MF0018 – INSURANCE AND RISK MANAGEMENT

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ASSIGNMENT

 

 

 

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

 

 

Q.1 What do you understand by the term risk and uncertainty? Explain different types of risk facing business and individuals.

 

Ans : Risk and uncertainty :

 

“Risk” and “uncertainty” are two terms basic to any decision making framework. Risk can be

defined as imperfect knowledge where the probabilities of the possible outcomes are known, and uncertainty exists when these probabilities are not known . A more common usage of these terms would state uncertainty as imperfect knowledge and risk as uncertain consequences. . If a person says “ I am uncertain about the weather tomorrow,: this would be a value-free statement implying

imperfect knowledge about the future. If this same person says “ I am planning a picnic for

tomorrow and there is a risk of rain”, now he or she is

 

 

 

 

Q.2 Identify the role of insurance in managing risk financing. Explain the importance of insurance transaction. Discuss in different perspectives of insured and insurer

 

Ans : Role of insurance in managing risk financing :

 

Rising insurance premiums and the occasional inability to obtain coverage at any cost have changed the traditional role of insurance. Obtaining coverage for every insurable risk is being replaced by the risk management concept. Risk management, which includes insurance coverage, is intended to minimize the costs associated with assuming certain types of risk and providing prudent protection. It deals with pure risks that are characterized by chance occurrence and that may only result in a financial loss. Risk management does not address speculative risks that afford the opportunity for either financial gain or loss.

 

Introduction of insurance transaction :

 

It is a term used to refer to the actual conducting of insurance business , for example , soliciting and negotiating contracts. The definition of this term can vary from

 

 

 

Q.3 Explain the reasons that have been responsible for the privatization of the insurance industry in the country. Identify the problems and prospects of public insurance enterprises.

 

Ans : Privatization of the insurance industry :

 

Over the past century, Indian insurance industry has gone through big changes. It started as a fully private system with no restriction on foreign participation. After the independence, the industry went to the other extreme. It became a state-owned monopoly. In 1991, when rapid changes took

place in many parts of the Indian economy, nothing happened to the institutional structure of insurance: it remained a monopoly. Only in 1999, a new legislation came into effect signalling a change in the insurance industry structure. We examine what might happen in the future when the domestic private insurance companies are allowed to

 

 

 

Q.4 Explain the creation and application of insurable interest. Give the differences between wagering and insurance.

 

Ans : Creation of insurable interest :

 

Insurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence of the insured object (or in the context of living persons, their continued survival). A person has an insurable interest in something when loss-of or damage-to that thing would cause the person to suffer a financial loss or other kind of loss. Typically, insurable interest is established by ownership, possession, or direct relationship. For example, people have insurable interests in their own homes and vehicles, but not in their neighbours’ homes and vehicles, and certainly not those of strangers. The “factual expectancy

 

 

 

 

Q.5 Give the important activities of life insurance company. Describe the important historical milestones in the development of the life insurance sector in India.

 

Ans : Important activities of life insurance company :

 

Financial market activity of life insurance companies :

 

An important development in the financial markets of several industrial countries in recent decades has been the growth of long-term institutional investors and their increasing domination of the capital market. Aided by both demographic and financial market trends, it seems likely that this development will continue in the future. However, the nature and the importance of this change – including the global dimensions of the trend towards institutionalisation – have often been overlooked or underestimated by market commentators and observers. Even fund managers themselves are often unaware of the conditions faced by institutional investors in other countries.

 

Insurance transfers the financial effect of fortuitous losses. A financial organization’s primary defences against loss are adequate internal controls

 

 

Q.6 Give short notes on :

Pricing objectives.

Pricing elements.

Rate computation

 

Ans :  Pricing objectives:

 

Pricing objectives or goals give direction to the whole pricing process. Determining what your objectives are is the first step in pricing. When deciding on pricing objectives you must consider:

1) the overall financial, marketing, and strategic objectives of the company;

2) the objectives of your product or brand;

3) consumer price elasticity and price points; and

4) the resources you have available.

 

 

 

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