Ajay Bhundiya (11106) Akash Patel (11132) Manan Amin (11145) Harsh Desai(11154) Museb Mansuri (11168) Khimji

Kholiya(11163) Paresh Mali (11191) Jitendra Gamit(11157)

Paresh Mali-11191

Definition of Insurance:
Insurance is the pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify insured for such losses. In Finance Sense: Insurance is a social device in which a group of individuals transfer risk to other party in order to combine loss experience, which permits statistical of losses and provides for payment of losses from funds contributed (Premiums) by all members who transferred risk.
3

 Insurance

company, which assumes risk is referred as Insurer. taking the insurance cover is referred as Insured

Person

Benefits: Reimbursement for losses Reduction in tension and fear Prevention of losses Credit multiplication
Costs: Cost of Business Operations-Social wastage of resources Fraudulent and exaggerated claims
5

 Functions
1. 2. 3.

of an insurance contract:

To define the risk that is to be transferred To state the conditions under which the contract applies To explain the procedure for setting losses.

Nature 1. 2. 3. 4.

of the contract Entirety Personal Unilateral Aleatory

6

1)

Gambling creates risk while insurance transfers an existing risk.

Gambling deals with speculative risk-there might be gain or losses, while Insurance deals with pure risk.

2)

1.

2.

3.

Insurance contracts are legal ones; enforceable at court of low which wagering contracts are void contract. Parties to an insurance contract are identifiable at the inception of the contract but in wagers, the parties to suffer losses are identified after the occurrence of the event. Insurance contracts are contracts of indemnity; wagers are winning or lose contracts.
8

1.

NON-LIFE INSURANCE
LIFE INSURANCE

2.

 Property:

Home

insurance/Domestic cover Business insurance Commercial insurance Liability: Motor insurance Workman compensation Liability insurance Aviation insurance Project & engineering insurance
10

 Health:

Hospital

insurance Medical cover

11

Money back Pension Women, Girl child & Couple Endowment Whole Life Child insurance

12

Ajay Bhundiya-11106

 It

is different from tangible products. It is business of buying risk

It is game of probability
Two corollary are usually drawn It is rather a delicate exercise. Technical reserves must be built. Principle of insurance pricing Premium should be sufficient to meet their expected claim cost and administrative cost. It should provide expected profit

1. 2.

1.

2.

Fair premium means premium that are sufficient to meet the expected cost and provide fair return to insurance company. Premium is calculated on the basis of expected claim distribution such that P = E(S) + k + R

Where, E(S) represents mathematical expectation of claim K denotes cost R denotes risk premium

Probability means chance of occurrence of an event. Probability distribution means distribution of all possible outcomes of a random variable. EX: Suppose a coin is tossed, then following distribution is noted.
10 20 30 40 50

No. of experiment

Heads
Tail Probability of heads

4
6 40%

9
11 45%

13
17 43.33%

18
22 45%

24
26 48%

If number of trials tends to infinity then probability of getting heads will be 50% Thus increasing the number of experiments for a given variable, the probability of the occurrence if a given outcome can be accurately estimated.

Probability Distribution It can be discrete or continuous. Discrete distribution can take limited values. Continuous distribution can take any value within a given range. There are three variable distributions 1. Binomial 2. Normal 3. Poison

 1. 2.

Assumptions Events occurs at randomly All events are independent each other. Poison distribution is best to used when the probability of occurrence of an event is small and populations size are very large. Ex: Group of five members and premium charged is Rs. 3000 and coverage is Rs. 90000. if one of the person die within a given period, then Total premium paid = 3000*5 = Rs.15000 Expected value of losses = 90000*.20 = Rs.18000 Thus pricing of insurance product is not proper

 Dual

Application of law of large Numbers To estimate underlying probability accurately law of large numbers means that the larger the number of cases, better the chance of actual experience. large number of policyholder will reduce the administrative cost and spread risk among them.

The

Also

 Pure

premium: it includes the amount needed to cover expected loss. expenses: it includes sales commission and other marketing costs, taxes and cost of handling claims.
and other incomes: it includes contingencies and other gain or profit.

Operating

Margin

 Premium:
Rate:

Insurance price is called premium

it is price per unit of insurance.

Exposure

Units are quantitative units uses in

insurance pricing.
Loading

refers to the amount that is added to

the pure premium like other expenses, profit and margin for contingencies.

