Unit 1

Insurance – Generic
Overview
 Module - 1: Insurance - Generic Overview

Concept of Risk – Risk of Management – Basic concept (Hazards, Perils, Assets, etc.) -
Life Stages, Income and Expenses - Fundamentals of Insurance - Characteristics of a
valid contract – Insurance contract-Principles & Practices of insurance contract –
Important terminologies & parties in insurance contract – Types of Insurance
(Personal, Commercial, Health, Life, etc.) – History of Insurance – Types of Insurance
companies – Business units in an Insurance company – Overview of Insurance Life
Cycle (Underwriting, Policy Servicing, Claims, etc.) - Reinsurance concept, Latest
trends in insurance - Green and Sustainable Insurance-Principles of sustainable
Insurance-Role of Insurance towards sustainable development-Insurance and
sustainable business
What is Risk?
What is Uncertainty?
What is Level of Risk?
What is Peril?
What is Hazard?
Let's get started!
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 Risk
In insurance, ‘Risk’ describes the
• Possibility of damage or loss
• Doubt regarding the outcome possibility of an unfavorable event
of a situation occurring, for example a fire in the
• Potential hazard
factory, untimely death, car theft or a
sudden illness.

Can Insurance prevent this?

TERMS RELATED TO RISK
Uncertainty

Level of Risk

Peril

Hazard
 • Insurance is only available for
Uncertainty
outcomes that are uncertain.
• Lack of sureness about • If there is a possibility of loss,
something but not a certain loss, only that
event can be insured.
• Example : Death of a person,
accident etc
 Level of Risk
• Some things have greater
likelihood of happening
than others and this
determines the level of risk
The level of risk is normally assessed in terms
of:
• Probability (or frequency) of an event
happening
• Extent (or severity) of the event if it
happens.

Frequency
• The rate at which something
occurs over a period of time
D
Actuaries calculate the probability of an event,
say a person dying within one year, on the basis
of the past data collected and then represent it as
mortality tables. This allows insurance
companies to determine the probability of a
particular event, such as death, occurring under
various circumstances
 • Depending on the age, health, life style, occupation, etc. the risk on one
individual will vary from the others.
• Mortality rate: It is the chance of dying at a specified age within a sample
population.
• Example: if the mortality rate for a male of age 55 is 0.006, it means, every
year in a sample of 1000 people of age 55, 6 are likely to die.

• Severity: The amount of claims the insurance companies would experience if

the insured events were to actually occur on the basis of the likely severity of
the losses
 Peril
• Peril refers to a specific event or
reason which might cause a loss.
When a building burns, fire is the
peril; when an individual is
injured in an accident, the
accident is the peril
Natural disasters such as earthquakes, storms, floods etc. are
examples of perils which may lead to loss of life and
damage to assets. The risk against which an insurance
coverage is bought is the peril, e.g. the risk that a car
might get stolen during the policy term. Insurance is just a
means of compensation. Only the monetary loss can be
compensated; Insurance can neither cover the emotional
loss nor provide a protection to the asset against the Peril.
D
 Hazard
• Hazard is a condition that
either increases the chance that
a peril will happen or may
intensify its effect if it occurs.
Hazard is the underlying factor
which enhances the effect of the
peril that leads to the probability
of a particular loss. (e.g. Wooden
building which can catch fire
easily leading to a loss.)
• Hazard can be categorized into two types: •Physical
Hazards : Physical hazards arise from an individual’s
occupation, health, lifestyle, etc.. E.g. People working
inside a coal mine, a family history of heart disease,
high blood pressure etc. is a physical hazard.
• Moral Hazards: Moral hazard arises from state of
mind, attitude or intensions of the insured, which
enhances the probability of loss from a peril. E.g.
insured giving false information to insurer in order to
get an insurance policy or insured raising a claim with
exaggerated loss.
Characteristics of Insurable Risk
A potential loss must have the following characteristics to be insurable :

1 The loss must occur by 2 The loss must be The loss must not be
3
chance significant catastrophic to the
insurer

The loss must be The loss must be

4 5
definite predictable
Characteristics of Insurable Risk
• A potential loss must have the following characteristics to be
insurable:
Loss occurs by chance and is not certain
 Loss can be defined in monetary terms.
Characteristics of Insurable Risk
Loss is significant in terms of magnitude Loss rate can be predicted. Magnitude of loss is not
so huge that it becomes catastrophic for the insurer Insurance products are designed in
accordance with basic principles that define which risks are insurable.
The loss must occur by chance: The loss should occur either unexpectedly or caused
unintentionally by the person covered by the insurance.
The loss must be definite: An insurable loss must be definite in terms of policy terms and
policy benefits.
The loss must be significant: Losses which are insignificant in terms of monetary value are
not practically insured.
The loss rate must be predictable: An insurer must be able to predict the probable rate of
loss in a given group based on past experience.
The loss must not be catastrophic to the insurer: The magnitude of loss should not be so
huge that it’s occurrence will lead to huge financial loss for the insurer..
Types of Risk
Financial
Risk

