Role of Insurance in Economic Development

There are a number of ways that insurance contributes to the economic development of a country. In fact the role of insurance in economic development cannot be underestimated.

1) Investments from savings: Life insurance policies are major instruments for mobilization of savings of people.The life insurance companies provide insurance for all income groups of people. Some proportion of the premium is invested into investments that  accelerate economic growth. This happens because investments made by insurance companies are not speculative in nature, but are invested for the overall benefit of society.

2) Engine of growth:  Insurance provides indemnity for losses caused by accidents or fortuitous events to the insured. Insurance is provided for individuals and their families, corporate and industries and for commerce. As a consequence, insurance protects the capital and this capital is made available for future consumption by individuals and for  development of business and industry.

3)  Loss minimization: Insurance provides indemnity against loss in value of capital invested. This encourages investment of capital in business. Existing resources are used more efficiently as records have to be maintained and loss minimization measures are implemented, as these are required by insurance companies.

4) Foreign exchange: Insurance operations in foreign countries earn foreign exchange. They are also like intangible exports. and can rank with export trade, shipping and banking services as earner of foreign exchange for the country.

5) Economic equality: Rural insurance and the obligations of insurance companies to the rural sector are important for the growth of the rural economy. This provides an avenue for the rural sector to develop. Documentation becomes enabled in the rural sector as banks and insurance companies collect documents to provide insurance. Economic efficiency speeds up due to mitigation of losses as indemnity is provided by the insurance companies.

What are Ex -Gratia Claim Settlements?

Some losses that occur fall outside the scope of the policy. The policy cannot indemnify the insured. In some situations, it may turn out that the insured is going through a lot of hardship and the reason that the risk was not covered was because of genuine oversight. For example; in a householders policy, the list of individual houses in a condominium was not complete due to total oversight and a fire occurs.

In very special cases, discretionary claim settlement is considered by the insurers. The intention is to mitigate the hardships faced by the insured. So the claim is considered even though there is no legal liability to pay for such losses.

Ex-gratia claim settlements are not made to indemnify the whole loss and only a certain percentage is paid. There is no obligation for the insurers to meet similar claim situations in the future. 

Contractors All Risk Policy

The contractors all risk policy is designed to provide insurance to contractors and principals. The policy can be extended to third parties. The policy provides as 'all risk' coverage for civil engineering projects like buildings, bridges, tunnels, roadworks, railway and airway works  and so on.

As the coverage is on 'all risk' basis, almost every risk is covered unless specifically excluded. The cover starts whenever materials are unloaded at the construction site  or when the work commences, whichever is earlier. The cover ends when when the the project competes or when the policy ends, whichever is earlier. The important causes of losses indemnifiable are:

• Fire, explosion
• Flood, inundation and lightning
• Windstorm
• Earthquake, landslide and subsidence
• Theft and burglary
• Accidental damage
• Impact and collapse
• Negligence, malicious acts, human error and acts of terrorism

The sum insured is determined by the estimated  value of the completed contract works which include cost of materials supplied by suppliers and even the principal, wages, construction costs, customs and freight duties, 

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How to Drive Traffic Into Your Insurance Website

You may be wondering about the reason why your insurance website does not get traffic. You can drive in traffic that is wholly free with some techniques:

• Be sure to include the name of the product on the website URL and and website title. For example: the URL for this blog has 'Actuarials for insurance' and the title for this blog is 'Insurance' which shows that the page has to do with Insurance.

• There should be a clear and brief description of you website in two sentences that describes your product. For example: 'XYZ Insurance Agents are going to help you with your insurance'.

• Do include keywords relevant to the product or service in the meta tag coding. 

• Do include a first page description that contains at least two to four keyword and about 200 to 400 words.

• The business complete address, name and e mail address should be included in the main page.

• Leave your website URL when you visit other popular websites and blogs. This will serve as an outside link to your website.

• Upload new content with keywords. change the wordings on the front page and create new pages on the website.

• Create a Google sitemap to index your website URL. A .com and.net website URL appears in all the directories like Google and Yahoo.

• You also need to check that you have a good Google and Alexis ranking for your website.

