Q1)ROLE OF INSURANCE IN ECONOMIC DEVELOPMENT: From the business ec onomics perspective, insurance is nothing but an economic device whic

h helps in minimizing the risk by i ntegrating a sufficient number of ex posur e units to ensure that their individual l osses are predicted c ollectively.
Insurance plays an important role in the economic activities . In general, people want to avoid the irregular and pr obabilisti c risks related to their assets suc h as wealth, wisdom and health. T o av oid s uch risks, they make use of m any risk management tools suc h as , "purchasing ins uranc e". As there is a growth in general w ealth, the growth i n the v alue of assets has als o increased. This res ults in "Catastr ophic risk".
With the change in time, people are becoming more c onc erned about their ass ets. Thus , the importanc e of ins uranc e is increasi ng subs equently.
Insurance is a sec ondary branc h of ec onomic activity that deals with different economic problems that would arise if i nsurance does not exist. Insurance is significant i n internati onal and interpersonal trade, credit and payment trans actions, production and c ons umption, c onserv ation of existi ng wealth and the creation of new wealth. N evertheless, insurance s erves differently acr oss different industrialized countries as per their regulatory regimes.
The rec ent trends are bringing several c hanges in the service s ector. As ins uranc e industry is also the part of s ervice sec tor, it is also influenced by the latest trends. In the present risky environment, ins uranc e acts as a means for risk managemen t. It is ess ential for a well performing insurance c ompany to play a vital role i n ec onomic dev elopment.
In order to determine the ec onomic importanc e of the i nsurance c ompany, fiv e main alternative ways can be adopted. They are,
1.The importance of i nsurance c an be meas ured by the number of insurance c ompanies i n a partic ular country. T here exists a positive c orrelation between number of i nsurance c ompanies and the market size.
2.The sec ond indic ation of its importance is the number of employees working in the insur ance industry. The increased workfor ce in i ndus tries of a c ountry results in better performanc e of insur ance sector.
3."Premium incom e" is an important i ndicator for c omparing the importanc e of ins uranc e services i n different countries. It al lows you to ass ess the importance of ins uranc e.
4."Contribution of insur ance industry to GDP™ is a pr eferable i ndicator of importance of i nsurance fr om economic perspec tive.
5.An appropriate measur e to find the industry's contribution towards ec onomic devel opment is the "s um of cons umer and product s urplus".

Q2)RISK AND ITS TYPES: Risk is involv ed i n ev ery activity whether it is of personal, professi onal or business . Ev ery individual, w hile doing any activity expects s ome returns. But, it is obvious that the actual returns m ay never be the s ame as that of the ex pected r eturns .
There always exists a difference between the expected and the ac tual r eturns . This difference is termed as
"Risk'.
Types of Risk
As risk is involved in every ac tivity. People face one or the other ty pes of risks which are as follows,
1)Business Risk: A c hange in s ales affects the earni ngs before interest and tax. Due to this, a business enterprise faces the risk of a decrease in firm value. When the v alue of the firm decreases , it is refl ected directly i n the s hareholder's value in the form of increas ed or decreas ed v alue of the s hares . Major ty pes of business risks are as follows,
A)Credit Risk/Default Risk: In a c ontract, w hen any one party fails to fulfil his financial obligations then it is termed as credit risk, As this risk arises from parties, it can also be termed as c ounterpart risk. In a simple terms, the risk of non-payment is termed as a credit risk.
B)Price Risk: When a firm fac es the risk due to fluctuati ons i n prices then it is termed as price risk. Prices tends to change bec ause of the changes i n demand and supply. A buyer desires to purchas e goods for a low price, whereas a s eller intends to sell them at a high price. T his creates a change i n prices, which is c alled as price risk.
C)Market Risk: A firm faces market risk when v alue fluctuates due to market factors. Market factors include market interest rates, equity pr ices, foreign exchange r ates and commodity prices. Usually, mark et risk is called as systematic risk, non-diversified risk or beta risk.
2. Liquidity Risk:When a firm is not able to purchase or sell a partic ular product within a short span of time, being its val ue unc hanged, then it is referred as liquidity risk. To operate the business smoothly, it is very essential for a firm to possess liquid funds.
3. Foreign Exchange Risks: When business operates i nternationally, c urrency val ue tends to c hange in the foreign exc hange market. Foreign exchange risks can be classified into three types. T hey are as follows,
A)Transaction Ex pos ure:While operating business with other countries, a c hange in the v alue of foreign c urrency c ould caus e a change i n the v alue of home currency too. In simple wor ds, when the value of foreign currency increas es then the home c ountry needs to make higher p ayments, which in turn i ncreas es its ex penses .
B)Translation Ex posur e: To diversify the busi ness, firms would like to i nvest i n foreign countries by setting up their subsidiaries in those c ountries. Due to a change in exc hange rates , the firm fac es translation risk while preparing financial statements in terms of domestic currency.
C)Economic Ex posur e:An organis ation fac es the risk of ec onomic exposure w hen the exchange rate fl uctuates .
When a firm producing goods within a c ountry, tak es up the challenge to compete with the imported pr oduc ts in the global market, it poss esses economic risk due to changes i n exc hange rates.
4)Country Risk:An organisation faces c ountry risk when plans to operate its busi ness i nternationally, edited y i nvesti ng or by lendi ng in foreign c ountries. i also k nown as s overeign risk. Country risk included ec onomic and political risk,
A)Economic Risk: Economic risk means the risk that the firm face, when its output is unabl e to bring sufficient retur ns enabling the firms to cov er its commercial borrowings and cos ts,
B)Political Risk:When a firm posses the risk of c hanges in per-men s uch as laws, tariffs, tax es and gov ernment rules then it is called as political risk.
Depending on the s ources of emergenc e, risks have been c ategorised into the following three ty pes,
1. Price risks
2. Pure risks
3. Personal risks.
1)Price Risks: Price risks are further divided i nto commodity price risks, exc hange rate risks and interest r ate risks.
Commodity price risk refers to the risk that occ urs from the fluctuations in the prices of c ommodities. This risk is important sinc e c ommodities like coal, copper, oil, gas, electricity etc., are inputs for s ome compani es and outputs for the others. D ue to globalisation, fl uctuations in exchange rates effect the output and input prices, r esulting in exchange rate risk.
Interes t rates als o effect the input and output prices. Fluc tuations in interest rates effect the firm's revenue.
2)Pure Risk: Pure risk refers to that c ategory of risk which res ults in only l osses. In pure risk, those events occur that are bey ond the c ontrol of risk-takers.
Due to this r eason, pure risk is considered as unc ontrollable risk.
3)Personal Risk:Pers onal risk refers to those risks that are fac ed by individuals and their dependents.

