INSURANCE INTRODUCTION

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated DEFINITION A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured. Insurance is a contract in which a sum of money is paid to the assured as consideration of insurers incurring the risk of paying a large sum upon a given contingency. JUSTICE TINDALL FEATURES 1. Sharing of Risk: Insurance is a device to share the financial losses which might befall on an individual or his family on the happening of a specified event. The event may be death of a bread-winner to the family in the case of life insurance, marine-perils in marine insurance, fire in fire insurance and other certain events in general insurance, e.g., theft in burglary insurance, accident in motor insurance, etc. The

loss arising nom these events if insured are shared by all the insured in the form of premium. 2. Co-operative Device: The most important feature of every insurance plan is the co-operation of large number of persons who, in effect, agree to share the financial loss arising due to a particular risk which is insured. Such a group of persons may be brought together voluntarily or through publicity or through solicitation of the agents. An insurer would be unable to compensate all the losses from his own capital. So, by insuring or underwriting a large number of persons, he is able to pay the amount of loss. Like all cooperative devices, there is no compulsion here on anybody to purchase the insurance policy. 3. Value of Risk: The risk is evaluated before insuring to charge the amount of share of an insured, herein called, consideration or premium. There are several methods of evaluation of risks. If there is expectation of more loss, higher premium may be charged. So, the probability of loss is calculated at the time of insurance. 4. Payment at Contingency: The payment is made at a certain contingency insured. If the contingency occurs, payment is made. Since the life insurance contract is a contract of certainty, because the contingency, the death or the expiry of term, will certainly occur, the payment is certain. In other insurance contracts, the contingency is the fire or the marine perils etc., may or may not occur. So, if the contingency occurs, payment is made, otherwise no amount is given to the policy-holder. Similarly, in certain types of life policies, payment is not certain due to uncertainty of a particular contingency within a particular period. For example, in terminsurance then, payment is made only when death of the assured occurs within the specified term, may be one or two years. Similarly, in Pure Endowment payment is made only at the survival of the insured at the expiry of the period. 5. Amount of Payment: The amount of payment depends upon the value of loss occurred due to the particular insured risk provided insurance is there up to that amount. In life

insurance, the purpose is not to make good the financial loss suffered. The insurer promises to pay a fixed sum on the happening of an event. If the event or the contingency takes place, the payment does fall due if the policy is valid and in force at the time of the event, like property insurance, the dependents will not be required to prove the occurring of loss and the amount of loss. It is immaterial in life insurance what was the amount of loss at the time of contingency. But in the property and general insurances, the amount of loss as well as the happening of loss, are required to be proved. 6. Large Number of Insured Persons To spread the loss immediately, smoothly and cheaply, large number of persons should be insured. The co-operation of a small number of persons may also be insurance but it will be limited to smaller area. The cost of insurance to each member may be higher. So, it may be unmarketable. Therefore, to make the insurance cheaper, it is essential to insure large number of persons or property because the lesser would be cost of insurance and so, the lower would be premium. In past years, tariff associations or mutual fire insurance associations were found to share the loss at cheaper rate. In order to function successfully, the insurance should be joined by a large number of persons. 7. Insurance is not a gambling: The insurance serves indirectly to increase the productivity of the community by eliminating worry and increasing initiative. The uncertainty is changed into certainty by insuring property and life because the insurer promises to pay a definite sum at damage or death. From a family and business point of view all lives possess an economic value which may at any time be snuffed out by death, and it is as reasonable to ensure against the loss of this value as it is to protect oneself against the loss of property. In the absence of insurance, the property owners could at best practice only some form of self-insurance, which may not give him absolute certainty. 8. Insurance is not Charity: Charity is given without consideration but insurance is not possible without premium. It provides security and safety to an individual and to the society although it is a kind of business because in consideration of premium it guarantees

the payment of loss. It is a profession because it provides adequate sources at the time of disasters only by charging a nominal premium for the service. ADVANTAGES

Risk Cover - Life today is full of uncertainties; in this scenario Life Insurance ensures that your loved ones continue to enjoy a good quality of life against any unforeseen event. Planning for life stage needs - Life Insurance not only provides for financial support in the event of untimely death but also acts as a long term investment. You can meet your goals, be it your children's education, their marriage, building your dream home or planning a relaxed retired life, according to your life stage and risk appetite. Traditional life insurance policies i.e. traditional endowment plans, offer in-built guarantees and defined maturity benefits through variety of product options such as Money Back, Guaranteed Cash Values, Guaranteed Maturity Values. Safe and profitable long-term investment - Life Insurance is a highly regulated sector. IRDA, the regulatory body, through various rules and regulations ensures that the safety of the policyholder's money is the primary responsibility of all stakeholders. Life Insurance being a long-term savings instrument, also ensures that the life insurers focus on returns over a long-term and do not take risky investment decisions for short term gains. Assured income through annuities - Life Insurance is one of the best instruments for retirement planning. The money saved during the earning life span is utilized to provide a steady source of income during the retired phase of life. Protection plus savings over a long term - Since traditional policies are viewed both by the distributors as well as the customers as a long term commitment; these policies help the policyholders meet the dual need of protection and long term wealth creation efficiently. Growth through dividends - Traditional policies offer an opportunity to participate in the economic growth without taking the investment risk. The investment income is distributed among the policyholders through annual announcement of dividends/bonus.

