INSURANCE INSURANCE MANAGEMENTMANAGEMENTPrinciples & PracticesPrinciples & Practices

Instructor

Abdel Fatah AfifiMA&T, MBA, ACPA, PCT

Chapter 1Chapter 1

Conceptualization of Insurance

Chapter ContentsChapter Contents

1. Introduction2. Meaning of Insurance3. Definition of insurance4. Nature of Insurance5. Functions of Insurance6. Types of Insurance7. Evolution of Insurance8. Why Life Insurance

1. Introduction1. IntroductionInsurance is a tool by which

fatalities of a small number are compensated out of funds (Premium payment) collected from plenteous.

Insurance companies pay back for financial losses arising out of occurrence of insured events, e.g. in personal policy death due to accident, in stick, explosion, etc.

What is insurance?What is insurance?

Insurance is a contractual arrangement whereby one party agrees to compensate another for losses in return for payment of a consideration.

Who are the parties to an Who are the parties to an insurance contract?insurance contract?

1. The party agreeing to pay for the losses called the Insurer.

2. The party whose loss causes the insurer to make a claims payment called the insured.

3. The payment that the insurer receives called as a premium.

4. The contract called a policy of insurance.

5. The insured's possibility of loss called the insured's exposure to loss - Risk.

2. Meaning of 2. Meaning of InsuranceInsurance

Commonly acknowledged phenomenon that there are countless risks in every sphere of life.

1.Property: Fire risk.2.Shipment of goods: Perils of sea.3.Human Life: Risks of death or

disability.4.And so on…….

3. Definition of 3. Definition of insuranceinsuranceThe term INSURANCE : A co-

operative mechanism to spread the loss caused by a particular risk over a number of persons who are expected to it and who agree to ensure themselves against that risk.

Risk is, an uncertainty of a financial loss.

4. Nature of Insurance4. Nature of Insurance

One can observe its following characteristics:

1.Risk sharing and Risk transfer.2.Co-operative Device.3.Risk Assessment in Advance.

Give more details on each of above.

5. Functions of 5. Functions of InsuranceInsuranceInsurers provide insurance

policies.1.Certainty2.Protection3.Risk Sharing4.Assists in Capital Formation5.Prevention of loss

6. Types of Insurance6. Types of Insurance

1. Classification on the basis of nature of insurance.

2. Classification from business point of view.

3. Classification from risk point of view.

Classification on the basis Classification on the basis of nature of insurance.of nature of insurance.

◦Life Insurance◦Fire Insurance◦Marine Insurance◦Social Insurance◦Miscellaneous Insurance

Classification from Classification from business point of viewbusiness point of view

1.Life Insurance2.General Insurance

Classification from risk Classification from risk point of viewpoint of view

1.Personal Insurance2.Property Insurance3.Liability Insurance4.Fidelity Guarantee

Insurance

7. Evolution of 7. Evolution of InsuranceInsuranceThe first insurers of life were the marine

insurance underwriters who started issuing life insurance policies on the life of master and crew of the ship, and the merchants.

The early insurance contracts took the nature of policies for a short period only.

The underwriters issued annuities and pension for a fixed period or for life to provide relief to widows on the death of their husbands.

The first life insurance policy was issued on 18th June 1583, on the life of William Gibbons for a period of 12 months

8. Why Life 8. Why Life InsuranceInsurance1. Covers the risk of death.

2. Encourages compulsory savings.3. Easy settlement and protection against

creditors.4. It helps to achieve the purpose of the life

assured.5. Peace of mind.6. Loss control.7. Social benefits.8. Investment of funds.9. Invisible earnings.10. Insurance facilities liquidity.11. Loan facility and tax relief.