NCERT Class 11 Business Studies Chapter 4 PDF

CHAPTER 4 B USINESS SERVICES LEARNING OBJECTIVES After studying this chapter, you should be able to: state the characteristics of services; distinguish services from goods; classify different types of business services; expl...

CHAPTER 4 B USINESS SERVICES LEARNING OBJECTIVES After studying this chapter, you should be able to: state the characteristics of services; distinguish services from goods; classify different types of business services; explain the concept of e-banking; identify and classify different types of insurance policies; and describe different types of warehouses. 2019-20 BUSINESS SERVICES 83 All of us have seen a petrol pump. Have your ever thought how a petrol pump owner does his business in a village? How he gets the petrol and diesel to the villages in the interior? How he gets the money to purchase large quantities of petrol and diesel? How he communicates to petrol depots for requirement and also to customers? How he safeguards himself from various risks associated with this business? The answer to all the above questions lies in the understanding of business services. The transportation of petrol and diesel from oil refineries to petrol pumps is carried out by train and tankers (transport services). They are then stored at various depots of oil companies situated in all major towns across India (warehousing services). Petrol pump owners use postal, mail and telephone facilities to be in touch with customers, banks and the depots for the availability of their requirements on regular basis (communication services). As oil companies always sell the petrol and diesel on advance payment, the owners have to take loans and advances from banks to fund their purchases (banking services). Petrol and diesel being highly risky products, the owners have to safeguard themselves from various risks by getting the business, the products, the life of people working there, etc., insure (insurance services). Thus, we see that a single business of providing petrol and diesel at a petrol pump is actually a collective outcome of various business services. These services are being utilised in the entire process of shipment of petrol and diesel from oil refineries to the point of sale at petrol pumps, spread across the length and breath of India. experiencing a service. But there is 4.1 INTRODUCTION definitely a difference between the item You must all have, at some time or the or good and the service performed. other experienced the effect of business For a layperson, services are activities on your lives. Let us examine essentially intangibles. Their purchase few examples of business activity i.e., does not result in the ownership of purchasing ice cream from a store and anything physical. For example, you can eating ice cream in a restaurant, only seek advice from the doctor, you watching a movie in a cinema hall or cannot purchase him. Services are all purchasing a video cassette/CD, those economic activities that are purchasing a school bus and leasing it intangible and imply an interaction to from a transporter. If you analyse all be realised between the service provider these activities, you will observe that and the consumer. there is a difference between purchasing Services are those separately and eating, purchasing and watching identifiable, essentially intangible and purchasing and leasing. What is activities that provides satisfaction of common in all of them is that one is wants, and are not necessarily linked to purchasing an item and the other is the sale of a product or another service. 2019-20 84 BUSINESS STUDIES A good is a physical product happening, for example, in the case of capable of being delivered to a mobile services. purchaser and involves the transfer of (iii) I n s e p a r a b i l i t y : Another ownership from seller to customer. important characteristic of services is Goods are also generally used to refer the simultaneous activity of production to commodities or items of all types, and consumption being performed. except services, involved in trade or This makes the production and commerce. consumption of services seem to be inseparable. While we can manufacture 4.2 N ATURE OF SERVICES a car today and sell it after, say, a There are five basic features of services. month; this is often not possible with These features also distinguish them services that have to be consumed as from goods and are known as the five Is and when they are produced. Service of services. These are discussed as providers may design a substitute for below: the person by using appropriate ( i ) Intangibility: Services are technology but the interaction with the intangible, i.e., they cannot be touched. customer remains a key feature of They are experiential in nature. One services. Automated Teller Machines cannot taste a doctor’s treatment, or (ATMs) may replace the banking clerk touch entertainment. One can only for the front office activities like cash experience it. An important implication withdrawal and cheque deposit. But, of this is that quality of the offer can at the same time, the presence of the often not be determined before customer, is required and his/her consumption and, therefore, purchase. interaction with the process has to be It is, therefore, important for the service managed. providers that they consciously work (iv) Inventory (Less): Services have on creating a desired service so that the little or no tangible components and, customer undergoes a favourable therefore, cannot be stored for a future experience. For example, treatment by a use. That is, services are perishable doctor should be a favourable experience. and providers can, at best, store some (ii) Inconsistency: The second associated goods but not the service important characteristic of services is itself. This means that the demand and inconsistency. Since there is no supply needs to be managed as the standard tangible product, services service has to be performed as and have to be performed exclusively each when the customer asks for it. They time. Different customers have different cannot be performed earlier to be demands and expectations. Service consumed at a later date. For example, providers need to have an opportunity a railway ticket can be stored but the to alter their offer to closely meet the railway journey will be experienced requirements of the customers. This is only when the railways provides it. 2019-20 BUSINESS SERVICES 85 (v) Involvement: One of the most at the consumption point, there are no important characteristics of services is inventories. On the basis of above the participation of the customer in the features, we can have following service delivery process. A customer points of distinction between goods has the opportunity to get the services and services. modified according to specific requirements. 4.3 TYPES OF SERVICES When speaking of the service sector, 4.2.1 Difference between Services services can be classified into three and Goods broad categories, viz., business From the above, it is clear that the two services, social services and personal services. These have been explained in main differentiating characteristics of the following pages. services and goods are non- transferability of ownership and (i) Business Services: Business presence of both provider as well as services are those services which are consumer. While goods are produced, used by business enterprises for the services are performed. A service is an conduct of their activities. For act which cannot be taken home. What example, banking, insurance, we can take home is the effect of the transportation, warehousing and services. And as the services are sold communication services. Difference between Services and Goods Basis Services Goods An activity or process. e.g., A physical object. e.g., Nature watching a movie in a cinema hall video cassette of movie Type Heterogeneous Homogenous Intangibility Intangible e.g., doctor treatment Tangible e.g., medicine Different customers getting Different customers having different Inconsistency standardised demands fulfilled. demands e.g., mobile services e.g., mobile phones Simultaneous production and Separation of production and Inseparability consumption. e.g., eating consumption. e.g., purchasing ice-cream in a restaurant ice cream from a store Cannot be kept in stock. e.g., Can be kept in stock. e.g., train Inventory experience of a train jour ney jour ney ticket Participation of customers at the Involvement at the time of Involvement time of service delivery. e.g., delivery not possible. e.g., self-service in a fast food joint manufacturing a vehicle 2019-20 86 BUSINESS STUDIES (ii) Social Services: Social services enterprises, are becoming more and are those services that are generally more dependant on specialised provided voluntarily in pursuit of business services. Business enterprises certain social goals. These social goals look towards banks for availability of may be to improve the standard of funds; insurance companies for getting living for weaker sections of society, to their plant, machinery, goods, etc., insured; transport companies for provide educational services to their transporting raw material; and finished children, or to provide health care and goods, and telecom and postal services hygienic conditions in slum areas. for being in touch with their vendors, These services are usually provided suppliers and customers. Today’s voluntarily but for some consideration globalised world has ushered in a rapid to cover their costs. For example, change in the service industry in India. health care and education services India has been gaining a highly provided by certain Non-government competitive edge over other countries organisations (NGOs) and government when it comes to providing services to agencies. the developed economies of the world. (iii) Personal Services: Personal Many foreign companies are looking to services are those services which are India for performing a host of business experienced differently by different services. They are even transferring a customers. These services cannot be part of their business operations to be consistent in nature. They will differ performed in India. We will discuss depending upon the service provider. these in detail in the next chapter. They will also depend upon customer’s preferences and demands. 