Introduction Insurance

 

Insurance – in simple language it means to transfer risk to someone who is capable of handling it generally to insurer (Insurance Company). It is considered as a process by which the losses of a few, who are unfortunate to suffer such losses, are shared amongst many those exposed to similar uncertain events/situations.

A) Life insurance history and evolution:-

. The origin of insurance business started from London’s Lloyd coffee house.

. 1st life insurance company to be set up in India was The Oriental Life Insurance company ltd.

. 1st Non-life insurance company was Triton Insurance company ltd.

. 1st Indian insurance company was Bombay Mutual Assurance society ltd.

. National Insurance company ltd. is the oldest insurance company founded in 1906.

 B) How insurance works: - There must be an asset which has economic value (Car-physical; Goodwill-non physical; Eye-personal). These assets may lose value due to uncertain event. This chance of loss/damage is known as risk. The cause of risk is known as peril. Persons having similar risks pool (contribute) money (premium) together. There are 2 types of Risk Burdens –

. Primary burden of risk – losses actually suffered. Eg. Factory getting fire.

. Secondary burden of risk – losses that might happen. Eg. Physical/mental Stress strain.

 C) Risk management techniques:- The various types of techniques that can be used to manage risk are risk avoidance ; risk retention; risk reduction and control; risk financing.

 D) Insurance as a tool for managing risk:-

. Don’t risk a lot for a little. Eg. There is no need to insure a ball pen as its cost is not high.

. Don’t risk more than what we can afford to lose. Eg. We cannot afford to not insure our house as its cost is high.

. Don’t insure without considering the likely outcome. Eg. Can anyone insure a space satellite?

Note:- Insurance refers to protection against an event that might happen whereas Assurance refers to protection against an event that will happen.