Business Services PDF

CHAPTER 4 BUSINESS 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; expla...

CHAPTER 4 BUSINESS 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. BUSINESS SERVICES 78 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. BUSINESS SERVICES 79 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) Inseparability: 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 NATURE 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. BUSINESS SERVICES 80 (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 BUSINESS SERVICES 81 An Introduction to the GATS The agreement on trade in services reached in the Uruguay Round is perhaps the most important single development in the multilateral trading system. The new General Agreement on Trade in Services (GATS) for the first time framed internationally agreed rules and commitments, broadly comparable with those of the General Agreement on Tarrif and Trade (GATT). The most important element of GATS is the classification of services used in making commitments. The GATS schedule largely follows a classification, which identifies 11 basic service sectors (plus a twelfth category for miscellaneous services). These sectors are subdivided into some 160 subsectors or separate service activities. As an example, the tourism category breaks down into subsectors for hotel and restaurants. The twelve sectors are: 1. Business services (including professional and computer) 2. Communication services 3. Construction and related engineering services 4. Distribution services 5. Educational services 6. Environmental services 7. Financial services (Insurance and Banking) 8. Health related and social services 9. Tourism and travel related services 10. Recreational, cultural and sporting services 11. Transport services and 12. Other services not included elsewhere (ii) Social Services: Social services (iii) Personal Services: Personal are those services that are generally services are those services which are provided voluntarily in pursuit of experienced differently by different certain social goals. These social goals customers. These services cannot be may be to improve the standard of consistent in nature. They will differ living for weaker sections of society, to depending upon the service provider. provide educational services to their They will also depend upon children, or to provide health care and customer’s preferences and demands. hygienic conditions in slum areas. For example, tourism, recreational These services are usually provided services, restaurants. voluntarily but for some consideration In the context of better to cover their costs. For example, understanding of the business health care and education services world, we will be limiting our provided by certain Non-government further discussions to the first organisations (NGOs) and government category of the service sector i.e., agencies. business services. BUSINESS SERVICES 82 Role of Services in an Economy The services sector — including power, telecom and transport account for 60-65 per cent of the economy in most OECD (Organisation for Economic Cooperation and Development) countries. While that may be surprising, even developing countries have significant proportion of their GDP coming from the services sector. Sustained, high and broad-based growth is essential for economic development and poverty alleviation. What is needed for such growth is an increase in investment in the economy. There are encouraging signs on both the growth and investment fronts in recent years. India is the second largest country in the world, measured by a population of purchasing power parity. It ranks among the top 5 economies of the world and expects to become the third largest economy in the world by 2025. As with any growing economy the sectoral composition of GDP has been changing with the services showing an increased share of above 50 per cent and that of agriculture declining to 25 per cent. The services sector continued to be the mainstay of the expansion during 2003-04, contributing 57.6 per cent to real GDP growth. Leading the upsurge was ‘trade, hotels, transport and communication’. This was in consonance with the improved performance of the commodity producing sectors. The strong expansion in cargo handled at major ports as well as the rise in freight and passenger traffic of the railways boosted the performance of the transport sector. According to the latest estimates, services account for about 63 per cent of the world economy. Industry accounts for 32 per cent and agriculture just 5 per cent. Nearly 70 per cent of the labour force in developed economies is employed in the services sector. 4.3.1 Business Services goods, and telecom and postal services for being in touch with their vendors, Today’s world is of tough competition, suppliers and customers. Today’s where the survival of the fittest is the globalised world has ushered in a rapid rule. There is no room for non- change in the service industry in India. performance, and hence companies tend to stick to what they can do best. India has been gaining a highly In order to be competitive, business competitive edge over other countries enterprises, are becoming more and when it comes to providing services to more dependant on specialised the developed economies of the world. business services. Business enterprises Many foreign companies are looking to look towards banks for availability of India for performing a host of business funds; insurance companies for getting services. They are even transferring a their plant, machinery, goods, etc., part of their business operations to be insured; transport companies for performed in India. We will discuss transporting raw material; and finished these in detail in the next chapter. BUSINESS SERVICES 83 4.4 BANKING Banks can be classified into the following: Commercial banks are an important 1. Commercial banks institution of the economy for providing institutional credit to its customers. A 2. Cooperative banks banking company in India is the one 3. Specialised banks which transacts the business of 4. Central bank banking which means accepting, for the (i) Commercial Banks: Commercial purpose of lending and investment of banks are institutions dealing in deposits of money from the public, money. These are governed by Indian repayable on demand or otherwise and Banking Regulation Act 1949 and withdrawable by cheques, draft, order according to it banking means or otherwise. In simple terms, a bank accepting deposits of money from the accepts money on deposits, repayable public for the purpose