Indian General Insurance Market

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Introduction of a comprehensive act called The Insurance Act 1938

Government of India took over all Life Insurance Companies
The Insurance Act 1938 was amended to provide for social control,
minimum solvency margin and setting up of Tariff Advisory Committee
(TAC)
The General Insurance act was passed and Government of India took
over management of general insurance business
General Insurance Business Act (Nationalisation) was passed
General Insurance corporation of India came in to existence as a
Government Company. A year later 107 insurers practicing general
insurance business were grouped and merged to form four subsidiaries of
GIC namely
1. National Insurance Company Limited
2. The New India Assurance Company Limited
3. The oriental Insurance Company Limited
4. United India Insurance Company Limited
Introduction of Public Liability Insurance Act 1991 and Public liability
Insurance Rules 1991
The Malhothra Committee (set up by Government in 1993 under
chairmanship of Mr. R. N. Malhothra, former Governor of RBI to examine
potential reforms that could be undertaken in the insurance sector and
complement them with reforms initiated in other sectors) submitted its
report in January 1994 and recommended establishment of a strong and
effective Insurance Regulatory Authority
Insurance Ombudsman Redressal of Public Grievances Rules 1998, issued
Based on the Malhothra Committee Report, Insurance Regulatory and
Development Authority (IRDA) Act 1999 was passed in December 1999
and IRDA was established to regulate, promote and ensure orderly
growth of the insurance and reinsurance business
In addition to the existing government insurance companies, private
sector companies were licensed by IRDA to conduct general insurance
business
General Insurance Business Amendment Act 2002 It was amended to
restructure the subsidiaries of GIC in to independent companies and GIC
was converted in to national reinsurer.
IRDA introduced the concept of Brokers in the Indian Insurance Market

Non Life Insurance Segmentation

General Insurance Companies

Companies conducting all lines of Non Life Insurance business

Standalone Health Insurance companies

Agricultural Insurance company
Export Credit Guarantee Corporation of India (ECGC)
Reinsurance company
State Government Insurance Department Funds

Companies conducting all lines of Non Life Insurance business

All the 4 Government subsidiaries and private companies do these non life
businesses in India and there are 24 non life insurance companies including 4
public sector companies transacting General Insurance business in India.
Health Insurance Companies
IRDA issued license to companies to transact only Health Insurance Business.
Star Health and Allied Insurance Co. Ltd., Max Bupa Health Insurance, Apollo
munich Health Insurance, Religare Health Insurance Co. and Cigna TTK Health
Insurance Co. were the stand alone health insurance companies licensed by IRDA
to transact only health insurance business
Agriculture Insurance Company
Agriculture Insurance Company of India Limited (AICL) opened for business in
2003. It was established in 2002 with the aim of promoting crop insurance
business and to protect farmers against losses suffered due to natural calamities.
The share capital for AICL was provided by GIC, NABARD and 4 public sector non
life insurance companies with the head quarter in New Delhi.
Credit Insurance Company
The Export Credit Guarantee Corporation of India Limited commenced business
in 1957 and provides export credit insurance support to Indian Exporters. ECGC
is owned by government of India and is the fifth largest credit insurer in the
world in terms of coverage of national exports. ECGC offers

Overseas Investment Insurance to Indian companies

Various credit risk insurance covers to exporters against loss in exports
Offers guarantee to Banks and Financial Institutions in respect of exports

Reinsurance Company GIC was originally the holding company for 4 public
sector General Insurance Companies. Later in 2000, GIC was approved as an
Indian Reinsurer with the aim of optimising retention of reinsurance business
within the country and developing adequate reinsurance capacity.

GIC manages the Indian Insurance pools in behalf of the industry. The following
are the pools managed by GIC
Marine Hull Pool
Terrorism pool
Indian Motor Third Party Pool
GIC has branch offices in London, Dubai and Kuala lumpus and continues to
participate in the share capital of Kenindia Assurance Company Limited (Kenya),
India International Insurance Private Limited (Singapore)
As of 2011, GIC was the only company licensed by IRDA to conduct reinsurance
business. Some foreign reinsurers who are interested in operating in India like
Swiss Re, Munich Re, Scor Re, Hannovar Re etc., have been allowed to open
some form of liaison / servicing / consulting offices in India.
State Government Insurance Departments / Funds
These are the insurance departments of some of the Indian States like
Maharastra, Gujarat, Rajasthan and Kerala. They insure the property and other
interests of the respective state governments.

Components of an Insurance policy

The components of an insurance policy are as follows.
1.
2.
3.
4.
5.
6.
7.

