4. What is insurance?
• Insurance is actually a contract between 2 parties whereby one party
called insurer undertakes in exchange for a fixed sum called premium
to pay the other party on happening of a certain event.
• With the help of Insurance, large number of people exposed to
similar risks makes contributions to a common fund out of which the
losses suffered by the unfortunate few, due to accidental events, are
made good.
5. What is Insurance Law & Insurance Regulation
• Insurance law is the name given to practices of law surrounding
insurance, including insurance policies and claims.
• Insurance regulation refers to government overseeing the insurance
market to ensure fairness and professionalism among those working
for insurance industry, to prevent market from collapsing, and to
democratize insurance.
6. Need for insurance
• All assets have some economic value attached to them.
• There is also a possibility that these assets may get
damaged/destroyed or become non-operational due to risks like
breakdowns, fire, floods, earthquake etc.
• Different assets are exposed to different types of risks like a car has a
risk of theft or meeting an accident, a house is exposed to risk of
catching fire, a human is exposed to risk of death/accident.
• Insurance acts as an important tool in providing a sense of security to
the society on a whole.
7. • In case the bread earner of a family dies, the family suffers from direct
financial loss.
• Life insurance is one alternate arrangement that offers some respite to the
family from financial distress.
• Getting insurance for an asset does not mean that the asset is protected
against risks or its exposure to risk is reduced, but it actually implies that in
case the asset suffers any loss in value due to such risk, the insurance
company bears the loss and compensates the insured by making payment to
him.
• Insurance acts as a useful instrument in promoting savings and investments,
• These savings are used as investments to fuel economic growth.
9. …Further
1) Life Insurance
2) General Insurance
• a. Marine insurance
• b. Fire insurance
• c. Motor vehicle insurance
• d. Miscellaneous insurance
3) Reinsurance
10. Life Insurance
• Life insurance may be defined as a contract in which the insurer, in
consideration of a certain premium, either in lump sum or by other
periodical payments, agrees to pay the assured or to the person for
whose benefit the policy is taken , the assured sum of money , on
happening of a specified event contingent on human life
11. General Insurance
• General Insurance means to cover the risk of the financial loss from
any natural calamities viz, flood, fire, earthquake, burglary etc. i.e the
events which are beyond the control of the owner
12. Double Insurance
• Double Insurance refers to the method of getting insurance of same
subject matter with more than one insurer under different policies.
• Double insurance is possible in all type of insurance contracts.
• A person can insures his life in different policies for different sums
13. Features of Double Insurance
• More than one policy can be obtained against the same subject
matter
• All the policies relate to the same subject matter
• The risk covered in all the policies is the same
• The insured has equal insurable interest in the subject matter
• Double insurance is beneficial in life insurance only
• In case of life insurance, the money from all the policies can be
claimed by the assured or his nominee
• One can get insurance policies issued on a subject matter more than
its value
14. Reinsurance
• It is a contract between two or more companies by which a portion of
risk of loss is transferred to another insurance company
• This happens when an insurance company has undertaken more risk
burden on its shoulders than its bearing capacity
• Double insurance is thus a device to reduce the risk
• By transferring the risk to any other insurance company , the insurer
reduces his liability.
• Reinsurance does not affect the contract between the original insurer
and the assured
• Reinsurance can be restored in all types of insurance contracts
15. Characteristics of Reinsurance
• In reinsurance, the insurer transfer the risk beyond the limit of his capacity to
another insurance company
• The relationship of the assured remains with the original insurer only
• It is a contract of indemnity
• It does not affect the life of assured
• The fundamental principles of insurance are applicable in re-insurance also
• The original insurer cannot do re-insurance more than the insured sum
• Re-insurer is bound only to those liabilities for which the original insurer is
legally liable
• Reinsurance can be possible in all types of insurance
16. Social Insurance
• It has been developed to provide economic security to weaker
sections of the society who are unable to pay premium for adequate
insurance.