of lending or on demand and also earns a margin of investment. There are two types of profit by lending money. A bank commercial banks, public sector and stimulates economic activity in the private sector banks. market by dealing in money. It mobilises Public sectors banks are those in the savings of people and makes funds which the government has a major available to business financing their stake and they usually need to capital and revenue expenditure. It emphasise on social objectives than on also deals in financial instruments and profitability. Private sector banks are provides financial services for a price owned, managed and controlled by i.e., interest, discount, commission, etc. private promoters and they are free 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 to operate as per market forces. There are 20 nationalised public sector banks The focus of banking is varied, the like SBI, PNB, IOB etc., and other needs diverse and methods different. private sector banks represented by Thus, we need distinctive kinds of HDFC Bank, ICICI Bank, Kotak banks to cater to the above-mentioned Mahindra Bank and Jammu and complexities. Kashmir Bank. BUSINESS SERVICES 84 (ii) Cooperative Banks: Cooperative deposits. Current account deposits can Banks are governed by the provisions be withdrawn to the extent of the of State Cooperative Societies Act and balance at any time without any prior meant essentially for providing cheap notice. credit to their members. It is an Savings accounts are for important source of rural credit i.e., encouraging savings by individuals. agricultural financing in India. Banks pay rate of interest as decided (iii) Specialised Banks: Specialised by RBI on these deposits. Withdrawal banks are foreign exchange banks, from these accounts has some industrial banks, development banks, restrictions in relation to the amount export-import banks catering to as well as number of times in a given specific needs of these unique activities. period. Fixed accounts are time These banks provide financial aid to deposits with higher rate of interest as industries, heavy turnkey projects and compared to the savings accounts. A foreign trade. premature withdrawal is permissible (iv) Central Bank: The Central bank with a percentage of interest being of any country supervises, controls and forfeited. regulates the activities of all the (ii) Lending of funds: Second major commercial banks of that country. It activity of commercial banks is to 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 4.4.2 Functions of Commercial advances. The funds lent out by banks Banks contribute a great deal to trade, Banks perform a variety of functions. industry, transport and other business Some of them are the basic or primary activities. functions of a bank while others are (iii) Cheque facility: Banks render a agency or general utility services in very important service to their nature. The important functions are customers by collecting their cheques briefly discussed below: drawn on other banks. The cheque is (i) Acceptance of deposits: Deposits the most developed credit instrument, are the basis of the loan operations a unique feature and function of banks since banks are both borrowers and for the withdrawal of deposits. It is the lenders of money. As borrowers they most convenient and an inexpensive pay interest and as lenders they grant medium of exchange. There are two loans and get interest. These deposits types of cheques mainly (a) bearer are generally taken through current cheques, which are encashable account, savings account and fixed immediately at bank counters and BUSINESS SERVICES 85 (b) crossed cheques which are to be the bank’s services. There is no human deposited only in the payees account. operator to respond to the needs of the (iv) Remittance of funds: Another customer. The bank has a centralised salient function of commercial banks data base that is web-enabled. All the is of providing the facility of fund services that the bank has permitted transfer from one place to another, on on the internet are displayed on a account of the interconnectivity of menu. Any service can be selected and branches. The transfer of funds is further interaction is dictated by the administered by using bank drafts, pay nature of service. orders or mail transfers, on nominal In this new digital market place commission charges. The bank issues banks and financial institutions have a draft for the amount on its own started providing services over the branches at other places or other banks internet. These type of services provided at those places. The payee can present by the banks on the internet, called the draft on the drawee bank at his e-banking, lowers the transaction cost, place and collect the amount. adds value to the banking relationship (v) Allied services: In addition to and empowers customers. e-banking above functions, banks also provide is electronic banking or banking using allied services such as bill payments, electronic media. Thus, e-banking is a locker facilities, underwriting services. service provided by many banks, that They also perform other services like buying allows, a customer to conduct banking and selling of shares and debentures transactions, such as managing on instructions and other personal savings, checking accounts, applying services like payment of insurance for loans or paying bills over the premium, collection of dividend etc. internet using a personal computer, mobile telephone or handheld 4.4.3 e-Banking computer (personal digital assistant) The growth of Internet and e-commerce The range of services offered by is dramatically changing everyday e-banking are: Electronic Funds life, with the world wide web and T ransfer (EFT), Automated Teller e-commerce transforming the world Machines (ATM) and Point of Sales into a digital global village. The latest (PoS), Electronic Data Interchange wave in information technology is (EDI) and Credit Cards Electronic or internet banking. It is a part of virtual Digital cash. banking and another delivery channel Benefits for customers. In simple terms, internet banking There are various benefits of e-banking means any user with a PC and a provided to customers which are: browser can get connected to the banks (i) e-banking provides 24 hours, website to perform any of the virtual 365 days a year services to the banking functions and avail of any of customers of the bank; BUSINESS SERVICES 86 (ii) Customers can make some of the (ii) e-banking provides unlimited permitted transactions from office network to the bank and is not or