Amity School of Business

Amity School of Business

Program – BBA (Gen)
VIth Semester

Course – ‘Banking & Financial Institutions’

Faculty - Ms. Neelam Mehra

 INSURANCE Amity School of Business

• Insurance is a guarantee of partial or complete indemnity against a

financial loss that will result if an event of a specified kind occurs.

• The person seeking some surety against the possible loss is the
insured.

• The person contracting to indemnify against the loss is the insurer.

• The written contract of insurance is the policy; the price paid by the
insured in fulfillment of his part of the contract is the premium
• .
• The amount paid when a loss has been incurred is the indemnity;
and the person to whom the indemnity is paid is the beneficiary
(who may or may not be the insured).
 Amity School of Business

The insurance company works in a manner –

i. by collecting premiums from policy holders.

ii. investing the money (usually in low risk investments)
iii. then reimbursing this same money once the or the policy
matures or person passes away (in case of LI).

The greater the probability for a person to have a shorter life span
than the average mark, the higher premium that person has to pay.
The case is the same for all other types of insurance, including
automobile, health and property.

Thus the insurance company protects the client against certain

circumstances, say physical capital loss due to a natural disaster or
accident. The insurance company assumes all financial
responsibility associated with the client’s losses.
 INSURANCE AS RISK
TRANFER MECHANISM Amity School of Business

The objective of insurance is to save the owner of the asset from the risk
of its loss. In order to achieve this objective, risk is shared by and
transferred to another party. Thus insurance is a risk transfer
mechanism.

The insurance business is recognized as a tool to inculcate the habit of

saving, and provide security and economic growth

Main principles of Insurance:

i. Utmost good faith

ii. Indemnity
iii. Subrogation
iv. Contribution
v. Insurable Interest
vi. Proximate Cause
 Amity School of Business

i) Utmost Good Faith (Uberrimae Fides)

It is the client duty to disclose all material facts to the risk being
covered. A material fact is a fact which would influence the mind of a
prudent underwriter in deciding whether to accept a risk for insurance
and on what terms. The duty to disclose operates at the time of
inception, at renewal and at any point mid term.

ii) Indemnity
On the happening of an event insured against, the Insured will be
placed in the same monetary position that he/she occupied immediately
before the event taking place. In the event of a claim the insured must:

• Prove that the event occurred

• Prove that a monetary loss has occurred
• Transfer any rights which he/she may have for recovery from another
source to the Insurer, if he/she has been fully indemnified.
 Amity School of Business

iii) Subrogation The right of an insurer which has paid a claim under a
policy to step into the shoes of the insured so as to exercise in his
name all rights he might have with regard to the recovery of the loss
which was the subject of the relevant claim paid under the policy up
to the amount of that paid claim.
The insurer’s subrogation rights may be qualified in the policy.In the
context of insurance subrogation is a feature of the principle of
indemnity and therefore only applies to contracts of indemnity so
that it does not apply to life assurance or personal accident policies.

It is intended to prevent an insured recovering more than the

indemnity he receives under his insurance

iv) Contribution The right of an insurer to call on other insurers

similarly, but not necessarily equally, liable to the same insured to
share the loss of an indemnity payment i.e. a travel policy may have
overlapping cover with the contents section of a household policy.
The principle of contribution allows the insured to make a claim
against one insurer who then has the right to call on any other
insurers liable for the loss to share the claim payment.I
 Amity School of Business

iv) Insurable Interest If an insured wishes to enforce a

contract of insurance before the Courts he must have an
insurable interest in the subject matter of the insurance,
which is to say that he stands to benefit from its preservation
and will suffer from its loss.

i) Proximate Cause An insurer will only be liable to pay a

claim under an insurance contract if the loss that gives rise
to the claim was proximately caused by an insured peril.
This means that the loss must be directly attributed to an
insured peril without any break in the chain of causation.
 TYPES OF INSURANCE Amity School of Business

• Types of insurance
Any risk that can be quantified can potentially be insured. A single policy may
cover risks in one or more of the categories set out below. For example, auto
insurance would typically cover both property risk (covering the risk of theft or
damage to the car) and liability risk (covering legal claims from causing an
accident).

Few egs..
 Vehicle insurance which protects you against financial loss if you have an
accident. It is a contract between you and the insurance company.

 Home insurance provides compensation for damage or destruction of a

home from disasters.

 Property insurance provides protection against risks to property, such as fire,

theft or weather damage. This includes specialized forms of insurance such as fire
insurance, flood insurance, earthquake insurance, inland marine insurance or
boiler insurance.
 Amity School of Business
 Health insurance will cover the cost of medical treatments.
 Dental insurance gives coverage to individuals to protect them against dental costs
 Worker’s compensation insurance replaces all or part of a worker's wages lost and
accompanying medical expenses incurred because of a job-related injury.