Types
Fundamental
Pure Risk
Risk

of Risk
Particular Speculative
Risk Risk
Types of Risk
 Financial Risks: Risks that can be measured in monetary terms are known as financial risks. Individual needs to
plan to cover such financial risk. E.g. Early loss of life of the breadwinner, Loss of property, Loss of Car,
Retirement, etc.
 Pure Risks: Pure risks are risks where there is no possibility of making any sort of profit; there can be either
loss or possible outcome of breaking even. Pure risk is an insurable risk. E.g. Death
 Speculative Risks: Speculative Risks are risks where there is a possibility of making profit or incurring loss or
the possible outcome of breaking even. This is not an insurable risk. E.g. Risk associated with investment in
stock market; putting money on gambling, etc.
 Particular Risks: Particular risks are personal or local in their effects. The consequences of these risks affect
specific individuals or specific localities. This is an insurable risk.E.g. Fire breaking in a factory which might
impact the nearby buildings but might not impact the whole community.
 Fundamental Risks: Risk which is so vast in scale that it is not insurable due to its catastrophic potential. This is
not an insurable risk. E.g. Earthquake in an earthquake prone region or risk associated with a war,
economic slowdown etc

So only Financial, Pure & Particular Risks are Insurable risks.

Risk Management

Risk Prevention or
Avoidance

Risk Control
Risk Can be
managed in the
following ways:
Risk retention

Risk Transfer
 Risk Management

• Risk Prevention / Avoidance: It is a risk management technique whereby risk of loss is prevented or
avoided by not indulging in those activities which have the risk. E.g. A man avoiding bad habits which
may pose as health hazard.
• Risk Control: It is a risk management technique of putting up adequate safety and security measures to
minimize the severity of losses E.g. Installing firefighting equipment in factories or houses or taking
adequate vaccinations.
• Risk Retention: It is a risk management technique where some losses are planned to be accepted
should they occur. It is a viable strategy for small risks where the insurance cost would be greater than
the total losses sustained over time. This also includes risks that are catastrophic in proportion and
cannot be insured against as the premiums would not be feasible. E.g. The risk associated with a war is
retained by the insured.
• Risk Transfer: It is a risk management technique where the risk on the asset is transferred by the
owner against certain amount, such that if anything happens to the asset, the losses would be
compensated for by the insurance company.
Assets
Any item of significant economic value which can be converted into
cash or which can generate income for the owner or provide
convenience to the owner (individual or corporation) is an Asset. Assets
can either be destroyed or become non-functional which will lead to
financial loss to the owner and hence assets can be insured. Insurance
is a mechanism that helps to compensate this financial loss
Fundamentals of Insurance
What is Insurance?
• Insurance is a risk transfer technique wherein the person seeking
coverage against specific event/ s, transfers the associated risk to the
insurance company in return for a payment known as the premium.
• It is a contract between the Insured or policy holder and the
Insurance Company. Insurance companies collect premiums from all
those who seek coverage and categorize them as per the extent of
risk they are exposed to and create a common fund.
• Not everyone from the group will experience adversity, but those who
do are compensated from this common fund
Life Insurance
• Human lives are considered assets as they have the capacity to
generate income for themselves or their families or at work.
• Every human being has a varied life span after which death is certain.
But the timing of death is uncertain. If a person dies unexpectedly
early during his working life, then the family will be deprived of the
income that the person would have otherwise generated had he
survived his working life.
• This is where life insurance steps in to fill up the financial gap created
by early death of the person
So Insurance can be explained as:
• The process of transferring the risk from the owner (insured person)
to another party (insurer) who can bear that risk, in return for a
consideration (premium).
• Risk should occur within a specified time. Amount of Benefit should
be predefined.
Purpose of Insurance
• To provide protection against financial loss, not create an
opportunity for financial gain.
• Insurance cannot prevent the insured event from happening. It can
only provide compensation for the loss that occurs as a result of the
insured event happening.
Benefits of Insurance:
• Protection of financial security: Insurance companies provide
compensation in case an unfortunate event happens to the assets or
the individual insured. Life insurance protects the family against the
loss of the income provider.
• Investment option: Insurance products provide investment options
where the policyholder not only gets the advantage of insurance
coverage but also a return on the money invested. This happens in
some of the life insurance policies.
• Tax benefits: Tax benefits are available on premiums paid as well as
the maturity and death benefits ( in life insurance plans
Planning For Life-stage Needs: There are various types of insurance products that are
being offered by insurance companies. These are designed to suit the varied needs of an
individual and cater to changing priorities.

