Phases of Development of Insurance

Introduction
Insurance is a contract whereby, in return for

the 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 a monetary loss.

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 was

nationalized by the GOI.

Insurance penetration in India is 4.6% in case of

life insurance and 0.61% in general insurance.

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 insurance

business until he is:

A public company. A society registered under the Cooperatives Act,

1912. A body corporate incorporated under the lay of any country outside India not being the nature of private company.
Registration with RBI along with maintenance of

Substantial deposit

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

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

loss In insurance industry risk is defined to identify the property or life being insured
Risk Control
Risk avoidance Risk reduction

Risk Financing
Risk retention Risk Transfer

Principles of Insurance
Utmost good faith Insurable interest Indemnity Subrogation Contribution

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 the insurance proposal
Good faith- Let the buyer beware

Declaration of all material Information about the subject mater of insurance

 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 two

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

not essential etc. Misrepresentation- Intentional.

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

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.

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

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 be suffering by its loss or damage. The relationship between the insured and subject matter of insurance must be recognised at law.

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

Indemnity
The principle of Indemnity states that under the policy of

insurance, the insured has to be placed after the loss in the same financial position in which he was immediately before the loss.

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

terms of money o 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 sum

insured is payable.
Property insurances- Condition of average- If there is

under insurance only proportionate value is payable.

Exceptions for Indemnity: Personal Accident

Subrogation
Transfer of rights and remedies from the insured

to the insurer who has indemnified the insured in respect of the loss.

Example
Mr. House Owner has his house worth Rs.5 lacs

insured 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 House Owner.

Contribution
The right of insurers who have paid a loss under

a policy to recover a proportionate amount from other insurers, who are liable for the same loss.

Organizational Structure and Management of Insurance Companies

Agents
General Agents Career Agents

Brokers Corporate agents Bancassurance