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SUBJECT DBFI303_PRINCIPLES AND PRACTICES OF

Q 01
Ans :- A risk needs to satisfy specific requirements in order to be qualified for insurance
coverage and be deemed a legitimate insurable risk. The abbreviation "CANHAM," which
stands for Calculable, Affordable, Non-catastrophic, Homogeneous, Accidental, and
Measurable, is frequently used to summarise the conditions for insurable risks. Below is a
succinct description of every prerequisite:
Calculable: Both the prospective magnitude and likelihood of the loss must be able to be
determined. Insurance companies must be able to calculate the probability of the incident
happening as well as the loss's financial impact.
Reasonably priced: The majority of prospective policyholders should be able to afford the
insurance premiums. People might not be able or willing to get the insurance if the
premiums are too high.
Non-catastrophic: There shouldn't be any widespread or disastrous events that could result
in a lot of claims being made at once. Insurance is not meant to address large, simultaneous
occurrences that could force the insurance company out of business, but rather to handle
individual or small group losses.
Homogeneous: An insurance category's risks ought to be comparable to one another. This
facilitates the insurance company's ability to classify related risks, which helps in loss
prediction and management.
Accidental: The loss needs to be unintentional and accidental. Insurance is meant to shield
against unanticipated circumstances, not intentional behaviour.
Measurable: There must be a measurable chance of a loss happening as well as a possible
loss. This enables the insurance provider to determine suitable rates in accordance with the
degree of risk.
Now, in terms of risk classification, risks fall into three primary classes:
Pure Risk: This category of risk consists of circumstances in which there is no chance of profit
and only a chance of loss. Events like accidents, natural disasters, and early mortality are
considered pure risks and are covered by insurance.
Risk of Loss or Gain: Speculative risks entail a chance of either. Speculative risks are generally
not insurable, in contrast to pure risks, because they involve
Specific Risk: This category includes risks that are unique to a person, company, or asset.
These hazards fit the requirements for insurability, thus they can be covered by insurance.
Liability, health concerns, and property damage are a few examples.
Knowing these categories and specifications enables people and organisations to make well-
informed decisions regarding their insurance needs and assists insurance firms in
determining whether a risk is appropriate for coverage.
Q-2
ANS:- The insurance industry's pooling principle
In order to reduce the financial impact of prospective losses, pooling—a
fundamental insurance principle—involves distributing risk across several
policyholders. Insurance firms get premiums from a wide range of people or
organisations that take similar risks. The insurer agrees to reimburse any
policyholder who suffers a covered loss in exchange.
The law of big numbers, which states that the predictability of losses improves
with the number of comparable risks, underlies the pooling principle. Since not
all policyholders will suffer losses at the same time, the premiums paid will be
used to pay claims from those who do. The financial load is more evenly
distributed over the entire
The ability to share risks through pooling makes insurance more accessible to
individuals and guarantees that there will always be enough money to pay
claims when they arise, which is why pooling is essential to the operation of
insurance.
India's Three Types of Insurance:Based on the types of coverage offered and
the nature of the risks covered, insurance in India can be broadly divided into
three categories:
Life Assurance:
The goal of life insurance is to shield policyholders and their families financially
in the event that they pass away or, in certain situations, live to a certain age.
Types: Term, whole life, endowment, and unit-linked insurance plans (ULIPs)
are among the different kinds of life insurance policies that fall under this
category.
Features: In addition to the death and maturity benefits, life insurance policies
may also include savings and investment components.
Non-life insurance, or general insurance:
Goal: General insurance provides coverage for a broad variety of hazards
outside of life-related ones. It offers defence against monetary losses brought
on by unanticipated circumstances.
Reinsurance:Reinsurance serves as a type of insurance for insurance providers.
It entails shifting some of the insurer's risk to another provider of insurance.
Function: Reinsurance assists principal insurers in controlling their exposure to
significant or catastrophic losses. By splitting the risk with other insurers, it
keeps their financial stability from being severely impacted by a single
catastrophic incident.
Together, these three types make up India's insurance market, which provides a
wide spectrum of protection to people, companies, and other economic
sectors. Every category fulfils a distinct purpose and is essential to risk control
and financial security.
Types: Health, auto, property, liability, and travel insurance are some of the
subcategories that fall under the umbrella of general insurance.
Features: Specific assets, liabilities, or risks are covered by policies under
general insurance. For instance, health insurance pays for medical costs, auto
insurance covers risks associated with driving a car, and property insurance
guards against loss or damage to personal goods.
