PB&I

MODULE-4
INDIAN INSURANCE INDUSTRY
BY SWETA BASTIA

What is Insurance?
Insurance is a legal contract between two parties- the insurance company (insurer)
and the individual (insured), wherein the insurance company promises to
compensate for financial losses due to insured contingencies in return for the
premiums paid by the insured individual. In simple words, insurance is a risk transfer
mechanism, where you transfer your risk to the insurance company and get the
cover for financial loss that you may face due to unforeseen events.

BASIC CONCEPT:

INSURED-
An “insurer” refers to the company providing you with financial coverage in the case
of unexpected, bad events covered on your renters insurance or homeowners policy.
INSURER-
The insurer is the company that pays out that compensation. They’re the company
that designs the insurance policy and sets the terms of the agreement. The word
“insurer” is usually interchangeable with “underwriter.” An insurance policy is a
promise to reimburse the policyholder for a loss; insurers are responsible for fulfilling
that promise.

PREMIUM-
Definition: Premium is an amount paid periodically to the insurer by the insured for
covering his risk.
POLICY-
An insurance policy is essentially a contract between you and your insurance
company – it lays out what’s covered, what isn’t, and other details of your
agreement.

Nature of Insurance:
1. By nature insurance is a devise of sharing risk by large number of people among
the few who are exposed to risk by one or the other reason.
2. If a large number of subscribers to insurance serve the purpose of compensation
to few among them exposed to uncertain risks appears as a co-operative look.

3. Valuation of risk is determined as per predefined terms and conditions of the

insurance policies.

4. Insurance provides facility of financial help in case of contingency.

5. However it depends on the value of insurance for which payment is made in case
of contingency. This provides basis of the amount to be paid.

6. Insurance is a policy regulated under laws and therefore the amount of insurance
can neither be paid as gambling nor as charity.

Difference between Insurance and Assurance

Basis for Insurance Assurance

comparison

Meaning Insurance provides protection against Assurance provides financial

uncertain events such as fire, theft, coverage for events, whose
accidents and flood etc happening is certain such as
death

Objective Insurance helps to reinstate the Assurance pays out the

financial position and achieve assured sum when the event
financial stability during an takes place
unforeseen event

Underlying Insurance is based on principle of Assurance is based on the

principle indemnity principle of certainty

Type General insurance products such as Life insurance (except term

fire insurance, marine insurance, insurance) such whole life
motor insurance, health insurance assurance, annuity plans,
and liability insurance etc endowment plans etc

Claim Compensation or the benefit under Compensation or the benefit

payment the policy is paid only on happening of under the policy is payable
 an uncertain event  on occurrence of an insured
event or on maturity of the
policy

Contract Generally for general insurance plans Long-term contracts runs

duration are of short duration which can be through the entire life of
renewed year after year. Insurance insured
plans with specific time duration such
as term insurance which comes with a
tenure

Coverage Coverage is provided against various Coverage is provided

risks that may lead to an unforeseen against the definite event
situation

Premium In insurance, policyholder pays the In assurance, policyholder

payment premium periodically to avail pays the premium
protection against insured risk periodically to receive the
benefits on the happening of
an event

Functions of Insurance:
The functions of Insurance cannot be explained because of its diversity but in
order to understand we can find a classification of functions as follows:
1) Primary Functions:
(i) Protection:
The Primary function of Insurance is as we think about any insurance. One feels
insured and contended about future risks only because one is sure to be
compensated for any loss of future. It is therefore Primary function of Insurance to
provide protection against future risks, accidents and uncertainty.

No insurance can arrest the risk from taking place, no insurance can prevent future
miss happenings, but can certainly provide some cover for the losses of risk. In real
terms Insurance is a protective cover against economic loss by sharing the risk with
others, (the pooling members).

(ii) Collective Risk:

The Insurance policies whether life insurance or general insurance are purchased by
lacs of people. But all of them are not subjected to losses every year. It is only a few
or negligible who become victim of some miss happenings. In other word lacs of
people contribute towards insurance and only a few people need its cover.

It is therefore clear that insurance is a method by means of which a few losses are
shared by a large number of people. All the people insured contribute by paying
annual premium towards a fund out of which the persons exposed to risks are paid
as per the terms and conditions of the insurance policy purchased by them.

