Meaning

Insurance is a contract in which the insurer, in return for a premium, promises to compensate the insured for a specified loss or to pay a fixed sum on the happening of a specified event. It works on the principle of pooling and sharing of risk.

Main types

### 1. Life insurance
The insurer pays the sum assured on the death of the insured or on maturity of the policy. It is a contract of assurance, since the event is certain. Main plans:

• Whole life policy — cover for the whole life; amount paid to the nominee on death.
• Endowment policy — paid on maturity or earlier death; combines protection with saving.
• Term insurance — pure risk cover, low premium, no maturity value.
• Money-back and annuity/pension plans, ULIPs, and child and joint-life plans.

Regulated by the IRDAI; LIC and private companies operate in this field.

### 2. General (non-life) insurance
A contract of indemnity for one year or less, renewed each year.

• Fire insurance — loss of building, stock and machinery by fire, lightning, explosion and allied perils.
• Marine insurance — hull, cargo, freight and liability; the oldest form of insurance.
• Motor insurance — third-party cover (compulsory under the Motor Vehicles Act) and comprehensive cover.
• Health/mediclaim insurance — hospital and treatment expenses, family floater, Ayushman Bharat.
• Personal accident insurance — death or disability by accident.
• Property, burglary and householder's insurance.
• Crop and cattle insurance — PMFBY for crops.
• Liability insurance — public liability, product liability, professional indemnity.
• Fidelity guarantee, credit and engineering insurance.

### 3. On the basis of scope
Social insurance (ESI, EPF, government-sponsored schemes such as PMJJBY, PMSBY and Atal Pension Yojana) and commercial insurance taken voluntarily.

Conclusion

Life insurance protects the earning capacity of a person while general insurance protects property and liability. Together they give financial security to individuals and to business.

Insurance contracts rest on certain legal and business principles which make the contract fair and workable.

1. Utmost good faith (Uberrimae fidei)

Both parties must disclose all material facts truthfully and completely. The proposer must reveal age, health, habits, previous illness, occupation and past claims; the insurer must explain the terms. Concealment or misrepresentation makes the policy voidable.

2. Insurable interest

The insured must gain from the existence of the subject matter and suffer loss from its destruction. A person has insurable interest in his own life, in his spouse, in his property and in the goods of his business. In life insurance it must exist at the time of taking the policy; in fire insurance both at the time of the contract and at the time of loss; in marine insurance at the time of loss.

3. Indemnity

The insured is placed in the same financial position as before the loss — no profit, no loss. He cannot recover more than the actual loss or the sum insured, whichever is less. It applies to general insurance but not to life and personal accident insurance, because human life cannot be valued.

4. Subrogation

After paying the claim, the insurer steps into the shoes of the insured and acquires all his rights and remedies against the third party responsible for the loss. It prevents the insured from being paid twice.

5. Contribution

When the same subject matter is insured with more than one insurer, each insurer pays the loss in proportion to the sum insured by it. The insured cannot recover the full amount from each.

6. Proximate cause (Causa proxima)

The nearest and most effective cause of the loss is considered, not a remote cause. The claim is paid only if the proximate cause is an insured peril.

7. Mitigation of loss

On the happening of the event the insured must act like a prudent uninsured person and take all reasonable steps to minimise the loss.

Conclusion

These principles protect both parties: they prevent fraud, gambling and over-insurance and ensure that insurance remains a device for compensating genuine loss.

Meaning

A claim is the demand made by the insured (or the nominee) on the insurer to pay the amount promised, after the insured event has happened. Settlement is the process by which the insurer verifies and pays that demand.

Steps in settlement

1. Intimation of loss: the insured informs the insurer immediately, in writing or online, giving the policy number, date, place and nature of the loss. Delay may weaken the claim.
2. Registration of the claim: the insurer records the claim, allots a claim number and checks whether the policy is in force and the premium is paid.
3. Submission of claim form and documents:

• Life insurance (death claim): death certificate, original policy, claim forms, proof of age, identity and nominee's KYC, and in unnatural death the FIR and post-mortem report.
• Health claim: hospital bills, discharge summary, prescriptions, investigation reports; or a cashless pre-authorisation through the TPA.
• Motor/fire/marine claim: FIR or police report, driving licence and RC, repair estimate, photographs, invoices and stock records.

