1. Risk ManagementThe process of identification, analysis and either acceptance or mitigation ofuncertainty in investment decision-making refers to risk management in business.

Risk management involves essential features such as reliable resources,financial strategies and foresight. It prevents or reduces the possibility of externalas well as internal risks in business by employing intelligent strategies, and thusforms an integral part of business or investment.

Risk Management MethodsThese methods are not mutually exclusive and may be largely categorized as:loss controlloss financinginternal risk reduction

Loss controlThe activities which decrease the expected cost of losses by lowering theoccurrence of losses and/or their extent are referred as loss control. Sometimesloss control is also termed as risk control. Usually, the actions basically affectingthe frequency of losses are referred as loss prevention methods. Actions primarilyinfluencing the severity of losses that do occur are often called loss reductionmethods. An example of loss prevention would be routine inspection of aircraftfor mechanical problems. These inspections help reduce the frequency ofcrashes; they have little impact on the magnitude of losses for crashes thatoccur. An example of loss reduction is the installation of heat- or smoke-activatedsprinkler systems that are designed to minimize fire damage in the event of afire.Many types of loss control influence both the frequency and severity oflosses and cannot be readily classified as either loss prevention or loss reduction.For example, thorough safety testing of consumer products reduces the numberof injuries, but it may also affect the severity of injuries. Similarly, equippingautomobiles with airbags in most cases should reduce the severity of injuries,but airbags also might influence the frequency of injuries. The increase ordecrease in the injuries is dependent upon whether the number of injuries thatare completely prevented for the accidents that occur exceeds the number ofinjuries that might be caused by airbags inflating at the wrong time or too forcefully,as well as any increase in accidents and injuries that may occur if protection byairbags causes some drivers to drive less safely.Viewed from another perspective, there are two general approaches toloss control:(i) reduction of the risky activity level, and(ii) increasing precautions against loss for the activities undertaken.First, exposure to loss can be reduced by reducing the level of riskyactivities, for example, by cutting back the production of risky products or shiftingattention to less risky product lines. Limiting the level of risky activity primarilyaffects the frequency of losses. The main cost of this strategy is that it forgoesany benefits of the risky activity that would have been achieved apart from therisk involved. In the limit, exposure to losses can be completely eliminated byreducing the level of activity to zero; that is, by not engaging in the activity at all.This strategy is called risk avoidance

Loss financingMethods applied to obtain funds for paying for or offsetting losses that occur aretermed as loss financing (sometimes called risk financing). There are four broadmethods of financing losses:(1) Retention,(2) Insurance,(3) Hedging, and(4) Other contractual risk transfers.These approaches are not mutually exclusive; that is, they are often usedin combination. With retention, a business or individual retains the obligation topay for a part or the entire loss incurred. For example, a trucking companymight decide to retain the risk that cash flows will drop due to oil price increases.When coupled with a formal plan to fund losses for medium-to-large businesses,retention is generally called self-insurance.Firms can pay retained losses using either internal or external funds.The second major method of financing losses is the purchase of insurancecontracts. As you most likely already know, the typical insurance contract requiresthe insurer to provide funds to pay for the specified losses (thus financing theselosses) in exchange for receiving a premium from the purchaser at the inceptionof the contract. Insurance contracts reduce risk for the buyer by transferringsome of the risk of loss to the insurer. Insurers in turn reduce risk throughdiversification. For example, they sell large numbers of contracts that providecoverage for a variety of different losses.The third broad method of loss financing is hedging. As noted above,financial derivatives, such as forwards, futures, options and swaps, are usedextensively to manage various types of risk, most notably price risk. Thesecontracts can be used to hedge risk; that is, they may be used to offset lossesthat can occur from changes in interest rates, commodity prices, foreignexchange rates and the like. Some derivatives have begun to be used in themanagement of pure risk, and it is possible that their use in pure risk managementwill expand in the future.

The fourth major method of loss financing is to use one or more of avariety of other contractual risk transfers that allow businesses to transferrisk to another party. Like insurance contracts and derivatives, the use of thesecontracts also is pervasive in risk management.

