Insurance is a form of risk management primarily
used to hedge against the risk of a contingent, uncertain loss.
Insurance is defined as the equitable transfer of the risk of a loss,
from one entity to another, in exchange for payment.
• An insurer is a company selling the insurance.
• The insured, or policyholder, is the person or entity buying the
insurance policy.
• The amount to be charged for a certain amount of insurance
coverage is called the premium.
Contract of Insurance
Is a contract whereby the insurer
undertakes to make good the loss of another
called the insured by payment of some money
to him on the happening of a specific event.
Characteristics of insurance
Risk sharing
Risk assesment
Payment at the time of contingency
Quantum of compensation
Insurance not a charity
Larger the number ,better the care
Insurable Risk
• The law of large number.
• The loss produced by the risk must be
• The loss must be fortuitous or accidental.
• The loss must not be catastrophic.
Criteria of determination of whether a
risk can be insured or not
• The risk must arise out of the ordinary course of
business and it should not be artificially created
by parties.
• The risk must be common enough to justify its
spreading at a nominal cost.
• There must be an element of uncertainty as to
the occurrence of risk or the time of the
• The party must have some real interest in
avoiding the risk.
Principles of Insurance
Utmost Good Faith
Insurable Interest
Principle of Indemnity
Principle of Contribution
Principle of Subrogation
Principle of loss Minimization
Principle of ‘CAUSA PROXIMA’
Utmost Good Faith
• Both the parties i.e. the insured and the insurer should a good
faith towards each other.
• The insurer must provide the insured complete ,correct and clear
information of subject matter.
• The insurer must provide the insured complete ,correct and clear
information regarding terms and conditions of the contract.
• This principle is applicable to all contracts of insurance i.e. life,
fire and marine insurance.
Insurable Interest
• The insured must have insurable interest in the subject matter of
• In life insurance it refers to the life insured.
• In marine insurance it is enough if the insurable interest exits only
at the time of occurrence of the loss
• In fire and general insurance it must be present at the time of
taking policy and also at the time of the occurrence of loss.
• The owner of the party is said to have insurable interest as long as
he is the owner of the it.
• It is applicable to all contracts of insurance.
Principle of Indemnity
• Indemnity means a guarantee or assurance to put the insured in
the same position in which he was immediately prior to the
happening of the uncertain event. The insurer undertakes to make
good the loss.
• It is applicable to fire ,marine and other general insurance.
• Under this the insurer agrees to compensate the insured for the
actual loss suffered.
Principle of Contribution
• The principle is a corollary of the principle of indemnity.
• It is applicable to all contracts of indemnity.
• Under this principle the insured can claim the compensation only
to the extent of actual loss either from any one insurer or all the
A insures his house against fire
for Rs.10,000 with insurer X, and for
Rs.20,000 with insurer Y .
A loss of Rs 12,000 occurs. X is liable
for Rs.4,000 and Y for Rs.8,000.
If the whole amount of the loss is paid by
Y, he can recover Rs.4,000 from X.
Principle of Subrogation
• As per this principle after the insured is
compensated for the loss due to damage to
property insured , then the right of ownership
of such property passes on to the insurer.
• This principle is corollary of the principle of
indemnity and is applicable to all contracts of
• A insures his goods with B for
Rs 1,000. The goods are damaged by fire
caused by C , a miscreant . A recovers the
loss from B and subsequently he succeeds in
recovering this loss from C also. He must hold
the amount recovered from C in trust for B.
Principle of Loss of Minimization
Under this principle it is the duty of the insured
to take all possible
steps to minimize the loss to the insured property
on the happening
of uncertain event.
Principle of ‘Causa Proxima’
• The loss of insured property can be caused by more than one
cause in succession to another.
• The property may be insured against some causes and not against
all causes.
• In such an instance, the proximate cause or nearest cause of loss
is to be found out.
• If the proximate cause is the one which is insured against ,the
insurance company is bound to pay the compensation and vice
[4.Causa Proxima: ]
– The cargo of rice in a ship was destroyed by seawater flowing in the ship through a hole made by
rats in bathroom lead pipe.Held, the underwriter
was liable as the damage was due to a peril of the
sea.The proximae causa of the damage in this case
is sea water.If however ,
the loss is caused directly by rats or vermin, the
underwriter will not be liable.
Fraser & Co. vs.Pandroff(1887)]
Significance of insurance
Protection against risk of loss
Distribution of risk
Capability to face competition
Optimum utilization of capital
Aid to foreign trade
• A ship insured against marine losses is
sunk.The insurer pays the value in full.The ship
is subsequently salvaged.
Who is entitled to the sale proceeds of the
salvaged ship.?
