CMS101:INTRODUCTION TO INSURANCE
u u
, OVERVIEW
Theustudyuofuintroductionutouinsuranceuhasuauvitaluroleuinuexplaininguanduconveyingutheuunderlyin
guprinciplesuofuconductinguinsuranceubusiness.u Insuranceuisuauwayuofureducinguuncertaintyuofuocc
urrenceuofuanuevent.uItuisuinuitselfuanuinvestment.u Theustudyuwilluhelpustudentsuwhouwishutouunders
tand,uinvestuorumajoruinuinsuranceuasuaucareeruoption.
Thisumoduleuconsistsuofunineulessons.u Theusubjectumatteruisuquiteusufficientuanducompleteuandutail
oredutousuiteutheustudent’suneed.uThereuareuaunumberuofuquestionsuanduactivitiesuforuself-
u testinguatutheuenduofueveryulesson,utouboostutheulearninguprocess.
LessonuoneudiscussesuRiskuManagementuanduinsurance,uconceptuofurisk,uriskumanagementuanduauf
ewutermsuuseduinuinsurance.uLessonutwoucoversutheufunctionsuofuinsurance.uLessonuthreeudiscusse
sutheunatureuofuinsuranceuandutheubasicuprinciplesuofuinsurance.u Lessonufouruentailsutheupracticeuof
u generaluinsuranceuincludingutheudemanduandusupplyuofuinsuranceuinutheumarket.uLessonufiveuisuon
u lifeuinsuranceuandutheutypesuofulifeuinsuranceupoliciesuavailable.u Lessonusixucoversufiveuinsurance
u andupolicyudrafting.u Lessonusevenudiscussesumarineuinsurance,umarineuunderwritinguandutheugen
eralucontractuunderumarineuinsurance.u Lessonueightuisuonumotoruinsurance,uincludingutheupoliciesu
covered.uLessonunineudiscussesutheugeneraluandumiscellaneousuinsuranceucontracts.
ii
,TableuOfuContents
LESSONu1 ...................................................................................................................................1
RiskuManagementuAnduInsurance ................................................................................................. 1
1.0 Introduction ............................................................................................................................1
1.3 TheuConceptuOfuRisk ...............................................................................................................2
1.3.2 Insurance:u NatureuAnduSourcesuOfuRisks ............................................................................3
1.3.3 TheuConceptuOruRisk ............................................................................................................4
1.3.4 ClassificationuOfuRisk...........................................................................................................5
PureuRiskuIsuLoss ...........................................................................................................................6
1.3.8uRiskuAnduEconomicuBurden .................................................................................................7
1.4 TypesuOfuPreventiveuAnduProtectiveuEfforts ...........................................................................9
1.5 InsureruAnduPreventionuOfuRisk ............................................................................................11
1.6 RiskuManagement ..................................................................................................................12
1.7 PrinciplesuOfuRiskuManagement. ......................................................................................... 15
1.8 FutureuOfuRiskuManagement................................................................................................ 19
LESSONu2 ..................................................................................................................................29
FunctionsuOfuInsurance ................................................................................................................29
2.0 Introduction ...........................................................................................................................29
2.2 DefinitionsuOfuInsurance .......................................................................................................29
2.3 FunctionsuOfuInsurance ..........................................................................................................31
2.3.0 Individual ...........................................................................................................................31
2.3.1. Society ...............................................................................................................................37
LESSONu3 ..................................................................................................................................41
NatureuOfuInsurance.....................................................................................................................41
3.0 Introduction ...........................................................................................................................41
3.2 SpecialuFeaturesuOfuAuValiduInsuranceuContract ..................................................................41
3.3 BasicuPrinciplesuOfuLawuGoverninguGeneraluInsurance ........................................................42
3.3.0 UtmostuGooduFaith ............................................................................................................42
3.1.2 InsurableuInterest ................................................................................................................44
3.1.3 Indemnity ...........................................................................................................................47
3.1.4 DoctrineuOfuSubrogation ....................................................................................................49
3.1.5 ProximateuCause.................................................................................................................53
LESSONu4 ..................................................................................................................................60
PracticeuOfuGeneraluInsurance .....................................................................................................60
4.0 Introduction ...........................................................................................................................60
4.1 Objectives ..............................................................................................................................60
4.2 TheuInsuranceuMarketuStructure ............................................................................................60
4.3 PriceuElasticityuOfuDemanduForuInsruance. ...........................................................................63
4.4 IncomeuElasticityuOfuDemanduForuInsurance ........................................................................64
5.0 Introduction ...........................................................................................................................70
5.2 FireuPolicyuDrafting ...............................................................................................................70
iii
, 5.5 TypesuOfuLifeuInsuranceuOfferedu ..........................................................................................71