Internal risk reductionIn addition to loss financing methods that allow businesses and individuals toreduce risk by transferring it to another entity, businesses can reduce riskinternally. There are two major forms of internal risk reduction:(i) Diversification, and(ii) Investment in information.Regarding the first of these, firms can reduce risk internally by diversifyingtheir activities (i.e., not putting all of their eggs in one basket). Individuals alsoroutinely diversify risk by investing their savings in many different stocks. Theability of shareholders to reduce risk through portfolio diversification is an importantfactor affecting insurance and hedging decisions of firms.The second major method of reducing risk internally is to invest ininformation to obtain superior forecasts of expected losses. Investing ininformation can produce more accurate estimates or forecasts of future cash

flows, thus reducing variability of cash flows around the predicted value.Examples include:estimates of the frequency and severity of losses from pure riskmarketing research on the potential demand for different products to reduceoutput price riskforecasting future commodity prices or interest ratesOne way that insurance companies reduce risk is by specializing in theanalysis of data to obtain accurate forecasts of losses. Medium-to-largebusinesses often find it advantageous to reduce pure risk in this manner aswell. Given the large demand for accurate forecasts of key variables that affectbusiness value and determine the price of contracts that can be used to reducerisk (such as insurance and derivatives), many firms specialize in providinginformation and forecasts to other firms and parties.

2. Elements of a Life Insurance OrganizationAn ‘organization’ is a legal entity which is created to do some activity or to achievesome purpose. It is created under some law, which gives it a status and identity.Because of the identity, the organization is considered to be a person in law.Therefore, it can enter into contracts, be sued in courts, accumulate propertyand wealth, and do business, in the same manner as any individual can do. Theway activities are grouped lead to the formation of offices, departments andsections Responsibilities (for results) have to be clarified and authorities (totake decisions and utilize resources) have to be defined. When all these areclarified, there will be people holding various positions, with designations,occupying places in offices and with clear authority and responsibilities.Important activitiesThe important activities in a life insurance company are:Procuring applications or proposals from prospective buyers of lifeinsurance.Scrutinizing and making decisions on the proposals for insurance. This iscalled underwriting.Issuing the policy document, incorporating the terms and conditions ofthe insurance cover.Keeping track of the performance of the insurance contract by either party,like payment of premium or payment of benefits.Attending to the various requirements that may arise during the term ofthe contract like nominations, assignment, alteration of terms, surrendersand payment of claims.Other supporting activities like advertising, investment of funds,maintenance of accounts, management of personnel, processing of data,compliance with regulations and lawsInternal organizationWithin an insurance office, the following departments are likely to exist. Thesemay be located in the branch office (as in the LIC now) or in the Divisional / Headoffices (as in the LIC earlier and new companies now). These departments areto be identified by the activities being carried out, although they may be called bydifferent names.

Business development or agency or marketing concerned with thedevelopment of agency force, market development and business growth.New business, which would receive, scrutinize and take underwriting

decisions on the new proposals for insurance and also issue the policy.Policy-holders servicing which would be concerned with administration ofthe policy, monitoring premium payments, lapses and revivals, attendingto alterations, nominations, assignments, surrenders, loans and claims.Accounts to handle the financial flows.The following departments are likely to be centralized in the Head Offices,as they require specialized skills and also because they impact the wholeorganization.Actuarial, studying the experience, doing valuations, declaring bonuses,monitoring the adequacy of premiums, setting underwriting standards,studying mortality rates, etc.

The distribution systemLife insurance is not compulsory under law. General insurance is frequentlypurchased due to compulsions under the law (Motor Vehicles Act) or from thefinanciers demanding insurance as collateral security. In the case of lifeinsurance, the compulsion is negligible. There is often a tendency of deferringthe decision. Death as a practical possibility is either ignored or not consideredimminent. The requirements of today take priority over the requirements oftomorrow. Even if not absolutely essential, the requirements of today seem tobe more compelling. Life insurance has to be secured when in the best of health.Otherwise, the insurer will refuse to grant the insurance cover.Agents are the ones who do the job of meeting, explaining and persuadingpeople. They have to be licensed under the Insurance Act. A licensed agent canwork with only one life insurer of his choice and is paid commission on thepremiums collected through his agency. Another category of intermediary is the‘broker’. In the rest of this unit, the word ‘agent’ is used to refer to all salesmen,whether called an agent or insurance advisor or by any other name.

