Risk Management in Insurance Business Notes
Subject Overview
The fourth Banking and Insurance elective, developing an understanding of risk measurement and transfer in the insurance business — corporate and personal risk management, analytical tools and risk financing/
Subject at a glance
4
Units
36
Topics
4
Credits
4
Infographics
Unit-wise Syllabus
4 units — open any unit for detailed topic-wise notes, diagrams and important exam questions
- Concept of risk
- corporate and personal risk management
- types of risk
- risk identification and measurement
- pooling and diversification
- risk aversion and demand for insurance by individuals and corporations
- insurability of risk
- loss control
- risk retention and reduction decisions
Retain
Low frequency, low severity
Reduce
High frequency, low severity: loss control
Transfer
Low frequency, high severity: insure
Avoid
High frequency, high severity
Study guide
This unit covers the concept of risk, corporate and personal risk management, types, identification and measurement, pooling and diversification, risk aversion, insurability, loss control and retention. Link risk aversion to the demand for insurance.
- Analytical tools for corporate risk management
- products liability
- environmental liability
- directors and officers liability
- techniques of risk financing — retention
- captive insurance companies
- types of risk transfer
- benefits and limitations of insurance
Retention
Self-insurance, deductibles
Captive insurer
Firm's own insurance company
Insurance
Transfer to an insurer
Hedging and contracts
Transfer to other parties
Study guide
You study analytical tools for corporate risk management, products, environmental and D&O liability, risk financing (retention, captives, transfer) and the benefits and limits of insurance. Compare retention and transfer.
- Purpose
- need and principles of insurance
- kinds of insurance
- costs and benefits
- evolution of India's insurance industry
- Malhotra Committee Report
- legislative framework — Insurance Act 1938
- LIC Act 1956
- privatization
- IRDA
- government policy
- 1Insurance Act 1938
- 2LIC nationalised (1956)
- 3GIC formed (1972)
- 4Malhotra Committee (1994)
Recommends opening up
- 5IRDA Act (1999)
Private and foreign insurers allowed
Study guide
You study the purpose and principles of insurance, kinds, costs and benefits, the evolution of the Indian industry, the Malhotra Committee, the Insurance Act 1938, the LIC Act 1956, privatisation and the IRDA. Learn the major reforms in order.
- Saving and investment policies of insurance companies
- tax benefits under insurance policies
- premium computation
- rider premium
- bonuses
- surrender and paid-up value
- insurance documents (proposal forms, premium receipts, policy contracts, endorsements)
- reinsurance and bancassurance concepts
- Premium
- Price paid for cover
- Rider
- Extra cover added to a policy
- Bonus
- Share of insurer's surplus
- Surrender value
- Paid if the policy is ended early
- Paid-up value
- Reduced cover after premiums stop
- Bancassurance
- Insurance sold through banks
Study guide
You study insurers' savings and investment policies, tax benefits, premium computation, riders, bonuses, surrender and paid-up values, insurance documents and reinsurance and bancassurance. Practise a premium computation.
Why Risk Management in Insurance Business Matters
Risk management protects businesses and individuals, and the skills support careers in insurance, corporate risk and finance.
How to Prepare for Risk Management in Insurance Business
- Learn the insurance regulatory timeline and committees.
- Practise premium and surrender value calculations.
- Study the major liability covers.
Risk Management in Insurance Business: Frequently Asked Questions
What is a captive insurance company?
A captive is an insurer owned by the business it insures, used to manage its own risks.