Principles of Insurance BBA 3226
Class Lecture – 01 (W-01)
Date: 25-09-2010, Day: Saturday
Definition of Insurance
Insurance can be defined as a part of financial management which generally deals with the risk
management where a particular company bears all the liabilities any person/ persons/ other organizations
or any hazards or accident occur during their life spam under a certain terms and conditions.
Legal Principles of Insurance:
(i) Indemnity: Indemnity refers to the policy where the insurance holders make the commitment with the
respective policy maker where a certain level of compensation is given by the respective company to the
insurance holder in the basis of the rate of premium.
(ii) Insurable Interest: Insurable Interest that particular which generally offer to those properties of
wealth or the insurance on the life of a particular person which held generally a mamanth amount of
premium.
(iii) Utmost good faith: It refers the faith which is support to sustain between the policy holder and the
company which provides the insurance policy.
(iv) Cause Proxima or Proximate Cause: The cause of loss (peril) must be covered by the rules and
regulation as well as the agreement which exist between the policy holder and the policy provider.
After finishing this chapter the students are requested to take preparation in this chapter on the
basis of the following Questions:
1. (a) Define Insurance.
(b) What do you mean by premium?
2. (a) Mention the legal principles of insurance.
(b) Briefly discuss the effects of insurance to the society (In Bangladesh).
Class Lecture – 02 (W-02)
Date: 02-10-2010, Day: Saturday
Definition of Insurance
Insurance can be defined as the part of financial management which deals with the risk management that
includes the fact that all the liabilities of a particular property is taken care by a particular company to
protect that property from any types of damages under a certain policy coverage.
Insurance Fraud: Insurance fraud can be defined as making the policy provider food by providing the
varieties of fake statement for the sake of ginning the illegal facilities from the policy provider.
Car insurance:
Elements of contract: Generally this is an agreement based upon a definite offer by one party and the
acceptance of that offer by other partner.
Types of Insurance fraud (For car insurance): There are two types of insurance fraud is taken place in car
insurance. Those are:
(i) Soft auto insurance fraud: These types of fraud in car insurance are happened under the following
events:
(a) Filling more than one claim for a single injury.
(b) Fillings claim for injuries not related to an automobile accident.
(c) Reporting higher cost for car repairs than those that were actually paid.
(ii) Hard auto insurance fraud: These types of fraud in car insurance are happened under the following
events:
(a) Filling claims when the claimant was not actually involved in the accident.
(b) Submitting claims for medical treatments that were not received.
(c) Falsely report their vehicle as stolen.
Class Test: Impact of Insurance on the society. In perspective of Bangladesh.
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After finishing this chapter the students are requested to take preparation in this chapter on the
basis of the following Questions:
3. (a) Mention the factors affecting the elements of contract for a car insurance.
(b) Classify the insurance fraud which generally visualize for car insurance.
4. (a) How many categories are available in the case of automobile coverage. Discuss each shortly.
(b) Mention the processes through which the insurance coverage would be mitigated.
Masiur Rahman| [email protected]
Principles of Insurance BBA 3226
5. (a) What are the factors affecting auto insurance premium?
(b) How do claims affect premium.
Class Lecture – 03 (W-03)
Date: 09-10-2010, Day: Saturday
Home Insurance: Home insurance can be defined as to provide the compensation to the customer for
any kinds of damages of the home/ houses by any disaster. It will must exclude the maintenance costs
which generally provided by the customer himself.
Health Insurance
National Health Survey (UK.)
Health Insurance
Accident Health Sickness Health Disable Health
Insurance Insurance Insurance
Short time Long time
Disable Disable
After finishing this chapter the students are requested to take preparation in this chapter on the
basis of the following Questions:
6. (a) What policies are covered by the policy provider for arranging a home insurance?
(b) Narrate the basic concept on health insurance.
7. (a) What is disability insurance ? Discuss the classification of disability insurance.
(b) What criteria’s are followed for long term disability insurance?
Book Recommendation:
Insurance and its basic.
by, Knight M. Lofenses
Class Lecture – 04 (W-05)
Date: 23-10-2010, Day: Saturday
Book Recommendation:
Principles of Insurance. -Misra
Historical Perspective of Insurance Business in Bangladesh:
In 1938 British govt. first issued the insurance law in this sub-continent. In 1947 when Pakistan and India
where divided from un-divided Bengal, the insurance law of the British which were practiced during the
period of 1937 was legislated as a law of insurance in both India and Pakistan.
There after in 1971 after the liberation war, Bangladesh govt. were decided to form of their insurance law as
per the rules of the insurance law of 1937 and for the sake of implementing the law of insurance (1937) the
govt. of Bangladesh stated the new provision called “Bangladesh Insurance Order 1972.”
This order includes the following terms and conditions:
(a) This order will be considered as the order of insurance for Bangladesh.