How Does Insurance Work?

• Insurance works on the concept of risk pooling where the loss incurred by few is
shared by many in the same group having similar risk exposure. The premium
collected from the individuals is deposited in the common fund.
• When there is a claim to be settled it is paid out of this common fund. The insurance
company has to ensure that the premium collected is enough to make the claim
payments.
• So the premium that is charged by the insurance company should be such that it is
sufficient to meet the administrative and other expenses for maintaining the pool,
over and above settling the claims.
• The insurance company includes a percentage of profit in the premium as well.
Law of large numbers:
• ‘Law of large numbers’ is used to determine the cost of total annual
claims. Insurance companies, from the past records, determine the
probability of claims that they have to pay if a large number of
people are insured for a particular risk. Based on this probability, an
insurance company will set the rates of its premiums.
Characteristics of a
Valid contract
Characteristics of a valid contract
An insurance policy is a legal contract, i.e. an agreement enforceable by law,
between the insurance company (insurer) and the insured person. There are
certain essential elements to make a valid contract
Essentials of a valid contract:
• Offer and acceptance
• Consideration
• Capacity to contract
• Consensus ad idem (both parties having the same understanding)
• Legality of object or purpose
• Capability of performance
Offer and acceptance:
• A contract starts when one party makes an offer which the other
party accepts unconditionally.
• Let’s consider the following examples:
• Scenario 1: The insurance company writes: ‘On the basis of your proposal form we can offer you
cover, with a sum insured of Rs. 100000.’ The proposer (the person who wants to take out the
insurance) writes: ‘I accept.’ Here, the proposer’s acceptance does not alter any of the terms of the
insurance company’s offer. Here the acceptance is said to be unconditional. A contract will then be
formed, provided the other essential elements are met. Now, consider an alternative response by
the proposer.
• Scenario 2: The insurance company writes: ‘On the basis of your proposal form we can offer you
cover, with a sum insured of Rs. 100000.’ The proposer writes: ‘I accept, but I would like to increase
the sum insured to Rs. 200000.’ In this case, a contract has not been formed as the proposer has
not unconditionally accepted the offer. Only when the insurance company accepts the proposer’s
counter-offer, will a contract be formed provided the other essential elements are met.
Consideration:
• Consideration is something of value which is exchanged. Any valid contract must have a
Consideration.
• Many things can act as Considerations; Money is one of them.
• In an Insurance contract, Premium is the Consideration
Capacity to contract:
• Persons entering into contracts should be competent to do so.
Following are the criteria:
• The person is a major by age (age 18 and above);
• The person is of sound mind; and
• The person is not disqualified, by law, from entering into contracts.
Any contract entered into without following any of the above criteria, will become null and
void
Consensus ad idem:
Both the parties to the contract must understand and agree upon the
same thing, in the same sense. The proposer should have understood
the features of the insurance policy in the same manner in which it was
explained to them by the agent.
Legality of object or purpose:
The objective of both the parties to the contract should be to create a
legal relationship. One can not purchase insurance for any illegal
purpose or to make monetary gains.
Capability of performance:
The contract must be capable of being performed by both the parties.
For example, a person requesting life insurance for a very high amount
should be capable of paying the premium required.
Principles & Practices of
Insurance Contract
Principles & Practices of Insurance
Contract:
• Insurable Interest: When an individual gains from the existence of another
individual or property and suffers financial loss on death or disability of the other
individual or damage or destruction of the property, there is insurable interest.
Insurable interest is a type of investment that protects anything subject to a
financial loss. A person or entity has an insurable interest in an item, event, or
action when the damage or loss of the object would cause a financial loss or
other hardships.
• Relevance of insurable interest:
 In order to buy any kind of insurance, an individual has to have insurable interest
in the subject matter they wish to insure.
A person’s own life, other’s life, property, etc. are examples of subject matter of
insurance. I
• Insurable Insurance must be present in any insurance contract for it to be legally valid. Insurable
interest is deemed to exist in the following circumstances:
• Own life: A person has unlimited insurable interest in his own life.
• Spouse: A husband has insurable interest in the life of his wife and vice versa. Both will benefit from
the well-being of each other and would be adversely affected if something untoward happens to the
other. So a husband can take out life insurance cover for his wife and vice versa.
• Children: Parents can take insurance for their children when the children are dependents. Children
can also take out insurance for their parents when the parents are dependent upon them.
• Assets: A person has insurable interest in the assets he owns because he will use the assets for his
benefit and will suffer if the assets get damaged
• Creditor: A creditor has insurable interest in the life of the debtor to the extent of the money lended.
• Employer – employee: Employers have concern for the lives of the employees because of the
employees’ monetary contribution to the business. E.g. If an employee falls sick and remains absent
from work place for a long time, that will adversely impact the work.
• Keyman insurance: A company has insurable interest in the lives of certain people whose expertise is
extremely significant for company’s operations.
• Partners: Partners in a business have insurable interests in the lives of each other.
In LIFE INSURANCE, insurable interest needs to exist at the time of
purchasing the policy, i.e. at the inception of the policy.

