PRINCIPLES OF INSURANCE

Q1. Insurance-Concept, Nature,

What are the concepts of insurance?
The basic principle of insurance is that an entity will choose to spend small periodic
amounts of money against a possibility of a huge unexpected loss. Basically, all the
policyholder pool their risks together. Any loss that they suffer will be paid out of their
premiums which they pay.

NATURE_

A brief survey of insurance literature reveals differences of opinion among

authors concerning how the term insurance should be defined. Regardless,
however, the literature agrees that insurance has to contain both of the
following elements: (1) risk pooling and (2) risk transfer. The risk pooling
creates a large sample of risk exposures and, as the sample gets larger, the
possibility of missing future loss predictions gets lower. This is the law of
large numbers, discussed further in the box below, “Law of Large
Numbers.” The combination of risk pooling and risk transfer (from the
owner of the risk to a third, unrelated party) physically reduces the risk,
both in number and in the anxiety it causes. As such, we
regard insurance as a social device in which a group of individuals transfer
risk to another party in such a way that the third party combines or pools all
the risk exposures together. Pooling the exposures together permits more
accurate statistical prediction of future losses. Individuals who transfer risk
to a third-party are known as insureds. The third party that accepts the
risks transferred by insureds is known as the insurer.

Q2. Classification-Life & Non-life,.

Life insurance provides a lump sum amount of sum assured at the time of
maturity or in case of death of the policyholder. Non-life insurance policies
offer financial protection to a person for health issues or losses due to
damage to an asset.

Comparis
Life insurance General insurance
on basis

Definition Life insurance protects The insured individual is

against life risks where the promised to be compensated by
insured individual is the insurance company for the
promised by the insurance damage caused due to an
 unfortunate circumstance or any
company for uncertainties
loss. The valuable things of
and ambiguities of life-
people are protected by general
related to death.
insurance.

Policy
Long-term Short-term
Period

Life insurance is
Whereas general insurance can
Nature of acknowledged as an
be termed as indemnity’s
the policy investment, and it is not a
contract.
contract of indemnity.

The policyholder and the other

The policyholder receives
The people insured under the policy
the benefits of the
insured get the benefits of the insurance
insurance coverage.
coverage.

The sum assured is paid at Claim is processed as per the

Claims the maturity of the policy or damage or financial loss suffered
death of the policyholder by the policyholder.

Depends upon the amount

Cost of Depends upon the value of the
of sum assured offered by
the policy insured asset.
the insurance policy

Q3. Functions, Importance and evolution of Insurance

Functions_
1. Insurance provides certainty,
2. Insurance provides protection,
3. Risk-Sharing,
4. Prevention of loss,
5. It Provides Capital,
6. It Improves Efficiency,
7. It helps Economic Progress.

Insurance provides certainty

 Insurance provides certainty of payment at the uncertainty of loss.
The uncertainty of loss can be reduced by better planning and
administration.

But, the insurance relieves the person from such a difficult task.

Moreover, if the subject matters are not adequate, the self-provision may prove
costlier. There are different types of uncertainty in a risk.

The risk will occur or not, when will occur, how much loss will be there?

In other words, there is the uncertainty of happening of time and amount of loss.
Insurance removes all these uncertainties and the assured is given certainty of
payment of loss.

Insurance provides protection

The main function of insurance is to protect the probable chances of loss. The
time and amount of loss are uncertain and at the happening of risk, the
person will suffer the loss in the absence of insurance.

The insurance guarantees the payment of loss and thus protects the assured
from sufferings. The insurance cannot check the happening of risk but can
provide for losses at the happening of the risk.

Risk-Sharing

The risk is uncertain, and therefore, the loss arising from the risk is also
uncertain.

When risk takes place, the loss is shared by all the persons who are exposed to
the risk.

The risk-sharing in ancient times was done only at the time of damage
or death; but today, based on the probability of risk, (he share is obtained from
every insured in the shape of premium without which protection is not
guaranteed by the insurer.

Risk-Sharing

The risk is uncertain, and therefore, the loss arising from the risk is also
uncertain.
When risk takes place, the loss is shared by all the persons who are exposed to
the risk.

The risk-sharing in ancient times was done only at the time of damage
or death; but today, based on the probability of risk, (he share is obtained from
every insured in the shape of premium without which protection is not
guaranteed by the insurer.

