insurance cannot arrest the risk from taking place, but can for sure allow for the losses arising with the risk. Insurance is in reality a protective cover against economic loss, by apportioning the risk with others.
Collective risk bearing Insurance is an instrument to share the financial loss. It is a medium through
which few losses are divided among larger number of people. All the insured add the premiums towards a fund and out of which the persons facing a specific risk is paid.
Evaluating risk Insurance fixes the likely volume of risk by assessing diverse factors that give rise to
risk. Risk is the basis for ascertaining the premium rate as well.
Preventing losses Insurance warns individuals and businessmen to embrace appropriate device to
prevent unfortunate aftermaths of risk by observing safety instructions; installation of automatic sparkler or alarm systems, etc.
Covering larger risks with small capital Insurance assuages the businessmen from security
investments. This is done by paying small amount of premium against larger risks and dubiety.
Helps in the development of larger industries Insurance provides an opportunity to develop to those
larger industries which have more risks in their setting up. Other functions of insurance
Is a savings and investment tool Insurance is the best savings and investment option, restricting
unnecessary expenses by the insured. Also to take the benefit of income tax exemptions, people take up insurance as a good investment option.
Medium of earning foreign exchange Being an international business, any country can earn foreign
exchange by way of issue of marine insurance policies and a different other ways.
Risk Free trade Insurance boosts exports insurance, making foreign trade risk free with the help of
Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss or disaster. There are different types of insurance policies under the sun cover almost anything that one might think of. There are loads of companies who are providing such customized insurance policies.
Threat of New Entrants: The insurance industry has been budding with new entrants every other day.
Therefore the companies should carve out niche areas such that the threat of new entrants might not be a hindrance. There is also a chance that the big players might squeeze the small new entrants.
Power of Suppliers: Those who are supplying the capital are not that big a threat. For instance, if
someone as a very talented insurance underwriter is presently working for a small insurance company, there exists a chance that any big player willing to enter the insurance industry might entice that person off.
Power of Buyers: No individual is a big threat to the insurance industry and big corporate houses have
a lot more negotiating capability with the insurance companies. Big corporate clients like airlines and pharmaceutical companies pay millions of dollars every year in premiums.
Availability of Substitutes: There exist a lot of substitutes in the insurance industry. Majorly, the large
insurance companies provide similar kinds of services - be it auto, home, commercial, health or life insurance.
Types of Insurance
1. Life Insurance - Insurance guaranteeing a specific sum of money to a designated beneficiary upon the
death of the insured, or to the insured if he or she lives beyond a certain age.
2. Health Insurance - Insurance against expenses incurred due to illness of the insured. 3. Liability Insurance - This insures property such as automobiles, property and professional/business
mishaps
4. Insurance is
form
of risk
management primarily
used
to hedge against
the risk of
contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one
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payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. Meaning of Insurance Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying premium to an insurance company. A pool is created through contributions made by persons seeking to protect themselves from common risk. Premium is collected by insurance companies which also act as trustee to the pool. Any loss to the insured in case of happening of an uncertain event is paid out of this pool. Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type. Definition Insurance is a contract between two parties whereby one party agrees to undertake the risk of another in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance.
.Concept of Insurance / How Insurance Works The concept behind insurance is that a group of people exposed to similar risk come together and make contributions towards formation of a pool of funds. In case a person actually suffers a loss on account of such risk, he is compensated out of the same pool of funds. Contribution to the pool is made by a group of people sharing common risks and collected by the insurance companies in the form of premiums.
Insurer - An individual or company who, through a contractual agreement, undertakes to compensate specified
losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. Insured - The person who obtains or is otherwise covered by insurance on his or
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