UNIT - I

INSURANCE - INTRODUCTION
 TOPICS
• Definition and importance of insurance
• History and evolution of insurance
• Principles of insurance
 What is Insurance?

Insurance is a financial arrangement that provides protection or

coverage against the risk of a loss.

It involves the transfer of the risk of a potential financial loss from

an individual or entity to an insurance company in exchange for
payment, known as a premium.
 MEANING

Insurance is a practice or arrangement by which company or

government agency provides a guarantee of compensation for
specified loss,damage,illness or death in return for a payment
of a premium.
In some sense, it’s thing providing protection against a possible
eventuality.
 Definition

A contract in which an individual or entity receives

financial protection or reimbursement against looses
from an company.
The company pool clients risks to make payments more
affordable for the insured.
Structure of Insurance
sector in India

Life Insurance
• Term Insurance
• Whole life insurance
• Money back policy
• Annuity
• Unit Linked Insurance Policy
 Non – Life / General Insurance

• Fire insurance
• Marine Insurance
• Motor Insurance
• Accident Insurance
• Credit Insurance
• Public Liability Insurance
• Burglary Insurance
• National Health Insurance
• Property / Casualty Insurance
TYPES OF INSURANCE

1.Life Insurance:
A life insurance policy can be defined as a contract between
an individual and a life insurance provider, in which the
insurance company gives financial protection to the
policyholder in exchange for a specified fee known as
premium.
2.Health Insurance:
• Health insurance is a type of coverage that pays for medical and surgical
expenses incurred by the insured individual. It can also provide coverage for
other types of health-related expenses, such as prescription drugs, preventive
care, and mental health services.
• Health insurance is designed to help protect individuals and families from high
healthcare costs by covering a portion of their medical expenses.
3. Auto Insurance

• Auto insurance is a type of insurance coverage that provides

financial protection for individuals in case of accidents, theft, or
other incidents involving their vehicles.
• Auto insurance typically covers both property damage and liability
for injuries or damage to other people or their property .
4. Home Insurance:

• Home insurance, also known as homeowner's insurance or property

insurance, is a type of insurance policy that provides financial protection to
homeowners in the event of damage to their property or possessions.
• This coverage typically includes protection against risks such as fire, theft,
vandalism, and certain natural disasters. Home insurance is designed to help
homeowners recover financially from unexpected events that could damage
or destroy their homes.
5.Property Insurance:

• Property insurance is a broad category of insurance that provides coverage

for physical assets, protecting them from various risks and perils.
• This type of insurance can apply to different types of properties, including
homes, commercial buildings, rental properties, and personal belongings.
• The purpose of property insurance is to mitigate financial losses associated
with damage, destruction, or loss of the insured property.
6.Travel Insurance:

• Images of people traveling or vacationing.

• Passport, travel documents, or boarding
passes.
• Emergency situations like medical
assistance or lost luggage.
7.Business Insurance:

• Business insurance, also known as commercial insurance, is a type

of coverage that provides financial protection to businesses against
various risks and liabilities.
• The specific types of coverage a business may need can vary
based on its size, industry, location, and other factors.
8.Pet Insurance:

• Pet insurance is a type of coverage designed to help pet owners

manage the costs of veterinary care for their pets.
• It provides financial protection in case of unexpected veterinary
expenses, such as illness, accidents, or injuries.
• Pet insurance policies vary, but they typically cover a range of
medical treatments, procedures, and medications for pets.
 as cybersecurity insurance
9.Cyber Insurance:
or cyber liability insurance, is
a type of coverage designed
to protect businesses and
individuals from financial
losses related to cyber
threats and attacks..
10.Liability Insurance:

• Liability insurance is a type of insurance coverage that

provides financial protection to the insured party
(individual or business) in the event they are held legally
responsible for injuries or damages to others.
 • Provide Protection Primary
• Collective Bearing of Risk Functions
• Assessment of Risk
FUNCTIONS OF INSURANCE
• Provide Certainty
• Prevention of Losses
Secondary
• Small capital to cover Larger risks
Funtions
• Contributes towards the development of
FUNCTIONS OF INSURANCE
Larger Industries
 Provides
protection
against
occurrence of
uncertain

Importance of Insurance
events.

Co-operative
Source of
method of
employment.
spreading risks.

Facilitates
Medical support. international
trade.