It Provides Capital

The insurance provides capital to society. The accumulated funds are invested
in the productive channel.

The death of the capital of the society is minimized to a greater extent with the
help of investment in insurance. The industry, the business, and the individual
are benefited by the investment and loans of the insurers.

6. It Improves Efficiency

Insurance eliminates worries and miseries of losses at death and destruction of

property.

The carefree person can devote his body and soul together for better
achievement, it improves not only his efficiency but the efficiencies of the
masses are also advanced.

7 It helps Economic Progress

The insurance by protecting the society from huge losses of damage, destruction, and death,
provides an initiative to work hard for the betterment of the masses.

The next factor of economic progress, the capital, is also immensely provided by the masses. The
property, the valuable assets, the man, the machine and the society cannot lose much at the
disaster.

Impotance_
The world we live in is full of uncertainties and risks. Individuals, families, businesses,
properties and assets are exposed to different types and levels of risks. These include
risk of losses of life, health, assets, property, etc. While it is not always possible to
prevent unwanted events from occurring, financial world has developed products that
protect individuals and businesses against such losses by compensating them with
financial resources. Insurance is a financial product that reduces or eliminates the cost
of loss or effect of loss caused by different types of risks.
Apart from protecting individuals and businesses from many kinds of potential risks, the
Insurance sector contributes significantly to the general economic growth of the nation
by providing stability to the functioning of businesses and generating long-term financial
resources for the industrial projects. Among other things, Insurance sector also
encourages the virtue of savings among individuals and generates employments for
millions, especially in a country like India, where savings and employment are
important.

Evolution of the Indian Insurance Industry

The concept of pooling resources is as old as the hills for Indians. The
writings of Dharmashastra, Manusmrithi and Arthashastra speak about
importance of pooling resources to face calamities like floods, fire, epidemics
and famine. The modern day Insurance is conceived from this mythological
archetype.

The insurance industry is the backbone of country’s Risk Management. The

beginning of the Indian insurance industry dates back to the nineteenth
century. In 1818, Europeans started Oriental Life Insurance Company in
Kolkata (Calcutta) to exclusively serve their community. Colonial masters
with racial prejudice unfairly characterised the age and premium for Indians.
The Indian policy holders paid more premium than European counterparts.
Indians desperately wished for Indian insurance companies to set foot in the
market. Bombay Mutual Life Assurance Society started in 1870 was the first
Indian insurance company to cover the lives of the Indians at normal rates.
Triton Insurance Company Ltd in the year 1850 is the first general insurance
company. Gradually insurance business fledged into a huge sector boosting
the economy of India.

Only during the early years of twentieth century new companies started
mushrooming in India. In order to regulate these insurance companies, Life
Insurance Companies Act and Provident Fund Act were passed in 1912.
Evolution of insurance industry has undergone three phases, Pre-
Nationalisation, Nationalisation and Privatisation. The Insurance industry was
nationalised only after passing Life Insurance Corporation Act of 1956. There
were more than two hundred insurance companies of both Indian and
European origin.
Even after the nationalisation, government Insurance companies were not
making profit. Privatisation was a preferable solution for effective distribution
and implementation of marketing strategies. With privatisation insurance
industry almost changed overnight. Competition forced providers to
advertise their

products effectively. Once the gates were thrown open to the private players
insurance industry improved remarkably. Along with safeguarding lives and
property, insurance companies also offered enormous job opportunities. The
privatization helped to increase efficiency of insurance business. Many new
private companies came up with attractive products. Some of the major
private players in the Indian market are ICICI Prudential, Bajaj Allainz Life
Insurance, Tata AIG life, Kotak Life Insurance, HDFC Standard Life, Reliance
Life, ICICI Lombard etc.

Q4. . Principle of insurance Life Insurance -Concept,

Life insurance is a give- and- take process. It is based on a basic principle of trust and
security between the insured and the insurer. The parties involved are interdependent,
and the contract between them functions on some core principles. Its main motive is
cooperation. Also, the principles of life insurance are based on such that it meets the
market conditions. It also makes sure that the company can make a profit, and the
insured individuals get secured policies.

