Insurance as Concept and as Business – Any gaps to bridge

Is there a gap? If so, what is the gap? Does it have implications for the sustainability of insurance? Does it need to be filled? What can be done for the purpose? What is the role of industry, the regulator, practitioners, customers, community members in this regard?

Introduction

The topic as captioned when elaborated, analyzed and synthesized to capture the minds of all concerned such as the customers, the insurers, the regulators, the practitioners, the governments representing the insurance industry as applicable to such countries only to appreciate and extend their roles' cooperation to achieve a common goal of extraordinary mutual satisfaction and prosperity. It is examined now to know how this common goal can be achieved whilst bridging the gap between "Insurance as Concept and Business".

The term "Insurance"

The term 'insurance' conveys that anything of its money value can be protected as long it exists. By concept, it conveys to effect insurance, that the property owner shall pay to any insurance company as premium and take a suitable policy that is a document to evidencing the contract between the parties to compensate the loss to be suffered.

As a concept, the term insurance is defined as a contract between two parties namely insurer or insurance company and insured, while the former accepts premium as consideration from the insured to cover the property from loss or damage due to perils during a certain period.

Insurance as a concept

Insurance as concept is bound by law with elements such as offer, acceptance, consideration and legality apart the special principles namely utmost good faith, insurable interest, and indemnity.

When looking at the concept, a contract of insurance is bound by law as well with special principles only to secure the mutual interest of the insuring public and the insurers in general.

Utmost good faith conveys that both the parties namely the insuring public and the insurers are ought to adhere to this principle to avoid disputed relationship. When any material fact about the risk is not disclosed by the insuring public that would lead the insurers to face losses.

Insurable interest qualifies the insuring public that they should have legal interest in the property i.e., ownership, trust and so on so as to show that they possess pecuniary (monetary) interest in the property; when the property is lost/damaged, they suffer from monetary loss.

Indemnity confirms the role of insurers to compensate for the loss or damage happens to the insured property to a position prior to the happening of loss or damage.

Indemnity, this principle does have two corollaries namely contribution and subrogation. Contribution stipulates that if any property is insured with two or more insurers, and the consequent loss or damage to such property will be shared with proportional to the insured values among the insurers. This prohibits the insuring public to avail more than one insurance policy for their properties.

Subrogation does not allow the insuring public who have been indemnified to claim from the negligent party for their losses sustained. But this corollary restricts the rights of the indemnified insuring public and transfer their rights and remedies to the insurers who have indemnified them.

Life policies are not pure indemnity policies, as the lives of the insuring public cannot be limited by money values.

With the collation of special principles and legal principles of a contract, any insurance contract that conveys that the insurance as concept emerged to protect mutual interests of the parties involved, apart boosting the economy of the country, the industry as a whole by the world.

Insurance as a business

Insurance is run by an industry comprising companies known as general insurance companies and non-life insurance companies, also termed as general insurers and life insurers.

General insurers sell policies namely fire, marine cargo, marine hull, aviation, and miscellaneous policies comprising of motor, engineering, workmen compensation, employers' liability, fidelity guarantee, money, personal accident, and health insurance policies and so on.

Life insurers sell policies namely term, endowment also annuities, and so on.

It is the fact that every business opens to the public to cater to their requirements and reciprocally earn profit subject to the country's respective statutes to control, monitor and protect the interests of the public. 

Insurance business undergoes cyclical changes depending upon its performance; more the losses leads to hike in premium, good the profit leads to stable and competitive premium respectively known as prevalence of hard and soft markets.

General insurance policies

Fire policy is meant to cover loss or damage to property due to fire and allied perils. It can be extended to include business interruption losses, which may arise because of stoppage of business due to loss or damage to business property.

Marine cargo policy is issued to cover loss or damage to cargo whilst in transit by any mode of conveyance.

Marine hull policy is issued to cover loss or damage to vessel of any type, also extended to cover third party property and injury, personal accident benefits to passengers, and so on.

Aviation policy is meant to cover loss or damage to aircraft, extended to include personal accident benefit to the crew and the passengers, and also third party property and injury.

Motor policy is issued to cover loss or damage to motor vehicles and third party property including injury and death whilst availing comprehensive insurance and in most of the countries of the world there exists compulsory insurance status for the third party liability.

