Insurance Notes – Definition of insurance, Nature of Insurance, functions of Insurance, principles of insurance, kinds of insurance, life insurance, General Insurance, Social Insurance, Property insurance and liability insurance, History of Insurance in India, Evolution of Insurance in India, Types of Insurance organisations, self-insurance, individual insurer, partnership firm, joint stock companies, mutual companies, co-operative insurance organisation, Lloyd’s Association, Insurance Organisation in India, Role and importance of Insurance
Table of Contents
Insurance Notes PDF download
In this post, we are providing complete Notes on Insurance that will cover the following:
- Introduction to Insurance Notes
- General Insurance Notes
- Types of Insurance Notes
- Principles of Insurance
- Insurance Notes for competitive exams like banking, UPSC APFC and LIC AAO
- Life Insurance Notes
- Banking Insurance Notes
- Fire Insurance Notes
- Insurance Law Notes
Definition of Insurance
Insurance is a contract between an individual or entity (known as the insured) and an insurance company (known as the insurer) in which the insurer agrees to provide financial protection or reimbursement for losses, damages, or liabilities that the insured may experience. In exchange, the insured agrees to pay a premium to the insurer. Insurance is a way of managing risk and protecting against potential financial losses, whether those losses are due to accidents, illness, theft, natural disasters, or other unforeseen events. The types of insurance available can vary widely, from auto insurance and health insurance to homeowner’s insurance and business liability insurance.
Nature of insurance
The nature of insurance is to provide protection against potential financial losses due to unforeseen events or risks. Insurance is based on the principle of risk management, where the risk is transferred from the insured to the insurer in exchange for payment of a premium. Insurance is a contract between the insured and the insurer, where the insurer agrees to provide financial protection or reimbursement for losses, damages, or liabilities that the insured may experience.
Insurance is also a pooling of risks, where a large number of individuals or entities pay premiums to the insurer, which is then used to pay claims for those who experience losses. The insurer uses actuarial science to calculate the likelihood of losses occurring and the amount of premiums required to cover those losses.
Insurance provides a sense of security and peace of mind to the insured, knowing that they are protected against financial losses due to unforeseen events. Insurance also helps to promote economic stability and growth, by providing a mechanism for individuals and businesses to manage risks and protect against potential losses.
Functions of Insurance
Here are some common functions of insurance:
1. Risk transfer: Insurance allows individuals and businesses to transfer the financial risk of potential losses to an insurance company in exchange for a premium.
2. Protection: Insurance provides protection to individuals and businesses from unexpected events that can result in financial loss, such as accidents, illness, natural disasters, and theft.
3. Financial stability: Insurance provides financial stability to individuals and businesses by providing a source of funds to help recover from losses.
4. Loss prevention: Insurance companies provide loss prevention and risk management services to help individuals and businesses prevent losses from occurring in the first place.
5. Capital accumulation: Life insurance policies can also serve as a means of saving and investing money, providing a source of capital accumulation.
6. Encourages risk-taking: Insurance allows individuals and businesses to take on more risk knowing that they have a safety net in case things go wrong.
7. Facilitation of credit: Insurance can facilitate credit by providing a means for lenders to protect their investments in case of unexpected events.
Overall, insurance plays an important role in promoting economic growth, reducing financial uncertainty, and protecting individuals and businesses from the adverse effects of unexpected events.
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Principles of Insurance
The two principles of insurance are:
1. Principle of Co-operation: The principle of co-operation in insurance states that insurance works on the principle of mutual co-operation, where individuals or businesses pool their risks together and agree to pay premiums into a common fund. This fund is then used to pay for the losses of the few who suffer losses or damages. The principle of cooperation is based on the concept that by working together, the insured can spread the risk of loss over a larger group, thereby reducing the burden of the loss on the individual.2. Principle of Probability: The principle of probability in insurance states that the risk of loss or damage must be calculable based on past experiences and statistical data. This principle is based on the concept that the occurrence of loss or damage is uncertain, but the probability of its occurrence can be estimated through the analysis of historical data. Insurance companies use actuarial science to calculate the probability of loss or damage and determine the premium to be charged to the insured. The principle of probability is essential to ensure that the premiums charged by insurance companies are fair and reflect the risk of loss or damage faced by the insured.