Following are the principles of life insurance on which the policies are stipulated:

1. Principle of Good Faith

2. Principle of Insurable Interest
3. Principle of Indemnity
4. Principle of Subrogation
5. Principle of Proximate Cause
6. Principle of Contribution
7. Principle of Loss Minimization
8. Nature of the Contract

Understanding these principles of life insurance is vital. Let us know more about them.

Principle of Good Faith

As we discussed above, a life insurance policy is a two-way contract. Hence, there must
be good faith established between the insurer and the insured person. It is of utmost
importance that the policyholder provides the relevant details with honesty to the
insurance company. The client is bound to disclose all the facts properly. Concealing
the information may result in complications and serious consequences. In the same
way, the company must also be faithful to clients and clearly state all the clauses and
aspects of the policy to its clients.

Principle of Insurable Interest

This principle specifies that the policyholder must have an interest in the subject matter.
For example: If you want to purchase a housing policy, you must have an interest in
that; you must be living in it. In the case of life insurance, it could be a relationship,
family bond etc. The absence of insurable interest will make the contract invalid. Also,
the insurable interest must prevail at the time of buying the insurance policy and at the
time of the accident.

Principle of Indemnity

Although this principle does not apply to the life insurance policy, it ensures that the
insured gets the compensation that is equivalent to the actual loss. The amount will not
exceed the loss so that the insured does not make additional profits from the company.
In simple words, the policyholder will be provided with an amount equal to the loss and
not more.

Principle of Subrogation

This principle is one of the most important, keeping in mind the unpredictability of life.
Subrogation means that the insured is enabled to claim compensation from any third
party that is responsible for the loss. The insured is thus allowed to go for legal methods
to recover the loss. It also gives the insurance company the right to ownership from the
insured to claim an amount from the third party.

Principle of Proximate Cause

This principle is concerned with the discovery of the dominant effective cause or the
nearest cause that produced the loss being claimed for under the insurance. It means
that in case of damage, the direct cause is considered. Hence, this principle is only
applicable when the loss has occurred as a result of two or more causes. The principle
does apply to every other materialistic policy, but comparatively, it has rather less
significance with life insurance.

Principle of contribution

This principle can be implied if there more than one insurer involved. So, the insured
cannot make any profits from different policies.
Principle of Loss Minimization

Purchasing life insurance means entering into a legal contract between the company
and the insured person. Therefore, it is important to keep in mind that there should be
minimal loss and risk involved. In such clauses, the owner of the policy is expected to
take the necessary steps to limit him/her from any damage. This may include steps to
follow a healthy lifestyle, not indulging in life-threatening habits like smoking etc.

Nature of the contract

Lastly, the nature of the contract is a fundamental determiner of cooperation between

the client and the company. Thus, the contract should be simple and free of invalid
information. The contract must also be signed with the full consent of the client.

By the article above, you must now know what life insurance and its principles are. To
aid your future, the Canara HSBC Oriental Bank of Commerce Life Insurance has the
best in market policies available. It ensures long-term stability and instant support in
unforeseen times. The policy includes many benefits like the Immediate Payout on
death service, which provides funds immediately after death registration to the family.
There are a number of plans you can choose from, including the child plans, savings
plan etc.

You must keep all the above-mentioned principles of life insurance in mind while
investing in insurance to procure maximum benefit from the Company. It is also
essential that the insurance company and you work in coordination to establish a
hassle-free relationship and secure the only precious thing to you that is your life.

