PREMIUM,Risk and loss

Steps for calculation of net single premium Net single premium is calculated and other premium are based on this calculation. Steps: Determine what constitute claim, death or survival or both. Determine when claims are paid. Determine the number of insured Determine duration of policy Determine probable number of claim per year. Determine the value of claims per year Determine number of years of interest Determine the present value of claim for each year Determine present value of all future claims Determine the net single premium, (present value of future claim divided by number assumed for buying policy.

Assumption in rate calculation Premiums are collected in advance or not. Invested immediately. Receive assumed rate of interest. Interest or dividend is immediately invested for re –earning. Claim will be paid at the end of premium.

Formula

Effect of payment of premium Fraud,misrepresentation or non-disclosure Principle of estoppel.

Mode of payment of premium Money Cheque Bill of Exchange Promissory note. Settlement of account.

Section 4 of the Negotiable Instrument Act Promissory note _ A "promissory note" is an instrument in writing (not being a bank-note or a currency- note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Section 5 - Bill of exchange - A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

Section 6 – Cheque- A cheque is bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes a cheque in the electronic form.

Right to return of whole premium Where the parties are not ad idem. No insurable interest. Policy is ultra vires to the company Policy is illegal. Policy has been avoided on the ground of innocent misrepresentation or non disclosure by the insured. Fraud or breach of good faith on the part of the insurers. Subject matter has already been destroyed. Incapable of identification of the subject matter.

Right to return of part of premium Express term. Where the insurance company goes into liquidation.

S-16 of the Insurance Act Adequacy of premium rate in life insurance. – Authority determine the rate. – Actuary calculate the rate and give certificate. – Prospectus should be submitted before 30 days of advertising to the authority – Authority order not to advertise or order for correction, etc. 5 lacs taka fine. Make report of death rate of policy holder after every ten years.

Central Rating Committee for non life insurance S-17 of the Insurance Act For determination of insurance premium rate.

Central Rating Committee. Chairman of IDRA will act as head of the committee in ex officio power. Appointed by chairman two members from IDRA 3 representative from non life insurance business appointed by IDRA 4 chief executive officer from non life insurance company appointed by Bangladesh bima association. One member appointed by IDRA would be secretary of central rating committee

Collection of premium S-18 of the Insurance Act-2010 Every insurer collect the premium within 30 days of the Act comes into force and comply the order given by the Authority.

Risk A probability or threat of damage, injury, liability, loss or any other negative occurrence that is caused by external or internal vulnerabilities and that may be avoided through preemptive action. Risk is a situation where the probability of a variable is known but when a mode of occurrence or the actual value of occurrence is not known.

Types of risk Speculative risk or dynamic risk Pure or static risk Fundamental risk Particular risk

Speculative risk or dynamic risk It is a risk in which either profit or loss is possible. Examples ……………

Pure or static risk It is a situation in which there are only the possibilities of loss. Examples………………

Types of pure risk Personal risk Property risk Liability risk

Personal risk Premature death Old age Poor health Unemployment