INSURANCE COMPANY

Insurance an arrangement by which a company or the state undertakes to provide a guarantee of

compensation for specified loss, damage, illness, or death in return for a payment of a specified premium.
Insurance company
A financial institution that provides a range of INSURANCE policies to protect individuals and
businesses against the RISK of financial losses in return for regular payments of PREMIUMS.

An insurance company operates by pooling risks amongst a large number of policyholders. From its past
claims record, the company actuary can ascertain the probability of a particular event occurring (for
example, a fire) and can assess the average financial loss associated with each event. Using this
information, he attempts to calculate appropriate premiums for policyholders and from the collective pool
of premium income to meet outstanding financial claims.

Insurance business model

Insurance companies base their business models around assuming and diversifying risk. The essential
insurance model involves pooling risk from individual payers and redistributing it across a larger
portfolio. Most insurance companies generate revenue in two ways: Charging premiums in exchange for
insurance coverage, then reinvesting those premiums into other interest-generating assets.
Reserve

In the business of insurance, statutory reserves are those assets an insurance company is legally required
to maintain on its balance sheet with respect to the unmatured obligations (i.e., expected future claims) of
the company. Statutory reserves are a type of actuarial reserve.

Contents
Purpose
Statutory reserves are intended to ensure that insurance companies are able to meet future obligations
created by insurance policies. These reserves must be reported in statements filed with insurance
regulatory bodies. They are calculated with a certain level of conservatism in order to protect
policyholders and beneficiaries.[1]

In the insurance context an actuarial reserve is the present value of the future cash flows of an insurance
policy and the total liability of the insurer is the sum of the actuarial reserves for every individual policy.
An actuarial reserve is used to account for the amount of money that an insurance company will be liable
to pay (in the event of a claim) based on an estimate of the present value of all future income that is
derived from a contingent event.

Motivation
Inflation

Consumer sophistication
Competition
Competition in market participants also drives up insurance industry. An economy where there are large
number of participants, large numbers of dill and transaction that is economy is much more competitive,
Insurance can take a significant place by providing protection against financial losses due to this
excessive competition. Thus competition as a factor also have a significant effect in making insurance
more reliable and popular.
Deregulation

Inflation and insurance :

Since this is a contract the amount of his payments to the insurance company is fixed at $1000 so
even though the purchasing power of the dollar is decreasing over the 30 years due to inflation the
buyer doesn’t have to pay more for the coverage. So as time goes on, he gets to pay with “cheaper
dollars” thus his insurance coverage gets cheaper over time. But conversely, his benefit also loses
purchasing power.  Typically, over thirty years the purchasing power of $100,000 might fall to the
equivalent of $50,000 or even only $30,000. Of course, he could buy an additional “rider” to help
protect against the ravages of inflation in addition to the life insurance itself.  He could also buy a
rider (for an additional fee of course) that will return his payments should he not die during the
entire coverage period.
 Types of policy
In insurance, the insurance policy is a contract between the insurer and the insured, known as
the policyholder, which determines the claims which the insurer is legally required to pay.
Life insurance policy
What Is Life Insurance?
Life insurance is a contract between an insurer and a policyholder. A life insurance policy guarantees the
insurer pays a sum of money to named beneficiaries when the insured policyholder dies, in exchange for
the premiums paid by the policyholder during their lifetime.

i. Pure insurance protection against the risk of death

2If you are wondering why term insurance is called a pure risk protection, the simplest answer
would be this. The term insurance offers protection against untimely death. The insurance
company has to pay only if the insured person dies within the term period, not otherwise.
Premature death is a pure risk event.

1A term insurance plan provides you monetary protection in case of premature death within the
insurance term. If the policy holder dies within the term period, the nominee gets a fixed sum
assured as previously decided. Another interesting fact of this type of insurance is that the term
insurance has very affordable premium rates because the insurance company is supposed to pay
the nominee only if the death occurs within the policy period, otherwise there is no money back.
There is no investment component and hence the premium only covers mortality.

ii. Investment oriented life insurance policy

i. Universal life (UL) insurance is permanent life insurance with an investment
savings element and low premiums that are similar to those of term life
insurance. Most UL insurance policies contain a flexible-premium option.
However, some require a single premium (single lump-sum premium) or fixed
premiums (scheduled fixed premiums).
 Universal life (UL) insurance is a form of permanent life insurance with an investment
savings element plus low premiums.
 The price tag on universal life (UL) insurance is the minimum amount of a premium
payment required to keep the policy.76-z
 Beneficiaries only receive the death benefit.
 Unlike term life insurance, a UL insurance policy can accumulate cash value.

ii. What Is Variable Life Insurance?