Kinds of Insurance
Life insurance is a type of insurance policy that provides financial protection to your loved ones in the event of your death. It typically pays out a lump sum of money to your designated beneficiary upon your passing, which can be used to cover expenses such as funeral costs, mortgage payments, and other living expenses.
Life insurance policies can be purchased for a specific period of time (known as term life insurance), or they can provide coverage for the duration of your life (known as permanent life insurance). Term life insurance policies typically offer lower premiums and a set term, whereas permanent life insurance policies have higher premiums but offer lifetime coverage and the possibility of accumulating cash value over time. The cost and coverage of life insurance policies can vary depending on factors such as your age, health, lifestyle, and the amount of coverage you require. It’s important to carefully consider your options and choose a policy that meets your specific needs and budget.
Life insurance in India dates back to the early 19th century when the Oriental Life Insurance Company was established in Kolkata (formerly Calcutta) in 1818. This was followed by the Bombay Life Assurance Company, which was founded in 1823. These early insurance companies were primarily established to provide cover to European settlers in India. The first Indian life insurance company, the Bombay Mutual Life Assurance Society, was established in 1870. Over time, more Indian-owned insurance companies were established, including the National Indian Insurance Company in 1906, the United India Insurance Company in 1938, and the Life Insurance Corporation of India (LIC) in 1956. LIC is the largest life insurance company in India and is owned by the Indian government.
General insurance is a type of insurance policy that provides financial protection against losses or damages that may arise due to unforeseen events such as accidents, natural disasters, theft, or damage to property. General insurance covers a wide range of assets, including homes, cars, businesses, and travel.
In contrast, life insurance is a type of insurance policy that provides financial protection to your loved ones in the event of your death. It typically pays out a lump sum of money to your designated beneficiary upon your passing, which can be used to cover expenses such as funeral costs, mortgage payments, and other living expenses.
The key difference between general insurance and life insurance is that general insurance protects against potential losses or damages to assets, while life insurance protects against the financial impact of the loss of an individual’s life. General insurance policies are typically shorter-term and may need to be renewed periodically, whereas life insurance policies can provide coverage for the duration of an individual’s life.
Both types of insurance policies can help individuals manage financial risks and provide peace of mind in the event of unforeseen events. It’s important to carefully consider your insurance needs and choose policies that meet your specific needs and budget.
Social insurance is a type of insurance program that is typically sponsored and managed by the government, with the goal of providing social and financial protection to individuals and families against various risks, including illness, disability, old age, and unemployment. Social insurance programs are funded through contributions from employees, employers, and the government.
Unlike life insurance and general insurance, social insurance is not typically designed to provide individual or family-level financial protection against losses or damages due to unforeseen events. Instead, it is intended to provide a safety net for individuals and families in times of need or crisis and to promote social welfare and economic stability. Some examples of social insurance programs include social security programs, which provide retirement, disability, and survivor benefits to eligible individuals; unemployment insurance, which provides temporary financial assistance to workers who have lost their jobs; and workers’ compensation, which provides benefits to workers who have been injured on the job.
Property insurance and liability insurance
Property insurance and liability insurance are two types of insurance policies that provide coverage for different types of risks.
Property insurance is a type of insurance that provides coverage for damage to or loss of physical property, such as a home, car, or business. It typically covers damage caused by perils such as fire, theft, and natural disasters. Property insurance may also cover damage to personal belongings and provide liability protection for injuries that occur on the property.
Liability insurance, on the other hand, provides coverage for legal claims and damages that may arise from an individual’s or business’s actions or omissions. It protects against financial loss if someone is injured or their property is damaged as a result of your actions or negligence. Liability insurance can include coverage for bodily injury, property damage, and legal fees.
Both property insurance and liability insurance are important to have to protect yourself and your assets in the event of an unexpected loss or legal claim.
