Insurance & Risk Management

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Insurance is nothing but a system of spreading the risk of one onto the shoulders of many. Whilst it becomes somewhat impossible for a man to bear by himself 100% loss to his own property or interest arising out of an unforeseen contingency, insurance is a method or process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose. It is a written contract where the insurance policy holder transfers his expected risk to insurer in exchange for some certain premium.

Alternatively, insurance is considered to be a sophisticated modern financial institution which centers on the law of statistical average. It is most important financial institution in the sense that besides protecting individual policy holders against out of destruction of properties etc, it serves another national purpose by canalizing the savings of common, accumulating them & making them available for proper investment.

Risk & Insurance Business is closely related terms. Simply to explain risk is the foundation thought where from the insurance business has evolved. If there been no risk to human individual life or risk to the property people own then the modern world may not have come to the term of insurance business.

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1.   “Insurance is a co-operative form of distributing a certain risk over a group of persons who are exposed to it.”
--------------M. K. Ghosh & A.N. Agorwala

2.   “The Insurance contract is an agreement by one party to assume another’s risk of loss in a consideration for the payment of a premium as part of a general scheme for the assumption of similar risk.”
------------- Irwin M. Taylor

3.   “Insurance is a co-operative device to spread the loss caused by a particular risk over a number of persons, who are exposed to it and who agree to insure themselves against the risk.”
------------ M. N. Mishra

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we can identify the following characteristics of insurance:

1.   Insurance is a financial compensation against the risk of human life and his property.
2.   Insurance is a joint system where there is a scope to spread the loss among those who are exposed to risk.
3.   The interest of the policy holder is to transfer the risk of life and property to another.
4.   The interest of insurer is to receive premium from policy holder after certain period of time on annuity or in a lump sum basis.

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Insurance Contract

Insurance is defined as a contract between two parties whereby one party undertakes, in exchange for a fixed sum to pay the other party a fixed amount of money on the happening of a certain event (death or attaining a certain age in case of human life) or to pay the amount of actual loss when it takes place through the risk insured in case of property.

An insurance contract is an agreement enforceable at law, made between two parties, i.e., insurer and the insured, by which in consideration of the payment of a premium by the insured the insurer undertakes to indemnify the insured against financial losses sustained or to be sustained as a result of the operation of the perils insured against.

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1.   Insurance may be defined as a contract whereby one party agrees to indemnify the other party against a loss which may arise or to pay a certain sum of money on the happening of a certain event, in return of compensation called premium.
-------- M.K. Ghosh & A. N. Agorwala.


2.   Insurance is that in which a sum of money as a premium is paid in consideration of the insurer’s incurring the risk of paying a large sum upon a given contingency.
-------- M.N. Mishra.


3.   The insurance contract is an agreement by one party to assure another’s risk of loss in consideration for the payment of a premium, as part of a general scheme for the assumption of similar risk.
-------- Irwin M. Taylor.

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Terms involved in Insurance
Insured Sum: The amount for which the risk is insured, called insured sum. The insured sum is also known as policy money or face value of the policy.
Premium: The amount which is paid by the insured to the insurer as a consideration of the insurance contract is called the premium. In other words, in order to make the promise of claim, payment by assure enforceable, the assured must also show some sort of consideration, which, in insurance contract is done by payment of premium. Usually, premium is paid by the insured in installment basis, may be monthly or quarterly or yearly. Premium cannot be paid by the insured in lum sum amount.
Insurance Contract: An agreement between the insurer and the insured.   
Insurance Policy: The document which contains the terms and conditions of the insurance contract is known as insurance policy. It is the service that a insurance company sells or offers to the market. This is not a good. This is something like services that the customer buys as per their requirements providing some calculated premiums as annuity. The policy is thus the subject matter of the insurance business. 
Insurer : Insurance Company
Insured : Client

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Reinsurance: The term means insurance of insurance fund. The original insurer takes the risk, assumed from the original insured, covered with other insurer (known as re-insurer) for the same reason as the primary insured does. The primary insurer, here, in fact became the insured (known as reinsured) & the persons or company giving him the protection became the insurer. Reinsurance is of two types:

   Facultative- this is original form of reinsurance. Participation by reinsurer in a risk is not pre-arranged through a standing treaty contract. Normally after getting a proposal for insurance, the insurer decides as to how much he cans ratio on that particular risk. If there remains a balance after retention, he goes to facultative market with the request to make reinsure interested in the risk. In this way insurer goes to reinsurers to reinsure until 100% of the total risk is covered.

   Treaty- a reinsurance treaty is merely an agreement in between two or more insurance companies where by one agrees to cede & other(s) agree to accept reinsurance business as per provision specified in the treaty. Specifically, it is pre-arranged agreement whereby the direct insurer cedes & the reinsure(s) accept cession within a predetermined limit.     

[Rozina Akter]

so many important things madam..thanks for sharing

[rayhanul.bba]

Important and informative