(iii) Assessment of Risk:

What is volume of risk is determined by the Insurance companies by assessing
diverse factors that give rise to risk. The rate of premium is also decided on the basis
of risk involved.

(iv) Certainty:
Unless we are insured we remain uncertain about our capability to meet the future
risks. But once we are insured it converts our uncertainty into certainty of bearing
future risks.

2) Secondary Functions:
(i) Prevention of losses:
In simple words we can say precautions are better than the treatment. It is better
instead of seeking the help of insurance if one adopts such measure which prevent
the losses. Every Insurance prescribes to take preventive measures against losses.
Such as installation of safety devices like automatic sparkler or alarm system, CCTV
system etc.

If such type of preventive measure exist there shall be lower rate of premium for
getting insurance cover against risks. Prevention of losses is to adopt preventive
measures against unexpected losses. For example while driving a two wheeler we
use helmets only because we take preventive measures to avoid any accidental
loss. It is not certain that an accident is going to happen even than a preventive
measure is adopted.

If an insured take such steps he saves a lot in form of the amount of premium
required to be paid. If prevention techniques have been adopted and applied the
Insurance company may rate the risk at lower level and shall prescribe a lower rate
of premium otherwise a higher rate of premium shall be charged.
(ii) Covering Larger Risks with small capital:
Every businessman is always worried about the security of his business. After
making large investments in the business it is natural to take care of the business
investments. There are two alternatives first one is that the concerned businessman
should invest out of his own pocket to create a proper security. The second method
is to get his business activities insured.

In such a case the insurance relives a businessman from security investments by

paying small amount in the shape of premium against larger risks and uncertainties.
This assuages the businessman from security investments for a small amount of
premium against larger losses.

(iii) Helps in development of larger Industries:

Larger Industries are prone to more risks in their setting up. The large industries
have diversified fields of functioning where one field sometimes has no relation with
the other field of the same industry. The activities of large industries are diversified
that it goes above any planning to cover every type of risk.

It is only insurance that comes not only to help these large industries against
possible risk but also help them to grow. It becomes possible only because
insurance provides an opportunity to develop to those larger industries which have
more risks in their setting ups.

3) Other Functions:
(i) Insurance is a tool used for saving and investments:
By purchasing any Insurance Policy it becomes completion by the purchaser to
make payment of the insurance policy. This completion is blessing in disguise. Most
of the policy buyers particularly individuals do not know the purpose of payment of
premium. They know only one thing that paying premium is compulsory for them.
The fact is otherwise true.

Once an insurance policy is purchased it assume the compulsory way of savings.

Not only savings but such funds collected by insurance companies are further
invested to the benefit of insured.

Because it is compulsory it restricts the unnecessary expenses by the insured’s on

one hand and on the other hand insurance provides them the opportunity to avail
Income tax exemption for the amount paid as insurance premium. Some prudent
people take up insurance as good investment option also.
Such savings help growth in national economy.

(ii) It is one of sources to earn Foreign Exchange:

The business of insurance has crossed the national borders of any country. While
traveling by Air one needs aviation insurance. While on board at sea whether
humans or cargo it needs marine insurance which is also spread over across the
boarders of any country. In simple words the insurance has become an international
business and is necessary also.

It being an international business any country is free to earn foreign exchange as

much as per the polices of insurance devised in a way to attract more and more
foreign business. It is a good source of earning foreign exchange for any country.

(iii) Risk Free Trade:

Insurance promotes export insurance, which makes the foreign trade risk free with
the help of different types of polices under marine insurance cover.

(iv) Subrogation:
In its most common usage refers to circumstances in which an insurance company
tries to recoup expenses for a claim it paid out when another party should have been
responsible for paying at least a portion of that claim.

Importance and Benefits of Insurance for Business and

People
Importance of Insurance to Businessmen
The importance of insurance to a businessman can be understood from the following
points.