Engineering policies comprise machinery breakdown, contractor all risks, contractor plant and machinery and so on. Machinery breakdown policy covers loss or damage to machinery due to any mechanical and/or electrical breakdowns. Contractor all risks policy covers loss or damage to construction project due to negligence of the contractors as well other perils such as fire, flood and so on. Contractor Plant and Machinery policy covers loss or damage to plant and machinery used by the contractors due to their own negligence, and other perils such as fire, flood and so on.

Workmen compensation policy is issued to employers to cover their employees whilst at work sustain injuries including death, for their medical expenses including disability compensation and so on.

Employers' liability policy is also issued to employers to cover their negligence due to which their employees sustain injuries including death at work.

Fidelity guarantee policy covers loss due to dishonesty of employees who handle properties as well cargo and money.

Money policy covers loss of money whilst in transit, or due to perils such as robbery, hold-up, burglary and so on.

Personal accident policy covers monetary loss due to disability arising from injury including death sustained due to accident.

Heath insurance policies mean to convey medical insurance covering illness, injury due to accident and critical illness also.

Life Insurance policies

Term policy is issued by life insurers covering death of a person for a specific sum assured happens during a specific term, due to accident or natural death. If the policy holder survives after the policy term will not receive any money.

Endowment policy is issued by life insurers covering death of a person for a specific sum assured happens during the policy period, due to accident or natural death. If the policyholder survives after the policy term will receive the policy sum assured with bonus.

Annuity is issued by life insurers covering the death of a person for a specific period with specific sum assured by structured payments throughout the term whether alive or not.

Mutual interest

Mutual interest is exhibited vividly that insurance protects the financial interests of both the parties namely the insuring public and the insurers by way of claim settlement and policy selling respectively, and leads to convey that insurance as a business.

Global Insurance

Globally there are insurers dealing with both life and general insurance including reinsurance business. Nevertheless, to mention that they are also governed by their own country's statutes and their regulatory bodies. They have their products or policies tailored to their customers' needs geographically. One can see that all insurance policies being sold by respective countries all over the world are not similar, but subject to general and special principles of insurance. Insurance as a concept, it remains the same all over the world but as a business its products or policies are dissimilar and serving the purpose of business; the profit and contributing to the country's GDP as applicable.

As business, the insurers, reinsurers and retrocessionaires do make profits and insurance as concept are bound by ethical, social, economic and legal duties.   

Bridging the gap between Insurance as concept and business

Is there a gap to bridge insurance as concept and as business? Of course there is a gap that has been existing since the beginning of the conduct of insurance business. 

What is the gap? The gap is that the insurance has not reached to many in the world, and thereby as concept insurance is preserved and getting improved by the world well known insurance educators namely The Chartered Insurance Institute - UK, The American Institute for Chartered Property Casualty Underwriters - USA, The Insurance Institute of India - India, and so on. But as a business it is trying to reach many to yield adequate returns as well keeping the society economically standard and not losing them to become economically poor.

Does this gap have implications for the sustainability of insurance elsewhere? Of course when insurance is yet to reach many, it does have implications for its sustainability in the world with a few exceptions. In the sense, that this gap widens, spreading of insurance to many cannot happen easily, as also with such of the countries whose contribution in the form of being as reinsurers and retrocessionaires.

World’s economic prosperity from the contribution of insurance industry may not be sound in the immediate or near future unless this gap has to be bridged. And this equally applies to contributors elsewhere.

When the gap is bridged, needless to emphasize that people would start to recognize the importance of availing insurance and go to the insurers voluntarily; and this recognition can be termed as awareness as this prevails in the developed countries like USA, UK, Japan and so on.

How can the gap be bridged? It is so easy when the insurers, regulators, practitioners, customers, community members and the government do form a common understanding. This common understanding is nothing but that they are there to achieve the country's insurance literacy among the people who should trust that they are the beneficiaries who would not stand to lose, suffer and become taken away by this common understanding but to appreciate they are the real beneficiaries who would soon realize to salute all these parties for a trouble free and peaceful living in their countries.

Involvement of various parties

The various parties as appended that are grouped to stand homogeneously to achieve their common goal.