Variable life insurance is a permanent life insurance product with separate accounts
comprised of various instruments and investment funds, such as stocks, bonds, equity
funds, money market funds, and bond funds.
What Is Variable Life Insurance?
 Variable life insurance is a permanent life insurance policy with an investment
component. The policy has a cash-value account, which is invested in a number of
sub-accounts available in the policy. Like any other life insurance, variable life
insurance provides a death benefit. It is usually significantly larger than the net
premium paid by the policyholder. By definition, a death benefit is the money
received by the dependents or declared beneficiaries upon the death of the
policyholder.
iii. Whole Life Insurance — permanent life insurance that provides for the
payment of the face value upon death of the insured, regardless of when it
may occur. This contrasts with term insurance, which pays benefits only if
death takes place during the limited term of the policy.
 Whole life insurance lasts for a policyholder’s lifetime, as opposed to term life
insurance, which is for a specific amount of years.
 Whole life insurance is paid out to a beneficiary or beneficiaries upon the policyholder’s
death, provided that the premium payments were maintained.
 Whole life insurance pays a death benefit, but also has a savings component in which
cash can build up.
 The savings component can be invested; additionally, the policyholder can access the
cash while alive, by either withdrawing or borrowing against it, when needed.
iii. Pure investment oriented policy

A guaranteed investment contract (GIC) is an insurance company provision that guarantees a rate
of return in exchange for keeping a deposit for a certain period. A GIC appeals to investors as a
replacement for a savings account or U.S. Treasury securities, which are government bonds
guaranteed by the U.S. government. GICs are also known as funding agreements.

Key Takeaways

 A guaranteed investment contract (GIC) is an agreement between an investor and an insurance

company.
 The insurer guarantees the investor a rate of return in exchange for holding the deposit for a
period.
 Investors drawn to GICs often look for a replacement for a savings account or U.S. Treasury
securities.
 A GIC is a conservative and stable investment, and maturity periods are usually short-term.
 GIC values may be affected by inflation and deflation.

iv. Insurance against the risk of life

Life contingent: Another common type of annuity is the life annuity, which
guarantees payments for as long as the annuitant lives. Payments are based on a
number of factors including the annuitant’s age, prevailing interest rates, and the
account balance. The longer the annuitant is expected to live, the smaller the monthly
payments.
 However, if the annuity is still in the accumulation phase at the time of the
annuitant’s death, meaning that the payments have not begun, many plans provide an
annuity death benefit to the beneficiary.

Non-life contingent An annuity pay out option that make payments for a specific
period, such as 10 or 20 years and this payments continue to the end of the term, even if the
annuitant dies, so the fixed period payment option is non-life contingent.
Annuities with a specified end date are called non-life contingent annuities, since their
payment period doesn't extend for the rest of your life. The same products are also called
temporary annuities, period-certain annuities or term-certain annuities by various companies.
They have certain advantages over life annuities. Most life annuities stop with your death,
while most term-certain annuities will continue making payments to your specified
beneficiary. They also generate higher payments from a given investment, since the issuing
company knows exactly how long they'll have to pay. They have a number of practical uses.
What Is an Annuity?
An annuity is a contract between you and an insurance company in which you make a
lump-sum payment or series of payments and, in return, receive regular
disbursements, beginning either immediately or at some point in the future.
Key Takeaways
 Annuities are insurance contracts that promise to pay you regular income either
immediately or in the future.
 You can buy an annuity with a lump sum or a series of payments.
 Annuities come in three main varieties—fixed, variable, and indexed—each with its own
level of risk and payout potential.
 The income you receive from an annuity is taxed at regular income tax rates, not long-
term capital gains rates, which are usually lower.
Property and casualty insurance, also called P&C insurance, helps protect your personal
belongings and can provide liability coverage for accidents if you're found legally responsible
The

A. personal lines insurance refers to any kind of insurance that covers individuals and
families against loss that results from damage of property or third party liabilities. These
insurance lines generally protect people and their families from losses they couldn't
afford to cover on their own
1. Personal property insurance, also known as "contents insurance," reimburses you in the
event that your possessions within the home (whether you own or rent) are damaged,
destroyed, lost or stolen.
2. Personal Casualty Insurance — insurance that is primarily concerned with the losses
caused by injuries to persons and legal liability imposed on the insured for such injury or
for damage to property of others.

