INTRODUCTION TO INSURANCE: Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.


  • At the end of this lesson, the student should have understood
  • The basic concepts relating to the insurance business
  • The meanings of the words 'peril' and 'risk'
  • Different kinds of risks
  • The ways of managing risks
  • Importance of insurance in society and economy


1. The business of insurance is related to the protection of the economic values of assets. Every asset has value. The asset would have been created through the efforts of the owner. The asset is valuable to the owner because he expects to get some benefits from it. It is a benefit because it meets some of his needs. The benefit may be an income or in some other form. In the case of a factory or a cow, the product generated by it is sold and income is generated. In the case of a motor car, it provides comfort and convenience in transportation. There is no direct income. Both are assets and provide benefits

2.Every asset is expected to last for a certain period of time during which it will provide the benefits. After that, the benefit may not be available. There is a lifetime for a machine in a factory or a cow or a motor car. None of them will last forever. The owner is aware of this and he can so manage his affairs that by the end of that period or lifetime, a substitute is made available. Thus, he makes sure that the benefit is not lost. However, the asset may get lost earlier. An accident or some other unfortunate event may destroy it or make it incapable of giving the benefits. An epidemic may kill the cow suddenly. In that case, the owner and those enjoying the benefits therefrom would be deprived of the benefits. The planned substitute would not have been ready. There is an adverse or unpleasant situation. Insurance is a mechanism that helps to reduce the effects of such adverse situations. It promises to pay the owner or beneficiary of the asset, a certain sum if the loss occurs.



3.Insurance has been known to exist in some form or other since 3000 BC. The Chinese traders, travelling treacherous river rapids would distribute their goods among several vessels, so that the loss from anyone vessel being lost, would be partial and shared, and not total. The Babylonian traders would agree to pay additional sums to lenders, as the price for writing off the loans, in case of the shipment being stolen. The inhabitants of Rhodes adopted the principle of general average', whereby, if goods are shipped together, the owners would bear the losses in proportion, if a loss occurs, due to jettisoning during distress. (Captains of ships caught in storms, would throw away some of the cargo to reduce the weight and restore balance. Such throwing away is called jettisoning) The Greeks had started benevolent societies in the late 7th century AD, to take care of the funeral and families of members who died. The friendly societies of England were similarly constituted. The Great Fire of London in 1666, in which more than 13000 houses were lost, gave a boost to insurance and the first fire insurance company, called the Fire Office, was started in 1680.

4. The origins of the insurance business as in vogue at present, is traced to the Lloyd's Coffee House in London. Traders, who used to gather in Lloyd's coffee house in London, agreed to share the losses to their goods while being carried by ships. The losses used to occur because of pirates who robbed on the high seas or because of bad weather spoiling the goods or sinking the ship. In India, insurance began in 1818 with life insurance being transacted by an English company, the Oriental Life Insurance Co. Ltd. The first Indian insurance company was the Bombay Mutual Assurance Society Ltd, formed in 1870 in Mumbai. This was followed by the Bharat Insurance Co. in 1896 in Delhi, the Empire of India in 1897 in Mumbai, United India in Chennai, the National, the National Indian and the Hindusthan Cooperative in Kolkata

5. Later, were established the Cooperative Assurance in Lahore, the Bombay Life (originally called the Swadeshi Life), the Indian Mercantile, the New India and the Jupiter in Mumbai and the Lakshmi in New Delhi. These were all Indian companies that started as a result of the swadeshi movement in the early 1900s. By the year 1956, when the life insurance business was nationalised and the Life Insurance Corporation of India (LIC) was formed on 1" September 1956, there were 170 companies and 75 provident fund societies transacting life insurance business in India. After the amendments to the relevant laws in 1999, the L.I.C. did not have the exclusive privilege of doing life insurance business in India. By 31.8.2007, sixteen new life insurers had been registered and were transacting the life insurance business in India.


  • https://en.wikipedia.org/wiki/Insurance

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