In the case of GENERAL INSURANCE, insurable interest must exist at

the time of inception of the policy and also at the time of making a
claim.

In marine insurance insurable interest need to exist only at the time of

the claim.
Principles & Practices of Insurance
Contract:
• Utmost good faith: This is another important criterion for a valid insurance contract. Utmost
good faith is the duty to disclose all material facts, pertinent to the proposed risk, correctly
and voluntarily. The parties to a contract must volunteer to disclose all material information
before the contract starts. The principle applies equally to both the proposer and the insurer
throughout the contract negotiations.
Material facts can be defined as those which would influence the judgment of a prudent
insurer and will help the underwriters to decide two things:
• Whether to accept the risk in the proposal or to reject it; and
• If the proposal is to be accepted, then at what price (premium) it should be accepted.
If the proposer is in any doubt whether to consider a fact as material or not, he should disclose
it, regardless of whether there is a specific question on the proposal form about that fact.
Breach of the duty of utmost good faith:
Following are the categories:
Non-Disclosure
Concealment of the material fact
Fraudulent Misrepresentation
Innocent Misrepresentation
Breach of the duty of utmost good faith
Non-disclosure or omission of a material fact by the proposer, either
intentionally or unintentionally
E.g. the proposer, while applying for life insurance, does not disclose that he had undergone a
surgery in his childhood as he feels he has completely recovered from the surgery a long time ago
and hence it is immaterial to disclose this information to the insurance company.
Concealment of a material fact.
E.g. the proposer consumes alcohol regularly. However, before applying for life insurance he stops
consuming alcohol for a month so that this does not get detected during the medical test and he will
get insurance at better terms.
 Fraudulent misrepresentation or statements made with the intention of
deceiving the insurer.
E.g. the proposer declares his age to be less than his actual age and provides forged proof of age
documents and submits them to the insurance company to get insurance at better terms.
Innocent misrepresentation or inaccurate statements which the proposer believes to
be true.
Consequences of non-disclosure:
If the insured is guilty of breach of the duty of disclosure, the insurer may avoid the
contract entirely, from the beginning. In that case no claim will be payable and insurer
may even keep the premium.
Life insurance: duty of disclosure:
In the case of life insurance, the duty of disclosure arises at the time of applying for
the coverage until the time the risk is accepted by the insurance company and the
policy cover has commenced.
Indisputability clause (Section 45):
Section 45 of the Insurance Act specifies that within the first two years of the policy, if
the insurance company comes to know that some material facts have not been
disclosed by the proposer or have been misrepresented, it can declare the policy to be
null and void.
The insurance company may also keep all the premiums paid. After two years the onus
to establish the fraud is on the insurance company.
Indemnity:
 Indemnity is defined as the financial compensation after a loss that will put back the insured in the same financial
position as he enjoyed immediately before the loss had taken place.
 So in the event of a loss the insurance company compensates (indemnifies) the insured for the loss he incurs as per the
terms and conditions of the policy.
 The principle of indemnity makes sure that the insured is compensated only to the extent to which he has suffered a loss
and that insurance is not used to make profit.
 All General insurance policies as well as health insurance policies are contracts of indemnity whereby the insured is
compensated only to the extent of the actual monetary loss.
 But the same does not hold good for life insurance. Even if the policy holder has purchased multiple policies to insure the
same event, if a claim arises, compensation will only be paid to the extent of the actual financial loss, irrespective of the
number of policies.
 Life insurance contracts are known as contracts of value and the principle of indemnity does not apply to them.
 In the case of life insurance, if a person takes out multiple policies, in case of death all the insurance companies have to
pay the full sum insured as claims
Key Insurance
Terminologies
 Key Insurance Terminologies
Premium:

• Premium is the ‘consideration’ paid by the policyholder to the insurance company in order to get
coverage from an Insurance policy as per the terms of the ‘Insurance Contract’.