(b) This order will be applicable to every part of Bangladesh.
(c) This will be applicable to every types of insurance which will be issued inside of the Bangladesh.
1
So, it can be concluded that all the companies of insurance in Bangladesh are directed by the law of
insurance which is treated as the act of insurance (1972, sec.2 (3))
From them, the first insurance companies were seen which were directed by the new provision of insurance
law name.
Principles of Insurance BBA 3226
(a) Rupsha Life Insurance
(b) Surma Life Insurance
Another two general insurance company known as the pioneer insurance company in Bangladesh were:
(a) Karnafuli Insurance
(b) Tista Insurance
Feature of Insurance:
The important characteristics of insurance is given as follow:
(i) Indemnity: Indemnity refers to the policy where the insurance holders make the commitment with the
respective policy maker where a certain level of compensation is given by the respective company to the
insurance holder in the basis of the rate of premium.
(ii) Insurable Interest: Insurable Interest that particular which generally offer to those properties of
wealth or the insurance on the life of a particular person which held generally a mamanth amount of
premium.
(iii) Utmost good faith: It refers the faith which is support to sustain between the policy holder and the
company which provides the insurance policy.
(iv) Cause Proxima or Proximate Cause: The cause of loss (peril) must be covered by the rules and
regulation as well as the agreement which exist between the policy holder and the policy provider.
Proximate Cause:
Whenever the insurance will be arranged for the proximate/ same particular segment of a property or,
wealth the insurance provider will provide only the segment which is considered under the condition /
assumption.
For example: If the insurance policy states that the house is covered for fine and theft and if it totally or
partially destroyed by flood. No compensate will be paid.
After finishing this chapter the students are requested to take preparation in this chapter on the
basis of the following Questions:
8. (a) Briefly discuss the historical background of insurance business in Bangladesh?
(b) Classify the general segment of insurance.
9. (a) Define average clause mentioning example.
(b) What is proximate cause? Shortly mention the ways of claiming.
1
Principles of Insurance BBA 3226
Q.1. (a) Define Insurance.
(b) What do you mean by premium?
Answer:
(a) Insurance:
Insurance can be defined as the part of financial management which deals with the risk management that
includes the fact that all the liabilities of a particular property is taken care by a particular company to
protect that property from any types of damages under a certain policy coverage.
(b) Premium: An insurer is a company selling the insurance; an insured or policyholder is the person or
entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be
charged for a certain amount of insurance coverage, called the premium.
Q.2. (a) Mention the legal principles of insurance.
(b) Briefly discuss the effects of insurance to the society (In Bangladesh).
Answer: (a) Legal Principles of Insurance:
(i) Idemnity: Idemnity refers to the policy where the insurance holders make the commitment with the
respective policy maker where a certain level of compensation is given by the respective company to the
insurance holder in the basis of the rate of premium.
(ii) Insurable Interest: Insurable Interest that particular which generally offer to those properties of
wealth or the insurance on the life of a particular person which held generally a mamanth amount of
premium.
(iii) Utmost good faith: It refers the faith which is support to sustain between the policy holder and the
company which provides the insurance policy.
(iv) Cause Proxima or Proximate Cause: The cause of loss (peril) must be covered by the rules and
regulation as well as the agreement which exist between the policy holder and the policy provider.
(b) Effects of Insurance to the Society:
Insurance can have various effects on society through the way that it changes who bears the cost of losses
and damage. It can increase fraud. On the other hand, it can help societies and individuals prepare for
catastrophes and mitigate the effects of catastrophes on both households and societies.
Insurance can influence the probability of losses through moral hazard, insurance fraud, and preventive
steps by the insurance company. Insurance scholars have typically used morale hazard to refer to the
increased loss due to unintentional carelessness and moral hazard to refer to increased risk due to
intentional carelessness or indifference. Insurers attempt to address carelessness through inspections, policy
provisions requiring certain types of maintenance, and possible discounts for loss mitigation efforts. While in
theory insurers could encourage investment in loss reduction, some commentators have argued that in
practice insurers had historically not aggressively pursued loss control measures - particularly to prevent
disaster losses such as hurricanes - because of concerns over rate reductions and legal battles. However,
beginning around 1996 insurers began to take a more active role in loss mitigation through building codes.
Q.3. (a) Mention the factors affecting the elements of contract for a car insurance.
(b) Classify the insurance fraud which generally visualize for car insurance.
Answer:
(a) Elements of contract:
Generally this is an agreement based upon a definite offer by one party and the acceptance of that offer
by other partner.
The two parties must be legally competent to make a contract
There must be a consideration; both parties must give something of value and both must receive
something of value
The contract must have a legal purpose
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(b) Types of Insurance fraud (For car insurance): There are two types of insurance fraud is taken place
in car insurance. Those are:
(i) Soft auto insurance fraud: These types of fraud in car insurance are happened under the following
events:
(a) Filling more than one claim for a single injury.