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History of Insurance in India
The history of insurance in India dates back to the early 19th century during the British colonial period. Here’s a timeline of the major milestones in the development of insurance in India:
1. Oriental Life Insurance Company (1818): The first life insurance company in India, known as the Oriental Life Insurance Company, was established in Kolkata (then Calcutta) in 1818. It primarily catered to European merchants living in India.
2. Bombay Mutual Life Assurance Society (1870): The Bombay Mutual Life Assurance Society, the first Indian life insurance company, was formed in 1870 in Mumbai (then Bombay). It provided life insurance coverage to Indian individuals.
3. Triton Insurance Company (1850) and Indian Mercantile Insurance (1907): The first non-life insurance companies in India were established in the 19th century. Triton Insurance Company was set up in Kolkata in 1850, and Indian Mercantile Insurance was founded in Mumbai in 1907.
4. The Insurance Act (1938): The Insurance Act of 1938 was a crucial development in regulating the insurance industry in India. It provided a legal framework for the establishment, regulation, and control of insurance companies.
5. Nationalization of Insurance (1956): In 1956, the Government of India passed the Life Insurance Corporation Act, nationalizing the life insurance sector in the country. The Life Insurance Corporation of India (LIC) was formed as a statutory corporation to take over the assets and liabilities of the existing private life insurance companies.
6. General Insurance Nationalization (1972): Following the nationalization of life insurance, the General Insurance Business (Nationalization) Act was passed in 1972. It led to the creation of four public sector general insurance companies: National Insurance Company, New India Assurance Company, Oriental Insurance Company, and United India Insurance Company.
7. Liberalization and Privatization (2000s): In the early 2000s, the Indian insurance industry underwent significant reforms with the opening up of the sector to private players. The Insurance Regulatory and Development Authority (IRDA) Act was enacted in 1999, establishing the Insurance Regulatory and Development Authority (IRDA) as the regulatory body for insurance in India. This led to the entry of private insurance companies in both life and non-life insurance segments.
Since then, the insurance sector in India has witnessed substantial growth, with the presence of both public and private insurance companies offering a wide range of life and non-life insurance products to individuals and businesses.
Evolution of Insurance in India
Insurance in India has a long history that dates back to the 19th century when the British colonial government introduced various forms of insurance to protect their commercial interests in India.
The first insurance company in India was Oriental Life Insurance Company, which was established in 1818 in Kolkata (then known as Calcutta). Other early insurance companies included the Bombay Life Assurance Company, the Madras Equitable Life Insurance Society, and the Triton Insurance Company.
In the early 20th century, Indian-owned insurance companies began to emerge, with the establishment of companies such as the Indian Mercantile Insurance Company, the United India Insurance Company, and the National Insurance Company. These companies primarily offered fire and marine insurance to Indian businesses.
After India gained independence in 1947, the government began to regulate the insurance industry more closely. In 1956, the Life Insurance Corporation of India (LIC) was established as a state-owned insurance company to provide life insurance to the Indian population. In 1972, the General Insurance Corporation of India (GIC) was established to oversee the general insurance industry in India.
In 1999, the Indian government opened up the insurance sector to private companies, leading to the establishment of several private insurance companies in India. Today, there are over 50 insurance companies operating in India, offering a wide range of insurance products including life insurance, health insurance, motor insurance, and property insurance. The evolution of insurance in India has been driven by the need to protect businesses and individuals against various risks and to provide financial security to the population. The Indian insurance industry continues to evolve as new risks emerge and new technologies are developed to manage them.
Types of Insurance Organisations
In India, self-insurance refers to a form of risk management where individuals or organizations choose to bear the financial consequences of potential losses themselves, rather than transferring the risk to an insurance company. Self-insurance can be adopted by both individuals and businesses as a strategy to manage risks associated with various aspects of their lives or operations.
In the context of individuals, self-insurance typically involves setting aside a certain amount of money or creating a contingency fund to cover potential losses or expenses. For example, instead of purchasing health insurance, an individual may choose to save money in a separate account to cover medical expenses.