TermuInsurance ............................................................................................................................71
5.6 HealthuPlan ............................................................................................................................72
5.7 HealthuCareuIssues .................................................................................................................73
CommonuDiseases .......................................................................................................................73
LESSONu6 ..................................................................................................................................75
FireuInsurance ..............................................................................................................................75
6.1 Introduction ...........................................................................................................................75
6.2 Objectives ..............................................................................................................................75
6.3 FireuPolicyuDrafting ...............................................................................................................75
6.5u StandarduContractuOruPolicy .................................................................................................79
BasicuDefinitionsuInuUseuInuPolicy ...............................................................................................80
LESSONu7 ................................................................................................................................108
MarineuInsurance .......................................................................................................................108
7.0 Introduction .........................................................................................................................108
7.1 Objectives ............................................................................................................................108
7.2 MarineuUnderwriting ...........................................................................................................108
7.2.2 SpecialuCharacteristicsuOfuMarineuInsuranceuContract ....................................................109
7.3.1 InsurableuInterest ..............................................................................................................110
7.4 MeaninguAnduObjectuOfuMarineuInsuranceuAnduTermsuUsed .............................................114
7.5 SubjectuMatteruOfuMarineuInsurance...................................................................................115
8.3 HistoryuOfuMotoruInsurance................................................................................................120
8.4.2 InsurableuInterest ..............................................................................................................121
8.4.4 SubrogationuAnduContribution .........................................................................................122
8.4.5 ProximateuCause...............................................................................................................122
8.5 TypesuOfuMotoruVehicles ....................................................................................................123
8.5.1 TypesuOfuPolicies..............................................................................................................123
8.5.2 ClassificationuOfuVehicles ................................................................................................124
8.6 ExtentuOfuCover..................................................................................................................127
8.8uDiscounts .............................................................................................................................130
8.10u MotoruClaims ....................................................................................................................132
LESSONu9 ................................................................................................................................135
GeneraluInsuranceuMiscellaneousuInsurance ..............................................................................135
9.0 Introduction ........................................................................................................................135
9.2 MiscellaneousuInsurance......................................................................................................136
(A) BusinessuInsurance ..............................................................................................................136
(B) ProductuInsurance ................................................................................................................136
(C) ProfessionaluInsurance .......................................................................................................137
(D) PublicuInsurance ..................................................................................................................137
9.3 DevelopmentuOfuMiscellaneousuInsurance ..........................................................................137
9.6 InsurancesuOfuProperty .......................................................................................................141
9.7 InsurancesuOfuInterest ........................................................................................................142
9.9 Burglary ....................................................................................................................143
iv
u u
, OVERVIEW
Theustudyuofuintroductionutouinsuranceuhasuauvitaluroleuinuexplaininguanduconveyingutheuunderlyin
guprinciplesuofuconductinguinsuranceubusiness.u Insuranceuisuauwayuofureducinguuncertaintyuofuocc
urrenceuofuanuevent.uItuisuinuitselfuanuinvestment.u Theustudyuwilluhelpustudentsuwhouwishutouunders
tand,uinvestuorumajoruinuinsuranceuasuaucareeruoption.
Thisumoduleuconsistsuofunineulessons.u Theusubjectumatteruisuquiteusufficientuanducompleteuandutail
oredutousuiteutheustudent’suneed.uThereuareuaunumberuofuquestionsuanduactivitiesuforuself-
u testinguatutheuenduofueveryulesson,utouboostutheulearninguprocess.
LessonuoneudiscussesuRiskuManagementuanduinsurance,uconceptuofurisk,uriskumanagementuanduauf
ewutermsuuseduinuinsurance.uLessonutwoucoversutheufunctionsuofuinsurance.uLessonuthreeudiscusse
sutheunatureuofuinsuranceuandutheubasicuprinciplesuofuinsurance.u Lessonufouruentailsutheupracticeuof
u generaluinsuranceuincludingutheudemanduandusupplyuofuinsuranceuinutheumarket.uLessonufiveuisuon
u lifeuinsuranceuandutheutypesuofulifeuinsuranceupoliciesuavailable.u Lessonusixucoversufiveuinsurance
u andupolicyudrafting.u Lessonusevenudiscussesumarineuinsurance,umarineuunderwritinguandutheugen
eralucontractuunderumarineuinsurance.u Lessonueightuisuonumotoruinsurance,uincludingutheupoliciesu
covered.uLessonunineudiscussesutheugeneraluandumiscellaneousuinsuranceucontracts.
