PRINCIPLES OF INSURANCE

1. PRINCIPLES OF INSURANCE UNIT I

2. Definition • Insurance is a cooperative form of distributing a certain risk over a group of persons who are exposed to it. – Ghosh and Agarwal • Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency. – Justice Tindall • Insurance may be described as a social device whereby a large group of individuals, through a system of equitable contributions, may reduce or eliminate certain measurable risks of economic loss common to all members of the group. – Encyclopedia Britannica

3. Functions of insurance Primary Function • Provision of certainty of payment at the time of loss • Provision of protection Risk sharing Secondary Function • Prevention of loss • Provision of Capital • Improvement of efficiency • Ensuring welfare of the Society…

4. Nature of Insurance • It shares the loss which might fall on an individual or his family on happening of a given contingency as explained in the policy documents. • Premium payment by the individual or group to the insurer to receive a certain sum on the given contingency. • Insurer pays a certain sum to the individual or group on happening of a given contingency. • Payment by the insurer is only made on a contingency which is explained on the policy documents. • Insurance is not a gambling or charity.

5. Principles of Insurance The seven principles of insurance are :- • Principle of Uberrimaefidei (Utmost Good Faith), • Principle of Insurable Interest, • Principle of Indemnity, • Principle of Contribution, • Principle of Subrogation, • Principle of Loss Minimization, and • Principle of Causa Proxima (Nearest Cause).

6. Principle of Uberrimaefidei (Utmost Good Faith)

7. Principle of Insurable Interest

8. Principle of Indemnity

9. Principle of Contribution

10. Principle of Subrogation

11. Principle of Loss Minimization

12. Principle of Causa Proxima (Nearest Cause)

13. Kinds of Insurance 1. Health Insurance  Health insurance is insurance that pays for medical expenses . It is sometimes used more broadly to include insurance covering disability or long-term nursing or custodial care needs. It may be provided through a government-sponsored social insurance program, or from private insurance companies. It may be purchased on a group basis (e.g., by a firm to cover its employees) or purchased by individual consumers. In each case, the covered groups or individuals pay premiums or taxes to help protect themselves from high or unexpected healthcare expenses. Similar benefits paying for medical expenses may also be provided through social welfare programs funded by the government. By estimating the overall risk of healthcare expenses, a routine finance structure (such as a monthly premium or annual tax) can be developed, ensuring that money is available to pay for the healthcare benefits specified in the insurance agreement. The benefit is administered by a central organization such as a government agency, private business, or not-for-profit entity.

14. 2. Auto Insurance Auto insurance is one of the most used types of personal insurance. Most states require that you purchase some kind of insurance coverage to drive legally in the state. Auto insurance can be divided into two basic coverage areas: liability and property damage.  3. Life Insurance Life insurance is protection against financial loss resulting from death. It is an insurance company's promise to pay your beneficiary a specific amount of money when you die in exchange for timely payment of premiums. 

15. 4. Dental Insurance Dental plan coverage for individuals is not commonly offered because dental needs are highly predictable. For example, you would not pay premiums for your dental coverage if the premiums were more expensive than the cost of the dental treatment you need. Since this is the case, insurance companies would stand to lose money (spend more on benefits than they receive in premiums) on every individual dental plan they write. 5. Travel Insurance Most Travel Protection Plans will also include Travel Medical Insurance, Medical Evacuation, Trip Cancellation/Interruption, Travel Delay, and Baggage coverage. Travel Medical insurance plans generally just reimburse you for medical expenses incurred while traveling. 

16. 6. Pet Insurance  Pet health insurance helps you pay your veterinary bills for your dog or cat. It can help make sure you never have to choose between your pet's well-being and your personal finances.  7. Homeowners Insurance Different policies exist for renters, owners of mobile homes, people seeking bare bones coverage and those living in homes that are very old, but most homeowners will purchase what is called an HO-3 policy. This insurance policy covers your home and its contents against damage and theft, as well as you, the owner, against personal liability if someone is injured while on your property. 

17. 8. Unemployment Insurance Unemployment insurance is a temporary source of income. If an eligible person loses his job, he will be able to receive weekly payments thanks to money that was paid to his unemployment fund by his employer, via payroll taxes, while he was still gainfully employed. If eligible, a person can receive unemployment insurance once all of the proper paperwork is filed. Unemployment insurance is not retroactive, so it would not be in one's best interest to procrastinate. You're paid only from the day you file.  