4.4 B ANKING For example, tourism, recreational Commercial banks are an important services, restaurants. institution of the economy for providing In the context of better institutional credit to its customers. A understanding of the business banking company in India is the one world, we will be limiting our which transacts the business of further discussions to the first banking which means accepting, for the category of the service sector i.e., purpose of lending and investment of business services. deposits of money from the public, repayable on demand or otherwise and 4.3.1 Business Services withdrawable by cheques, draft, order Today’s world is of tough competition, or otherwise. In simple terms, a bank where the survival of the fittest is the accepts money on deposits, repayable rule. There is no room for non- on demand and also earns a margin of performance, and hence companies profit by lending money. A bank tend to stick to what they can do best. stimulates economic activity in the In order to be competitive, business market by dealing in money. It mobilises 2019-20 BUSINESS SERVICES 87 the savings of people and makes funds stake and they usually need to available to business financing their emphasise on social objectives than on capital and revenue expenditure. It profitability. Private sector banks are also deals in financial instruments and owned, managed and controlled by provides financial services for a price, private promoters and they are free i.e., interest, discount, commission, etc. to operate as per market forces. There Banking and Social Objectives In the recent past there has been a concerted effort by the policy makers in reorienting banking towards achieving social objectives. There has been a major shift in the banking policy of the country: from to (i) Urban orientation — Rural orientation (ii) Class banking — Mass banking (iii) Traditional — Innovative practices (iv) Short term objectives — Development objectives 4.4.1 Type of Banks are a number of public sector banks like SBI, PNB, IOB etc., and other The focus of banking is varied, the private sector banks represented by needs diverse and methods different. HDFC Bank, ICICI Bank, Kotak Thus, we need distinctive kinds of Mahindra Bank and Jammu and banks to cater to the above mentioned Kashmir Bank. complexities. (ii) Cooperative Banks: Cooperative Banks can be classified into the Banks are governed by the provisions following: of State Cooperative Societies Act and 1. Commercial banks meant essentially for providing cheap 2. Cooperative banks credit to their members. It is an 3. Specialised banks important source of rural credit, i.e., 4. Central bank agricultural financing in India. (i) Commercial Banks: Commercial (iii) Specialised Banks: Specialised banks are institutions dealing in banks are foreign exchange banks, money. These are governed by Indian industrial banks, development banks, Banking Regulation Act 1949 and export-import banks catering to according to it banking means specific needs of these unique activities. accepting deposits of money from the These banks provide financial aid to public for the purpose of lending or industries, heavy turnkey projects and investment. There are two types of foreign trade. commercial banks, public sector and (iv) Central Bank: The Central bank private sector banks. of any country supervises, controls and Public sectors banks are those in regulates the activities of all the which the government has a major commercial banks of that country. It 2019-20 88 BUSINESS STUDIES also acts as a government banker. It provide loans and advances out of the controls and coordinates currency and money received through deposits. credit policies of any country. The These advances can be made in the form Reserve Bank of India is the central of overdrafts, cash credits, discounting bank of our country. trade bills, term loans, consumer credits and other miscellaneous advances. The 4.4.2 Functions of Commercial funds lent out by banks contribute a Banks great deal to trade, industry, transport Banks perform a variety of functions. and other business activities. Some of them are the basic or primary (iii) Cheque facility: Banks render a functions of a bank while others are very important service to their agency or general utility services in customers by collecting their cheques nature. The important functions are drawn on other banks. The cheque is briefly discussed below: the most developed credit instrument, (i) Acceptance of deposits: Deposits a unique feature and function of banks are the basis of the loan operations for the withdrawal of deposits. It is the since banks are both borrowers and most convenient and an inexpensive lenders of money. As borrowers they medium of exchange. There are two pay interest and as lenders they grant types of cheques mainly (a) bearer loans and get interest. These deposits cheques, which are encashable are generally taken through current immediately at bank counters and account, savings account and fixed (b) crossed cheques which are to be deposits. Current account deposits can deposited only in the payees account. be withdrawn to the extent of the (iv) Remittance of funds: Another balance at any time without any prior salient function of commercial banks notice. is of providing the facility of fund Savings accounts are for transfer from one place to another, on encouraging savings by individuals. account of the interconnectivity of Banks pay rate of interest as decided branches. The transfer of funds is by RBI on these deposits. Withdrawal administered by using bank drafts, pay from these accounts has some orders or mail transfers, on nominal restrictions in relation to the amount commission charges. The bank issues as well as number of times in a given a draft for the amount on its own period. Fixed accounts are time branches at other places or other banks deposits with higher rate of interest as at those places. The payee can present compared to the savings accounts. A the draft on the drawee bank at his premature withdrawal is permissible place and collect the amount. with a percentage of interest being (v) Allied services: In addition to forfeited. above functions, banks also provide (ii) Lending of funds: Second major allied services such as bill payments, activity of commercial banks is to locker facilities, underwriting services. 2019-20 BUSINESS SERVICES 89 They also perform other services like buying allows, a customer to conduct banking and selling of shares and debentures transactions, such as managing savings, on instructions and other personal checking accounts, applying for loans services like payment of insurance or paying bills over the internet using a premium, collection of dividend etc. personal computer, mobile telephone or handheld computer (personal digital 4.4.3 e-Banking assistant) The range of services offered The growth of Internet and e-commerce by e-banking are: Automated Teller is dramatically changing everyday Machines (ATM) and Point of Sales (PoS), life, with the world wide web and Electronic Data Interchange (EDI) and e-commerce transforming the world Credit Cards Electronic or into a digital global village. The latest Digital cash and Electronic bank wave in information technology is transfer (EFT). The two ways in which internet banking. It is a part of virtual EFT can be done are: NEFT (National banking and another delivery channel Electronic Fund Transfer) and RTGS for customers. (Real Time Gross Settlement). In simple terms, Internet banking means any user with a PC and a Benefits browser can get connected to the banks There are various benefits of e-banking website to perform any of the virtual provided to customers which are: banking functions and avail of any of (i) E-banking facilitates digital the bank’s services. There is no human payments and promotes operator to respond to the needs of the transparency in financial customer. The bank has a centralised statements. data base that is web-enabled. All the (ii) e-banking provides 24 hours, services that the bank has permitted on the internet are displayed on a 365 days a year services to the menu. Any service can be selected and customers of the bank; further interaction is dictated by the (iii) Customers can make some of the nature of service. permitted transactions from office In this new digital market place or house or while travelling via banks and financial institutions have mobile telephone; started providing services over the (iv) It inculcates a sense of financial internet. These type of services provided discipline by recording each and by the banks on the internet, called every transaction; e-banking, lowers the transaction cost, (v) Greater customer satisfaction by adds value to the banking relationship offering unlimited access to the and empowers customers. e-banking is bank, not limited by the walls of the electronic banking or banking using branch and less risk