 Adequacy

: the rate must be adequate to generate the premium income the insurer needs to pay its claims and expenses. Reasonableness: the rates should not be so excessive. Fairness: the rates must not be unfairly discriminatory. Simplicity, consistency and flexibility: it should be easy to understand, inexpensive and should not change frequently

 Judgement

Rating:

It used when risk is little or no statistical information about similar risk is available. The rate is determined largely by underwriters judgement.
Class

rating:

Insurance risk classified on the basis of several important features and are belong to same class and same rate per unit EX: Life insurance based on age, health, gender, and smoking and drinking habits. Automobile insurance is also example of class rating

Merit rating: It reflects the extent to which specific risk differs from the other in the same class.

The
1.

various type of rating method are:

Schedule rating : Each exposure is individually rated First step is to examine the risk. Then risk is compared to average standard risk Then deduction are made for desirable features and addition for undesirable features. This addition and subtraction is based on the judgement of the person.

2. Experience rating: it modifies class rate on the basis of past record. The rate is reduced if the risk has better record than the average. It is increased if record is worst than the average.
3. Retrospective Rating: The range of premium is predetermined and final premium is determined after the policy expires. If the losses are very small then insured will pay minimum premium otherwise he has to pay high premium

 Life

insurance vs. Non life insurance pricing

Pricing of life insurance is based on (a)mortality rate ,(b)expenses, (c) interest In non life insurance is based on (a) claim cost, (b) business acquisition cost, (c)management expenses, (d) reasonable profit

Rate

Making Entities

1. Professional rate making organization They are specialist in performing the rating work. The reason of existence of such entities is that many companies do not have sufficient data. 2. Actuaries They are specialized in mathematics of insurance. They develop mathematical models to determine the rates

Akash Patel-11132

 Insurance

is a federal subject in India Two statutes primarily regulate the insurance business (a) Insurance act 1938 and (b) Insurance and Regulatory Development authority act , 1999 The insurance business is classified into four classes (1) Life insurance (2) Fire (3) Marine and (4) Miscellaneous insurance

Insurance is widely regulated all over the world because of following reasons Widespread severe impact of insurer solvency Unequal knowledge and bargaining power of the buyer and seller Insurance pricing Social welfare

 Insurance

is made available to the public through contracts Contracts details the rights and duties of the parties to the insurance agreement The contracts may range from implied or oral contracts Most of the insurance contracts are expressed in writing

Insurance contracts are agreements between insurance companies and insurer Therefore all the provisions of Indian contract act, 1872, in general are applicable to insurance contracts Following conditions are necessary for a valid contract a) Agreement between two parties b) Lawful object c) Capacity to contract d) Legal purpose e) Consideration f) Possibility of performance

Important provisions in the Act relates to: A. Conduct of business B. Insurance Association of India councils and committees C. Tariff Advisory Committees and control of tariff rates D. Solvency margin, advance payment of premium E. provident societies registration, working, investments norms, etc F. working capital norms, loans, memberships, deposits, etc G. Reinsurance H. penalties

 It

is a two stage process Stage 1- Requisition for registration In stage 1 an application has to be made to the Authority with all the prescribed disclosure norms Stage 2- Application for Registration In stage 2, after the requisition is granted by the Authority, the applicant is required to make an application for registration

Khimji kholiya-11163

TAC established under the Act is empowered to control & regulate the rates, terms, ext. that many be offered by insurance in respect of any risk of or any category of risks.

 Fire
Marin Engineering Motor Miscellaneous

The Indian Stamp Act, 1899 The Indian stamp Act requires that a policy of insurance be stamped in accordance with the schedule of rate prescribed. The Consumer Protection Act, 1986

The Act applies to all goods and services unless specifically exempted by central govt.
The Provisions of the Act are compensatory in nature

Motor Vehicles Act, 1988

The Inland Steam Vessels Act,1917 & the Amended Act, 1977

Marin Insurance Act, 1963

The Carriage of Goods by Sea Act, 1925 The Merchant Shipping Act, 1958

The Bill of Landing Act, 1855

The Indian Port (Major Port) Act, 1963 The Indian Railways Act, 1890

The Carriers Act, 1865

The Indian Post Office Act, 1898 The Carriage by Air Act, 1972 Multi Modal Transportation Act, 1993 Workmens Compensation Act,1923 Employees State Insurance Act, 1948

 Companies

in India is governed by IRDA (Registration of Indian Insurance Companies) Regulation 2000.

Jitendra Gamit-11157

 Underwriting

is the insurance function that is responsible for assessing and classifying the degree of risk a proposed or group represent and making a decision concerning coverage of that risk
The Person responsible for evaluation and acceptance/rejection of risk and computation of premium is called as the Underwriter. The decision made by the underwriter concerning risk classification and rating is called as the underwriting

 The

Objectives of underwriting can be therefore expressed as follows: 1. Product Equitable to customer-The underwriter
should fairly assess the risk in a proposal and fix the premium justifiable to the consumer

2.

