All Rights Reserved to Kardan University 2014 Risk Management and Insurance Kardan University Kardan.edu.af

All Rights Reserved to Kardan University 2014 History of Insurance Kardan.edu.af What is Insurance? Provides protection against financial losses by Pooling the resources of policyholders

All Rights Reserved to Kardan University 2014 History of Insurance Kardan.edu.af Insurance is created when people like you and your neighbors pool their resources to protect themselves from loss Insurance is created when people like you and your neighbors pool their resources to protect themselves from loss If the risk of loss can be spread over a large enough group, the effects of the loss to any one individual can be minimized If the risk of loss can be spread over a large enough group, the effects of the loss to any one individual can be minimized

All Rights Reserved to Kardan University 2014 History of Insurance Kardan.edu.af As history progressed, the need for insurance increased The Phoenicians and Greeks used insurance for their seaborne commerce The Romans were the first to use burial insurance

All Rights Reserved to Kardan University 2014 History of Insurance Kardan.edu.af The first Insurance Company was formed in 1688 in London (Lloyds of London) Merchants, Ship-owners, and Underwriters met at a coffeehouse to discuss how to protect the sea voyages

All Rights Reserved to Kardan University 2014 History of Insurance Kardan.edu.af Modern insurance traced back to the “Great Fire of London” in ,200 houses were destroyed Societies were formed to pool money for losses Also created the need for modernizing fire fighting

All Rights Reserved to Kardan University 2014 History of Insurance in Afghanistan Kardan.edu.af  The history of insurance industry in Afghanistan starts with a general insurance company from year 1963 by a governmental insurance company named “Afghan National Insurance Company” (ANIC).  In 1974 first insurance law implemented in the country and in years 1979 and 1989 some articles in the insurance law of Afghanistan has emendated and after final emendate in some articles in 2005 it announced as the new insurance law of Afghanistan and till it is implemented.

All Rights Reserved to Kardan University 2014 History of Insurance in Afghanistan Kardan.edu.af  Afghanistan Insurance Authority (AIA) was established in year 2005 in the Ministry of Finance. At first the name of AIA was Insurance Supervisory Administration then in 2008 the name changed to Insurance Commission of Afghanistan.  After that the minister’s cabinet renamed it to Afghanistan Insurance Authority.

All Rights Reserved to Kardan University 2014 Overview of Insurance Industry in Afghanistan Kardan.edu.af  At the moment four insurance companies are operating in general insurance activities and each year their licenses are being renewed : Afghan National Insurance Company ( Insurance Corporation of Afghanistan ( ) Insurance Group of Afghanistan ( ) Afghan Global Insurance ( )

All Rights Reserved to Kardan University 2014 Establishment of Insurance Company in Afghanistan Kardan.edu.af  Insurance Companies Establishm ent Guide Paying application fee of 2500 Afs Receiving the application form Filling the application form appropriately

All Rights Reserved to Kardan University 2014 Submission of Documents Kardan.edu.af  Submitting the following documents Complete information about Insurance Policies Shareholders Senior Management of the Company Address of the Company AISA License

All Rights Reserved to Kardan University 2014 Capital Allocation Kardan.edu.af The capital for the life insurance company is 400,000,000 Afs The capital for the non life insurance company is 100,000,000 Afs Capital for the brokers is 50,000,000 Afs Capital for the agents is 25,000,000 Afs Capital for the surveyor is 125,000 Afs

All Rights Reserved to Kardan University 2014 Broker, Agent & Surveyor Kardan.edu.af Broker: Insurance brokers can be best described as a kind of super- independent agent. Insurance Agent: Agents are only responsible for the timely and accurate processing of forms, premiums, and paperwork. Surveyor: A person who examines the condition of land and buildings professionally. An official inspector of something, especially for measurement and valuation purposes.

All Rights Reserved to Kardan University 2014 License Fee Kardan.edu.af The license fee for insurance company is 500,000 Afs The license fee for insurance broker is 200,000 Afs The license fee for agent and survivor is 100,000 Afs

All Rights Reserved to Kardan University 2014 Definition of Risk and Insurance Kardan.edu.af Risk Risk is the variation in possible outcomes of an event. Degree of risk is a measure of the accuracy with which the outcomes of an event based on chance can be predicted Insurance Insurance is a financial arrangement that redistributes the costs of unexpected losses. Insurance involves the transfer of potential losses to an insurance pool.

All Rights Reserved to Kardan University 2014 Legal Definition of Insurance Kardan.edu.af Insurance is a contractual arrangement whereby one party agrees to compensate another party for losses. Insurer is the party agreeing to pay for the losses. Insured is the party whose loss causes the insurer to make a claims payment. Premium is a payment which insurer receives. Insurance Contract is called a policy.

All Rights Reserved to Kardan University 2014 Pure Risk vs. Speculative Risk Kardan.edu.af Pure Risk Pure risk refers to possibilities that can result in only loss or no change. Nothing good can come from an exposure to pure risk. e.g. factory’s exposure to loss by fire. Speculative Risk Speculative risk refers to those exposures to price change that may result in gain or loss. e.g. investment in stocks. Most speculative loss exposures are not subject to insurance.

All Rights Reserved to Kardan University 2014 Classification of Pure Risk Kardan.edu.af Personal risks Property risks

All Rights Reserved to Kardan University 2014 Subjective vs. Objective Risk Kardan.edu.af Subjective Risk Subjective risk is what an individual perceives to be a possible unwanted event. e.g. most people realize, for instance, that it’s possible for them to have an accident, or a heart attack or some other health problem. Objective Risk Objective risk is the actual losses for a sample in a given period, which can differ significantly from expected losses. e.g. if you flip a coin 10 times, it is expected that 5 of those flips will yield heads and the other 5 will yield tails. However, in most sets of 10 flips the actual number of heads and tails will differ from this expectation, and it may differ significantly.

All Rights Reserved to Kardan University 2014 Some other types of Risks Kardan.edu.af Types of Risks Credit or Default Risk Foreign-Exchange Risk Political Risk Market risk

All Rights Reserved to Kardan University 2014 Methods of dealing with Risk Kardan.edu.af Avoidance Reduction Retention Transfer

All Rights Reserved to Kardan University 2014 Loss and Types of Loss Kardan.edu.af Loss Loss is commonly used, means being without something previously possessed. Insurable Loss Insurable loss is an undesired, unplanned reduction of economic value. These are categorized as: i.Direct Losses: Direct Losses are the immediate, or first, result of an insured peril. ii.Indirect Losses: Indirect losses, also called consequential losses, or loss of use, are a secondary result of an insured peril.

All Rights Reserved to Kardan University 2014 Perils Kardan.edu.af Perils (Immediate) Causes of loss – Natural perils Acts of God – Human perils Human acts, errors, and omissions, whether intentional or unintentional, causing a loss – Economic perils Economic events or phenomenon causing a loss

All Rights Reserved to Kardan University 2014 Hazard Kardan.edu.af A condition that creates or increases the chance of losses, their severity, or both. – Physical hazard – Moral hazard – Morale hazard – Legal hazard

All Rights Reserved to Kardan University 2014 Nature and Functions of Insurance Kardan.edu.af In its simplest aspect, insurance has two fundamental characteristics: 1.Transfer of risk from the individual to the group. 2. Sharing of losses on some equitable basis.

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