Insurance is a mechanism for mitigating risk whereby individuals and entities protect themselves from financial loss by transferring their risks to an insurance company in exchange for a fee called a premium. It involves spreading risk among many individuals or entities to help offset the cost of unexpected losses or disasters. The key parties involved are the insured or assured who takes out the policy, the insurer or assurer who underwrites the risk, and the subject matter which is being insured such as a person's life or property.

2. MEANING AND DEFINITION OF
INSURANCE
• The pace of globalization and industrialization of the modern age has caused men and his
property most vulnerable to different types of risk and uncertainties of life. The
uncertainties of death, unemployment, sickness from various diseases of man and his
property exposing risks from fire, water, floods, accident, sea perils and negligence etc of
natural calamity. In order to relief from such various uncertainties, insurance is one of the
best solution.
• Insurance is a device by which the loss likely to be caused by an uncertain event is spread
over a number of persons who are exposed to it and who propose to insure themselves
against such an event. Insurance is the elimination of risk and the substitution of certainty
for uncertainty. The plan of insurance is only to reduce the risk and does not completely
eliminate it from the society.
• Insurance is a contract between two parties whereby a person undertakes in consideration
of a fixed sum to pay to the other a fixed amount of money on the happening of a certain
event(death or attaining certain age in case of human life) or pay the amount of actual loss
when it takes place through a risk insured(in case of property).

3. MEANING AND DEFINITION OF
INSURANCE
• “Insurance is defined as a cooperative device to spread the loss caused by a particular risk
over a number of persons who are exposed to it and who agree to ensure themselves
against that risk.”
• In sum insurance may be described as a financial device or contract to mitigate or
eliminate risk of loss to life and property. It involves avoiding, mitigating and transferring of
risk.

4. PARTIES INVOLVED IN INSURANCE
The instrument containing the contract of insurance is called a policy/insurance policy.
The person whose risk is insured is called INSURED or ASSURED,
The person or the company who insures is known as INSURER or ASSURER or
UNDERWRITER.
The fixed amount of money for consideration in return for which the insurer agrees to
make good loss is the PREMIUM.
The things or property which forms the basis of insurance is called SUJECT MATTER OF
INSURANCE.
The interest of the assured in the subject matter is called the INSURABLE INTEREST.

5. FUNCTIONAL DEFINITION OF INSURANCE
Insurance is:
a) Cooperative device to spread the risk
b) System that spread the risk over a number of persons, who are insured
against the risk.
c) Principle to share the loss of each member of the society on the basis of
probability of loss to their risk.
d) Method to provide security against losses to the insured.

6. CONTRACTUAL DEFINITION OF
INSURANCE
Insurance is contract whereby:
a) Certain sum called premium is charged in consideration
b) Against the said consideration a large sum is guaranteed to be paid by the
insurer who received the premium.
c) The payment will be made in a certain definite sum i.e. the loss or the
policy amount whichever may be
d) Payment is made only upon a contingency.

7. NATURE OF INSURANCE
Nature of
Insurance
Insurance is
not a charity
Risk
Assessment
Risk Sharing
Cooperative
Device
Insurance by
Choice not by
Chance
Insurance is
not a
Gambling
Large no of
Insured
Persons
Quantum of
Compensatio
n
Payment at
Contingency

8. ELEMENTS OF INSURANCE
• Affordable Premium
• Calculable Loss
• Loss must not be catastrophic
• Loss must be Fortuitous or Accidental
• Loss must be Definite and Measurable
• Large number of Homogenous Exposure Units

9. SIGNIFICANCE OF INSURANCE
• Protection against risk of loss
• Distribution of Risk
• Optimum utilization of Capital
• Formation of Capital
• Advancement of Loans
• Aids to Foreign trade
• Mobilization of small Savings
• Social Security
• Specialization of labor

10.  Significance to Individual
• Security and Safety
• Protects Mortgage Property
• Eliminates Dependency
• Encourages Saving
• Profitable Investment
• Fulfill needs of person- Physiological, Safety, Social, Ego/ Esteem , etc
 Significance to Business
• Reduces uncertainty of business loss
• Increases Business Efficiency
• Business Continuation
• Welfare of Employees (Gross Insurance)
 Significance to Society
• Wealth of Society is protected
Life – Human Wealth
• Economic Growth
• Reduces Inflation
SIGNIFICANCE OF INSURANCE

