How it all started

 Babylonia ( that’s current day Iraq) – 2100 BC

Chinese, Persians followed

 “Friendly societies” – In Rome, England (pre

17th century)

 Edward Lloyd’s coffee house in London (late

1680’s)  Lloyd’s of London
 The Role of Insurance
Insurance Provides Security

 Security is peace of mind and

freedom from worry. Most of our
economic actions are for the
satisfaction of something we
perceive as a need. One important
need is a sense of security for
those whose well-being we are
responsible for.
 The Role of Insurance
Insurance Provides Security

 There are nearly universal problems such

as death, sickness, accidents, and
disability that might occur at any time
without warning. Usually, these bring
serious financial losses, as well as
emotional distress within the family.
 Insurance has been developed as a
practical means to ease part of the
economic problems resulting from the
above hazards.
 The Role of Insurance
Insurance Provides Security

 Life insurance replaces the loss of the

anticipated income of a spouse and/or parent
who dies.
 Health insurance reimburses medical
expenses that could be catastrophic.
 Disability insurance can fill part of the void
when one is unable to produce income.
 Annuities can provide a guaranteed income
stream when one ages beyond the capability to
produce earned income, or if a person's other
financial resources are exhausted.
 The Role of Insurance
 What is the main reason
individuals buy insurance?

 Individuals buy insurance to give

them ------------and -------------.
 The Nature of Insurance
 The purpose of any insurance is to
provide economic protection
against the losses that may be
incurred due to chance events such
as:
 1. Death
 2. Disability
 3. Medical expenses
 4. Home or automobile damage, etc.
 The Nature of Insurance
 One party (the insurer), for a set
amount of money (premium), agrees
to pay the other party (the insured or
beneficiary), a sum of money
(benefit) upon the occurrence of
an event which may or may not
occur, during the effective time
of the contract, which is called a
policy.
 The Nature of Insurance
 How does insurance satisfy the
need for peace of mind?
____________ .

 Ans. Insurance provides E______ P

_________against losses that may
be incurred due to chance events
that M ____or_____ occur during
the effective time of the contract
during the effective time of the
 Basic Insurance
Principles
 Risk Pooling
Rather than face the risk of totaling
our car and being required to replace
it out of current income, we enter a
pool, joining others for a known
affordable fee, thus sharing the risk
with other pool members. This
concept of transferring the
individual's risk to the pool is as old
as mankind first banding into tribes.
 Basic Insurance
Principles
 Law of Large Numbers
If the pool is small, there is the risk of Adverse
Selection meaning that there are too few
members in the pool to make accurate
predictions of the frequency of an occurrence.
 For example, if I take one die from a pair of
dice and roll it 10 times, I might well have 4
fives turn up out of the 10 rolls. However, if it
is rolled 100 times, 1000 times, 10,000 times,
or 200,000 times, the sides will come up
equally to 3 or 4 decimal points. Thus, it
becomes predictable. When the frequency of
the occurrence is accurately established,
losses can be predicted and the amount
needed (premium) from each member of the
 Basic Insurance
Principles
 What is the danger if the risk
pool is small? A_____ S______ .

 Basic principles of insurance

include: The P____ of risks, and
the Law of L ______N ________.
 Market
Leadership
LIC (in PSUs)
Market share : Approx. 82 %
Total Premium : 127822 Rs Cr (2006-07)
ICICI Prudential (In Pvt. Sector):
Market share : Approx. 5.07 %
Total Premium : 7912 Rs Cr (2006-07)

New India Assurance Co. (In PSUs)

Market share : Approx. 25%
Total Premium : 5936 Rs Cr (2006-07)
ICICI Lombard (In Pvt. Sector)
Market share : Approx. 12.5%
Total Premium : 2989.07 Rs Cr (2006-07)
Thank you!