Solution to Case.1
• The insurer is entitled to the sale proceeds of
the salvaged ship.[Subrogation]
• A house is insured against fire for Rs.50,000.It
is burnt down but it is estimated that
Rs.30,000 will restore it to the original
How much is the insurer is liable to pay ?
Solution to Case.2
• Insurer is liable to pay Rs.30,000
• A insures his house against fire for Rs.40,000
with B and for Rs.60,000 with C.A fire occurs
and a loss is estimated at Rs. 14,000.A
recovers Rs.14,000 from B.
What are the rights of B against C ?
Solution to Case.3
• B can claim Rs. 8,400 from C as the loss of
Rs.14,000 will be borne by B and C in the ratio
of 40,000: 60,000 [Contribution].
• A contracted to build a house for B for which
he was to be paid Rs.2,00,000.All the
materials were to be supplied by B.
Can A insure the materials for the period
during which the building is being
Solution to Case.5
• A can insure the materials .
(Insurable interest).
• A’s goods in a warehouse are insured.B is the
insurer.The goods are burnt.A recovers their
full value of Rs.1,000 from B.Then A sues the
warehouse keeper and recovers Rs.1,000 from
him.B claims this amount from A but A refuses
to make over the amount to B. How would
you decide the dispute between A and B ?
Solution to Case.6
• A is bound to pay Rs.1,000 to B.
(Castellain vs.Preston)
• A firm of contractors assured a lorry against fire.In
reply to a question in the proposal form, “ state the
address at which the lorry will be usually garaged” a
wrong address was given.The policy contained a
clause that answers to the queries in the proposal
form were the basis of the contract.The risk of fire
was the same as the address given and at the correct
If the lorry is damaged by fire, are the insurers liable ?
Solution to Case.7
• The insurers are not liable.
[ Dawsons Ltd. Vs.Bonnin (1922) ]
Insurance Classification
Life Insurance
General Insurance
Life insurance
• It is contract where insurance company agrees
to pay a particular sum of money to the
insured on expiry of certain time or on death
of the person whose life is insured
Types of life insurance
Term policy
Whole life policy
Endowment policy
Defining General Insurance
• It is a contract of indemnity whereby the
insurer undertakes to pay compensation to the
insured for actual loss only. If loss does not
occur, the payment need not be made
Types of General Insurance
Main types of general insurance are:
Motor Vehicle
Unemployment insurance
Credit insurance
Workmen compensation insurance
Cash transit insurance
Insurance organisation
LIC (life insurance corporation
Set up in 1956
LIC was formed by nationalizing 245 life
insurance companies.
The main aim was to
 spread insurance
 Mobilize savings
 Investing funds
 Act as trustees
 promoting a sense of pride and job
satisfaction among agents and employees
Diversification by LIC
Jeevan bima sahyog assets mgt co(JBSAMC)
LIC International EC
vision & Mission
"Explore and enhance the quality of life of people
through financial security by providing products
and services of aspired attributes with competitive
returns, and by rendering resources for economic
"A trans-nationally competitive financial
conglomerate of significance to societies and
Pride of India."
 It was incorporated on 22 November 1972.
The Government of India (GOI), through
Nationalisation took over the shares of 55 Indian
insurance companies and the undertakings of 52
insurers carrying on general insurance business.
Main objective:GIC was formed for the purpose of superintending,
controlling and carrying on the business of general
vision & Mission
“To be a leading global reinsurance and risk solution provider”
Mission: Building long-term mutually beneficial relationship with
business partners
 Practicing fair business ethics and values
 Applying “state-of-art” technology, processes including
enterprise risk management and innovative solutions.
 Developing and retaining highly motivated professional team of
 Enhancing profitability and financial strength befitting the
global position
Difference between life and general
Contract of indemnity
Insured event
Purpose of insurance
Calculation of premium
Doctrine of subrogation
Players in the Industry
Life Insurance
General Insurance
Life Insurance Corporation of India.
General Insurance Corporation of India.
1. Oriental Insurance Company Ltd.
2. New India Assurance Company Ltd.
3. National Insurance Company Ltd.
4. United India Insurance Company Ltd.
New Entrants
ICICI Prudential Life Insurance Ltd.
Bajaj Alliaz General Insurance Company Ltd.
Tata AIG Life Insurance Corporation Ltd.
Reliance General Insurance Company Ltd.
ING Vysya Life Insurance Corporation Ltd.
Tata AIG General Insurance Company Ltd.
Kotak Mahindra Life Insurance
Corporation Ltd.
Royal Sundaram Alliance Insurance Company
Strategies for commercial viability
develop efficient distribution system
Direct marketing
Development of customer specific products
Entry in rural market
Cooperative promotion
Launching crop insurance for farmers
Lean office infrastructure for rural areas.