Q5. Public & Pvt. Sector companies in India - their products,

schemes & plans
Public_
Life Insurance Corporation of India
LIC of India was incorporated on 1st September, 1956 by amalgamating 243
Companies by the Act of Parliament called Insurance Act, 1956. LIC is
governed by the Insurance Act 1938, LIC Act 1956, LIC Regulations 1959 and
Insurance Regulatory and Development Authority Act 1999. As on 31st
March, 2016, LIC has 8 Zonal Offices, 113 Divisional Offices, 2048 Branch
Offices, 73 Customer Zones, 1401 Satellite Offices and 1240 Mini Offices in
India.
The Corporation has Branch Offices in Fiji, Mauritius and United Kingdom. It
also operates through Joint Venture(JV) Companies in overseas Insurance
Market, namely Life Insurance Corporation (International) B.S.C.(c),
registered in Manama (Bahrain); Kenindia Assurance Company Ltd.
registered in Nairobi; Life Insurance Corporation (Nepal) Ltd. registered in
Kathmandu; Life Insurance Corporation (Lanka) Ltd. registered in Colombo
and Saudi Indian Company for Co-operative Insurance(SICCI) registered in
Riyadh. LIC has also formed a Joint Venture Company Life Insurance
Corporation (LIC) of Bangladesh Limited between Life Insurance Corporation
of India, Strategic Equity Management Ltd and Mutual Trust Bank Ltd on
14.12.2015. A Wholly owned subsidiary, Life Insurance Corporation
(Singapore) Pte Ltd. has been established on 30.4.2012. Among the above
two joint ventures (JVs), Kenindia Assurance Co. Ltd., Nairobi, Kenya and
Saudi Indian Company for Co-operative Insurance (SICCI), Riyadh, Kingdom
of Saudi Arabia are composite companies transacting life and non-life
business; and two JVs, LIC (Nepal) Ltd. &SICCI are listed on their respective
Stock Exchanges.
GENERAL INSURANCE CORPORATION OF INDIA
The General insurance industry was nationalized in 1972 and 107 insurers
were grouped and amalgamated into four Companies – National Insurance
Co. Ltd., The New India Assurance Co. Ltd., The Oriental Insurance Co. Ltd.
and United India Insurance Co. Ltd. The GIC was incorporated in the year
1972 and the other four companies became its subsidiaries. In November
2000, GIC was notified as the Indian Reinsurer, and its supervisory role over
its subsidiaries was brought to an end. From 21 March 2003, GIC's role as a
holding company of its subsidiaries also came to an end and the ownership
of the subsidiaries was transferred to the Government of India. The
Corporation has its head office in Mumbai and 3 liaison offices in India (Delhi,
Kolkata and Chennai), 3 branches in foreign countries (London, Dubai and
Kuala Lumpur) and 1 representative office in Moscow. It also has 2 foreign
subsidiaries (GIC Re South Africa and GIC Re India Corporate Member Ltd. in
UK). As on 31.03.2016 the employee strength of the Corporation is 558. The
authorized capital is Ra.1000 crore while the paid-up equity capital of the
company is Rs.430 crore.
THE NEW INDIA ASSURANCE COMPANY LIMITED
The company was founded by Sir Dorabji Tata on July 23rd, 1919 and
nationalized in 1973 with merger of Indian companies. The Company has
2329 offices and the employee strength is 18783 as on 31.03.2016. The
company provides insurance services to the customers having over 170
products catering to almost all segments of general insurance business. The
authorized capital and paid-up equity capital of the company is Rs.300 crore
and Rs.200 crore respectively.
UNITED INDIA INSURANCE COMPANY LIMITED
United India Insurance Company Limited was incorporated in 1938. With the
nationalization of General Insurance business in India, 12 Indian Insurance
Companies, 4 Cooperative Insurance Societies and Indian operations of 5
Foreign Insurers, besides General Insurance operations of southern region of
Life Insurance Corporation of India were merged with United India Insurance
Company Limited. The Company has 2080 offices and employee strength of
16345 as on 31.03.2016. The company provides insurance services to the
customers catering to almost all segments of general insurance business.
The authorized capital and paid-up equity capital of the company is Rs.200
crore and Rs.150 crore respectively.
THE ORIENTAL INSURANCE COMPANY LIMITED
The Oriental Insurance Company Ltd was incorporated in the year 1947. In
2003 all shares of the company held by the General Insurance Corporation of
India were transferred to the Government of India. The Company has 1924
offices in the country and has employee strength of 13923 as on 31.03.2016.
The company provides insurance services to the customers catering to
almost all segments of general insurance business. The authorized capital
and paid-up equity capital of the company is Rs.200 crore.
NATIONAL INSURANCE COMPANY LIMITED
The Company was incorporated in the year 1906. After nationalization it was
merged, along with 21 foreign and 11 Indian companies, to form National
Insurance Company Ltd. The Company has 1998 offices all over India and
employee strength of 15079 as on 31.03.2016. The company provides
insurance services to the customers catering to almost all segments of
general insurance business. The authorized capital and paid-up equity capital
of the company is Rs.200 crore and Rs.100 crore respectively.
AGRICULTURE INSURANCE COMPANY OF INDIA LIMITED
'Agriculture Insurance Company Of India Limited’ (AIC) was incorporated to
exclusively cater to the insurance needs of the persons engaged in
agriculture and allied activities in India under the Companies Act, 1956 on
20th December 2002. General Insurance Corporation of India (GIC), NABARD
and four public sector general insurance companies have contributed
towards the share capital of the Company. The Authorized Share Capital of
 the Company is Rs. 1500 crore with initial Paid-up Equity Share Capital of the
Company of Rs. 200 crore.
The Company having received approval from Insurance Regulatory &
Development Authority (IRDA) commenced its business operations w. e. f.
1st April, 2003. The total number of employees as on 31st March, 2015 is
274 all over the country. It has its Head Office in New Delhi, 17 Regional
Offices in various State Capitals and 3 one man offices at District levels