and greater electronic media. Thus, e-banking is a security to the customer as they service provided by many banks, that can avoid travelling with cash. 2019-20 90 BUSINESS STUDIES Types of Digital Payments 2019-20 BUSINESS SERVICES 91 The banks also stand to gain by Insurance is thus a device by which e-banking. The benefits are: the loss likely to be caused by an (i) e-banking provides competitive uncertain event is spread over a advantage to the bank; number of persons who are exposed to (ii) e-banking provides unlimited it and who prepare to insure themselves network to the bank and is not against such an event. It is a contract limited to the number of branches, or agreement under which one party Any PC connected to a modem and agrees in return for a consideration to a telephone having an internet pay an agreed amount of money to connection can provide cash another party to make a loss, damage withdrawl needs of the customer; or injury to something of value in (iii) Load on branches can be which the insured has a pecuniary considerably reduced by interest as a result of some uncertain establishing centralised data base event. The agreement/contract is put and by taking over some of the in writing and is known as ‘policy’. The accounting functions. person whose risk is insured is called ‘insured’ and the firm which insures the 4.5 INSURANCE risk of loss is known as insurer/ Life is full of uncertainties. The chances assurance underwriter. of occurrence of an event causing losses 4.5.1 Fundamental principle of are quite uncertain. There are risks of death and disability for human life; fire Insurance and burglary risk for property; perils of The basic principle of insurance is that the sea for shipment of goods and, so an individual or a business concern on. If any of these takes place, the chooses to spend a definitely known individuals and/or, organisations may sum in place of a possible huge amount suffer a great loss, sometimes beyond involved in an indefinite future loss. their capacities to bear the same. It Thus insurance is the substitution of is to minimise the impact of such a small periodic payment (premium) for uncertainties that there is a need for a risk of large possible loss. The loss of insurance. Investment in factory risk still remains but the loss is spread buildings or heavy equipments or other over a large number of policyholders assets is not possible unless there is exposed to the same risk. The premium arrangement for covering the risks, with paid by them are pooled out of which the help of insurance. Keeping this in the loss sustained by any policy holder mind, people facing common risks come is compensated. Thus, risks are shared together and make small contributions with others. From the analysis of past to a common fund, which helps to events the insurer (an insurance spread the loss caused to an individual company or an underwriter) knows the by a particular risk over a number of probable losses caused by each type persons who are exposed to it. of risk covered by insurance. 2019-20 92 BUSINESS STUDIES Insurance, therefore, is a form of risk arise, in exchange for a fee (known as management primarily used to safe premium). guard against the risk of potential Insurance is a social device in which financial loss. Ideally, insurance is a group of individuals (insured) defined as the equitable transfer of the risk transfers risk to another party (insurer) of a potential loss, from one entity to in order to combine loss experience, which another, in exchange for a reasonable provides for payment of losses from fee. Insurance company, therefore, is funds contributed (premium) by all an association, corporation or an members. Insurance is meant to protect organisation engaged in the business the insured, against uncertain events, of paying all legitimate claims that may which may cause disadvantage to him. Sector of Economy and GDP of India The Indian economy is classified in three sectors — Agriculture and allied, industry, and services. The services sector is the largest sector of India. The Gross Value Added (GVA) at current prices for the services sector is estimated at 73.79 lakh crore INR in 2016-17. The services sector accounts for 53.66% of India’s total GVA of Rs. 137.51 lakh crore. With GVA of Rs. 39.90 lakh crore, the industry sector contributes 29.05%. While, agriculture and allied sector shares 17.32% and the GVA is around of 23.82 lakh crore INR. At 2011-12 prices, the composition of agriculture and allied, industry, and services sector are 15.11%, 31.12%, and 53.77%, respectively. GVA (Rupees in Crore) at current prices Sector 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 % share 1 Agriculture Sector 1,501,816 1,680,798 1,932,692 2,067,935 2,172,910 2,382,289 17.32% 1.1 Agriculture, forestry & 1,501,816 1,680,798 1,932,692 2,067,935 2,172,910 2,382,289 17.32% fishing 2 Industry Sector 2,635,052 2,921,262 3,188,270 3,455,221 3,683,358 3,989,791 29.02% 2.1 Mining & quarrying 261,035 285,776 295,716 313,844 296,041 309,178 2.25% 2.2 Manufacturing 1,409,986 1,572,830 1,713,445 1,883,929 2,065,093 2,278,149 16.57% Electricity, gas, water 2.3 supply & other utility 186,668 215,164 259,840 279,456 321,765 338,396 2.46% services 2.4 Construction 777,363 847,492 919,269 977,992 1,000,459 1,064,068 7.74% 3 53.66% Services Sector 3,969,789 4,603,255 5,245,305 5,947,260 6,595,670 7,378,705 T rade, hotels, transport, 3.1 communication and 1,413,116 1,664,083 1,874,443 2,095,337 2,294,367 2,538,162 18.46% services related to broadcasting 3.2 Financial & real 1,530,691 1,776,023 2,069,386 2,363,328 2,632,432 2,896,300 21.06% estate Public 3.3 Administration, 1,025,982 1,163,149 1,301,476 1,488,595 1,668,871 1,944,243 14.14% defence and other services GVA at basic prices 8,106,656 9,205,315 10,366,266 11,470,415 12,451,938 13,750,786 100.00% 2019-20 BUSINESS SERVICES 93 Source: http://statisticstimes.com/economy/sectorwisegdpcalculationofindia.php 4.5.2 Functions of Insurance made by the insured are invested in The various functions of insurance are various income generating schemes. as follows: (i) Providing certainty: Insurance 4.5.3 Principles of Insurance provides certainity of payment for the The principles of insurance are the risk of loss. There are uncertainties of rules of action or conduct adopted by happenings of time and amount of loss. the stakeholders involved in the Insurance removes these uncertainties insurance business. The specific and the assured receives payment of principles of utmost significance to a loss. The insurer charges premium for providing the certainity. valid insurance contract consists of the (ii) Protection: The second main following: function of insurance is to provide (i) Utmost good faith: A contract of protection from probable chances of insurance is a contract of uberrimae loss. Insurance cannot stop the fidei i.e., a contract found on utmost happening of a risk or event but can good faith. Both the insurer and the compensate for losses arising out of it. insured should display good faith (iii) Risk sharing: On the happening towards each other in regard to the of a risk event, the loss is shared by all contract. It is the duty of the insured the persons exposed to it. The share is to voluntarily make full, accurate obtained from every insured member disclosure of all facts, material to the by way of premiums. risk being proposed and the insurer to (iv) Assist in capital formation: The make clear all the terms and conditions accumulated funds of the insurer in the insurance contract. Thus, it is received by way of premium payments binding on the proposer to disclose all 2019-20 94 BUSINESS STUDIES material facts about the subject matter property on behalf of others has an of the proposed insurance. Any fact, insurable interest in the property. which is likely to affect the mind of a (iii) Indemnity: All insurance prudent insurer in deciding to accept contracts of fire or marine insurance the proposal of insurance or in fixing are contracts of indemnity. According the rate of premium is material for this to it, the insurer undertakes to put the purpose. Failure to make disclosure of insured, in the event of loss, in the same position that he occupied immediately material facts by the insured makes the before the happening of the event contract of insurance voidable at the insured against. In other words the discretion of the insurer. insurer undertakes to compensate the (ii) Insurable Interest: The insured insured for the loss caused to him/her must have an insurable interest in the due to damage or destruction of subject matter of insurance. One property insured. The compensation fundamental fact of this principle is payable and the loss suffered are to be that ‘it is not the house, ship, measured in terms of money. The machinery, potential liability of life that principle of indemnity is not applicable is insured, but it is the pecuniary to life insurance. interest of the insured in them, which (iv) Proximate Cause: According to is insured.’ Insurable interest means this principle, an insurance policy is some pecuniary interest in the subject designed to provide compensation only matter of the insurance contract. The for such losses as are caused by the insured must have an interest in the perils which are stated in the policy. preservation of the thing or life insured, When the loss is the result of two or so that he/she will suffer financially on more causes, the proximate cause the happening of the event against means the direct, the most dominant which he/she is insured. In case of and most effective cause of which the insurance of property, insurable loss is the natural consequence. In case interest of the insured in the subject of loss arising out of any mishap, the matter of the insurance must exist at most proximate cause of the mishap the time of happening of the event. In should be taken into consideration. order to name insurable interest (v) Subrogation: It refers to the right however, it is not necessary that one of the insurer to stand in the place of should be the owner of the property. the insured, after settlement of a claim, For example, a trustee holding as far as the right of insured in respect Examples of facts to be disclosed Fire insurance: Construction of building, fire detection and fire fighting equipment; nature of its use. Motor insurance: Type of vehicle; driver details. Personal Accident insurance: Age, height, weight, occupation, previous medical history. Life insurance: Age, previous medical history, smoking/drinking habits. 2019-20 BUSINESS SERVICES 95 of recovery from an alternative source 4.5.4 Types of Insurance is involved. After the insured is compensated for the loss or damage to Various types of insurance exist by the property insured by him/her the virtue of practice of insurance right of ownership of such property companies and the influence of legal passes on to the insurer. This is enactments controlling the insurance because the insured should not be business. Broadly speaking, insurance allowed to make any profit, by selling may be classified as follows: the damaged property or in the case of lost property being recovered. LIFE INSURANCE (vi) Contribution: As per this principle it is the right of an insurer who has paid Since life itself is uncertain, all claim under an insurance, to call upon individuals try to assure themselves of other liable insurers to contribute for a certain sum of money in the future to the loss of payment. It implies, that in take care of unforeseen events or case of double insurance, the insurers happenings. Individuals in the course are to share the losses in proportion to of their life are always exposed to some the amount assured by each of them. kind of risks. In case there is a loss, when there is The risk may be of an event which more than one policy on the same is certain that is death. In that case, property, the insured will have no right what will happen to the other members to recover more than the full amount of the family who are dependent on a of his actual loss. If the full amount is particular individuals income. The recovered from one insurer the right to other risk may be living too long in obtain further payment from the other which an individual may become too insurer will cease. old to earn i.e., retirement. In this case (vii) Mitigation: This principle states also, the earnings will decline or end. that it is the duty of the insured to take Under such circumstances, individuals reasonable steps to minimise the loss seek protection against these risks or damage to the insured property. and life insurance companies offer Suppose goods kept in a store house protection against such risks. catch fire then the owner of the goods A life insurance policy was should try to recover the goods and introduced as a protection against the save them from fire to minimise the uncertainity of life. But gradually its loss or damage. The insured must scope has widened and there are behave with great prudence and not various types of insurance policies be careless just because there is an available to suit the requirements of an insurance cover. If reasonable care is individual. For example, disability not taken like any prudent person then insurance, health/medical insurance, the claim from the insurance company annuity insurance and life insurance may be lost. proper. 2019-20 96 BUSINESS STUDIES Life insurance may be defined as a in one lump sum, or periodically i.e., contract in which the insurer in monthly, quarterly, half yearly or consideration of a certain premium, yearly. At the same time, the company either in a lump sum or by other promises to pay a certain sum of money periodical payments, agrees to pay to either on the death of the person or on the assured, or to the person for whose his attaining a certain age (i.e., the benefit the policy is taken, the assured expiry of certain period). Thus, the sum of money, on the happening of a person is sure that a specified amount specified event contingent on the will be given to him when he attains a human life or at the expiry of certain certain age or that his dependents will period. Thus, the insurance company get that sum in the event of his death. undertakes to insure the life of a person This agreement or contract which in exchange for a sum of money called contains all the terms and conditions premium. This premium may be paid is put in writing and such document is 2019-20 BUSINESS SERVICES 97 called the policy. The person whose life (iii) In life insurance, the insured must is insured is called the assured. The have insurable interest in the life insurance company is the insurer and assured. Without insurable interest the consideration paid by the assured the contract of insurance is void. In is the premium. The premium can be case of life insurance, insurable paid periodically in instalments. interest must be present at the time This insurance provides protection when the insurance is affected. It is to the family at the premature death or not necessary that the assured gives adequate amount at old age when should have insurable interest at earning capacities are reduced. The the time of maturity also. For insurance is not only a protection but example, a person is presumed to is a sort of investment because a certain have an interest in his own life and sum is returnable to the insured at every part of it, a creditor has an the time of death or at the expiry of a insurable interest in the life of his certain period. debtor, and a proprietor of a drama Life insurance also encourages company has an insurable interest savings as the amount of premium has in the lives of the actors; to be paid regularly. It thus, provides (iv) Life insurance contract is not a a sense of security to the insured and contract of indemnity. The life his dependents. of a human being cannot be The general principles of insurance compensated and only a specified discussed in the previous section apply sum of money is paid. That is why to life insurance also with a few the amount payable in life exceptions. The main elements of a life insurance on the happening of the insurance contract are: event is fixed in advance. The sum (i) The life insurance contract must of money payable is fixed, at the have all the essentials of a valid contract. Certain elements like offer time of entering into the contract. and acceptance, free consent, A contract of life insurance, capacity to enter into a contract, therefore, is not a contract of lawful consideration and lawful indemnity. object must be present for the contract to be valid; Types of life insurance policies (ii) The contract of life insurance is a contract of utmost good faith. The The document containing the written assured should be honest and contract between the insurer and the truthful in giving information to the insured alongwith the terms and insurance company. He must conditions of insurance is called the disclose all material facts about his Policy. After the proposal form is filled health to the insurer. It is his duty by the insured (or the proposer) and to disclose accurately all material the insurer (insurance company) facts known to him even if the accepts the form and the premium, a insurer does not ask him; policy is issued to the insurer. 2019-20 98 BUSINESS STUDIES People have different requirements assured sum or policy money is payable and therefore they would like a policy upon the death of any one person to the to fulfill all their needs. The needs of other survivor or survivors. Usually this people for life insurance can be family policy is taken up by husband and wife needs, children’s needs, old age and jointly or by two partners in a special needs. To meet the needs of partnership firm where the amount is people the insurers have developed payable to the survivor on the death of different types of products such as either of the two. Whole Life Assurance, Endowment type (iv) Annuity Policy: Under this policy, plans, combination of Whole Life and the assured sum or policy money is Endowment type plans, Children’s payable after the assured attains a Assurance plans and Annuity plans. certain age in monthly, quarterly, half Some of these are explained below: yearly or annual instalments. The (i) Whole Life Policy: In this kind of premium is paid in instalments over a policy, the amount payable to the certain period or single premium may insured will not be paid before the be paid by the assured. This is useful death of the assured. The sum then to those who prefer a regular income becomes payable only to the after a certain age. beneficiaries or heir of the deceased. (v) Children’s Endowment Policy: The premium will be payable for a This policy is taken by a person for his/ fixed period (20 or 30 years) or for the her children to meet the expenses of whole life of the assured. If the premium their education or marriage. The is payable for a fixed period, the policy will agreement states that a certain sum will continue till the death of the assured. be paid by the insurer when the (ii) Endowment Life Assurance children attain a particular age. The Policy: The insurer (Insurance premium is paid by the person entering Company) undertakes to pay a specified into the contract. However, no premium sum