INSURANCE- AN INTRODUCTION
Insurance may be described as a social device to ensure protection of economic value of life and other assets. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks, which can be insured against, include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus, collective bearing of risk is insurance.
Insurance = Collective Bearing of Risks
Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. The term "risk" is used to describe the possibility of adverse results flowing from any occurrence or the accidental happenings, which produce a monetary loss. Insurance is a pool in which a large number of people exposed to a similar risk make contributions to a common fund out of which the losses suffered by the unfortunate few, due to accidental events, are made good. The sharing of risk among large groups of people is the basis of insurance. The losses of an individual are distributed over a group of individuals. Insurance is nothing but a system of spreading the risk of one onto the shoulders of many. While it becomes somewhat impossible for a man to bear by himself 100% loss to his own property or interest arising out of an unforeseen contingency, Insurance is a method or process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose.
In the words of D.S. Hansell, “Insurance accumulates contributions of all parties participating in the scheme.” Contractual Definition
In the words of Justice Tindall, “Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency”. Working of Insurance
Insurance Industry in India :
The origin of life insurance in India can be traced back to 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. It was conceived as a means to provide for English Widows. In those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage. The Bombay Mutual Life Insurance Society that started its business in 1870 was the first company to charge same premium for both Indian and non-Indian lives. In 1912, insurance regulation formally began with the passing of Life Insurance Companies Act and the Provident Fund Act.
By 1938, there were 176 insurance companies in India. But a number of frauds during 1920s and 1930s tainted the image of insurance industry in India. In 1938, the first comprehensive legislation regarding insurance was introduced with the passing of Insurance Act of 1938 that provided strict State Control over insurance business.
Insurance sector in India grew at a faster pace after independence. In 1956, Government of India brought together 245 Indian and foreign insurers and provident societies under one nationalized monopoly corporation and formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5 crore.
Before 1956, insurance was private with minimal government intervention. In 1956, life insurance was nationalized and a monopoly was created. In 1972, general insurance was nationalized as well. But, unlike life insurance, a different structure was created for the industry. India had the nineteenth largest insurance market in the world in 2003. Strong economic growth in the last decade combined with a population of over a billion makes it one of the potentially largest markets in the...
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