THE BUSINESS OF INSURANCE

Insurance companies are called insurers. The insurers (a) bring together persons with similar insurance interests (sharing the same risks), (b) collect the share or contribution (known as premium) from all of them,(c) pay out compensations (known as claims) to those who suffer.
Insurance is divided into two parts:
Life insurance: Life insurance included all risks related to the lives of human beings and general insurance covers the other aspects.
Non-life or General insurance: General insurance has three classifications viz., Fire (dealing with all fire related risks), Marine (dealing with all transport related risks and ships) and Miscellaneous (dealing will all others like liability, fidelity, motor, crop, personal accident, etc). Personal accident and sickness insurance, which are related to human beings, is classified as ‘non-life’ in India, but is classified as ‘life’ in many other countries.
The premium is based on expectations of the losses that are based on information through the study of occurrences in the past and the use of statistical principles. There is, in statistics, a “law of large numbers”. The variation will be less as a percentage. Therefore, the greater the number of risks included in the pool; the better the chances that the assumptions regarding the probability of the risk occurring (on which premium calculation is based) will be realized in practice. Hence, the greater the spread of the business, the better the expectations.
1. The insurer holds the position of a trustee as it is managing the common fund, for and on behalf the community of policyholders. It has to make certain that none is allowed to take unfair advantage of the arrangement. That means that the management of the insurance business requires care to prevent entry of individuals to the group, whose risks are not similar as well as paying claims on losses that are not accidental. The decision to allow entry is known as the process of underwriting of risk. Underwriting includes determining the risk, i.e., to evaluate how much risk exposure is involved. The premium that is charged is dependent on the determination of risk involved.

ROLE OF INSURANCE AS A SOCIAL SECURITY TOOL
The U.N. Declaration of Human Rights of 1948 states that “Everyone has a right to a standard of living adequate for the health and wellbeing of himself and his family, including food, clothing, housing and medical care and necessary social services and the right to security in the event of unemployment, sickness, disability, widowhood or other lack of livelihood in circumstances beyond his control”.
Social security is a part of our Constitution in our country. According to Article 41 the State, within the limits of it’s economic capacity and development, should provide for the right to work, education, unemployment, old age, sickness and disablement. The state also has obligations towards the poorer sections of the society and they are met through the working of life insurance and the directions of the regulatory authorities extend insurance benefits to economically weaker sections of the society.
REINSURANCE :Insurance co. takes the risks they have to pay claims as and when there arise. Insurers are normally financially sound enough to be able to pay claims but there are limits, An catastrophic claim like tsunami or a hurricane may be to the tune of crores of rupees, and this may put a very heavy strain or the reserve of the insurances Insurers protect them selves against such situations which may be beyond their capacity by reinsuring the risk with other insurers if there is a claim the burden is shared by the primary insurers and the reinsurar there are some companies who do reinsurance business only. In India general insurance corporation of India is the national reinsurar. Reinsurance business is placed globally .

ROLE OF INSURANCE IN ECONOMIC DEVELOPMENT
Investments are made out of savings and they are necessary for furthering economic development. A life insurance company is a quit important in mobilizing savings of people, especially from the middle and lower income groups and these savings are channeled into investments for economic growth. Most of the life insurance companies have large funds that are accumulated through the payments of small amounts of premia of individuals and these funds further the economic development of the countries in which they do business. These funds are collected and held in trust for the benefit of the policyholders. The management of life insurance companies have to remember this aspect and take decisions keeping in mind the benefit of the community. Business and trade also benefit through insurance. Without insurance, trade and commerce is exposed to perils and it will find it difficult to face the impact of such events. Huge funds of Insurance companies can be used for economic development of country and national reconstruction. Express roads, rural electrification, dams and hospitals have been possible through Insurance funds.

ADVANTAGES OF LIFE INSURANCE
IT is incorrect to say that life insurance is investment or means of saving. The saving and investment options are deposit in the bank, in national savings certificates, in mutual funds and all other saving instruments. Money invested in buying shares and stocks are at risk of being lost in the fluctuations of the stock market. Assuming there is no loss, the money available at any time is the amount invested plus appreciation. In life insurance the fund available is not the total of the saving already made (premiums paid), but the amount one wished to have at the end of the saving period (which is the next 20 or 30 years) and the final fund secured from the very beginning. One is paying for it later, out of the savings. One has to pay for it only as long as one’s lifetime or for a lesser period according to his choice. Hence life insurance cannot be substituted as there are no other schemes that proved this kind of benefit.
Life insurance has the following advantages in comparison to other forms of savings. Settlement is easy in case of the event of death. Facility of nomination and assignment makes the collection of money by the heirs quicker. Now some bank accounts provide the facility of nomination. Creditors can be protected against attachment by courts but cannot claim the life insurance moneys. There are tax benefits in income tax and in capital gains. A life insurance policy is property and can be transferred or mortgaged and loans can be raised against the policy as marketability is better.
Tangible and Intangible
The things that we can touch or feel are tangibles. These tangible assets can be Insured. The things that we can not touch and can only feel about it are called intangibles. Now it is possible to insure intangible assets. Example of intangible assets are professional football players or the vocal chord of a musician. Fluctuations in the Dollar-rupee or pound-rupee can be insured as intangibles. In Insurance only a promise is sold and the insured only get the assurance of compensation should a loss occur. So Insurance product is intangible.
The Human Asset
A human being is an income generating asset, assets are mannel, professional, problem solving, entrepreneurial skills etc. The valve of these assets can be measured by the income generated by him. The human asset provides a scientific method to determine the asset value of human life and therefore the amount of ins. Required. The risks in the case of human beings are :-1. Early Death2. Living too long3. Disabilities, sickness4. Unemployment
Trustee –
The insurer is in the position of a trustee as is manages it common fund for and on behalf of the community of policyholders.