Insurance for Start Ups' and Small Business

Start ups' and small business are vulnerable to risks as their risk bearing capacity is limited. They also have little time to attend to complicated legal matters as they already have too much on their plate. Moreover, they may not have the necessary professional knowledge and experience to attend to risk management activities. In these circumstances, start ups' and small businesses can depend on professional expertise by insuring their business. Some small businesses include:

1. Stores
2. Garages and Workshops
3. Construction Companies
4. Ride Sharing Companies
5. Beauty and Fitness Centers
6. Artist and Sculpture Company
7. Tailoring Shop
8. Restaurants
9. Home Cleaning Services
10. Lawn Moving Services
11. Dry Cleaners
12. Furniture Shop
13. Office Supplies  

The necessary insurance are:

• Liability Insurance: These include product liability insurance, employment liability insurance and general liability insurance. These options will help protect the assets of the company against third party hazards and risks.
• Medical Insurance: Start ups' and small business owners will need medical insurance for themselves and their family. They can also offer medical insurance for their employees. This can help to earn their loyalty and also serve as an incentive for them to stick around. This  can make the difference in terms of attracting and retain qualified talent.
• Commercial Insurance: These cover the property and operational risks of the insured.  A small business owner commercial policy helps absorb shocks due to operational risks and losses. A business that has implemented loss minimization measures and which is viable is more likely to find commercial insurance at affordable rates.

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The Role of Insurers in the Social Sector

Insurers have obligations to persons in the social sector. They are expected to provide insurance to a minimum number of lives right from the inception. 

The social sector includes:

• The unorganized sector which exist in countries like India, Bangladesh and Nepal.
• The economically vulnerable people below the country's poverty line.
• People with disability( and/or their guardians)  and who may not be gainfully employed 

The types of policies for the social sector provided by various countries  include:

• National agricultural and flood insurance schemes ( NFIP in USA, the British Flood Re,, NAIS in India)
• Solatium Funds for compensation of 'hit and run' accidents in motor vehicles 
• Miscellaneous personal accident and mediclaim social security schemes.

What is a Declaration Policy?

When the value at risk under an insurance policy varies from time to time during  the period of the policy, it may be necessary to insure an aggregate amount in lieu of a fixed sum insured. This occurs when stocks in warehouses are insured. As the stock value fluctuates frequently, the declaration policy is granted.

• A minimum sum - insured is required.
• A monthly declaration form is to be submitted by the end of the month, failing which the full sum insured under the policy will be taken to be declared.
• Declarations are usually based on the market value of stocks.
• Refund or the adjusted premium is calculated according to the declarations and usually does not exceed 50% of total premium.

Illustration:
Sum Insured :$10,00,000
Rate            :$1 per $1000 sum insured
Premium      :$1000
Monthly Declarations:
Jan                $50000
Feb                $ 60000
Mar                $45000
Apr                 $58000
May                $42000
Jun                 $70000
Jul                  $80000
Jul                  $65000
Aug                 $75000
Sep                 $85000
Oct                  $70000
Nov                 $46000
Dec                 $34000

Total               -------------
Declarations   $7,80,000
                       -------------

Average Declarations      $65,000
Premium                        $1000
Premium on Average       $650

Refund                         -------------
                                      $450
                                     ------------
As the refund is less than 50% of the total premium of $1000, the final refund also works out to $450.

Risk Management

Risk Management is concerned with mitigation of potential losses from hazards and fortuitous events. There are five steps to follow for risk management:

Step 1 -  Risk identification: Identification of loss causing events e.g. flood, storm, fire, burglary, accidental. 

Step 2 - Risk evaluation: Determination of the frequency and magnitude of losses. These may be classified as 'small', 'medium' or 'large' losses with 'high frequency' ( e.g. minor losses) or 'low frequency'( e.g. flood , earthquake, explosion).

Step 3: : Selecting Techniques: Select appropriate techniques or methods to manage the risks. These are 

(a) Risk avoidance: The simplest way of dealing with risk to avoid it.

(b) Loss Prevention and Reduction: These are measures to prevent losses or reduce the extent of loss.For example; installation of fire extinguishing appliances, automatic sprinklers.

(c) Risk retention: Small losses are absorbed by the normal operating expenses and large losses met by 'self - insurance fund'. The insured may opt for voluntary excess or deductibles within the insurance policy.

(d) Risk transfer: Risk transfer is done by sub - contracting of some hazardous processing, by contracts with third parties and contractors and by insurance.

Step 4 - Implementation: The techniques preferred and chosen by the risk managers are implemented by the functional managers in the respective department like the production department, the sales and distribution department and so on.

Step 5 - Review of the results: The effectiveness  of the methods are estimated by analyzing the portfolio performance. The evaluation is done periodically; monthly, half yearly or annually. 

Solvency Ratio

According to the rules and regulations of a country, every insurer is required to obtain a certificate of registration. The registration is required to be renewed and a minimum paid-up capital is required.
Every insurer is required to deposit a certain percentage of total gross premium with the federal bank of the country, in approved cash or securities. Insurers are required to invest assets only in investments approved  by the insurance regulatory authority.
The determination of the value of assets and liabilities also are stipulated by the regulatory authorities. Solvency margin determine the extent to which the assets are to exceed the liabilities.