(b) Fillings claim for injuries not related to an automobile accident.
(c) Reporting higher cost for car repairs than those that were actually paid.
Masiur Rahman| [email protected]
Principles of Insurance BBA 3226
(ii) Hard auto insurance fraud: These types of fraud in car insurance are happened under the following
events:
(a) Filling claims when the claimant was not actually involved in the accident.
(b) Submitting claims for medical treatments that were not received.
(c) Falsely report their vehicle as stolen.
Q.4. (a) How many categories are available in the case of automobile coverage. Discuss each
shortly.
(b) Mention the processes through which the insurance coverage would be mitigated.
Answer:
(a) Automobile coverage:
Automobile coverage are grouped into two categories:
1) Bodily Injury Coverage:
i) Bodily injury liability- for the risk of financial loss due to legal expenses, medical expenses and other
expenses caused by an automobile accident for which you are responsible.
ii) Medical Payments- covers the cost of healthcare for people who are injured in your vehicle.
iii) Uninsured Motorists Protection- covers the cost of injury if you are hit by an uninsured driver.
2) Property Damage Coverage:
Protect from financial loss due to damage of other people’s property or your vehicle.
i) Property Damage Liability- Protects from damage to other people’s property, street signs, lampposts,
buildings etc. The last number in the Split Limit irpresents the property damage liability (100/200/50).
ii) Collision- Covers the damages to a vehicle in case of an accident. However, if you are not at fault, the
insurance might try to recover the money from the other insurance Company (Subrogation).
iii) Comprehensive Physical Damage- Covers you for other risks such as wind, vandalism, fire, theft,
falling objects etc.
(b) Coverage Mitigated / Deductibles:
Deductible is the amount of money that has been agreed to pay out-of- pocket (on one’s own) when
he/she make a claim covered by the policy.
This means, for example, that if one repair cost $1,500 and has set the deductible at $500, theoretically,
he/she pay the first $500, and the company will pay the remaining $1,000 to get your car fixed and back
on the road.
Q.5. (a) What are the factors affecting auto insurance premium?
(b) How do claims affect premium?
Answer:
(a) Auto Insurance Premium Factors:
Age: Statistically, drivers under the age of 25 are at greater risk of being in an accident than those over
age 25. Drivers between the ages of 50 and 65 generally have the safest records.
Gender: Woman are statistically safer drivers, but that trend is changing as more female drivers get on
the road. Young unmarried male drivers have more accident and expect to pay more premiums (because
they have more moving violations and license suspensions)
Marital Status: A married person will pay less than a single person will and identical driving record.
Geography: Also known as rating territory- different locations have different costs due to the number of
claims reported every year. Cities such as los angels and New York have higher rate.
Vehicle Type: The year, make and model of the vehicle impacts the insurance costs. Expensive
replacement parts and body repairs due to the body style may also increase the cost of insurance. Other car
models such as Mercedes, Corvette have higher theft rates thus increasing the cost.
Accident Claims: The member of claims that you file also affects the rate of premium. Expensive liability
settlements and extensive property damage increases the rate of premiums.
Occupation: Insures have statically found a correlation between your occupation and risk. For instance, a
1
newspaper delivery person is must likely a higher risk then the personal banker sitting at their desk all day.
(b) How do claims affect premium?
Driving Record:
Your premiums are based upon rating system which is filed and regulated by the state or country where
you live.
Masiur Rahman| [email protected]
Principles of Insurance BBA 3226
All most all insurance company premiums are based upon an “allocation” type of rating system. This
system is setup in order to allocate policy premiums fairly and is based upon several factors, but one of the
main factors is: How safe are you in your driving record?
When any person has an accident or a claim, the cost which the insurance company must allocate to auto
policy premium is more than just the cost of repairing the vehicle.
All cost must be allocated based upon a driver’s statistical likelihood of creating claims. Insurance
premiums are designed to highly reward safe drivers. A claims free driver, will pay less than a driver which
claims.
Insurance fraud:
(i) Soft auto insurance fraud: These types of fraud in car insurance are happened under the following
events:
(a) Filling more than one claim for a single injury.
(b) Fillings claim for injuries not related to an automobile accident.
(c) Reporting higher cost for car repairs than those that were actually paid.
(ii) Hard auto insurance fraud: These types of fraud in car insurance are happened under the following
events:
(a) Filling claims when the claimant was not actually involved in the accident.
(b) Submitting claims for medical treatments that were not received.
(c) Falsely report their vehicle as stolen.
Q.6. (a) What policies are covered by the policy provider for arranging a home insurance?
(b) Narrate the basic concept on health insurance.
