FYUG EVEN SEMESTER EXAM, 2024 ECONOMICS (2nd Semester) Course No.: ECOSEC-151T (Insurance Principles and Practice)

Time: 3 Hours | Full Marks: 50 | Pass Marks: 20

SECTION-A

Answer any fifteen questions: 1 x 15 = 15

1. How is pure risk differed from speculative risk?

Pure risk involves only the possibility of loss or no loss (e.g., fire), whereas speculative risk involves the possibility of gain, loss, or no loss (e.g., gambling).

2. What do perils mean in insurance?

Perils refer to the specific causes of loss covered by an insurance policy, such as fire, flood, or theft.

3. Interpret the term 'risk pooling' in connection with insurance.

Risk pooling is the practice of sharing the financial risks of a large group of people so that the cost of an individual's loss is spread across all members.

4. What do you mean by 'transfer of risk'?

Transfer of risk is the process of shifting the financial burden of a potential loss from an individual or entity to an insurance company through a policy.

5. What do you mean by the term 'reinsurance'?

Reinsurance is insurance for insurance companies, where one insurer transfers a portion of its risk portfolio to another company to reduce its own liability.

6. State the meaning of principle of proximate cause in insurance claim.

The principle of proximate cause states that the most direct or dominant cause of a loss determines whether a claim is covered by the policy.

7. How is insurance differed from assurance?

Insurance covers events that might happen (like a car accident), while assurance covers events that will happen (like death in life assurance).

8. Give an example of insurable interest.

An individual has an insurable interest in their own life or their own property, as they suffer a financial loss if the person dies or the property is damaged.

9. Give example of general insurance.

Examples include Motor Insurance, Health Insurance, and Fire Insurance.

10. Mention one advantage of life insurance.

It provides financial security and protection to the dependents of the policyholder in the event of their untimely death.

11. What do you mean by 'endowment plans' under life insurance policy?

Endowment plans are life insurance policies that provide both a death benefit and a savings component, paying a lump sum after a specific period or upon the death of the policyholder.

12. What is cashless claim in health insurance?

A cashless claim allows the insured to receive medical treatment at network hospitals without paying the bills directly, as the insurer settles the amount with the hospital.

13. What do you mean by coinsurance in life insurance?

In life insurance contexts, coinsurance often refers to an arrangement where two or more insurers share the risk of a single large policy.

14. Write one point of difference between arbitration and litigation.

Arbitration is a private, informal process for settling disputes using a neutral third party, whereas litigation is a formal legal process conducted in a public court.

15. What are the two types of reinsurance?

The two main types are Facultative Reinsurance and Treaty Reinsurance.

16. What does the TPA stand for in insurance?

TPA stands for Third Party Administrator.

17. What is the full form of IRDA?

The full form is Insurance Regulatory and Development Authority.

18. Point out any one importance for regulation of insurance.

Regulation is essential to protect the interests of policyholders and ensure the financial stability of the insurance industry.

19. In which year was the IRDA constituted?

The IRDA was constituted in the year 1999.

20. What is Bima Bharosa portal?

Bima Bharosa is an online grievance redressal portal launched by IRDAI to help policyholders register and track complaints against insurers.

SECTION-B

Answer any five questions: 2 x 5 = 10

21. How are perils differed from hazards?

A peril is the actual cause of the loss (e.g., fire), while a hazard is a condition that increases the likelihood or severity of that loss (e.g., storing oily rags near a furnace).

22. Distinguish between 'moral hazard' and 'morale hazard'.

  • Moral Hazard: Dishonesty or character defects in an individual that increase the frequency or severity of loss (e.g., intentional arson).
  • Morale Hazard: Carelessness or indifference to loss because of the existence of insurance (e.g., leaving a door unlocked).

23. What is the difference between indemnity and subrogation?

Indemnity means the insured is restored to their approximate financial position prior to the loss. Subrogation is the right of the insurer to pursue a third party that caused the loss to recover the claim amount paid to the insured.