house or while travelling via limited to the number of branches, mobile telephone; Any PC connected to a modem and (iii) It inculcates a sense of financial a telephone having an internet discipline by recording each and connection can provide cash every transaction; withdrawl needs of the customer; (iv) Greater customer satisfaction by (iii) Load on branches can be offering unlimited access to the considerably reduced by bank, not limited by the walls of the establishing centralised data base branch and less risk and greater and by taking over some of the security to the customer as they accounting functions. can avoid travelling with cash. The banks also stand to gain by 4.5 INSURANCE e-banking. The benefits are: Life is full of uncertainties. The chances (i) e-banking provides competitive of occurrence of an event causing losses advantage to the bank; are quite uncertain. There are risks of Indian Insurance Sector It is a well-known fact that the Indian economy has been amongst the fastest growing economies of the world. It is triggered by better performances of all the three sectors i.e., agriculture, industry and services. With an increase in manufacturing and service sector activities, a directly proportional higher insurance penetration is the need of the hour. With the initiation of financial sector reforms, the Indian insurance sector which was till now under the government control has to set open for competition to meet the global challenge. The first step taken by the government was to establish IRDA Act with the objective of streamlining the development process. The Indian insurance market is a mega market with a huge potential. Since the opening of the insurance sector in December 1999 the insurance industry is changing rapidly. Today 13 companies operate in the life and 13 in non-life segment. LIC of India has dominated the life segment for over four decades although only 25 per cent of the insurable population was insured. From the year 2000 onwards IRDA started granting licenses to private players. Thus general insurance sector has seen considerable expansion over the past few years. The premium income has recorded a growth rate of 20 per cent. A department wise split shows that in the year 2002-03, 21 per cent of business is derived from fire, 9 per cent from marine insurance, 39 per cent from motor insurance, 8 per cent from health schemes, 5 per cent from re-engineering and remaining 18 per cent from other miscellaneous insurances. Amongst the fastest growing companies are the National Insurance, Bajaj Allianz, Tata-AIG and ICICI Lombard. Currently, over 70 per cent of the business underwritten (fire, marine, motor and engineering) is subject to tariff controls. BUSINESS SERVICES 87 death and disability for human life; fire 4.5.1 Fundamental principle of and burglary risk for property; perils of Insurance the sea for shipment of goods and, so The basic principle of insurance is that on. If any of these takes place, the an individual or a business concern individuals and/or, organisations may chooses to spend a definitely known suffer a great loss, sometimes beyond sum in place of a possible huge amount their capacities to bear the same. It involved in an indefinite future loss. is to minimise the impact of such Thus insurance is the substitution of uncertainties that there is a need for a small periodic payment (premium) for insurance. Investment in factory a risk of large possible loss. The loss of buildings or heavy equipments or other risk still remains but the loss is spread assets is not possible unless there is over a large number of policyholders arrangement for covering the risks, with exposed to the same risk. The premium the help of insurance. Keeping this in paid by them are pooled out of which mind, people facing common risks come the loss sustained by any policy holder together and make small contributions is compensated. Thus, risks are shared to a common fund, which helps to with others. From the analysis of past spread the loss caused to an individual events the insurer (an insurance by a particular risk over a number of company or an underwriter) knows the persons who are exposed to it. probable losses caused by each type Insurance is thus a device by which of risk covered by insurance. the loss likely to be caused by an Insurance, therefore, is a form of risk uncertain event is spread over a management primarily used to safe number of persons who are exposed to guard against the risk of potential it and who prepare to insure themselves financial loss. Ideally, insurance is against such an event. It is a contract defined as the equitable transfer of the risk or agreement under which one party of a potential loss, from one entity to agrees in return for a consideration to another, in exchange for a reasonable pay an agreed amount of money to fee. Insurance company, therefore, is another party to make a loss, damage an association, corporation or an or injury to something of value in organisation engaged in the business which the insured has a pecuniary of paying all legitimate claims that may interest as a result of some uncertain arise, in exchange for a fee (known as event. The agreement/contract is put premium). in writing and is known as ‘policy’. The Insurance is a social device in which person whose risk is insured is called a group of individuals (insured) ‘insured’ and the firm which insures the transfers risk to another party (insurer) risk of loss is known as insurer/ in order to combine loss experience, which assurance underwriter. provides for payment of losses from BUSINESS SERVICES 88 funds contributed (premium) by all 4.5.3 Principles of Insurance members. Insurance is meant to protect The principles of insurance are the the insured, against uncertain events, rules of action or conduct adopted by which may cause disadvantage to him. the stakeholders involved in the 4.5.2 Functions of Insurance insurance business. The specific principles of utmost significance to a The various functions of insurance are valid insurance contract consists of the as follows: following: (i) Providing certainty: Insurance (i) Utmost good faith: A contract of provides certainity of payment for the insurance is a contract of uberrimae risk of loss. There are uncertainties of fidei i.e., a contract found on utmost happenings of time and amount of loss. Insurance removes these uncertainties good faith. Both the insurer and the and the assured receives payment of insured should display good faith loss. The insurer charges premium for towards each other in regard to the providing