Q-3
ANS:- An insurance contract is a legally binding agreement in which an
insurance company (the insurer) promises to pay the policyholder's premiums
in exchange for providing coverage or financial compensation for a certain risk.
Transferring the policyholder's financial burden of future losses to the insurer is
the aim of an insurance arrangement.
Components of a Contract for Insurance:
Offer and Acceptance (Agreement): Just as in any other type of agreement,
there needs to be a specific offer made by one side and an acceptance of it by
the other. Applying for coverage is the policyholder's offer in the insurance
environment, and the insurer accepts the offer by issuing a policy.
Premium: A consideration is an exchange of anything of value between the
parties. The premium paid by the policyholder in exchange for the insurer's
assurance of coverage is referred to as consideration in an insurance contract.
Usually, premiums are paid on a regular basis—monthly or annually, for
example.
Legal Capacity: The ability to enter into a contract must be present in both
parties. This implies that individuals have to be of legal age, mentally fit, and
free from any legal restrictions that would make it impossible for them to sign a
legally binding agreement.
Legal Purpose: The insurance contract's objectives must be legitimate.
Insurance agreements that violate the law or entail illicit activity are usually
regarded as null and void.Application for Offer to Insure: The policyholder
starts the agreement by filing an
Acceptance (Policy Issuance): An insurance policy is issued by the insurer after
they have reviewed the application and concluded that the risk is reasonable.
The terms and conditions of coverage, such as the kinds of risks covered,
exclusions, conditions, and the length of coverage, are outlined in the
policy.Competent Parties: In order for a contract to be legally binding, both the
policyholder and the insurer must be competent parties. This involves being
able to comprehend the terms and consequences of the contract legally.
Utmost Good Faith (Uberrimae Fidei): The foundation of insurance contracts is
the idea of utmost good faith, which states that both parties must give
accurate and comprehensive information. Both the policyholder and the
insurer are required to provide all pertinent information and to be open and
honest about the terms and conditions of coverage.
Aleatory Nature: Insurance contracts are aleatory, which means that the
parties' benefits are dependent on the happening of an unforeseen event. The
insurer's duty to pay benefits only materialises in the event of a covered loss,
even if the policyholder may pay premiums over an extended period of time.
To guarantee a transparent and legally binding insurance agreement that offers
the desired coverage and security, it is imperative that both policyholders and
insurers comprehend these components.
Q-4
ANS:- Consumer Purchase Patterns:
The process and elements that affect a consumer's decision-making when they
make a purchase are referred to as customer buying behaviour. It covers the
phases that a consumer experiences, from realising a need or desire to
completing the transaction. Businesses must comprehend consume
purchasing behaviour in order to better target their marketing efforts, provide
better goods and services, and improve the customer experience in general.
Important variables affecting consumer behaviour at the point of purchase:
Perception of the Product and its Quality:
Influence: A product or service's perceived quality and impression among
customers might have an impact. Customers' opinions of the product are
influenced by favourable evaluations, the reputation of the brand, and prior
experiences.
Sensitivity to Price:
Influence: A key element influencing consumer behaviour is price. Consumers
evaluate value for money and contrast pricing offered by other businesses.
Purchase decisions are heavily influenced by sales, discounts, and perceived
value.
Trust and Reputation of a Brand:
Influence: Trusted brands are frequently preferred by consumers. The decision
to buy can be influenced by a brand's general trustworthiness, customer
feedback, and positive reputation.
Social Factors:Influence: Decisions about what to buy can be influenced by
friends, family, and social networks. Customer opinions are greatly influenced
by peer reviews, social media, and word-of-mouth recommendations.
Customisation and the Client Experience:
Influence: A happy and tailored customer experience has a big impact on
consumer purchasing decisions. A smooth purchasing procedure, outstanding
customer service, and personalised recommendations all go a long way
towards satisfying customers.
Social and Cultural Factors:
Influence: A variety of social and cultural elements, including societal
conventions, lifestyle choices, and cultural norms, can affect consumer
behaviour. To match client expectations with their offers, businesses must
comprehend these variables.
Psychological Elements:Influence: A person's personal motives, perspectives,
attitudes, and beliefs are among the psychological elements that affect their
purchasing decisions. Businesses can better customise their messaging and
marketing efforts by having an understanding of the psychological and
emotional components of their clients.
Accessibility and Convenience:
Influence: A major factor influencing purchasing decisions is convenience.
Consumers frequently select goods and services that suit their lifestyle, are
easily accessible, and are widely available.