Functions of the agentThe major function of the agent is to solicit and acquire life insurance businessfor the insurer, which has appointed him as an agent. While proposing a personfor insurance, the agent has to assess his needs and his paying capacity, makeall reasonable enquiries about the health and habits of the life to be insured andget proof of his age to be admitted at the commencement of the policy. If medicalexamination is required, the agent has to arrange for the same. After the proposalbecomes a policy, the agent has to ensure continuance of the policy by themeans of timely payment of renewal premiums, get nomination or assignmenteffected and help in prompt settlement of claims.Agents of the LIC are not authorized to collect premiums other than thefirst premium along with the proposal. If a policyholder pays premium to anagent, the LIC does not accept any liability for the same. The premium is treatedas paid only when it is paid into the office. However, in practice agents do collectpremiums from policyholders to ensure promptness in payment.

3. Health Insurance

Types of Mediclaim/Health PolicyBroadly speaking, health insurance policies in India are of the following types:Individual Mediclaim PolicyGroup Mediclaim PolicyDeferred Mediclaim PolicyOverseas Mediclaim PolicyInnovative Mediclaim PolicyIndividual mediclaim policyIndividual and group mediclaim policies are similar in scope and nature. Thesepolicies provide for reimbursement of hospitalization/domiciliary hospitalization expenses for illness/disease suffered or accidental injury sustained during thepolicy period.The policy covers for expenses incurred under the following heads:(a) Room, boarding expenses in the hospital/nursing home(b) Nursing expenses(c) Surgeon, anaesthetist, medical practitioner, consultant, specialist fees(d) Anaesthesia, blood, oxygen, operation theatre charges, medicines,diagnostic materials, etc.

Group mediclaim policyThe group mediclaim policy is available to any group/association/institution/corporate body, provided it has a central administration point and subject tominimum number of 100 persons to be covered.

The group policy is issued in the name of group/association/institution/corporate body (called insured) with a schedule of names of the membersincluding his/her eligible family members (called insured person) forming part ofthe policy.Group mediclaim policies are often customized to provide more benefitsto its members and many of the general exclusions are waived off from thestandard mediclaim policy.Deferred mediclaim policyAlso widely known as Bhavishya Arogya Policy, this policy can be taken at anyage from 25 years onwards up to 55 years. The insured at the time of taking thepolicy has to select a retirement age between fifty-five and sixty years afterwhich the coverage for hospitalization expenses will commence.The coverage under the policy is similar to what is available under astandard mediclaim policy with the following differences:(a) Pre- and post-hospitalization expenses are not covered under the policy.(b) The following exclusions of the mediclaim policy are not applicable.Thirty days waiting periodFirst year exclusionsPre-existing diseases exclusionCircumcision, pregnancy, etc.Overseas mediclaim policyThis policy provides for medical expenses in respect of illness suffered oraccident sustained by Indian residents during their overseas visits for official or

personal purpose. First started in 1984, this insurance policy has been sincemodified to provide for additional benefits such as in-flight personal accidentcoverage, compensation for the loss of passport, personal liability, etc.

Videsh Yatra Mitra policyThe widest coverage available under a variation of the overseas mediclaim policyis known as Videsh Yatra Mitra policy. There are five sections under the policyand the insured has the option to choose minimum three and maximum all sixsections by paying appropriate premium. The six sections are as under:Section A (personal accident): This section covers death or bodily injuryresulting in total or partial permanent disablement to the insured.Section B (medical expenses and repatriation): This section covers medicalrelated expenses during and in course of the overseas stay.Section C (loss of checked baggage): Total loss of a baggage during thecourse of travel is covered in this section.Section D (delay of checked baggage): This section covers emergencypurchase of replacement items if there is a delay in delivery of checked baggageof more than 12 hours from the scheduled arrival time at the destination.Section E (loss of passport): This section covers actual expenses necessarilyand reasonably incurred by the insured person in connection with obtaining aduplicate or fresh passport.Section F (personal liability): This section covers legal liability that may attachto the insured person for any bodily injury or property damage to a third partyaccidentally caused by any act of the insured.

Liability InsuranceLiability insurance is broadly classified into two categories: (i) Public liabilityinsurance and (ii) Product liability insurance. Public liability insurance is broadlyclassified into two categories: Compulsory public liability insurance and Voluntarypublic liability insurance policies.7.4.1 Types of Liability PoliciesCompulsory public liability policyThe Public Liability Insurance Act, 1991 imposes no fault liability, i.e., irrespectiveof any wrongful act, neglect or default on the part of the owner of any hazardoussubstance, he has to pay relief in the event of death or injury to any person otherthan a workman or damage to property of any person arising out of an accidentinvolving the hazardous substance.No fault liability means the claimant is not required to prove that the death,injury or damage was due to any wrongful act, neglect or default of any person.The death/ injury/damage may arise out of manufacture, processing, treatment,packaging, storage, transportation, transfer, offering for sale, destruction, etc.,of the hazardous substance.

