IMDRINSURANCEGROUP NO.6
BACKGROUND
In Ancient Rome people founded an association to help families when one of their members died. They founded it according to rules created by them and it supposed anentrance contribution and periodical payment. The members of the association were surethey would own a funeral pyre and a tomb when they died.Some forms of goods insurance are known since slavery, under different forms. Thus,losses resulted from discharging in the water the merchandise in order to save theexpedition in danger (caused by shipwreck, storm, etc.) were distributed proportionally, being supported by all the people taking part in the expedition, according to the principleof common damage. These principles have been included in the sea law of Rhodes Islandsince 916 BC and they are still valid nowadays.Insurance, inlawandeconomics,is a form of risk managementprimarily used tohedge
against therisk of a contingent loss. Insurance, inlawandeconomics, is a form of risk
management primarily used tohedgeagainst therisk of a contingent loss. Insurance is
defined as the equitable transfer of the risk of a loss, from one entity to another, inexchange for a premium, and can be thought of as a guaranteed small loss to prevent alarge, possibly devastating loss. An insurer is a company selling the insurance; an insuredis the person or entity buying the insurance. The insurance rate is a factor used todetermine the amount to be charged for a certain amount of insurance coverage, calledthe premium.Risk management, the practice of appraisingand controlling risk, has
evolved as a discrete field of study and practice.Insurance is defined as the equitable transfer of the risk of a loss, from one entity toanother, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance;an insured is the person or entity buying the insurance. The insurance rate is a factor usedto determine the amount to be charged for a certain amount of insurance coverage, calledthe premium.Risk management, the practice of appraisingand controlling risk, has
evolved as a discrete field of study and practice.1PGDIT-1
IMDRINSURANCEGROUP NO.6Insurance is based on certain principles which form the foundation of an insurance policy.These principles have evolved over the decades. While in several countries, some of themmay be adopted after modifications, to provide for better service levels, most of the basic principles would generally still hold good. In many countries also, Insurance is slowlyevolving into a financial instrument, especially for large businesses and it would remainto be seen as to how far this aspect can really be taken to.Insurance is the means whereby the losses of a few are transferred to many. If a calamityor loss were to befall an individual, it would be difficult for him to bear it and maintainthe standard of living or economic well being for his family or business entity. It wouldalso be apparent that such losses and calamities would be far and few in between andwould befall only a minority. Therefore, by everybody paying a small premium, acommon fund can be created out of which losses that befall the minority can bereimbursed or met. In view of wide diversity, there would arise several different typesand nature of individuals and business entities, as well as different types of risks andlosses resulting there from. Thus categorization is quite inevitable and we have differenttypes of insurances attempting to cover the different risks faced by individuals and business entities - like fire, health, liability, marine, engineering, business interruption,etc.Large volumes and texts have been written on the principles of insurance, and theycontinue to be discussed in industry. It is not possible to extensively cover the subject andtheir finer points on these pages. However, we have attempted to give the salient points of these principles and we hope that this will help your understanding and provide an insightinto their effect on claims and their processing.2PGDIT-1
IMDRINSURANCEGROUP NO.6
PRINCIPLES OF INSURANCE:1. Contract
The Insurance Policy is ultimately a contract and as such general law of contract would be applicable as modified by specific enactments in India such as Stamp Act, InsuranceAct, etc.The basic aspects that exist for all contracts would also be relevant here such as:Offer and Acceptance - There should be an offer by one of the parties to the contract withan acceptance by the other party. This is usually embodied by the proposal form andwhen this is accepted by the Insurer, the Policy is issued which forms a valid contract,enforceable by law.Capacity to Contract - Both the parties should be legally competent to enter into thecontract. Mentally unsound persons, minors, etc. are generally deemed incapable of entering into a contract.Flow of Consideration - Consideration should flow for both parties. In the insurance policy, the premium payment forms the consideration by the Assured and the promise for indemnification, in the event of loss due to an insured peril forms the consideration by theInsurer. Absence of Fraud - Just as in case of normal contracts which can be renderedvoid due to any fraud or misrepresentation, the Insurance Policy or contract also wouldsimilarly be rendered void in the event of any fraudulent acts by either party.Misrepresentation may make it void able at the instance of the injured party.Legality - Any contract cannot be enforced if it violates any statute or public policy.The above are only some of the basic and important contract principles for all contracts ingeneral with some examples reflecting their application in case of Insurance Contracts or 3PGDIT-1
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Insurance Final
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