• Following type of insurance can be included in social insurance
• Sickness insurance
• Death Insurance
• Disability Insurance
• Unemployment Insurance
• Old Age Insurance
17. • Sickness Insurance –
• In this type of insurance medical benefits, medicines and
reimbursement of pay during the sickness period , etc, are given to
insured person who fell sick.
• The subsidiary companies of General Insurance corporation issue
“Medi-claim” policies for this purpose
• Death Insurance –
• Economic assistance is provided to dependents of the assured in case
of death during employment.
• The employer can transfer his liability by getting insurance policy
against employees
18. • Disability Insurance
• There is provision for compensation in case of total or partial
disability suffered by factory employees due to accidents while
working in factories.
• According to Employees compensation act, the responsibility to pay
compensation is vest with the employer
• But the employer transfers his liability on the insurer by taking Group
Insurance Policy
19. • Unemployment Insurance –
• Insured in case of unemployment due to certain reason, given
economic support till he gets employment
• Old age Insurance
• Insured or his dependents are paid after certain age, economic
assistance.
20. • Apart from these insurance social security legislation like ESIC,
Workmen compensation Act, Provident Fund Act etc are also enacted
to provide social security in case of old age pension, sickness,
disablement, maternity etc
• Under the concept of social justice, the Indian Government has
extended the scope of social insurance
• This scheme is now extended to daily wagers, Rikshaw pullers,
craftsmen etc, through different insurance plans
21. Workmen Compensation Insurance
• A employer is required to compensation to his workers who receive
injuries or contract occupational diseases during the course of their
work
• Such compensation is payable under the workmen’s compensation
act.
• An employer may obtain an insurance policy to cover such liability
• The premiums are payable on the basis of wages
• It is also known as ‘Employers liability insurance’
22. Public liability Insurance
• With the growth of hazardous industries, risk from accidents,
processes and operations, not only affects the persons employed in
such undertaking but also to the public who may be in vicinity, have
increased.
• Such accidents leads to death and injury to human beings and other
living beings and damage private & public properties
• Very often, the majority of people affected is from economically
weaker sections and suffer great hardships because of delayed relief
and compensation.
23. • It is felt essential therefore to provide for mandatory public liability
insurance for installations handling hazardous substances to provide
minimum relief to the victim.
• Such insurance, apart from safeguarding the interest of the victim of
accidents, would also provide cover and enable the industry to
discharge its liability to settle large claims arising out of major
accidents.
24. Third party insurance
• In India, under the provision of the Motor Vehicle Act, 1988, it is mandatory
that every vehicle should have valid insurance to drive on the road.
• There are two quite different kinds of insurance involved in the damages
system
• A. Third party insurance
• B. First party insurance
• The Third party insurance policy is a policy under which the insurance
company agrees to indemnify the insured person, if he is sued or held legally
liable for injuries or damage done to a third party
• The insured is one party, the insurance company is the second party, and the
person you (the insured) injure who claims damage against you is the third
party.
25. LIST OF LEGISLATIONS REGULATING THE
INSURANCE SECTOR IN INDIA
• The Insurance sector in India is regulated by the following Acts:
• 1) The Insurance Act, 1938
• 2) The Life Insurance Corporation Act, 1956
• 3) Marine Insurance Act, 1963
• 4) General Insurance Business (Nationalization) Act, 1972
• 5) Insurance Regulatory and Development Authority (IRDA) Act, 1999
26. Insurance Regulatory Authority (IRDA)
• Regulatory frame work :
• Insurance has its own market
• The market economy needs to function within the boundaries framed
by regulating authority as well as various laws which govern the
insurance business.
