INTRODUCTION Introduction Insurance in India has taken galloping stage. It has maximum growth rate of 56.99 percent in 2006 in world after Liechtenstein (61.58%). Recently De-Tariffing since January 1, 2007 have facilitated the insurer to serve the society with quality and lowest cost in the NOTES competitive environment. Now insurance is not limited only to life and Introduction property risks; it has expanded its scope to insure all the uninsurable risks. It has innovated avenues to manage all the risks attached to business industry, agriculture, transport, banking and credit, health, catastrophe, liability, guarantee and surety bancassurance and corporate governance. It is expected that inn future political parties would parties would go for insurance of the risks involved inn election. However, the present state of insurance has tried to insurance all the risks related to family, society, business, industry and other economic activities. Therefore, the book has included all sorts of innovative insurance products. This book, Insurance Management, is divided into fourteen units that follow the self-instruction mode with each unit beginning with an Introduction to the unit, followed by an outline of the Objectives. The detailed content is then presented in a simple but structured manner interspersed with Check Your Progress Questions to test the student’s understanding of the topic. A Summary along with a list of Key Words and a set of Self- Assessment Questions and Exercises is also provided at the end of each unit for recapitulation Self-Instructional Material ALAGAPPA UNIVERSITY [Accredited with ’A+’ Grade by NAAC (CGPA:3.64) in the Third Cycle and Graded as Category–I University by MHRD-UGC] (A State University Established by the Government of Tamilnadu) KARAIKUDI – 630 003 DIRECTORATE OF DISTANCE EDUCATION B.Com IV - SEMESTER 10241/12541 INSURANCE MANAGEMENT Copy Right Reserved For Private use only SYLLABI- BOOK MAPPING TABLE INSURANCE MANAGEMENT Syllabi Mapping in Book BLOCK I RISK, REFORMS, REGULATIONS OF Pages 1 - 85 INSURANCE UNIT I Risk Pages 1 - 19 Interpretations of the term ‘risk’- Types of business and personal risks- Significance of risk management function within business organizations. UNIT II Insurance and Risk Pages 20 - 41 Significance of insurance and risk- General structure of the insurance market- Significant aspects of this industry UNIT III Reforms in Indian Insurance Industry Pages 42 - 57 Importance of privatization of insurance industry - Problems associated with public insurance enterprises - Relation between insurance and economic growth UNIT IV Regulations relating to Insurance Accounting and Pages 58- 85 Management Framework for IRDA rules and regulations regarding general insurance investment in the country - Role of financial reporting in managing insurance operations- Significance of determining solvency margins BLOCK II LIFE & NON LIFE INSURANCE, FUNCTIONS Pages 86-156 UNIT V Life Insurance Pages 86- 110 Factors influencing the key functioning of insurance organizations insurable interest - Role of riders in insurance policies UNIT VI Non-Life Insurance Pages 111 - 124 Elements of fire insurance contract and its ancillary features- Significance of marine insurance and its various policies - The role of rural insurance in making people’s lives better in rural India UNIT VII Non-Life Insurance-II Pages 125 -139 Types of Motor Insurance Policies - Critical aspects of aviation industry in the country- Significance of liability insurance in India Syllabi Mapping in Book UNIT VIII Functions and Organization of Insurers Pages 140 - 156 Components of the distribution system of life insurance companies in the country - Role of agents in the life insurance sector in India - Important activities carried out in a life insurance organization BLOCK III PRODUCT DESIGN, INSURANCE UNDER Pages 157- 194 WRITING, CLAIMS UNIT IX Product Design and Development Pages 157 - 171 Product development in the life and non-life insurance sectors in India- Role of risk evaluation in the process of insurance product formation- Future trends in the domain of insurance product design and development UNIT X Insurance Underwriting Pages 172 - 182 Need for insurance underwriting - Factors that affect the activities performed by the underwriter - Steps involved in the process of insurance underwriting UNIT XI Claims Management Pages 183 - 194 Factors affecting the insurance claim management system - Types of documents needed in various types of claims - Meaning of ‘Causa Proxima’ in insurance claim settlement BLOCK IV INSURANCE PRICING & MARKETING , Pages 195-239 REINSURANCE UNIT XII Insurance Pricing and Marketing Pages 195 -205 Principles of insurance pricing and marketing - Tools and techniques used in pricing individual life and health insurance UNIT XIII Financial Management in Insuarnce Companies Pages 