• A default in premium payment will result into discontinuance of the insurance contract. The
Policy will be treated as ‘lapsed’ and all benefits will stop.

Sum Insured:

The maximum amount of money that an insurer will have to pay as claim as per the terms of the
insurance contract.

Policy term:

The defined period for which the insurance coverage is valid.

Key Insurance Terminologies
Claims:
Claim is the demand for fulfillment of the promise made by the insurer at the time of
entering into the contract with the insured.
Lapse:
• The policyholder has to pay regular premiums on the due dates.
• In case the policyholder fails to pay the premium within the due date, insurance
companies provide some additional days beyond the due date to pay the due premium.
• These additional days are known as ‘Days of Grace’.
• The policyholder continues to enjoy all the benefits associated with the policy during the
days of grace.
• However, if the policyholder does not pay the premium even within the grace period, then
on expiry of the days of grace, the policy lapses. The benefits of the policy stops as well.
 History
Of
Insurance
History of Insurance

Origin of Insurance:
The origin of Insurance business in its present form can be traced to the LLOYD’S COFFEE HOUSE in London where
traders agreed to share the losses of their goods among themselves should the goods were robbed by pirates or spoilt by
bad weather while being carried in ships.
History of Insurance in India:
1818: First life insurance company, The Oriental Life Insurance Company, set up in Kolkata.
1870: First Indian life insurance company was formed called Bombay Mutual Assurance Society Ltd.
1912: The first statutory measure was introduced through The Indian Life Assurance Companies Act 1912.
1956: Life Insurance Corporation Act was passed & Life Insurance Corporation of India was created by taking over &
nationalizing 245 insurers.
1957: General Insurance Council was formed.
1972: The General Insurance Business (Nationalization) Act 1972 (GIBNA) was passed; The General
Insurance Corporation of India (GIC) was formed.
1993: R. N. Malhotra Committee was set up to study and recommend reformations for the insurance industry.
1994: R.N. Malhotra Committee recommended private and foreign investments in the insurance industry.
1999: Insurance Regulatory and development Authority ( IRDA ) was set up as a statutory body
 Types
Of
Insurance Companies
Types Of Insurance Companies

Insurance

Life Non- Life Re-

insurance Insurance Insurance
Life insurance companies:
Life insurance companies cover risks related to human lives. They offer different plans to cover the risk of
dying too early as well as the risk of living for too long. Under life insurance plans, insurance companies
provide death cover. If the insured person dies within the policy term then the nominee/beneficiary is paid
the sum insured. Under pension plans, insurance companies offer periodic monthly payments called
annuities to support the insured post retirement
Non-life insurance companies:
Non-life insurance companies cover risks other than those related to human lives except personal accident
and health insurance which are pertinent to human lives. Assets either provide monetary benefit (like
machines in the factory generating income) or provide convenience (like a car). Hence they need to be
insured as assets are exposed to various risks. They can be damaged by fire, earthquake, flood and riot or
can be stolen, etc., which may result into the owner undergoing monetary loss. Non-life insurance
companies provide coverage against these risks and compensate the owner should the asset be damaged.
Reinsurance companies:
Every insurance company has a threshold to accept risk beyond which if it accepts risk, it becomes a threat
to its existence. So, once insurance companies reach that limit, they too transfer some of their risks. The
company which accepts risk from Insurance companies is called Reinsurance Company. Reinsurance
companies take on a definite percentage of the risks from the insurance company in return for a payment or
consideration.
Types of Insurance
Types of Insurance
 Types of insurance
Life Insurance Plans
Term Life Insurance or Term Long-term pure financial protection plan for family
Plan
Whole Life Insurance Provides life cover for the entire life

Unit Linked Insurance Plan Invest in a mix of diversified equity and debt funds with just 5-year lock-
(ULIP) in for partial withdrawals
Endowment Plan Surety of receiving the intended sum at maturity
Money Back Plan Plan your cash flows for goals like child education and marriage

Retirement Plan Build a retirement corpus or build a pension for your golden years

Child Insurance Plan Invest in a child’s higher education and marriage goals under the safety
of life cover
Group Insurance Plan Useful for corporates and other organizations to cover their employees
and customers against unforeseen hazards