when the insured attains a wil be paid, if he dies before the maturity particular age or on his death which of the policy. ever is earlier. The sum is payable to his FIRE INSURANCE legal heir/s or nominee named therein in case of death of the assured. Fire insurance is a contract whereby Otherwise, the sum will be paid to the the insurer, in consideration of the assured after a fixed period i.e., till he/ premium paid, undertakes to make she attains a particular age. Thus, the good any loss or damage caused by fire endowment policy matures after a during a specified period upto the limted number of years. amount specified in the policy. (iii) Joint Life Policy: This policy is Normally, the fire insurance policy is taken up by two or more persons. The for a period of one year after which it is premium is paid jointly or by either of to be renewed from time to time. The them in instalments or lump sum. The premium may be paid either in lump 2019-20 BUSINESS SERVICES 99 sum or instalments. A claim for loss insurance is a contract of utmost by fire must satisfy the two following good faith i.e., uberrimae fidei. The conditions: insured should be truthful and (i) There must be actual loss; and honest in giving information to the (ii) Fire must be accidental and non- insurance company regarding the intentional. subject matter of the insurance. He The risk covered by a fire insurance is duty-bound to disclose contract is the loss resulting from fire accurately all facts regarding the or some other cause, and which is the nature of property and risks proximate cause of the loss. If attached to it. The insurance overheating without ignition causes company should also disclose the damage, it will not be regarded as a fire facts of the policy to the proposer. loss within the meaning of fire (iii) The contract of fire insurance is a insurance and the loss will not be contract of strict indemnity. The insured can, in the event of loss, recoverable from the insurer. recover the actual amount of loss A fire insurance contract is based from the insurer. This is subject to on certain fundamental principles the maximum amount for which the which have been discussed in general subject matter is insured. For principles. The main elements of a fire example, if a person has insured his insurance contract are: house for ` 4,00,000 the insurer is (i) In fire insurance, the insured must not necessarily liable to pay that have insurable interest in the subject amount, although the house may matter of the insurance. Without have been totally destroyed by fire; insurable interest the contract of but he will pay the actual loss after insurance is void. In case of fire deducting depreciation within the insurance, unlike life insurance maximum limit of ` 4,00,000. The insurable interest must be present purpose being that a person should both at the time of insurance and at not be allowed to gain by insurance. the time of loss. For example, a (iv) The insurer is liable to compensate person has insurable interest in the only when fire is the proximate property he owns, a businessman cause of damage or loss. has insurable interest in his stock, plant, machinery and building, an MARINE INSURANCE agent has an insurable interest in the property of his principal, a A marine insurance contract is an partner has insurable interest in the agreement whereby the insurer property of a partnership firm, and undertakes to indemnify the insured a mortgagee has insurable interest in the manner and to the extent thereby in the property, which is mortgaged. agreed against marine losses. Marine (ii) Similar to the life insurance insurance provides protection against contract, the contract of fire loss by marine perils or perils of the sea. 2019-20 100 BUSINESS STUDIES Difference between Life, Fire and Marine Insurance Basis of Life Insurance Fire Insurance Marine Insurance difference The subject matter of The subject matter The subject matter Subject 1. insurance is human is any physical is a ship, cargo or Matter life. property or assets. freight. Fire insurance has Life Insurance has the Marine insurance only the element of elements of protection has only the 2. Element protection and not and investment or element of the element of both. protection. investment. Insurable interest Insurable interest on the subject Insurable interest must be present at the matter must be must be present at time of effecting the Insurable present both at the the time when 3. policy but need not be interest time of effecting claim falls due or necessary at the time policy as well as at the time of loss when the claim falls when the claim only. due. falls due. Life insurance policy usually exceeds a year Marine insurance Fire insurance and is taken for longer policy is for one or 4. Duration policy usually does periods ranging from period of voyage or not exceed a year. 5 to 30 years or mixed. whole life. Fire insurance is a contract of Marine insurance Life insurance is not indemnity. The is a contract of based on the principle insured can claim indemnity. The of indemnity. The only the actual insured can claim sum assured is paid amount of loss the market value of 5. Indemnity either on the from the insurer. the ship and cost happening of certain The loss due to the of goods destroyed event or on maturity fire is indemnified at sea and the loss of the policy. subject to the will be maximum limit of indemnified. the policy amount. Loss Loss is not Loss is Loss is 6. measurement measurable. measurable. measurable. Fire insurance Marine insurance Surrender Life insurance policy does not have any does not have any 7. value or paid has a surrender value surrender value or surrender value or up value or paid up value. paid up value. paid up value. 2019-20 BUSINESS SERVICES 101 In fire insurance, In marine insurance the amount of the One can insure for any the amount of the policy cannot be 8. Policy amount amount in life policy can be the more than the insurance. market value of the value of the ship or cargo. subject matter. The event i.e., There is an element of destruction by fire The event i.e., loss certainity. The event may not happen. at sea may not occur Contingency i.e., death of maturity There is an and there may be no 9. of risk or policy is bound to element of claim. There is an happen. Therefore a uncertainity and element of claim will be present. there may be no uncertainty. claim. Marine perils are collision of ship with indemnifying the insured for losses the rock, or ship attacked by the caused by damage to the ship. enemies, fire and captured by pirates (b) Cargo insurance: The cargo while and actions of the captains and crew of being transported by ship is subject the ship. These perils cause damage, to many risks. These may be at port destruction or disappearance of the i.e., risk of theft, lost goods or on ship and cargo and non-payment of voyage etc. Thus, an insurance freight. So, marine insurance insures policy can be issued to cover against ship hull, cargo and freight. Thus, it is such risks to cargo. a device wherein the insurer undertakes (c) Freight insurance: If the cargo does to compensate the owner of a ship or not reach the destination due to cargo for complete or partial loss at sea. damage or loss in transit, the The insurer gurantees to make good the shipping company is not paid freight losses due to damage to the ship or cargo charges. Freight insurance is for arising out of the risks incidental to sea reimbursing the loss of freight to the voyages. The insurer in this case is known shipping company i.e., the insured. as the underwriter and a certain sum of The fundamental principles of money is paid by the insured in marine insurance are the same as the consideration for the guarantee/ general principles. The main elements protection he gets. Marine insurance is of a marine insurance contract are: slightly different from other types. There (i) Unlike life insurance, the contract are three things involved i.e., ship or hull, of marine insurance is a contract of cargo or goods, and freight. indemnity. The insured can, in the (a) Ship or hull insurance: Since the event of loss recover the actual ship is exposed to many dangers at amount of loss from the insurer. sea, the insurance policy is for Under no circumstances, the 2019-20 102 BUSINESS STUDIES insured is allowed to make profit communicate with others for out of the marine insurance transmission of ideas and information. contract. But cargo policies provide Communication services need to be commercial indemnity rather than very efficient, accurate and fast for them strict indemnity. The insurers to be effective. In this fast moving and promise to indemnify the insured competitive world it is essential to have “in the manner and to the extent advanced technology for quick agreed.” In case of ‘Hull Policy’, the exchange of information. The electronic amount insured is fixed at a level media is mainly responsible for this above the current market value; transformation. The main services (ii) Similar to life and fire insurance, the which help business can be classified contract of marine insurance is a into postal and telecom. contract of utmost good faith. Both the insured and insurer must Postal Services disclose everything, which is in their knowledge and can affect the Indian post and telegraph department insurance contract. The insured is provides various postal services across duty-bound to accurately disclose India. For providing these services the all facts which include the nature whole country has been divided into 22 of shipment and the risk of damage postal circles. These circles manage the it is