Insurance as a Tool of Risk Management

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NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

INSURANCE LAW AS A TOOL OF RISK MANAGEMENT

TABLE OF CONTENTS
PAGE NO:
Introduction 3
History of Insurance 4
Statement of Problem 4
Nature of Insurance Contract 5
Meaning of Risk 5
Scope of Risk 6
Types of Risks covered under Insurance Contract 8
Elements of Risks 11
Commencement of Risks 12
Circumstances affecting the risks. 13 Risk Management 16
Benefits of Risk Management 17 Role of Insurance in Risk Management 17 Conclusion 19

INTRODUCTION
Hindu philosophy gives the axiomatic truth of the nature of insurance “Yat bhavathi tat nasyathi’ which means whatever is created will be destroyed. Risk is therefore inevitable in life. Business is a course of life, so in life and business there are variety of risks. The aim of all insurance is to protect the owner from a variety of risks which he anticipates by shifting the loss suffered by a sole individual to a professional risk- bearer in consideration for a small amount of premium. The nature of insurance depends on the nature of the risk sought to be protected. The chief varieties of an insurance contract are life, fire, marine and in modern times new varieties have been added from time to time like liability insurance and third party risk. Insurance is a method of spreading over a large number of persons as possible financial loss too serious to be conveniently borne by an individual. Thus it serves the social purpose. It is a social device whereby uncertain risks of individuals may be combined in a group and thus made more certain; small periodic contribution by the individuals providing a fund out of which those who suffer losses may be reimbursed. In modern times, the happening of any event may be insured against a premium directly proportional to the risk involved on its happening. An element of uncertainty must be present in the course of the happening of the event insured against, in some cases, in almost all non- life insurance contracts, the happening of the event is uncertain while in life insurance the event is bound to happen however the time is uncertain. The institution of insurance serves a two- fold purpose, the immediate, short range and proximate purpose is to protect the individual assured from any loss or damage to his life or property by distributing the loss among a variety of persons through a media of professional risk- bearers. The far- sighted purpose is to accelerate economic growth of the nation by mobilizing funds for capital formation and helps in the establishment of a welfare state.

HISTORY OF INSURANCE
The roots of insurance might be traced to Babylonia, where traders were encouraged to assume the risks of caravan trade through loans that were repaid ( with interest) only after the goods had arrived safely- a practice which was given legal force in the Code of Hammurabi ( c. 2100 B.C.) With the growth of towns and trade in Europe, the medieval guilds undertook to protect their members from loss by fire and shipwreck, and to provide decent burial and support in sickness and poverty. By the middle of the 14th century, as evidenced by the earliest known insurance contract. (Genoa, 1347), marine insurance was practically universal among the maritime nations of Europe. In London, Lloyd’s Coffee House ( 1688) was a place where merchants, shipowners, and underwriters met to transact business. By the end of the 18th century, Llyod’s had progressed into one of the first modern insurance companies. In 1693, the astronomer Edmond Halley constructed the first mortality table, based on the statistical laws of mortality and compound interest....
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