INSURANCE

Prof. Sarbesh Mishra,

Finance Area.
CONCEPT OF RISK

 Possibility of adverse results flowing

from any occurrence.
 Risk arises out of uncertainty i.e.
possibility of an outcome being
different from the expected.
 The term risk is used in insurance
business also mean either a peril to
be insured against.
DEFINITION
 Risk is a condition where there is a
possibility of an adverse deviation
from a desired outcome that is
expected or hoped for.
 Degree of risk may or may not be
measurable.
 Risk entails the possibility of financial
loss.
 Financial loss may be defined as a
decline in or disappearance of value
due to a contingency.
THE DEGREE OF RISK

 Greater the uncertainty, greater is the

risk.
 Higher the probability of loss, greater
is the risk.
 The expected value of loss in a given
situation, or the mathematical value
of a risk at any point of time, is the
probability of the loss materializing
multiplied by the amount of
anticipated loss.
SPREADING OF RISK
 Bywriting different classes of insurance
business and even within a single class,
by catering to various types of risk.

 By writing business in different

geographical locations, states within a
country or different countries.

 By means of reinsurance, i.e. by placing

reinsurance business with other
companies
MANAGEMENT OF RISK
 The identification, analysis and
economic control of those risks which
can threaten the assets or earning
capacity of an enterprise.

 Risk Management “increases the

probability of success, reduces the
probability of failure and the
uncertainty of achieving the
organization’s overall objectives”
RISK TRANSFER

 An organisation can transfer the

financial effect of the risk to some
other party.
 Insurance is a risk transfer
mechanism by which an
organisation can exchange its
uncertainty.
 The organisation agrees to pay a fix
premium and insurance company
agrees to meet any losses.
RISK ASSESSMENT

Risk assessment is defined as, “the

overall process of risk analysis and
risk evaluation”

3. Risk Identification
4. Risk Description
5. Risk Estimation
THE INSURANCE TRANSACTION

 Insurance is a contract.
 One party namely the insurer,
contracts with another, the
policyholder, to perform a particular
service.
 The practical aspects of the
insurance contract are proposed to
be dealt with here.
 The risk, insurer and insured forms
a triangle.
STEPS IN INSURANCE

 Filling of proposal form.

 Issuance of insurance policy.

Insurance policy contains

4. Components of Policy
5. The Heading
6. The Preamble
7. The Signature
Contd….

1. The operative Clause

2. The Exceptions
3. The Policy Schedules
4. Definitions
5. Conditions
6. Cover Notes
7. Certificates