In the business sector, self-insurance is more common among large corporations or organizations that have the financial capacity to absorb potential losses. They may choose to retain the risk internally rather than purchasing insurance coverage. This can be done by establishing a dedicated fund or reserve specifically for covering potential losses.
It’s important to note that self-insurance requires careful evaluation of the potential risks and the financial capacity to handle such risks. It may not be suitable for all types of risks or for individuals or organizations with limited financial resources. Self-insurance also comes with the responsibility of actively managing and monitoring the potential risks to ensure that adequate funds are available to cover any losses that may arise.
It is always advisable to consult with insurance professionals or financial advisors to assess the feasibility and potential risks associated with self-insurance before making any decisions.
An Individual like other business can perform the business of insurer provided he has sufficient resources and talent of insurance business. The Individual organisation has been rare in the field of insurance.
In the context of insurance, a partnership firm refers to a business entity formed by two or more individuals (partners) who come together to carry out a business venture. A partnership firm is a popular form of organization in various industries, including the insurance sector.
In a partnership firm, the partners pool their resources, skills, and capital to operate the business and share in its profits and losses. Each partner contributes to the partnership either financially or through their expertise and efforts. The partnership firm is governed by a partnership agreement that outlines the rights, responsibilities, and profit-sharing arrangements among the partners.
When it comes to insurance, a partnership firm can obtain insurance coverage to protect its business interests and assets. The insurance policies can cover various aspects, such as property, liability, business interruption, professional indemnity, and more, depending on the nature of the partnership firm’s operations.
For example, a partnership firm in the construction industry may opt for liability insurance to protect against third-party claims arising from accidents or property damage at a construction site. Similarly, a partnership firm in the healthcare sector may choose professional indemnity insurance to safeguard against potential lawsuits related to medical malpractice.
The insurance coverage for a partnership firm is typically obtained in the name of the firm itself, with the partners listed as beneficiaries or interested parties. The premiums for the insurance policies are generally paid by the partnership firm from its pooled resources.
It’s important for partnership firms to carefully assess their insurance needs and work with insurance professionals or brokers to select the appropriate coverage. The specific insurance requirements may vary based on the nature of the partnership firm’s business, size, location, and other factors. Compliance with any legal or regulatory insurance requirements is also essential for partnership firms operating in the insurance sector.
Joint Stock Companies
A joint stock company, also known as a corporation or a company limited by shares, is a legal entity formed by a group of individuals who contribute capital in the form of shares to establish and operate a business. The ownership of the company is divided into shares, which represent the proportionate ownership and voting rights of the shareholders. The liability of the shareholders is generally limited to the value of their shares, providing them with limited liability protection.
In the context of insurance in India, joint stock companies play a significant role. Insurance companies in India are typically structured as joint stock companies, where the ownership is divided among shareholders. These companies are licensed and regulated by the Insurance Regulatory and Development Authority of India (IRDAI) to provide insurance products and services to individuals and businesses.
The role of joint stock insurance companies in India is to underwrite and manage various types of insurance policies, including life insurance, health insurance, motor insurance, property insurance, and more. These companies collect premiums from policyholders and, in return, provide financial protection against specified risks and potential losses.
Joint stock insurance companies in India have the following key responsibilities:
- Assessing Risk:
Insurance companies evaluate and assess the risks associated with insurable events or occurrences, such as accidents, illnesses, property damage, or loss of life. They use actuarial techniques and statistical analysis to determine the probability and potential severity of such risks.
- Underwriting Policies:
Insurance companies underwrite insurance policies by setting the terms, conditions, and premium rates based on the assessed risks. They decide whether to accept or reject an application for insurance coverage and determine the appropriate coverage limits.
- Managing Claims:
When policyholders experience covered losses or events, insurance companies handle the claims process. They investigate the claims, verify the authenticity of the loss, and make payments to the policyholders according to the terms of the insurance policy.
- Investment Management:
Insurance companies manage the funds they collect through premiums and invest them to generate returns. These investments help insurance companies maintain financial stability and meet their obligations to policyholders.
- Compliance and Regulation:
Insurance companies must comply with the regulations set forth by the IRDAI and other relevant regulatory authorities. They are responsible for maintaining solvency, financial stability, and transparency in their operations.
