THEORY OF RISK AND INSURANCE MARKETS LECTURE 2: THE NATURE OF INSURANCE

THE NATURE OF INSURANCE Insurance is device for spreading of risk It works on a ‘pooling’ principle Offers protection to those who insure EARLY DEVELOPMENT OF INSURANCE Development of insurance as a business 15th Century – marine insurance 16th Century - life insurance 17th Century - fire insurance

THE NATURE OF INSURANCE cont.. 19th Century - accident classes Personal insurance Engineering Fidelity Employers’ liability and workers’ Compensation General liability Theft

COMMERCIAL DEVELOPMENT OF INSURANCE 20th Century Motor Aviation Loss of profit insurance New liability classes (D & O liability)

INSURANCE, CO-INSURANCE AND REINSURANCE 18th Century – coinsurance develops 19th Century - reinsurance develops

WAYS OF CLASSIFYING INSURANCE Meaning of classification: - To classify means to subdivide the whole subject into a series of headings or categories. Five main ways of classifying insurance. There as follows:

WAYS OF CLASSIFYING INSURANCE cont.. Historical classification 15th Century – marine insurance 16th Century - life insurance 17th Century - fire insurance 19th Century – accident insurance By basic type of contract/type of insurer Life assurance General insurance

WAYS OF CLASSIFYING INSURANCE cont.. 3. Statutory classification: based on authorisation Composite insurer Specialist insurer 4. By the type of buyer or person insured Personal lines (personal insurance Commercial lines (commercial insurance) 5. By subject matter/risk insured

WAYS OF CLASSIFYING INSURANCE cont.. Insurance of the person of the policyholder; Insurance of the property of the policyholder; Insurance of the liability of the policyholder; Insurance of the rights or financial interest of the policyholder