Importance and Benefits of Insurance

1. Security and Safety: It gives a sense of security and safety to the businessman.
It enables him to receive compensation against actual loss. He can concentrate on
his business with a secure feeling that in case of losses arising from insurable risk,
his losses will be compensated.
2. Distribution of risk: Risk in insurance is spread over a number of people rather
being concentrated on a single individual.
3. Normal expected profit: An insured trader can enjoy normal margin of profit all
the time. He is protected from unexpected losses because of insurance.
4. Easy to get loans: A trader can get bank loans easily if his stock or property is
insured, as insurance provides a sense of security to the lenders.
5. Advantages of Specialization: Businessmen can concentrate on their business
activities without spending more time on safeguarding their property. The insurance
companies, on the other hand, can provide specialized insurance services.
6. Development of Social Sectors: Insurance funds are available for economic
development particularly for the development of social sectors. Especially for a
developing country like India, insurance funds are an important source for investing
in infrastructure projects (roads, power, water supply, telecom etc).
7. Social cooperation: The burden of loss is shouldered by so many persons. Thus,
insurance provides a form of social cooperation.
Benefits of Insurance
Insurance is important because both human life and business environment are
characterized by risk and uncertainty. Insurance plays a key role in mitigation of
risks. The benefits of insurance are discussed below:

Benefits of Insurance to insured

1. Insurance provides security against risk and uncertainty.

2. It enables the insured to concentrate on his work without fear of loss due to risk
and uncertainty.

3. It inculcates regular savings habit, as in the case of life insurance.

4. The insurance policy can be mortgaged and funds raised in case of financial
requirements.

5. Insurance policies, especially pension plans provide for income security during old
age.

6. The insured gets tax benefits for the amount of premium paid.

7. Insurance of goods may be a mandatory requirement in certain contracts.

Benefits of Insurance to society

1. Insurance is an important risk mitigation device.

2. Insurance companies provide the required funds for infrastructure development.

3. It provides a sense of security.

4. Insurance provides security to the insured during his life and to his dependents.

5. It provides employment opportunities. With the entry of private insurers

employment opportunities have increased greatly.

6. Insurance provides a sense of livelihood to those who might otherwise not have
an income source — housewives, retired people, students etc can work as agents
and earn commission.

7. Insurance works on the principle of pooling of risks and distributes risks over many
people.

8. Insurance is an invaluable aid to trade.

Benefits of Insurance to the Nation
1. Insurance provides funds to the government for providing basic facilities and to
develop infrastructure.

2. It has enabled the country to get foreign exchange (49% FDI is permitted in the
insurance sector in India).

3. Insurance relieves the government of the burden of supporting a family, in case of

the untimely demise of the breadwinner.

4. Insurance promotes trade and industry by providing risk cover.

5. Insurance companies pay taxes out of profits earned. This is an important revenue
source to the government.

6. Insurance companies are permitted to invest 5% of the funds in the capital market.
LIC alone has invested around Rs.28,000 crore in the Indian capital markets. Such
investments develop the capital market.

ESSENTIALS OF INSURANCE ELEMENTS

The valid contract, according to Section 10 of the Indian Contract Act 1872, must
have the following essentialities;

1. Agreement (offer and acceptance),

2. Legal consideration,
3. Competent to make a contract,
4. Free consent,
5. Legal object.
6. Writing and registration
7. Certainty

Offer and Acceptance

The offer for entering into the contract may come from the insured.

The insurer may also propose to make the contract. Whether the offer is from the
side of an insurer or the side of the insured, the main fact is acceptance. Any act that
precedes it is the offer or a counter-offer. All that preceded the offerer counter-offer
is an invitation to offer.

In insurance, the publication of the prospectus, the canvassing of the agents are
invitations to offer.

When the prospect (the potential policy-holder) proposes to enter the contract, it is
an offer and if there is any alteration in the offer that would be a counter-offer.
If this alteration or change (counter-offer) ill-accepted by the proposer, it would be
acceptable.

In the absence of a counter-offer, the acceptance of the offer will be an acceptance

by the insurer. At the moment, the notice of acceptance is given to another party; it
would be a valid acceptance.

Legal Consideration

The promisor to pay a fixed sum at a given contingency is the insurer who must have
some return or his promise. It need not be money only, but it must be valuable.