Tax Benefits-Insurance plans provide attractive tax-benefits for both at the time of entry and exit under most of the plans.

DISADVANTAGES Term insurance provides coverage only for a limited period of time, although some term policies can be renewed indefinitely. Premium rates are guaranteed only until the end of the term. Depending on the policy, premiums may be level for a period of 1, 5, 10, 15, 20, 25, or 30 years and then ceasewithout any renewal option, or offer continual renewals at a higher premium rate. Deteriorating health can trap you in a policy with rapidly increasing premiums.

TYPES OF INSURANCE
1. Marine Insurance: The marine insurance is the oldest form of insurance. Under Bottom bond, the system of credit and the law of interest were well-developed and were based on a clear appreciation of the hazard involved and the means of safeguarding against it. If the ship was lost, the loan and interest were forfeited. The contract of insurance was made a part of the contract of carriage, and Manu shows that Indians had even anticipated the doctrine of average and contribution. Freight was fixed according to season and was expected to be reasonable in the case of marine transport which was then very much at the mercy of winds and elements. Travelers by sea and land were very much exposed to the risk of losing their vessels and merchandise because the piracy on the open seas and highway robbery of caravans were very common. Besides there were several risks, Many times, it might have been captured by the king's enemies or robbed by pirates or got sunk in the deep waters. The risk to owners of such ships were enormous and, therefore, to safeguard them the marine traders devised a method of spreading over them the financial loss which could not be conveniently borne by the unfortunate individual victims. The co-operative device was quite voluntary in the beginning, but now in modern it has been converted into modified shape of premium.

The marine policies of the present forms were sold in the beginning of fourteenth century by the Brogans. On the demand of the inhabitants of Burges, the Court of Flanders permitted in the year 1310, the establishment in this Town of a charter of Assurance, by means of which the merchants could insure their goods, exposed to the risks of the sea. The insurance development was not confined to the Lombard's and to the Hansa merchants; it spread throughout Spain, Portugal, France, Holland and England. The marine form land lending prominence of Lombard's merchants got a prominent section of the London City. They built homes there and took the name of Lombard Street. Later on, this street became famous in insurance history. The Lloyd's coffee-house gave an impetus to develop the marine insurance. 2. Fire Insurance: After marine insurance, fire insurance developed in present form. It had been observed in Anglo- Section Guild form for the first time where the victims of fire hazards were given personal assistance by providing necessaries of life. It had been originated in Germany in the beginning of sixteenth century. The fire insurance got momentum in England after the great fire in 1666 when the fire losses were tremendous. About 85 per cent of the houses were burnt to ashes and property worth of sterling ten crores were completely burnt off. Fire Insurance Office was established in 1681 in England. With colonial development of England, the fire insurance spread all over the world in present form 'Sun Fire Office was successful fire insurance institution. In India, the general insurer started working since 1850 with the establishment of the Triton Insurance, Calcutta. Again in 1861, the North British and Mercantile catered the requirements of insurance business. The general insurance in India could not progress much. The slow growth of jointstock enterprise and mechanised production was another reason for the low level of general insurance business. 3. Life Insurance: Life insurance made its first appearance in England in sixteenth century, the first recorded evidence in England being the policy on life of William Gibbons on June

18, 1653. Even before this date annuities had become quite common in England, and marine insurance had, in fact, made its appearance three thousand years ago. The life insurance developed at Exchange Alley. The first registered life office in England was the Hand-in-Hand Society established in 1696. The famous Amicable Society for a Perpetual Assurance Office started its operation since 1706. Life insurance did not prosper in the United States during the 18th century, because of serious fluctuations in death-rate, but soon after 1800 some active interest began to be shown in this enterprise because of the application of level premium plan which had by then been in operation in U.K. for more than a generation. In India, some Europeans started the first life insurance company in Bengal Presidency, viz., the Orient Life Assurance Company in 1818. The year 1870 was a year of a landmark in the history of Indian Insurance separating the early period of pioneering attempts at life insurance from the subsequent period of steady development at the establishment of Indian Life Office, viz., Bombay Mutual Life Assurance Society in 1871. The next important life office was Oriental Government Security Life Assurance Co., Ltd., which started its operation since 1874. Since then several offices developed in India. 4. Miscellaneous Insurance: The miscellaneous insurance took the present shape at the later part of nineteenth century with the industrial revolution in England. Accident insurance, fidelity insurance, liability insurance and theft insurance were the important form of insurance at that time. Lloyds's Association was the main functioning institution. Now, insurances such as cattle insurance, crop insurance, profit insurance, etc., and are taking place. The scope of general insurance is increasing with the advancement of the society.