Savings & Investment Plans Channelize your savings towards a future goal
 Differences between Term Plan, Endowment Plan and ULIPs
ASPECT TERM INSURANCE ENDOWMENT PLAN ULIPS
Protection Life coverage Life + investment Life + investment
Premium Less High Higher
Maturity benefit No maturity benefit Death benefit and sum Units redeemed after prevailing rate
unless trop assured + bonus on maturity after maturity

Risk No risk No risk High risk

Returns Na Medium High
Transparency None No option to track Can keep track of portfolio

Flexibility No flexibility except No flexibility in investment Can switch funds and change
add Ons investment strategy

Tax benefits Available u/s 80c and Available u/s 80c and 10d Available u/s 80c and 10d
10d
Types of insurance - Life Insurance Plans
Term Insurance Plan
Term life insurance is a type of life insurance policy that provides coverage for a certain
period of time, or a specified “term” of years. In the event of death or Total and
Permanent Disability if the benefit is offered, the dependents will be paid a benefit. In
Term Insurance, no benefit is normally payable if the life assured survives the term.
 Term insurance protects your family’s financial future if something were to happen to you.
Designed as a simple and affordable way to give financial cover, a term plan is a vital part of
financial planning for the primary wage earner in a family.
 Term insurance is a pure protection plan and is not market-linked. Moreover, the premiums
for term insurance are lower as compared to any other life insurance product. The
premiums are also more affordable if you buy them early in life.
 Some term plans also give you the option to add riders, like critical illness coverage
(providing a lump sum for the treatment of specified critical ailments) and accidental death
benefit(paid over and above the sum assured in the unfortunate event of death due to an
accident).
 These riders can provide you and your family with an extra layer of protection at a
nominal increase in the premium.
Types of insurance - Life Insurance Plans
Whole Life Insurance Plans
• With whole life insurance, you are guaranteed lifelong protection. Whole life
insurance pays out a death benefit so you can be assured that your family is
protected against financial loss that can happen after your death. It is also an ideal
way of creating an estate for your heirs as an inheritance.
• Whole life insurance is ideal for those who have financial dependents even in their
old age. The biggest advantage of this product is that not only does it provide
lifelong protection to the insured but also provides a simple way to leave behind a
legacy for their children.
• Whole insurance plans offer a lot of stability.
• In the case of death of the policy holder during the term, the nominee receives
the policy benefits, including a bonus for the total premiums paid.
Types of insurance - Life Insurance Plans
Endowment Insurance Plans
 An Endowment Policy is a savings linked insurance policy with a specific maturity date.
Should an unfortunate event by way of death or disability occur to you during the period,
the Sum Assured will be paid to your beneficiaries.
On your surviving the term, the maturity proceeds on the policy become payable.
 Endowment plans are ideal for people who want guaranteed returns along with the protection
of life insurance.
 An endowment plan is a life insurance policy that provides life coverage along with an
opportunity to save regularly.
 This enables you to receive a lump sum amount on the maturity of the policy.
 Endowment plans are quite flexible too. You can choose a suitable method and time frame to
pay the premium. Endowment plans also give you a chance to benefit from bonuses, that are
paid additionally over and above the sum assured of your policy.
Types of insurance - Life Insurance Plans
Pension and savings plan ( Retirement Plan)
• Retirement plans are designed to help you build a sizeable corpus for
your post-retirement days. They help you gain financial independence
in your non-working years.
• A retirement plan allows you to save and invest for the long-term, thereby
offering the potential to accumulate a significant amount of wealth. Since
retirement plans offer insurance benefits, you can also ensure financial
security for your loved ones by investing in these plans.
• Retirement plans give you the opportunity to get potentially better
returns. This is done by investing your money in a mix of equity and
debt.
Types of insurance - Life Insurance Plans
ULIPs – Unit Linked Insurance Plans
• A Unit Linked Insurance Plan (ULIP) is a combination of insurance and
investment. A ULIP provides life cover that offers financial protection for
your loved ones. In addition to this, it also gives you the potential to create
wealth through market-linked returns from systematic investments.
• A ULIP offers you the opportunity to invest your money in different fund
options, depending on your risk appetite.
• Since each individual is different, ULIPs allow great flexibility for investment.
Your risk appetite and investment preferences are likely to change with
age. ULIPs permit you to take these factors into consideration and alter
your investment strategy accordingly.
• ULIPs also provide flexibility in terms of partial withdrawals and fund-
switching. They offer interesting benefits like loyalty additions and wealth
boosters to help you generate more wealth over time
 Types of insurance
Non-Life Insurance Plans / General
insurance
 Types of insurance
Non-Life Insurance Plans / General insurance
A. Fire Insurance
Fire insurance is a contract whereby the insurer, in consideration of the premium paid, undertakes
to make good any loss or damage caused by a fire during a specified period up to the amount
specified in the policy.
A claim for loss by fire must satisfy the following two conditions:
 There must be actual loss; and
 Fire must be accidental and non-intentional
 Essential elements of the Fire Insurance Contract
 The insured must have insurable interest both at the time of insurance and at the time of loss.
 The contract is based on the principle of utmost good faith.
 It is based on the principle of strict indemnity.
 Fire must be the proximate cause of damage or loss.
 Types of insurance
Non-Life Insurance Plans / General
insurance
B. Marine Insurance
• Marine insurance is a contract of insurance under which the insurer undertakes to
indemnify the insured in the manner and to the extent thereby agreed against
marine losses.
• The insured pays the premium in consideration of the insurer’s (underwriter’s)
guarantee to make good the losses arising from marine perils or perils of the sea.
• Marine perils can be collision of ship with the rock, fire, ship attacked by the
enemies, etc.
• These perils cause damage, destruction or disappearance of the ship and cargo and
non-payment of freight.
• Through marine insurance policy, the insurer undertakes to compensate the owner
of a ship or cargo for complete or partial loss at sea.
Essential elements of Marine Insurance Contract
 It is based on the principle of indemnity
 The contract is based on utmost good faith.
 The insurable interest must exist at the time of loss.
 The principle proximate cause will apply to marine loss only.
Types of insurance - Miscellaneous
Insurance
1) Health Insurance
• Health insurance policy is a contract
between an insurer and an individual or group, in which the insurer
agrees to provide specified health insurance at an agreed upon price
(premium).
• Disability resulting from illness or accident may be peril to family
because it not only cuts off income but also creates large medical
expenses.
• Health insurance is taken as safeguard against rising medical costs. It
provides risk coverage against unforeseen health expenditure that
may result in financial hardship.
Types of Health Insurance
There are mainly three types of Health Insurance covers:
I) Individual Mediclaim
• It covers the hospitalization expenses for an individual up to the sum
assured limit
ii) Family Floater Policy
• It covers the hospitalization expenses for entire family up to the sum
assured limit.
iii) Unit Linked Health Plans
• This policy combines health insurance with investment and pays
back an amount at the end of the insurance terms.
Types of insurance - Miscellaneous
Insurance
2) Motor Insurance
• Motor Insurance is a type of insurance policy which covers your vehicles from potential
risks financially. Policyholder's car or two-wheeler is provided financial security against
damages arising out of accidents and other threats. In India, motor insurance is
mandatory.
Types of Motor Insurance
a) Third-Party
• Third-party insurance is one of the most common types of vehicle insurance; in which
only damages & losses caused to a third-party person, vehicle or property are covered.
b) Comprehensive
• Comprehensive insurance is one of the most valuable types of vehicle insurance that
covers both third-party liabilities and damages to your own vehicle as well.
Types of insurance - Miscellaneous Insurance

