Page 25 - RMAI July-September 2018

July - September 2018

A business person or firm must asses the financial BUSINESS INSURANCE :
impact of a possible loss and decide whether or not Fundamental Legal Principle of Insurance :
the firm can afford to absorb the loss without In all kinds of insurance, the fundamental legal
insurance. In some cases, it could be decided to retain principle is that one man agrees to take the risk of
a portion of a risk and insure the rest. Thus, the firm
another man's life and business in consideration of
may chose to retain the first Rs.5,000 of any loss and certain small payments which are called premiums.
insure all losses over that amount. Obviously, since
the business firm is retaining a part of the risk, the The General Concept of Insurance :
premium charged by the insurer would be lower. The simplest and most general concept of insurance is
RISK TRANSFER : a provision made by a group of persons, each single in
risk of some loss, the incidence of which cannot be
Non Insurance Transfer :
foreseen, that when such loss occurs to any of these it
In the context of control non insurance transfer is a shall be distributed over the whole group. Its essential
contractual relationship under which the transferring elements, therefore, are foresight and cooperation.
entity rids itself of all responsibility for possible losses
“Insurance”, says Fisher, “involves the offsetting of
arising from a a given exposure. For example, to cut
down on property damage exposure to inventory a one risk by another; that is, the consolidation of a
retailer may cut inventory to the minimum and large number of chances whereby, relative certainty
is, as it were, manufactured out of uncertainty.” It
reorder from suppliers often. This approach reduced
the chance of a large loss to inventory and transfers to divides the risk over a large number of persons. The
the suppliers much of the retailer's exposure to loss of division of adversity decreases its intensity and
inventory. Similarly, a firm may chose to engage a division of happiness makes more people happy.
delivery van service rather to own vehicle, thus, Insurance is a quality of money. It blesseth one that
transferring the delivery firm the loss exposures gives and one that takes.
associated with owning and maintaining vehicles. “The aim of all insurance”, says Porter, “is to make

RISK TRANSFER : provision against dangers which beset human life and
Insurance : dealings. Those who seek it endeavor to avert disaster
from themselves by shifting possible losses on the
Although, trying to protect himself against the shoulders of others, who are willing for pecuniary
chances of losses by adopting one or another
methods as enumerated above or a combination of consideration to take the risk thereof.”
these, a sense of insecurity still invades a man in all Alfred Manes, a notable authority of insurance,
stages of his life. He is eager to safeguard himself fully defines the term as “The essence of insurance lies in
against situations which introduce uncertainty and the elimination of the uncertain risk of loss for the
insecurity in his life…….. And such a sense of individuals through the combination of a large
uncertainty and insecurity could well be transferred number of similar exposed individuals who each
to the shoulders of others through a process, known contribute to a common fund premium payments
as insurance. sufficient to make good the loss caused to any one
Insurance is a term which means generally making individual.”
oneself safe against something, but is specially used The primary function of general insurance is, thus, the
in connection with making financial provision against elimination of uncertain risks of loss for the
certain risks in the business or life. individual.
The essence of insurance lies in the elimination of the MANAGING THE BUSINESS INSURANCE
uncertain risk of loss for the individual through the
Insurance of Property :
combination of a large number of similarly exposed
individuals who contribute to common fund premium Burglary Insurance : For loss of or damage to the
payments sufficient to make good the loss caused to property through theft or following forcible and
any one individual. violent entry into or exit from the premises. The

24 RISK MANAGEMENT ASSOCIATION OF INDIA