206 - 220 and Insuarnce Ombudsman Importance of financial management in insurance companies- Tools of managing expenses in the insurance companies - Modes used by the insurance companies in channelizing their funds UNIT XIV Reinsurance Pages 221 - 239 Reinsurance in the insurance sector- Areas of the application of reinsurance - Information Technology in Insurance- Application of information technology in the insurance sector -Role of insurance companies in insurance security- Contours of the future of insurance in rural areas CONTENTS BLOCK I RISK, REFORMS, REGULATIONS OF 1 - 85 INSURANCE UNIT I Risk 1 - 19 1.1. Introduction 1.2. Interpretations of the term ‘risk’ 1.2.1. Loss and chance of loss 1.2.2. Perils 1.2.3. Hazards 1.3. Types of business and personal risks 1.3.1. Risk for financial institutions 1.3.2. Classifying pure risks 1.3.3. Risk perception and misconceptions 1.4. Significance of risk management function within business organizations 1.4.1. Methods of handling risks 1.4.2. The risk management function 1.4.3. Importance of risk management 1.4.4. The risk management process 1.5. Answer to check your progress Questions 1.6. Summary 1.7. Key Words 1.8. Further Readings 1.9. Self-Assessment Questions and Exercises UNIT II Insurance and Risk 20 - 41 2.1. Introduction 2.1.1. Concept of the term insurance 2.1.2. Features of insurance 2.2. Significance of insurance and risk 2.2.1. Concepts of double insurance 2.3. General structure of the insurance market 2.3.1. Types of insurance 2.4. Significant aspects of this industry 2.4.1. The Indian insurance sector 2.4.2. The present of insurance sector in India 2.4.3. The future of insurance sector in India 2.5. Answer to check your progress Questions 2.6. Summary 2.7. Key Words 2.8. Further Readings 2.9. Self-Assessment Questions and Exercises UNIT III Reforms in Indian Insurance Industry 42- 57 3.1. Introduction 3.2. Importance of privatization of insurance industry 3.3. Problems associated with public insurance enterprises 3.3.1. Challenges of insurance companies 3.4. Relation between insurance and economic growth 3.4.1. Contribution of insurance to growth and development 3.5. Answer to check your progress Questions 3.6. Summary 3.7. Key Words 3.8. Further Readings 3.9. Self-Assessment Questions and Exercises UNIT IV Regulations relating to Insurance Accounting and 58- 85 Management 4.1. Introduction 4.1.1 Important characteristic of Reform Bill 4.1.2. Insurance Accounting and Management 4.1.3. Recent developments 4.1.4. Background 4.2. Framework for IRDA rules and regulations regarding general insurance investment in the country 4.3. Role of financial reporting in managing insurance operations 4.4. Significance of determining solvency margins 4.5. Answer to check your progress Questions 4.6. Summary 4.7. Key Words 4.8. Further Readings 4.9. Self-Assessment Questions and Exercises BLOCK II LIFE & NON LIFE INSURANCE, FUNCTIONS 86 -156 UNIT V Life Insurance 86 - 110 5.1. Introduction 5.1.1. Meaning of Life Insurance 5.1.2. Definition of Life Insurance 5.1.3. Difference between Insurance and Assurance 5.1.4. Features of Life Insurance Contract 5.2. Factors influencing the key functioning of insurance organizations insurable interest 5.2.1 General Rules of Insurable Interest in Life Insurance 5.2.2. Kinds of life Insurance 5.2.3. Advantages of life insurance 5.3. Role of riders in insurance policies 5.3.1. Reasons why rider covers are important 5.3.2. Popular rider covers available for life insurance policyholders 5.4. Answer to check your progress Questions 5.5. Summary 5.6. Key Words 5.7. Further Readings 5.8. Self-Assessment Questions and Exercises UNIT VI Non-Life Insurance 111 - 124 6.1. Introduction 6.2. Elements of fire insurance contract and its ancillary features 6.2.1. Features of a fire insurance contract 6.2.2. Fire Insurance: The Characteristics 6.2.3. Average clause in fire insurance policy 6.2.4. Insurable interest in fire insurance 6.3. Significance of marine insurance and its various policies 6.3.1. Types of Marine Insurances 6.3.2. Types of Insurance Plans 6.3.3. Benefits of a Marine Insurance Plan 6.3.4. Marine Insurance Coverage 6.3.5. Marine Insurance Policy Exclusions 6.3.6. Marine Insurance Claim Process 6.4. The role of rural insurance in making people’s lives better in rural India 6.4.1. Types of Rural Insurance 6.4.2. Functions of Rural Insurance 6.4.3. Advantages of Buying Rural Insurance 6.5. Answer to check your progress Questions 6.6. Summary 6.7. Key Words 6.8. Further Readings 6.9. Self-Assessment Questions and Exercises UNIT VII Non-Life Insurance-II 125 -139 7.1. Introduction 7.1.1. Key Features of Motor Insurance 7.2. Types of Motor Insurance Policies 7.3. Critical aspects of aviation industry in the country 7.3.1. Factors contributing to the growth of the aviation sector 7.4. Significance of liability insurance in India 7.4.1.