3) Property Insurance
• Property insurance provides protection against most risks to property, such as fire, theft and
some weather damage.
• This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake
insurance, home insurance, or boiler insurance.
4) Liability Insurance
• Liability insurance is designed to offer specific protection against third-party insurance
claims, i.e., payment is not typically made to the insured, but rather to someone suffering
loss who is not a party to the insurance contract.
• Liability insurance provides protection against claims resulting from injuries and damage to people
and/or property.
• Liability insurance covers legal costs and payouts for which the insured party would be found liable.
• Provisions not covered include Intentional damage, contractual liabilities, and criminal prosecution.
Types of insurance - Miscellaneous
Insurance
5) Travel Insurance
• Travel Insurance is a type of insurance that covers different risks while travelling.
• It covers medical expenses, lost luggage, flight cancellations, loss of passport, Emergency
evacuation, Insured accident and death cover and other losses that a traveler can incur while
travelling etc.
6) Burglary Insurance
• Burglary insurance is an insurance policy which covers the financial loss that you suffer in case of
a burglary or attempted burglary into your home or business premises. Burglary is defined as an
act of forceful entry into the house or business premises with an illegal intention of theft.
• Burglary insurance covers the following losses which you might face in case of a burglary or
attempted burglary –
 Damage to the home or business premises due to forceful and unlawful entry
 Loss of assets or property due to theft and burglary
Reinsurance
• Reinsurance is the concept of “Insurance for insurers”. Insurance companies
transfer portions of their risk portfolios to the Reinsurer on the basis of some
form of agreement in order to reduce the possibility of meeting large
obligations resulting from Insurance claims, in exchange for a consideration.
• The insurance company that diversifies it’s risk is the Ceding company.
• The party that accepts the risk in exchange for a share of the insurance
premium is known as the Reinsurer.
• The Reinsurer promises to reimburse the Ceding Company for risk
underwritten by them should such a situation arises. There is no direct
contact between the policy holder and the Reinsurer.
Reinsurance -Types
• There are two types of Reinsurance:
• Treaty reinsurance: It is a form of reinsurance in which the ceding
company or the insurer makes an agreement to cede certain classes or
categories of business to the reinsurer and the reinsurer accepts the
same as part of the ‘treaty’.
• Facultative reinsurance: It is a form of reinsurance where each risk the
ceding company wishes to reinsure is offered to the reinsurer as a
single transaction or on an individual risk basis. The ceding company
negotiates an individual reinsurance agreement for every policy it will
reinsure. The reinsurer, on the other hand, is not obliged to accept
every or any submission.
Business Units in an Insurance Company