Insurance industry

Regulator

Insurance Practitioners or professionals

Customers

Community members

Government

Role of Insurance Industry

The insurers should shed of undue competition attitude, but market products tailored to their customers' requirements and render quality services. They should also strictly adhere to the norms and guidance being rendered to by the government and the regulator. They should train their employees through professional approach and insurance education through their appearing various insurance examinations being conducted by the various professional insurance educators as elsewhere referred. They should in such a way render quality services to their customers by educating them about the importance of their products and the value of money at the time of any loss and thereby retain them in their books of business without compromising their profits involved.

Role of Regulator

Every country in the world does have insurance regulators to regulate its insurance business. The regulator should in consultation with the various parties involved depending upon the country's requirements, come out with norms with the support of its government to achieve its role to enable the insurers who would do insurance business ethically as well profitably without comprising insurance is just a concept but to ever remembering that it is wound with legal and special principles. The regulators regulate the conduct of insurance business conducted by insurers without compromising ethical standards to protect the intrinsic nature of concept of insurance.

Role of Insurance Practitioners or Professionals

It is implied that persons irrespective of their qualifications if they conduct insurance practice, they are called as insurance practitioners. The practice can be from technical, marketing, finance, teaching and research of insurance products. They are also called professionals when they do have large practical experience in their specific activities coupled with insurance qualifications. These professionals carry on with their activities tirelessly to achieve a common goal of earning profit to their employers. They also discharge their duties in tandem with the regulators.

Customers

No business enterprise exists or survives without customers is a common maxim and everybody is aware of it. Business opens up only to achieve a common goal of earning profits. It cannot achieve it by just opening without people; for any transaction, there are required two parties one is giver and the other receiver. 

In a business transaction, buyer and the seller exist. Money in the form of affordability and the products/services do co-exist to secure mutual interests.  Customers when wish to buy a product or service should have utmost interest, and faith with any business entity. When any business is to prosper, it should have a large customer base that should not lose its interest in its products which should always satisfy its customers.

It is innate to secure the products not to be forgotten from the minds of customers, any business does ought to perform its activities ethically, of course without compromising its earning profit. Customers generally wish to have cheap and best products that should fulfill their requirements, of course without any compromise of quality. Nevertheless, to reiterate, the customers should always be thought with their requirements with pricing and servicing that will not let down any business. It is very simple that the Insurers should always capture the minds of the customers and introduce or modify their products to very well suit customers' modest requirements.

Competition among Insurers should be focused in such a way to retain and draw customers who should ever be happy with, without ruling out the theory of demand and supply.  

Community Members

Community members represent individuals from the community concerned who can prevail social interest and work to achieve social requirements among the community. They can impart public literacy about insurance in a community to spread its importance and to make them to avail insurance policies both life and property apart various other products of life and general insurers.

It is a very easy way to mobile the importance of insurance among the public to get insured of their lives and properties as appropriate through them. This can happen when the public shall be shown ways and means to appreciate the importance of insurance; and how can it be shown? it can be through media publicity and conduct of regular meetings by the community members.

The Government

The Government being the very proximate cause that should in coordination and consultation with various parties such as insurance industry, regulator, practitioners or professionals, customers and community members amend appropriate legislations relating to insurance industry to make it more penetrating into the population like in developed countries. E-insurance though in practice cannot cover purchasing of all insurance policies, except motor, personal accident, travel and other like policies which is not at all possible now. There would prevail where the world will be free of moral hazards and the insuring public can with utmost good faith purchase all insurance policies on-line and even the insurers can settle their claims for whatever amount that represents the actual indemnity by on-line as the world has been witnessing the rapid advancement in technology especially through Artificial Intelligence in varied forms When insurance penetrates into the population the country's economy gets boosted up apart increasing employment and investment opportunities thus leading to prosperity among the population, trade, industry and the country; of course later the whole world.

Conclusion

It is not so easy that the Government has 'a can do attitude' without political cooperation and involvement of various parties as discussed elsewhere should extend their full arms. By extending full arms, all the parties involved will soon start to reap its individual benefits combined to have the population of people, the trade and industry remain ever prospered.

It is also commendable to point that the educators do not stall their activities towards developing the insurance industry to fill the gap existing between the insuring public and the insurers, but by producing professionals who do contribute their tireless efforts to turn the insurance industry to prosper whilst contributing its share to achieve a gapless environment that does not require a bridge at all; and it is a continuous process only to gain and prosper.

Reference:                     1. www.mbaskool.com