18. 9. Business Insurance  Business insurance is nothing more than spreading and managing the risk among many business owners. Insurance companies take in premium payments from many covered businesses, invest those payments, and create a pool of money to pay out to a covered business if that business has a covered loss. Over the last 300 years, insurers have developed mathematical models to determine what chance there is of a risk occurring and, in so doing, what premiums the insurer must charge to stay in business and make a profit. Over that same time, insurers have developed approximately eight to nine general categories of losses that seem to happen with more frequency. The insurers developed particular policies to address those types of losses. 

19. Advantages of Insurance  The expenses of medical treatments are compensated by the policies of health and medical insurances. • If you care your pets too much, don’t forget to go through pet insurance policies. They can be a lot handy while dealing with the costs associated with pets. • In case of accidents, you may have to arrange huge amount in least possible time. It’s then you can’t stop appreciating accident insurance policies. • As a protection to your home, which provides you shelter, insure it..!! Home insurance policies aid you in securing your home against damages caused by natural calamities and fire accidents. • Secure your motor vehicles from accidents or breakdowns from motor vehicle insurance plans. • Got a new job…!! The very first you need to do is to insure your job by referring policies of unemployment insurance. • When you plan to travel outside India, make sure you have awareness about travel insurance plans. These plans have a validity of 180 days.

20. Top Insurance Companies in India Following are the leading insurers in India: • Life Insurance Corporation of India • Tata AIG General Insurance • Bajaj Allianz General Insurance • New India Assurance • ICICI Prudential Life Insurance • IFFCO TOKIO General Insurance • ICICI Lombard General Insurance • Oriental Insurance • Birla Sun Life Insurance • HDFC Standard Life Insurance

21. IMPACTS OF GLOBALIZATION ON INSURANCE MARKETS Competition in the Insurance Markets • First and foremost, local insurance companies started facing more widespread competition – not only from within the country, but also from the region and from international conglomerates. Now, this is great news for the customer. After all, they now have the opportunity to choose from a range of products and services that are best suited to their individual requirements. • To sharpen the competitive edge, insurance firms have also tweaked their offerings to make them more tempting. This can range from improving coverage to reducing premiums. • With competition comes greater challenges. Insurance companies now look beyond the local market to acquire customers. In addition to a comprehensive suite of products, they strive to give their brand an international outlook while paying attention to local context and cultural sensitivities.

22. Growth in Opportunities • The thing about globalization is that it has caused other industries to expand as well. This has resulted in a plethora of opportunities for insurance companies. Today, a standard insurance firm doesn’t have to limit itself to a limited number of products or services. • With globalization, consumers’ demands change and their needs become more varied. There are also more opportunities for wealth creation and preservation. For instance, more organized labor means more healthcare coverage for employees. Wider globalization means more opportunities for overseas investments, and thus more investment-linked plans. • Globalization has also caused immigration numbers to rise. There are more people within the population who will be looking to sign up for insurance products, and thus more opportunities to do business.

23. New Industry Trends in Insurance • Insurance companies are also beginning to experience centralization processes, thanks to partnerships with banks and reinsurance companies, and mergers with smaller or larger competitors. • There’s a growth in the type of insurance services and products as well. For instance, we are seeing insurance products for newer risks such as informational risk, political risk, security risks, and even military risks. • Just as FinTech is changing the banking world, InsurTech is transforming the industry. As the insurance industry starts embracing technological innovation and eCommerce, we’re also looking at more insurance products being sold via the Internet.

24. Increased Consumer Demand for Insurance • As more and more foreign insurance companies enter a local insurance market, customers’ awareness tends to grow. Their knowledge of possible insurance and investment plans becomes richer. Needless to say, this creates a demand for more products. Consumers are not willing to make do with what was available anymore. They expect comprehensive coverage plans, low premium rates, and flexible policies. • Some countries are experiencing higher economic output due to globalization and international trade. Economic growth in these countries has boosted affordability, allowing most consumers to go in for high-end insurance and investment-linked plans.

25. Increased Customer Satisfaction • With globalization, there’s a renewed focus on customer satisfaction and trust. As customers get savvier and educated about insurance products, the need to gain their trust and build strong relationships becomes imperative to the top line. In the name of competition, insurance firms are putting in extra effort to provide better products and clearer communications driven towards meeting the expectations of both local and international customers.