Insurance

Basics_Part1
By Mudit Pande

Agenda
Peculiarities of insurance
Types of Risk
What is Insurance?
Insurance Market Place
Parties to an Insurance Contract
Insurance Principles
Insurance processes
Types of Insurance
Insurance & Technology

Peculiarities of Insurance

The Product of this industry is only Promise

The Product comes in to existence only after the contract is

complete Policy Document

Product can be tested only after certain period & that to happening
of contingency Loss in Future

Contract of good faith

Should be viewed as trusties of public money

Is most essential part of national economy

Insurance regulation need

The payment of claim is the primary function of Insurance company

Two sources of income: Premium & Investment

What is Risk?

Risk
It is a condition arising out of uncertainty
leading to a possibility of adverse deviation
from desired outcome

Types of Risk

Speculative Risk
Which entails a chance of gain as well as a chance of loss
e.g. Gambling.

Pure Risk
The only consideration is the possibility of loss or no loss, but not making a
profit e.g. Fire, Flood, Accident etc.

Dynamic Risk
A risk that arises from the continuous change that exists in the business or
economic environment or in technology. Dynamic risk can produce a gain (or
savings) as well as a loss (or expenses).

Static Risk
A risk that arises from the normal course of business activities and does not
involve changes in the environment or technology. Static risk can only result in
a loss.

Insurable Risk
Pure and static risk can only be insured

Peril & Hazard

Hazard Is a condition which may create or increase the chance of

loss arising from any given peril or under a given condition

Physical
Physical conditions E.g. Highly inflammable
substance storage hazard

Moral
Dishonesty of character E.g. Non-disclosure of
of highly inflammable substance

Morale Careless or indifferent attitude E.g. Not providing special

fire proof enclosure to the storage of highly inflammable substance as
insurance will cover the losses

Peril

storage

Is a Cause of Loss e.g. Fire / Accident

Risk Management
Definition
It is the scientific approach to deal with the pure risks faced
by individuals and business.
Risk management is the process of identifying, measuring or
assessing risk and then developing strategies to manage the
risk. In general, the strategies employed include transfer &
sharing the risk with another party, avoiding the risk, reducing
the negative affect of the risk, and accepting some or all of
the consequences of a particular risk.