WHAT IS INSURANCE - A promise of compensation for specific potential future losses in exchange for a periodicpayment. Insurance is designed to protect the financial well- being of an individual, company or other entity in the case of unexpected loss. In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment
PRINCIPLESINSURABILITY -Large number of similarexposure unitsDefinite Loss.Accidental Loss.Large Loss.Affordable PremiumCalculable LossLimited risk ofcatastrophically large losses
LegalIndemnityInsurable interestUtmost good faithContributionSubrogationCausa Proxima orProximate Cause.
INDEMNIFICATION Imagine for a moment that you rent a chainsaw from the local ABC rental company. Since your ability to use a chainsaw safelyremains unproven to the ABC rental agent, he may ask you to sign a number of papers. Oneof those papers might read: "The renter of this equipment agrees to defend, indemnify and hold harmless ABC Rental Company and its staff for any third-party claims which may arise from the use of the equipment." This is considered indemnification, an agreement between two parties not to hold one of them liable for future legal action or fines. Indemnification usually only works in one direction; you as the renter agree not to holdABC Rental Company employees responsible if you have an accident with their chainsaw.
INDEMNIFICATIONIndemnification may not seem like a major consideration inmost circumstances — the chances are pretty good that youwont be hit by a baseball at a game or suffer damages fromfaulty rental equipment. But, indemnification can be a very important consideration if youre a director of a medical equipment company, for example. Theres always apossibility of a patient suing one of your client hospitals fordamages suffered in a fall from one of your wheelchairs. Anindemnification agreement with your company means that the hospital agrees to take financial responsibility if a patient prevails in a lawsuit. Without indemnification, you could be held personally liable for damage payments.
INSURERS’ BUSINESS MODEL• UNDERWRITING AND INVESTIGATION• Insurers make money in two ways:• Through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks;• By investing the premiums they collect from insured parties.
CLAIMSClaims and loss handling is the materialized utility of insurance; it is theactual "product" paid for, though one hopes it will never need to be used.Incoming claims are classified based on severity and are assigned toadjusters whose settlement authority varies with their knowledge andexperience.If a claims adjuster suspects underinsurance, the condition of average maycome into play to limit the insurance companys exposure.
INSURANCE PATENTS• A recent example of a new insurance product that is patented is Usage Based auto insurance. Early versions were independently invented and patented by a major U.S. auto insurance company, Progressive Auto Insurance (U.S. Patent 5,797,134) and a Spanish independent inventor, Salvador Minguijon Perez ( EP patent 0700009 ).• Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.
THE INSURANCE INDUSTRY AND RENT SEEKING Certain insurance products and practices have been described as rent seeking bycritics. That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse event.. Under United States tax law, for example, most owners of variable annuities and variable life insurance can invest theirpremium payments in the stock market anddefer or eliminate paying any taxes on their investments until withdrawals are made.
ACROSS THE WORLDGlobal insurance premiums grew by 3.4% in2008 to reach $4.3 trillion. For the first timein the past three decades, premium incomedeclined in inflation-adjusted terms, withnon-life premiums falling by 0.8% and lifepremiums falling by 3.5%. With premium income of $1,753bn, Europewas the most important region in 2008,followed by North America $1,346bn andAsia $933bn. The top four countriesgenerated more than a half of premiums.The US and Japan alone accounted for 40%of world insurance, much higher than their7% share of the global population.
INSURANCE IN INDIA After the independence, the Life Insurance Company was nationalized in 1956, and then the general insurance business was nationalized in 1972. Only in 1999 private insurance companies were allowed back into the business of insurance with a maximum of 26 per cent of foreign holding (World Bank Economic Review 2000) The private insurance joint ventures have collected the premium ofRs.1019.09 crore with the investment of just Rs.3,000 crore in three years of liberalization.
Unitised insurance fund• Unitised insurance funds or unit-linked insurance funds are a form of collective investment offered through life assurance policies• All types of life assurance and insurers pension plans, both single premium and regular premium policies offer these funds.
INSURANCE COMPANIESInsurance companies may beclassified into two groups:1. Life insurance companies, which sell life insurance, annuities and pensions products.2. Non-life, General, or Property/Casualty insurance companies, which sell other types of insurance.General insurance companies can befurther divided into these subcategories.1. Standard Lines2. Excess Lines