LECTURE NO_2.pdf for business students y

Bba students

1. LECTURE NO:2
Principles of insurance
and risk management



























Instructor: Aafia Mughal

2. Insurance:
It is a financial arrangement that provides
protection against potential losses or risks. It
involves individuals or entities paying premiums
to an insurer in exchange for the insurer's
promise to compensate for covered losses, such
as damage to property or medical expenses,
based on the terms of the insurance policy.

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Basic characteristics of insurance

Pooling of losses
Payment of fortuitous losses
Risk transfer
Indemnification

4. Pooling of Losses:
It is a fundamental concept in insurance where a
large group of individuals or entities collectively
contribute premiums to create a fund. This fund is
used to compensate the few who experience covered
losses, thereby spreading the financial risk across the
entire pool.
Payment of Fortuitous Losses:
The payment of fortuitous losses involves
compensation provided by an insurance company
to policyholders for unforeseen and accidental
events or circumstances that result in harm,
damage, or loss.

5. Risk Transfer in Insurance:
The process where an individual or entity shifts
the financial burden of potential losses to an
insurance company. By purchasing insurance, the
policyholder transfers the risk of specific events
to the insurer, which agrees to compensate for
covered losses in exchange for premiums.
Indemnification in Insurance:
Indemnification in insurance refers to the
compensation provided by the insurer to the
policyholder to restore them to the financial
position they were in before a covered loss or
event occurred. It aims to make the insured "whole"
by reimbursing for the actual financial loss
suffered.

15. Thnku...