INSURANCE MANAGEMENT

“A STUDY ABOUT HOW THE PRINCIPLES OF INSURANCE

HELP VARIOUS INSURANCE COMPANY”

A PROJECT REPORT

SUBMITTED BY
SUBI K

ROLL NO: 51

6TH TRIMESTER
SUBMITTED TO

PROF.SOUMYA

MBA DEPARTMENT

MES COLLEGE OF ENGINEERING KUTTIPPURAM

MALAPPURAM DT, KERALA

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 CHAPTER 1
INTRODUCTION

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Insurance is the outcome of man’s constant search for security and finding out ways
and means of something to meet the hardships arising out of uncertainties of future.
Here, the persons exposed to similar risk contribute some amount periodically and
those who actually face the loss are indemnified out of these funds. General Insurance
deals with the exposure of risk of goods and property whereas; life insurance is a way
to meet the contingencies of physical death and economic death. In case of pre-
matured death of the assured the proceeds of the policy are paid to the beneficiaries
and annuities protect the assured against economic death when he lives too long to
arrange for his necessities. Life insurance is a contract for payment of sum of money
to the person assured on the happening of the event insured against. Usually the
contract provides for the payment of an amount on the date of maturity or a specified
date at periodic intervals or at unfortunate death, if it occurs earlier. Among other
things, the contract also provides for the payment of premium periodically to the
insurer by the assured. Life insurance is universally acknowledged to be an institution
which eliminates „risk‟, substituting certainty for uncertainty and comes to the timely
aid of the family in the unfortunate event of death of the breadwinner. By and large,
life insurance is civilization’s partial solution to the problems caused by death. Life
insurance, in short, is concerned with two hazards that stand across the life-path of
every person: that of dying prematurely leaving a dependent family to fend for itself
and that of living to old age without visible means of support. Life insurance
guarantees 2 full protection against risk of death of the assured. In case of death, full
sum assured is payable. Life insurance encourages long-term saving. By paying a
small premium in easy installments for a long period a handsome saving can be
achieved. Loan can be obtained against a policy assured whenever required. Tax relief
in income tax and wealth tax can be availed on the premium paid for life insurance.
The business of insurance is related to the protection of the economic values of assets
and every asset has a value. The

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assets are valuable to the owner because he expects to get some benefits from it. The
benefit may be an income or something else. Every assets lasts for certain period of
time during which it perform. None of them will last forever. Human life is a great
asset to a family and has immense value. There is an adverse or unpleasant situation in
human life. Saving through life insurance guarantee full protection against risk of
death of the saver also in case of demise, life insurance assures payment of the entire
amount assured with bonuses wherever applicable. Thus insurance is a mechanism
that helps to reduce the effect of such adverse situations. Life insurance is a contract
that pledges payment of an amount to the person assured or his nominee on the
happening of the event insured against. The contract is valid for payment of insured
amount during: a) The date of maturity of policy b) Specified dates at periodic
intervals of policy terms c) Unfortunate death, if it occurs earlier Among other things,
the contract also provides for the payment of premium periodically by the insurer by
the policyholder. Life insurance is universally acknowledged to be an institution,
which eliminates „risk‟, substituting certainty for uncertainty and comes to 3 the
timely aid of the family in the unfortunate event of death of the breadwinner. By and
large, life insurance is civilization‟s partial solution to the problems caused by death.
Life insurance, in short, is concerned with two hazards that stand across the life-path
of every person: 1) That of dying prematurely is leaving a dependent family to fend
for itself. 2) That of living till old age without visible means of support. The definition
of insurance can be seen from two view points: (a) Functional Definition (b)
Contractual Definition (a) Functional Definition Insurance is a co-operative device of
distributing losses, falling on an individual or his family over large number of persons
each bearing a nominal expenditure and feeling secure against heavy loss. (b)
Contractual Definition Insurance may be defined as a contract consisting of one party
(the insurer) who agrees to pay to other party (the insured)

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or his beneficiary, a certain sum upon a given contingency against which insurance
is sought.