Serves as an
Financial
agency of capital
support.
formation.
HISTORY OF INSURANCE

The history of insurance describes the development of the

modern business of insurance against risks, especially
regarding cargo,property,death,automobile accidents,and
medical treatment.
 EVOLUTION OF INSURANCE

 1818 : First insurance company, The oriental Life insurance

company,set up in Kolkata.
 1870 : First life insurance company, was formed “Bombay
Mutual Assurance Society Ltd.
 1912 : The first statutory measure was introduced through “the
Indian Life Assurance Companies Act 1912.
 1956 : Life Insurance Corporation Act was passed & Life
Insurance Corporation of India was created by nationalising 245
insurers.
 1957 : General insurance council was formed.
 Insurable
Interest

PRINCIPLES OF INSURANCE
Proximate
cause
Utmost
Good faith

Mitigation of
Loss

Contribution Indemnity

Subrogation
Opportunities and challenges of Insurance
sector in India
 Opportunities

1.Rising Middle Class:

The growing middle class in India presents a significant market for
insurance products, especially life and health insurance.
As people's disposable incomes increase, they are more likely to
invest in insurance for financial security and protection.
 Opportunities

2.Digitalization:
The increasing adoption of digital technologies has opened up
new avenues for the insurance sector.
Online platforms and mobile apps make it easier for customers to
research, purchase, and manage their insurance policies, improving
overall accessibility.
 Opportunities

3.Government Initiatives:
Various government initiatives, such as the Pradhan Mantri Jan
Dhan Yojana, have aimed at increasing financial inclusion.
This has led to more people having access to banking services,
which can create a positive spill over effect on insurance penetration.
 Opportunities

4. Diversification of Products:
Insurers are introducing innovative and customized insurance
products to cater to different customer segments.
This includes micro-insurance, unit-linked insurance plans (ULIPs),
and other products that address specific needs.
 Opportunities

5.Regulatory Reforms:
The regulatory environment in India has undergone changes to
enhance transparency, customer protection, and competition.
These reforms are designed to foster a healthier and more consumer-
friendly insurance industry.
 Challenges

1.Low Penetration:
Despite the vast market potential, insurance penetration remains
relatively low in India.
Many people, especially in rural areas, are still unaware of the benefits
of insurance, and there is a need for increased awareness and
education.
 Challenges

2.Distribution Challenges:
The traditional distribution channels in the insurance sector face
challenges in reaching remote and rural areas.
Insurers need to explore innovative distribution models to tap into
untapped markets.
 Challenges

3.Underinsurance:
A significant portion of the population is underinsured, meaning they
do not have adequate coverage for potential risks.
Convincing individuals to increase their coverage and understanding
the value of insurance is a persistent challenge.
 Challenges

4.Fraud and Mis-selling:

The insurance sector faces issues related to fraudulent claims and mis-
selling of policies.
Stricter regulatory measures are required to curb these practices and
protect the interests of policyholders.
 Challenges

5. Health Insurance Costs:

Rising healthcare costs and an increased awareness of health-related
risks have led to a surge in health insurance claims.
Managing the costs while providing comprehensive coverage is a
challenge for health insurers.
 Challenges

6.Global Economic Uncertainty:

Global economic conditions can impact the Indian
insurance sector, affecting investment returns and the
overall financial health of insurance companies.
To navigate these challenges and leverage
Howinsurers
opportunities, to overcome Challenges
in India need to
continue adapting to changing consumer
needs, embrace technological
advancements, and work closely with
regulators to ensure a stable and
sustainable industry.
Insurance Regulatory & Development Authority
 Introduction : IRDA

The IRDA Act was enacted in1999 to provide for the

establishment of the IRDA to protect the interests of policy
holders,to regulate promote and ensure orderly growth of the
industry and for matters connected therewith
 IRDA
Insurance Act General Insurance
LIC Act 1956
1938 Business Act 1972
 Role of IRDA

• The IRDA (Insurance Regulatory and Development

Authority) Act, 1999 is a crucial legislation in India that
established the IRDA as the regulatory body for the insurance
sector.
• The primary objective of the Act is to protect the interests of
policyholders and promote the orderly growth of the insurance
industry.
• Here are some key features of the IRDA Act:
 Features of IRDA Act

1.Establishment of IRDA:
The Act establishes the Insurance Regulatory and Development Authority (IRDA)
as the autonomous and statutory body to regulate an
2.Regulatory Powers:
The IRDA Act grants extensive powers to the IRDA to regulate and supervise
insurance companies operating in India. This includes the power to issue licenses,
regulate premiums, specify the code of conduct, and ensure compliance with the
regulations.
 Features of IRDA Act

3.Registration of Insurers:
The Act outlines the process for the registration and licensing of insurance
companies. No insurer can operate in India without obtaining the necessary
approval from the IRDA.
4.Protection of Policyholders:
One of the main objectives of the IRDA Act is to protect the interests of
policyholders. The Act includes provisions for ensuring fair treatment of
policyholders, regulating policy terms, and addressing grievances and disputes.
 Features of IRDA Act

5.Promotion of Competition:
The Act encourages competition within the insurance industry while preventing
monopolies and ensuring a level playing field for insurers. It promotes fair
competition to benefit consumers and stimulate innovation.
6.Control over Tariffs:
The IRDA has the authority to specify the tariff rates, terms, and conditions that
insurers can use for various insurance products. This helps in preventing unfair
pricing practices and ensuring transparency.
 Features of IRDA Act