Though LIC continues to dominate the Insurance sector in India, the

introduction of the new private insurers will see a vibrant expansion and
growth of both life and non-life sectors in 2017. The demands for new
insurance policies with pocket-friendly premiums are sky high. Since the
domestic economy cannot grow drastically, the insurance sector in India is
controlled for a strong growth.
With the increase in income and exponential growth of purchasing power as
well as household savings, the insurance sector in India would introduce
emerging trends like product innovation, multi-distribution, better claims
management and regulatory trends in the Indian market.
The government also strives hard to provide insurance to individuals in a
below poverty line by introducing schemes like the
 Pradhan Mantri Suraksha Bima Yojana (PMSBY),
 Rashtriya Swasthya Bima Yojana (RSBY) and
 Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).
Introduction of these schemes would help the lower and lower-middle income
categories to utilize the new policies with lower premiums in India.
With several regulatory changes in the insurance sector in India, the future
looks pretty awesome and promising for the life insurance industry. This
would further lead to a change in the way insurers take care of the business
and engage proactively with its genuine buyers.
Some demographic factors like the growing insurance awareness of the
insurance, retirement planning, growing middle class and young insurable
crowd will substantially increase the growth of the Insurance sector in India.

Q6. LIC Act 1956-An overview.

 Q7. General Insurance- Concept, types?
Definition: Insurance contracts that do not come under the ambit of life insurance are
called general insurance. The different forms of general insurance are fire, marine,
motor, accident and other miscellaneous non-life insurance.

Description: The tangible assets are susceptible to damages and a need to protect the
economic value of the assets is needed. For this purpose, general insurance products
are bought as they provide protection against unforeseeable contingencies like damage
and loss of the asset. Like life insurance, general insurance products come at a price in
the form of premium.

How does the concept of General Insurance work?

Insurance is a concept that applies to a large group of people which may suffer the same risk in
the same conditions or region. The money collected as the premium can be called as a pool and
when anyone faces a loss, the person is paid from that pool.
Still perplexed at how does a general insurance policy come into play? Consider that your
mother suffered a heart attack suddenly and she needs a transplant.
At the same time, your daughter’s college fee was due. It definitely is a huge expense to be made
at the same time and none can be preferred over the other.
In this time of stress, the family’s health insurance policy can save your burden and the fees can
be paid from the savings. A General Insurance Policy here works to save your burden for money.
Once we've understood what General Insurance is, let us understand how and when will the
policy apply.

Almost everything is insurable. However, General Insurance in India is bifurcated as

Fire, Engineering, Marine and Miscellaneous Insurance.
Let us look at them as per the use and general acceptability. Following are the different
types of General Insurances in India:
 Health Insurance
 Travel Insurance
 Motor Insurance
 Marine Insurance
 Home Insurance
 Commercial Insurance
Digit Insurance also offers insurance policies for Mobile, Bicycle, Shop Protection, and
others.
1. Health Insurance
 The Health Insurance cover from Digit offers protection for the medical expenses
incurred due to hospitalization caused because of an accident or illnesses.
Although every policy is different, based on who it's being purchased for, it mainly
covers:
 Accidental Hospitalization (pre & post)
 Accidental illness and hospitalization
 Daycare procedures
 Psychiatric Support
 Annual Health Checkups
 Daily Hospital Cash