24. Point out any two importances of insurance.

  1. Provides financial stability by protecting against large, unexpected losses.
  2. Promotes economic growth by mobilizing domestic savings into long-term investments.

26. Distinguish between third party liability car insurance and comprehensive car insurance.

Third-party liability only covers damages or injuries caused to others by your vehicle. Comprehensive insurance covers both third-party liabilities and damages to your own vehicle due to accidents, theft, or natural disasters.

27. Distinguish between assignment and nomination under the Insurance Act.

Nomination allows the policyholder to name a person to receive the policy proceeds upon death. Assignment is the legal transfer of the entire ownership of the policy and its benefits to another person or entity.

30. Point out two functions of an insurance ombudsman.

  1. To receive and consider complaints from policyholders regarding insurance claims.
  2. To act as a mediator and provide awards to resolve disputes between policyholders and insurers.

SECTION-C

Answer any five questions: 5 x 5 = 25

31. What do you mean by risk management? What are the important steps of risk management? [5]

Risk management is the systematic process of identifying, analyzing, and responding to risk factors throughout the life of a business or for an individual.

Steps in Risk Management:

  • Risk Identification: Determining what risks might affect the entity.
  • Risk Assessment: Evaluating the probability and impact of identified risks.
  • Risk Mitigation/Treatment: Deciding whether to avoid, reduce, retain, or transfer the risk.
  • Monitoring and Review: Continuously tracking risks and the effectiveness of management strategies.

35. How is 'life insurance' differed from 'general insurance'? [5]

Feature Life Insurance General Insurance
Subject Matter Human life. Property, health, and liabilities.
Nature A contract of assurance (payment is certain). A contract of indemnity (compensation for actual loss).
Duration Long-term (10, 20, or 30 years). Short-term (usually renewed annually).
Insurable Interest Must exist at the time of taking the policy. Must exist both at the time of taking and at the time of loss.

36. What do you mean by health insurance? Discuss the important classification of health insurance. [5]

Health insurance is a type of insurance coverage that pays for medical, surgical, and sometimes dental expenses incurred by the insured.

Classifications:

  • Individual Health Insurance: Covers a single person.
  • Family Floater Plans: Covers the entire family under a single sum insured.
  • Group Health Insurance: Provided by employers to their employees.
  • Critical Illness Insurance: Provides a lump sum payment upon diagnosis of specific life-threatening diseases.

37. What is an insurance claim? What are the important steps in a claim settlement procedure? [5]

An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event.

Steps in Claim Settlement:

  1. Intimation: Notifying the insurer about the loss immediately.
  2. Documentation: Submitting required forms, proofs, and evidence of loss.
  3. Investigation/Survey: Insurer appoints a surveyor to assess the validity and extent of the loss.
  4. Decision/Settlement: Insurer approves or rejects the claim and makes the payment.

40. Write a note on powers and functions of IRDA. [5]

The IRDA (now IRDAI) serves as the statutory body for regulating and promoting the insurance and re-insurance industries in India.

Powers and Functions:

  • Issuing, renewing, modifying, or cancelling registrations of insurance companies.
  • Protecting the interests of policyholders in matters concerning assigning of policy, nomination, and settlement of claims.
  • Promoting efficiency in the conduct of insurance business.
  • Specifying qualifications and code of conduct for insurance intermediaries and agents.
  • Regulating investment of funds by insurance companies.

Exam Focus Enhancements

Important Terms Summary

  • IRDA: Constituted in 1999 to regulate the insurance sector.
  • Principle of Indemnity: Ensures the insured does not profit from a loss.
  • Subrogation: Allows insurers to recover costs from negligent third parties.

Exam Tips

  • Clearly distinguish between "Peril" and "Hazard" using examples in Section B.
  • In Section C, always provide the 4 main steps for "Claim Settlement" or "Risk Management".
  • Remember that Life Insurance is a contract of assurance, while General Insurance is a contract of indemnity.
Would you like me to explain the specific legal principles of insurance (like Utmost Good Faith and Contribution) that are often tested alongside the ones mentioned here?