B. Commercial lines insurance includes property and casualty insurance products for
businesses. Commercial lines Insurance helps keep the economy running smoothly by
protecting businesses from potential losses they couldn’t afford to cover on their own,
which allows businesses to operate when it might otherwise be too risky to do so.
Risks and hazards covered under commercial lines include, for example, malpractice insurance,
professional liability, builder's risk, crop insurance, and many other industry-specific coverage.
1. What Is Commercial Property Insurance?
Commercial property insurance is used to cover any commercial property. This type of
commercial insurance helps protect your business and its physical assets. It can pay your repair
or replacement costs if your business property gets damaged or destroyed from a fire, theft or
other covered loss.
2. Commercial casualty insurance
Casualty insurance is a broad category of insurance coverage that protects your against liability
claims for loss of property, injury and damage to others. Liability is the key factor in casualty
insurance. That means that when something occurs for which you, your business, or one of your
employees might be found liable in the course of doing business, it’s the insurance that will kick
in. As such, it’s a broadly applicable kind of insurance, which is why there are several different
kinds of casualty insurance you might consider.
 Definition
An “insurer” refers to the company that provides with financial coverage in the case of
unexpected, bad events covered on the respective policy in exchange for a pre-specified
premium.
Insured the person or entity who will be compensated for loss by an insurer under the terms of a
contract called an insurance policy.
: Premium is an amount paid periodically to the insurer by the insured for covering his risk.
In a broader sense, risk is the possibility of loss, injury, or any other adverse in a present or
future situation involving exposure to hazard/danger.
Pure Risk — the risk involved in situations that present the opportunity for loss but no
opportunity for gain. Pure risks are generally insurable, whereas speculative risks (which also
present the opportunity for gain) generally are not.
Speculative Risk — uncertainty about an event under consideration that could produce either a
profit or a loss, such as a business venture or a gambling transaction. A pure risk is generally
insurable while speculative risk is usually not.
In insurance, the insurance policy is a contract between the insurer and the insured, known as
the policyholder, which determines the claims which the insurer is legally required to pay and
other terms and condition.
Insurance contract refers to an agreement where one party (the insurer), agrees to provide
coverage to another party (the insured), on the occurrence of a specified event and another party
agrees to make regular payments of premium.
Underwriting Is the process of selecting, classifying and pricing a risk exposure for which an
application is made.
An insurance claim is a formal request by a policyholder to an insurance company for
coverage or compensation for a covered loss or policy event. The insurance company validates
the claim and, once approved, issues payment to the insured or an approved interested party on
behalf of the insured.
A peril is a potential event or factor that can cause a loss, such as the possibility of a fire that
could engulf a house.
A hazard is a factor or activity that induces the severity of loss, such as a can of gasoline left
outside the house door or a failure to regularly have the brakes of a car checked.
Lapse is an effective termination without value, which means that the beneficiary is not eligible
to receive any death benefit
The Risk Management specialization is designed to provide students with additional expertise in
assessing an organization’s exposure to product, professional, and environmental liabilities
.
Definition: Bancassurance means selling insurance product through banks. Banks and insurance
company come up in a partnership wherein the bank sells the tied insurance company's insurance
products to its clients.

Description: Bancassurance arrangement benefits both the firms. On the one hand, the bank
earns fee amount (non interest income) from the insurance company apart from the interest
income whereas on the other hand, the insurance firm increases its market reach and customers.
The bank acts as an intermediary, helping insurance firm reach its target customer in order to
increase its market share.
What Is Bancassurance?
Bancassurance is an arrangement between a bank and an insurance company allowing the
insurance company to sell its products to the bank's client base. This partnership arrangement can
be profitable for both companies. Banks earn additional revenue by selling insurance products,
and insurance companies expand their customer bases without increasing their sales force or
paying agent and broker commissions.