Modern Insurance System Development - Essay Example

Running Head: INSURANCE INSURANCE [Institute's INSURANCE In the today's time, when the world is changing drastically, the uncertainties are also increasing. The man has developed and become a planner where every move in the life is calculated in advance so that we can keep up with the pace in time. In order to feel secures about plans, we need to have a minimum risk, and maximum security which we get through insurance companies. The insurance companies are there to help us in the time of our needs. But there are no free lunches in the world. The insurance customer needs to pay to an insurance company to buy the satisfaction that if anything bad happens to him/her they will be there to fix everything. The insurance system today is so much integrated in our society that life without an insurance plan looks impossible. The insurance companies have spread their roots and are insuring everything and anything. There are several types of insurances such as life insurance where the customers pay to an insurance company as its saving account to keep its money and give it back when the family of the insurer needs it. A life insurance policy has different clauses and agreements varying from a company to company. Other insurances include health insurance which is a very common concept in the USA as the health facility is very expensive and is not provided by the government. The people in the USA rely mainly on their health insurance plans for their treatments. Health insurance also has many packages and they vary from companies to customers need. Car insurance is when an insurance company pays for your car repair in case of an accident. It seems like that the insurance companies are entities which are there to help people, but in the realty, this industry is making very high profits as they take your dollars as profits and gives you your money in cents. Insurance companies have established their grounds despite facing many problems. The major controversy about insurance companies is coming from the religious segment of the society as all the three main religions Christianity, Islam and Judaism are against insurance. As in Christian priest say that having insurance indicates the lack of faith in god, in Islam, the concept of interest is forbidden so insurance to the Muslim world is not a culture that they should absorb in, and in Judaism, the rabbi says that it is an avoidance of god will. Even after barriers, the insurance companies have reached to new heights in making profits. Insurance companies are very technical in nature as their clauses and contracts are very difficult to understand. The concept of "uberrimae fidei" is a Latin word for 'utmost good faith'. Under this term, the applicants are required to tell the company everything which might cause their decision to change. Every applicant has to disclose the details of the material belonging and also the circumstances and the future expectation of the applicant. The concept is essential as the insurance business is done on the basis of trust. The applicant should have enough money to buy an insurance policy - the payment of insurance is taken on installment basis - it varies from cases to cases. Insurance is an investment that you make in order to get good returns on it. The chance of profitability is only present if there is mutual faith and believes between the client and the investment company. The insurance contracts have significance important because if the deal doesn't work the case goes into court so the two parties should be aware of their treaty in the case of disclosure. "To point out all types of disclosure is not only a difficult task but also to an extent futile, even though such acquisition of types could immensely help in compiling the information for the judges and lawyers to seek an analogy in their respective cases in front of them. However, when one understands the basic notion of burden of disclosure then the nature and types can contemporaneously pinned according to the nature of the insurance contract and the dispute in hand. In fact such approach of case by case basis can bring commonsense and pragmatism in deciding case and can bring both parties to the insurance contract at par". (Apurba Khatiwada, 2008, p.1) The concept uberrimae fidei is the basic form of business ethics that the two parties trust on each other and have the common ground of good will for each other. "It concludes that courses in business ethics are under pressure to conform to a vocational rationale demonstrating the market benefits of ethical behavior rather than encouraging students to examine fundamentally the assumptions and effects of business practice." (Bruce Macfarlane, 1995, p. 32-36) It indicates that a business always does not follow the practices of ethics in practicality; however, it is different for insurance companies because they are firms primarily based on the essence of ethics. Because it's the promise a company makes to its customer that they will be there in time of need. Insurance companies are a vital asset for the financial market. They are designed in a way that they don't go out of the business. For example, at the time of a recession in 2008, when almost all the industries faced decline all around the globe, the insurance industry compared to the other industries stayed because no matter what whether people have jobs or not, they are in tangled to the system of insurance that they have to pay it because the people still use cars and still have health issues. So the insurance industry is a booming industry which has high profit prospects all around the world. The series of different events have lead to the existence of this efficient insurance system. The concept of insurance is very old in the U.K. "The earliest insurance to be written is the marine insurance which was introduced in England in 14th and 15th century. The great fire destroyed the medieval London and was an important stepping stone in the fire insurance and in the organized fire fighters". (J. David Cummins, 2007, p, 205-239) It indicates the emergence of insurance in London.. The insurance industry has learned its lesson over a period of time. For example, after the fire in London, the insurance companies increased the money insurance of warehouses. This is how the insurance company sets its policy where they are very careful about the worst case scenario, which in the end, results very beneficial for them. Premium is the amount of money paid by applicants to a company in order to get an insurance policy. This amount can vary from a company to company and the packages offered by them. "The premium for an endowment policy may be divided into three components which cover the insurer's risk, insurer's cost and the saving element by the insured. In order to calculate the rate of gain to the policyholder, the saving in an endowment policy may be calculated as the difference between the annual premium for an endowment policy and the premium for a term insurance. Having the saving element, one can calculate the rate of gain by two methods: 1) Given survival at the end of the period, or 2) Calculating the expected rate of gain by using a probabilistic approach. It is shown in the paper that for ages below 40, these two approaches yield closed results. The expected rate of gain is about 3.5% in the U.K., about 3.0% in the U.S.A., and about 6% in Israel. Nevertheless, because of the risk element involved in this form of investment, the above rates are low in comparison with rate of gain offered by other saving media". (Haim Levy and Jehuda Kahane, 1970, p, 231) It indicates that investing in an insurance company is not the best option as the rate of return for the customer is comparatively low. Whereas, it is highly beneficial for an insurance company as it is a booming business. The insurance industry has reached to new horizons by capturing the market niches through introducing a wide range of new insurance schemes. Insurance companies have become a part of everyone's life; they have conditioned people, and now it is an essential thing for many to own an insurance policy for everything - from a home to a car and even to the appliances. The strong market of insurance has not emerged in a day, it has taken years to develop and reach to the heights. The strong policies of these insurance companies are mainly made by "A cross-correlation analysis of nine firms in the U.K. insurance industry reveals the existence of leaders and laggards in the development of a variety of strategic initiatives". (David Webb, 1999, p, 601-621) It shows that there are dominant groups in the insurance market. The big insurance companies in UK include, HSBC, UBS, Citigroup and many others. In a sentence, the insurance industry is a trend which is spreading globally on a rapid level. References Apurba Khatiwada , 2008, Duty of Disclosure in Insurance Contract http://www.ksl.edu.np/cpanel/pics/duty_to_diclose_in_insurance_contract_apurba.pdf Accessed February 27, 2010 Bruce Macfarlane, 1995, Business ethics: too little, too late, Volume: 37 Issue: 5 Page: 32 - 36 http://www.emeraldinsight.com/Insight/viewContentItem.do;jsessionid=7BDE9EDECA85A3AC509E1370B07156F4contentType=Article&hdAction=lnkhtml&contentId=837421 Accessed February 27, 2010 David Webb, 1999, the temporal development of strategy: patterns in the UK insurance industry, Vol 10, no5 1999, pg 601- 621 http://www.jstor.org/pss/2640320 Accessed February 27, 2010 Haim Levy and Jehuda Kahane, (1970, p, 231), profitability of saving through insurance companies. http://www.jstor.org/pss/251182 Accessed February 27, 2010 J. David Cummins (2007, p, 205-239) the UK insurance industry- structure and performance, vol 26 http://www.springerlink.com/content/r7314j8443w87445/ Accessed February 27, 2010 Read More