Deliverable to the customer-Consumer are the final

authority for buying the products. If the marketers are not able to sell so that the product becomes undeliverable, the onus is on the underwriter to carry an introspection of the various factor that cause differences between the consumers and companys conditions

3.

Financially feasible to the insurance company

 Receiving Proposals/ Applications

The Medical Report Underwriting Review Policy writing

 Life insurance underwriting is

mainly concerned with mortality. Mortality risk for an insurer is that the insured will die prior to the stipulated life. An impairment in any respect of a proposed insureds personal health, medical history, health habits, family history, occupation,or other activities that could increase that persons expected mortality risk.

 The underwriting of

commercial business insurance is a much more complicated and involved task. Commercial insurance range from small shops and factories to the large multinational corporation.

Museb Mansuri-11168

Reinsurance is a transaction in which one insurer agrees, for a premium, to indemnify another insurer against all or part of the loss that insurer may sustain under its policy or policies of insurance.
Reinsurance can also be described as insurance of insurance companies. The company purchasing reinsurance is known as the as ceding insurer, the company selling reinsurance is known as the assuming insurer or reinsurer.

1)
2) 3) 4)

Limiting Liability
Stabilization Catastrophe protection Increased capacity


1)
2) 3)

Main services provided by Reinsurer companies

Reinsurance enables direct writing companies to even out their result. Insurance companies can increase the maximum amount they are able to cover as primary insurer. Reinsurance also provide large amount of cash in the event of major loss.

1) 2) 3) 4)

Advisory services provided by Reinsurance companies

Formulating the Reinsurance program Support services Specialized services Capital Base

1.
a. b.

Reinsurance Treaties Non proportional Treaty Proportional Treaty

2. Facultative

Quota Share Reinsurance

Pro-rata Reinsurance Excess-of-loss Reinsurance Loss Ratio Reinsurance

 Under

a reinsurance contract, an insurer is indemnified for losses occurring on its insurance policies and covered by the reinsurance contract.

There

are no standard reinsurance contracts although two basic types are: 1. Treaty Reinsurance contract 2. Facultative Reinsurance contract

Harsh Desai-11154

 Life

insurance is a contract of a sum of money to the person assured.

insurance covers death due to natural causes as well as due to accidents. insurance contract is a long term contract having all essential features of a valid contract.

Life

Life

 Superior

to any other saving plan and force thrift

Encourages Easy

settlement and protection against creditors the legacy for beneficiaries

Administering Accidental Tax

death benefits

benefit

 Heading
Preamble Operative Provisio Schedule Attestation Condition

clause

and privileges

Classification based on time

Classification based on investment objective

Classification based on premium payment

Classification based on claim payment Classification based on number of person assured

Whole life policy

Endowment policy Participating policy Money back policy Pension policy Annuity policy

MANAN N. AMIN-11145

 Judgment

method

The underwriter studies all the features of the life to be insured and on the basis of analysis of various factors takes a decision.

Numerical

rating

In this method, a large number of factors, which influence mortality are taken in account.

 Agent:
o

Agents are legal sense means a person who is employed to perform and act on behalf of others for a price called commission.

Qualification

12th standard or equivalent (city >5000) o Practical training o Examination by Insurance Institute of India, Mumbai o Code of conduct applicable
o

 Basis
o

procedure for issuing a life insurance policy

Insurance is a contract. o Therefore it start with proposal (by insurance company/agent) o It is in standard insurance form. o Age proof is provided o Medical examination is conducted. o Agent communicate all these information to insurance company confidentially.

Issue of duplicate policy

In situation like

Loss of policy by theft Destruction by fire Loss in custody in office of govt. Missing policy

Nomination
Nomination is the process of identifying a person to receive

the policy money in the policy by providing death of the policyholder.

Assignment
Assignment is a means whereby the beneficial interest,

right and title under a policy gets transferred from assignor to assignee.

revivals

If the premium under a policy is not paid within the days of grace, the policy lapse. Revival is a fresh contract wherein the insurer can impose fresh terms and condition. Types:

Ordinary revival Revival on medical basis Revival on non-medical basis

 Death

claim

If the insurer dies before expiry of the term of the policy, it is called as death claims

Non-early

death claim

If death occur after 3 years from the commencement of the policy.

Early

claims

If death of insured occur within 3 years from the commencement of the policy.

 Maturity

claims

Maturity claims are payable as per the terms of the policy. These policies are generally endowment policies

Insurance

has satisfy that

Assured should holder of policy and identity is proved Ages stands admitted All premium should be paid