Insurance (Fund) Management Unit I Introduction The insurance mechanism y Fundamental principles of insurance y Importance of life and general insurance y Growth of evolution of business in India with specific reference to post liberalization Unit II Risk Management y Risk identification y Sources of Risk y ´Insurance policyµ as a financial product Unit III Organising an insurance business y Types of organizations y Role of IRDA y Procedure for setting up an insurance business Unit IV Operational aspects of Insurance business y Marketing insurance products including e-marketing y Acturial role
UNIT 1 : INTRODUCTION MEANING OF INSURANCE: facilitates reimbursement during crisis situations, insurance means promise of compensation for any potential future losses. There are different insurance companies that offer wide range of insurance options and an insurance purchaser can select as per own convenience and preference. Several insurances provide comprehensive coverage with affordable premiums. Premiums are periodical payment and different insurers offer diverse premium options. The periodical insurance premiums are calculated according to the total insurance amount. The main meaning of insurance is used as effective tools of risk management.
Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying premium to an insurance company. A pool is created through contributions made by persons seeking to protect themselves from common risk. Premium is collected by insurance companies which also act as trustee to the pool. Any loss to the insured in case of happening of an uncertain event is paid out of this pool. Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type. Insurance is a contract between two parties whereby one party (insurer) agrees to undertake the risk of another (insured) in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance. The party bearing the risk is known as the 'insurer' or 'assurer' and the party whose risk is covered is known as the 'insured' or 'assured'. Concept of Insurance / How Insurance Works The concept behind insurance is that a group of people exposed to similar risk come together and make contributions towards formation of a pool of funds. In case a person actually suffers a loss on account of such risk, he is compensated out of the same pool of funds. Contribution to the pool is made by a group of people sharing common risks and collected by the insurance companies in the form of premiums.
Lets take some examples to understand how insurance actually works: Example 1 Example 2 SUPPOSE (General)
Houses in a village = 1000 Value of 1 House = Rs. 40,000/Houses burning in a yr = 5 Total annual loss due to fire = Rs. 2,00,000/Contribution of each house owner = Rs. 300/-
Number of Persons = 5000 Age and Physical condition = 50 years & Healthy Number of persons dying in a yr = 50 Economic value of loss suffered by family of each dying person = Rs. 1,00,000/Total annual loss due to deaths = Rs. 50,00,000/Contribution per person = Rs. 1,200/-
UNDERLYING UNDERLYING ASSUMPTION All 5000 persons are exposed to ASSUMPTION All 1000 house owners are common risk, i.e. death exposed to a common risk, i.e. fire PROCEDURE All owners contribute Rs. 300/each as premium to the pool of funds PROCEDURE Everybody contributes Rs. 1200/each as premium to the pool of funds
Total value of the fund = Rs. Total value of the fund = Rs. 3,00,000 (i.e. 1000 houses * Rs. 60,00,000 (i.e. 5000 persons * Rs. 300) 1,200)
5 houses get burnt during the 50 persons die in a year on an year average Insurance company pays Rs. 40,000/- out of the pool to all 5 house owners whose house got burnt EFFECT OF INSURANCE Risk of 5 house owners is spread over 1000 house owners in the village, thus reducing the burden on any one of the owners. Insurance company pays Rs. 1,00,000/- out of the pool to the family members of all 50 persons dying in a year EFFECT OF INSURANCE Risk of 50 persons is spread over 5000 people, thus reducing the burden on any one person.
PRINCIPLES OF INSURANCE: A) Insurable Interest Insurable interest means that the person opting for insurance must have pecuniary interest in the property he is going to get insured and will suffer financial loss on the occurrence of the insured event. This is one of the essential requirements of any insurance contract. Therefore, a person can go for insurance of only those properties where he stands to benefit by the safety of the property, and will suffer loss, damage, injury if any harm takes place to such property. Thus, if you want to insure Taj Mahal or Red Fort, you will not be allowed to do so as you do not have any pecuniary interest in these properties. B) Principle of utmost Good faith
Like in other contracts, the insurance contract must be based on good faith. If the insurance contract is obtained by way of fraud or misrepresentation it is void. C) Material Facts Disclosure In the Insurance contract, the proposer is required to disclose to the insurer all the material facts in respect of the proposed insurance. This duty of disclosing the material facts not only applies to the material facts which are known to him but also extends to material facts which he is supposed to know. Thus, in case of Life Insurance the proposer must disclose the true age and details of the existing illnesses / diseases. Similarly, in case of the insurance of a building against fire, the proposer must disclose the details of the goods stored if such goods are of hazardous nature. (D) Principle of Indemnity The insurance contract should always be a contract of indemnity only and nothing more. According to this principle, the insurance contract should be such that in case of loss due to the eventialities mentioned in the contract, the insured should be neither better off nor worse off after receiving the insured amount. The main object of this principle is to ensure that the insured is not able to use this contract for speculation or gambling. LEGAL ASPECTS OF INSURANCE CONTRACTS Contract of indemnity
Indemnity means that the insured person is placed, financially, in the same position, as he was before the loss..