It may be summed, right, interest, profit or benefit Premium being the valuable
consideration must be given for starting the insurance contract.

The amount of premium is not important to begin the contract. The fact is that
without payment of premium, the insurance contract cannot start.

Competent to make the contract

Every person is competent to contract;

1. Who is off’ is an age of majority according to the law,

2. Who is of sound mind, and
3. Who is not disqualified from contracting by any law to which he is subject?

A minor is not competent to contract. A contract by a minor is void excepting

contracts for necessaries. A minor cannot sign a contract.

A person is said to be of sound mind to make a contract if, at the time when he
makes it, he is capable of understanding it and of forming a rational judgment as to
its effect upon his interests.

A person who is usually of unsound mind, but, occasionally of sound mind

may .make a contract when he is of sound mind. Alien energy, an undischarged
insolvent and criminals cannot agree. A contract made by an incompetent
party/parties will be void.

Free Consent

Parties entering into the contract should enter into it by their free consent.

The consent will be free when it is not caused by—

(1) coercion,
(2) undue influence,
(3) fraud, or
(4) misrepresentation, or
(5) mistake.
When there is no free consent except fraud, the contract becomes voidable at the
option of the party whose consent was so caused. In the case of fraud, the contract
would be void.

The proposal for free consent must sign a declaration to this effect, the person
explaining the subject matter of the proposal to the proposer must also accordingly
make a written declaration or the proposal.

Legal Object

To make a valid contract, the object of the agreement should be lawful. An object
that is,

(i) not forbidden by law or

(ii) is not immoral, or
(iii) opposed to public policy, or
(iv) which does not defeat the provisions of any law, is lawful.

In the proposal from the object of insurance is asked which should be legal and the
object should not be concealed. If the object of insurance, like the consideration, is
found to be unlawful, the policy is void.

Legal Framework for Insurance:

The insurance is federal subject in India.

The primary legislations which deal with various aspects relating to accounts
and audits of an insurance business areas under:
(1) The Insurance Act, 1938 (Including Insurance Rules, 1939);

(2) The Insurance Regulatory and Development Authority Act, 1999;

(3) The Insurance Regulatory and Development Authority Regulations;

(4) The Companies Act, 1956; and

(5) The General Insurance Business (Nationalisation) Act, 1972 (including Rules
framed there-under)

On account of amendment in the Section 3(11) of the Income Tax Act, 1961
providing for uniform accounting year, all Insurance Companies also close their
annual accounts on 31st March each year w.e.f. accounting year ending 31 st March,
1989. It has also been made mandatory according to the provisions of IRDA Act,
2000.
Principles of Insurance
The concept of insurance is risk distribution among a group of people. Hence,
cooperation becomes the basic principle of insurance.
To ensure the proper functioning of an insurance contract, the insurer and the
insured have to uphold the 7 principles of Insurances mentioned below:

1. Utmost Good Faith

2. Proximate Cause
3. Insurable Interest
4. Indemnity
5. Subrogation
6. Contribution
7. Loss Minimization

Let us understand each principle of insurance with an example.