1. Investigation and survey: in general insurance an IRDAI-licensed surveyor and loss assessor inspects the loss (compulsory above the prescribed limit) and submits a survey report assessing the actual loss.
2. Verification and scrutiny: the insurer examines whether the peril is covered, whether the proximate cause is an insured peril, whether there is any exclusion, misrepresentation or breach of condition, and checks insurable interest and the sum insured.
3. Assessment of the amount payable: applying indemnity, average clause (in case of under-insurance), depreciation, excess/deductible, contribution and subrogation.
4. Approval and settlement: the claim is approved and paid directly to the bank account of the insured or nominee; in cashless health claims the payment goes to the hospital. IRDAI norms require settlement generally within 30 days of receipt of the last document (and within a short period after the surveyor's report in general insurance); interest is payable on delay.
5. Repudiation, if any: if the claim is not payable, the insurer must inform the claimant in writing with reasons.
6. Grievance redressal: the claimant may approach the insurer's grievance cell, the Insurance Ombudsman, the IRDAI's Bima Bharosa portal or the consumer court.

Conclusion

Prompt and fair claim settlement is the real test of an insurance company; it decides the trust of the public and the reputation of the insurer.

Introduction

SEBI was set up in 1988 as a non-statutory body and was given statutory status by the SEBI Act, 1992. Its head office is in Mumbai. It was created after scandals and malpractices in the securities market to protect investors and to regulate the capital market.

Objectives

• Protection of the interest of investors.
• Development of the securities market.
• Regulation of the securities market and its intermediaries.

Functions and role

### 1. Protective functions

• Prohibits insider trading, price rigging, and fraudulent and unfair trade practices.
• Bans misleading advertisements and misstatements in prospectus.
• Requires full and fair disclosure by companies.
• Runs investor education and awareness programmes and the SCORES grievance redressal system.

### 2. Regulatory functions

• Registers and regulates stock exchanges, brokers, sub-brokers, merchant bankers, registrars, underwriters, portfolio managers, mutual funds and depositories.
• Frames rules and a code of conduct for intermediaries, and conducts inspection and audit.
• Regulates takeovers and mergers through the Takeover Code.
• Can impose penalty, suspend or cancel registration, and pass orders debarring persons from the market.
• Regulates credit rating agencies, investment advisers and research analysts.

### 3. Developmental functions

• Promotes training of intermediaries and investor education.
• Encourages dematerialisation, electronic trading, online IPO and faster settlement (T+1).
• Permits internet-based trading, discount broking and new instruments such as REITs, InvITs and index derivatives.
• Simplifies IPO procedures and introduced ASBA and UPI-based application.

Powers of SEBI

Quasi-legislative (making regulations), quasi-executive (investigation, inspection, search and seizure) and quasi-judicial (passing orders and imposing penalties). Appeals against SEBI orders lie with the Securities Appellate Tribunal (SAT).

Conclusion

SEBI has changed the Indian capital market from an unregulated, scandal-prone market into a transparent, technology-driven and investor-friendly one, which has raised the confidence of both domestic and foreign investors.

Concept of risk

Risk means uncertainty about the outcome of a future event, especially the possibility of loss. In insurance, risk is the chance of loss, and the object or person exposed to that chance is the subject matter of insurance. Two related terms are:

• Peril — the immediate cause of loss (fire, flood, theft, accident, death).
• Hazard — a condition that increases the chance or severity of loss. It may be physical (a defective wire), moral (dishonesty of the insured), morale (carelessness because one is insured) or legal (strict court awards).

Risk therefore arises from uncertainty; insurance does not remove the event but transfers its financial burden.

Classification of risks

### 1. Pure and speculative risk

• Pure risk: only two possibilities — loss or no loss. Example: fire, death, accident. Only pure risk is insurable.
• Speculative risk: chance of loss, no loss or gain. Example: share trading, betting, starting a new business. Not insurable.

### 2. Fundamental and particular risk

• Fundamental risk: impersonal in origin and wide in effect, affecting a whole group or society — earthquake, flood, war, inflation, epidemic. Usually handled by government or by pool arrangements.
• Particular risk: affects an individual — theft of one's car, fire in one shop. Normally insurable.

### 3. Static and dynamic risk

• Static risk: occurs even in an unchanging economy — dishonesty, natural calamity. Insurable.
• Dynamic risk: arises from changes in the economy — change in price, taste, technology or policy. Generally not insurable.

