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Ajay Bhundiya (11106)

Akash Patel (11132)

Manan Amin (11145)

Harsh Desai(11154)

Museb Mansuri (11168)

Khimji Kholiya(11163)

Paresh Mali (11191)

Jitendra Gamit(11157)

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Paresh Mali-11191

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Definition of Insurance:

Insurance is the pooling offortuitous losses by transferof such risks to insurers, who agree to indemnifyinsured for such losses.

In Finance Sense:

Insurance is a social device in which a group of

individuals transfer risk to other party in order tocombine loss experience, which permits statistical oflosses and provides for payment of losses from fundscontributed (Premiums) by all members whotransferred risk.

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Insurance company, which assumes risk is

referred as Insurer.

Person taking the insurance cover is referredas Insured

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Benefits:

Reimbursement for losses

Reduction in tension and fear

Prevention of losses Credit multiplication

Costs:

Cost of Business Operations-Social wastage of

resources

Fraudulent and exaggerated claims

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Functions of an insurance contract:1. To define the risk that is to be transferred

2. To state the conditions under which the contract

applies3. To explain the procedure for setting losses.

Nature of the contract

1. Entirety2. Personal

3. Unilateral

4. Aleatory

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1) Gambling creates risk while insurance transfers an

existing risk.

2) Gambling deals with speculative risk-there might begain or losses, while Insurance deals with pure risk.

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1. Insurance contracts are legal ones;enforceable at court of low which wageringcontracts are void contract.

2.

Parties to an insurance contract areidentifiable at the inception of the contractbut in wagers, the parties to suffer lossesare identified after the occurrence of theevent.

3. Insurance contracts are contracts ofindemnity; wagers are winning or losecontracts.

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1. NON-LIFE INSURANCE

2. LIFE INSURANCE

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Property:

Home insurance/Domestic cover

Business insurance

Commercial insurance Liability:

Motor insurance

Workman compensation

Liability insurance

Aviation insurance

Project & engineering insurance

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Health:

Hospital insurance

Medical cover

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Money back

Pension

Women, Girl child & Couple

Endowment

Whole Life

Child insurance

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Ajay Bhundiya-11106

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It is different from tangible products.

It is business of buying risk

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It is game of probability

Two corollary are usually drawn

1. It is rather a delicate exercise.2. Technical reserves must be built.

Principle of insurance pricing

1. Premium should be sufficient to meet their expectedclaim cost and administrative cost.

2. It should provide expected profit

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Fair premium means premium that are sufficient to meet

the expected cost and provide fair return to insurance

company.

Premium is calculated on the basis of expected claim

distribution such that

P = E(S) + k + R

Where, E(S) represents mathematical expectation of claim

K denotes cost

R denotes risk premium

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Probability means chance of occurrence of an event.

Probability distribution means distribution of all

possible outcomes of a random variable.

EX: Suppose a coin is tossed, then followingdistribution is noted.

No. of

experiment

10 20 30 40 50

Heads 4 9 13 18 24

Tail 6 11 17 22 26

Probability

of heads

40% 45% 43.33% 45% 48%

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If number of trials tends to infinity then probability of getting heads

will be 50%

Thus increasing the number of experiments for a given variable, the

probability of the occurrence if a given outcome can be accuratelyestimated.

Probability Distribution

It can be discrete or continuous. Discrete distribution can take limited values.

Continuous distribution can take any value within a given range.

There are three variable distributions

1. Binomial

2. Normal

3. Poison

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Assumptions

1. Events occurs at randomly

2. All events are independent each other.

Poison distribution is best to used when the probability ofoccurrence of an event is small and populations size are very

large. Ex: Group of five members and premium charged is Rs. 3000

and coverage is Rs. 90000. if one of the person die within agiven period, then

Total premium paid = 3000*5 = Rs.15000

Expected value of losses = 90000*.20 = Rs.18000

Thus pricing of insurance product is not proper

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Dual Application of law of large Numbers To estimate

underlying probability accurately

The law of large numbers means that the larger the

number of cases, better the chance of actual

experience.

Also large number of policyholder will reduce the

administrative cost and spread risk among them.

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Pure premium: it includes the amount needed

to cover expected loss.

Operating expenses: it includes salescommission and other marketing costs, taxes

and cost of handling claims.

Margin and other incomes: it includes

contingencies and other gain or profit.

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Premium: Insurance price is called premium

Rate: it is price per unit of insurance.

Exposure Units are quantitative units uses in

insurance pricing.

Loading refers to the amount that is added to

the pure premium like other expenses, profit

and margin for contingencies.

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Adequacy : the rate must be adequate to generate

the premium income the insurer needs to pay its

claims and expenses.

Reasonableness: the rates should not be soexcessive.

Fairness: the rates must not be unfairly

discriminatory.

