History of insurance

The history of insurance in India can be divided into there phases

    Ø The first phase (pre-liberalization)  was dominated by private and foreign insurance companies before the government nationalized the sector in 1986.

    Ø In the second phase (liberalization) reforms were initiated and IRDA set up as the regulator of the insurance sector.  Private participation was invited and also FDI.

    Ø In the third phase (post-liberalization) many private companies started insurance operations with a foreign partner in  joint ventures. Currently there are 23 life insurance companies operating in India .

Role of financial services and insurance

v  The financial service sector has a major role to play In the overall economic growth of the country

v  The insurance sector can provide investment to companies and projects thanks to the money  invested in the insurer by individuals buying protection and investment products

Insurable vs. Uninsurable Risks

                                                         Not every negative economic event is insurable. For risk pooling to be effective, the risk should be unforeseen and infrequent. If a negative event can be predicted in a certain case, it's not a risk, but certainty -- and certainties are not insurable (with the possible exception of death, which is insurable because its timing is uncertain). Furthermore, if a risk is too frequent, it cannot meaningfully be transferred to an insurance company, since the insurance company would only pass on the cost of the negative occurrence to the pool of insureds, along with their expenses and profits. If nearly everyone in a risk pool is filing a claim, then they are likely better off not attempting to pool their risks at all but setting aside sufficient reserves to pay for them themselves.

Risk and Premium

                                                         A class of professional experts in finance and probability, called actuaries, work for insurance companies to attempt to predict the probability and severity of risk. They also take lapse rates and interest rates or other expected rates of return on investment assets into account, with the goal of setting acceptable premiums. The premium is the cost of pooling one's own risk with that of others via an insurance company and includes the insured's share of expected claims costs, administrative expenses, sales and marketing expenses, and a profit for the insurer. If a premium payer is affected by a covered risk, the insurance company, and not the insured, takes the hit. If claims are higher than expected, however, the insurance company may have to raise rates on policy holders across the board.

Modern Insurance Policies

                                                    The insurance industry grew enormously, as individuals and businesses sought to protect themselves from economic catastrophe by transferring their risks to an insurance pool. We still have commercial shipping insurance -- just as we did in the ancient world -- and we also insure against such diverse risks as fires, floods, theft, auto accidents, kidnap and ransom schemes, defaults on the part of our debtors, lawsuits and judgments, dying too early and even against the risk of living too long.