the certainity. contract. It is the duty of the insured (ii) Protection: The second main to voluntarily make full, accurate function of insurance is to provide disclosure of all facts, material to the protection from probable chances of risk being proposed and the insurer to loss. Insurance cannot stop the make clear all the terms and conditions happening of a risk or event but can in the insurance contract. Thus, it is compensate for losses arising out of it. binding on the proposer to disclose all (iii) Risk sharing: On the happening material facts about the subject matter of a risk event, the loss is shared by all of the proposed insurance. Any fact, the persons exposed to it. The share is which is likely to affect the mind of a obtained from every insured member prudent insurer in deciding to accept by way of premiums. the proposal of insurance or in fixing (iv) Assist in capital formation: The the rate of premium is material for this accumulated funds of the insurer purpose. Failure to make disclosure of received by way of premium payments material facts by the insured makes the made by the insured are invested in contract of insurance voidable at the various income generating schemes. discretion of the insurer. 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. BUSINESS SERVICES 89 (ii) Insurable Interest: The insured (iv) Proximate Cause: According to must have an insurable interest in the this principle, an insurance policy is subject matter of insurance. One designed to provide compensation only fundamental fact of this principle is for such losses as are caused by the that ‘it is not the house, ship, perils which are stated in the policy. machinery, potential liability of life that When the loss is the result of two or is insured, but it is the pecuniary more causes, the proximate cause interest of the insured in them, which means the direct, the most dominant is insured.’ Insurable interest means and most effective cause of which the some pecuniary interest in the subject loss is the natural consequence. In case matter of the insurance contract. The of loss arising out of any mishap, the insured must have an interest in the most proximate cause of the mishap preservation of the thing or life insured, should be taken into consideration. so that he/she will suffer financially on (v) Subrogation: It refers to the right the happening of the event against of the insurer to stand in the place of which he/she is insured. In case of the insured, after settlement of a claim, insurance of property, insurable as far as the right of insured in respect of recovery from an alternative source interest of the insured in the subject is involved. After the insured is matter of the insurance must exist at compensated for the loss or damage to the time of happening of the event. In the property insured by him/her the order to name insurable interest right of ownership of such property however, it is not necessary that one passes on to the insurer. This is should be the owner of the property. because the insured should not be For example, a trustee holding allowed to make any profit, by selling property on behalf of others has an the damaged property or in the case of insurable interest in the property. lost property being recovered. (iii) Indemnity: All insurance (vi) Contribution: As per this principle contracts of fire or marine insurance it is the right of an insurer who has paid are contracts of indemnity. According claim under an insurance, to call upon to it, the insurer undertakes to put the other liable insurers to contribute for insured, in the event of loss, in the same the loss of payment. It implies, that in position that he occupied immediately case of double insurance, the insurers before the happening of the event are to share the losses in proportion to insured against. In other words the the amount assured by each of them. insurer undertakes to compensate the In case there is a loss, when there is insured for the loss caused to him/her more than one policy on the same due to damage or destruction of property, the insured will have no right property insured. The compensation to recover more than the full amount payable and the loss suffered are to be of his actual loss. If the full amount is measured in terms of money. The recovered from one insurer the right to principle of indemnity is not applicable obtain further payment from the other to life insurance. insurer will cease. BUSINESS SERVICES 90 (vii) Mitigation: This principle states not taken like any prudent person that it is the duty of the insured to take then the claim from the insurance reasonable steps to minimise the loss company may be lost. or damage to the insured property. Suppose goods kept in a store house 4.5.4 Types of Insurance catch fire then the owner of the goods should try to recover the goods and Various types of insurance exist by save them from fire to minimise the virtue of practice of insurance loss or damage. The insured must companies and the influence of legal behave with great prudence and not enactments controlling the insurance be careless just because there is an business. Broadly speaking, insurance insurance cover. If reasonable care is may be classified as follows: BUSINESS SERVICES 91 LIFE INSURANCE human life or at the expiry of certain period. Thus, the insurance company Since life itself is uncertain, all undertakes to insure the life of a person individuals try to assure themselves of in exchange for a sum of money called a certain sum of money in the future to premium. This premium may be paid take care of unforeseen events or in one lump sum, or periodically i.e., happenings. Individuals in the course monthly, quarterly, half yearly or of their life are always exposed to some yearly. At the same time, the company kind of risks. promises to pay a certain sum of money The risk may be of an event which either on the death of the person or on is certain that is death. In that case, his attaining a certain age (i.e., the what will happen to the other members expiry of certain period). Thus, the of the family who are dependent on a person is sure that a specified amount particular individuals income. The will be given to him when he attains a other risk may be living too long in certain age or that his dependents will which an individual may become too get that sum in the event of his death. old to earn i.e., retirement. In this case This agreement or contract which also, the earnings will decline or end. contains all the terms and conditions Under such circumstances, individuals is put in writing and