exposed to; day-to-day functioning of the various (iii) Insurable interest must exist at the head post offices, sub-post offices and time of loss but not necessary at the branch post offices. Through their time when the policy was taken; regional and divisional level (iv) The principle of causa proxima will arrangements the various facilities apply to it. The insurance company provided by postal department are will be liable to pay only if that broadly categorised into: particular or nearest cause is (i) Financial facilities: These facilities covered by the policy. For example, are provided through the post office’s if a loss is caused by several savings schemes like Public Provident reasons then nearest cause of loss Fund (PPF), Kisan Vikas Patra, and will be considered. Refer to page National Saving Certificates in addition 105 for types of insurance and to normal retail banking functions of social secuirty scheme. monthly income schemes, recurring deposits, savings account, time 4.6 C OMMUNICATION SERVICES deposits and money order facility. Communication services are helpful to (ii) Mail facilities: Mail services consist the business for establishing links with of parcel facilities that is transmission the outside world viz., suppliers, of articles from one place to another; customers, competitors etc. Business registration facility to provide security does not exist in isolation, it has to of the transmitted articles and 2019-20 BUSINESS SERVICES 103 insurance facility to provide insurance the dream of doing business across cover for all risks in the course of continents will remain a dream in the transmission by post. absence of telecom infrastructure. Postal department also offers allied There have been far reaching facilities of the following types: developments in the convergence of 1. G r e e t i n g p o s t — A r a n g e o f telecom, IT, consumer electronics and delightful greeting cards for media industries worldwide. every occasion. Recognising the potential in enhancing 2. Media post — An innovative quality of life and to facilitate India’s and effective vehicle for vision of becoming IT super power by Indian corporates to advertise the year 2025, new Telecom Policy their brand through postcards, Framework 1999 and Broadband envelopes, aerograms, tele- Policy 2004 were developed by the grams, and also through Government of India. Through this letterboxes. framework the government intends to 3. Direct post is for direct advertising. provide both universal services to It can be both addressed as well all uncovered areas and high-level as unaddressed. services for meeting the needs of the 4. International Money Transfer country’s economy. through collaboration with The various types of telecom Western Union financial services, services are: USA, which enables remittance of (i) Cellular mobile services: These are money from 185 countries to India. all types of mobile telecom services 5. Passport facilities — A unique including voice and non-voice partnership with the ministry of messages, data services and PCO external affairs for facilitating services utilising any type of network passport application. equipment within their service area. 6. Speed Post: It has over 1000 They can also provide direct inter destinations in India and links with connectivity with any other type of 97 major countries across the globe. telecom service provider. 7. e-bill post is the latest offering of (ii) Fixed line services: These are all the department to collect bill types of fixed services including voice payment across the counter for and non-voice messages and data BSNL and Bharti Airtel. services to establish linkages for long distance traffic. These utilise any type Telecom Services of network equipment primarily World class telecommunications connected through fiber optic cables infrastructure is the key to rapid laid across the length and breadth of economic and social development of the the country. The also provide inter country. It is in fact the backbone of connectivity with other types of telecom every business activity. In today’s world services. 2019-20 104 BUSINESS STUDIES (iii) C a b l e s e r v i c e s : These are (iv) VSAT services: VSAT (Very Small linkages and switched services within Aperture Terminal) is a satellite-based a licensed area of operation to operate communications service. It offers media services, which are essentially businesses and government agencies one -way entertainment related a highly flexible and reliable services. The two-way communication communication solution in both including voice, data and information urban and rural areas. Compared to services through cable network would land-based services, VSAT offers emerge significantly in the future. the assurance of reliable and Offering services through the cable uninterrupted service that is equal to network would be similar to providing or better than land-based services. It fixed services. can be used to provide innovative Different Types of Insurance 1. Health Insurance Health Insurance is a safeguard against rising medical costs. A health insurance policy is a contract between an insurer and an individual or group, in which the insurer agrees to provide specified health insurance at an agreed-upon price (the premium). Depending upon the policy, premium may be payable either in a lump sum or in instalments. Health insurance usually provides either direct payment or reimbursement for expenses associated with illness and injuries. The cost and range of protection provided by health insurance depends on the provider and the policy purchased. In India, presently the health insurance exists primarily in the form of Mediclaim policy offered to an individual or to any group, association or corporate bodies. 2. Motor Vehicle Insurance Motor Vehicle Insurance falls under the classification of General Insurance. This insurance is becoming very popular and its importance increasing day-by- day. In motor insurance the owner’s liability to compensate people who were killed or insured through negligence of the motorists or drivers is passed on to the insurance company. The rate of premium under motor insurance is standardised. 3. Burglary Insurance Burglary insurance falls under the classification of insurance of property. In case of burglary policy, the loss of damages of household goods and properties and personal effects due to theft, larceny, burglary, house-breaking and acts of such nature are covered. The actual loss is compensated. (i) Insurable interest must exist at the time of loss but not necessarily at the time when the policy was taken. 2019-20 BUSINESS SERVICES 105 (ii) The principle of causa proxima will apply to it. The insurance company will be liable to pay only that particular or nearest cause that is covered by the policy. For example, if a loss is caused by several reasons then the nearest cause of loss will be considered. 4. Cattle Insurance A contract of cattle insurance is a contract whereby a sum of money is secured to the assured in the event of death of animals like bulls, buffaloes, cows and heifers. It is a contract against death resulting from accident, disease, or pregnant condition as the case may be. The insurer usually undertakes to pay the excess in the event of loss. 5. Crop Insurance A contract of crop insurance is a contract to provide a measure of financial support to farmers in the event of a crop failure due to drought or flood. This insurance covers against all risks of loss or damages relating to production of rice, wheat, millets, oil seeds and pulses etc. 6. Sports Insurance This policy assures a comprehensive cover available to amateur sportsmen covering their sporting equipment, personal effects, legal liability and personal accident risks. If desired the cover can also be made available in respect of the named member of insured’s family residing with him. This cover is not available to professional sportsmen. The cover is available in respect of any one or more of the following sports: angling, badminton, cricket, golf, lawn tennis, squash, use of sporting guns. 7. Amartya Sen Siksha Yojana This policy offered by the General Insurance Company secures the education of dependent children. If the insured parent/legal guardian sustains any bodily injury resulting solely and directly from an accident, caused by external, violent and visible means and if such injury shall within twelve calendar months of its occurrence be the sole and direct cause of his/her death or permanent total disablement, the insurer shall indemnify the insured student, in respect of all covered expenses to be incurred from the date of occurrence of such accident till the expiry date of policy or completion of the duration of covered course whichever occurs first and such indemnity shall not exceed the sum insured as stated in the policy schedule. 8. Rajeswari Mahila Kalyan Bima Yojana This policy has been designed to provide relief to the family members of insured women in case of their death or disablement arising due to all kinds of accidents and/or death and/or disablement arising out of problems incidental to women only. 2019-20 106 BUSINESS STUDIES Social Security Schemes 1. Atal Pension Yojana : This scheme is offered to individuals in the age group of 18 to 40 years. The individual is expected to contribute in the scheme until he/she attains the age of 60 years. The scheme acts as an investment for availing old-age pension. 2. Pradhan Mantri Suraksha Bima Yojana : This scheme offers accidental and disability cover of Rs. 2 lakh at a premium of Rs. 12 per year. Any individual holding a savings account can be enrolled under this scheme. 