UNIT-1

INTRODUCTION TO
INSURANCE

By:
Bhumit A. Shah ( Assistant Professor)
.Com, M.Com, GSET COMMERCE, M.B.A, ICCC (Level-1), Ph.D Pursuin
Department of Banking and Insurance,
Faculty of Commerce,
The Maharaja Sayajirao University of Baroda.
 CONCEPT OF INSURANCE
• Insurance is a contractual arrangement whereby
one party agrees to compensate another for losses
which may be suffered as a result of the
occurrence of certain unforeseen events, in return
for the payment of a consideration.

• The party agreeing to pay for the losses is known

as the ‘insurer’.

• The party who is compensated for the loss suffered

is called the ‘insured’.
• Insurance arises because the insured has a
possibility of loss, also known as his or her loss
‘exposure’.
• The insured transfers the exposure to loss to the
insurer by purchasing an ‘insurance policy’.
 ESSENTIALS OF INSURANCE CONTRACT
• Lawful Offer and Acceptance
• Legal Relationship
• Lawful Consideration
• Capacity of Parties
• Free and Genuine consent
• Others essentials
1) Legal formalities
2) Lawful objectives
3) Possibility of Performance
 FUNCTIONS OF INSURANCE

PRIMARY FUNCTIONS:
1) Provide Protection
2) Collective bearing of Risk
3) Evaluation of Risk
4) Provide Certainty of Risk
5) Spreading Risk
• SECONDARY FUNCTIONS:
1) Prevention of Losses
2) Small Capital to Cover Larger Risk
3) Contributes towards the development of larger
enterprises
• OTHER FUNCTIONS:
1) Means of Savings and Investment
2) Sources of earning foreign exchange
3) Promotes Exports
4) Provides Social Security
 SIGNIFICANCE OF INSURANCE

1) SIGNIFICANCE FROM THE INDIVIDUALS/FAMILY

POINT OF VIEW
• Security and safety
• Investment
• Conservation of health
• Increase efficiency
• Foster economic independence
• Security of the property mortgaged
• Mental Peace
• Planning for future
• Meeting statutory liabilities
• Capitalization of earning capacity
• Create awareness among insureds
• Availability of credit against insurance policy
• Exemption from tax liability
• Safety against decree
• Encourages savings
• Increases Goodwill
2) SIGNIFICANCE FROM BUSINESS POINT OF VIEW:
• Safety against risk
• Source of credit
• Safety Against perils
• Protection against the loss of key-man
• Determination of cost of accidents
• Encourages loss prevention measures
• Protects employee interests
• Promotes International Trade
• Contribution towards large business houses
• Aid to small business
• Stability to partnership business
• Business stability
• Promotes employee welfare
• Promotes industrialization
• Contribution to HRD
• Reduces Cost
• Makes cost of accident certain
• Promotes Research and Innovation
• Social Security of Employees
3) Significance from Social point of View
• Economic Security
• Promotes education
• Provides Employment
• Distribution of Risk
• Prevention of Social evils
• Awareness towards health
• Prevention of losses
• Development of Utility services
• Improves standard of living of the people
• Security to private and public property
• Provides Social Security
• Protects family from disintegration
• Distribution of risk
• A means of social change
• Solves social problems
• Implementation of social security scheme
• Helps to achieve economic independence
• Helps to fulfill social responsibilities
4) FROM NATIONAL POINT OF VIEW
• Increase National Savings
• Contributes towards investments
• Promotes Capital Formation in the Country
BASIC PRINCIPLES OF INSURANCE
• Insurance is a business based on the principle of
co-operation. It is a voluntary device to share the
risks and uncertainties collectively.

• Insurance is based on the ideology of common

interest and welfare. Co-operation is based on the
Co-operative principles, “One for all, and all for
one”. Thus, origin and development of insurance
are based on Co-operation.
 Need of Insurable Interest
• Basis of Legality of Insurance
• Basis of Indemnity
• Prevention of Speculation
• Security to the property and life of others
 PRINCIPLE OF WARRANTIES
• According to section 35 of Marine Insurance Act,
1963 “ A warranty Means a promissory warranty
by which the assured undertakes that some
particular thing shall or shall not be done or that
some conditions shall be fulfilled or whereby he
affirms or negatives the existence of a particular
state of facts”.
• Express Warranty : It is an oral and written
statement, promise or other representation about
the quality, ability or performance of a product.
Example:
1) In fire Insurance, no goods of dangerous nature or
to maintain proper electrical fittings as required
under government requirement.
2) In marine Insurance, the proper packaging of
charge, packaging in a professional way and
shipping the charge in first category steamer, etc.
are warranties.
• Implied warranties are in the nature of
preliminary essential conditions, which
include sea-worthiness of the ship,
legality of voyage, legality of subject
matter insurance, etc.
Methods of Indemnity
• Cash Payment
• Replacement
• Repairing
• Reinstalment
 Right of Subrogation arises in following
ways
• Right arising out of tort
• Right arising out of contract
• Right of subrogation arising out of salvage
Thank You