BY: Manya

Meaning Of Insurance:
The meaning of insurance is important to understand for anybody that is considering buying an insurance policy or simply understanding the basics of finance. Insurance is a hedging instrument used as a precautionary measure against future contingent losses. This instrument is used for managing the possible risks of the future.

Types of Insurance

Life insurance
Non - Life Insurance (general insurance)

Property (eg.Builders risk insurance) Aviation(eg.Private aircraft insurance) Marine (eg. Marine hull insurance) Miscellaneous (eg.Purchase insurance)

Why is It important to have insurance?

Risk - chance of loss from an event that cannot be entirely controlled
Emergency savings at least six months of expenses set aside to cover costs of unexpected events

is managed by

What are examples of unexpected events that may result in a financial loss?

Insurance transfers risk from an individual to an insurance organization

Insurance Policy
Policy - A contract that specifies what risks are covered and how much will be paid for losses
Coverage The risks covered and amount of money paid for losses under an insurance policy
If the event happens the insurance company will make a payment to the policyholder (person who owns the policy) to cover all or part of the resulting loss

Premium Money paid to purchase the policy

Experts say that buying insurance is buying financial security. Do you think this is true? Why or why not?

An Illustration of How Insurance Works

Suppose there are 100 people in a group
With a 1% chance that any one of them could get sick and require $10,000 in medical care But, no one knows who will get sick

If each person pays $100 into a pool they will collectively have $10,000 to cover the medical costs of the person who gets sick

So, everyone gives up $100, but nobody loses more than $100

99 people do not collect anything, but they gain peace of mind and important protection against large loss

Insurance shifts the risk of big loss from the individual to the insurance company

Basic functions of Insurance

Primary functions of insurance
Collective risk bearing Providing protection Evaluating risk Provide Certainty

Secondary functions of insurance

Preventing losses Covering larger risks with small capital Helps in the development of larger industries

Other functions of insurance

Is a savings and investment tool .

Indian Insurance - Major Companies

Principles of Insurance:1) Proximate cause:- It is the main cause which brings about a loss with no other intervening cause which breaks the chain of events cause poxima 2) Insurable Interest:- To insure anything the the insured must have an insurable interest in the subject matter of the insurance. 3) Contribution:-Although the insured may effect more than one policy to cover the same property or interest

4) Indemnity:- It is the placing of insured in the same financial position after a loss as he was before the loss 5) Utmost Good Faith:- It is the duty to disclose all the material fact relating to the risk to be covered 6) Subrogation-: stepping into shoes:- It is the right of the insurance company who has paid a claim to the client to pursue other party who may have caused the incident resulting into claim

INSURANCE ACT, 1938

The Insurance Act, 1938 contains important provisions relating to insurance sector in country. Important provisions are: ELIGIBILITY : a public company
a co. registered under the co-operative societies Act REGISTRATION: should obtain a certificate of registration a person who carry on any class of insurance business before IRDA Act,1999 shall make an application for such registration within three months from the date of commencement of such Act.

DOCUMENTS TO BE FILED:
A certified copy of memorandum & articles of association Name & address of the directors & their occupation A statement of the class of insurance business done or to be done. A certified copy of published prospectus & standard policy forms of the insurer. The receipt showing payment of fee Rs. 50000 .

GRANT OF CERTIFICATE:
After satisfying the soundness of the management of the Applicant, volume of its business & other requirements, the authority may register the applicant & grant a certificate of registration.

CANCELLATION OF REGISTRETION:
The Authority may cancel the registration of an insurer if he fails to comply with requirements of deposits with RBI, TRANSFER HIS BUSINESS, do not pay any claim within 3 months of final court judgement etc.

RENEWAL OF REGISTRATION:
The insurer has to file an application of renewal before 31st December of preceding year along with evidence of payment of requisite fee.

FEE:
1/4th percent of total gross premium or Rs. 5 crore whichever is less, & a minimum of Rs. 50000 for each class of business.

CAPITAL REQUIREMENT:
The capital of ins. Co. should consist ordinary shares each of which has single face value, paid amt. of all should be same & maintain the register of shareholders with names & address.

FINANCIAL STATEMENTS:
Every insurer is required to prepare a balance sheet, a profit & loss a/c, a receipt & payment a/c, a revenue a/c at the end of each financial year. Separate fund a/cs of shareholders & policy holders should be maintained.

INVESTIGATION BY ACTUARY:
Every insurer who is carrying on life insurance business should get the investigation, done by an actuary, into financial conditions including a valuation of liabilities.

Salient Features Of Insurance Act 1938

A.) Constitution of a Department of Insurance under a superintendent vested with wide powers of supervision and control over all kinds of Insurance companies.

B.) Regulations introduced for the compulsory registration of Insurance Companies and for filing of Returns of Investment and Financial conditions

of the net life .C.)Provisions for D.) Provision that 55%or Non-Indian fund of an Indian Deposits to prevent Insurance should be vested in and Insurance Inadequate Government at least approved securities with 25% in financial resources or Indian Government rupee speculative concerns securities. All other companies i.e. Foreign Companies must invest from commencing 100% of their Indian Liabilities in Indian Government and approved business securities, with at least 33.3% in Indian Government Securities

E.) Periodical valuation for Indian Business of foreign companies and the business of Indian Companies. F.) Provision for Policyholders Directors, making it possible for the representatives of Policyholders to be on the Board

LATEST UPDATES RELATED TO INSURANCE

Prudential has decided to buy nationalized US insurer - American International Group's Asian business for about $35.5 billion MetLife Inc. finally sealed a deal with American International Group Inc. (AIG) to buy stake in American Life Insurance Co (Alico) for $15.5 billion The LIC Cards has informed that it is targeting to sell half million credit cards in the upcoming year

Insurance Australia Group Ltd., the biggest car and home insurer in Australia, has again cut its 2010 insurance margin on rising claims form Perth's hailstorm and the cyclone in Queensland. This is the second time in this month when the insurance giant has cut its insurance margin Insurance companies have been instructed by the Delhi State Consumer Commission to compensate medical expenses incurred by a patient within a year of taking mediclaim policy even though the exclusion clause is declared or not.The exclusion clause acknowledged that policy holders cannot claim their medical policy within a year of taking it.

 The Insurance Regulatory and Development Authority (IRDA) have asked insurance companies to disregard the order from the Securities Exchange Board of India (SEBI) regarding the sale of ULIPs. While the investment in ULIPs is getting more criticism than other investment options by market regulator SEBI, but it has been noted then the money invested in the ULIPs may offer much more than the investor could have desired for. Reliance Life Insurance private player as it managed to sell the highest number of policies in the year 200910.company sold 23.2 lakh policies in 2009-10

CHALLENGES FOR INSURANCE COMPANIES

Consolidating savings Boosting sales and distribution Leveraging new opportunities Handling Regulatory reform