11. BENEFITS OF INSURANCE IN
ECONOMIC DEVELOPMENT
• Promotes Financial Stability
• Facilitates trade and commerce
• Helps in mobilize saving
• Enables risk to be managed more efficiently
• Encourages loss mitigation
• Fosters Efficient capital allocation
• Complement of Government Security Programs

12. FUNCTIONS OF INSURANCE
 Primary Functions
• Insurance provides certainty
• Insurance provides protection
•Risk Sharing
 Secondary Functions
• Prevention of loss
•Provides capital
•Improves efficiency
•Economic Progress

13. PRINICIPLES OF INSURANCE
• Principle of Insurable interest
• Principle of Indemnity
• Principle of Subrogation
• Principle of Contribution
• Principle of Proximate cause
• Doctrine of Utmost good faith
• Mitigation of Loss
• Warranty

14. RE-INSURANCE

15. RE-INSURANCE
• Reinsurance is a contract between two or more insurance companies by which the
portion of risk or loss is transferred to another insurance company.
• The situation of reinsurance occurs when the insurance company undertakes more risk
burden than its bearing capacity.
• In reinsurance one insurer insures the risks, which he had undertaken with another
insurer.
• E.g.: Suppose “A” a factory owner approached to insurance companies “X” for the
insurance of its plant for 100 Crores. Looking at the financial condition the insurance
company “X” considers to retain 50 Crores. In such situation, the insurance company has
two options to deal with. The company “X” can either decline the risk, which is beyond its
financial capacity and other is to accept the whole risk amount and approach with other
insurer for the excess of his financial capacity i.e. other 50 Crores. The excess/balanced
amount for which he approached the other insurer is t Reinsurance.

16. Insured/
Assured
INSURED Assured
Company/ Person- who
wants to
have insurance policy
Looking out for 25
Crores insurance
policy
Approaches
To
Insurance Company
A
Insurer/Assurer
Company 1
Maximum bandwidth
of risk taking is 15
Crores
Approaches
To
Insurance Company
B
Re-Insurer-
Insurer/Assurer
Company 2
Remaining risk born
by is 10 Crores
The Insurance Company A has
two option- either it should bear
the risk of whole amount alone or
should look out the partner
company for risk sharing
Amount payment as per risk shared
At the time of loss payment to Insured/Assured
PROCESS OF RE-INSURANCE

17. TYPES OF REINSURANCE
1. Proportionate Reinsurance
 Quota Method: Certain proportion of every risk is shared as the agreement. I.e.
50% Reinsurance in risk and half the premium, half calm while the lending
insurer holds the balance of 50%.
 Share Surplus Method: Under this agreement, the amount for the reinsurance
company, the scope of geographical area and class of business are all included.
When risk is proposed the reinsurance company has a free choice within the
liability specified in the agreement as to how much it will retain for its own
amount.

18. TYPES OF REINSURANCE
2. NON-PROPORTIONATE REINSURANCE
• EXCESS OF LOSS METHOD: Under this the insurer decided the ceiling amount he is
prepared to bear on any one loss ad seeks reinsurance under an agreement whereby the
reinsurers will be responsible for the amount of losses above the amount retained by the
direct insurer.
• EXCESS OF LOSS RATIO METHOD: It doesn’t deal with individual risk or events but is
designed to prevent wide fluctuations of the net claims ratio of particular account over one
financial year compared with another. The reinsurance is intended to protect the company from
an abnormal experience and not just the normal year to year fluctuation.
• TREATY METHOD: There is agreement between the insurer and re-insurer or a number of re-
insurer whereby each re-insurer is bound to accept a fixed share of every risk coming within the
scope of the agreement.
• FACULTATIVE METHOD: It is the direct reinsurance of individual risks through the medium of a
broker in precisely the same way as original insurance is placed.
• POOLS METHOD: The member companies accept to pool together all their business to a
leading office and this leading office makes the payment. The losses and profits shall be
distributed amongst member companies as per the shares in business.

