Insurance

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CHAPTER-1
INTRODUCTION

* What is Insurance?
* Insurance Act,1938
* Types Of Insurance
* How Insurance Works?
* Life Insurance Business
* Role of Insurance in Economic Development
* Indian Insurance Industry: New Avenues for Growth 2012
* Research methodology

WHAT IS INSURANCE?

The business of insurance is related to the protection of the economic values of assets. Every asset has a value. The asset would have been created through the efforts of the owner. The asset is valuable to the owner, because he expects to get some benefit from it. The benefit may be an income or something else. It is a benefit because it meets some of his needs.

Every asset is expected to last for a certain period of time during which it will perform. After that, the benefit may not be available. The owner is aware of this and he can so manage his affairs that by the end of that period or life-time, a substitute is made available. Thus, he makes sure that the value or income is not lost. However, the asset may get lost earlier. An accident or some other unfortunate event may destroy it or make it non-functional. In that case, the owner and those deriving benefits from there would be deprived of the benefit and the planned substitute would not have been ready. There is an adverse or unpleasant situation. Insurance is a mechanism that helps to reduce the effect of such adverse situations.

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium. Insurer, in economics, is the company that sells the insurance. Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

    
   

INSURANCE ACT, 1938:

The Insurance Act, 1938, was the first comprehensive legislation governing not only life but also non- life branches of insurance to provide strict state control over insurance business. In sub- sections to dealt with provident companies, mutual offices and co-operative societies as well.

The salient features of the Act were as follows:

* Constitution of a Department of Insurance under a superintendent vested with wide powers of supervision and control over all kinds of insurance companies. * Regulation for the compulsory registration of insurance companies and for filing of returns of investment and financial conditions. * Provisions for deposit, to prevent insurers of inadequate financial resources of speculative concerns for commencing business. * Provisions that 55% of the net life fund of an Indian or non- Indian insurer should invested in Indian Government and approved securities with at least 25% in Indian Government Rupee securities. All other companies, i.e., foreign companies must invest 100% of their Indian liabilities in Indian Government and approved securities, with at least 33.3% Indian Government securities. * Prohibition of rebating, restriction of commission, licensing of agents etc. Maximum rates of commission were fixed at 40% of the first premiums and 5% of the renewal premium in respect of life assurance business. The agent must be licensed, to improve the status of the profession. * Periodical valuation of Indian Insurance business of foreign companies and the business of Indian companies. * Provision for policy holders' directors, making it possible for the re preventatives of policyholders to be on the Board of directors.

Standardization of policy conditions required all companies to file standard forms and tables of premium approved by an Actuary. Under this requirement, the initial deposit for life insurance business was raised from Rs. 25000 in...
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