3. Pradhan Mantri Jan Dhan Yojana : The scheme offers savings account with no minimum balance. The Rupay ATM-cum-Debit card has in-built accident and life cover of Rs. 1,00,000 and Rs. 30,000, respectively. The scheme, suitable for economically weaker sections of society. 4. Pradhan Mantri Jeevan Jyoti Bima Yojana : The scheme offers a protection term insurance cover of Rs 2,00,000 to the dependents of the policy holder in the event of his/her death at a premium of Rs. 330 per year. Any individual in the age group of 18-70 years having a savings account can opt for this scheme. applications such as tele-medicine, You have already studied the newspapers-on-line, market rates and comparative advantages and tele-education even in the most remote disadvantages of different modes of areas of our country. transportation in earlier classes. Their (v) DTH services: DTH (Direct to services are considered to be important Home) is again a satellite-based media for business since speed is of essence services provided by cellular in any business transaction. Also companies. One can receive media transportation removes the hindrance services directly through a satellite with of place, i.e., it makes goods available the help of a small dish antenna and a to the consumer from the place of set top box. The service provider of DTH production. We need to develop our services provides a bouquet of multiple transportation system to keep pace channels. It can be viewed on our with the requirements of our economy. television without being dependent on We need better infrastructure of roads the services provided by the cable with sufficient width and high quality. network services provider. We have few ports and they too are congested. Both government and 4.7 TRANSPORTATION industry needs to be proactive and view T ransportation comprises freight the effective functioning of this service services together with supporting and as a necessity for providing a lifeline to auxiliary services by all modes of a business services. In sectors like transportation i.e., rail, road, air and agriculture and food, there are massive sea for the movement of goods and losses of product in the process of international carriage of passengers. transportation and storage. 2019-20 BUSINESS SERVICES 107 Infrastructure in Transportation In the first 50 years of independence, India saw the construction of around 13, 000 kilometers of national highways. The ambitious NHAI, Government of India’s project consisting of Golden Quadrilateral connecting Delhi-Kolkata- Chennai-Mumbai and the North-South, East-West corridors linking Srinagar to Kanyakumari and Silchar to Porbandar will see the construction of 13,151 kms of National Highways within a span of eight years. This project will not only change the face of road transport in India, but it will also have a lasting impact on our economy. The Ministry of Railways have also done massive innovations in their movement and monitoring of goods trains to facilitate the needs of the business community. The Government of India is also serious in ensuring better and more facilities at the seaports and airports to provide an impetus to business activities. The government plans not only to enhance capacities of existing ports but also to develop modern and new ports at strategic locations. Warehousing for moving goods and also usage of logistics automation software’s for Storage has always been an important warehouse management. aspect of economic development. The warehouse was initially viewed as a Types of Warehouses static unit for keeping and storing goods in a scientific and systematic (i) Private warehouses: Private manner so as to maintain their original warehouses are operated, owned or quality, value and usefulness. leased by a company handling their The typical warehouse received own goods, such as retail chain merchandise by rail, truck or bullock stores or multi-brand multi-product cart. The items were moved manually companies. As a general rule an efficient to a storage within the warehouse and warehouse is planned around a hand piled in stacks on the floor. They material handling system in order to are used by manufacturers, importers, encourage maximum efficiency of exporters, wholesalers, transport product movement. The benefit of business, customs etc., in India. private warehousing includes control, Today’s warehouses have ceased to flexibility, and other benefits like be a mere storage service providers and improved dealer relations. have really become logistical service (ii) P u b l i c w a r e h o u s e s : Public providers in a cost efficient manner. warehouses can be used for storage of That is making available the right goods by traders, manufacturers or quantity, at the right place, in the right any member of the public after the time, in the right physical form at the payment of a storage fee or charges. right cost. Modern warehouses are The government regulates the operation automated with automatic conveyors, of these warehouses by issuing licences computer operated cranes and forklifts for them to private parties. 2019-20 108 BUSINESS STUDIES The owner of the warehouse stands The importer need not block funds as an agent of the owner of the goods for payment of import duties before the and is expected to take appropriate care goods are sold or used. Even if he of the goods. wishes to export the goods kept in the These warehouses provide other bonded warehouse he may do so facilities also, like transportation by rail without payment of customs duty. and road. They are responsible for the Thus, bonded warehouses facilitate safety of the goods. Small manufacturers entrepot trade. find it convenient as they cannot afford (iv) Government warehouses: These to construct their own warehouses. warehouses are fully owned and The other benefits include flexibility managed by the government. The in the number of locations, no fixed cost government manages them through and capability of offering value added organisations set up in the public services, like packaging and labelling. sector. For example, Food Corporation (iii) Bonded warehouses: Bonded of India, State Trading Corporation, warehouses are licensed by the and Central Warehousing Corporation. government to accept imported goods (v) Cooperative warehouses: Some prior to payment of tax and customs marketing cooperative societies or duty. These are goods which are agricultural cooperative socities have imported from other countries. set up their own warehouses for Importers are not permitted to remove members of their cooperative society. goods from the docks or the airport till customs duty is paid. Functions of Warehousing At times, importers are not in a The functions of warehousing are position to pay the duty in full or does discussed as follows: not require all the goods immediately. (a) Consolidation: In this function The goods are kept in bonded the warehouse receives and warehouses by the customs authorities consolidates, materials/goods from till the customs duty is paid. These different production plants and goods are said to be in bond. dispatches the same to a particular These warehouses have facilities for customer on a single transportation branding, packaging, grading and shipment. blending. Importers may bring their buyers for inspection of goods and repackage them according to their Plant A requirements. Thus, it facilitates marketing of goods. Goods can be removed in part as Consolidation Plant B A/B/C and when required by the importers Warehouses and buyers, and import duty can be paid in instalments. Plant C 2019-20 BUSINESS SERVICES 109 (b) Break the bulk: The warehouse throughout the year also need to be performs the function of dividing the stored and released in lots. bulk quantity of goods received (d) Value added services: Certain from the production plants into value added services are also smaller quantities. These smaller provided by the warehouses, such quantities are then transported as in transit mixing, packaging and according to the requirements of labelling. Goods sometimes need to clients to their places of business. be opened and repackaged and labelled again at the time of Customer A inspection by prospective buyers. Break -Bulk Grading according to quantity and PLANT A Customer B Warehouse dividing goods in smaller lots is another function. Customer C (c) Stock piling: The next function of (e) Price stablisation: By adjusting warehousing is the seasonal storage the supply of goods with the of goods to select businesses. Goods demand situation, warehousing or raw materials, which are not performs the function of stabilising required immediately for sale or prices. Thus, prices are controlled manufacturing, are stored in when supply is increasing and warehouses. They are made available demand is slack and vice versa. to business depending on customers’ (f) Financing: Warehouse owners demand. Agricultural products advance money to the owners on which are harvested at specific times security of goods and further supply with subsequent consumption goods on credit terms to customers. 