Overall, joint stock insurance companies play a crucial role in providing insurance coverage and managing risks for individuals, businesses, and other organizations in India. They contribute to the stability and growth of the insurance sector and help individuals and businesses protect themselves against various risks and uncertainties.
In India, mutual companies in the insurance sector are entities that operate on the principle of mutuality. A mutual insurance company is owned and governed by its policyholders, who are also referred to as members. Unlike joint stock companies where ownership is divided among shareholders, in a mutual insurance company, the policyholders are the owners.
Here are key features and aspects of mutual insurance companies in India:
1. Ownership: The policyholders of a mutual insurance company are its owners. They hold membership rights, which include the right to vote on company matters such as electing the board of directors and approving major decisions.
2. No Shareholders: Mutual companies do not have traditional shareholders who receive dividends or capital gains from their investment in the company. Instead, any profits generated by the mutual insurance company are returned to the policyholders in the form of policyholder dividends or bonuses.
3. Policyholder Dividends: In a mutual insurance company, policyholder dividends are a way to distribute surplus or profits to the policyholders. These dividends are typically given to policyholders in proportion to their participation in the company, which may be based on the premiums paid or the coverage provided.
4. Policyholder Participation: Policyholders in a mutual insurance company have the opportunity to participate in the governance and decision-making processes. They can attend general meetings, voice their opinions, and contribute to the overall direction and management of the company.
5. Customer Focus: Mutual insurance companies are often associated with a strong customer-centric approach. Since the policyholders are the owners, the company’s interests are aligned with the policyholders’ needs and interests. This can result in a focus on providing quality service and competitive premiums.
It’s important to note that while mutual insurance companies exist in India, the majority of insurance companies operating in the country are joint stock companies. However, mutual insurance companies can play a role in specific sectors or types of insurance. For instance, in India, there are mutual insurance companies that provide coverage in the agricultural sector, such as agriculture insurance and cooperative societies.
Co-operative Insurance Organisation
In India, cooperative insurance organizations are entities that operate on the cooperative principles, where individuals come together to form a cooperative society or organization to provide insurance services to their members. These organizations are collectively owned and controlled by their members, who are both the insurers and the insured. Cooperative insurance organizations focus on meeting the insurance needs of their members rather than maximizing profits.
The concept of cooperative insurance organizations in India is based on the principles of mutual assistance and cooperation. These organizations aim to provide affordable insurance coverage to their members, particularly those belonging to economically weaker sections of society or specific occupational or professional groups. The cooperative structure allows members to pool their resources and share risks collectively.
Cooperative insurance organizations in India are regulated and supervised by the Insurance Regulatory and Development Authority of India (IRDAI). They are required to comply with relevant regulations and guidelines to ensure proper governance, financial stability, and protection of the interests of their members.
The key features and characteristics of cooperative insurance organizations in India include:
1. Membership: Membership in cooperative insurance organizations is typically open to individuals or entities who meet specific eligibility criteria. The members participate in the governance and decision-making processes of the organization, usually through a democratic system of voting.
2. Member-Oriented: Cooperative insurance organizations prioritize the needs and interests of their members. The insurance products and services offered are designed to cater to the specific requirements of the members, often focusing on sectors such as agriculture, rural development, or small-scale industries.
3. Risk Pooling: Members contribute premiums or fees, which are pooled together to cover potential losses and risks. The funds collected from members are utilized to provide insurance coverage and manage the affairs of the cooperative insurance organization.
4. Mutual Assistance: Cooperative insurance organizations operate on the principle of mutual assistance, where the members support and assist each other in times of need. If a member experiences a covered loss, the organization provides financial assistance or compensation from the pooled funds.
5. Limited Profit Orientation: While cooperative insurance organizations aim to generate sufficient funds to cover their operating expenses and ensure sustainability, their primary focus is not profit maximization. Excess funds, if any, are often reinvested in the organization or distributed among the members in the form of rebates or dividends.
Cooperative insurance organizations in India offer a range of insurance products, including life insurance, health insurance, and general insurance, tailored to meet the specific requirements of their members. These organizations contribute to financial inclusion, social welfare, and the promotion of cooperative values in the insurance sector.
Lloyd’s is not an association, but rather a well-known insurance market located in London, United Kingdom. It is often referred to as Lloyd’s of London or simply Lloyd’s. Lloyd’s is not an insurance company itself, but a marketplace where multiple insurance syndicates and underwriters come together to provide insurance coverage for a wide range of risks.
The history of Lloyd’s dates back to the late 17th century when it started as a coffeehouse where merchants, shipowners, and others gathered to discuss and arrange insurance coverage for maritime ventures. Over time, it evolved into a formalized marketplace for insurance, with Lloyd’s Act of 1871 establishing it as a corporation governed by a regulatory framework.
Lloyd’s operates as a unique insurance market where various underwriting syndicates, known as “Members,” pool their capital and expertise to assume risks. These Members can be individuals, corporations, or other entities. Each Member at Lloyd’s is responsible for their own underwriting decisions and assumes a proportionate share of the risks they underwrite.
Lloyd’s provides a platform where brokers and insurers come together to negotiate and transact insurance contracts. The insurance risks covered at Lloyd’s are diverse, ranging from marine and aviation to property, casualty, and specialty lines such as fine art, cyber, and terrorism insurance.
One of the key features of Lloyd’s is its decentralized structure. Each syndicate or underwriting entity operates independently, and the Members have financial responsibility for the risks they underwrite. This system allows for flexibility, innovation, and specialization, as each Member can focus on specific areas of expertise.
Lloyd’s is known for its expertise in providing coverage for complex and high-value risks that may be difficult to insure in traditional insurance markets. The market’s reputation is built on its financial strength, technical underwriting skills, and global reach.
Insurance brokers play a crucial role in facilitating the placement of insurance business at Lloyd’s by connecting clients seeking insurance coverage with underwriters at Lloyd’s who can provide the desired coverage.
Overall, Lloyd’s of London is a globally recognized and respected insurance market that brings together underwriters, brokers, and clients to provide insurance solutions for a wide range of risks, including those that are unique or hard to place in other insurance markets.
Insurance Organisation in India
Departmental insurances are prevalent in different departments of the Central and State Governments. The postal department of the country has its own system of insurances under which the employees of post-offices are insured, Similarly, the postal department as a carrier of goods has also provided insurance for the goods to be despatched. These insurances are not compulsory in India. The state governments of different states have also provided sickness maternity, disability, medical and pension insurance to respective employees.
In India, two corporations are established under separate acts to deal with the insurance business.ct, 1956
- Life Insurance Corporation of India Act 1956
The Life Insurance Corporation of India Act, 1956 is an important legislation governing the functioning of the Life Insurance Corporation of India (LIC). LIC is the largest state-owned life insurance company in India and was established in 1956 by nationalizing various private insurance companies.
The Act was enacted by the Parliament of India to provide a legal framework for the incorporation, regulation, and control of the Life Insurance Corporation of India. It outlines the powers, functions, and responsibilities of LIC, as well as the rights and obligations of policyholders and other stakeholders.
Key features of the Life Insurance Corporation of India Act, 1956 include:
1. Establishment and incorporation of LIC: The Act establishes LIC as a statutory corporation and provides for its incorporation and management.
2. Powers and functions of LIC: It outlines the powers and functions of LIC, including the power to carry on life insurance business, investment of funds, and acquisition of property.
3. Policyholder protection: The Act includes provisions to protect the interests of policyholders, such as the nomination of beneficiaries, surrender value of policies, and settlement of claims.
4. Control and regulation: The Act establishes the framework for the control and regulation of LIC by the central government, including the appointment of a chairman and other key officers.
5. Financial provisions: It outlines the financial provisions related to the capital, reserves, and funds of LIC, as well as the submission of annual reports and financial statements.
6. Dissolution and winding up: The Act provides provisions for the dissolution and winding up of LIC in certain circumstances.