such document is seek protection against these risks called the policy. The person whose life and life insurance companies offer is insured is called the assured. The protection against such risks. insurance company is the insurer and A life insurance policy was the consideration paid by the assured introduced as a protection against the is the premium. The premium can be uncertainity of life. But gradually its paid periodically in instalments. scope has widened and there are This insurance provides protection various types of insurance policies to the family at the premature death or available to suit the requirements of an gives adequate amount at old age when individual. For example, disability earning capacities are reduced. The insurance, health/medical insurance, insurance is not only a protection but annuity insurance and life insurance is a sort of investment because a certain proper. sum is returnable to the insured at Life insurance may be defined as a the time of death or at the expiry of a contract in which the insurer in certain period. consideration of a certain premium, Life insurance also encourages either in a lump sum or by other savings as the amount of premium has periodical payments, agrees to pay to to be paid regularly. It thus, provides the assured, or to the person for whose a sense of security to the insured and benefit the policy is taken, the assured his dependents. sum of money, on the happening of a The general principles of insurance specified event contingent on the discussed in the previous section apply BUSINESS SERVICES 92 to life insurance also with a few compensated and only a specified exceptions. The main elements of a life sum of money is paid. That is why insurance contract are: the amount payable in life (i) The life insurance contract must insurance on the happening of the have all the essentials of a valid event is fixed in advance. The sum contract. Certain elements like offer of money payable is fixed, at the and acceptance, free consent, time of entering into the contract. A capacity to enter into a contract, contract of life insurance, therefore, lawful consideration and lawful is not a contract of 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. (iii) In life insurance, the insured must People have different requirements have insurable interest in the life and therefore they would like a policy assured. Without insurable interest to fulfill all their needs. The needs of the contract of insurance is void. In people for life insurance can be family case of life insurance, insurable needs, children’s needs, old age and interest must be present at the time special needs. To meet the needs of when the insurance is affected. It is people the insurers have developed not necessary that the assured different types of products such as should have insurable interest at Whole Life Assurance, Endowment type the time of maturity also. For example, a person is presumed to plans, combination of Whole Life and have an interest in his own life and Endowment type plans, Children’s every part of it, a creditor has an Assurance plans and Annuity plans. insurable interest in the life of his Some of these are explained below: debtor, and a proprietor of a drama (i) Whole Life Policy: In this kind of company has an insurable interest policy, the amount payable to the in the lives of the actors; insured will not be paid before the (iv) Life insurance contract is not a death of the assured. The sum then contract of indemnity. The life becomes payable only to the of a human being cannot be beneficiaries or heir of the deceased. BUSINESS SERVICES 93 The premium will be payable for a (v) Children’s Endowment Policy: fixed period (20 or 30 years) or for the This policy is taken by a person for his/ whole life of the assured. If the premium her children to meet the expenses of is payable for a fixed period, the policy will their education or marriage. The continue till the death of the assured. agreement states that a certain sum will (ii) Endowment Life Assurance be paid by the insurer when the Policy: The insurer (Insurance children attain a particular age. The Company) undertakes to pay a specified premium is paid by the person entering sum when the insured attains a into the contract. However, no premium particular age or on his death which wil be paid, if he dies before the maturity ever is earlier. The sum is payable to his of the policy. legal heir/s or nominee named therein in case of death of the assured. FIRE INSURANCE Otherwise, the sum will be paid to the Fire insurance is a contract whereby assured after a fixed period i.e., till he/ the insurer, in consideration of the she attains a particular age. Thus, the premium paid, undertakes to make endowment policy matures after a good any loss or damage caused by fire limted number of years. during a specified period upto the (iii) Joint Life Policy: This policy is amount specified in the policy. taken up by two or more persons. The Normally, the fire insurance policy is premium is paid jointly or by either of for a period of one year after which it is them in instalments or lump sum. The to be renewed from time to time. The assured sum or policy money is payable premium may be paid either in lump upon the death of any one person to the sum or instalments. A claim for loss other survivor or survivors. Usually this by fire must satisfy the two following policy is taken up by husband and wife conditions: jointly or by two partners in a (i) There must be actual loss; and partnership firm where the amount is (ii) Fire must be accidental and non- payable to the survivor on the death of intentional. either of the two. The risk covered by a fire insurance (iv) Annuity Policy: Under this policy, contract is the loss resulting from fire the assured sum or policy money is or some other cause, and which is the payable after the assured attains a proximate cause of the loss. If certain age in monthly, quarterly, half overheating without ignition causes yearly or annual instalments. The damage, it will not be regarded as a fire premium is paid in instalments over a loss within the meaning of fire certain period or single premium may insurance and the loss will not be be paid by the assured. This is useful recoverable from the insurer. to those who prefer a regular income A fire insurance contract is based after a certain age. on certain fundamental principles BUSINESS SERVICES 94 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. BUSINESS SERVICES 95 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. which have been discussed