Insurance
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Vikrant Vikram SinghInsurance
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Vikrant Vikram SinghOBJECTIVE AND METHODS OF RISK
MANAGEMENT
1. Avoidance – Trying to avoid the risk as far as possible
through measures which are non hazardous.
2. Reduction – Steps taken for reduction in chances and
severity of the losses.
3. Retention – Keeping or retaining the risk with oneself.
4. Transfer – Handing over one’s risk to someone else. A
commercial and the most important form of ‘transfer’ of
risk is through insurance.
5. Sharing – Having common pools called ‘risk sharing pools’
to which every member would contribute his share. It is a
private arrangement
CHARACTERISTICS OF INSURANCE
• Pooling of losses
• Law of Large Numbers
• Fortuitous losses
• Risk transfer
Requirements of an Insurable risk
• Large number of exposure units - Large group of similar units, need
not be identical, are subject to the same peril or group of perils.
• Accidental and unintentional - Loss must be accidental and unintentional.
Loss should be fortuitous and outside the insured’s control.
• Determinable and measurable - Loss should be definite as to Cause,
Time, Place and Amount
• Not be catastrophic - Large proportion of exposure units should not
incur losses at the same time
• Chance of loss must be calculable - Insurer must be able to calculate
with some accuracy, average frequency and average severity of future
losses.
• Premium must be economically feasible - Premiums should not only
be affordable but also far less than the value of the policy.
ADVANTAGES
• Indemnification of loss
It restores individuals to their former financial condition. As a result, it reduces
the amount of disruption that such losses would otherwise cause.
• Reduction of anxiety
It reduces stress & anxiety as individuals need not worry about financial
insecurity in case of adverse events.
• Source of Investment Funds
The premiums collected by the Insurance companies are accumulated
and invested and this promotes capital investment & economic Growth.
• Loss Prevention
Since Insurance companies benefit if incidence of loss occurs causing
events to go down, they actively promote best practices for loss prevention
amongst insured. Insurance companies employ a variety of personnel
who specialize in loss prevention such as safety engineers etc.
DISADVANTAGES
Disadvantages:
• Costs of doing the business
The costs for the administration, sales, marketing etc incurred by the insurers
for the purpose of doing business are also recovered.
• Fraudulent claims
Many insured submit fraudulent claims to Insurance companies by faking
losses resulting in the increased cost of Insurance affecting all other
insured.
• Inflated claims
While the loss is actual and accidental, many policy holders inflate the
severity of the loss so as to profit from Insurance, and this would again
lead to high premiums for all the Insured.
FUNCTIONS OF INSURANCE
1. Primary Functions
Provide Protection, Collective bearing of risk,
Assessment of risk
2. Secondary Functions
Prevention of Losses, Small capital to cover
larger risks,
3. Other Functions
Source of earning foreign exchange
Types of Life Insurance
• Endowment
It is a level premium plan with a savings feature.
At maturity, a lump sum is paid out equal to the sum assured (plus bonus). If death
occurs during the term of the policy then the total amount of insurance and any
bonus accrued are paid out.
• Whole Life insurance
It provides life insurance cover for the entire life of the insured person or up to a
specified age (age varies form company to company). You generally pay the same
premium amount throughout your lifetime.
• Children’s Plans
• Pension Plans
• Term cover
Term insurance is a pure risk cover product. It pays a death benefit only
if the policy holder dies during the period for which one is insured.
• ULIP
NON-LIFE INSURANCE
• PROPERTY INSURANCE
• HEALTH INSURANCE
• MOTOR INSURANCE
• MARINE INSURANCE