2. Part II: Insurance in Business
Chapter I: Introduction

3. Outline Basic concepts Principles Effects of insurance
Classification of insurance

4. I. Basic concepts Insurance 1.1. Insurance Definition
Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events.

5. Basic concepts 1. Insurance 1.2. Nature of insurance
i) Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying premium to an insurance company.
ii) Insurance is the risk transferring from the insured to the insurer
iii) Insurance works on the basic principle of risk-sharing.
iv) The business object in the insurance sector is risk.

6. I. Basic concepts 2. Risk
The term Risk is used to describe all the accidental happenings which produce a monetary loss. For e.g.: A factory catching fire, a ship sinking etc.

7. I. Basic concepts
3. Re- insurance: Practice where an Insurance company (the insurer) transfers a portion of its risks to another (the re-insurer).
4. Double Insurance: Situation in which the same risk is insured by two overlapping but independent insurance policy.
5. Co- Insurance: Insurance held jointly by two or more insurers.

8. I. Basic concepts
6. Insurer/ Underwriter: The party to an insurance arrangement who undertakes to indemnity for losses.
7. Insured: an insured or policyholder is the person or entity buying the insurance and receiving indemnity on happening of unforeseen events
8. Subject matter insured: The person, group, or property for which an insurance policy is issued.

9. I. Basic concepts
9. Insurance Value: The term “value” refers to the value of the property, on the same basis used in indemnifying losses; that basis is usually actual cash value or replacement cost. The replacement value of property is equal to the amount it would cost to fully repair or replace the property if it must be reconstructed or purchased new.
10. Insurance Amount: is a certain amount of insurance coverage that the insured requires in the insurance policy, it can be a part or an entire of insurance value
11. Limitation of liability: The largest total amount the insurance company will pay for covered losses.

10. I. Basic concepts
11. Insurance rate: is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium.
12. Insurance Premium: Payments to the insurance company to buy a policy and to keep it in force.

11. II. Principles of Insurance
Insurance is a repayment of a random loss
Utmost Good Faith
Insurable Interest
Indemnity
Subrogation

12. Insurance is a repayment of a random loss
The timing or occurrence of the loss must be uncertain.
For example, you can't know your house is going to be destroyed in three weeks by a demolition team and still get home owner's insurance.
To be able to fully service major claims, small claims are not covered. This is what the deductible is for. Only damage or loss over the amount of the deductible is covered by the insurance policy.

13. Utmost Good Faith Good faith- Let the buyer beware
Declaration of all material Information about the subject mater of insurance

14. Breach of duty of utmost good faith arises in two ways:
Material Information is that information which enables the insurer to decide:
whether he will accept the risk and;
if so, at what rate of premium and subject to what terms and conditions
Breach of duty of utmost good faith arises in two ways:
Non-disclosure of material facts- oversight, proposer thought it’s not essential etc.
Misrepresentation- Intentional.

15. Insurable Interest
The legal right enjoyed by the owner of a property to insure is called ‘Insurable Interest’. The insurance will become null and void, without the insurable interest.

16. Indemnity
The principle of Indemnity states that under the policy of insurance, the insured has to be placed after the loss in the same financial position in which he was immediately before the loss.

17. Indemnity Applicability:
When the losses suffered by the insured can be measured in terms of money
It is practicable to place the insured in the same financial position which he occupied before the loss
In Marine Cargo where valued polices are issued, there is only commercial indemnity- the value declared for insurance is accepted at the time of loss.

18. Subrogation
Transfer of rights and remedies from the insured to the insurer who has indemnified the insured in respect of the loss.
The right of an insurer which has paid a claim under a policy to step into the shoes of the insured so as to exercise in his name all rights he might have with regard to the recovery of the loss which was the subject of the relevant claim paid under the policy up to the amount of that paid claim. The insurer’s subrogation rights may be qualified in the policy.