Online Evaluations and Suggestions:
Influence: Online evaluations and suggestions have a big say in what
consumers decide these days. Positive comments and referrals from previous
clients can strengthen
Q-5
ANS:- The Life Insurance Act, 1956, which was in effect as of January 2022, is a
significant piece of legislation in India that regulates the life insurance industry
there. Please be aware that after that date, the law may have undergone
revisions or changes. For the most up-to-date information, consult the most
recent legal sources. This is a synopsis of the 1956 Life Insurance Act based on
data as of the time of my latest update:
The 1956 Life Insurance Act:
Goal:
The main goal of the Life Insurance Act of 1956 is to control and promote the
expansion of the life insurance market in India. It offers a legislative framework
that governs how life insurance businesses operate, guaranteeing ethical beLife
insurance companies' licencing:
The Insurance Regulatory and Development Authority of India (IRDAI) is
authorised by the Act to licence life insurance businesses. This entails outlining
the prerequisites and requirements for acquiring and preserving those
licences.Insurance Agent and Intermediary Regulation:

Insurance agents and intermediaries are defined by the Act, along with their
functions, responsibilities, and qualifications. It creates standards to guarantee
moral behaviour and just interactions with policyholders.
The rights and protections of policyholders:
The Act contains clauses designed to protect policyholders' interests and rights.
It describes the conditions of insurance coverage, what is to be disclosed, and
how claims are settled. Ensuring transparency and fairness in insurance
dealings is contingent upon this.
haviour, safeguarding
Assets and Financial Stability:
The law establishes rules for life insurance firms' responsible financial
investments. It also has requirements pertaining to the solvency margin, which
guarantees insurance companies have enough cash on hand to cover their
obligations.
Modifications and Regulatory Power:In order to maintain the legislative
framework's relevance and adaptability to the changing needs of the insurance
business, the Act permits changes. It gives the IRDAI, which is in charge of
monitoring and controlling the insurance industry in India, regulatory authority.
Offences and Penalties:
The Act lays out the fines and repercussions for insurance businesses that
violate its regulations or conduct offences. This is to guarantee that businesses
follow the established guidelines.
It's crucial to remember that the Life Insurance Act of 1956 may be amended
and that India's insurance regulatory framework may alter. It is advised to
consult the official legal sources and updates offered by the Indian regulatory
authorities for the most recent and accurate information.
Q-6
ANS:- Typical Risks Associated with Asset Owners in General Insurance:
Asset owners are exposed to a number of hazards that could result in monetary
losses. These hazards are covered by general insurance. Typical hazards that
general insurance covers are as follows:
Property Losses:Risks include theft, vandalism, accidents, natural disasters
(such as floods or earthquakes), and fire damage to property.
Coverage: These risks are guarded against by property insurance, which
includes commercial and residential property insurance.
Risks of Liability:
Risks: Liabilities for damages to third parties' property or injury to third parties.
This can involve car accidents, claims concerning product responsibility, and
slip-and-fall incidents.
Coverage: Liability insurance shields against lawsuits and related expenses.
Examples of this type of insurance are general liability and auto liability.
Business Disruption:
Risks: Financial losses as a result of covered risks disrupting corporate
operations.
Coverage: During the disruption time, business interruption insurance pays for
additional expenditures incurred, ongoing expenses, and lost income.
Burglary and Theft:Risks: Financial losses from robbery, break-in, or theft.
Coverage: Assets of the insured are protected by theft and burglary insurance.
Uninjuries and Accidents:Risks: Incidents that result in worker or outsider harm
on the insured's property.
Coverage: While general liability insurance may cover injuries to third parties,
workers' compensation insurance covers injuries to employees.
Natural Catastrophes:
Risks: Property damage from calamities including hurricanes, floods, and
earthquakes
Expertise Liability:
Risks: Lawsuits brought about by professional services providers' mistakes,
neglect, or omissions.
Coverage: Errors and omissions insurance, often known as professional liability
insurance, shields professionals from client claims.
Automobile Mishaps:
Risks: Vehicle accidents, whether owned or rented, that result in property
damage and liability claims.
Coverage: Liability, bodily harm, and vehicle damage resulting from auto
accidents are all covered by auto insurance.
Risks associated with cyberspace:
Risks include financial losses brought on by cyberattacks, data breaches, and
other catastrophes.
Coverage: Data breaches and cyber-extortion are just two examples of the
financial losses and liabilities that cyber insurance guards against.
Insurance for personal accidents:
One kind of insurance that offers protection against unintentional harm or
death is personal accident insurance. Key information regarding personal
accident insurance is as follows: