Gr-11 Chap 4 PDF Business Services

Chapter 4 Business Services LEARNING OBJECTIVES After studying this chapter, you should be able to: state the characteristics of services; distinguish...

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. 2024-25 Chapter 4.indd 79 31-12-2020 11:55:08  80 BUSINESS  STUDIES 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. 4.1 Introduction the item or good and the service performed. You must all have, at some time or the For a layperson, services are other experienced the effect of business essentially intangibles. Their purchase activities on your lives. Let us examine does not result in the ownership of few examples of business activity i.e., anything physical. For example, you purchasing ice cream from a store can only seek advice from the doctor, and eating ice cream in a restaurant, you cannot purchase him. Services are watching a movie in a cinema hall all those economic activities that are purchasing a school bus and leasing intangible and imply an interaction to it from a transporter. If you analyse be realised between the service provider all these activities, you will observe and the consumer. that there is a difference between Services are those separately purchasing and eating, purchasing identifiable, essentially intangible and watching and purchasing and activities that provides satisfaction of leasing. What is common in all of them wants, and are not necessarily linked to is that one is purchasing an item and the sale of a product or another service. the other is experiencing a service. But A good is a physical product capable there is definitely a difference between of being delivered to a purchaser and 2024-25 Chapter 4.indd 80 31-12-2020 11:55:08  BUSINESS SERVICES 81 involves the transfer of ownership from (iii) Inseparability: Another seller to customer. Goods are also important characteristic of services generally used to refer to commodities is the simultaneous activity of or items of all types, except services, production and consumption being involved in trade or commerce. performed. This makes the production and consumption of services seem 4.2 Nature of Services to be inseparable. While we can There are five basic features of services. manufacture a car today and sell These features also distinguish them it after, say, a month; this is often from goods and are known as the not possible with services that have five Is of services. These are discussed to be consumed as and when they as below: are produced. Service providers may (i) Intangibility: Services are design a substitute for the person by intangible, i.e., they cannot be touched. using appropriate technology but the They are experiential in nature. One interaction with the customer remains cannot taste a doctor’s treatment, a key feature of services. Automated or touch entertainment. One can Teller Machines (ATMs) may replace only experience it. An important the banking clerk for the front office implication of this is that quality of activities like cash withdrawal and the offer can often not be determined cheque deposit. But, at the same before consumption and, therefore, time, the presence of the customer, is purchase. It is, therefore, important required and his/her interaction with for the service providers that they the process has to be managed. consciously work on creating a desired (iv) Inventory (Less): Services have service so that the customer undergoes little or no tangible components a favourable experience. For example, and, therefore, cannot be stored for treatment by a doctor should be a a future use. That is, services are favourable experience. perishable and providers can, at best, (ii) Inconsistency: The second store some associated goods but not important characteristic of services the service itself. This means that is inconsistency. Since there is no the demand and supply needs to be standard tangible product, services managed as the service has to be have to be performed exclusively performed as and when the customer each time. Different customers have different demands and expectations. asks for it. They cannot be performed Service providers need to have an earlier to be consumed at a later date. opportunity to alter their offer to For example, a railway ticket can be closely meet the requirements of the stored but the railway journey will be customers. This is happening, for experienced only when the railways example, in the case of mobile services. provides it. 2024-25 Chapter 4.indd 81 31-12-2020 11:55:08  82 BUSINESS  STUDIES (v) Involvement: One of the most sold at the consumption point, there important characteristics of services are no inventories. On the basis of is the participation of the customer above features, we can have following in the service delivery process. A points of distinction between goods customer has the opportunity to get and services. the 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 the following pages. of 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 conduct of their activities. For example, an act which cannot be taken home. banking, insurance, transportation, What we can take home is the effect warehousing and communication of the services. And as the services are 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 having Different customers getting Inconsistency different demands e.g., mobile standardised demands services fulfilled. 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., Inventory experience of a train journey train journey 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 2024-25 Chapter 4.indd 82 31-12-2020 11:55:08  BUSINESS SERVICES 83 (ii) Social Services: Social services and more dependant on specialised are those services that are generally business services. Business enterprises provided voluntarily in pursuit of look towards banks for availability certain social goals. These social goals of funds; insurance companies for may be to improve the standard of getting their plant, machinery, goods, living for weaker sections of society, etc., insured; transport companies for to 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 to cover their costs. For example, rapid change in the service industry in health care and education services India. 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 part of their business operations to be consistent in nature. They will be performed in India. We will discuss differ depending upon the service these in detail in the next chapter. provider. They will also depend upon customer’s preferences and demands. 