Q3)principles of in surance: "Ins uranc e is a contract i n which a s um of money is paid by the ass ured in c onsideration of the ins urer's incurring the risk of paying a large sum upon a given contingency".
- Chief Justic e Tindal
"Insurance may be described as a soci al devic e whereby a large group of individuals through a system of equitable c ontributio ns may reduc e or eliminate certai n meas urabl e risk of economic loss c ommon to all members of the group"
- Britannica Encycl opaedi a
Principles of Ins uranc e:
1)Principle of Insurable Inter est: Principle of ins urable interest is one of the legal princi ple of ins uranc e contracts that s upports the principle of indem nity. An ins ured s hould s atisfy the r equirement of ins urable interest w hile collec ting the amount by proving the loss due to misused peril. For example: A person has insurable i nteres t in his car because he may los e financially if the car is stolen or damaged.
2. Principl e of Indemnity : The principl e of indemnity states that the insurer s hould not pay more than the actual amount of loss. In other words, it states that the ins ured should not make profits from the loss i ncurred by him. Sev eral pr operty and c asualty insurance contracts are the c ontracts of indemnity .
3. Principl e of Sub-rogation: Principl e of sub-rogation is one of the legal principles of i nsurance c ontrac t and s upports the principle of indemnity. T his principle provides the benefit to insured to claim the ins urer for any loss inc urred due to the negligence of third party . The insur er then c an proceed agai nst the third party to rec over the l oss paid to the i nsured.
4. Principl e of Contribution: C ontribution refers to the insurer's right who has pai d compens ation for the loss under a policy, to r ecover a specific amoun t from the other ins urers who are s upposed to cov er the loss . The principl e of contributi on s upports the principle of i ndemnity.
5.Principle of Utm ost Good Faith: Insurance c ontracts inv olve information asymmetries between parties. Generally, the insured has a better idea about the risk to be ins ured than the insurer, In order to balance this, the law specifies that both the parties s hould discl ose any i nformation important to the c ontract. T he principle of utmost good faith specifies that both the parties s hould openly and honestly disclose the information without c onc ealing any material facts that may affect the judgement of the other
party.
6.Principle of Proximate Caus e: Proximate caus e is a legal term that describer how ex actly the loss occ urred. One should establish the c aus e of a loss as only risks particul arly agains can be c ompensated. The dominant and effective c aus e will be tak en into c onsideration if there exists more than one cause for a loss. Thus , remote cause will not be c onsidered her e.
7. Principl e of Loss Minimisation: The principl e of loss minimisation states that the ins ured should not be irresponsible i.e., he must be c areful and s hould take all the necess ary steps to reduce the loss es. He s hould not be carel ess after getti ng insured through a insur ance contract. Thus it i s the responsibility of an ins ured to tak e safety measures . For example, wearing seat belts i n a car to protect himself from an accident or fixing a CCTV c amera to protec t his v aluables s o that thefts does not occur.

Q. Conc ept of pooling: One of the underlying features of insurance is " pooling of risks". Many insur ance companies attempt to mak e a pool of homogen ous exposures to minimize the losses resulting from that ex pos ures. It is always essential to un-correlate the l osses i,e, a group should bear some proportion of loss es s o that the burden of a particul ar member is minimized. This way l oss distribution is a dvantageous for the group flatter and flatter. The application of pooling recommends that the normal curve
becomes flatter and flatter when there is an addition of members to a group due to the r educ tion in the v arianc e and likely c onc entration tow ards mean.
The two important forms of pooling are:
1. Bulk Buyi ng: Bulk buying is a form of pooling in w hich a group of i ndividuals businesses c ollectively purchase ins uranc e.

2 Self Ins uranc e: Self-insurance is another form of pooling wherein the group of i ndividuals or businesses c ollectively provide their own i nsurance by establishing mutual funds

Q: Reins uranc e: Reins uranc e is termed as ins uranc e for an insurer or insurance c ompany. Mos t of the ins uranc e c ompanies Are willing to shar e the risk of bearing high loss es of insur eds with other ins urers, which is called reins uranc e. In Simple words, s haring the risk with other insur ers in order to av oid c atas trophic effect or hazards in ins uranc e
Reinsuranc e is most commonly obs erved in general life i nsurance c ompanies. In return of risk ins urers need To pay a pr emium to rei nsurer.