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 CHAPTER 2
INDUSTRIAL PROFILE

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The economic reforms initiated in the early 90s paved the way for the growth and
opening up of the financial sector, which led to a sustained period of economic
growth. The insurance industry was opened up for private players in 2000, and has
seen tremendous growth over the past decade with the entry of global insurance
majors. India is fast emerging as one ofthe world’s most dynamic insurance
markets with significant untapped potential. The insurance sector plays a critical
role in a country’s economic development. It acts as a mobilizer of savings, a
financial intermediary, a promoter of investment activities, a stabilizer of financial
markets and a risk manager. The life insurance sector plays an important role in
providing risk cover, investment and tax planning for individuals; the non-life
insurance industry provides a risk cover for assets. Health insurance and pension
systems are fundamental to protecting individuals against the hazards oflife, and
India, as the second-most populous nation in the world, offers significant potential
for that type of cover. Furthermore, fire and liability insurance are essential for
corporations to safeguard infrastructure projects and investment risks. Private
insurance systems complement social security systems and add value by matching
risk with price. India is prone to natural catastrophes of one or other kind, the
insurance cover to mitigate the negative financial consequences of these adverse
events is still underdeveloped, leading to significant untapped potential in various
segments ofthe market. The same is true for both pension and health insurance,
where insurers can play a critical role in bridging demand and supply gaps. The
major changes in both national economic policies and insurance regulations will
highlight the prospects of these segments going forward. Appropriate risk pricing
is one ofthe most powerful tools for setting the right incentives for the allocation
ofresources, a feature which is the key to a fast-developing country such as India.

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 CHAPTER 2
RESEARCH METHODOLOGY

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RESEARCH

Research means a search for facts- answers to questions and solutions

to problems. I t is a purposive investigation. A research can be defined
as a scientific and systematic search for pertinent information on
specified topic.
OBJECTIVES OF THE STUDY

➢ The project aims at understanding how the principles of insurance

helps various insurance companies

➢ SOURCE OF DATA COLLECTION

SECONDARY DATA
That is collected from various books and journals.

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 CHAPTER 4
DATA ANALYSIS

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Defining an insurance contract can be very beneficial when you are negotiating or
deciding if you need a lawyer in your personal injury case. There are seven basic
principles that create an insurance contract between the insured and the insurer:

1. Utmost Good Faith

2. Insurable Interest

3. Proximate Cause

4. Indemnity

5. Subrogation

6. Contribution

7. Loss Minimization

These 7 principles combine to form an insurance contract. In this blog we are

going to briefly explain each item and try to show you how understanding each
item can shed light into your personal injury case and insurance questions. These
are principles open to interpretation. So if you think your case has breached one of
these principles or your insurance claim has wrongfully been denied. Jason
McMinn and Justin McMinn for help understanding your rights.

The Principle of Utmost Good Faith

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 • Both parties involved in an insurance contract—the insured (policy holder)
and the insurer (the company)—should act in good faith towards each other.
• The insurer and the insured must provide clear and concise information
regarding the terms and conditions of the contract

This is a very basic and primary principle of insurance contracts because the nature
of the service is for the insurance company to provide a certain level of security
and solidarity to the insured person’s life. However, the insurance company must
also watch out for anyone looking for a way to scam them into free money. So
each party is expected to act in good faith towards each other.

If the insurance company provides you with falsified or misrepresented

information, then they are liable in situations where this misrepresentation or
falsification has caused you loss. If you have misrepresented information regarding
subject matter or your own personal history, then the insurance company’s liability
becomes void (revoked).

See how a social media post could ruin a personal injury case.

The Principle of Insurable Interest

Insurable interest just means that the subject matter of the contract must provide
some financial gain by existing for the insured (or policyholder) and would lead to
a financial loss if damaged, destroyed, stolen, or lost.

• The insured must have an insurable interest in the subject matter of the
insurance contract.
• The owner of the subject is said to have an insurable interest until s/he is no
longer the owner.

