1. T Dheeraj Prabhu (09AA10)
R Dinesh (09AA11)
M Joe Burney (09AA15)
C Manivannan (09AA19)
Mannavan (09AA21)
R Suresh (09AA39)
PRINCIPLES OF
INSURANCE

2. Definition
 Insurance is a contract of reimbursement of
loss.
 Party agreeing to compensate the loss is
the insurer
 Party given the assurance is the insured
 The asset, loss or damage to which the
insured is exposed is the subject matter of
insurance.
 The consideration for the contract is the
premium
 The asset can be physical asset or human
life.

3. Some aspects of insurance
 Insurance is a method of sharing of risk
 Insurance can be done when there is
exposure to loss
 Only financial compensation, not
replacement of asset
 For the insured, a method of risk transfer
 Cost depends on the risk profile

4. Some aspects of insurance contd
 Is available for almost any quantifiable
uncertainty
 Not gambling, because based on
data/experience
 Broadly classified into two: Life and Non-
life

5. Principles of Insurance
 Principle of utmost good faith (uberimmae
fidei)
 Principle of insurable Interest
 Principle of indemnity
 Principle of contribution (multiple insurance)
 Principle of subrogation
 Principle of proximate cause

6. Insurable Interest
 This means you can only insure something, if
they benefit from its existence and will suffer
if it ceases to exist. For example you can
insure your own bicycle , but not your friend’s
bicycle.

7. Utmost Good Faith
 It is assumed by the Insurance company that the facts
you disclose on a Proposal Form are accurate.
 However, if the loss occurs they will check the facts and
if inaccurate details have been given they will not
compensate you.
 Failure by the insured to reveal certain details to the
insurance company that affect the risk may make the
insurance invalid. For example that the house is made of
wood rather than concrete.
 For example for vehicle insurance if you said you were
25 and were in fact only 18. When you had an accident
they would ask for your birth certificate and you would
get no compensation.

8. Indemnity
 This means the insured cannot make a profit from an
insurance claim.
 If you have a four year old bicycle and it is stolen, the
insurance company will only give you the current value
of the bicycle not the cost of the bicycle when it was
new.
 It your vehicle is in an accident and damaged beyond
repair, but the wreck is worth something for example the
engine could be sold the insurance company will take
this into consideration when giving the compensation.
 With life assurance one may be financially better of, but
it is only to compensate you for the loss suffered.

9. Subrogation
 This means the insurance company has the
legal right to claim compensation from any
other party that caused the accident.
 For example vehicle A hits B, which as a
result hits C. C will claim of B’s insurance
company, but that insurance company has
the right to claim from A’s insurance
company, as it was A that really caused the
damage to C.

10. Contribution
 There is no advantage insuring the same risk
with two companies, because the insurance
companies compare notes and each will only
contribute half the damage, if each were
covering the risk for the same amount.

11. Proximate Cause
 Compensation will only be paid, if the risk
that is covered in the policy occurs,
 For example, if the insurance policy states
that the house is covered for fire and theft
and it is totally or partially destroyed by a
flood no compensation will be paid.

12. Making a claim
 Normal procedure is a phone call to the
insurance company giving policy number and
details of the claim.
 The insurance company will then issue a claims
form. This form needs to be completed
accurately and will normally have to include
quotations for the repairs to the damage done.
 If the claim is substantial the insurance company
will send out an Assessor to decide on the
amount of the compensation.

13. Compensation
 Cash. This is the most popular method.
 Replacement
 Repair
 Reinstatement.

14. Selling insurance
 Broker. Sells for more than one company and
in in general aims to get the best deal for his
client. Difficulty of some companies paying
greater commission and the may choose
those companies
 Agent. Just sells for one company.

15. How the insurance industry
helps the country:
 Offers peace of mind. For example people
can leave their homes and people build
factories etc.
 Creates a lot of jobs.
 Insurance companies own a lot of property in
our cities and towns. As they invest their
finances in these so that they can sell them if
they receive a lot of claims.

16. Thank You