Heading
Preamble
Signature
Operative Clause
Exceptions
Conditions
Policy Schedule

Heading
Every policy document has a heading that includes the name of the insurer /
Logo / Address / contact details like phone numbers, mail id and website etc.,
Preamble
Preamble consists of 5 main points
1. The proposal form and any questionnaire are part of the contract and so
the insured need to be careful in filling up the proposal form.
2. The Sum Assured
3. The Premium
4. The details of the cover provided by the insurer under this policy

5. Names of different parties to the contract The insured, the insurer,

Hypothecation Etc.,
Signature
Under the preamble or close to it, will be printed the signature of the authorised
official of the insurance company. Years ago, there would be the actual signature.
But now a days due to increased volumes, even a printed copy is accepted by
the court in case of disputes.

Operative Clause
This is the key part of the policy where the actual cover provided is outlined. It is
also called the insuring clause and includes the phrase The company will .......
Exceptions
This section details what the insurer will not pay for. The policyholders would like
the policy to cover all eventualities, this is impractical in terms of premium,
reinsurance agreement, insurer solvency etc.,
The options available for the insurer are to mention what is covered under the
policy. But there is impracticality as the wordings will be too long to mention
everything. So the insurer provides wider cover possible e.g., if any of the
property insured be accidentally, physically lost, destroyed or damaged other
than by an excluded peril or cause.
It also places the onus on the insurer to be very sure of what to exclude if it is
not excluded, the by definition, it is covered. In plain English format the policy
wordings are often simply mentioned as we will not pay for ....
Example War Exclusions: This policy does not cover loss destruction or
damage caused by war, invasion, act of foreign enemy, hostilities or war like
operations (whether war be declared or not), civil war, mutiny, civil commotion,
rebellion, revolution, insurrection or military or usurped power.
Conditions
Conditions are critical to the understanding of the cover just like exceptions. The
conditions describe what the insured must do and must not do. Traditionally,
conditions appear towards the end of the policy. Some of the common conditions
are as follows
Condition
Terms
Alterations to
the risk
Claims

Comment
The insured must comply with the terms of the policy
The insured must notify the insurer should there be any
change to the risk
This will vary from cover to cover

procedure
Fraud
Reasonable
Care
Contribution
Cancellation

Estimated /
Declarations

The benefit of the policy will be forfeited should it be

discovered that the claim is in any way fraudulent
Insured has to take reasonable care to prevent / minimise the
loss
Applies if other policies are also in force covering the same
loss
Will outline the terms to be applied and procedure to be
followed should the company choose to exercise its right to
cancel the policy
This will detail the procedure to be followed should the policy
premium be based on an estimated figure ( example
Wages / Profit)

Express conditions and Implied conditions The above conditions are

known as express conditions. There are certain conditions known as Implied
Conditions. Implied conditions are those which are applicable and accepted
without being mentioned i.e being part of the principles of insurance example
insurable interest, utmost good faith etc.
Conditions subsequent to the contract this is a condition that refers to an
act or an event that cancels the contractual right e.g. any act of fraud within the
claim process on the part of the insured, would immediately cancel the insurers
obligation to continue with the claim.
Policy schedule
The previous components which we have looked at are all pre-printed and so are
not customised / not unique to individual insured. The schedule however is the
part of the policy document that is specific / unique to each insured person who
has bought the policy. The information contained in the schedule of a policy
document is as follows.
Insureds title
Insureds address
Nature of the business
Period of insurance
Premiums
Limits of liability
Policy number
Any special exclusions / conditions or aspects of cover
Endorsements With the consent of both the parties, the policy may be
amended from time to time. The insurer then prepares an endorsement and
attaches the same with the policy document.
The alterations normally required under a policy relate to

Variations in the sum insured (increase / decrease)

Change of insurable interest by way of sale, mortgage etc.,

Extension of insurance to cover additional perils

Change of risk e.g. change of construction or occupancy of the building
Transfer of property to another location

The insured should make it a point to carefully examine the policy document to
confirm that it provides the cover required and take note of any conditions that
he must observe. Policy documents should be stored in a safe place so that there
are available when required.

General Insurance Products

The conventional classification of general insurance as provided under section 2
of the insurance act 1938 is as under
Fire Insurance
This branch of insurance covers the insured property against the risk of fire, riot,
flood, earth quake etc., and also covers the loss of profits due to such damage.
Marine Insurance
1. Marine Cargo Insurance This branch of insurance deals with insurance
of goods in transit by road, rail, sea or air against various risks.
2. Hull Insurance Hull insurance relates to the insurance of ocean going
steamers, motor launches, fishing vessels etc., against such risks as fire,
collision, storm, stranding etc.,
Miscellaneous Accident Insurance
This branch consists of a wide range of policies and deals with all types of
insurances which are not transacted in fire or marine branches such as Motor
Insurance, Engineering Insurance, Burglary Insurance, Fidelity Guarantee
Insurance, Personal Accident Insurance, Sickness insurance or Health Insurance,
Public Liability Insurance and Workmen compensation Insurance are some of the
major classes of business in this branch.
The general insurance may also be classified as follows.
Property Insurance The properties can be insured against various perils like
Fire, Marine Insurance, Burglary, Engineering Insurance, Motor Vehicle Insurance,
Aviation Hull Insurance, Crop Insurance and Cattle Insurance are some of the
important classes of insurance under this classification.
Insurance of persons Personal Accident Insurance and Health insurance will
fall under this category.
Insurance of interest Like Fidelity Guarantee insurance

Insurance of Liability - Public Liability Insurance, Product Liability Insurance

and Professional Indemnity Insurance are some of the insurances falling under
this category .