### 4. Financial and non-financial risk
Only risks whose loss can be measured in money are insurable.

### 5. Business risks

• Market risk, credit risk, liquidity risk, interest-rate risk, operational risk, legal and political risk.
• Systematic risk (affects the whole market, cannot be diversified) and unsystematic risk (specific to a company, can be reduced by diversification).

Methods of handling risk

Avoidance, prevention and loss control, retention (self-insurance), transfer (insurance, hedging, sub-contracting) and sharing (partnership, reinsurance).

Conclusion

Risk is unavoidable in life and business. Insurance is the most important device for transferring pure, particular and financial risks, while other risks must be managed through careful planning, diversification and control.

Meaning

The capital market is that part of the financial market which deals in medium and long-term funds, that is, funds required for more than one year. It brings together those who have surplus savings and those who need long-term capital — companies, governments and financial institutions — through instruments such as shares, debentures, bonds and government securities.

Structure of the Indian capital market

### 1. Primary market (new issue market)
Where securities are issued for the first time. Methods: public issue (IPO/FPO), rights issue, private placement, preferential allotment, bonus issue and offer for sale. Intermediaries: merchant bankers, underwriters, registrars and bankers to the issue.

### 2. Secondary market (stock exchange)
Where existing securities are bought and sold — BSE, NSE and other exchanges — giving liquidity and continuous valuation. Trading is screen-based and settlement is on a T+1 basis through depositories (NSDL, CDSL).

### 3. Other segments
Government securities (gilt-edged) market, corporate debt market, derivatives market, mutual funds and the market for REITs and InvITs.

Functions of the capital market

1. Mobilisation of savings: it collects scattered small savings of households and converts them into investible funds.
2. Channelising savings into productive investment: funds move from savers to industries, infrastructure and government projects that need long-term capital.
3. Capital formation: by converting savings into real assets, it raises the rate of capital formation in the country.
4. Providing liquidity: the stock exchange allows an investor to sell securities and get cash quickly, which encourages people to invest in long-term instruments.
5. Price discovery and valuation: continuous trading determines the fair market price of a security and reflects the performance of a company.
6. Efficient allocation of resources: funds flow to companies with better prospects and returns, so scarce capital is used where it is most productive.
7. Providing investment avenues: it offers a wide range of instruments with different risk-return combinations — equity, debt, hybrid, ETFs and mutual funds.
8. Reduction of risk through diversification and through derivatives used for hedging.
9. Barometer of the economy: movements of the index indicate business confidence and the state of the economy.
10. Facilitating government borrowing: the government raises funds through bonds and treasury operations for development expenditure.
11. Promoting industrial and infrastructure growth and encouraging entrepreneurship, mergers and takeovers.

Importance of the capital market

• It is essential for economic development, because industry and infrastructure need long-term funds that banks alone cannot supply.
• It spreads ownership of industry among a large number of small investors and thus reduces concentration of wealth.
• It attracts foreign investment (FPI/FDI), bringing foreign exchange and better corporate practices.
• It imposes discipline and transparency on companies through disclosure requirements and market scrutiny.
• It supports financial inclusion through mutual funds, SIPs and demat accounts.
• It provides an alternative to costly borrowing and improves the capital structure of firms.

Weaknesses

Volatility and speculation, insider trading and manipulation, low participation of small investors and rural households, and sensitivity to global shocks.

Conclusion

The capital market is the backbone of long-term finance in India. Regulated by SEBI and supported by depositories and modern technology, it converts the nation's savings into productive investment and is therefore central to the goal of rapid and sustained economic growth.

Meaning

A mutual fund is a trust that pools the savings of a large number of investors having a common investment objective, and invests the pooled money in shares, debentures, bonds, money-market instruments and other securities. The income or capital appreciation is shared by the unit holders in proportion to the units held, after deducting expenses. In India mutual funds are set up as trusts under the SEBI (Mutual Funds) Regulations, 1996.

Structure in India

• Sponsor — promotes the fund (like a promoter of a company).
• Trust and trustees — hold the assets for the benefit of unit holders.
• Asset Management Company (AMC) — manages the investment for a fee.
• Custodian, registrar and transfer agent, and the auditor.
• Regulated by SEBI; the industry body is AMFI. The first mutual fund in India was the Unit Trust of India, 1963.