Since its enactment, the Life Insurance Corporation of India Act, of 1956 has been amended several times to reflect changes in the insurance industry and to enhance the governance and regulatory framework of LIC.
- General Insurance Corporation of India
The General Insurance Corporation of India (GIC Re) is a state-owned reinsurance company in India. It was established in 1972 under the provisions of the General Insurance Business (Nationalization) Act, 1972. GIC Re was formed with the goal of strengthening and consolidating the general insurance industry in India.
GIC Re operates as the national reinsurance company, providing reinsurance support to various insurance companies in India and abroad. Its primary objective is to mitigate risks and promote stability in the general insurance market. GIC Re also plays a crucial role in the development of the insurance industry in the country.
Key features and functions of the General Insurance Corporation of India include:
1. Reinsurance: GIC Re specializes in providing reinsurance services, which involve accepting risks from primary insurance companies (cedants) and spreading them across a broader portfolio. By doing so, GIC Re helps insurance companies manage their risks and maintain financial stability.
2. International operations: GIC Re operates globally and offers reinsurance solutions in various countries. It has branches and subsidiaries in several countries and works closely with international reinsurers and insurers.
3. Facultative and treaty reinsurance: GIC Re offers both facultative and treaty reinsurance. Facultative reinsurance involves assessing and accepting individual risks on a case-by-case basis, while treaty reinsurance involves providing coverage for a specified portfolio of risks.
4. Underwriting expertise: GIC Re possesses extensive underwriting expertise and risk assessment capabilities. It evaluates risks and determines appropriate reinsurance terms and pricing based on factors such as the nature of the risk, coverage required, and prevailing market conditions.
5. Risk management and research: GIC Re is actively involved in risk management and research activities. It conducts studies, gathers data, and collaborates with industry stakeholders to understand emerging risks, develop risk management strategies, and promote sustainable growth in the insurance sector.
6. Government ownership and regulation: As a state-owned corporation, GIC Re operates under the regulatory oversight of the Insurance Regulatory and Development Authority of India (IRDAI) and the Ministry of Finance. The government has a majority ownership in GIC Re.
- Employees State Insurance Corporation
The Employees’ State Insurance Corporation (ESIC) of India is a statutory body established under the Employees’ State Insurance Act, of 1948. It is a social security organization that provides medical, financial, and other benefits to employees and their dependents in the organized sector in India.
Here are the key features and functions of the Employees’ State Insurance Corporation:
1. Social Security Coverage: ESIC provides social security coverage to employees working in factories, establishments, and businesses that employ 10 or more individuals. It includes both employees earning wages up to a certain limit and their dependents.
2. Health Insurance: ESIC offers medical benefits to insured individuals and their dependents. It provides comprehensive medical care through its network of hospitals, dispensaries, and clinics. Insured persons and their family members are eligible for medical treatment, hospitalization, specialist consultations, diagnostic tests, and medicines.
3. Cash Benefits: ESIC provides cash benefits to insured employees during periods of sickness, maternity, disablement, and death. Sickness benefit is payable in case of temporary disablement due to an illness or injury, while maternity benefit is provided to women during pregnancy and after childbirth. In the event of permanent disablement or death due to employment-related injuries, disablement benefit and dependent’s benefit are available, respectively.
4. Employment Injury Insurance: ESIC operates an employment injury insurance scheme that provides compensation and medical benefits to employees who suffer from employment-related injuries or occupational diseases. It covers medical expenses, disability benefits, and rehabilitation services for the affected individuals.
5. Fund Management: ESIC manages a fund that comprises contributions from both employers and employees. Employers contribute a percentage of wages paid to employees, while employees contribute a smaller percentage from their wages. The fund is utilized for providing social security benefits and for the administration of the ESIC.
6. Governance and Administration: ESIC is governed by a central board comprising representatives from the central and state governments, employers, employees, medical professionals, and other stakeholders. The corporation is responsible for the administration and management of the ESIC, including the establishment and maintenance of hospitals, dispensaries, and other medical facilities.
