Detailed Notes on Insurance
1. Introduction
Insurance is a financial product that provides protection against financial loss from uncertain future
events. It is a risk management tool where the insured transfers the risk to the insurer in exchange
for a premium. Insurance plays a vital role in stabilizing the economy, protecting individuals and
businesses, and encouraging savings and investments.
2. Meaning of Insurance
Insurance can be defined as a contract between two parties — the insurer (insurance company)
and the insured (policyholder). Under this contract, the insurer promises to compensate the insured
for specific potential losses in exchange for regular premium payments. This helps individuals and
organizations manage risks effectively.
3. History of Insurance in India
• The concept of insurance dates back to ancient civilizations (China, India, Babylon).
• In India, insurance traces back to 1818 with the establishment of Oriental Life Insurance
Company in Kolkata.
• The Life Insurance Corporation of India (LIC) was established in 1956 by nationalizing 245
companies.
• The Insurance Regulatory and Development Authority of India (IRDAI) was set up in 1999 to
regulate the industry.
• Today, insurance in India covers life, health, motor, agriculture, marine, and other areas.
4. Functions of Insurance
• Provides financial protection against risks and uncertainties.
• Promotes savings and investment habits.
• Helps in economic development by mobilizing funds.
• Encourages risk management and financial planning.
• Provides social security to individuals and families.
• Supports trade and commerce by covering business risks.
5. Structure of Insurance Industry in India
• Regulatory Body: Insurance Regulatory and Development Authority of India (IRDAI).
• Public Sector: Life Insurance Corporation (LIC), General Insurance Corporation (GIC).
• Private Sector: Several life and general insurance companies with domestic and foreign
participation.
• Reinsurance: GIC Re is the national reinsurer.
• Intermediaries: Agents, brokers, and third-party administrators (TPAs).
Diagram: Structure of Insurance Industry in India
IRDAI (Regulator) | ----------------------------------------- | | Public Sector
Private Sector (LIC, GIC) (HDFC Life, ICICI Lombard, SBI Life, etc.) |
Intermediaries (Agents, Brokers, TPAs, Banks)
