issues and challenges of insurance | Insurance | Risk

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It is all about insurance sector. what are the challenges of insurance towards public ,banks,and other financial institutions
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  Insurance: Issues & Challenges INTRODUCTION TO INSURANCE INTRODUCTION :   Insurance is a tool by which fatalities of a small number are compensatedout of funds (premium payment) collected from plenteous. Insurancecompanies pay back for financial losses arising out of occurrence of insuredevents, e.g. in personal accident policy death due to accident, in fire policy theinsured events are fire and other allied perils like riot and strike, explosion, etc.Hence, insurance is safeguard against uncertainties. It provides financialrecompense for losses suffered due to incident of unanticipated events, insuredwithin policy of insurance. Moreover, through a number of Acts of Parliament,specific types of insurances are legally enforced in our country, e.g. third partyinsurance under Motor Vehicles Act, public liability insurance for handlers of hazardous substances under Environment Protection Act, etc.Insurance, essentially, is an arrangement where the losses experienced by a feware extended over several who are exposed to similar risks. Insurance is a protection against financial loss arising on the happening of an unexpectedevent. Insurance companies collect premium to provide security for the purpose. As loss is paid out of the premium collected from the insuring publicand the insurance companies act as trustees to the amount so collected.Insurance companies have standard proposal forms, which are to be filed upgiving the details of insurance required and presented to insurance company.Depending upon the answers given in    proposal form insurance companies -1-  Insurance: Issues & Challenges assess the risk and quote the premium. On payment of premium and acceptancethereof by insurance company the insurance is affected. Nonetheless, there is noInsurance cover if premium is not paid. MEANING OF INSURANCE It is a commonly acknowledged phenomenon that there are countless risksin every sphere of life. For property, there are fire risks; for shipment of goods,there are perils of sea; for human life there are risks of death or disability; andso on. The chances of occurrences of the events causing losses are quiteuncertain because these mayors may not take place. Therefore, with this view inmind, people facing common risks come together and make their small/contributions to the common fund. While it may not be possible to tell inadvance, which person will suffer the losses, it is possible to work out howmany persons on an average out of the group, may suffer losses. When risk occurs, the loss is made good out of the common fund. In this way, each and.everyone shares the, risk. In fact, they share the loss by payment of premium,which is calculated on the likelihood of loss. In olden time, the contribution bythe persons was made at the time of loss. The following examples make clear the above-stated notion of insurance.  Example I  In a town, there are 2000, persons who are all aged 60 and are healthy. It isexpected that of these 20 persons may die during the year. If the economicvalue of the loss suffered by the family of each dying person were taken to be -2-  Insurance: Issues & Challenges Rs. 50,000, the total loss would work out to Rs. 10,00,000. If each person of thegroup contributes Rs. 500 a year, the common fund would be Rs. 10,00,000.This would be enough to pay Rs. 50,000 to the family of each of the' 20 dying persons. Thus, the risks in cases of 20 persons are shared by 2000 persons.  Example 2 In a village, there are 250 houses, each valued at Rs. 2,00,000. Every year one house gets burnt, resulting into a total loss of 2,00,000. If all the 250owners come together and contribute Rs. 800 each, the common fund would beRs. 2,00,000. This is enough to pay Rs. 2,00,000 to the owner whose house got burnt. Thus, the risk of one owner is spread over 250 house-owners of thevillage. DEFINITION OF INSURANCE Insurance companies bear risk in return for a fee called premium. Thus,insurance companies are risk bearers. They accept or underwrite the risk inreturn for an insurance premium. Accordingly, the term insurance may bedefined as a co-operative mechanism to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to ensurethemselves against that risk. Risk is, in fact, an uncertainty of a financial loss.Risk must not be confused with loss itself that is the unintentional decline in or disappearance of value arising from a contingency. The functions of insuranceinclude providing certainty, protection, risk sharing, and prevention of loss andcapital formation. Wherever there is uncertainty with respect to a probable loss -3-  Insurance: Issues & Challenges there is risk. The insurance is also defined as a social apparatus to accumulatefunds to meet the uncertain losses arising through a certain hazard to a personinsured for such hazard.Insurance has been defined to be that in which a sum of money as a premium is paid by the insured in consideration of the insurer's bearing the risk of paying a large sum upon a given contingency. The insurance, thus, is acontract whereby:(a) Certain sum, termed as premium, is charged in consideration,(b) Against the said consideration, a large amount is guaranteed to be paid bythe insurer, who received the premium,(c) The compensation will be made in a certain definite sum, i.e., the loss or the policy amount whichever may be, and(d) The payment is made only upon a contingency. More specifically, Insurance may be defined as a contract wherein oneparty (the insurer) agrees to pay to the other party (the insured) or hisbeneficiary, a certain sum upon a given contingency (the risk) againstwhich insurance is required . -4-
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