Introduction to
Insurance
Team AMBITIOUS
Id Name Id Name
21304009 Tanvir Mahmud 21304081 Shahanaz Akther
21304021 Sayed Ahmed 21304016 Samiha Alam
21304128 Saimun Zaman 21304073 Sushmita Das
21304120 Badhon Devi 21304097 Sakib Khan Symon
21304066 Farhana Jannat 21304077 Sakline Mostafa
Table of contents
01 Definition 06 Insurance vs Gambling
Podcast Series
02 Process of getting insurance 07LinkedIn Profile
Insurance vs Hedging
Optimization
03 Characteristics of Insurance 08 Types of Insurance
04 Requirement of insurable risk 0 09Focused Group
Benefits of Insurance
9 Discussion
05 Adverse selection & Insurance 10 Costs of Insurance
Insurance
It's a legal agreement between an insurer and an
insured, in which an insured receives financial
protection from an insurer for the losses he may
suffer under specific circumstance.
Characteristics of Insurance
1. Pooling of
losses
2. Payment of fortuitous
losses
3. Risk 4. Indemnification
transfer
Pooling of losses:
The sharing of losses by the entire group and prediction of future
losses with some accuracy based on the law of large numbers.
Payment of fortuitous losses:
A fortuitous loss is one that is unforeseen and unexpected by the
insured and occurs as a result of chance. In other words, the loss
must be accidental.
Risk transfer:
It means that a pure risk is transferred from the insured to the
insurer, who typically is in a stronger financial position to pay the
loss than the insured.
Indemnification:
It means that the insured is restored to his or her approximate
financial position prior to the occurrence of the loss.
Requirement of an Insurable
Risk
Accidental & unintentional loss :
-The loss should be unexpected by insured &
outside of insured’s control.
-There are two reasons for this requirement :
To ensure random occurrence of events.
To control Moral hazard.
Continued
Determinable & measurable loss :
- This means – loss should be definite as a cause, time, place & amount
- Purpose – is to enable an insurer to determine if loss is covered under the policy & if its covered
, how much should be paid.
No catastrophic loss :
- Means – a large amount of exposure units should not incur loss at the same time.
- If its incur, then the pooling technique breaks down & becomes unworkable.
Calculable chance of loss :
- Insurer must be able to calculate the chance of future losses
Adverse Selection
It is the tendency for people to enter into contracts in which
they can use their private information to their own advantage
and to the disadvantage of the less informed party to the
contract.
Adverse selection can be control by:
Careful underwriting (selection and classification of applicants for
insurance)
Policy provisions (e.g., suicide clause in life insurance)
Gambling vs Insurance
Gambling Insurance
● Gambling creates a new ● Insurance is a technique for handing an
speculative risk already existing pure risk
● Gambling is not socially ● Insurance is socially productive
productive - both parties have a common
-The Winner’s gain comes at the interest in the prevention of a loss
expense of the loser
Insurance VS Hedging
Insurance Hedging
Hedging is an investment strategy
Insurance is a method of
that is used by an investor to
Defination transferring risk from one party to
minimize the level of risk that is
another party.
associated with an investment.
Transfer of Pure or insurable risks Speculative risks
Reduce the objective risk of an Involves only risk transfer, not risk
Involvement
insurer. reduction.
Protection against large scale
Provide Protection against losses.
market effects.
Types of Insurance 1 Life Insurance
Private 2 Health Insurance
3 Property Insurance
Insurance Social Insurance
4 Program
Government
Govt. Insurance
5 Plan
Life
Insurance
Life insurance is a type of insurance policy
in which the insurance company undertakes
the tasks of insuring the life of the
policyholder for a premium that is paid on
daily/monthly/quarterly/yearly basis.
Health
Insurance
Health insurance is a contact between a
company and a consumer. The company
agrees to pay all or some of the insured
person's healthcare costs in return for
payment of a monthly premium.
Property
insurance
Property Insurance indemnifies property
owners against the loss or damage of
real or personal property caused by
various perils, such as fire, lightening,
windstorm, or tornado.
Government
Insurance
Social
Insurance
Social insurance is defined as a set of
government-provided programs meant to
shield people from financial struggles which
may occur due to unforeseen or unavoidable
situations.
Government Insurance programs
The Federal Employees Retirement System (FERS).
The Civil Service Retirement System.
The Federal Deposit Insurance Corporation (FDIC).
The Pension Benefit Guaranty Corporation (PBGC).
The National Flood Insurance Program(NFIP).
Benefits of Insurance to society
Indemnification for loss
Reduction of worry and fear
Source of investment funds
Loss prevention
Enhancement of credit
Indemnification of losses
Insurance provides financial protection against unforeseen
events or risks.
It helps individuals, businesses, and society recover from losses.
Reduction of worry and fear
Insurance can significantly reduce the emotional burden and
stress.
This psychological benefit contributes to overall well-being and
peace of mind.
Source of investment funds
Insurance companies are major institutional investors in
financial markets.
Loss prevention
Insurers often provide risk management services to help
prevent losses.
They may offer advice, inspections, and
recommendations to policyholders to minimize the
likelihood of accidents or damage.
Costs of Insurance
Cost of Doing Business
Fraudulent Claims
Inflated Claims
Cost of Doing Business
Operational expenses incurred by insurance companies,
including administrative costs, marketing, and staff salaries.
Consequence: These costs are passed on to policyholders
through premiums, and affecting whole insurance.
Fraudulent Claims
Policyholders or third parties intentionally deceive insurers by providing
false information.
Consequence: It Increases costs for insurance providers.
Inflated Claims
Description: Intentionally exaggerate the amount of loss or damage in
insurance claims.
Consequence: leading to higher costs for insurance companies and
potentially increased premiums for everyone.
Thank you!