Standard Fire Insurance Policy

This product cover the loss to the properties due to fire and other related perils
like Earth quake, riot and so on. The following properties can be covered under
this product.
Buildings
Contents in the building such as Machinery, Plants and Equipments and so on
Goods (Raw materials in process, semi finished and finished goods, packing
materials in factories, ware houses and so on.
Contents in the dwellings, shops, hotels, hospitals etc.,
Furniture, fixtures, interiors and fittings.

The perils specified in the standard fire policy are Fire, Lightning,
Explosion/Implosion, Aircraft damage, Riot, Strike, Malicious damage. Other
perils like earth quake, Terrorism, Storm, Tempest, Flood and Inundation, Forest
fire, Spontaneous combustion may be covered with additional premium.
Exclusions Fire insurance Excludes destruction or damage caused to the
insured property due to
i.
ii.
iii.

Its own fermentation, natural heating or spontaneous combustion

Undergoing any heating or drying process
Burning of property insured by the order of any public authority

Lightning Explosion / implosion cover excludes loss, destruction or damage to

i.
ii.

To boilers (other than domestic boilers) or their contents resulting from

their own explosion / implosion
Caused by centrifugal forces

(the risk of steam generating boilers can be covered under boiler explosion
policy in Engineering Insurance)
Aircraft Damage Destruction or damage caused by aircraft, other aerial or
space devices and articles dropped there from excluding those caused by
pressure waves.
Riot, Strike and Malicious Damage Loss, damage or destruction of the
property by external means by riot, strike or malicious damage.

Terrorism damage is excluded from the standard fire policy. However it can be
covered by payment of additional premium. It cannot be given in isolation. It can
be offered only in conjunction with RSMD.
Every claim under terrorism cover is subject to deductibles at the rate of 0.5% of
SI subject to minimum of Rs, 1 lakh for industrial risks and 0.5% of SI subject to
minimum of Rs. 25,000/- for non industrial risks.
STFI ( Storm, Tempest, Flood and Inundation) Loss, destruction or damage
directly caused by Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood
and Inundation excluding those resulting from earth quake, volcanic eruption or
other convulsions of nature
Earthquake Earthquake can be covered as an add on cover by collecting
additional premium
Impact Damage
Loss or visible physical damage or destruction caused to the insured property
due to impact by any road, rail vehicle or animal by direct contact not belonging
to or owned by the insured or any occupier of the premises or their employees.
Subsidence and Land Slide including Rock Slide Loss, destruction or damage
directly caused by subsidence of the part of the site on which the property
stands or land slide or rock slide excluding normal cracking, settlement or
bedding down of new structures, demolition, construction, structural alterations
or repair of any property or underground works or excavations.
Bursting and overflowing of water tanks
Missile testing operations
Accidental leakage from Automatic sprinkler Installations
Bush Fire excluding forest fire
General Exclusions under Fire Insurance
The policy does not cover
1. The first 5% of each and every claim subject to minimum of Rs.
10,000/- in respect of each and every loss arising out of Act of
God perils such as Lightning, STFI, Subsidence, Land Slide and
Rock Slide.
2. The first Rs. 10,000/- for each and every loss arising out of other
perils
3. Loss, destruction or damage caused by War
4. Loss, destruction or damage caused by nuclear peril
5. Loss, destruction or damage caused by pollution or contamination
6. Loss, destruction or damage to bullion or unset precious stones,
curios or works of art for an amount exceeding Rs. 10,000
manuscripts, plans, drawings, stamps, coins or paper money,

cheques, books of accounts, computer system records, explosives

etc. , unless otherwise expressly stated in the policy.
7. Loss, destruction or damage to the stocks in cold storage caused
by change in temperature
Add-on covers
The following add on covers are available at additional premiums
1.
2.
3.
4.
5.
6.
7.
8.
9.

Architects Fees in excess of 3% of claim amount

Debris removal in excess of 1% of the claim amount
Deterioration of stocks in cold storage
Spontaneous combustion
Forest fire
Impact damage
Earthquake
Los of rent
Start up expenses

Special policies
Floater Policy
Declaration policy
Reinstatement Value policy
Industrial all risk policy
Agreed Bank clause
Fire proposal form