Key terms

NAV (Net Asset Value) = (Total assets − liabilities) ÷ number of units; entry/exit load, expense ratio, SIP (Systematic Investment Plan) and SWP.

Classification of mutual funds

### A. On the basis of structure

1. Open-ended schemes: no fixed maturity; units can be bought and sold with the fund at NAV any time; high liquidity.
2. Close-ended schemes: fixed corpus and maturity; units listed on a stock exchange.
3. Interval schemes: a mix of both, open for purchase and repurchase during specified intervals.

### B. On the basis of investment objective / asset class

1. Equity funds: invest mainly in shares; high risk, high return. Sub-types — large-cap, mid-cap, small-cap, multi-cap and flexi-cap, sectoral and thematic, dividend yield, contra, focused and ELSS (tax saving with a three-year lock-in under Section 80C).
2. Debt/income funds: invest in bonds, debentures and government securities; lower risk and steady income. Sub-types — liquid, ultra-short, short and long duration, corporate bond, gilt, credit-risk and dynamic bond funds.
3. Hybrid/balanced funds: invest in both equity and debt — aggressive hybrid, conservative hybrid, balanced advantage, multi-asset and arbitrage funds.
4. Money-market/liquid funds: very short-term instruments such as treasury bills, commercial paper and certificates of deposit; used for parking surplus cash.
5. Solution-oriented funds: retirement and children's funds with a lock-in.
6. Other funds: index funds and ETFs (passive, tracking an index), fund of funds, gold and international funds.

### C. On the basis of other criteria

• Load and no-load funds.
• Growth option and IDCW (dividend) option.
• Domestic and offshore/international funds.
• Public sector and private sector funds.

Advantages

Professional management, diversification even with a small amount, liquidity, low cost, transparency through daily NAV, convenience of SIP, tax benefit in ELSS, and strict regulation by SEBI.

Limitations

No guarantee of return, market and credit risk, expense ratio and exit load, too many schemes causing confusion, and no control of the investor over selection of individual securities.

Conclusion

Mutual funds are the easiest route for a small investor to participate in the capital market with professional management and diversification. The choice of scheme should depend on the investor's objective, time horizon and risk-bearing capacity: the right scheme for the right investor.

Meaning

Micro finance means the provision of small-scale financial services — small loans, savings, insurance, remittance and pension — to poor and low-income households, small farmers, artisans and micro-entrepreneurs who cannot give collateral security and are therefore excluded from the formal banking system. The RBI defines a micro-finance loan as a collateral-free loan given to a household with an annual income up to ₹3,00,000.

Origin

The modern concept began with Prof. Muhammad Yunus and the Grameen Bank of Bangladesh (1976, formally 1983), based on group lending and peer pressure instead of collateral. He received the Nobel Peace Prize in 2006. In India NABARD launched the SHG–Bank Linkage Programme in 1992, which is today the largest micro-finance programme in the world.

Features

• Very small loan amounts, short repayment periods and frequent (weekly or monthly) instalments.
• No collateral; group guarantee and joint liability instead.
• Doorstep service in villages and slums.
• Mainly for women, who form the majority of borrowers.
• Loans used for income-generating activity as well as consumption and emergencies.
• Interest rates higher than banks but far lower than moneylenders.

Models of micro finance in India

1. SHG–Bank Linkage Model: a self-help group of 10–20 members saves regularly, lends internally and is then linked to a bank for credit. Promoted by NABARD, supported by NRLM/Aajeevika.
2. Joint Liability Group (JLG): 4–10 members take individual loans with mutual guarantee.
3. MFI model: NBFC-MFIs, societies, trusts and Section 8 companies lend directly, e.g. Bandhan (now a bank), Ujjivan, SKS/Bharat Financial.
4. Business correspondent and banking-agent model and cooperative and RRB lending.
5. Government schemes: MUDRA (Shishu, Kishor, Tarun), Stand-Up India, PM SVANidhi for street vendors, Differential Rate of Interest scheme.

Importance and benefits

• Financial inclusion: brings the unbanked poor into the formal financial system.
• Poverty reduction: small capital allows petty trade, dairy, tailoring, handicraft and shop keeping, raising household income.
• Freedom from moneylenders: ends dependence on exploitative interest rates and bonded labour.
• Women's empowerment: control over money increases a woman's voice in the family and in the village; SHGs build confidence, literacy and leadership.
• Employment and entrepreneurship in rural and semi-urban areas.
• Habit of thrift and saving and creation of a credit history.
• Social benefits: better education and health spending, participation in village institutions, and reduction of migration.