4.4 Banking 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. understanding of the business A banking company in India is the world, we will be limiting our one which transacts the business of further discussions to the first category banking which means accepting, for of the service sector i.e., business the purpose of lending and investment services. of deposits of money from the public, repayable on demand or otherwise 4.3.1 Business Services and withdrawable by cheques, draft, Today’s world is of tough competition, order or otherwise. In simple terms, where the survival of the fittest is a bank accepts money on deposits, the rule. There is no room for non- repayable on demand and also earns performance, and hence companies a margin of profit by lending money. A tend to stick to what they can do best. bank stimulates economic activity in the In order to be competitive, business market by dealing in money. It mobilises enterprises, are becoming more the savings of people and makes funds 2024-25 Chapter 4.indd 83 31-12-2020 11:55:08  84 BUSINESS  STUDIES available to business financing their Public sectors banks are those in capital and revenue expenditure. It which the government has a major also deals in financial instruments and stake and they usually need to provides financial services for a price, emphasise on social objectives than i.e., interest, discount, commission, etc. on profitability. Private sector banks 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 owned, managed and controlled by private promoters and they are free The focus of banking is varied, the to operate as per market forces. There needs diverse and methods different. are a number of public sector banks Thus, we need distinctive kinds of like SBI, PNB, IOB etc., and other banks to cater to the above mentioned private sector banks represented complexities. by HDFC Bank, ICICI Bank, Kotak Banks can be classified into the Mahindra Bank and Jammu and following: Kashmir Bank. 1. Commercial banks (ii) Cooperative Banks: Cooperative 2. Cooperative banks Banks are governed by the provisions 3. Specialised banks of State Cooperative Societies Act and meant essentially for providing 4. Central bank cheap credit to their members. It is an (i) Commercial Banks: Commercial important source of rural credit, i.e., banks are institutions dealing in agricultural financing in India. money. These are governed by Indian (iii) Specialised Banks: Specialised Banking Regulation Act 1949 and banks are foreign exchange banks, according to it banking means industrial banks, development banks, accepting deposits of money from the export-import banks catering to public for the purpose of lending or specific needs of these unique activities. investment. There are two types of These banks provide financial aid to commercial banks, public sector and industries, heavy turnkey projects private sector banks. and foreign trade. 2024-25 Chapter 4.indd 84 31-12-2020 11:55:09  BUSINESS SERVICES 85 (iv) Central Bank: The Central bank premature withdrawal is permissible of any country supervises, controls with a percentage of interest being and regulates the activities of all the forfeited. commercial banks of that country. It ( i i ) L e n d i n g o f f u n d s : Second also acts as a government banker. major activity of commercial banks It controls and coordinates currency is to provide loans and advances and credit policies of any country. The out of the money received through Reserve Bank of India is the central deposits. These advances can be bank of our country. made in the form of overdrafts, cash credits, discounting trade bills, term 4.4.2 Functions of Commercial loans, consumer credits and other Banks miscellaneous advances. The funds lent out by banks contribute a great Banks perform a variety of functions. deal to trade, industry, transport and Some of them are the basic or primary other business activities. functions of a bank while others are (iii) Cheque facility: Banks render agency or general utility services in a 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 deposits. Current account deposits (b) crossed cheques which are to be can be withdrawn to the extent of the deposited only in the payees account. balance at any time without any prior (iv) Remittance of funds: Another notice. salient function of commercial banks is Savings accounts are for of providing the facility of fund transfer encouraging savings by individuals. from one place to another, on account Banks pay rate of interest as decided of the interconnectivity of branches. by RBI on these deposits. Withdrawal The transfer of funds is administered from these accounts has some by using bank drafts, pay orders or restrictions in relation to the amount mail transfers, on nominal commission as well as number of times in a given charges. The bank issues a draft for period. Fixed accounts are time the amount on its own branches at deposits with higher rate of interest as other places or other banks at those compared to the savings accounts. A places. The payee can present the draft 2024-25 Chapter 4.indd 85 31-12-2020 11:55:09  86 BUSINESS  STUDIES on the drawee bank at his place and internet. These type of services provided collect the amount. by the banks on the internet, called (v) Allied services: In addition to e-banking, lowers the transaction cost, above functions, banks also provide adds value to the banking relationship allied services such as bill payments, and empowers customers. e-banking locker facilities, underwriting services. is electronic banking or banking using They also perform other services electronic media. Thus, e-banking is a like buying and selling of shares service provided by many banks, that and debentures on instructions and allows, a customer to conduct banking other personal services like payment transactions, such as managing of insurance premium, collection of savings, checking accounts, applying dividend etc. for loans or paying bills over the internet using a personal computer, 4.4.3 e-Banking mobile telephone or handheld computer (personal digital assistant) The growth of Internet and e-commerce The range of services offered by is dramatically changing everyday life, with the world wide web and e-banking are: 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 and Electronic bank banking and another delivery channel transfer (EFT). The two ways in which for customers. EFT can be done are: NEFT (National In simple terms, Internet banking Electronic Fund Transfer) and RTGS means any user with a PC and a (Real Time Gross Settlement). browser can get connected to the banks website to perform any of the Benefits virtual banking functions and avail There are various benefits of e-banking of any of the bank’s services. There provided to customers which are: is no human operator to respond to (i) E-banking facilitates digital the needs of the customer. The bank payments and promotes has a centralised data base that is transparency in financial web-enabled. All the services that the statements. bank has permitted on the internet are (ii) e-banking provides 24 hours, displayed on a menu. Any service can 365 days a year services to the be selected and further interaction is customers of the bank; dictated by the nature of service. (iii) Customers can make some of the In this new digital market place permitted transactions from office banks and financial institutions have or house or while travelling via started providing services over the mobile telephone; 2024-25 Chapter 4.indd 86 31-12-2020 11:55:09  BUSINESS SERVICES 87 Types of Digital Payments 2024-25 Chapter 4.indd 87 31-12-2020 11:55:09  88 BUSINESS  STUDIES (iv) It inculcates a sense of financial buildings or heavy equipments or other discipline by recording each and assets is not possible unless there is every transaction; arrangement for covering the risks, (v) Greater customer satisfaction by with the help of insurance. Keeping offering unlimited access to the this in mind, people facing common bank, not limited by the walls risks come together and make small of the branch and less risk and contributions to a common fund, greater security to the customer which helps to spread the loss caused as they can avoid travelling with to an individual by a particular risk cash. over a number of persons who are The banks also stand to gain by exposed to it. e-banking. The benefits are: Insurance is thus a device by (i) e-banking provides competitive which the loss likely to be caused by advantage to the bank; an uncertain event is spread over a (ii) e-banking provides unlimited number of persons who are exposed network to the bank and is not to it and who prepare to insure limited to the number of branches, themselves against such an event. Any PC connected to a modem and It is a contract or agreement under a telephone having an internet which one party agrees in return for a connection can provide cash withdrawl needs of the customer; consideration to pay an agreed amount (iii) L o a d o n b r a n c h e s c a n b e of money to another party to make a considerably reduced by loss, damage or injury to something establishing centralised data of value in which the insured has a base and by taking over some of pecuniary interest as a result of some the accounting functions. uncertain event. The agreement/ contract is put in writing and is known 4.5 Insurance as ‘policy’. The person whose risk is Life is full of uncertainties. The chances insured is called ‘insured’ and the firm of occurrence of an event causing losses which insures the risk of loss is known are quite uncertain. There are risks of as insurer/assurance underwriter. death and disability for human life; fire 4.5.1 Fundamental principle of and burglary risk for property; perils Insurance of the sea for shipment of goods and, so on. If any of these takes place, the The basic principle of insurance is that individuals and/or, organisations may an individual or a business concern suffer a great loss, sometimes beyond chooses to spend a definitely known their capacities to bear the same. It sum in place of a possible huge amount is to minimise the impact of such involved in an indefinite future loss. uncertainties that there is a need Thus insurance is the substitution of for insurance. Investment in factory a small periodic payment (premium) 2024-25 Chapter 4.indd 88 31-12-2020 11:55:09  BUSINESS SERVICES 89 for a risk of large possible loss. The risk of loss. There are uncertainties loss of risk still remains but the loss of happenings of time and amount is spread over a large number of of loss. Insurance removes these policyholders exposed to the same risk. uncertainties and the assured receives The premium paid by them are pooled payment of loss. The insurer charges out of which the loss sustained by any premium for providing the certainity. policy holder is compensated. Thus, (ii) Protection: The second main risks are shared with others. From the function of insurance is to provide analysis of past events the insurer (an protection from probable chances insurance company or an underwriter) of loss. Insurance cannot stop the knows the probable losses caused by happening of a risk or event but can each type of risk covered by insurance. compensate for losses arising out of it. Insurance, therefore, is a form of (iii) Risk sharing: On the happening risk management primarily used to of a risk event, the loss is shared by all safe guard against the risk of potential the persons exposed to it. The share is financial loss. Ideally, insurance is obtained from every insured member defined as the equitable transfer of the by way of premiums. risk of a potential loss, from one entity (iv) Assist in capital formation: The to another, in exchange for a reasonable accumulated funds of the insurer fee. Insurance company, therefore, is received by way of premium payments an association, corporation or an made by the insured are invested in organisation engaged in the business various income generating schemes. of paying all legitimate claims that may arise, in exchange for a fee (known as 4.5.3 Principles of Insurance premium). Insurance is a social device in The principles of insurance are the which a group of individuals (insured) rules of action or conduct adopted transfers risk to another party (insurer) by the stakeholders involved in the in order to combine loss experience, insurance business. The specific which provides for payment of losses principles of utmost significance to a from funds contributed (premium) valid insurance contract consists of by all members. Insurance is meant to the following: protect the insured, against uncertain (i) Utmost good faith: A contract of events, which may cause disadvantage insurance is a contract of uberrimae to him. fidei i.e., a contract found on utmost good faith. Both the insurer and the 4.5.2 Functions of Insurance insured should display good faith The various functions of insurance are towards each other in regard to the as follows: contract. It is the duty of the insured (i) Providing certainty: Insurance to voluntarily make full, accurate provides certainity of payment for the disclosure of all facts, material to the 2024-25 Chapter 4.indd 89 31-12-2020 11:55:09  90 BUSINESS  STUDIES risk being proposed and the insurer to (iii) Indemnity: All insurance make clear all the terms and conditions contracts of fire or marine insurance in the insurance contract. Thus, it is are contracts of indemnity. According binding on the proposer to disclose all to it, the insurer undertakes to put material facts about the subject matter the insured, in the event of loss, in of the proposed insurance. Any fact, the same position that he occupied which is likely to affect the mind of a immediately before the happening of prudent insurer in deciding to accept the event insured against. In other the proposal of insurance or in fixing words the insurer undertakes to the rate of premium is material for this compensate the insured for the loss purpose. Failure to make disclosure of caused to him/her due to damage or material facts by the insured makes destruction of property insured. The the contract of insurance voidable at compensation payable and the loss the discretion of the insurer. suffered are to be measured in terms (ii) Insurable Interest: The insured of money. The principle of indemnity is must have an insurable interest in not applicable to life insurance. the subject matter of insurance. One (iv) Proximate Cause: According to fundamental fact of this principle this principle, an insurance policy is is that ‘it is not the house, ship, designed to provide compensation only machinery, potential liability of life for such losses as are caused by the that is insured, but it is the pecuniary perils which are stated in the policy. interest of the insured in them, When the loss is the result of two or which is insured.’ Insurable interest more causes, the proximate cause means some pecuniary interest in means the direct, the most dominant the subject matter of the insurance and most effective cause of which contract. The insured must have an the loss is the natural consequence. interest in the preservation of the In case of loss arising out of any thing or life insured, so that he/she mishap, the most proximate cause will suffer financially on the happening of the mishap should be taken into of the event against which he/she consideration. is insured. In case of insurance of (v) Subrogation: It refers to the right property, insurable interest of the of the insurer to stand in the place insured in the subject matter of the of the insured, after settlement of a insurance must exist at the time of claim, as far as the right of insured in happening of the event. In order to respect of recovery from an alternative name insurable interest however, it is source is involved. After the insured is not necessary that one should be the compensated for the loss or damage to owner of the property. For example, the property insured by him/her the a trustee holding property on behalf right of ownership of such property of others has an insurable interest in passes on to the insurer. This is the property. because the insured should not be 2024-25 Chapter 4.indd 90 31-12-2020 11:55:09  BUSINESS SERVICES 91 allowed to make any profit, by selling business. Broadly speaking, insurance the damaged property or in the case of may be classified as follows: lost property being recovered. (vi) Contribution: As per this principle Life Insurance 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 other liable insurers to contribute for of a certain sum of money in the future the loss of payment. It implies, that in to 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 The risk may be of an event which is 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 of his actual loss. If the full amount is a 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 save them from fire to minimise the the uncertainity of life. But gradually loss or damage. The insured must its scope has widened and there are behave with great prudence and not various types of insurance policies available to suit the requirements of be careless just because there is an an individual. For example, disability insurance cover. If reasonable care is insurance, health/medical insurance, not taken like any prudent person then annuity insurance and life insurance the claim from the insurance company proper. may be lost. Life insurance may be defined as a contract in which the insurer in 4.5.4 Types of Insurance consideration of a certain premium, Various types of insurance exist either in a lump sum or by other by virtue of practice of insurance periodical payments, agrees to pay to companies and the influence of legal the assured, or to the person for whose enactments controlling the insurance benefit the policy is taken, the assured 2024-25 Chapter 4.indd 91 31-12-2020 11:55:09  92 BUSINESS  STUDIES sum of money, on the happening of a sort of investment because a certain a specified event contingent on the sum is returnable to the insured at human life or at the expiry of certain the time of death or at the expiry of a period. Thus, the insurance company certain period. undertakes to insure the life of a Life insurance also encourages person in exchange for a sum of money savings as the amount of premium has called premium. This premium may be to be paid regularly. It thus, provides paid in one lump sum, or periodically a sense of security to the insured and i.e., monthly, quarterly, half yearly or his dependents. yearly. At the same time, the company The general principles of insurance promises to pay a certain sum of money discussed in the previous section either on the death of the person or on apply to life insurance also with a few his attaining a certain age (i.e., the exceptions. The main elements of a life expiry of certain period). Thus, the insurance contract are: person is sure that a specified amount (i) The life insurance contract will be given to him when he attains a must have all the essentials of a certain age or that his dependents will valid contract. Certain elements get that sum in the event of his death. like offer and acceptance, free This agreement or contract which consent, capacity to enter into contains all the terms and conditions a contract, lawful consideration is put in writing and such document is and lawful object must be present called the policy. The person whose life for the contract to be valid; is insured is called the assured. The (ii) The contract of life insurance is a insurance company is the insurer and contract of utmost good faith. The the consideration paid by the assured assured should be honest and is the premium. The premium can be truthful in giving information to paid periodically in instalments. the insurance company. He must This insurance provides protection disclose all material facts about to the family at the premature death or his health to the insurer. It is his gives adequate amount at old age when duty to disclose accurately all earning capacities are reduced. The material facts known to him even insurance is not only a protection but is if the insurer does not ask him; 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. 2024-25 Chapter 4.indd 92 31-12-2020 11:55:09  BUSINESS SERVICES 93 (iii) In life insurance, the insured an insurable interest in the life of must have insurable interest his debtor, and a proprietor of a in the life assured. Without drama company has an insurable insurable interest the contract interest in the lives of the actors; of insurance is void. In case of (iv) Life insurance contract is not a life insurance, insurable interest contract of indemnity. The life must be present at the time when of a human being cannot be the insurance is affected. It is compensated and only a specified not necessary that the assured sum of money is paid. That is should have insurable interest why the amount payable in life at the time of maturity also. For insurance on the happening of the example, a person is presumed event is fixed in advance. The sum to have an interest in his own life of money payable is fixed, at the and every part of it, a creditor has time of entering into the contract. 2024-25 Chapter 4.indd 93 31-12-2020 11:55:09  94 BUSINESS  STUDIES A contract of life insurance, (ii) Endowment Life Assurance therefore, is not a contract of Policy: The insurer (Insurance indemnity. Company) undertakes to pay a specified sum when the insured Types of life insurance policies attains a particular age or on his death which ever is earlier. The sum is The document containing the written payable to his legal heir/s or nominee contract between the insurer and named therein in case of death of the the insured alongwith the terms and assured. Otherwise, the sum will be conditions of insurance is called the paid to the assured after a fixed period Policy. After the proposal form is i.e., till he/she attains a particular age. filled by the insured (or the proposer) Thus, the endowment policy matures and the insurer (insurance company) after a limted number of years. accepts the form and the premium, a (iii) Joint Life Policy: This policy is policy is issued to the insurer. taken up by two or more persons. The People have different requirements premium is paid jointly or by either and therefore they would like a policy of them in instalments or lump sum. to fulfill all their needs. The needs of The assured sum or policy money people for life insurance can be family is payable upon the death of any needs, children’s needs, old age and one person to the other survivor or special needs. To meet the needs of survivors. Usually this policy is taken people the insurers have developed up by husband and wife jointly or by different types of products such as two partners in a partnership firm Whole Life Assurance, Endowment where the amount is payable to the type plans, combination of Whole survivor on the death of either of the Life and Endowment type plans, two. Children’s Assurance plans and (iv) Annuity Policy: Under this policy, Annuity plans. Some of these are the assured sum or policy money is explained below: payable after the assured attains a (i) Whole Life Policy: In this kind certain age in monthly, quarterly, of policy, the amount payable to half yearly or annual instalments. The the insured will not be paid before premium is paid in instalments over a the death of the assured. The sum certain period or single premium may then becomes payable only to the be paid by the assured. This is useful beneficiaries or heir of the deceased. to those who prefer a regular income The premium will be payable for after a certain age. a fixed period (20 or 30 years) or for (v) Children’s Endowment Policy: the whole life of the assured. If the This policy is taken by a person for premium is payable for a fixed period, his/her children to meet the expenses the policy will continue till the death of of their education or marriage. The the assured. agreement states that a certain sum 2024-25 Chapter 4.indd 94 31-12-2020 11:55:09  BUSINESS SERVICES 95 will be paid by the insurer when subject matter of the insurance. the children attain a particular age. Without insurable interest the The premium is paid by the person contract of insurance is void. entering into the contract. However, no In case of fire insurance, unlike premium wil be paid, if he dies before life insurance insurable interest the maturity of the policy. must be present both at the time of insurance and at the time of Fire Insurance loss. For example, a person has insurable interest in the property Fire insurance is a contract whereby he owns, a businessman has the insurer, in consideration of the insurable interest in his stock, premium paid, undertakes to make plant, machinery and building, good any loss or damage caused by an agent has an insurable interest fire during a specified period upto in the property of his principal, a the amount specified in the policy. partner has insurable interest in Normally, the fire insurance policy is the property of a partnership firm, for a period of one year after which it and a mortgagee has insurable is to be renewed from time to time. The interest in the property, which is premium may be paid either in lump mortgaged. sum or instalments. A claim for loss (ii) Similar to the life insurance by fire must satisfy the two following contract, the contract of fire conditions: insurance is a contract of utmost (i) There must be actual loss; and good faith i.e., uberrimae fidei. (ii) Fire must be accidental and non- The insured should be truthful intentional. and honest in giving information The risk covered by a fire insurance to the insurance company contract is the loss resulting from regarding the subject matter of fire or some other cause, and which the insurance. He is duty-bound is the proximate cause of the loss. If to disclose accurately all facts overheating without ignition causes regarding the nature of property damage, it will not be regarded as a and risks attached to it. The fire loss within the meaning of fire insurance company should also insurance and the loss will not be disclose the facts of the policy to recoverable from the insurer. the proposer. A fire insurance contract is based (iii) The contract of fire insurance is a on certain fundamental principles contract of strict indemnity. The which have been discussed in general insured can, in the event of loss, principles. The main elements of a fire recover the actual amount of loss insurance contract are: from the insurer. This is subject to (i) In fire insurance, the insured must the maximum amount for which have insurable interest in the the subject matter is insured. For 2024-25 Chapter 4.indd 95 31-12-2020 11:55:09  96 BUSINESS  STUDIES example, if a person has insured a certain sum of money is paid by his house for ` 4,00,000 the the insured in consideration for the insurer is not necessarily liable guarantee/protection he gets. Marine to pay that amount, although insurance is slightly different from the house may have been totally other types. There are three things destroyed by fire; but he will pay involved i.e., ship or hull, cargo or the actual loss after deducting goods, and freight. depreciation within the maximum (a) Ship or hull insurance: Since the limit of ` 4,00,000. The purpose ship is exposed to many dangers being that a person should not be at sea, the insurance policy is for allowed to gain by insurance. indemnifying the insured for losses (iv) The insurer is liable to compensate caused by damage to the ship. only when fire is the proximate (b) Cargo insurance: The cargo while cause of damage or loss. being transported by ship is subject to many risks. These may be at Marine Insurance port i.e., risk of theft, lost goods or on voyage etc. Thus, an insurance A marine insurance contract is an policy can be issued to cover agreement whereby the insurer against such risks to cargo. undertakes to indemnify the insured in (c) Freight insurance: If the cargo the manner and to the extent thereby does not reach the destination agreed against marine losses. Marine due to damage or loss in transit, insurance provides protection against the shipping company is not paid loss by marine perils or perils of the freight charges. Freight insurance sea. Marine perils are collision of ship is for reimbursing the loss of freight with the rock, or ship attacked by the to the shipping company i.e., the enemies, fire and captured by pirates insured. and actions of the captains and crew The fundamental principles of of the ship. These perils cause damage, marine insurance are the same as the destruction or disappearance of the general principles. The main elements ship and cargo and non-payment of of a marine insurance contract are: freight. So, marine insurance insures (i) Unlike life insurance, the contract ship hull, cargo and freight. Thus, it is a of marine insurance is a contract device wherein the insurer undertakes of indemnity. The insured can, to compensate the owner of a ship or in the event of loss recover the cargo for complete or partial loss at sea. actual amount of loss from the The insurer gurantees to make good the insurer. Under no circumstances, losses due to damage to the ship or the insured is allowed to make cargo arising out of the risks incidental profit out of the marine insurance to sea voyages. The insurer in this contract. But cargo policies case is known as the underwriter and provide commercial indemnity 2024-25 Chapter 4.indd 96 31-12-2020 11:55:09  BUSINESS SERVICES 97 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 1. Subject 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 elements of protection has only the 2. Element of protection and and investment or element of not the element of both. protection. investment. Insurable interest Insurable interest on the subject Insurable interest must be present at matter must be must be present the time of effecting Insurable present both at the time when 3. the policy but need interest at the time of claim falls due or not be necessary at effecting policy as at the time of loss the time when the well as when the only. claim falls due. claim falls due. Life insurance policy usually exceeds a Marine insurance Fire insurance year and is taken for policy is for one or 4. Duration policy usually does longer periods ranging period of voyage or not exceed a year. from 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 amount of loss the market value 5. Indemnity paid either on the from the insurer. of the ship and happening of certain The loss due to the cost of goods event or on maturity fire is indemnified destroyed at sea of the policy. subject to the and the loss will maximum limit of be indemnified. the policy amount. Loss Loss is not Loss is Loss is 6. measurement measurable. measurable. measurable. 2024-25 Chapter 4.indd 97 31-12-2020 11:55:09  98 BUSINESS  STUDIES 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. In fire insurance, In marine the amount of insurance the One can insure for the policy cannot amount of the 8. Policy amount any amount in life be more than policy can be the insurance. the value of the market value of the subject matter. ship or cargo. The event i.e., The event i.e., There is an element of destruction by loss at sea may certainity. The event fire may not not occur and Contingency i.e., death of maturity happen. There 9. there may be no of risk or policy is bound to is an element of claim. There is happen. Therefore a uncertainity and an element of claim will be present. there may be no uncertainty. claim. rather than strict indemnity. The (iv) The principle of causa proxima insurers promise to indemnify the will apply to it. The insurance insured “in the manner and to the company will be liable to pay extent agreed.” In case of ‘Hull only if that particular or nearest Policy’, the amount insured is cause is covered by the policy. fixed at a level above the current For example, if a loss is caused market value; by several reasons then nearest (ii) Similar to life and fire insurance, cause of loss will be considered. the contract of marine insurance Refer to page 105 for types of is a contract of utmost good faith. insurance and social secuirty Both the insured and insurer scheme. must disclose everything, which is in their knowledge and can 4.6 Communication Services affect the insurance contract. Communication services are helpful The insured is duty-bound to to the business for establishing accurately disclose all facts links with the outside world viz., which include the nature of suppliers, customers, competitors etc. shipment and the risk of damage Business does not exist in isolation, it is exposed to; (iii) Insurable interest must exist at it has to communicate with others for the time of loss but not necessary transmission of ideas and information. at the time when the policy was Communication services need to taken; be very efficient, accurate and fast 2024-25 Chapter 4.indd 98 13-01-2021 09:41:44  BUSINESS SERVICES 99 for them to be effective. In this fast Postal department also offers allied moving and competitive world it is facilities of the following types: essential to have advanced technology 1. G r e e t i n g p o s t — A r a n g e o f for quick exchange of information. The delightful greeting cards for every electronic media is mainly responsible occasion. for this transformation. The main 2. Media post — An innovative services which help business can be and effective vehicle for classified into postal and telecom. Indian corporates to advertise their brand through postcards, Postal Services envelopes, aerograms, tele-grams, Indian post and telegraph department and also through letterboxes. provides various postal services across 3. Direct post is for direct advertising. India. For providing these services the It can be both addressed as well whole country has been divided into 22 as unaddressed. postal circles. These circles manage the 4. International Money Transfer day-to-day functioning of the various through collaboration with head post offices, sub-post offices Western Union financial services, and branch post offices. Through USA, which enables remittance their regional and divisional level of money from 185 countries to arrangements the various facilities India. provided by postal department are 5. Passport facilities — A unique broadly categorised into: partnership with the ministry ( i) Financial facilities: T h e s e of external affairs for facilitating facilities are provided through the passport application. post office’s savings schemes like 6. Speed Post: It has over 1000 Public Provident Fund (PPF), Kisan destinations in India and links Vikas Patra, and National Saving with 97 major countries across Certificates in addition to normal the globe. retail banking functions of monthly 7. e-bill post is the latest offering income schemes, recurring deposits, of the department to collect bill savings account, time deposits and payment across the counter for money order facility. BSNL and Bharti Airtel. (ii) Mail facilities: Mail services Telecom Services consist of parcel facilities that is transmission of articles from one World class telecommunications place to another; registration facility infrastructure is the key to rapid to provide security of the transmitted economic and social development of articles and insurance facility to the country. It is in fact the backbone provide insurance cover for all risks of every business activity. In today’s in the course of transmission by post. world the dream of doing business 2024-25 Chapter 4.indd 99 31-12-2020 11:55:09  100 BUSINESS  STUDIES across continents will remain a (iii) Cable services: These are linkages dream in the absence of telecom and switched services within a licensed infrastructure. There have been area of operation to operate media far reaching developments in the services, which are essentially one- convergence of telecom, IT, consumer way entertainment related services. electronics and media industries The two-way communication including worldwide. Recognising the potential voice, data and information services in enhancing quality of life and to through cable network would emerge facilitate India’s vision of becoming IT significantly in the future. Offering super power by the year 2025, new services through the cable network Telecom Policy Framework 1999 and would be similar to providing fixed Broadband Policy 2004 were developed services. by the Government of India. Through (iv) VSAT services: VSAT (Very Small this framework the government intends Aperture Terminal) is a satellite- to provide both universal services to based communications service. It all uncovered areas and high-level offers businesses and government services for meeting the needs of the agencies a highly flexible and reliable country’s economy. communication solution in both The various types of telecom urban and rural areas. Compared services are: to land-based services, VSAT offers (i) Cellular mobile services: These the assurance of reliable and are all types of mobile telecom uninterrupted service that is equal services including voice and non- to or better than land-based services. voice messages, data services and PCO It can be used to provide innovative services utilising any type of network applications such as tele-medicine, equipment within their service area. newspapers-on-line, market rates and They can also provide direct inter tele-education even in the most remote connectivity with any other type of areas of our country. telecom service provider. (v) DTH services: DTH (Direct to (ii) Fixed line services: These are Home) is again a satellite-based all types of fixed services including media services provided by cellular voice and non-voice messages and companies. One can receive media data services to establish linkages for services directly through a satellite long distance traffic. These utilise any with the help of a small dish antenna type of network equipment primarily and a set top box. The service provider connected through fiber optic cables of DTH services provides a bouquet of laid across the length and breadth multiple channels. It can be viewed on of the country. The also provide our television without being dependent inter connectivity with other types of on the services provided by the cable telecom services. network services provider. 2024-25 Chapter 4.indd 100 31-12-2020 11:55:09  BUSINESS SERVICES 101 4.7 Transportation of place, i.e., it makes goods available to the consumer from the place of Transportation comprises freight production. We need to develop our services together with supporting transportation system to keep pace and auxiliary services by all modes with the requirements of our economy. of transportation i.e., rail, road, We need better infrastructure of roads air and sea for the movement of with sufficient width and high quality. goods and international carriage of We have few ports and they too are passengers. You have already studied congested. Both government and the comparative advantages and industry needs to be proactive and disadvantages of different modes of view the effective functioning of this transportation in earlier classes. Their service as a necessity for providing services are considered to be important a lifeline to a business services. In for business since speed is of essence sectors like agriculture and food, there in any business transaction. Also are massive losses of product in the transportation removes the hindrance process of transportation and storage. 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. 2024-25 Chapter 4.indd 101 31-12-2020 11:55:09  102 BUSINESS  STUDIES (i) Insurable interest must exist at the time of loss but not necessarily at the time when the policy was taken. (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. 2024-25 Chapter 4.indd 102 31-12-2020 11:55:09  BUSINESS SERVICES 103 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. Warehousing right time, in the right physical form at the right cost. Modern warehouses are Storage has always been an important automated with automatic conveyors, aspect of economic development. The computer operated cranes and forklifts warehouse was initially viewed as a for moving goods and also usage of static unit for keeping and storing logistics automation software’s for goods in a scientific and systematic warehouse management. manner so as to maintain their original quality, value and usefulness. Types of Warehouses The typical warehouse received merchandise by rail, truck or bullock (i)  Private warehouses: Private cart. The items were moved manually warehouses are operated, owned or to a storage within the warehouse and leased by a company handling their hand piled in stacks on the floor. They own goods, such as retail chain are used by manufacturers, importers, stores or multi-brand multi-product exporters, wholesalers, transport companies. As a general rule an business, customs etc., in India. efficient warehouse is planned around Today’s warehouses have ceased a material handling system in order to be a mere storage service providers to encourage maximum efficiency of and have really become logistical product movement. The benefit of service providers in a cost efficient private warehousing includes control, manner. That is making available the flexibility, and other benefits like right quantity, at the right place, in the improved dealer relations. 2024-25 Chapter 4.indd 103 31-12-2020 11:55:09  104 BUSINESS  STUDIES 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. (ii) Public warehouses: Public prior to payment of tax and customs warehouses can be used for storage duty. These are goods which are imported of goods by traders, manufacturers from other countries. Importers are not or any member of the public after the permitted to remove goods from the payment of a storage fee or charges. The docks or the airport till customs duty government regulates the operation of is paid. these warehouses by issuing licences At times, importers are not in for them to private parties. a position to pay the duty in full The owner of the warehouse stands or does not require all the goods as an agent of the owner of the goods immediately. The goods are kept in and is expected to take appropriate bonded warehouses by the customs care of the goods. authorities till the customs duty is paid. These warehouses provide other These goods are said to be in bond. facilities also, like transportation by rail These warehouses have facilities and road. They are responsible for the for branding, packaging, grading and blending. Importers may bring their safety of the goods. Small manufacturers buyers for inspection of goods and find it convenient as they cannot afford repackage them according to their to construct their own warehouses. requirements. Thus, it facilitates The other benefits include flexibility marketing of goods. in the number of locations, no fixed Goods can be removed in part as cost and capability of offering value and when required by the importers added services, like packaging and and buyers, and import duty can be labelling. paid in instalments. (iii) Bonded warehouses: Bonded The importer need not block funds warehouses are licensed by the for payment of import duties before government to accept imported goods the goods are sold or used. Even if 2024-25 Chapter 4.indd 104 31-12-2020 11:55:09  BUSINESS SERVICES 105 he wishes to export the goods kept the bulk quantity of goods received in the bonded warehouse he may do from the production plants into so without payment of customs duty. smaller quantities. These smaller Thus, bonded warehouses facilitate quantities are then transported 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 Break -Bulk organisations set up in the public PLANT A Customer B Warehouse sector. For example, Food Corporation of India, State Trading Corporation, Customer C and Central Warehousing Corporation. (v) Cooperative warehouses: Some (c) Stock piling: The next function of marketing cooperative societies or warehousing is the seasonal storage agricultural cooperative socities have of goods to select businesses. set up their own warehouses for Goods or raw materials, which members of their cooperative society. are not required immediately for sale or manufacturing, are stored Functions of Warehousing in warehouses. They are made available to business depending on The functions of warehousing are customers’ demand. Agricultural discussed as follows: products which are harvested at (a) Consolidation: In this function specific times with subsequent the warehouse receives and consumption throughout the year consolidates, materials/goods also need to be stored and released from different production plants in lots. and dispatches the same to a (d) Value added services: Certain particular customer on a single value added services are also transportation shipmen