• It could be expressed as a lump sum eg: Assets should be $300 crores more than liabilities.
• It could be expressed as a percentage: eg: Assets should be 150% of liabilities.

The insurer has to adhere to the provisions of the minimum required solvency ratio. This ensures that their solvency is adequate and hence their interests and the interests of the customers are kept in tact.

How insurance Works

People face common risks. An insurance policy provides indemnity to the insured in the event the risk occurs. However, it is not known beforehand how many persons on the average suffers losses. People who come together to insure their risks, do so by making their small contribution to a common fund. The contribution is also called premium and is calculated based on the probability of risk. The higher the risk, the more premium is charged to pay claims and vice versa.

•  Premium = Premium rate *  Sum Insured

The total premium or contribution is the total of premium paid by each of the insured. It is expected that the total losses paid to the insured equals their total contribution to the insurance fund.

• Total Premium = Total Losses 

For example:

• 100 TV sets are insured @ $2000 each set.

• Probability of loss every year is 15 sets resulting in a total loss of  $30000.

The premium that should be collected from each of the 100 insured should be at least $30000 for claims payment. We are ignoring office expenses and profits for the insured.

• The premium amount =  $30000/100 = $300.

Therefore, if each of the 100 insured pay $300, a common fund of $30000 is created to pay the claims.

Intermediaries in Insurance

Agent: An insurance agent engaged by the insurer is bounded by the rule; 'Qui facit alium, facit perse', which  means, one, who acts through others acts through himself. The contracts and obligations arising due to acts of the agent, is as if the acts and contracts have been done by the insurer. The authority of an agent may be 'expressed' in words spoken or written or 'implied' when things are to be inferred according to the circumstances.There is no consideration involved when becoming an agent. An insurance agent needs to possess the requisite qualification stipulated by the insurance regulatory authority. A firm, company or an individual can continue their agency so long as all partners and directors are of sound mind, and is not involved in a criminal breach of trust, forgery, fraud , dishonesty, misrepresentation or violation of code of conduct. 

Brokers: Brokers canvass insurance business and also negotiate terms if necessary to meet the requirements of the proposer. Brokers have to register themselves with the insurance regulatory authority. Brokers are expected to possess a high standard of professional skill and conduct. They are liable for damages to the insurer.

Both agents and brokers are remunerated by way of commission paid by the insurer. They do not charge the client. 

Banks: Banks as insurance intermediaries have become popular in USA and in European countries like France, Holland, Belgium and Spain and Asian countries like China and India.

Direct business: Direct business through the company's website and online portal has also become predominant.

Dividend, Non - Forfeiture and Settlement Options in Life Insurance Plans

Dividend options in life insurance policies:

• Dividend is paid in the form of cash paid to the policy owner, usually on the anniversary date of the policy.
• Instead of paying cash, dividend can be paid in the form of reduction in premium payable during the next year.
• Dividends are added to form a 'corpus' which accumulated interest and can be withdrawn at any time.
• Dividend amount can be used to purchase additional sum - insured or paid - up amounts.

Non -forfeiture options in life insurance policies:

• In the event that the insured discontinues the current policy, then the policy can be surrendered and cash value equal to the surrender  is paid to the insured.
• The surrender value can be used to purchase another policy with a reduced sum- insured.
• The cash value can used to extend the policy as a limited term policy.

Settlement options in life insurance policies

• The policy benefits payable are retained by the insured, who periodically pays the stipulated interest to the beneficiary.
• The benefits can be paid periodically to the beneficiary in fixed periods.
• The benefits can be periodically paid in lump sum as a fixed amount.

Characteristics of Inland Marine Floater

The inland marine floater policy coverage is specially tailored for specific type of high value and delicate property. This includes jewelry and filigree work, cameras, smart phones, musical instruments and the like. The policy provides an all risk coverage and is provided worldwide. Inland marine floaters are normally underwritten without a deductible too. 

Though inland marine floaters are written on an all risk basis, some common exclusions apply including gradual wear and tear, deterioration and inherent vice. Besides mechanical and electrical failures are beyond the scope of the policy. War and warlike risks and nuclear damage are not covered under the policy.

The inland marine policy provides loss settlement amounts within the sum insured according to the following estimates:

• The actual cash value of loss or damage to insured property
• The amount incurred to repair the property to the condition it was before loss.
• The amount that is incurred to replace the lost or damaged property with a similarly identical one because it cannot be repaired.

A personal articles floater policy is useful to obtain coverage for personal articles as the insured may be unable to obtain coverage under a homeowners coverage policy an also in the event that the property is owned by more than one person who do not live in the same house. Besides, specific classes of unscheduled personal property like property in a self-storage unit can find coverage  under a personal property floater policy. Personal property and luggage worn or carried by tourists and travelers can be covered under the personal effects policy.