REINSURANCE
INTRODUCTION Reinsurance is insurance that is purchased by an insurance company (the "ceding company" or "cedant" or "cedent" under the arrangement) from one or more other

insurance companies (the "reinsurer") as a means of risk management, sometimes in practice including tax mitigation and other reasons described below. The ceding company and the reinsurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay a share of the claims incurred by the ceding company. The reinsurer is paid a "reinsurance premium" by the ceding company, which issues insurance policies to its own policyholders. The reinsurer may be either a specialist reinsurance company, which only undertakes reinsurance business, or another insurance company. For example, assume an insurer sells 1000 policies, each with a $1 million policy limit. Theoretically, the insurer could lose $1 million on each policy totaling up to $1 billion. It may be better to pass some risk to a reinsurer as this will reduce the ceding company's exposure to risk. DEFINITION The practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions. FEATURES ADVANTAGES 1. The original insurer can accept the risk to the extent of his limit. In absence of reinsurance, a person desiring a large amount of insurance will have to take a number of policies from several insurers. This reinsurance contract makes it possible to purchase only one policy from an insurer. 2. Reinsurance makes it possible to accept each risk for the very amount desired by the proposer and to transfer the excess above the 'retention limit' to another insurer. 3. The reinsurance gives the benefit of the greater stability resulting from a widespread of business. By accepting many risks and scaling down, by reinsurance, all those that are larger than the normal carrying capacity of the insurer justifies, certainty in business is substituted for uncertainty through the better application of the law of average.

4. The reinsurance makes stability in underwriting and consistency in underwriting results over a period. 5. It provides a safeguard against serious effects of conflagration. 6. The reinsurance has the effect of stabilizing income and losses over a period of years. DISADVANTAGES

TYPES
1. Facultative Coverage This type of policy protects an insurance provider only for an individual, or a specified risk, or contract. If there are several risks or contracts that needed to be reinsured, each one must be negotiated separately. The reinsurer has all the right to accept or deny a facultative reinsurance proposal. 2. Reinsurance Treaty Unlike a facultative policy, a treaty type of coverage is in effect for a specified period of time, rather than on a per risk, or contract basis. For the duration of the contract, the reinsurer agrees to cover all or a portion of the risks that may be incurred by the insurance company being covered. 3. Proportional Reinsurance Under this type of coverage, the reinsurer will receive a prorated share of the premiums of all the policies sold by the insurance company being covered. Consequently, when claims are made, the reinsurer will also bear a portion of the losses. The proportion of the premiums and losses that will be shared by the reinsurer will be based on an agreed percentage. In a proportional coverage, the reinsurance company will also reimburse the insurance company for all processing, business acquisition and writing costs. Also known as ceding commission, such costs may be paid to the insurance company upfront.

4. Non-proportional Reinsurance In a non-proportional type of coverage, the reinsurer will only get involved if the insurance companys losses exceed a specified amount, which is referred to as priority or retention limit. Hence, the reinsurer does not have a proportional share in the premiums and losses of the insurance provider. The priority or retention limit may be based on a single type of risk or an entire business category. 5. Excess-of-Loss Reinsurance This is actually a form of non-proportional coverage. The reinsurer will only cover the losses that exceed the insurance companys retained limit. However, what makes this type of contract unique is that it is typically applied to catastrophic events. It can cover the insurance company either on a per occurrence basis or for all the cumulative losses within a specified period. 6. Risk-Attaching Reinsurance Under this type of contract, all policy claims that are established during the effective period of the reinsurance coverage will be covered, regardless of whether the losses occurred outside the coverage period. Conversely, no coverage will be given on claims that originate outside the coverage period, even if the losses occurred while the reinsurance contract is in effect. 7. Loss-occurring Coverage This is a type of treaty coverage where the insurance company can claim all losses that occur during the reinsurance contract period. The important factor to consider is when the losses have occurred and not when the claims have been made.

CONCLUSION
Reinsurance mean insuring again. It is transfer of insurance risk from one insurer to another. Under reinsurance the original insurer who has insured a risk, insuresa part of that risk with another insurer. Reinsurance premium is an income to thereinsurer and an expense to the insurer. Reinsurance is a good

method todiversify and distribute risks of an insurer. Reinsurance even provide technicalassistance and rating assistance to the original insurers. Reinsurance is also acontract of indemnity. The object of underwriting is to make a reasonable profit, itis equally essential that the business ceded to reinsurers should also give them amargin. For profit, therefore, the overall quality of business accepted by directinsurers should be good.Today, the environment is more like a business than a gentlemen's club. Youhave more players, more deals, and contracts can vary greatly betweenreinsurers. Disputes are no longer resolved by a handshake. They are morefrequent and more difficult to resolve.