Insurance Business

               WHAT IS INSURANCE ?

Insurance  is a risk transfer mechanism. Risk means uncertainty about future occurrences.

Insurance us a common fund created by people  who face similar risk to compensate for the actual losses due to the damages considered under the policy of it.

Eg: For similar risk, all  motor cycle riders face the similar risk of happening an accident. So insurance companies collect fund from those riders and pay for the accident.

Insurance has evolved to  compensate for the losses and damages that would be caused to the property , due to fire, theft, and accidents and also the effects of accidents on the lives of  individuals thereby causing debility and death, Accordingly the main objectives of insurance is to get risk coverage for unexpaeted risks in the future or to minimize the future risks.

 What does it mean by premium ?

The price of insurance is called insurance premium

Criteria to be considered to identify Insurable risks 

-  Predictability  -  Is the degree to  which a correct prediction or forecast the damage.
- Causality - It should be a pure risk
- Unconnected - Unconnected with other losses occurred for property and life
- Verifiability - The cause , time, place and volume of the damage should be analyzed.

                What are the insurable Risks ?

It cant be possible to give  insurance for all risks. There are few characteristics of the insurable risks .

- Must have an insurable interest ( Eg : Own life,  Own property )
- The risk must involve a loss that is capable  of financial measurement . ( Eg : Vehicle, building )
- There must be large number of similar risks . ( homogenous)
- Only pure risks can be insured ( Eg : An accident)
- The loss must be entirely fortuitous nature.
- The risk that is to be insured should not be against the public policy.

                                    Non insurable Risks

- Risks caused by natural and inherent factors.
Eg : Depreciation , evaporation , Drying up , Obsolescence, aging 
- Future business losses.
- Risks arising due to wrong managerial decisions.

                             An Insurance agreement

Insurance agreement is the contract between the insurer and the insured after accepting an offer by the insurer from the insured.

                       Parties Related to Insurance

1. First party ( insured)

That is the person who obtains the insurance cover. Installments ( premium ) have to be paid as per the agreement and he has the right  to claim compensation in the event of a  loss. He is the person who forwards the insurance proposal .

2. Second Party ( insurer0

This is the institution which bears or undertake the insurance risk. This institution insures various risks pertaining to persons and properties and pays compensation , when a loss occurs.

3. Third Party 

 All other parties ( persons and property ) other than those who are involved in the insurance agreement (Policy)

               Why  do we need Insurance ? ( Benefits of Insurance)

- It gives peace of mind
- It provides financial security. 
- Protection for family
- Insurance provides assistance to business enterprises .
- Insurance provides financial stability to commerce, industry and the community.
- Insurance serves as a basis of credit.
- Insurance provides funds for investment.
- Insurance plays a vital part in the reduction of losses.