Principle of Utmost Good Faith
The fundamental principle is that both the parties in an insurance contract should act
in good faith towards each other, i.e. they must provide clear and concise information
related to the terms and conditions of the contract.
The Insured should provide all the information related to the subject matter, and the
insurer must give precise details regarding the contract.
Example – Jacob took a health insurance policy. At the time of taking insurance, he
was a smoker and failed to disclose this fact. Later, he got cancer. In such a
situation, the Insurance company will not be liable to bear the financial burden as
Jacob concealed important facts.
Principle of Proximate Cause
This is also called the principle of ‘Causa Proxima’ or the nearest cause. This
principle applies when the loss is the result of two or more causes. The insurance
company will find the nearest cause of loss to the property. If the proximate cause is
the one in which the property is insured, then the company must pay compensation.
If it is not a cause the property is insured against, then no payment will be made by
the insured. 
Example – 
Due to fire, a wall of a building was damaged, and the municipal authority ordered it
to be demolished. While demolition the adjoining building was damaged. The owner
of the adjoining building claimed the loss under the fire policy. The court held that fire
is the nearest cause of loss to the adjoining building, and the claim is payable as the
falling of the wall is an inevitable result of the fire.
In the same example, the wall of the building damaged due to fire, fell down due to
storm before it could be repaired and damaged an adjoining building. The owner of
the adjoining building claimed the loss under the fire policy. In this case, the fire was
a remote cause, and the storm was the proximate cause; hence the claim is not
payable under the fire policy.
Principle of Insurable interest
This principle says that the individual (insured) must have an insurable interest in the
subject matter. Insurable interest means that the subject matter for which the
individual enters the insurance contract must provide some financial gain to the
insured and also lead to a financial loss if there is any damage, destruction or loss. 
Example – the owner of a vegetable cart has an insurable interest in the cart
because he is earning money from it. However, if he sells the cart, he will no longer
have an insurable interest in it. 
To claim the amount of insurance, the insured must be the owner of the subject
matter both at the time of entering the contract and at the time of the accident. 
Principle of Indemnity
This principle says that insurance is done only for the coverage of the loss; hence
insured should not make any profit from the insurance contract. In other words, the
insured should be compensated the amount equal to the actual loss and not the
amount exceeding the loss. The purpose of the indemnity principle is to set back the
insured at the same financial position as he was before the loss occurred. Principle
of indemnity is observed strictly for property insurance and not applicable for the life
insurance contract.
Example – The owner of a commercial building enters an insurance contract to
recover the costs for any loss or damage in future. If the building sustains structural
damages from fire, then the insurer will indemnify the owner for the costs to repair
the building by way of reimbursing the owner for the exact amount spent on repair or
by reconstructing the damaged areas using its own authorized contractors.
Principle of Subrogation
Subrogation means one party stands in for another. As per this principle, after the
insured, i.e. the individual has been compensated for the incurred loss to him on the
subject matter that was insured, the rights of the ownership of that property goes to
the insurer, i.e. the company.
Subrogation gives the right to the insurance company to claim the amount of loss
from the third-party responsible for the same.
Example – If Mr A gets injured in a road accident, due to reckless driving of a third
party, the company with which Mr A took the accidental insurance will compensate
the loss occurred to Mr A and will also sue the third party to recover the money paid
as claim. 
Principle of Contribution
Contribution principle applies when the insured takes more than one insurance policy
for the same subject matter. It states the same thing as in the principle of indemnity,
i.e. the insured cannot make a profit by claiming the loss of one subject matter from
different policies or companies.
Example – A property worth Rs. 5 Lakhs is insured with Company A for Rs. 3 lakhs
and with company B for Rs.1 lakhs. The owner in case of damage to the property for
3 lakhs can claim the full amount from Company A but then he cannot claim any
amount from Company B. Now,  Company A can claim the proportional amount
reimbursed value from Company B.
Principle of Loss Minimisation
This principle says that as an owner, it is obligatory on the part of the insurer to take
necessary steps to minimise the loss to the insured property. The principle does not
allow the owner to be irresponsible or negligent just because the subject matter is
insured.
Example – If a fire breaks out in your factory, you should take reasonable steps to
put out the fire. You cannot just stand back and allow the fire to burn down the
factory because you know that the insurance company will compensate for it.

Types Of Insurance
There are two broad categories of insurance:

1. Life Insurance 
2. General insurance

Life Insurance – The insurance policy whereby the policyholder (insured) can
ensure financial freedom for their family members after death. It offers financial
compensation in case of death or disability. 
While purchasing the life insurance policy, the insured either pay the lump-sum
amount or makes periodic payments known as premiums to the insurer. In
exchange, of which the insurer promises to pay an assured sum to the family if
insured in the event of death or disability or at maturity. 
Depending on the coverage, life insurance can be classified into the below-
mentioned types:

 Term Insurance: Gives life coverage for a specific time period.