Implied conditions of a contract
Good faith & Utmost good faith
Contracts entered with person of unsound mind or with a person from alien Country.
Insurable Interest Insurance contracts without insurable interests have no sanction of the law as they amount to speculation.CS.NAVEEN. a minor cannot enter into a legal contract.ROHATGI
SYBFM. However. However. It is always the duty of the insured to prove that the loss arose out of the insured peril. such contract is valid.
Existence of subject matter Existence of subject matter of insurance is necessary. so long as the contract is for the benefit of the minor himself. The owner of a property has absolute insurance interest. are illegal.CA.
Consensus Ad Idem (of the same mind) In Insurance contracts only one party . In the chain reaction. material facts and the same should be understood by the other party to the contract .INSURANCE
Both the parties to a contract are expected to observe good faith. He has a duty to disclose particularly. it is the dominant cause.
Legality of parties to contract At law.
Proximate cause A loss could be due to a cause of causes. each party should understand what is proposed for insurance and the same
. which is proximate. which would be the proximate cause to be considered for the purpose of a claim.the proposer knows the details of the risk. the good faith assumes utmost importance when Material Facts are concerned and therefore utmost good faith should be observed on matters relating to Material facts.the insurers. In other words.
CS. Contribution condition checks that each policy pays only a ratable portion under each separate policy.NAVEEN. The property owners have a right to proceed against the offending third party to recover the loss/damage and also under their insurance policy but not under both. he cannot recover the same loss from more than one source so that he is not benefited by more than µIndemnity¶. If an insured obtains more than one policy covering the same risk. As the insurers issue the contract document.
should be covered by the insurance contract. If the insured opts to recover the loss under the insurance policy. any ambiguity in the contract wording will be read against the insurers as they have drafted the contract. A loss may occur accidentally or by the action or negligence of third party (not workmen).
Subrogation Subrogation condition is another corollary to the principle of Indemnity.CA. he will surrender his rights against the third parties in favour of the Insurers signing a µLetter of subrogation¶ on an appropriate stamp paper. which is faster and does not involve litigation.ROHATGI
SYBFM. Express conditions of a contract These conditions are mainly framed to achieve the principle of indemnity and to ensure that the insured does not make any profit out of the loss. The express conditions include
Contribution Contribution condition is a corollary to the Principle of indemnity.
the insured cannot rush to a Court of law without first referring the dispute to Arbitration as per µIndian Arbitration and reconciliation Act -1996'. In keeping with the provisions of the Act.CA.INSURANCE
An exception to this are life insurance polices wherein insured/ beneficiaries can claim under an insurance policy and also proceed againt the offending third party.
Arbitration When liability under the policy is admitted but the quantum is disputed. It finds mention in the writings of Manu ( Manusmrithi ). epidemics and famine. The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire. This Company however failed in 1834. Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). They can also appoint a single arbitrator. 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta.ROHATGI
SYBFM. the Madras Equitable had begun transacting life insurance business in the Madras Presidency. The award of the Arbitrators is binding on both the parties to the dispute and cannot be challenged unless a point of law is involved.
HISTORY OF INSURANCE In India.CS. If the two separate arbitrators cannot reach an agreement. In 1829. England in particular. 1870 saw the enactment of the British Insurance Act and in the last three
. floods. insurance has a deep-rooted history. Insurance in India has evolved over time heavily drawing from other countries. to represent both of them.NAVEEN. both the arbitrators can appoint a third arbitrator called umpire. the insured may appoint an arbitrator to be followed by appointment of another arbitrator by the insurers. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers¶ contracts.
decades of the nineteenth century. the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and nonlife business transacted in India by Indian and foreign insurers including provident insurance societies. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. The Insurance Amendment Act of 1950 abolished Agencies. In 1928. 16 nonIndian insurers as also 75 provident societies²245 Indian and foreign insurers in all. however. Royal Insurance. there were a large number of companies and the level of competition was high. This era.ROHATGI
SYBFM. 1938 with comprehensive provisions for effective control over the activities of insurers. 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. with a view to protecting the interest of the Insurance public. the earlier legislation was consolidated and amended by the Insurance Act. Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. namely Albert Life Assurance. Principal insurance were also of India. 1912 was the first statutory measure to regulate life business. The Indian Life Assurance Companies Act. decided to nationalize insurance business. was dominated by foreign insurance offices which did good business in India.CA. Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies. the Government of India started publishing returns of Insurance Companies in India. The LIC absorbed 154 Indian. The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade
An Ordinance was issued on 19th January. There allegations of unfair trade practices. In 1938.CS. In 1914. the Bombay Mutual (1871). The Government therefore.NAVEEN.