The Employees’ State Insurance Corporation plays a crucial role in ensuring social security and welfare for employees in the organized sector in India. It aims to provide accessible healthcare services and financial support during contingencies, thereby promoting the overall well-being of insured individuals and their families.
- Deposit Insurance Corporation
This corporation was established in 1962. It provides protection to the depositors of a bank. In case the bank fails, the depositors can get returned their deposits up to rupees ten thousand.
Companies were established by the government according to the provision of Indian Companies Act. In 1957, export risks insurance corporation was established to insure the export risks. The name of this company was converted to export credit and guarantee corporation in 1964. Now, all the general insurance businesses are conducted by the said four government companies.
Role and Importance of Insurance
Insurance plays a crucial role in society by providing financial protection and risk management for individuals, businesses, and organizations. Here are some key roles and importance of insurance:
1. Risk Transfer: Insurance allows individuals and businesses to transfer the financial consequences of potential risks and losses to an insurance company. By paying premiums, policyholders transfer the risk to the insurer, which assumes the responsibility of compensating for covered losses. This helps protect individuals and businesses from significant financial hardships and allows them to focus on their core activities without excessive worry about unforeseen events.
2. Financial Protection: Insurance provides a safety net to individuals and families by offering financial protection against various risks. Life insurance, for example, ensures that dependents are financially supported in the event of the policyholder’s death. Health insurance covers medical expenses, reducing the burden of healthcare costs. Property and casualty insurance protect against damage to assets and liability claims.
3. Business Continuity: For businesses, insurance is essential for maintaining the continuity of operations. It safeguards against risks that can disrupt business activities, such as property damage, liability claims, employee injuries, or legal disputes. Insurance coverage can help businesses recover from losses, repair or replace damaged assets, and continue operating during challenging times.
4. Risk Management: Insurance facilitates effective risk management for individuals and businesses. It encourages proactive risk assessment and mitigation strategies. Insurance companies often provide risk management advice and services to policyholders to minimize the probability and impact of potential losses. By promoting risk awareness and mitigation, insurance contributes to a more secure and resilient society.
5. Investment and Savings: Some insurance products, such as life insurance plans and retirement annuities, serve as long-term investment and savings vehicles. These policies provide a means for individuals to accumulate funds over time and ensure financial security in the future. Insurance companies often offer products with investment components that can generate returns and build cash value.
6. Economic Stability: Insurance plays a vital role in the overall economic stability of a country. It helps mitigate the financial impact of large-scale disasters, such as natural catastrophes or major accidents, by spreading the risk across a broad pool of policyholders. This prevents a concentrated burden on individuals or businesses affected by such events and promotes quicker recovery and rebuilding efforts.
7. Legal and Regulatory Requirements: Insurance is often a legal or regulatory requirement for individuals and businesses. For example, motor vehicle insurance is mandatory in many countries to protect against third-party liability and property damage. Employers are typically required to have workers’ compensation insurance to cover employees’ work-related injuries. Compliance with these insurance requirements ensures the well-being of individuals and promotes a fair and responsible society. Overall, insurance plays a vital role in providing financial protection, promoting risk management, and contributing to the stability and well-being of individuals, businesses, and society as a whole. It helps mitigate potential losses, fosters economic stability, and enables individuals and businesses to pursue their goals with confidence.
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FAQs – Insurance Notes pdf download
What is the Insurance Act of 1938?
The Insurance Act of 1938 is an important piece of legislation in India that governs the insurance sector in the Country. This Act was enacted by the British Colonial Government and has gone under several amendments so far to accommodate changing market dynamics.
What is Motor Vehicle Insurance?
Motor Vehicle Insurance is a type of insurance that covers financial protection against losses or damages arising from accidents, theft, or other incidents involving motor vehicles. It is a contract between the vehicle owner and an insurance company, where the owner pays a premium in exchange for the insurer’s promise to compensate for covered losses. This motor vehicle insurance is also known as auto insurance or car insurance.
what is risk management in Insurance?
Risk Management in Insurance refers to the process of identifying, assessing, and mitigating risks associated with insurance activities. It involves analysing potential risks that can impact an insurance company’s financial stability and developing strategies to minimize those risks.