7.Development of the Insurance Market:

The Act emphasizes the development of the insurance market in India. It
encourages the introduction of new insurance products and services, particularly
those catering to the needs of different segments of the population.
8.Investment Regulations:
The IRDA Act lays down guidelines for the investment of funds by insurance
companies. It specifies the types of assets in which insurers can invest and sets
limits to ensure prudence and financial stability.
 Features of IRDA Act

9.Appointment of Agents and Intermediaries:

The Act provides a framework for the appointment and functioning of insurance
agents and intermediaries. It regulates their conduct to protect the interests of
policyholders.
10.Regulation of Reinsurance:
The Act allows the IRDA to regulate reinsurance activities in India, ensuring that
insurers have sound reinsurance arrangements in place to manage their risks
effectively.
 Role of IRDA

The Insurance Regulatory and Development Authority of India

(IRDAI) plays a crucial role in regulating and supervising the insurance
industry in India.
Here are the key roles and responsibilities of IRDAI:
 Role of IRDA
• Regulatory Oversight:
• Licensing and Registration
• Policyholder Protection:
• Monitoring Solvency and Financial Soundness:
• Setting Tariffs and Premiums:
• Promoting Competition:
• Consumer Education and Awareness:
• Handling Grievances and Disputes:
• Regulating Intermediaries:
• Risk Management and Reinsurance:
• Policy Formulation
• International Collaboration:
 Responsibilities of IRDA

The Insurance Regulatory and Development Authority of India (IRDAI) has a

wide range of responsibilities aimed at regulating and promoting the
insurance industry in India.
The key responsibilities of IRDAI include:

1.Licensing and Registration:

IRDAI is responsible for issuing licenses and regulating the registration of
insurance companies, agents, brokers, and other intermediaries. It evaluates
the eligibility and financial stability of entities before granting approval.
 Responsibilities of IRDA

2.Policyholder Protection:
Ensuring the interests of policyholders is a primary responsibility. IRDAI
establishes regulations to ensure fair treatment, transparent policy terms,
and proper disclosure of information. It also monitors insurers to prevent
unfair practices.
3.Regulatory Oversight:
IRDAI provides regulatory oversight to the insurance sector. It formulates
and enforces regulations and guidelines to govern the functioning of
insurance companies, intermediaries, and other entities in the industry.
 Responsibilities of IRDA

4.Setting Standards for Insurance Products:

IRDAI establishes standards for insurance products,
including terms, conditions, and premium rates. It plays a role in
ensuring that insurance products meet the needs of consumers
and are fair and reasonable.
5.Monitoring Solvency and Financial Stability:
IRDAI monitors the financial health of insurance companies,
including their solvency margins. This involves ensuring that
insurers have sufficient funds to meet their obligations and settle
claims.
 Responsibilities of IRDA

6.Market Conduct Regulation:

IRDAI regulates the market conduct of insurers and
intermediaries. It sets standards for fair business practices, ethical
conduct, and customer service to maintain the integrity of the
insurance market.
7.Premium Regulation:
IRDAI has the authority to regulate premium rates and tariffs for
different classes of insurance. This involves approving and
monitoring premium rates to prevent overpricing or unfair practices
by insurance companies.
 Responsibilities of IRDA

8. Insurance Awareness and Education:

IRDAI is responsible for promoting awareness and education about insurance
among the public. This includes initiatives to enhance financial literacy, educate
consumers about insurance products, and promote the importance of insurance.
9. Handling Grievances and Disputes:
IRDAI provides mechanisms for the resolution of grievances and disputes
between insurers and policyholders. It establishes procedures for the fair and
timely settlement of complaints, including the appointment of ombudsmen.
 Responsibilities of IRDA

10.Risk Management and Reinsurance Regulation:

IRDAI regulates the risk management practices of insurance companies and
oversees their reinsurance arrangements. This ensures that insurers have
effective mechanisms in place to manage risks and maintain financial stability.
11. Encouraging Innovation and Competition:
IRDAI encourages innovation in insurance products and services. It
promotes healthy competition among insurers while safeguarding the interests
of consumers.
 Responsibilities of IRDA

12.International Collaboration:
IRDAI collaborates with international regulatory bodies and insurance
authorities to stay informed about global best practices. This collaboration
helps in adopting international standards and fostering a well-regulated
insurance industry in India.
13.Formulating Policies for Industry Development:
IRDAI formulates policies and strategies to foster the growth and
development of the insurance industry in India. It adapts to changes in the
economic and regulatory environment to ensure the sector's overall health.
 Responsibilities of IRDA

Overall, IRDAI's responsibilities are aimed at

creating a well-regulated, transparent, and
consumer-friendly insurance market in India,
ensuring the industry's stability and promoting the
interests of policyholders.