in general insured should be truthful and principles. The main elements of a fire honest in giving information to the insurance contract are: insurance company regarding the (i) In fire insurance, the insured must subject matter of the insurance. He have insurable interest in the subject is duty-bound to disclose matter of the insurance. Without accurately all facts regarding the insurable interest the contract of nature of property and risks insurance is void. In case of fire attached to it. The insurance insurance, unlike life insurance company should also disclose the insurable interest must be present facts of the policy to the proposer. both at the time of insurance and at (iii) The contract of fire insurance is a contract of strict indemnity. The the time of loss. For example, a insured can, in the event of loss, person has insurable interest in the recover the actual amount of loss property he owns, a businessman from the insurer. This is subject to has insurable interest in his stock, the maximum amount for which the plant, machinery and building, an subject matter is insured. For agent has an insurable interest in example, if a person has insured his the property of his principal, a house for Rs. 4,00,000 the insurer partner has insurable interest in the is not necessarily liable to pay that property of a partnership firm, and amount, although the house may a mortgagee has insurable interest have been totally destroyed by fire; in the property, which is mortgaged. but he will pay the actual loss after (ii) Similar to the life insurance deducting depreciation within the contract, the contract of fire maximum limit of Rs. 4,00,000. The insurance is a contract of utmost purpose being that a person should good faith i.e., uberrimae fidei. The not be allowed to gain by insurance. BUSINESS SERVICES 96 (iv) The insurer is liable to compensate (b) Cargo insurance: The cargo while only when fire is the proximate being transported by ship is subject cause of damage or loss. to many risks. These may be at port i.e., risk of theft, lost goods or on MARINE INSURANCE voyage etc. Thus, an insurance policy can be issued to cover against A marine insurance contract is an such risks to cargo. agreement whereby the insurer (c) Freight insurance: If the cargo does undertakes to indemnify the insured not reach the destination due to in the manner and to the extent thereby damage or loss in transit, the agreed against marine losses. Marine shipping company is not paid freight insurance provides protection against charges. Freight insurance is for loss by marine perils or perils of the sea. reimbursing the loss of freight to the Marine perils are collision of ship with shipping company i.e., the insured. the rock, or ship attacked by the enemies, fire and captured by pirates The fundamental principles of and actions of the captains and crew of marine insurance are the same as the the ship. These perils cause damage, general principles. The main elements destruction or disappearance of the of a marine insurance contract are: ship and cargo and non-payment of (i) Unlike life insurance, the contract freight. So, marine insurance insures of marine insurance is a contract of ship hull, cargo and freight. Thus, it is indemnity. The insured can, in the a device wherein the insurer undertakes event of loss recover the actual to compensate the owner of a ship or amount of loss from the insurer. cargo for complete or partial loss at sea. Under no circumstances, the The insurer gurantees to make good the insured is allowed to make profit losses due to damage to the ship or cargo out of the marine insurance arising out of the risks incidental to sea contract. But cargo policies provide commercial indemnity rather than voyages. The insurer in this case is known strict indemnity. The insurers as the underwriter and a certain sum of promise to indemnify the insured money is paid by the insured in “in the manner and to the extent consideration for the guarantee/ agreed.” In case of ‘Hull Policy’, the protection he gets. Marine insurance is amount insured is fixed at a level slightly different from other types. There above the current market value; are three things involved i.e., ship or hull, (ii) Similar to life and fire insurance, the cargo or goods, and freight. contract of marine insurance is a (a) Ship or hull insurance: Since the contract of utmost good faith. Both ship is exposed to many dangers at the insured and insurer must sea, the insurance policy is for disclose everything, which is in their indemnifying the insured for losses knowledge and can affect the caused by damage to the ship. insurance contract. The insured is BUSINESS SERVICES 97 duty-bound to accurately disclose advanced technology for quick all facts which include the nature exchange of information. The electronic of shipment and the risk of damage media is mainly responsible for this it is exposed to; transformation. The main services (iii) Insurable interest must exist at the which help business can be classified time of loss but not necessary at the into postal and telecom. time when the policy was taken; (iv) The principle of causa proxima will Postal Services apply to it. The insurance company Indian post and telegraph department will be liable to pay only if that provides various postal services across particular or nearest cause is India. For providing these services the covered by the policy. For example, whole country has been divided into 22 if a loss is caused by several postal circles. These circles manage the reasons then nearest cause of loss day-to-day functioning of the various will be considered. head post offices, sub-post offices and branch post offices. Through their 4.6 COMMUNICATION SERVICES regional and divisional level arrangements the various facilities Communication services are helpful to provided by postal department are the business for establishing links with broadly categorised into: the outside world viz., suppliers, (i) Financial facilities: These facilities customers, competitors etc. Business are provided through the post office’s does not exist in isolation, it has to savings schemes like Public Provident communicate with others for Fund (PPF), Kisan Vikas Patra, and transmission of ideas and information. National Saving Certificates in addition Communication services need to be to normal retail banking functions of very efficient, accurate and fast for them monthly income schemes, recurring to be effective. In this fast moving and deposits, savings account, time competitive world it is essential to have deposits and