Voluntary public liability policyThe owner of any industrial risk or non-industrial risk may take a voluntary publicliability policy to cover his legal liability in respect of accidental physical death/injury/property damage of a third party arising out of his property. Industrial risksare manufacturing premises including godowns and warehouses. Non-industrialrisks are hotels, restaurants, cinema halls, auditoriums, residential premises,

office premises, schools, amusement parks and film studios.

Products liability policyProducts sold to their users/consumers, if defective, may cause death, bodilyinjury, illness or property damage. The manufacturers/marketers of such products are liable to pay relief to the accidental victims of their products under law. Theproduct liability insurance policy provides insurance cover to manufacturers/marketers.The structure of the policy is similar to voluntary public liability policy withdifferences relating to only the coverage and some exclusion.The indemnity is available to claims arising out of accidents during theperiod of accident and first made in writing against the insured during the policyperiod arising out of any defects in the products specified in the policy schedule.

Professional indemnity policyProfessional indemnities are designed to provide insurance protection toprofessional people such as doctors, solicitors, chartered accountants,architects, etc., against their legal liability to pay damages arising out ofnegligence in the performance of their professional duties.Directors’ and officers’ liability policyDirectors and officers of an organization hold positions of trust and responsibility.They may become liable to pay damages to shareholders, employees, creditors,etc., of the company for wrongful acts committed by them in the managementand supervision of the affairs of the company. The policy is designed to provideprotection to directors and officers against their personal civil liability.Employer’s liability policyAlso known as workmen’s compensation insurance, the policy provides protectionto the employers against their legal liability for payment of compensation in caseof death or disablement of the employees arising out of and in the course ofemployment.There are two tables under the policy: Table A cover and Table B cover.Table A cover provides indemnity against legal liability under theWorkmen’s Compensation Act, Fatal Accidents Act and Common Law. This isissued for only those employees who come within the definition of ‘workmen’under the Workmen’s Compensation Act.Table B cover provides indemnity against legal liability under the FatalAccidents Act and Common Law. This may be issued to cover only those employees who are not ‘workmen’ within the meaning of that term under theWorkmen’s Compensation Act.

4. Pricing Individual Life and Health InsurancePricing objectivesI. Rate adequacyTo avoid financial problems and insolvency, insurance company rates mustbe adequate in the light of benefits promised under the company’sinsurance products. Rate adequacy means that for a given block of policies,total payments collected now and in the future by the insurer plus theinvestment earnings attributable to any net retained funds are sufficient tofund the current and future benefits promised plus cover-related expenses.

II. Rate equityEquity means charging premiums commensurate with the expected lossesand other costs that insured bring to the insurance pool. The pursuit ofequity is one of the goals of underwriting (classification and selection ofinsured).III. Rates not excessiveRates should not be excessive in relation to the benefits provided. Thisobjective is achieved by establishing a ceiling on the rates. Competitiondiscourages excessive pricing.Pricing elementsThe pricing elements underlying the pricing of life and health insurance contractsare:expected mortality or morbidity experienceexpected investment returnexpenses

1. The probability of the insured event occurringIt is shown by mortality tables in life insurance and morbidity tables inhealth insurance. The part of risk premium can be calculated by multiplyingthe sum assured with relevant information in these tables.2. The time value of moneyThe time value of money through rate of interest is the second factortaken into account for the calculation of premium. Net premium can becalculated by deducting interest component from risk premium.3. Loading to cover expenses, taxes, profits and contingenciesTabular premium can be calculated by adding all these office expenses tonet premium.4. The benefits promisedThe fourth factor is the benefits promised under the contract. A loading inthis respect is also included to arrive at the actual premium payable. Officepremium is the sum of tabular premium and the promised benefits.Conceptually, the office premium or the final premium for a life insurance contractis determined from the following equation:Expected value of office premiums = Expected Present Value of Insured Benefits+ Expected Present Value of ExpensesWe use the concept of present value because life insurance contract is a longtermcontract. We are using the word ‘Expected’ because the period for whichthe premiums are payable and the period for which the expenses will be incurredwill depend upon when the insured benefit becomes payable. To determine whenthe insured benefit becomes payable, we use the expected mortality experience.The present value is usually calculated by using the expected investment returnas the discount rate.Typically, health insurance contracts offered in the Indian market are yearlyrenewable contracts. To price such contracts, we use the following equation:Office Premium = Risk Premium / (1–Expenses Loading)where,Risk premium = Probability of occurrence of a claim × Expected size of the claim.The probability of occurrence of a claim can be determined using theexpected morbidity experience. The expense loading is expressed as apercentage of the office premium.