Product Development
Actuary
Marketing
Sales
 New Business
Underwriting
 Agency Management
 Policy Servicing
 Claims Management
 Investment
 Legal
Business Units in an Insurance Company
Product team:
- Develops plans with new features & advantages
- Calculates the cost associated with the plan
- Determines the premium to be charged.
Actuary:
- Mathematically evaluates likelihood of events and risks.
- Quantifies contingent outcomes associated with uncertain undesirable events.
- Determines the terms and conditions of insurance policies like calculation of
premium rates, pension fund management, etc.
- Determines current contributions and investment policies.
- Forecasts future payouts
Business Units in an Insurance Company
Marketing team:
• - Brand promotions and Brand building through different media.
• - Identifying various channels of product distribution
Sales team:
• - Recruits distributors (Agents, brokers, etc.)
• - Reaches out to the customers with the right kind of plan.
New Business team:
• - Collects new proposal forms along with other supporting documents
• - Scrutinizes the proposal forms and data
• - Provides customer service.
Business Units in an Insurance Company
Underwriting team:
• - Assesses risk associated with a proposal
• - Takes decisions about acceptance or rejection of the risks.
Agency Management:
• - Recruits & trains new agents
• - Calculates & processes Commission
 Business Units in an Insurance Company
Policy servicing team:
• - Facilitates Endorsement, Policy Re-instatement, Policy surrender / termination
• - Handles customer queries and complaints as well as handles orphan policies.
Claims Management team:
• - Takes care of Claim Notification, evaluation, processing, determining beneficiary.
• - Facilitates Claim payment.
Investment team:
• - Invests the excess of premiums to facilitate profit booking.
Legal team:
• - Provides inputs in product development
• - Creates contracts with agents and customers
• - Handles litigations
Overview of Insurance Life Cycle
Overview of Insurance Life Cycle
• The Application / proposal forms along with other relevant documents are is sourced
through various distribution channels and submitted to new business team.
• The proposal forms are scrutinized and checked for discrepancies post which they are
sent to the Underwriting team.
• Underwriters evaluate risks involved with each proposal and either accept or decline
the risk.
• Upon acceptance of risk the policy is issued and risk coverage starts.
• Policy servicing is the regular or on-going customer services provided by the Insurer to
the policy holder.
• The Claims team handles the claims procedure.
• Policy renewal is the renewal of the insurance contract upon payment of the due
premium.
Green and Sustainable Insurance
• Sustainable insurance is a strategic approach where all activities in
the insurance value chain, including interactions with stakeholders,
are done in a responsible and forward-looking way by identifying,
assessing, managing and monitoring risks and opportunities associated
with environmental, social and governance issues. – UN
Environment Programme Finance Initiative (UNEPFI)
• Sustainable insurance aims to reduce risk, develop innovative
solutions, improve business performance, and contribute to
environmental, social and economic sustainability.
Principles for Sustainable Insurance
• Launched at the 2012 UN Conference on Sustainable Development,
the UNEP FI Principles for Sustainable Insurance (PSI) serve as a
global framework for the insurance industry to address
environmental, social and governance risks and opportunities.
• The PSI initiative is the largest collaborative initiative between the UN
and the insurance industry.
Principles for Sustainable Insurance