Insurance one
People's lives and livelihoods such as business, car, house, property, etc. are surrounded by various types of risks. Due to unforeseen risks like shipwreck, fire etc, people can become destitute in an instant and sit on the road and also end human life. The origin of insurance is to protect individuals, families and organizations from the negative economic effects of all these existing risks.
Insurance is not really a measure of risk remediation or prevention. Insurance is a remedy for financial loss caused by risk factors. Through insurance, individuals or organizations can be relieved of the risk of becoming destitute by unforeseen risks. The insurance company takes the risk of the individual or organization in exchange for the premium. In case of loss of property due to insured risk, the insurance company pays compensation as per the terms of the insurance contract.
In case of loss in life insurance, financial protection measures are taken. In the case of life insurance, this system is not called compensation. Because human life is precious. Compensation is not possible on the basis of money. Insurance covers many people and organizations with similar risks and collects premiums from all the insured to form large funds. In case of loss of one or two persons or one or two organizations under the insurance contract, compensation is paid from the said fund. In this context, insurance distributes the loss of one person to many people.
So insurance is a system for sharing risk or loss. At the end of the above discussion it can be said:
1. Insurance is a joint venture.
2. Risk of human life and property is the main subject of insurance.
3. In return for the premium, the insurance company risks the life and property of the insured and pays compensation in case of loss due to the insured risk.
4. Insurance is a financial protection against risk.
Definition of Insurance
Human life and its resources are surrounded by various risks. Every step of the way in life, people face the damage caused by these risks. Insurance is the way to get rid of this loss financially. Insurance is a type of contract under which the insured transfers the risk of his life and property to the insurer at a fixed premium and if the loss is caused by the insured risk, the insurer guarantees to meet it.
The person or organization that transfers the risk in exchange for the premium is called the insured and the party taking the risk is called the insurer. And the life or property that is insured is called insured content. The following are some notable definitions of insurance:
According to M. K Ghosh & AN Agarwala,
Insurance is a co-operative system through which the risk is distributed among the persons covered by a particular risk.
Prof. According to MN Mishra,
Insurance is a co-operative system through which a certain risky loss is distributed among more than one person at risk and who agrees to insure themselves against that risk.
According to the American Risk & Insurance Association,
Insurance is a system of consolidation by transferring potential loss to the insurer, through which the insurer agrees to compensate for certain risky events, agreeing to provide financial benefits or services.
That is, the following applies to the insurance system:
1. Arrangements for distribution of insurance loss.
2. Insurance is a legal agreement for financial compensation.
3. Life - the subject of livelihood and asset insurance.
4. The insurer takes the risk of the insured content in exchange for the premium.
5. The insurer pays compensation to the insured for the insured content.
In view of the above discussion and definition, insurance is a written agreement between the insured and the insured. Under the terms of the contract, the insured transfers the risk of his life or property to the insurer in exchange for paying a certain amount of premium and the insurer promises to compensate for the loss caused by the insured risk.
History of Insurance Business
From birth, human life and its resources are surrounded by various risks. Insurance was originally created to fulfill the latent desire of the people to compensate for the losses caused by these risks. The condition of insurance that we see today is not caused by one day or one era. The insurance system, like the banking system, has undergone various changes through the ages. It may get better in the future. The following is a brief history of the growth of the insurance business:
There is no clear history of the origin of insurance business. However, in prehistoric times there are examples of systems similar to modern insurance. In the Babylonian civilization and in the Indian subcontinent, there are examples of insurance-like risk-sharing and public welfare systems. A similar system of insurance appears to have existed in the Rig Veda concept of ‘yogakshema’.
In the 4th century a special type of financing system called Bottomary Bond and Respondentia Bond was introduced. Ship owners used to take loans through ship mortgages. The loan had to be repaid as soon as the ship arrived safely. Similar loan conditional product catalogs were also introduced. However, in case of mortgage, security of goods or cargo was given. Since the risk of debt was much higher, interest was charged on such bonds by adding higher risk surcharge. Which is indirectly consistent with today's insurance premiums.
Moreover, sailors often had to make big decisions during the voyage. In order to lighten the ship especially in case of natural calamity, various kinds of expenses and sacrifices had to be accepted to protect the ship from major catastrophes including throwing of goods. In such cases a system was developed to distribute the loss to all on the basis of General Average. Today's insurance system is a refined version of all these systems.