 Whole life insurance: Offer life cover for the whole life of an individual
 Endowment policy: a portion of premiums go toward the death benefit, while
the remaining is invested by the insurer.
 Money back Policy: a certain percentage of the sum assured is paid to the
insured in intervals throughout the term as survival benefit.
 Pension Plans: Also called retirement plans are a fusion of insurance and
investment. A portion from the premiums is directed towards retirement
corpus, which is paid as a lump-sum or monthly payment after the retirement
of the insured.
 Child Plans: Provides financial aid for children of the policyholders
throughout their lives.
 ULIPS – Unit Linked Insurance Plans: same as endowment plans, a part of
premiums go toward the death benefit while the remaining goes toward
mutual fund investments. 
General Insurance – Everything apart from life can be insured under general
insurance. It offers financial compensation on any loss other than death. General
insurance covers the loss or damages caused to all the assets and liabilities. The
insurance company promises to pay the assured sum to cover the loss related to the
vehicle, medical treatments, fire, theft, or even financial problems during travel.
General Insurance can cover almost anything, and everything but the five key types
of insurances available under it are –

 Health Insurance: Covers the cost of medical care. 

 Fire Insurance: give coverage for the damages caused to goods or property
due to fire.
 Travel Insurance: compensates the financial liabilities arising out of non-
medical  or medical emergencies during travel within the country or abroad
 Motor Insurance: offers financial protection to motor vehicles from damages
due to accidents, fire, theft, or natural calamities.
 Home Insurance: compensates the damage caused to home due to man-
made disasters, natural calamities, or other threats

Reinsurance:
1. Reinsurance is the transfer of insurance business from one insurer to another.
Its purpose is to shift risks from an insurer, whose financial security may be
threatened by retaining too large an amount of risk, to other reinsurers who
will share in the risk of large losses.
2. Reinsurance tends to stabilize profits and losses and permits more rapid
growth.
3. The entire area of reinsurance and retrocession is an example of the essential
need for a spread of risk among many risk bearers. Much of the process goes
on without the policy-holder being aware of its existence since he is not a
party to the reinsurance arrangement.
4. Reinsurance enables a risk to be scattered over a much wider area, which is
the primary concept of the whole business of insurance.
5. The need for reinsurance arises in the same way as an original insured needs
insurance protection.
6. The original insured is not a party to the reinsurance contract.

Types of Reinsurance

Having completed the various types of reinsurance arrangements, discussions will

now be made regarding the forms they usually take. There are two forms of
reinsurance, irrespective of the type of reinsurance discussed so far. These are;

1. PARTICIPATING OR PRO-RATA: Where the proportion of amounts payable

by the insurer and the reinsurers regarding a loss is determined and agreed
beforehand, i.e., before a loss. Here, the insurer’s premium is also distributed
between himself and the reinsurers in the same proportion. Examples
are facultative, quota share, surplus, or pool.
2. NON-PROPORTIONAL: The reinsurance is on different terms, and the
reinsurers do not stand to be proportionately liable for a loss. Therefore, the
premium received by the insurer is also not required to be proportionately
distributed to the reinsurers. Examples are an excess of loss treaty, stop loss
treaty, etc.
Advantages of Reinsurance-
 
1. Reinsurance boosts Insurance Business
The major advantage of reinsurance is that it assists in the boom of insurance
business. It enables every insurer to accept insurance business as the total risk will
be distributed among other reinsurers.

If there is no reinsurance, the insurer may not be willing to take up risks, particularly
when the risk exceeds beyond his capacity to manage.

2. Reinsurance reduces the risks

The prime principle of insurance is to reduce risk. As the risks are spread across
wider area, the loss of the individual is minimized which gives the insurer the
secured feel. The revenue of insurance companies are stable due to reinsurance. It
also helps the insurance companies to gain knowledge about various types of risks
and the basis of rating the risks in the future.

3. Reinsurance Increases Goodwill of Insurer

Reinsurance helps to boost the overall confidence and goodwill of insurer. When the
insurer develops confidence, he understands the nature of risks involved beyond his
capacity.

So reinsurance increases goodwill of an insurer.

4. Reinsurance Limits the Liability

Reinsurance motivates the insurers to undertake and spread the risks. Hence the
liability of insurer is limited to the maximum.

5. Reinsurance Stabilizes premium Rates

The premium rates of insurance are stabilized by reinsurance. Generally, the
premium rates are calculated on the basis of the loss experienced by the insurer in
the past, due to the risk concerned. Reinsurance takes into account of all these data
and fixes the premium rate according for various types of risks under mutual
agreement.

