A Comparative Study of XL GROUP PLC With Other Global Non-Life Insurance Companies.

CHAPTER 1 - INTRODUCTION

EXECUTIVE SUMMARY

OVERVIEW- INSURANCE INDUSTRY

Insurance is pooling of risk and compensation of losses to some extent.

I - Innovation N - Need Based S - Solution Oriented U - Urgent R - Rational A - Assume N - Neutral C - Compensation E - Effective

MEANING OF INSURANCE
Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance; an insured or policyholder is the person or entity buying the insurance. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. Insurance can be defined as a legal contract between two parties whereby one party called insurer undertakes to pay a fixed amount of money on the happening of a particular event, which may be certain or uncertain. The other party called insured pays in exchange a fixed sum known as premium. Insurance is desired to safeguard oneself and ones family against possible losses on account of risks and perils. It provides financial compensation for the losses suffered due to the happening of any unforeseen events.

CHARACTERISTICS OF INSURANCE:-

Sharing of Risk Cooperative device Evaluation of Risk Payment of event of happening of any special event The amount of payment depends on the size and type of loss. The success of Insurance business depends on the law of large number of people insured against similar risk. Insurance is a business which spreads the loss and the risk of few people in the large number of people. The insurance is a plan in which insured transfer his risk to insurer. Insurance is a legal contract

IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market. Insurance services play predominant role in the process of financial intermediary. Today insurance industry is one of the most growing sectors in India. There is lot of potential in the Indian Insurance Industry. There are many issues, which require study. The scope of the study of insurance industry of India would be very great as there are ongoing developments in the industry after the opening of the sector. The major issue right now is the hike in FDI (Foreign Direct Investment) limit from 26% to 49% in the insurance sector. Government may in near future allow 49% FDI in Insurance. This would lead to more capital inflow by foreign partners. Another major issue is the effects on LIC after the entry of private players in the market. Though market share of LIC has been affected, it has improved in terms of efficiency. There are number of other hot topics like penetration of Health Insurance, Rural marketing of insurance, new distribution channels, new product ranges, insurance brokers regulation, incentive scheme of development officers of LIC etc. So it offers lot of scope for studying the insurance industry. Right now the insurance industry has great opportunities in a country like India or China which huge population. Also the penetration of insurance in India is very low in both life and non-life segment so there is lot potential to be tapped. Before starting the discussion on insurance industry and related issues, we have to start with the basics of insurance. So first we understand what is insurance? How the word insurance is different from the word assurance? Etc.

PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance. (1) Principle of Uberrima Fides or Principle of utmost good faith It means maximum truth. Both the parties should disclose all material information regarding the subject matter of insurance. (2) Principle of indemnity This means that if the insured suffers a loss against which the policy has been made, he shall be fully indemnified only to the extent of loss. In other words, the insured is not entitled to make a profit on his loss. (3) Principle of subrogation This means the insurer has the right to stand in the place of the insured after settlement of claims in so far as the insureds right of recovery from an alternative source is involved. The insurer before the settlement of the claim may exercise the right. In other words, the insurer is entitled to recover from a negligent third party any loss payments made to the insured. The purposes of subrogation are to hold the negligent person responsible for the loss and prevent the insured from collecting twice for the same loss. The concept of Third Party Claims is based on the same principle. (4) Principle of cause proximal The cause of loss must be direct and an insured one in order to claim of compensation. (5) Principle of insurable interest The assured must have insurance interest in the life or property insured. Insurable interest is that interest which considerably alters the position of the assured in the event of loss taking place and if the event does not take placed, he remains in the same old position.

HISTORY OF INSURANCE

The concept of insurance is believed to have emerged almost 4500 years ago in the ancient land of Babylonia where traders used to bear risk of the carvan by giving loans, which were later repaid with interest when the goods arrived safely. The concept of insurance as we know today took shape in 1688 at a place called Lloyds Coffee House in London where risk bearers used to meet to transact business. This coffee house became so popular that Lloyds became the one of the first modern insurance companies by the end of the eighteenth century. Marine insurance companies came into existence by the end of the eighteenth century. These companies were empowered to write fire and life insurance as well as marine. The Great Fire of London in 1966 caused huge loss of property and life. With a view to providing fire insurance facilities, Dr. Nicholas Barbon set up in 1967 the first fire insurance company known as the Fire office. The early history of insurance in India can be traced back to the Vedas. The Sanskrit term Yogakshema (meaning well being), the name of Life Insurance Corporation of Indias corporate headquarters, is found in the Rig Veda. The Aryans practiced some form of community insurance around 1000 BC. Life insurance in its modern form came to India from England in 1818. The Oriental Life Insurance Company was the first insurance company to be set up in India to help the widows of European community. The insurance companies, which came into existence between 1818 and 1869, treated Indian lives as subnormal and charged an extra premium of 15 to 20 per cent. The first Indian insurance company, the Bombay Mutual Life Assurance Society, came into existence in 1870 to cover Indian lives at normal rates. The Insurance Act, 1938, the first comprehensive legislation governing both life and non-life branches of insurance were enacted to provide strict state control over insurance business. This amended insurance Act looked into investments, expenditure and management of these companies.

TYPES OF INSURANCE

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as "perils". An insurance policy will set out in detail which perils are covered by the policy and which is not. Below are (non-exhaustive) lists of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set out below. For example, auto insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from causing an accident). A homeowner's insurance policy in the U.S. typically includes property insurance covering damage to the home and the owner's belongings, liability insurance covering certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property.

Auto insurance
Auto insurance provides property, liability and medical coverage: Property coverage pays for damage to or theft of your car. Liability coverage pays for your legal responsibility to others for bodily injury or property damage. Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses

Home insurance
Home insurance provides compensation for damage or destruction of a home from disasters. In some geographical areas, the standard insurances exclude certain types of disasters, such as flood and earthquakes that require additional coverage.

Health
Health insurance policies by the National Health Service in the United Kingdom (NHS) or other publicly-funded health programs will cover the cost of medical treatments. Dental insurance, like medical insurance, is coverage for individuals to protect them against dental costs. In the U.S., dental insurance is often part of an employer's benefits package, along with health insurance.

Accident, Sickness and Unemployment Insurance

Disability insurance policies provide financial support in the event the policyholder is unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgages and credit cards. Disability overhead insurance allows business owners to cover the overhead expenses of their business while they are unable to work. Total permanent disability insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance. Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expenses incurred because of a job-related injury.

PropertyThis tornado damage to an Illinois home would be considered an "Act of God" for insurance purposes Property insurance provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance.

Casualty
Casualty insurance insures against accidents, not necessarily tied to any specific property.

 Crime insurance is a form of casualty insurance that covers the policyholder against losses arising from the criminal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft or embezzlement. Political risk insurance is a form of casualty insurance that can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions will result in a loss.

Life
Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity.

Final Thoughts
Even though the American insurance industry was greatly influenced by Britain, the US market developed somewhat differently from that of the United Kingdom. Contributing to that was America's size; land diversity and the overwhelming desire to be independent. As America moved from a colonial outpost to an independent force, from a farming country to an industrial nation, the insurance business developed from a small number of companies to a large industry. Insurance became more sophisticated, offering new types of coverage and diversified services for an increasingly complex country.