money order facility. Indian Postal Network Realities 1,54,149 post offices 5,64,701 letter boxes 1,575 crore mails every year 5,01,716 villages with public telephones (84 per cent of total villages) 26,000 post offices already connected through network Post Office Savings Bank is the largest retail bank of 1,50,000 plus branches Total collections at Rs. 200,000 crores Dedicated VSAT network via satellite of over 1200 post offices Speed Post facility for over 1000 destinations in India Links 97 major countries around the globe Source: www.indiapost.gov.in BUSINESS SERVICES 98 (ii) Mail facilities: Mail services consist 1. G r e e t i n g p o s t — A r a n g e o f of parcel facilities that is trans-mission delightful greeting cards for of articles from one place to another; every occasion. registration facility to provide security 2. Media post — An innovative of the transmitted articles and and effective vehicle for insurance facility to provide insurance Indian corporates to advertise cover for all risks in the course of their brand through postcards, transmission by post. envelopes, aerograms, tele- Postal department also offers allied grams, and also through facilities of the following types: letterboxes. General 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. BUSINESS SERVICES 99 (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. BUSINESS SERVICES 100 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) Radio paging services: Radio the department to collect bill Paging Service is an affordable means payment across the counter for of transmitting information to persons BSNL and Bharti Airtel. even when they are mobile. It is a one- way information broadcasting solution, Telecom Services and has spread its reach far and wide. World class telecommunications Radio paging services are available infrastructure is the key to rapid including tone only, numeric only and economic and social development of the alpha/numeric paging. country. It is in fact the backbone of (iii) Fixed line services: These are all every business activity. In today’s world types of fixed services including voice the dream of doing business across and non-voice messages and data continents will remain a dream in the services to establish linkages for long absence of telecom infrastructure. distance traffic. These utilise any type There have been far reaching of network equipment primarily developments in the convergence of connected through fiber optic cables telecom, IT, consumer electronics and laid across the length and breadth of media industries worldwide. the country. The also provide inter Recognising the potential in enhancing connectivity with other types of telecom quality of life and to facilitate India’s services. vision of becoming IT super power by (iv) Cable services: These are linkages the year 2025, new Telecom Policy and switched services within a licensed Framework 1999 and Broadband area of operation to operate media Policy 2004 were developed by the services, which are essentially one way Government of India. Through this entertainment related services. The two framework the government intends to way communication including voice, BUSINESS SERVICES 101 data and information services through set top box. The service provider of DTH cable network would emerge significantly services provides a bouquet of multiple in the future. Offering services through channels. It can be viewed on our the cable network would be similar to television without being dependent on providing fixed services. the services provided by the cable (v) VSAT services: VSAT (Very Small network services provider. Aperture Terminal) is a satellite-based communications service. It offers 4.7 TRANSPORTATION businesses and government agencies a highly flexible and reliable T ransportation comprises freight communication solution in both services together with supporting and urban and rural areas. Compared to auxiliary services by all modes of land-based services, VSAT offers transportation i.e., rail, road, air and the assurance of reliable and sea for the movement of goods and uninterrupted service that is equal to international carriage of passengers. or better than land-based services. It You have already studied the can be used to provide innovative comparative advantages and applications such as tele-medicine, disadvantages of different modes of newspapers-on-line, market rates and transportation in earlier classes. Their tele-education even in the most remote services are considered to be important areas of our country. for business since speed is of essence (vi) DTH services: DTH (Direct to in any business transaction. Also Home) is again a satellite based media transportation removes the hindrance services provided by cellular of place, i.e., it makes goods available companies. One can receive media to the consumer from the place of services directly through a satellite with production. We need to develop our the help of a small dish antenna and a transportation system to keep pace 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. BUSINESS SERVICES 102 with the requirements of our economy. logistics automation software’s for We need better infrastructure of roads warehouse management. with sufficient width and high quality. We have few ports and they too are Types of Warehouses congested. Both government and (i) Private warehouses: Private industry needs to be proactive and view warehouses are operated, owned or the effective functioning of this service leased by a company handling their as a necessity for providing a lifeline to own goods, such as retail chain a business services. In sectors like stores or multi-brand multi-product agriculture and food, there are massive companies. As a general rule an efficient losses of product in the process of warehouse is planned around a transportation and storage. material handling system in order to encourage maximum efficiency of Warehousing product movement. The benefit of Storage has always been an important private warehousing includes control, aspect of economic development. The flexibility, and other benefits like warehouse was initially viewed as a improved dealer relations. static unit for keeping and storing (ii) Public warehouses: Public goods in a scientific and systematic warehouses can be used for storage of manner so as to maintain their original goods by traders, manufacturers or quality, value and usefulness. any member of the public after the The typical warehouse received payment of a storage fee or charges. merchandise by rail, truck or bullock The government