Problems and criticism

• High effective interest rates and hidden charges.
• Multiple lending and over-indebtedness, which caused the Andhra Pradesh micro-finance crisis of 2010.
• Coercive recovery practices in some cases.
• High operating cost due to small ticket size and doorstep collection.
• Use of loans for consumption rather than productive purposes.
• Weak monitoring, limited financial literacy and, in some regions, poor loan-repayment culture.

Regulation and reforms

The Malegam Committee (2011) led to the creation of the NBFC-MFI category, a margin cap and interest-rate cap. The RBI's Regulatory Framework for Microfinance Loans, 2022 removed the interest cap but requires assessment of household income, a limit on repayment obligation (50 per cent of monthly household income), no prepayment penalty and no coercive recovery. Credit bureaus, SRO bodies such as MFIN and Sa-Dhan, and digital transactions have improved transparency.

Conclusion

Micro finance has proved that the poor are bankable and that small credit can create large social change. If it is delivered with fair pricing, financial literacy, proper regulation and linkage with skill training and markets, it can remain a powerful instrument of inclusive growth and rural transformation in India.

Introduction

The General Insurance Corporation of India (GIC) was formed under the General Insurance Business (Nationalisation) Act, 1972, and began functioning from 1 January 1973 with its head office in Mumbai. At the time of nationalisation 107 private insurers were amalgamated and grouped into four subsidiary companies, and GIC was made the holding and controlling company of the general insurance business in India.

The four subsidiaries (1973–2000)

1. National Insurance Company Ltd., Kolkata
2. The New India Assurance Company Ltd., Mumbai
3. The Oriental Insurance Company Ltd., New Delhi
4. United India Insurance Company Ltd., Chennai

Change after 2000

After the IRDA Act, 1999 and the General Insurance Business (Nationalisation) Amendment Act, 2002, the four subsidiaries were delinked from GIC and made independent companies directly under the Government of India. Since November 2000 GIC has been notified as the sole national reinsurer, and it is now called GIC Re. It was listed on the stock exchanges in 2017, though the government remains the majority shareholder.

Organisation structure

### 1. Board of Directors
The apex body, appointed by the Government of India. It consists of a Chairman-cum-Managing Director (CMD), whole-time directors, government nominee directors and independent directors. It frames policy, approves the budget, underwriting policy, investment policy and reinsurance programme.

### 2. Top management
The CMD is the chief executive. He is assisted by General Managers/Executive Directors who head major functions, and by a Chief Financial Officer, Chief Risk Officer, Chief Investment Officer, Company Secretary and Appointed Actuary.

### 3. Functional departments at head office

• Underwriting departments by class of business — fire, marine (hull and cargo), motor, engineering, aviation, agriculture, health, liability and miscellaneous.
• Reinsurance department — accepting reinsurance from Indian and foreign insurers and arranging retrocession.
• Claims department and actuarial department.
• Investment and finance, accounts and treasury.
• Human resources, training, legal, vigilance, information technology and public relations.
• International operations looking after foreign branches and representative offices (London, Dubai, Kuala Lumpur, Moscow, and Lloyd's syndicate participation) and the GIC Re South Africa subsidiary.

### 4. Regional and branch level
Regional offices, divisional offices and branch offices carry the business to the field; below them work development officers, surveyors, agents, brokers and third-party administrators. In the case of the erstwhile subsidiaries this four-tier structure — head office → regional office → divisional office → branch office — is still followed.

### 5. Committees
Audit committee, investment committee, risk management committee, policyholder protection committee, nomination and remuneration committee and CSR committee, in line with corporate-governance norms of SEBI and IRDAI.

Functions of GIC Re

Carrying on reinsurance business, obligatory cessions from Indian insurers, leading the Indian Market Terrorism Risk Insurance Pool and the Nuclear Insurance Pool, managing agriculture reinsurance under PMFBY, advising on rating and underwriting practice, investing funds, and promoting insurance education and training.

Conclusion

From a holding company of four subsidiaries, GIC has evolved into India's national reinsurer with a global presence. Its structure — a policy-making board, a functionally organised head office and a wide field network, all supervised by IRDAI — enables it to spread risk within the country and across the world.