Answer: (a)
Home Insurance: Home insurance can be defined as to provide the compensation to the customer for
any kinds of damages of the home/ houses by any disaster. It will must exclude the maintenance costs
which generally provided by the customer himself.
Or,
Home insurance
Home insurance provides compensation for damage or destruction of a home from disasters. In some
geographical areas, the standard insurances exclude certain types of disasters, such as flood and
earthquakes, which require additional coverage. Maintenance-related problems are the homeowners'
responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for
people who rent housing. In some countries, insurers offer a package which may include liability and legal
responsibility for injuries and property damage caused by members of the household, including pets.
(b)
Health insurance:
Health insurance policies by the National Health Service in the United Kingdom (NHS) or other publicly-
funded health programs will cover the cost of medical treatments. Dental insurance, like medical insurance,
is coverage for individuals to protect them against dental costs. In the U.S. and Canada, dental insurance is
often part of an employer's benefits package, along with health insurance.
Q.7. (a) What is disability insurance ? Discuss the classification of disability insurance.
(b) What criteria’s are followed for long term disability insurance?
Answer: (a)
Disability insurance:
Disability insurance policies provide financial support in the event the policyholder is unable to work because
of disabling illness or injury. It provides monthly support to help pay such obligations as mortgage loans and
credit cards. Short-term and long-term disability policies are available to individuals, but considering the
expense, long-term policies are generally obtained only by those with at least six-figure incomes, such as
doctors, lawyers, etc. Short-term disability insurance covers a person for a period generally up to six
months, paying a stipend each month to cover medical bills and other necessities.
(b)
Long-term disability insurance
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Long-term disability insurance covers an individual's expenses for the long term, up until such time as they
are considered permanently disabled and thereafter. Insurance companies will often try to find other ways to
employ the person and reintegrate them back into the work force in preference to and before declaring them
unable to work at all and therefore totally disabled. Insurance companies, for obvious reasons, frequently go
to great lengths, including undercover surveillance via videocam and repeated independent medical
evaluations by company doctors, in hopes of avoiding the necessity of paying permanent disability stipends
to a claimant.
Masiur Rahman| [email protected]
Principles of Insurance BBA 3226
• Disability overhead insurance allows business owners to cover the overhead expenses of their
business while they are unable to work.
• Total permanent disability insurance provides benefits when a person is permanently disabled and
can no longer work in their profession, often taken as an adjunct to life insurance.
• Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying
medical expenses incurred because of a job-related injury.
8. (a) Briefly discuss the historical background of insurance business in Bangladesh?
(b) Classify the general segment of insurance.
Answer:
(a) Historical Perspective of Insurance Business in Bangladesh:
In 1938 British govt. first issued the insurance law in this sub-continent. In 1947 when Pakistan and India
where divided from un-divided Bengal, the insurance law of the British which were practiced during the
period of 1937 was legislated as a law of insurance in both India and Pakistan.
There after in 1971 after the liberation war, Bangladesh govt. were decided to form of their insurance law as
per the rules of the insurance law of 1937 and for the sake of implementing the law of insurance (1937) the
govt. of Bangladesh stated the new provision called “Bangladesh Insurance Order 1972.”
This order includes the following terms and conditions:
(a) This order will be considered as the order of insurance for Bangladesh.
(b) This order will be applicable to every part of Bangladesh.
(c) This will be applicable to every types of insurance which will be issued inside of the Bangladesh.
So, it can be concluded that all the companies of insurance in Bangladesh are directed by the law of
insurance which is treated as the act of insurance (1972, sec.2 (3))
From them, the first insurance companies were seen which were directed by the new provision of insurance
law name.
(a) Rupsha Life Insurance
(b) Surma Life Insurance
Another two general insurance company known as the pioneer insurance company in Bangladesh
were:
(a) Karnafuli Insurance
(b) Tista Insurance
(b) The general segment of insurance:
9. (a) Define average clause mentioning example.
(b) What is proximate cause? Shortly mention the ways of claiming.
Answer:
(a) Average clause: If an item is underinsured and the insured risk occurs then the insured will only get a
proportion of the damage that occurs.
Example: A house worth €400,000 is insured for €300,000 and a fire occurs in the kitchen causing €100,000
damage. As the house is only insured for of its value. The insured will only get of the damage. That is
€75,000.
The average clause applies, when a partial loss occurs and the risk is underinsured.
(b) Proximate Cause:
Compensation will only be paid, if the risk that is covered in the policy occurs.
For example: If the insurance policy states that the house is covered for fine and theft and if it totally or
partially destroyed by flood. No compensate will be paid.
Ways of claiming:
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Normal procedure is a phone call to the insurance company giving policy number and details of the claims.
The insurance company will then issue a claims form. This form needs to be competed accurately and will
normally have to include quotations for the repairs to the damage done.
If the claim is substantial the insurance company will send out an Assessor to decide on the amount of the
compensation.
