INSURANCE

Dr. N.N.Sengutpa

Introduction
• Insurance is collective bearing of risk. • Insurance spreads risks and losses of few people among a large no. of people as people prefer small fixed liability instead of big uncertain & changing liability. • Insurance can be defined as a legal contract b/w 2 parties whereby one party called Insurer undertakes to pay a fixed sum of money on the happening of a particular event, which may be certain or uncertain.

Principles of Insurance
• Principle of Utmost good faith or “Uberrima Fides”. • Principle of Indemnity. • Principle of Causa Proxima. • Principle of Insurable Interest. • Doctrine of Subrogation.

Insurance in India
• Life Insurance in its modern form started in 1818. • Oriental Life Insurance Company was the 1st insurance company to be setup in India. • The Insurance Act,1938 provides legislation to both Life & nonlife Insurance companies. • LIC was setup in 1956 • IRDA was setup in 2000 as autonomous Insurance regulator.

R.N.Malhotra Committee Recommendations
• Government should bring down the stake in Insurance companies to 50%. • Private companies with minimum capital of Rs.100 Crores should be allowed to enter the industry. • No single company allowed to transact business in both life & non-life segment. • Foreign Companies allowed with collaboration with Indian companies. • Postal life Insurance should be allowed in rural areas. • GIC & its subsidiaries not to hold more than 5% in any company. • Level playing field amongst the players.

IRDA
• It was constituted as an autonomous body to regulate the business of Insurance and reinsurance in India. • It not only frames and issues statutory & regulatory stipulations but it also has to perform a developmental and promotional role. • Objectives if IRDA :
– Protection of Policyholders – Healthy growth of Insurance sector.

Life Insurance
• Life Insurance is a contract between 2 parties, the Assured and the Assurer, whereby the latter for a consideration promises to pay a certain sum of money to the former on the happening of the event insured against. Life Insurance is concerned with 2 hazards namely:
– – Dying prematurely leaving behind a dependent family with no financial support. The market still is largely controlled by LIC.

Benefits of Life Insurance
• Safeguards the insured’s family against untimely death and provides Financial support. • Means of compulsory savings. • Source of Income during old age. • Improves lifestyle of the insured and his family. • Tax benefits u/s 88 of I.T.Act

Reinsurance
• Reinsurance is primarily an insurance of risks assumed by the primary insurer known as the ceding company. The risk is shifted to another insurer known as Reinsurer. • Reinsurance operates on the same principles as that of Direct Insurance i.e, to spread the sharing of risks as widely as possible.

Reinsurance is used for:
• • • • Increase the company's underwriting capacity. Spread the risks with as many insurers as possible. To stabilize profits by leveling out peak losses. To provide protection against catastrophic losses arising due to natural disasters and so on. • TO retire from business or class of business or territory. • To obtain valuable advice and assistance with respect to pricing, underwriting practices etc.

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