Principles of Insurance Business
Insurance is a large type of business organization with a complex set of accounts. There are some principles or guidelines related to such business which are considered very important in conducting its activities. The general principles are discussed below:
1. Principle of insurable interest: The insured interest is the financial interest of the insured in the insured subject. An insurance contract cannot be entered into without such an interest. According to Ghosh and Agarwala,
Insurable interest is a financial interest of the insured in the subject matter of insurance, the existence and security of which he gains financially and which, if it does not exist or is destroyed, suffers financially.
Karim cannot insure Rahim's house. Because Karim has no financial interest in this house.
2. Principle of fiduciary relationship: The insurance contract establishes the relationship of fiduciary between the insurer and the insured. The relationship of trust in insurance refers to the obligation of both parties to properly present all the important information related to insurance. M. N. Mishra says,
An insurance contract is a contract of absolute trust. And that is why each of the parties to the agreement is obliged to disclose to each other all the necessary information about the agreement accurately and completely.
3. Principle of financial indemnity: Insurance is a system of financial indemnity against potential loss or financial distress. As a result of such policy, the insurance company compensates for the loss of the insured property for any reason mentioned in the contract. In case of life and temporary life insurance, in case of death of the person and in case of term insurance, if the person dies or expires within the specified period, the insurance company pays the insurance claim. In order to guarantee such compensation or payment, people place their property and life risks on the insurance company.
4. Principle of Causa Proxima: The essence of such a policy is that the insurance company compensates for loss of life or property as a result of something directly related to the cause mentioned in the insurance contract. Therefore, in case of loss, the insurance company verifies whether the loss is due to the direct effect of any of the factors mentioned in the contract. Insured due to damage caused by a shipwreck or collision. The ship collides with another ship and as a result gets stuck on board. As it was stuck for a few days, the oranges carried by it rotted away It is assumed that the damage was caused not indirectly but indirectly. So the insurance company is not obligated to compensate.
5. Principle of Proportionate Contribution: The essence of such a policy is that if an asset is insured with more than one insurance company and all the insurance companies are obliged to compensate for its partial loss in proportion to their sum insured. A insures his property with two companies for a total amount of Rs. 10 lakhs. Now if the property is damaged to the tune of Rs. Such a policy only applies to property insurance.
6. Principle of Subrogation: In the case of property insurance, in case of complete loss of the insured property and the insurance company pays full compensation, whatever remains of the property or if there is any legal right in this regard, the insurance company becomes its owner. This is called substitution policy. If the jute of a warehouse is insured and it is completely destroyed by fire and the insurance company compensates it in full, then the ashes of jute or related rights are considered as the property of the insurance company.
7. Principle of collecting huge number of policies: Another principle of success in insurance business is the policy of collecting huge number of policies. The greater the number of risks or policies, the lower the risk of the insurance business, if the risk distribution system is introduced to the insurer. This reduces the premium rate and makes it easier to meet the claims of the insured. This reduces the overall risk of the country and develops the insurance business.
8. Principle of probability: The principle of probability that is followed in conducting the business of insurance business. Insurance companies assess the likelihood of liability for a risk in the light of their long experience and observation. It is on this basis that the rate of premium is determined and a decision is taken as to whether any risk will be taken or not. Actuaries are assisted in assessing liabilities. Those who do it considering the principle of possibility.
9. Principle of taking optimum risk: In the case of insurance business, the insurance company should take such amount of risk so that the existence of the insurance business does not face any risk. This is why you should not insure high risk property or life. It is important to keep in mind the simple fact that insurance is not a gamble and take simple and natural risks. Even if a large amount of risk is taken, it is the duty of the insurance company to reinsure and keep the amount of risk within its means.
10. Principle of quick response: Another principle of the insurance business is to stand by the victims as soon as possible and arrange for compensation when there is loss or damage to the insured property or life. A person insures for his or her potential risk. So in reality he expects to get insurance claims quickly when he is in danger. In this case, if the insurance company does not respond quickly or resort to unjustified excuses, the insured becomes more helpless. Which severely damages the reputation of the insurance business.
