Firstly we need to recognize the Elements of Uncertainty and unpredictability. The terms often implies something that we don't want to happen. Risk Measurement and the means of attempting to deal with the risks we face are collectively termed Risk Management. In Commercial Context this is often a well-defined and scientific process, attempting to answer questions such as: 'How much will it cost if things go wrong?' And 'What are the chances of the Risk Becoming a reality?'
The accepting of an unknown future potential risk by an insurer for an agreed premium is a way of defining insurance as a risk transfer mechanism. It brings peace of mind to the insured because they have replaced the uncertainty of possible future loss with the certainty of the agreed premium.
There is a continuing trend towards taking control and developing a formal strategy for managing the various risks that affect businesses. The appointment of risk managers in industry and commerce is now common place. The below points describe the importance of Risk Management.
a) Reduces the risk of loss by recognizing & handling hazards.
b). Provides controlled mode in quantifying risks.
c). Shareholders are provided with a superior degree of confidence in a company's to achieve its risks.
Hence risk management can be defined as :
"The Identification, analysis and economic control of those risks which can threaten the assets or earning capacity of an enterprise."
1.2 Categories of Risks:
Financial & non Financial
The outcome of insurable risk depends on adversity of events which must be capable in measurement in financial terms. Most general insurances are compensatory in nature; this means that the value placed on the loss is not determined in advance, important exceptions to this general rule are personal accident and sickness policies. The Examples of Financial Risk May Include, e.g. .Accidental Damage to motor car, Theft of Property and loss of Business Profits Following Fire.
Pure and Speculative: Insurance doesn't apply to Speculative Risks, pure risks on the other hand are those where there is a possibility of a loss but not gain and where the best that we can achieve is a break even situation. Like the risk of Fire or a machinery Breakdown.
Particular and Fundamental: There are some risks that occur on such a vast scale that they are uninsurable these are called fundamental risks, like earthquake in a region known to be prone to such risks or famine, economic recession or a more general risk of war. In contrast to fundamental risks, certain risks are localized and in some cases personal in their cause and effect, sometime the cause may be more widespread but the effect is localized or even related to an individual. Examples may include a factory fire and a car collision.
In order to insure someone it requires to collect funds from various entities, this pool of fund can be accessed by anyone depending on risk/policy set forth. these funds are used in case of accident in exchange of a fee referred as premium in order to compensate for the losses that may incur due to various risk factors, as the fee or premium may vary depending on its frequency and severity of event, the risk will be insurable risk if it falls under below mention criteria
1.3 INSURANCE COVERAGE
Property Insurance: Cover risks to actual Property, The Types of covers are as follows
Fire, Special Perils and all Risk Policies: These are issued to cover material Property Such as Buildings, contents and stock.
Theft: Covers loss of or damage to property caused by theft , usually involving forcible entry to or exit from the premises.
Engineering/Breakdown : it Covers Explosion , Breakdown or accidental damage to Plant mainly Boilers and pressure plants , engine plant , electrical plant , lifting machinery , miscellaneous plant and computers along with its Inspection on regular basis.
Glass: Cover all kinds of Fixed Glass, Policies cover destruction of or damage to all fixed glass and can be extended to cover for lettering on glass on all risk basis.
Live Stock: Insurance of Livestock (horses, Cattles) against death through accident or disease and against theft and unexplained disappearance.
Money: its on All Risk Basis, covering all risks of loss or destruction of or damage to money in transit on the insured Premises during business hours and for small amounts even outside business hours. Money may also include Bank Drafts, Postal Stamps etc.
Pecuniary Insurance risk is related to money, it gives risk coverage for items with intangible nature such as revenue, income
Fidelity Insurance: fidelity applies to loyal performance of duty, it deals with dishonesty or disloyalty or any crime committed by employees of company can be taken into account of risk, risk factors resulting from such activities are covered under fidelity insurance.
Legal Expenses: deals with insurance related to individuals, families and businesses to bear cost for any legal advice/ civil cases or defending civil actions
Credit: Credit means to lend money, or take loan from someone which can be paid later on, buying and selling goods or services and paying on deferred payment is credit. Therefore credit insurance covers risk involving nonpayment. Seller is insured in case buyer is unable to pay off its debt, these sort of risk are mainly used in business transactions
Business Interruption: Businesses often face losses due to interruption in process as consequence of damaged machinery or property, the amount of loss due to interruption can also be insured. Risk coverage is given on actual loss of earning in business trends or the opportunity cost if the certain interruption would have no occurred, plus the increased costs of associated with the business recovery.
Motor Insurance
Motor insurance is the most significant compulsory insurance, the Main Types of Motor insurance are Private Motor Insurance, Motor Trade Insurance, Commercial Motor Insurance. Motor Cycle Insurance
Liability Insurance: The insurance of the legal liability to pay for compensation to the insured in respect of their legal liability to pay damages to any employee arising out of bodily injury, disease, illness or death received in the course of employment by the insured. Types may Include Employers Liability, Public Liability, and Products Liability, Directors and officers Liability and Professional Indemnity.
Marine and Aviation Insurances: Marine Insurance relates to three areas of risk namely hull, cargo and freight. Marine hull insurance covers the ship, its machinery and equipment. Marine Cargo Insurance covers the goods, property and / or merchandise carried by a ship or aircraft. Aviation Insurance covers both loss of and damage to the aircraft and legal liability to third parties and passengers.