The cover can be extended to cover the following with some predefined conditions:
 Maternity benefit with Infertility benefit
 Critical Illness
 Organ Donation
 AYUSH (Alternate Treatment)

The premium for the health insurance is charged on the basis of:
 Age
 Pre-existing illness
 Lifestyle Habits
 Type of coverage
 Your family health history
2. Travel Insurance
Travel Insurance covers your financial liability, if any, when you travel within or beyond
the Indian boundaries. The financial liability may arise due to medical or non-medical
emergencies.
The duration of the travel for one time can be 180 days at the maximum. The
policyholder can take more than one trip in a year. Your Travel Insurance will cover:
 Loss of Baggage
 Loss of Passport
 Hijacking
 Medical Emergencies
 Delayed Flights
 Accidental Deaths
 Adventure Sports
Digit’s Travel cover comes with worldwide support and special features like:
 Zero Deductibles.
 Smartphone enabled claim process.
 Customized Travel Plan Cover.
 Missed call claim facilitation.
3. Motor Insurance
A Motor Insurance Policy is mandatory to be able to drive legally in India. Broadly there
are two types a) Third-Party Liability b) Comprehensive Package Policy.
A Third-Party Policy covers for losses faced in a situation where your vehicle damages
any third-party such as a public property, person or third-party vehicle. The same is the
minimum requirement to be able to drive legally in India, as stated by the Motor
Vehicles Act.
A Comprehensive Package Policy covers both third-party damages and liabilities and
damages/losses caused to you and your own vehicle. The losses may arise due to an
accident, theft, fire, natural calamities, and others.
Digit Insurance provides some add-ons under its Comprehensive Package Policies
for Cars and Bikes that act as additional shields to your vehicle, such as:
 Tyre Protect Cover
 Zero Depreciation Cover
 Return to Invoice
 Engine and Gearbox Protection
 Breakdown Assistance Cover
4. Home Insurance
You build your home with your toil and hard earned money. Everything you buy is a
priceless possession for you and hence it needs to be protected.
A Home Insurance Policy protects your valuable and other assets. It is a comprehensive
package policy that covers all valuables.
Digit Insurance gives protection for Home against Burglary, Loss/Damage of Jewelry,
Fire and Natural Disasters.
5. Commercial Lines
The lines of insurance that affects the business operations in the real terms are
categorized under the Commercial Lines of Insurance. Type of the insurance covers
that one can buy may include:
 Property Insurance
 Engineering Insurance
 Liability Insurance
 Marine Insurance
 Employees Benefit Insurance
 Business Interruption
Depending on the type of occupation, risk exposure, and the money involved, the
insurance could be different for each industry or business.
For example; an insurance that is specific to a cement plant, versus one for an IT
company will be different. The premium charged for a cement plant will be higher than a
showroom of air conditioner.
Therefore, Insurance is completely based on the level of the risk exposure. A worker in
the cement plant is more prone or susceptible to injury than to the one who is working in
the showroom.
6. Mobile Insurance
Simple as it reads. A mobile insurance protects the phone from accidental damage.
Under the mobile protection cover, Digit Insurance compensates for repair of accidental
screen damage to your phone.
The buyers can have mobile insurance for both an old or new phone. Very affordable
insurance protection for the most expensive phones you buy.
7. Bicycle Insurance
Not just the cars and two wheelers, people are now passionate for expensive bicycles
also. Call it a fashion or change of lifestyle, Bicycle Insurance is another sought product
these days. Digit Insurance offers cover against Personal Accident, Theft, Accidental
Damage, and Hospital woes.

Q8. Public & PM. Sector companies in India - their products,

schemes & plans.

Q9. IRDA Act 1999 - Organization, guidelines for life & Non fe
insurance
Q10. Distribution channel in Insurance-Introduction,
Q11. IndivIdual Agents-Appointment, functions, code of
conduct
Q12. remuneration, Eligibility, functions, code of conduct and
Q13. remuneration of corporate ugents und Drukers, Lite
Insurance,
Q14. Documentation in Life insurance contract,
Q15. Claims settlement in Lite Insurance,
Q16. Documentation in Gieneral insurance contract,
Q17. Claims settlement in Gieneral InsurancE