ii
,TableuOfuContents
LESSONu1 ...................................................................................................................................1
RiskuManagementuAnduInsurance ................................................................................................. 1
1.0 Introduction ............................................................................................................................1
1.3 TheuConceptuOfuRisk ...............................................................................................................2
1.3.2 Insurance:u NatureuAnduSourcesuOfuRisks ............................................................................3
1.3.3 TheuConceptuOruRisk ............................................................................................................4
1.3.4 ClassificationuOfuRisk...........................................................................................................5
PureuRiskuIsuLoss ...........................................................................................................................6
1.3.8uRiskuAnduEconomicuBurden .................................................................................................7
1.4 TypesuOfuPreventiveuAnduProtectiveuEfforts ...........................................................................9
1.5 InsureruAnduPreventionuOfuRisk ............................................................................................11
1.6 RiskuManagement ..................................................................................................................12
1.7 PrinciplesuOfuRiskuManagement. ......................................................................................... 15
1.8 FutureuOfuRiskuManagement................................................................................................ 19
LESSONu2 ..................................................................................................................................29
FunctionsuOfuInsurance ................................................................................................................29
2.0 Introduction ...........................................................................................................................29
2.2 DefinitionsuOfuInsurance .......................................................................................................29
2.3 FunctionsuOfuInsurance ..........................................................................................................31
2.3.0 Individual ...........................................................................................................................31
2.3.1. Society ...............................................................................................................................37
LESSONu3 ..................................................................................................................................41
NatureuOfuInsurance.....................................................................................................................41
3.0 Introduction ...........................................................................................................................41
3.2 SpecialuFeaturesuOfuAuValiduInsuranceuContract ..................................................................41
3.3 BasicuPrinciplesuOfuLawuGoverninguGeneraluInsurance ........................................................42
3.3.0 UtmostuGooduFaith ............................................................................................................42
3.1.2 InsurableuInterest ................................................................................................................44
3.1.3 Indemnity ...........................................................................................................................47
3.1.4 DoctrineuOfuSubrogation ....................................................................................................49
3.1.5 ProximateuCause.................................................................................................................53
LESSONu4 ..................................................................................................................................60
PracticeuOfuGeneraluInsurance .....................................................................................................60
4.0 Introduction ...........................................................................................................................60
4.1 Objectives ..............................................................................................................................60
4.2 TheuInsuranceuMarketuStructure ............................................................................................60
4.3 PriceuElasticityuOfuDemanduForuInsruance. ...........................................................................63
4.4 IncomeuElasticityuOfuDemanduForuInsurance ........................................................................64
5.0 Introduction ...........................................................................................................................70
5.2 FireuPolicyuDrafting ...............................................................................................................70
iii
, 5.5 TypesuOfuLifeuInsuranceuOfferedu ..........................................................................................71
TermuInsurance ............................................................................................................................71
5.6 HealthuPlan ............................................................................................................................72
5.7 HealthuCareuIssues .................................................................................................................73
CommonuDiseases .......................................................................................................................73
LESSONu6 ..................................................................................................................................75
FireuInsurance ..............................................................................................................................75
6.1 Introduction ...........................................................................................................................75
6.2 Objectives ..............................................................................................................................75
6.3 FireuPolicyuDrafting ...............................................................................................................75
6.5u StandarduContractuOruPolicy .................................................................................................79
BasicuDefinitionsuInuUseuInuPolicy ...............................................................................................80
LESSONu7 ................................................................................................................................108
MarineuInsurance .......................................................................................................................108
7.0 Introduction .........................................................................................................................108
7.1 Objectives ............................................................................................................................108
7.2 MarineuUnderwriting ...........................................................................................................108
7.2.2 SpecialuCharacteristicsuOfuMarineuInsuranceuContract ....................................................109
7.3.1 InsurableuInterest ..............................................................................................................110
7.4 MeaninguAnduObjectuOfuMarineuInsuranceuAnduTermsuUsed .............................................114
7.5 SubjectuMatteruOfuMarineuInsurance...................................................................................115
8.3 HistoryuOfuMotoruInsurance................................................................................................120
8.4.2 InsurableuInterest ..............................................................................................................121
8.4.4 SubrogationuAnduContribution .........................................................................................122
8.4.5 ProximateuCause...............................................................................................................122
8.5 TypesuOfuMotoruVehicles ....................................................................................................123
8.5.1 TypesuOfuPolicies..............................................................................................................123
8.5.2 ClassificationuOfuVehicles ................................................................................................124
8.6 ExtentuOfuCover..................................................................................................................127
8.8uDiscounts .............................................................................................................................130
8.10u MotoruClaims ....................................................................................................................132
LESSONu9 ................................................................................................................................135
GeneraluInsuranceuMiscellaneousuInsurance ..............................................................................135
9.0 Introduction ........................................................................................................................135
9.2 MiscellaneousuInsurance......................................................................................................136
(A) BusinessuInsurance ..............................................................................................................136
(B) ProductuInsurance ................................................................................................................136
(C) ProfessionaluInsurance .......................................................................................................137
(D) PublicuInsurance ..................................................................................................................137
9.3 DevelopmentuOfuMiscellaneousuInsurance ..........................................................................137
9.6 InsurancesuOfuProperty .......................................................................................................141
9.7 InsurancesuOfuInterest ........................................................................................................142
9.9 Burglary ....................................................................................................................143
iv