regulates the operation cart. The items were moved manually of these warehouses by issuing licences to a storage within the warehouse and for them to private parties. hand piled in stacks on the floor. They The owner of the warehouse stands are used by manufacturers, importers, as an agent of the owner of the goods exporters, wholesalers, transport and is expected to take appropriate care business, customs etc., in India. of the goods. Today’s warehouses have ceased to These warehouses provide other be a mere storage service providers and facilities also like transportation by rail have really become logistical service and road. They are responsible for the providers in a cost efficient manner. full safety of the goods. Small That is making available the right manufacturers find it very convenient quantity, at the right place, in the right as they cannot afford to construct their time, in the right physical form at the own warehouses. right cost. Modern warehouses are The other benefits include flexibility automated with automatic conveyors, in the number of locations, no fixed cost computer operated cranes and forklifts and capability of offering value added for moving goods and also usage of services like packaging and labelling. BUSINESS SERVICES 103 (iii) Bonded warehouses: Bonded (v) Cooperative warehouses: Some warehouses are licensed by the marketing cooperative societies or government to accept imported goods agricultural cooperative socities have prior to payment of tax and customs set up their own warehouses for duty. These are goods which are members of their cooperative society. imported from other countries. Importers are not permitted to remove Functions of warehousing goods from the docks or the airport till customs duty is paid. The functions of warehousing are At times, importers are not in a discussed as follows: position to pay the duty in full or does (a) Consolidation: In this function not require all the goods immediately. the warehouse receives and The goods are kept in bonded consolidates, materials/goods from warehouses by the customs authorities different production plants and till the customs duty is paid. These dispatches the same to a particular goods are said to be in bond. customer on a single transportation These warehouses have facilities for shipment. branding, packaging, grading and blending. Importers may bring their Plant A buyers for inspection of goods and repackage them according to their requirements. Thus, it facilitates Consolidation Plant B A/B/C marketing of goods. Warehouses Goods can be removed in part as and when required by the importers Plant C and buyers, and import duty can be paid in instalments. The importer need not block funds (b) Break the bulk: The warehouse for payment of import duties before the performs the function of dividing goods are sold or used. Even if he wishes the bulk quantity of goods received to export the goods kept in the bonded from the production plants into warehouse he may do so without smaller quantities. These smaller payment of customs duty. Thus, bonded quantities are then transported warehouses facilitate entrepot trade. according to the requirements of (iv) Government warehouses: These clients to their places of business. warehouses are fully owned and managed by the government. The Customer A government manages them through organisations set up in the public Break -Bulk PLANT A Customer B sector. For example, Food Corporation Warehouse of India, State Trading Corporation, and Central Warehousing Corporation. Customer C BUSINESS SERVICES 104 Central Warehousing Corporation At present a central government undertaking CWC i.e., Central Warehousing Corporation provides these services for businessmen across the country. Private warehousing companies like TCI, Shanker International, Blue Dart, DHL etc., are providing cargo facilities of both transportation and warehousing. (c) Stock piling: The next function of be opened and repackaged and warehousing is the seasonal storage labelled again at the time of of goods to select businesses. Goods inspection by prospective buyers. or raw materials which are not Grading according to quantity and required immediately for sale or dividing goods in smaller lots is manufacturing are stored in another function. warehouses. They are made available (e) Price stablisation: By adjusting to business depending on customers the supply of goods with the demand. Agricultural products demand situation, warehousing which are harvested at specific times performs the function of stabilising with subsequent consumption prices. Thus, prices are controlled through out the year also need to be when supply is increasing and stored and released in lots. demand is slack and vice versa. (d) Value added services: Certain (f) Financing: Warehouse owners value added services are also advance money to the owners on provided by the warehouses, such security of goods and further as in transit mixing, packaging and supply goods on credit terms to labelling. Goods sometimes need to customers. BUSINESS SERVICES 105 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, BUSINESS SERVICES 106 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. BUSINESS SERVICES 107 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 BUSINESS SERVICES 108 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 BUSINESS SERVICES 109 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 c. Central Warehousing Corporation d. Central Water Corporation Short Answer Questions 1. Define services and goods. 2. What is e-banking. What are the advantages of e-banking? 3. Write a note on various telecom services available for enhancing business. 4. Explain briefly the principles of insurance with suitable examples. 5. Explain warehousing and its functions. Long Answer Questions 1. What are services? Explain their distinct characteristics? 2. Explain the functions of commercial banks with an example of each. 3. Write a detailed note on various facilities offered by Indian Postal Department. 4. Describe various types of insurance and examine the nature of risks protected by each type of insurance. 5. Explain in detail the warehousing services. Projects/Assignments 1. Identify a list of various services you use on a regular basis and identify their distinct characteristics. 2. Do a project on banking services. Approach a nearby bank and collect information about various facilities offered by them and also collect leaflets about salient features of different schemes. Compile and suggest what extra services you feel the bank should be providing.