19. ADVANTAGES OF REINSURANCE
• It is a security for the insurer where he can share the risks with other insurers.
• Reduces the situations of uncertainty by distribution of risks among the various
insurers
• Increases the capacity of insurer to undertake the insurance of larger amount
without any hesitations.
• Re-insurer can contribute to design the product, pricing and marketing of new
products or services.
• Limitation of liability of insurer to an amount within its financial capacity.

20. BANCASSURANCE

21. MEANING OF BANCASSURANCE
• Bancassurance is the alternative distribution channel where the insurance
products and services are distributed through the banks branch network.
• It is the room for bancassurance where banking and insurance congregate with
each other.
• It is the selling of insurance products or services by the banks.
• Bancassurance is a relationship between a bank and an insurance company
that is aimed at offering insurance products or insurance benefits to the bank's
customers. In this partnership, bank staff and tellers become the point of sale
and point of contact for the customer

22. ADVANTAGES OF BANCASSURANCE
• Bancassurance enables to develop a sales culture within the bank.
• The distribution of insurance products and services through banks has been
beneficial to both insurance and banking companies.
• It gives the insurance companies an opportunity to tap the rural sectors.
• Tie-up with a bank with an appropriate customer base can give insurer a cheap
access to these areas.
• Bancassurance enables to have a huge pool of skilled professionals.

23. ADVANTAGES OF BANCASSURANCE
Advantages to Banks
• Productivity of employees increases.
• By providing customers with both the services under one roof, they can improve overall customer
satisfaction resulting in higher customer retention levels.
• Increase in return on assets by building fee income through the sale of insurance products. (Minimum
investment and “No” risks)
• Can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell
insurance products.
• Generation of additional profits.
• Staff will be motivated through financial and other incentives.
• The “Tough” effective and efficient sales and marketing culture will have a favorable impact on the banks
marketing function.
• Retention of “existing” and acquisition of “new” customers.
• Certain life insurance products will protect or minimize their risk exposure – mortgage or other loans, key man
etc.
• Ability to sell bank products to life insurer’s clients.

24. ADVANTAGES OF BANCASSURANCE
Advantages to Insurers
• Generation of additional sales.
• Increase in profits.
• Additional funds for investment.
• Ability to sell bank products to client base – generating additional profits.
• Sales force will be motivated through additional income and ability to offer more products to their clients and
prospects.
• Retention of “Existing” and acquisition of “New” customers.
• The “Good” culture of the bank will have a favorable impact on the life insurer.
• Insurers can exploit the banks’ wide network of branches for distribution of products. The penetration of banks’
branches into the rural areas can be utilized to sell products in those areas.
• Customer database like customers’ financial standing, spending habits, investment and purchase capability
can be used to customize products and sell accordingly.
• This channel allows an insurer to effectively tap the rural sector. Selling insurance through traditional methods
in rural area is an expensive proposition.
• Since banks have already established relationship with customers, conversion ratio of leads to sales is likely
to be high. Further service aspect can also be tackled easily.

25. ADVANTAGES OF BANCASSURANCE
Advantages to Consumers
• Comprehensive financial advisory services under one roof. i.e., insurance services along with
other financial services such as banking, mutual funds, personal loans etc.
• Enhanced convenience on the part of the insured.
• Easy access for claims, as customers visit banks regularly.
• Innovative and better product ranges.

26. MODELS OF BANCASSURANCE
Different Bancassurance business models as given below are prevalent in different countries:
• Distribution agreements: In simplest form called ‘tied agent’, the bank’s personnel sell the
products of one insurer exclusively, either in stand-alone basis or bundled with bank products.
• Strategic alliance: This is a higher degree of intervention in product development, service
provision and channel management by way of bank investing sizably in insurance business
without any contingent liability.
• Joint venture: Here a large bank with a well developed customer database partners with a large
insurer with strong product and channel experience, to develop a powerful new distribution model.
Alternatively, a bank and insurance company may agree to have cross holdings between them to
share the profits.
• Financial service group: Under further integration between a bank and insurer, an insurance
company may build/buy a bank or a bank may build/buy an insurance company.
• Thus banks could associate themselves with insurance companies by becoming a distributor or by
being a strategic investor or developing a joint venture or by becoming a promoter. Most of the
bancassurance operations fall in the first model.