 Casualty insurance insures against accidents, not necessarily tied to any specific
property.

 Life insurance provides a monetary benefit to a decedent's family or other designated

beneficiary, and may specifically provide for income to an insured person's family.

Life insurance policies often allow the option of having the proceeds paid to the
beneficiary either in a lump sum cash payment or an annuity.

Annuities provide a stream of payments and are generally classified as insurance

because they are issued by insurance companies and regulated as insurance and
require the same kinds of actuarial and investment management expertise that life
insurance requires.

Annuities and Pensions that pay a benefit for life are sometimes regarded as
insurance against the possibility that a retiree will outlive his or her financial resources.
In that sense, they are the complement of life insurance and, from an underwriting
perspective, are the mirror image of life insurance.
 Amity School of Business

 Property insurance provides protection against risks to

property, such as fire, theft or weather damage. This
includes specialized forms of insurance such as fire
insurance, flood insurance, earthquake insurance, inland
marine insurance or boiler insurance.
 TYPES OF INSURANCE
COMPANIES Amity School of Business

Insurance companies may be classified into two groups:

 Life insurance companies, which sell life insurance,

annuities and pensions products.

 Non-life, General, or Property/Casualty insurance

companies, which sell other types of insurance.
 Amity School of Business

Life Insurance Companies in India

 Life Insurance Corporation

 Aviva Life Insurance
 Bajaj Allianz Life Insurance
 Birla Sun-Life Insurance
 HDFC Standard Life Insurance
 ING Vysya Life Insurance
 Life Insurance Corporation
 Max New York Life Insurance
 MetLife Insurance
 Om Kotak Mahindra Life Insurance
 Reliance Life Insurance
 Sahara India Life Insurance
 SBI Life Insurance
 TATA AIG Life Insurance
 ICICI Prudential Ltd
 Amity School of Business

General Insurance Companies

• ANZ Insurance
• Bajaj Allianz General Insurance
• Cholamandalam General Insurance
• Employee State Insurance
• Export Credit Guarantee Corporation
• ICICI Lombard General Insurance
• IFFCO-Tokio General Insurance
• National Insurance
• Oriental Insurance
• Peerless Smart Financial
• Royal Sundaram Alliance
• TATA AIG General Insurance
 INSURANCE SECTOR Amity School of Business

Challenges facing Insurance Industry

• Threat of New Entrants: The insurance industry has been budding with new
entrants every other day. Therefore the companies should carve out niche
areas such that the threat of new entrants might not be a hindrance. There is
also a chance that the big players might squeeze the small new entrants.
• Power of Suppliers: Those who are supplying the capital are a big threat.
For instance, if someone as a very talented insurance underwriter is
presently working for a small insurance company, there exists a chance that
any big player willing to enter the insurance industry might entice that person
off.
• Power of Buyers: No individual is a big threat to the insurance industry and
big corporate houses have a lot more negotiating capability with the
insurance companies. Big corporate clients like airlines and pharmaceutical
companies pay millions of dollars every year in premiums.
• Availability of Substitutes: There exist a lot of substitutes in the insurance
industry. Majorly, the large insurance companies provide similar kinds of
services – be it auto, home, commercial, health or life insurance.
 HISTORY OF INSURANCE
SECTOR IN INDIA Amity School of Business
The insurance sector in India has come a full circle from being an open competitive
market to nationalization and back to a liberalized market again.
Tracing the developments in the Indian insurance sector reveals the 360-degree turn
witnessed over a period of almost 190 years.
The business of life insurance in India in its existing form started in India in the year
1818 with the establishment of the Oriental Life Insurance Company in Calcutta.
Some of the important milestones in the life insurance business in India are:
1912 - The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.
1928 - The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about both life and non-life insurance businesses.
1938 - Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.
1956 - 245 Indian and foreign insurers and provident societies taken over by the
central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act,
1956, with a capital contribution of Rs. 5 crore from the Government of India.
 HISTORY OF INSURANCE
SECTOR IN INDIA contd..Amity School of Business
The General insurance business in India, on the other hand, can trace its roots to the
Triton Insurance Company Ltd., the first general insurance company established in the
year 1850 in Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907 - The Indian Mercantile Insurance Ltd. set up, the first company to transact all
classes of general insurance business.
1957 - General Insurance Council, a wing of the Insurance Association of India, frames a
code of conduct for ensuring fair conduct and sound business practices.
1968 - The Insurance Act amended to regulate investments and set minimum solvency
margins and the Tariff Advisory Committee set up.
1972 - The General Insurance Business (Nationalization) Act, 1972 nationalized the
general insurance business in India with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companies viz. the National Insurance
Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company
Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.
Amity School of Business