UNIT 3 GENERAL INSURANCE
General Insurance: Principles, products (Fire, Marine, Motor vehicles, public liability, third party insurance, medi-claim and health policies, group insurance, burglary insurance).
Insurance is an important aid to minimize the effect of uncertainties of life as well as property. With the increasing complexities in our personal and professional life, the range of risks that the insurance companies accept has also expended substantially. The broadest classification of insurance is in terms of Life Insurance and non-Life Insurance (General insurance).
The overall general insurance industry growth has kept pace with the GDP growth in the country and general insurance penetration has varied in a narrow band:
After liberalisation of the Indian insurance industry in the year 1999- 2000, the Indian general insurance industry has witnessed rapid growth. The industry, in terms of gross direct premium, has grown from INR 11,446 crore in FY02 to INR 57,964 crore in FY12, which corresponds to a compounded annual growth rate (CAGR) of 17.6 percent. Insurance density, which is defined as the ratio of premium underwritten in a given year to the total population, has increased from USD 2.4 in 2001 to USD 10 in 2011. The growth in the general insurance industry has kept pace with the nominal GDP growth rate resulting in general insurance penetration remaining stable in the range of 0.55% to 0.75% over the last 10 years.
A non-life insurance contract is different from a life insurance contract.
Life Vs General Insurance
Long term contract
Risk is assure but
Difficult to determine
economic value of life
Principle of indemnity,
Risk (event) may or may
Financial value of asset
can be determined
Principle of indemnity,
Non-life insurance refers to the property and liability insurance. Fire insurance covers stationary property. Marine insurance covers mobile property. Bonding is a special coverage that guarantees the performance of the contract by one party to another. Casualty coverage includes accident and health insurance besides the above mentioned categories. Miscellaneous Insurance business means all other general insurance contracts including therein motor insurance. Non-life or general Insurance is basically classified in three categories:
1. Fire –Property damage and business interruption insurance 2. Marine- Cargo and Hull
3. Misc - Motor, Engineering, Liability, Aviation, Health, Energy, Rural, Livestock, weather, Crop, accident, Travel, Baggage.
The role of insurance is twofold. Insurance achieves both risk transfer and risk reduction. The insurer collects the premium from a group of business firms who wants to protect their property against the damage caused by fire. Insurer will then indemnify the firm that suffers a loss to property due to fire out of the premium so collected. So the collective contributions of this entire group of the insured have been utilized to pay for the losses of the unfortunate few who sustain losses.
Insurance also acts as a risk reduction mechanism in various senses. Firstly, the individual risks have been shifted to the insurance company by way of pooling. Secondly, firm’s risk exposure is well spread out because insurer has an access to the reinsurance market making possible a further spread of risk. If an aircraft is destroyed, the airline company will have a big hole in its financials. If the aircraft is insured, the loss would be spread out among a large number of insurance companies throughout the world. .
Every business enterprise is exposed to a large number of risks and uncertainties to its premises, plant and machinery, raw materials,...
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