27. INSURANCE DOCUMENTS
• Insurance documents are the documents or the paper required while applying for
insurance policy. It is the proof of the insurance policy adopted by the
insured/Assured who is liable to receive the insurance amount for the any loss
caused to Insured.
• The terms and condition of the policies will provide the grounds to decide the issues
in the dispute. These terms will relate to statements and actions at various time
during the course f the policies. This will have to be provided through documents.
The major insurance documents are:

28. INSURANCE DOCUMENTS
1. Proposal Forms: It usually obtain the proposal in a standardized printed form. The
proposal form contain the following info.
a) Name and address of proposed insured/Assured.
b) Name of the person to be insured if different.
c) Detail life occupation.
d) Details about date of birth, insurance plan, terms and sum assured.
e) Riders are the extra benefit to the proposer.
f) Details about earlier proposal.

29. INSURANCE DOCUMENTS
2. First Premium Receipt(FPR): It is first premium receipt of the insurance. FPR as per
the plan of insurance. If insured is given as OR status then FPR is given at first
condition . FPR is the evidence of that the insurance policy contract have begun. FPR
Contains
a) Policy No.
b) Date of commencement of risk and Insurance policy
c) Date of maturity
d) Date of last payment of premium
e) Premium amount
f) Premium Mode
g) Name and address of life assured/Insured
h) Date on which next premium is due, etc.

30. INSURANCE DOCUMENTS
3. Renewal Premium Receipt(RPR): RPR are the very important to provide payment,
detain of the insured. The mode of RPR for payment can be any.
4. Endorsement Form: Transfer of policy in the name of other person or entity is the
endorsement of insurance policy. The endorsement form consists of two parts:
a. Nomination: Blood relation transfer
b. Assignment: Third party transfer
5. Renewal And Bonus Notice: Policies can be renewed upon the maturity period and
the notices for bonus collection in case of participatory policy.

31. INSURANCE DOCUMENTS
6. Policy Document: It is a evidence of contract which is preprinted. It has certain clauses
that is as terms and condition placed and disclosed between both the parties who are
duly abide by it. It is stamped and authorized by the competent authorities. The policy
document contains the following info;
a) The facility available for mode and period of premium payment.
b) Person for office to be contacted for enquiry or service relating to the policy.
c) Importance of intimating charge of address of policy holders and nominee.
d) Availability of mechanism to address grievance.
e) Information about location of insurance ombursement
7. Prospectus: The prospectus or brochures is issued by the insurer that states the
scope of benefit, conditions, warranty, entitlement exception, right for participation in
bonus under each plan of insurance.

32. VARIOUS DISTRIBUTION CHANNELS IN
INSURANCE
Distribution
Channels in
Insurance
INSURANCE
AGENTS
CORPORATE
AGENTS
INSURANCE
BROKER
BANCASSURANCE
OTHER DISTN.
CHANNELS

33. VARIOUS DISTRIBUTION CHANNELS IN
INSURANCE
1. INSURANCE AGENTS: Insurance agents may be referred to as insurance sales agents, who
help clients choose insurance policies that suit their needs.
2. CORPORATE AGENTS: Corporate agents are entities that are empowered to function as
agents for various types of businesses or for a government agency. Corporate agent is a
trust company that has received specifically assigned rights and privileges from
corporation or government entity.
3. INSURANCE BROKER: Insurance broker shall not act as an insurance agent of any insurer.
A insurance broker may be a person, a firm, a company, a cooperative society or any other
person recognized the regulating authority of that country.
a) Direct Broker- Is an insurance broker who carries out functions given below in field of
general /life insurance or both
b) Reinsurance Broker- Is an insurance broker who arranges reinsurance for direct
insurers with insurance /reinsurance companies.
c) Composite Broker- Is an insurance broker who arranges insurance for clients with
insurance companies or reinsurance for his clients. Performs functions for both direct
and reinsurance broker

34. VARIOUS DISTRIBUTION CHANNELS IN
INSURANCE
4. Bancassurance: It is the distribution of insurance products through a bank’s branch
network. It is a service that can fulfill both banking and insurance needs at the
same time.
5. Other distribution Channels:
a) Banks
b) Work Site Marketing
c) Internet
d) Invisible Insurer