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MF0018 solved assignment

MF0018 solved assignment

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Master of Business Administration - MBA Semester 4
MF0018 – Insurance and Risk ManagementAssignment Set- 1Q.1 Explain chance of loss and degree of risk with examplesAns:- Chance of loss
Loss is the injury or damage borne by the insured in consequence of the happening of one or more of the accidents or misfortunes against which the insurer, in consideration of the premium,has undertaken to assure the insured. Chance of loss is defined as the probability that an eventthat causes a loss will occur. The chance of loss is a result of two factors, namely peril andhazard. Hazards are further classified into the following four types:
Physical hazard
– This is a danger likely to happen due to the physical characteristics of an object, which increases the chance of loss. For example defective wiring in a buildingwhich enhances the chance of fire.
Moral hazard
– It is an increase in the probability of loss due to dishonesty or character defects of an insured person. For example, Burning of unsold goods that are insured inorder to increase the amount of claim is a moral hazard.
Morale hazard
– It is an attitude of carelessness or indifference to losses, because thelosses were insured. For example, careless acts like leaving a door unlocked which makesit easy for a burglar to enter, or leaving car keys in an unlocked car increase the chance of loss.
Legal hazard
– It is the severity of loss which is increased because of the regulatoryframework or the legal system. For example actions by government departmentsrestricting the ability of insurers to withdraw due to poor underwriting results or a newenvironment law that alters the risk liability of an organization.
Degree of risk 
Degree of risk refers to the intensity of objective risk, which is the amount of uncertainty in agiven situation. It can be assessed by finding the difference between expected loss and actualloss. The formula used isDegree of risk =Degree of risk is measured by the probability of adverse deviation. If the probability of theoccurrence of an event is high, then greater is the likelihood of deviation from the outcome that ishoped for and greater the risk, as long as the probability of loss is less than one. In the case of exposures in large numbers, estimates are made based on the likelihood of the number of lossesthat will occur. With regard to aggregate exposures the degree of risk is not the probability of asingle occurrence but it is the probability of an outcome which is different from that expected or  predicted. Therefore insurance companies make predictions about the losses that are expected tooccur and formulate a premium based on that.
Q.2 Explain in detail Malhotra Committee recommendationsAns:- Recommendations of Malhotra committee
The major reforms in Indian industry started when the Malhotra committee was formed in 1993headed by R. N. Malhotra (former Finance Secretary and RBI Governor). This was formed toanalyse the Indian insurance industry and propose the future course of the industry. It modifiedthe financial sector to design a system appropriate for the changing economical structures inIndia. The committee recognized the importance of insurance in financial systems and designedsuitable insurance programs. The report submitted by the committee in 1994 is given below:
Government risk in the insurance Companies to be decreased to 50%.
GIC must be taken under the government so that the GIC subsidiaries can worindependently.
Better freedom of operation for insurance companies.
Private companies who have initial capital of Rs 1 billion must be permitted to work inthe insurance industry.
Companies should not use a single entity to deal with life and general Insurance.
Foreign companies may be permitted to work in the Indian insurance industry only as partners of some domestic company.
Postal life insurance must be permitted to work in the rural market.
Every state must have only one state level life insurance company.
 Regulatory body
The Insurance Act must be changed.
An Insurance Regulatory body must be formed.
Insurance controller, which was a part of finance ministry, should be allowed to work independently.
The mandatory investments given to government securities from the LIC Life Fund must be reduced from 75% to 50%.
GIC and its subsidiaries should not be allowed to hold more than 5% in any company.
Customer service
LIC must pay interest if it delays any payments beyond 30 days.
All insurance companies should be encouraged to create unit linked pension plans.
The insurance industry should be computerized and the technologies must be updated.The insurance companies should promote and fulfill customer services. They should alsoextend the insurance coverage areas to various sectors.The committee allowed only a limited competition in this sector as any failure on the part of new players could ruin the confidence of the public to associate with this industry. Every insurancecompany with an initial capital of Rs.100 crores can act as an independent company witheconomic motives.Since then there is a competition between the private and public sectors of insurance, theInsurance Regulatory and Development Authority Act, 1999 (IRDA Act) was formed to control,support and ensure a structured growth of the insurance industry. The private sector insurancecompanies were allowed to work along with the public sector, but had to follow the conditionsgiven below:
The company must be registered under the Companies Act, 1956.
The total capital share by a foreign company held by itself or by through sub sectors of the company should not exceed 26% of the capital paid to the Indian insurance industry.
The company should only provide life, general insurance or reinsurance.
The company should have an initial paid capital of at least Rs.100 crores to provide lifeinsurance.
The company should have an initial paid capital of at least Rs.200 crores to providereinsurance.Later in 2008, further reforms were made by introducing the plan for Insurance (Laws)Amendment Bill - 2008 and The LIC (Amendment) Bill - 2009. These amendments influencedthe Indian insurance industry in a huge way.The Insurance (Laws) Amendment Bill - 2008 amended three other acts namely, Insurance Act1938, General Insurance Business (Nationalization) Act 1972 (GIBNA) and InsuranceRegulatory and Development Authority Act 1999.
Q.3 what is the procedure to determine the value of various investments?Ans:-Q.4 Discuss the guidelines for settlement of claims by Insurance companyAns:- General guidelines for claims’ settlement
There are some guidelines that must be followed while settling the claims. These guidelines aregeneral in nature, and are not compiled to be the same always. Therefore, the claim settlingauthority uses discretion and records reasons.
Appointment of surveyor

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