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Understanding Insurance: Functions, Types, and Impacts in the Business World

Explore the primary and secondary functions of insurance, various types of insurance including life and general insurance, and the impact of LPG on the Indian insurance industry. Learn how insurance manages business risk, aids in development, and protects society.

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Understanding Insurance: Functions, Types, and Impacts in the Business World

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  1. UNIT 3 INSURANCE

  2. MEANING • An arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness or death in return for payment of a specified premium

  3. NATURE OF INSURANCE • Sharing of risk • Cooperative device • Value of risk • Payment at contingency • Amount of payment • Large number of insured person • Insurance is not a gambling • Insurance is not charity

  4. FUNCTION • Primary functions • Secondary functions

  5. 1. Primary functions • Providing protection-insurance is in reality a protective cover against economic loss, by sharing the risk with others • Collective risk bearing- insurance is an instrument to share the financial loss • Evaluating risk- insurance fixes the likely volume of risk by assessing diverse factors that gives rise to risk • Provide certainty

  6. 2. Secondary functions • Preventing losses- insurance warns individuals or businessmen to embrace appropriate device to prevent • Covering large risk with small capital- insurance assuages the businessmen from security investments • Helps in the development of large industries- insurance provides an opportunities to develop those large industries which have more risk

  7. 3.Other functions • Is a savings and investment tool • Medium of earning foreign exchange • Risk free trade • Insurance provide indemnity or reimbursement

  8. BUSINESS & INSURANCE Business risk with insurance Business risk without insurance • Manage the loss • Stable in reputation and goodwill • Claim to the company • Surety • Able to develop by insurance policy • Help by government • Occurring sudden loss • Bad Reputation and decrease in goodwill • Accident to the company • Non-surety • No development is possible • No such help taken place

  9. TYPES OF INSURANCE There are four types of insurance. They are • Life insurance • General insurance • Social insurance • Other insurance

  10. LIFE INSURANCE • A contract of life insurance is a contract under which, in consideration of sums of money called premium, the insurer agrees to pay a certain amount on the death of the assured or upon expiry of certain fixed period, whichever is earlier.

  11. GENERAL INSURANCE • Other than Life insurance all are general insurance. General insurance is typically defined as any insurance that is not determined to be life insurance. It is called property and casualty insurance in the U.S and Canada and non-life insurance in continental Europe • USES TO BUSINESS: 1.Uncertainty of business losses is reduced 2.Business-efficiency is increased with insurance 3.Key man indemnification 4.Enhancement of credit 5.Business continuation 6.Welfare of employees

  12. SOCIAL INSURANCE • The social insurance is to be provide protection to the weaker section of the society who are unable to pay the premium for adequate insurance. • USES TO SOCEITY: 1.Wealth of the society is protected 2.Economic growth of the country 3.Reduction in inflation

  13. OTHER INSURACNE1.SPECIFIC INSURANCE • The policy whose coverage is specific to one property. If a property is covered by specific insurance and blanket policy that covers more than one location, the specific insurance would be the primary insurance. • There are two types of specific insurance 1.Property insurance- under the property insurance, property of a person/persons are insured against a certain specified risk

  14. 2.Liability insurance- whereby the insured is liable to pay the damage of property or to compensate the less of person injury or death

  15. 2.MISCELLANEOUS INSURANCE Miscellaneous insurance refers to contract of insurance other than those of life, fire and marine insurance. It covers a variety of risks as follows: • Health insurance • Personal accident insurance • Travel insurance • Motor insurance • Workmen’s compensation insurance

  16. IMPACT OF LPG ON INDIAN INSURANCE INDUSTRY • Meaning of LPG Liberalisation involved the lifting of government controls, permits, licenses and allowing competition to play its role in the economy. Privatisation refers to the participation of private entities in business and service and transfer of ownership from the public sector to the private sector. Globalisation refers to the connection of various sectors to the world level transaction in the economy

  17. Understanding the customer better will enable insurance companies to design appropriate products, determine price correctly and increase profitability • Selection of right type of distribution channel mix along with prudent • An efficient, which would eventually create sustainable competitive advantages and build a long-lasting relationship • Insurers must follow best investment practices and must have strong asset management company to maximize returns • Insurers should increase the customer base in semi urban and rural areas, which offer a huge potential • Promoting health insurance and using e-broking to increase the business

  18. THANK U

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