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In auto insurance, this will most times be a no brainer, but it does lead to issues
when the person driving a vehicle doesn’t own it. For instance, if you are hit by a
person who isn’t on the insurance policy of the vehicle, do you file a claim with the
owner’s insurance company or the driver’s insurance company? This is a simple
but crucial element for an insurance contract to exist.

The Principle of Indemnity

• Indemnity is a guarantee to restore the insured to the position he or she was

in before the uncertain incident that caused a loss for the insured. The
insurer (provider) compensates the insured (policyholder).
• The insurance company promises to compensate the policyholder for the
amount of the loss up to the amount agreed upon in the contract.

Essentially, this is the part of the contract that matters the most for the insurance
policyholder because this is the part of the contract that says she or he has the right
to be compensated or, in other words, indemnified for his or her loss.

The amount of compensation is in direct proportion with the incurred loss. The
insurance company will pay up to the amount of the incurred loss or the insured
amount agreed on in the contract, whichever is less. For instance, if your car is inured
for $10,000 but damages are only $3,000. You get $3,000 not the full amount.

Compensation is not paid when the incident that caused the loss doesn’t happen
during the time allotted in the contract or from the specific agreed upon causes of loss
(as you will see in The Principle of Proximate Cause). Insurance contracts are
created solely as a means to provide protection from unexpected events, not as
a means to make a profit from a loss. Therefore, the insured is protected from

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losses by the principle of indemnity, but through stipulations that keep him or her
from being able to scam and make a profit.

The Principle of Contribution

• Contribution establishes a corollary among all the insurance contracts

involved in an incident or with the same subject.
• Contribution allows for the insured to claim indemnity to the extent of actual
loss from all the insurance contracts involved in his or her claim.

For instance, imagine that you have taken out two insurance contracts on your used
Lamborghini so that you are covered fully in any situation. Let’s say you have a
policy with Allstate that covers $30,000 in property damage and a policy with
State Farm that cover $50,000 in property damage. If you end up in a wreck that
causes $50,000 worth of damage to your vehicle. Then about $19,000 will be
covered by Allstate and $31,000 by State Farm.

This is the principle of contribution. Each policy you have on the same subject
matter pays their proportion of the loss incurred by the policyholder. It’s an
extension of the principle of indemnity that allows proportional responsibility for
all insurance coverage on the same subject matter.

The Principle of Subrogation

This principle can be a little confusing, but the example should help make it clear.
Subrogation is substituting one creditor (the insurance company) for another
(another insurance company representing the person responsible for the loss).

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 • After the insured (policyholder) has been compensated for the incurred loss
on a piece of property that was insured, the rights of ownership of this
property go to the insurer.

So lets say you are in a car wreck caused by a third party and your file a claim with
your insurance company to pay for the damages on your car and your medical
expenses. Your insurance company will assume ownership of your car and medical
expenses in order to step in and file a claim or lawsuit with the person who is actually
responsible for the accident (i.e. the person who should have paid for your losses).

The insurance company can only benefit from subrogation by winning back the
money it paid to it’s policyholder and the costs of acquiring this money. Anything
paid extra from the third party, is given to the policyholder. So lets say your insurance
company filed a lawsuit with the negligent third party after the insurance company
had already compensated you for the full amount of your damages. If their lawsuit
ends up winning more money from the negligent third party than they paid you,
they’ll use that to cover court costs and the remaining balance will go to you.

The Principle of Proximate Cause

• The loss of insured property can be caused by more than one incident even
in succession to each other.
• Property may be insured against some but not all causes of loss.
• When a property is not insured against all causes, the nearest cause is to be
found out.
• If the proximate cause is one in which the property is insured against, then
the insurer must pay compensation. If it is not a cause the property is insured
against, then the insurer doesn’t have to pay.

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When buying your insurance policies, you will most likely go through a process
where you select which instances you and your property will be covered for and
which ones they will not. This is where you are selecting which proximate causes
are covered. If you end up in an incident, then the proximate cause will have to be
investigated so that the insurance company validates that you are covered for the
incident.