Simplicity, consistency and flexibility: it should be

easy to understand, inexpensive and should not

change frequently

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Judgement Rating:

It used when risk is little or no statistical informationabout similar risk is available.

The rate is determined largely by underwriters

judgement.

Class rating:

Insurance risk classified on the basis of severalimportant features and are belong to same class and

same rate per unit EX: Life insurance based on age, health, gender, and

smoking and drinking habits.

Automobile insurance is also example of class rating

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Merit rating: It reflects the extent to which specific risk differs

from the other in the same class.

The various type of rating method are:

1. Schedule rating :

Each exposure is individually rated

First step is to examine the risk. Then risk is compared to average standard risk

Then deduction are made for desirable features and addition

for undesirable features.

This addition and subtraction is based on the judgement ofthe person.

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2. Experience rating:

it modifies class rate on the basis of past record.

The rate is reduced if the risk has better record than theaverage.

It is increased if record is worst than the average.

3. Retrospective Rating:

The range of premium is predetermined and final premium is

determined after the policy expires.

If the losses are very small then insured will pay minimum

premium otherwise he has to pay high premium

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Life insurance vs. Non life insurance pricing

Pricing of life insurance is based on (a)mortality rate ,(b)expenses,

(c) interest

In non life insurance is based on (a) claim cost, (b) business

acquisition cost, (c)management expenses, (d) reasonable profit

Rate Making Entities

1. Professional rate making organization

They are specialist in performing the rating work.

The reason of existence of such entities is that many companies do

not have sufficient data.

2. Actuaries

They are specialized in mathematics of insurance.

They develop mathematical models to determine the rates

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Akash Patel-11132

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Insurance is a federal subject in India

Two statutes primarily regulate the insurance

business

(a) Insurance act 1938 and

(b) Insurance and Regulatory Development

authority act , 1999

The insurance business is classified into fourclasses (1) Life insurance (2) Fire (3) Marine

and (4) Miscellaneous insurance

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Insurance is widely regulated all over the

world because of following reasons

Widespread severe impact of insurer solvency

Unequal knowledge and bargaining power ofthe buyer and seller

Insurance pricing

Social welfare

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Insurance is made available to the public

through contracts

Contracts details the rights and duties of the

parties to the insurance agreement The contracts may range from implied or oral

contracts

Most of the insurance contracts are expressed

in writing

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Insurance contracts are agreements between

insurance companies and insurer

Therefore all the provisions of Indian contract act,

1872, in general are applicable to insurance contracts

Following conditions are necessary for a valid contract

a) Agreement between two parties

b) Lawful object

c) Capacity to contractd) Legal purpose

e) Consideration

f) Possibility of performance

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Important provisions in the Act relates to:

A. Conduct of business

B. Insurance Association of India councils and

committees

C. Tariff Advisory Committees and control of tariff rates

D. Solvency margin, advance payment of premium

E. provident societies registration, working,

investments norms, etcF. working capital norms, loans, memberships,

deposits, etc

G. Reinsurance

H. penalties

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It is a two stage process

Stage 1- Requisition for registration

In stage 1 an application has to be made to the

Authority with all the prescribed disclosurenorms

Stage 2- Application for Registration

In stage 2, after the requisition is granted bythe Authority, the applicant is required to

make an application for registration

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Khimji kholiya-11163

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TAC established under the Act is empowered to

control & regulate the rates, terms, ext. that many be

offered by insurance in respect of any risk of or any

category of risks.

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Fire

Marin

Engineering

Motor

Miscellaneous

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The Indian Stamp Act, 1899

The Indian stamp Act requires that a policy of insurancebe stamped in accordance with the schedule of rateprescribed.

The Consumer Protection Act, 1986

The Act applies to all goods and services unlessspecifically exempted by central govt.

The Provisions of the Act are compensatory in nature

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Motor Vehicles Act, 1988

The Inland Steam Vessels Act,1917 & the Amended Act,

1977

Marin Insurance Act, 1963

The Carriage of Goods by Sea Act, 1925

The Merchant Shipping Act, 1958

The Bill of Landing Act, 1855

The Indian Port (Major Port) Act, 1963

The Indian Railways Act, 1890

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The Carriers Act, 1865

The Indian Post Office Act, 1898

The Carriage by Air Act, 1972

Multi Modal Transportation Act, 1993

Workmens Compensation Act,1923

Employees State Insurance Act, 1948

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Companies in India is governed by IRDA

(Registration of Indian Insurance Companies)

Regulation 2000.