Rate computation1. Yearly renewable term life insuranceThis plan provides coverage for one year only but guarantees renewalirrespective of the insurability of the policy owner. Premium depends onthe rate of mortality. As age increases, premium rate increases. Therefore,there is a possibility that those in good health discontinue the policiesbecause of burdensome premium.2. Single premium term life planIn this system, premium will not increase year after year. Only one singlelumpsum is collected at the inception to cover risk for the selected periodof insurance. The single premium will be equal to the present value oftotal death claims anticipated to be paid by the insurer over the period ofinsurance is calculated at a chosen rate of interest plus an allowance forexpenses.3. Level premium planIn this system, premium payable throughout the period of insurance is levelor uniform. In this system, reserve builds up under each policy becausethe premium charged in the initial years of the policy is more than what isrequired to cover the death risk. The difference between the face value ofa policy and the reserve under the policy is called the ‘net amount at risk’.4. Flexible premium planFlexibility of deciding the amount of premium to be paid is allowed bymany insurers to policy owners, e.g., universal life policies. Out of theamount paid, mortality charges and expenses are deducted and balanceaccumulates and the insurer gives interest credit to the insured.

5. Concept of Insurable InterestDespite the conventional belief that everything is insurable, all risks are notinsurable. The risks must be financially measurable and there should be adequatenumber of comparable risks for the purpose of rating. Further, there must bepure and specific risks. The happening of the event insured against should notbe against public policy, the premium should be logical, and most importantly,there must be insur-able interest on the part of the insuring individual.There is no one specific, universally accepted definition of insurableinterest, but it can be similar to the following:‘The legal right to insure arising out of a financial relation-ship recognisedunder law, between the insured and the subject matter of insurance.’

Creation of insurable interestThere are a number of ways in which insurable interest will arise or be limited:(a) By common law: Where the essential elements of insurable interest areautomatically present, the same can be described as having arisen atcommon law. The common law duty of care which one owes to the othermay give rise to a liability, which again is insurable.(b) By contract: In some contracts a person will agree to be liable forsomething which he or she would not ordinarily be liable for.

(c) By statute: Sometimes an Act of the Parliament will create an insurableinterest either by granting some benefit or imposing a duty. While the statute

may create insurable interest where none would otherwise exist, therecan be statutes which restrict liability and thereby also restrict insurableinterest.Application of insurable interestThere are three main categories of application of insurable interest as follows:lifepropertyliabilityEvery person has an unlimited insurable interest in his or her own life.However, the obvious restriction in the application of this is the means with whichto pay the premium.If a person is married then there is an automatic unlimited insurable interestin the life of the person’s husband or wife. However, no other family relationshipwill give rise to insurable interest by itself.If family members are involved in business together or in the case of someother financial relationship, then in these circumstances, it is not the family ties,which create insurable interest, but it is the extent of the financial involvement.There is a basic rule that insurable interest will exist to the extent of the financialinterest in another person or other persons. Thus, partners are capable of insuringeach other’s lives as they incur loss in the event of the demise of any of them. Acreditor may incur financial loss in case a debtor meets with death prior to therepayment of a loan.

Insurance and WagersWagering contract is formulated in the nature of a wager. Such contracts includea range of common forms of applicable commercial contracts, e.g., contractsof insurance, contracts dealing in futures, options, etc. The statutes againstgambling and betting have made many other wagering contracts illegal andwagering in various cases is termed as a criminal offence.Table 5.1 Difference between Wagering and InsuranceContract of Insurance Wagering Agreement1. A contract of insurance is a contractto make good the loss of property(or life) of another person againstsome consideration calledpremium.1. A wagering agreement is anagreement to pay money ormoney's worth on the happening ofan uncertain event.2. In a contract of insurance theinsured must have insurableinterest. Without insurable interest itwill be a wagering agreement.2. No insurable interest is necessaryin case of a wagering agreement.3. In a contract of insurance both theparties are interested in theprotection of the subject matter, i.e.,there is mutuality of interest.3. In a wagering agreement, there isconflict of interest and in realitythere is no interest at all to protect.