2019-20 110 BUSINESS STUDIES Key Terms Business services Insurance Subrogation Fire insurance Banking Insurable interest Contribution Marine insurance e-Banking Indemnity Mitigation Telecom services Commercial banks Proximate cause Life insurance Warehousing SUMMARY Nature of services: Services are those separately identifiable, essentially intangible activities that provide satisfaction of wants, and are not necessarily linked to the sale of a product or another service. There are five basic features of services. These features also distinguish them from goods and are known as the five Is of services i.e., Intangibility, Inconsistency, Inseparability, Inventory (less), Involvement. Difference between services and goods: While goods are produced, services are performed. A service is an act which cannot be taken home. What we can take home is the effect of the services. And as the services are sold at the consumption point, there are no inventories. Types of services: Business Services, Social Services, Personal Services. Business services: In order to be competitive, business enterprises are becoming more and more dependent on specialised business services. Business enterprises look towards banks for availability of funds; insurance companies for getting their plant, machinery, goods, etc., insured; transport companies for transporting raw material and finished goods; and telecom and postal services for being in touch with their vendors, suppliers and customers. Banking: A banking company in India is one which transacts the business of banking which means accepting, for the purpose of lending and investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheques, draft, order or otherwise. Type of banks: Banks can be classified into the following i.e., commercial banks, cooperative banks, specialised banks, central bank. Functions of commercial bank: Some of them are the basic or primary functions of a bank while others are agency services or general utility services in nature. Acceptance of deposits, lending of funds, cheque facility, remittance of funds, allied services. e-Banking: The latest wave in information technology is internet banking. It is a part of virtual banking and another delivery channel for customers. e-banking is electronic banking or banking using the electronic media. Thus, 2019-20 BUSINESS SERVICES 111 e-banking is a service provided by many banks, that allows a customer to conduct banking transactions, such as managing savings, checking accounts, applying for loans or paying bills over the internet using a personal computer, mobile telephone or handheld computer (personal digital assistant) Insurance: Insurance is thus a device by which the loss likely to be caused by an uncertain event is spread over a number of persons who are exposed to it and who are prepared to insure themselves against such an event. It is a contract or agreement under which one party agrees in return for a consideration to pay an agreed amount of money to another party to make good a loss, damage or injury to something of value in which the insured has a pecuniary interest as a result of some uncertain event. Fundamental principle of insurance: The basic principle of insurance is that an individual or a business concern chooses to spend a definitely known sum in place of a possible huge amount involved in an indefinite future loss. Insurance, therefore, is a form of risk management primarily used to safe guard against the risk of potential financial loss. Functions of insurance: Providing certainty, Protection, Risk sharing, Assist in capital formation. Principles of Insurance Utmost good faith: A contract of insurance is a contract of uberrimae fidei i.e., a contract found on utmost good faith. Both the insurer and the insured display good faith towards each other in regard to the contract. Insurable interest: The insured must have an insurable interest in the subject matter of insurance. Insurable interest means some pecuniary interest in the subject matter of the insurance contract. Indemnity: According to it, the insurer undertakes to put the insured, in the event of loss, in the same position that he occupied immediately before the happening of the event insured against. Proximate cause: When the loss is the result of two or more causes, the proximate cause means the direct, the most dominant and most effective cause of which the loss is a natural consequence. Subrogation: It refers to the right of the insurer to stand in the place of the insured, after settlement of a claim, as far as the right of the insured in respect of recovery from an alternative source is involved. Contribution: As per this principle it is the right of an insurer who has paid claim under an insurance, to call upon other liable insurers to contribute for the loss payment. Mitigation: This principles states that it is the duty of the insured to take reasonable steps to minimise the loss or damage to the insured property. 2019-20 112 BUSINESS STUDIES Types of Insurance Life insurance: Life insurance may be defined as a contract in which the insurer, in consideration of a certain premium, either in a lump sum or by other periodical payments, agrees to pay to the assured, or to the person for whose benefit the policy is taken, the assured sum of money, on the happening of a specified event contingent on the human life or at the expiry of a certain period. This insurance provides protection to the family at premature death of an individual or gives adequate amount at an old age when earning capacities are reduced. The insurance is not only a protection but is a sort of investment because a certain sum is returnable to the insured at the time of death or at the expiry of a certain period. The main elements of a life insurance contract are: (i) The life insurance contract must have all the essentials of a valid contract. (ii) The contract of life insurance is a contract of utmost good faith. (iii) In life insurance, the insured must have insurable interest in the life assured. (iv) Life insurance contract is not a contract of indemnity. Types of life insurance policies: People have different requirements and therefore they would like a policy to fulfill all their needs. The needs of people for life insurance can be family needs, children’s needs, old age and special needs. To meet the needs of people the insurer’s have developed different types of products such as Whole Life Assurance, Endowment type plans, combination of Whole Life and Endowment type plans, Children’s Assurance plans and Annuity plans. Fire insurance: Fire insurance is a contract whereby the insurer, in consideration of the premium paid, undertakes to make good any loss or damage caused by a fire during a specified period upto the amount specified in the policy. The main elements of a fire insurance contract are: (i) In fire insurance, the insured must have insurable interest in the subject matter of the insurance. (ii) Similar to the life insurance contract, the contract of fire insurance is a contract of utmost good faith i.e., uberrimae fidei. (iii) The contract of fire insurance is a contract of strict indemnity. (iv) The insurer is liable to compensate only when fire is the proximate cause of damage or loss. Marine insurance: A marine insurance contract is an agreement whereby the insurer undertakes to indemnify the insured in the manner and to the extent thereby agreed against marine losses. Marine insurance provides 2019-20 BUSINESS SERVICES 113 protection against loss by marine perils or perils of the sea. Marine insurance is slightly different from other types. There are three things involved i.e., ship or hull, cargo or goods and freight. The main elements of a marine insurance contract are: (i) Unlike life insurance, the contract of marine insurance is a contract of indemnity. (ii) Similar to life and fire insurance, the contract of marine insurance is a contract of utmost good faith. (iii) Insurable interest must exist at the time of loss. (iv) The principle of causa proxima will apply to it. Communication services: Communication services are helpful to business for establishing links with the outside world viz., suppliers, customers, competitors etc. The main services which help business can be classified into postal and telecom. Postal services: Various facilities provided by postal department are broadly categorised into financial facilities, mail facilities. Telecom services: The various types of telecom services are of the following types: Cellular Mobile Services, Radio Paging Services, Fixed line services, Cable Services, VSAT Services, DTH services. Transportation: Transportation comprises freight services together with supporting and auxiliary services by all modes of transportation i.e., rail, road, air and sea for the movement of goods and international carriage of passengers. Warehousing: The warehouse was initially viewed as a static unit for keeping and storing goods in a scientific and systematic manner so as to maintain their original quality, value and usefulness. Today’s warehouses have ceased to be mere storage service providers and have really become logistical service providers in a cost efficient manner. Types of warehouses: private warehouses, public warehouses,bonded warehouses, government warehouses, cooperative warehouses. Functions of warehousing: The functions of warehousing are normally discussed as follows : consolidation, break the bulk, stock piling, value added services, price stablisation, financing. EXERCISES Multiple Choice Questions 1. DTH services are provided by________. a. Transport companies. b. Banks c. Cellular companies d. None of the above 2019-20 114 BUSINESS STUDIES 2. The benefits of public warehousing includes_______. a. Control b. Flexibility c. Dealer relationship d. None of the above 3. Which of the following is not a function of insurance? a. Risk sharing b. Assist in capital formation c. Lending of funds d. None of the above 4. Which of the following is not applicable in life insurance contract? a. Conditional contract b. Unilateral contract c. Indemnity contract d. None of the above 5. CWC stands for_______. a. Central Water Commission b. Central Warehousing Commission