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Jitendra Gamit-11157

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Underwriting is the insurance function that is

responsible for assessing and classifying the

degree of risk a proposed or group represent and

making a decision concerning coverage of that risk

The Person responsible for evaluation and

acceptance/rejection of risk and computation of

premium is called as the Underwriter. The decision made by the underwriter concerning

risk classification and rating is called as the

underwriting

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The Objectives of underwriting can be

therefore expressed as follows:

1. Product Equitable to customer-The underwritershould fairly assess the risk in a proposal and fix the premium

justifiable to the consumer

2. Deliverable to the customer-Consumer are the finalauthority for buying the products. If the marketers are not

able to sell so that the product becomes undeliverable, the

onus is on the underwriter to carry an introspection of thevarious factor that cause differences between the consumers

and companys conditions

3. Financially feasible to the insurance company

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Receiving Proposals/ Applications

The Medical Report

Underwriting Review

Policy writing

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Life insurance underwriting is mainly concerned

with mortality. Mortality risk for an insurer is that

the insured will die prior to the stipulated life.

An impairment in any respect of a proposed

insureds personal health, medical history, health

habits, family history, occupation,or other

activities that could increase that persons

expected mortality risk.

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The underwriting of commercial business

insurance is a much more complicated and

involved task.

Commercial insurance range from small shops and

factories to the large multinational corporation.

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Museb Mansuri-11168

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Reinsurance is a transaction in which one insurer

agrees, for a premium, to indemnify another insurer

against all or part of the loss that insurer may sustain

under its policy or policies of insurance.

Reinsurance can also be described as insurance of

insurance companies.

The company purchasing reinsurance is known as the

as ceding insurer, the company selling reinsurance is

known as the assuming insurer or reinsurer.

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1) Limiting Liability

2) Stabilization

3) Catastrophe protection

4) Increased capacity

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Main services provided by Reinsurer companies

1) Reinsurance enables direct writing companies to even out theirresult.

2) Insurance companies can increase the maximum amount they are

able to cover as primary insurer.3) Reinsurance also provide large amount of cash in the event of

major loss.

Advisory services provided by Reinsurance companies

1) Formulating the Reinsurance program

2) Support services

3) Specialized services

4) Capital Base

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1. Reinsurance Treaties

a. Non proportional Treaty

b. Proportional Treaty

2. Facultative

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Quota Share Reinsurance

Pro-rata Reinsurance

Excess-of-loss Reinsurance

Loss Ratio Reinsurance

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Under a reinsurance contract, an insurer is

indemnified for losses occurring on its

insurance policies and covered by the

reinsurance contract.

There are no standard reinsurance contracts

although two basic types are:

1. Treaty Reinsurance contract

2. Facultative Reinsurance contract

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Harsh Desai-11154

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Life insurance is a contract of a sum of moneyto the person assured.

Life insurance covers death due to naturalcauses as well as due to accidents.

Life insurance contract is a long term contract

having all essential features of a valid contract.

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Superior to any other saving plan

Encourages and force thrift

Easy settlement and protection against creditors

Administering the legacy for beneficiaries

Accidental death benefits

Tax benefit

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Heading

Preamble

Operative clause

Provisio

Schedule

Attestation

Condition and privileges

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Classification based on time

Classification based on investment objective

Classification based on premium payment

Classification based on claim payment

Classification based on number of person assured

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Whole life policy

Endowment policy

Participating policy

Money back policy

Pension policy

Annuity policy

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MANAN N. AMIN-11145

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Judgment method

The underwriter studies all the features of the life to

be insured and on the basis of analysis of various

factors takes a decision.

Numerical rating

In this method, a large number of factors, which

influence mortality are taken in account.

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Agent:

o Agents are legal sense means a person who is

employed to perform and act on behalf of others for

a price called commission.

Qualification

o 12th standard or equivalent (city >5000)

o Practical training

o Examination by Insurance Institute of India, Mumbaio Code of conduct applicable

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Basis procedure for issuing a life insurance

policy

o Insurance is a contract.

o

Therefore it start with proposal (by insurancecompany/agent)

o It is in standard insurance form.

o Age proof is provided

o Medical examination is conducted.o Agent communicate all these information to

insurance company confidentially.

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Issue of duplicate policy In situation like

Loss of policy by theft

Destruction by fire

Loss in custody in office of govt.

Missing policy

NominationNomination is the process of identifying a person to receive

the policy money in the policy by providing death of thepolicyholder.

Assignment Assignment is a means whereby the beneficial interest, right

and title under a policy gets transferred from assignor toassignee.

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revivals

If the premium under a policy is not paid within the

days of grace, the policy lapse.

Revival is a fresh contract wherein the insurer can

impose fresh terms and condition.

Types:

Ordinary revival

Revival on medical basis

Revival on non-medical basis

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Death claim If the insurer dies before expiry of the term of the

policy, it is called as death claims

Non-early death claim If death occur after 3 years from the

commencement of the policy.

Early claims If death of insured occur within 3 years from the

commencement of the policy.

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Maturity claims

Maturity claims are payable as per the terms of the

policy.

These policies are generally endowment policies

Insurance has satisfy that

Assured should holder of policy and identity is

proved

Ages stands admitted

All premium should be paid