Professional Documents
Culture Documents
1introduction and Nature of Insurance
1introduction and Nature of Insurance
1. Functional Definition
2. Contractual Defination
Functional Definition
“Insurance is a co-operative device to spread the loss
caused by a particular risk over a number of persons,
who are exposed to it and who agree to insure
themselves against the risk”.
Contractual Definition
Insurance contract may be defined as a contract by
which one party (the insurer/insurance company)
agrees to pay to the other party (the insured) or his
beneficiary, a certain sum upon a given contingency
(the risk) against which insurance is sought.
How insurance Operates?
Illustration presented on British insurers association
meeting
Basic Analysis
Losses are spread over peoples who are exposed to
same risk and agree to share it
The frequency and severity of loss should be
measurable in terms of time and money
The rate is depends on the frequency and severity of
loss plus administrative cost
History Of Insurance
Historians believe insurance first developed in Sumer and
Babylonia (both in what is now Iraq) beginning in about
3000 BC. The merchants and traders of these societies
transferred and pooled their money to protect themselves
from losses of cargo to thieves and pirates.
In the 18th century BC, Babylonian king Hammurabi
developed a code of law, known as the Code of
Hammurabi, which codified many specific rules governing
the practices of early risk-sharing activities. For instance,
the code dictated that traders had to repay merchants who
financed trading voyages unless thieves stole goods in
transit, in which case debts would be cancelled.
Note that still the new code is developed in insurance
market e.g- 911 attack
In the last several centuries BC the societies of Greece and
Rome developed some of the earliest systems of life
insurance.
Greek and Roman citizens formed benevolent societies,
organizations in which members paid dues that went
toward paying for the burial of members who died.
Sometimes these societies also paid for the living expenses
of deceased members’ families.
During the Middle Ages (5th to 15th centuries AD),
workers joined together in craft. Many guilds, particularly
in England and Italy, provided benefits to workers and
their families in the event of illness or death
1.2. Classification of Insurance
Insurance can be classified on the following ways;
Classification based on nature of insurance
Classification based on business point of view
Life insurance
Fire insurance
Marine insurance
Social insurance
General and other accident insurance
Classification based on business point of view
Life insurance
Non life insurance
Classification based on risk point of view
Personal insurance
Property insurance
Liability insurance