1.4 HISTORICAL PERSPECTIVE
1.4.1. Ancient world
In ancient times the first risk transfer method between Babylonian's & Chinese traders was put in use as long ago as third and second millennia BC, while transferring goods across treacherous rivers, merchants would often redistribute their goods across many vessels in order to reduce any loss that would have occurred if all the goods were to be put in on vessel.
This system was further enhanced and was adopted by Mediterranean sailing merchants, if the shipment was funded by loan, in case if the shipment be stolen or lost the merchant would pay the lender extra amount for guarantee of payback.
'General Average' was established after a thousand years', which allowed groups of traders to arrange to insure their goods being transported together. The collected premiums would then be used to reimburse any trader whose goods were jettisoned during transport to storm or sink age.
Roots of Health & Life insurance was presented by Greeks & Romans when they created benevolent societies, the purpose of which was to care for families of deceased members and arrange proper funeral arrangements without any burden of expenses on deceased family. Guilds in the Middle Ages aided a similar purpose By the time when the Insurance was almost fully established in 17th century, England had Friendly Societies, where people contributed amounts of money to a Pool to be utilized in times of Crisis.
1.4.2 Medieval and Early modern
By early 1700s, Mr. Edward Lloyd operated a coffee house that became a famous of ship owners, merchants, and ships' captains, and very soon established as trustworthy source of the newest shipping news as well as becoming the gathering and meeting place for people seeking insurance, such as an individual seeking a another person who can insurer its cargo, risks were talked and transferred by willful acceptance of both parties.
In 1666 the great fire of London which consumed more than fourteen hundred household London, after this incident Nicholas Barbon was the first person to open an office to insure those buildings, which later became the first fire insurance company
The first insurance company in the U.S.A underwrote Property insurance and was made in Charles Town, South in 1732, but it covered only fire insurance.
1.4.3 Modern Europe - German and British government programs
An important role was palyed by Germany in the buildup of welfare programs particularly in Prussia and Saxony that began as 1840s. Later the old Age Programs of Pensions, covers for accident insurance, medical care and unemployment insurance shaped the base of the modern European welfare state. These programs won the backing of Germans because its objectives were to win the hearts and mind along with their support for its Empire and weaken the outflow of immigrants to America, where in spite of higher wages welfare was not yet developed.
American history - Colonial
Benjamin Franklin aided to spread and make normal the practice of insurance, particularly Property insurance. By 1752 in Philadelphia Benjamin founded contribution ship to give insurance's to houses that suffer loss due to fire. His company was the first to make offerings toward fire prevention. His company offered various risk management by giving advices, it also gave insurance to buildings and houses with high risk potential such as wood houses.
1.4.5 19th century
Insurance players functioned locally, but the more determined ones expanded geographically in late 1820's, which include the new york life insurance and trust company upstate new york, Baltimore life insurance company, these companies developed a system based on sales agent to expand its market in different metropolises. In starting insurance was offered to people with good health without any critical disease or any family history related to short living, dependency of these companies relied mostly on sales agent, who were first line of interaction between company and client, so most of it was dependent on agents how they judged the health of potential customers. Following are the questions that were generally asked by agents
Is the present health of customer in good shape?
Does he enjoy good food, is the diet healthy?
Did he had any medical history or symptoms related to gout, asthama, convulsions, palsy or any other life threating disease or any disease which can later become cause of death in future
Has he been properly vaccinated?
Any conditions other than health which can cause death such as potential risk of being murdered?
In late 19th century companies developed a more standardized criteria by employing doctors in this field.
Moral hazards
One of the most important worries for insurance companies was the moral hazard, in order to claim insurance people would set their own property on fire and then later portrayed it was due to other reasons, if it was life insurance people would suicide or kill the insured in order to get money from life insurance, people would suicide and then their families would receive huge amount of money, A part from these moral hazards people would often take insurance from different angle and consider it unreligious, fraud was another problem as people would lie about facts of how incident occurred in order to avoid any problem in receiving insured amount.
1.4.7 20th century Social Security
By 1935 before the passing of the Social Security act there was no mandatory insurance on general public but soon motorists after the social security act were required by the Federal Gov. to have insurances in place. .
STATEMENT OF PROBLEM
To evaluate the role of livestock insurance schemes on the agricultural economy of Pakistan.
To understand current plans offered by different Insurance Companies in Live Stock Insurance.
SIGNIFICANCE OF THE STUDY
It will define that how much losses are been stopped by this sort of insurance Does it guard the farmer/herder against the premature death of animals subsequent from natural causes, fire, lightning, accidents, and acts of God, acts of individuals other than the owner and destruction for humane purposes and how does it Contribute to the Agricultural Based economy
1.7 SCOPE & DELIMITATION
The scope of study is to determine the role of live stock insurance on the over all macro and micro economic level of the agricultural based economy the study will determine the impact of over all insurance plan that had been formulated based on cost effective policies on the economic growth while we are considering as per the past economic finance studies that Pakistan's economy is based on the farms and agriculture.
Lack of Data Availability.
Due to Time Constraints The Evaluation May be Biased in the Sense of Sample Selection.
As Livestock Insurance is not a Shelf - Ready Product , the insurers might not be willing to share their Respective Rates along with Terms and Conditions.
Research is Applicable to Pakistan only.