This can lead to disputes when you have suffered an incident you thought was
covered but your insurance provider says it’s not. Insurance companies want to
make sure they are protecting themselves but sometimes they can use this to get
out of being liable for a situation. This might be a dispute where you’ll need a
lawyer to help argue for you.

The Principle of Loss Minimization

This is our final principle that creates an insurance contract and the most simple
one probably.

• In an uncertain event, it is the insured’s responsibility to take all precautions

to minimize the loss on the insured property.

Insurance contracts shouldn’t be about getting free stuff every time something bad
happens. Therefore, a little responsibility is bestowed upon the insured to take all
measures possible to minimize the loss on the property. This principle can be
debatable, so call a lawyer if you think you are being unfairly judged under this
principle.

And That, Ladies and Gentlemen, is What Makes Up an Insurance Contract

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If you think you’ve been the victim of a breech of contract or that your provider
has failed to maintain their duty to you, call us for a free consultation. We can help
you work the ins and outs of insurance company jargon and combat their track
record of unfair treatment towards policy holders.

The insurance has become an integral part of business and human life. ‘The fear of
loss’ has been a constraint on the growth of business and trade. An uncertain future
of business and of individual has always been haunting him. Insurance has been
helpful in solving many problems of business and private life.

The following are the advantages of insurance:

1. Providing Security:

There is always a fear of sudden loss. There may be a fire in the factory, storm in
the sea or loss of a life. In all these cases it becomes difficult to bear the loss.
Insurance provides a cover against any sudden loss. In case of marine and fire
insurance the loss suffered by the insured is fully compensated and he is restored to
his earlier position.

In the same way, if a bread-bringing member of the family dies prematurely, the
family is provided with money to continue with its livelihood. So, insurance gives
security to both individual and business-man. These days insurance covers various
social welfare schemes also. There are schemes providing for unemployment,
sickness, accident, health and old age insurances. These schemes are helpful for
poor people and help in establishing social justice.

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2. Spreading of Risk :
The basic principle of insurance is to spread risk among a large number of people.
A large number of persons get insurance policies and pay premium to the insurer.
Whenever a loss occurs, it is compensated out of funds of the insurer. The loss is
spread among a large number of policy-holders.

Insurance covers the loss of an individual but the social loss cannot be eliminated.
If the property of a person is lost by fire, he will be compensated by the insurance
company. The loss of goods will remain as a social loss. Insurance cannot
eliminate loss but it can reduce the risk to the individual.

3. Source for Collecting Funds:

In lieu of an insurance cover, the insured pays premium to the insurer. The
premium is received regularly in installments. Large funds are collected by way of
premium. These funds can be gainfully employed in industrial development of a
country. Life insurance policies are purchased by persons from all walks of life. It
helps in collecting savings from a large number of persons.

In India, Life Insurance Corporation of India provides large funds to the industries
for long-term investments. These funds are productively used in exploiting natural
resources which accelerates industrial growth of a country. The employment
opportunities are also increased by big investments made by insurance companies.
So, insurance has become an important source of capital formation.

4. Encourage Savings:
Insurance does not only protect risks but it provides an investment channel too. Life
insurance provides a mode of investment. The insurance develops a habit of saving
money by paying premium. The amount of policy is paid to the insured or to his
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nominees. In case of fixed time policies, the insured gets a lump-sum amount after
the maturity of the policy.

5. Encourage International Trade:

International trade involves many risks in transporting goods from one country to
another. In the absence of insurance the traders will always be worried for the safe
arrival of goods. The quantum of trade will be limited because of uncertainties and
risk involved during transit. Insurance provides protection against all types of sea-
risks. It has helped the development of international trade on a large scale.

CHAPTER 5

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 CONCLUSION

The Insurance sector in the country has come in full circle, from being an open
competitive market to complete nationalization and then back to a liberalized
market. The entry of private players in Indian insurance market has changed the

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nature of competition and the vigorous campaign of these players has increased
customer awareness. This has led to rapid increase in insurance business and a
sizeable gain of this has also been reaped by Life Insurance Corporation of India.
The present thesis is an attempt to study the performance of public & private sector
life insurance companies.

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