Thus reinsurance stabilizes the fluctuations in the premium rates of various types of
risks.

6. Reinsurance Protects the Insurance Funds

The insurance funds of the insurer is well protected due to reinsurance. Additional
security and peace of mind is an added advantage of reinsurance for the insurer and
the company that offers the insurance.

7. Reinsurance Reduces Competition

The competitions between inter company is reduced as everyone work in a
cooperative manner and with the helping tendency in the insurance business. Thus
reinsurance helps to control competition and increase overall morale of the
employees in the insurance business.
8. Reinsurance Reduces profit fluctuations
The reinsurance plans reduce, to a considerable extent the violent fluctuations in the
profits of the company. If on the other hand, heavy risks are retained by the original
insurer, his profits are greatly upset due to a heavy single loss.

9. Reinsurance Encourages new enterprises

It encourages the new underwriters, who in their early period of development, have
limited retentive capacity. In the absence of reinsurance facility, the tremendous
growth of new enterprises is doubtful.

10. Reinsurance Minimizes dealings

Due to the reinsurance scheme, the insurer is required to indulge in the minimum
dealings with only one insurer. In the absence of insurance facility, the insured will
have to approach several insurers to enter into various individual insurance
agreement on the same property. This involves considerable cost, loss of valuable
time and slower down the pace of protection cover.

Social Insurance:
A co-operative device, which aims at granting adequate benefits to the insured
on the compulsory basis, in times of unemployment, sickness and other
emergencies, with a view to ensure a minimum standard of living, out of a fund
created out of the tripartite contributions of the workers, employers and the
State, and without any means test, and as a matter of right of the insured”.

Types of social insurance

 old-age pension insurance,

 disability and survivor’s pension insurance,
 sickness insurance,
 work accident insurance.

DOUBLE INSURANCE-
Double insurance arises where the same party is insured with two or more
insurers in respect of the same interest on the same subject matter against
the same risk and for the same period of time.

1. Same insured: There can be no double insurance unless at the time of

the claim, the same person is entitled to benefit from each policy.
2. Same subject matter: It is not clear whether the policies must cover
exactly the same property in its entirety or whether covering a
substantial part of the property would suffice. What is important is that
the subject matter in respect of which the claim is made is covered
under both policies.
3. Same risk: Double insurance will only arise if a substantial part of the
same risk is covered by both insurances.
4. Same interest: The policies must also cover the same interest. This is
due to the fact that it is not the subject-matter of the insurance as such
 which is covered by the policy but the insured’s interest in it. There
would therefore be no double insurance if two people who have
different interest in the subject matter insure their own interest.
5. Same period of time: Finally, the periods of time within each of the
policies’ terms during which the insured party is protected from the risk
must be the same, or substantially the same. It must also be during
that period of time that the event giving rise to the claim occurs.

Difference Between Double Insurance and Reinsurance

Basis of
Double Insurance Reinsurance
Difference

Meaning In double insurance, the same risk is In the reinsurance, the risk or a part
insured with different insurance of the risk is transferred to another
companies or more than one insurance company. The risk
insurance company. remains the same.

Subject This insurance is basically taken for This insurance covers the risk of the
properties having a high value. original insurer.

Claim You can make a claim to all the In this insurance, you will have to
insurance companies for claim from the original insurer and it
compensation. will claim from the reinsurer.

Loss The loss will be shared by all the The reinsurer will only be liable to
insurance companies from which you pay the proportion of the
have taken the insurance. reinsurance.

Goal The main goal of this insurance plan The main goal of this insurance is to
is to assure the benefit of insurance. reduce the risk of the insurer.

Interest of The insured has an insurable interest The insured doesn’t have an
Insured in this kind of plan. insurable interest in this kind of plan.

Insured The insured approval is needed in The consent of the insured is not
Approval double insurance. needed in Reinsurance because it is
done on the insurer’s end.
Miscellaneous Insurance-

Miscellaneous Insurance refers to contracts of insurance other than those of Life,

Fire and Marine insurance. It covers a variety of risks, the chief of which are:-
Personal Accident insurance.

P rinciples Governing Marketing of Insurance Products: