Insurance & Risk Management

Circle of Investment
Need Earnings Tax Burden

 Insurance Savings
Modes of Savings
Mutual Funds: MF are the pool of funds by different investors for
similar motives.
Insurance :It is a contract for indemnity.
Insurance

Life General
Saving A/C
Fixed deposits
Recurring Deposits
NSC’s
Govt. Bonds etc.
Motives Behind Savings
Following are the motives behind savings:
1) To increase Return

2) To reduce Risk
Definitions of Insurance
By EW Patterson:-Insurance is a contract ,by which one
party ,for compensation called premium ,assumes
particularly risks of the other party and promises to pay
him or his nominee a certain amount of money on
specified contingency .
By D.S Hansell :- Insurance is a social device providing
financial compensation for the effects of misfortune
,the payments being made from the accumulated
contribution of all parties participating in the scheme.
By William Bevridges :- The collective bearing of risks
is insurance .
By Clarke:- A contract by which , one party undertakes
, in consideration for a payment (Premium) , to secure
the other against pecuniary loss , by payment of a sum
money in the event of the death or disablement of a
person.
Insurance Act:-”The undertaking by one person to
indemnify another person against loss or liability for
loss in respect of a certain risk or peril to which the
object of the insurance may be exposed, or to pay a
sum of money or other thing of value upon the
happening of a certain event and includes life
insurance .
Related Terms
Insurer
Insured
Property
Consideration
Insurable interest
Fund allocation charge
Mortality charge
Life cover
Maturity
NAV
Switches
Fund options
Features of Insurance
Spreading Risk: Insurance helps to reduce risk by spreading
it between different policy holders.
Sharing of losses: All insurance policy holders share risk off
all investors for reducing risk of all.
Evaluation of Risk: On the basis of certain factors like age
,mortality rate ,medical test etc. risk is estimated and insurance
cover is estimated.
Payment when required: Insurance is the contract for making
all losses good in worse situation.
Estimation of loss: It is the duty of insurance companies to
estimate the loss occurred to the deceased .In case of life
insurance only assured amount is given.
Types of Insurance
Insurance

Life Insurance General Insurance

1.Personal Accident Insurance
2.Marine Insurance
3.Automobile Insurance
4.Health Insurance
5.Fire Insurance
6.Fire Insurance
7.Cattle Insurance
8.Theft Insurance
9.Crop insurance
10.Machinery Insurance
Cost burden on society
Cost of doing business

Operating costs

Fraudulent and inflated claims

Benefits of Insurance
Promotes Financial stability
Equivalent to govt. security
Motivates Trade inside and across the border
Motivates Savings
Charity against a small amount
Management of risk and return efficiently
Responsibility for Rural and Social Sector
According to IRDA Act 2002 responsibility for Rural
Sector are as follows. For life Insurer:

Year Premium %
1st 7%
2nd 9%
3rd 12%
4th 14%
5th 16%
6th 18%
Social Sector : It include bidi workers, agriculturer
workers, small scale workers ,self employed khadi
workers and persons living below poverty line.
Year Lifes
1st 5000
2nd 7500
3rd 10000
4th 15000
5th 20000
6th 25000
7th 25000
8th 30000
9th 45000
10th 55000
According to amended IRDA Act 2005
Rural Sector

Year % business
1st 7%
2nd 95
3rd 12%
4th 14%
5th 16%
6th 18%
7th 18%
8th 19%
9th 20%
onward
Insurance Principle
Principle of Common resources
Principle of Probability
Principle of Statistical methods
Principle of Large numbers
Principle of Insurable Interest
Principle of Utmost Good faith
Principle of Indemnity
Principle of Subrogation
Insurance is a Contract
Offer and acceptance
Free consent
Competent Parties
Lawful Object
Legal consideration
Legal Relationship
Certainty and Possibility of Performance
Hierarchy of Insurance Company
 CEO

 Senior VP (sales)

 Regional Heads

 Branch Managers

 Sales Managers

 Agents
Functions Of Insurance
Provide Protection
Sharing of Risks
Evaluation of Risk
Controlling of Losses
Savings
Source of Foreign Earnings
Advantages of Insurance
Providing Security
Spreading Risks
Source of Collective funds
Encourage savings
Optimum Utilization of funds
Loan against policies
What’s New for Insurance
Customer friendly Services
Wide scale Marketing
Retirement Plans
ULIP
Sharing of Banking business
Rural development
Involvement of FII
Health Plans
Challenges before insurance companies
Non availability of proper channels
Changing customer needs
More knowledge for Actuary
Non continuous current insurance policy
Information technology
Financial Intermediaries
Financial intermediaries are the persons /corporate
/firms who are involved in providing financial
products on behalf of investment companies.
There are three types of service providers:
1. Insurance brokers
2. Dedicated insurance firms : Directly catering a
particular client channel.
3. Financial Institution Insurance: This for insurance of
financial products like bonds ,cash and other assets.
It is mandated by govt.
Role of Intermediaries
Maturity function

Diversification of Investment

Minimizing Risk

Cost effective source of information

Easy arrangement for payments

Classification of Intermediaries
Statuary bodies:
1. SEBI
2. IRDA
3. RBI

Banking FI
4. Commercial Banks
5. Co-operative Banks
Non – Banking FI
1. GICI
2. IFCI
3. IDBI
4. NABARD
5. SIDBI
Financial Market
Financial Markets are the institutional arrangements
for the creation of funds and credit.FM has following
functions:
1. Creation of credit and its allocation

2. Mobilization of funds

3. Balance growth in economy

Characteristics of FM
Heavy Transactions
Instant Arbitrage
Combination of international markets
Effective financial intermediaries
 No. of segments
Type of FM
Capital Market
Money Market
Insurance Market
Derivative Market
Commodity Market
FOREX Market