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

2. 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

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

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

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

6. 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:

7. 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

8. 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

9. 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