4. Except life insurance, a contract ofinsurance is a contract ofindemnity, i.e., a contract to makegood the loss.4. In case of a wagering agreementthere is no question of indemnity.On the happening of the eventfixed amount becomes payable.5. Contracts of insurance are basedon scientific and actuarialcalculation of risks.5. Wagering agreements are notbased on such calculations andare in the nature of gambling.

6. 1. Role of insurance in managing risk financingBusiness organizations and individuals take insurance policies. These insurancepolicies help them to cover the losses in case of any emergency. Here, the ideais to transfer the risk involved with the business to the insurance provider bytaking an insurance policy. This insurance policy will honour claims in casecertain emergencies disrupt the working of the organization. This type of financingstrategy offers the benefit of knowing that even if the project faces financialtrouble due to unseen events, the losses will be settled without having to useother company assets. However, these events will have to be mentioned in theinsurance papers that the organization signs with the insurer. If an insurancepolicy does not cover theft, the organization cannot claim the amount from hisinsurer. The organization should maintain an adequate insurance to cover allinsurance risks relating to the calamities that can happen. Insurance should bemaintained in at least the following major areas of coverage such as:Real and personal propertyMachineryCrime coverageExtra expense and valuable papersWorkers’ compensationComprehensive general liabilityAutomobile liability and physical damage

Insurance TransactionInsurance is a contract. One party, namely, the insurer, contracts with another,the policyholder, to perform a particular service. The nature of insurancetransaction can be represented by the following triangle:

The riskThe insured The insurerAt the apex of this triangle there is the risk insured against. The insured—policyholder—is the person or company entering into the insurance contractand the insurer is the insurance company which has contracted with the insuredto provide cover for the risk insured against.Let us delve briefly into a few important concepts associated with insurance:

An indemnity is a sum paid by A to B by way of compensation for aparticular loss suffered by B. from the perspective of the insured. Subrogationhas its purpose in compelling the ultimate payment of a debt by the party who,in Equity and good conscience, should pay it. This subrogation is an equitabledevice used to prevent injustice. The principle according to which two or moreinsurers each liable for an insured loss ought to indulge in the payment of thatloss. Having paid its share of a loss, an insurer may be entitled to equitablecontribution—a legal right to recover part of the payment from another insurerwhose policy was also applicable. Insurable interest exists when an insuredperson derives a financial or other kind of advantage from the continuous existenceof the insured object (or in the context of living persons, their continued survival).A person has an insurable interest in something when loss-of or damage-to thatthing would cause the person to suffer a financial loss or other kind of loss.Referral of a dispute to an impartial third party chosen by the parties in thedispute who agree in advance to abide by the arbitrator’s award issued after ahearing at which both parties have a chance to be heard. In the law, a proximatecause is an event sufficiently related to a legally recognizable injury to be held tobe the cause of that injury.Looking at this triangle from the perspective of the insured one could saythat:(a) The insured knows the nature of the risk;(b) The insured has to describe the risk to the insurer. At this stage insuredcould more properly be termed the pro-poser as he, she or the firm is atthe point of describing the risk to the insurer in order to obtain insurance;(c) The proposer will look for acceptable protection. He may have a particularform of insurance cover in mind or want a special clause included or evenexcluded. The proposer knows, or should know, what he wants, and willgo into the market place in an effort to satisfy his needs;

d) Price is an important determinant in selecting an insurer. The proposerwill also, of course, be concerned with service and security, but price willbe extremely important.From the perspective of the insurer(a) It will be told about the risk by the proposer;(b) In many cases the insurer will not rely on this source of information alonebut will make its own inquiries. This may imply using skilled risk surveyorsto look at pro-posals and make physical inspection or doctors to carry outmedical examination for a life or permanent health insurance proposal;(c) The insurer will decide on the level of cover which it is prepared to offer tothe proposer;(d) Finally, the insurer will have to determine the price to be charged for thecover it is willing to offer. This price will have to reflect a number of relevantfactors.The triangle is not the whole story. At the ‘insured’ end of the triangle, thereis the intermediary. The intermediary—the agent or broker—will assist insuredor proposer at various stages in the transaction of insurance. For any largeindustrial insured, the use of a broker is almost essential as the role, he performs,is of crucial importance.At the insurer’s side of the triangle, there is the reinsurer who essentiallyoffers the same kind of protection to the insurer as the insurer offered to theinsured.