• Some of the laws which govern the insurance sector are mentioned in
the following slides
27. • Indian Contract Act, 1872
• It Say – Insurance contract must comply those terms and condition so
as to make it a valid contract which is capable with of being enforced
•Income Tax Act, 1971
• Section 80 gives tax rebates in respect of certain premium being paid
for life insurance
28. IRDA ACT – Insurance Regulatory and
Development Authority
• The power, functions of this IRDA include all those powers necessary
to promote and ensure an orderly growth of this business.
• It is also intended to protect the interest of the policy holders in
matter relating to nomination, assignments, insurable interest,
settlements of claims, condition relating to insurance contracted, the
functioning of tariff advisory committee etc
29. Objectives of IRDA
• To protect the investor’s interest
• To promote orderly growth of insurance industry
• To administer the provision of insurance acts
• To device control activity need for smooth functioning of the
insurance companies including investment of funds and solvency
requirements to be maintained by insurance companies
• To lay down the accounting methodologies to be adopted
• To adjudicate on disputes
30. PRINCIPLES OF INSURANCE
• The seven principles of insurance are
• 1) Principle of Uberrimae fidei (Utmost Good Faith)
• 2) Principle of Insurable Interest
• 3) Principle of Indemnity
• 4) Principle of Contribution
• 5) Principle of Subrogation
• 6) Principle of Loss Minimization
• 7) Principle of Causa Proxima (Nearest Cause)
31. • 1) Principle of Uberrimae fidei (Utmost Good Faith)
• According to this principle, the insurance contract must be signed by
both parties (i.e. insurer and insured) in an absolute good faith or
belief or trust.
• 2) Principle of Insurable Interest
• The principle of insurable interest states that the person getting
insured must have insurable interest in the object of insurance
• In simple words, the insured person must suffer some financial loss by
the damage of the insured object.
32. • 3) Principle of Indemnity
• Indemnity means security, protection and compensation given against
damage, loss or injury.
• According to the principle of indemnity, an insurance contract is signed
only for getting protection against unpredicted financial losses arising due
to future uncertainties.
• Insurance contract is not made for making profit
• its sole purpose is to give compensation in case of any damage or loss.
33. • The amount of compensations is limited to the amount assured or the
actual losses, whichever is less.
• Compensation is not paid if the specified loss does not happen due to a
particular reason during a specific time period.
• Thus, insurance is only for giving protection against losses and not for
making profit.
• However, in case of life insurance, the principle of indemnity does not apply
because the value of human life cannot be measured in terms of money.
34. • 4) Principle of Contribution
• According to this principle, the insured can claim the compensation only to
the extent of actual loss either from all insurers or from any one insurer.
• If one insurer pays full compensation then that insurer can claim
proportionate claim from the other insurers.
• For example: - If a house is insured with company X for Rs.5,000 and with
company Y for Rs.10000 and the damage amounts to Rs.1200, company X
will apparently be liable to contribute Rs.400 and company Y Rs.800.
• So, if the insured claims full amount of compensation from one insurer
then he cannot claim the same compensation from other insurer and make
a profit.
• Secondly, if one insurance company pays the full compensation then it can
recover the proportionate contribution from the other insurance company.
35. • 5) Principle of Subrogation
• Subrogation means substituting one creditor for another.
• It is generally applicable to contract of fire and marine insurance.
• When the insured is compensated for the losses due to damage to his
insured property, then the ownership right of such property shifts to
the insurer.
• This principle is applicable only when the damaged property has any
value after the event causing the damage. The insurer can benefit out
of subrogation rights only to the extent of the amount he has paid to
the insured as compensation.
36. • 6) Principle of Loss Minimization
• According to the Principle of Loss Minimization, insured must always
try his level best to minimize the loss of his insured property, in case
of uncertain events
• The insured must take all possible measures and necessary steps to
control and reduce the losses in such a scenario.
• 7) Principle of Causa Proxima (Nearest Cause)
• The Principle of Proximate (i.e. Nearest) Cause, means when a loss is
caused by more than one causes, the proximate or the nearest cause
should be taken into consideration to decide the liability of the
insurer