They stated that
. the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. general insurance business was nationalized with effect from 1st January.NAVEEN. a wing of the Insurance Associaton of India. in the year 1850 in Calcutta by the British. the New India Assurance Company Ltd. the Insurance Act was amended to regulate investments and set minimum solvency margins. 1957 saw the formation of the General Insurance Council. This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973. In 1972 with the passing of the General Insurance Business (Nationalisation) Act..INSURANCE
and commerce in the 17th century. The Tariff Advisory Committee was also set up then. In 1968. the Government set up a committee under the chairmanship of RN Malhotra. among other things. 107 insurers were amalgamated and grouped into four companies. In 1907.. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices. In 1993. to propose recommendations for reforms in the insurance sector. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd. namely National Insurance Company Ltd.. the Indian Mercantile Insurance Ltd. It came to India as a legacy of British occupation. This was the first company to transact all classes of general insurance business.ROHATGI
SYBFM. The committee submitted its report in 1994 wherein . former Governor of RBI. it recommended that the private sector be permitted to enter the insurance industry.The objective was to complement the reforms initiated in the financial sector.CS. 1973.CA. was set up.
Following the recommendations of the Malhotra Committee report.CA. 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders¶ interests. The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. The IRDA was incorporated as a statutory body in April.ROHATGI
SYBFM. preferably a joint venture with Indian partners. 2000. the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. in 1999. 2000.NAVEEN. The Authority has the power to frame regulations under Section 114A of the Insurance Act. the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. The IRDA opened up the market in August 2000 with the invitation for application for registrations. A well-developed and evolved insurance sector is a boon for economic development as it provides
. Foreign companies were allowed ownership of up to 26%. Together with banking services. 2002. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums. Parliament passed a bill de-linking the four subsidiaries from GIC in July.CS. Today there are 14 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 14 life insurance companies operating in the country. In December. insurance services add about 7% to the country¶s GDP.INSURANCE
foreign companies be allowed to enter by floating Indian companies. while ensuring the financial security of the insurance market.
If he/she dies while the contract is in force. the insurance company pays a specified sum of money free of income tax that is "cash benefits" to the person or persons he name as beneficiaries. where the insurer agrees to pay a sum of money upon the happening of the insured individual's death or other event. It offers a way to replace the loss of income that happens when someone dies (generally the person who produces the majority of income in a family situation). Life insurance is a contract between the policy holder and the insurer.CS. It insures the life of the person buying the Life Insurance Certificate. Once a Life Insurance is sold by a company then the company remains legally responsible to make payment to the beneficiary after the death of the policy holder. the insurance company makes available the full sum
long. a life insurance policy affords full protection against risk of death. the policy owner has to pay a stipulated amount called a µpremium¶ at regular intervals or in lump sums. NEED AND IMPORTANCE OF LIFE INSURANCE Superior to any Other Savings Plan Unlike any other savings plan. There are designs in some countries where bills and death expenses plus catering for after funeral expenses must be included in Policy Premium.
Life insurance Meaning: Life insurance is a contract between a person called insured and the company or "insurer" that is providing the insurance.NAVEEN. such as terminal illness or critical illness. In return.term funds for infrastructure development at the same time strengthening the risk taking ability of the country. In the event of death of a policyholder.
assured to the policyholders¶ near and dear ones. a student loan. Encourages and Forces Thrift A savings deposit can easily be withdrawn.CS. It is particularly advisable for housing loans when an acceptable LIC policy may also cause the lending institution to give loan at lower interest rates. The policy is also acceptable as a security for a commercial loan. for example. The payment of life insurance premiums. Disability Benefits Death is not the only hazard that is insured. such savings can be much lesser than the sum assured. Several policies have foreseen this possibility and provide for payments over a period of years or in a combination of installments and lumpsum amounts. Ready Marketability and Suitability for Quick Borrowing A life insurance policy can. Administering the Legacy for Beneficiaries Speculative or unwises expenses can quickly cause the proceeds to be squandered. Easy Settlement and Protection Against Creditors A life insurance policy is the only financial instrument the proceeds of which can be protected against the claims of a creditor of the assured by effecting a valid assignment of the policy. Typically. however.ROHATGI
SYBFM. after a certain time period (generally three years).NAVEEN. these provide for waiver of
. Evidently. be surrendered for a cash value. the potential financial loss to the family of the policyholder is sizable. If the death occurs prematurely. In comparison. many policies also include disability benefits. any other savings plan would amount to the total savings accumulated till date. Thus. a life insurance policy in effect brings about compulsory savings.CA. is considered sacrosanct and is viewed with the same seriousness as the payment of interest on a mortgage.
Insurance against risk to one's life is covered under ordinary life assurance. claim by insurance
. Long-term insurance covers all life insurance policies. the term of policy is defined for a Assurance specified period say 15.NAVEEN. 20. Whole Assurance Life In whole life assurance. The insurance company pays the claim to the family of assured in an event of his death within the policy's term or in an event of the assured surviving the policy's term. 3. Tax Benefits LIC premium paid is allowed as deduction from gross total income under sec 80 C.
future premiums and payment of monthly installments spread over certain time period.CA. insurance company collects premium from the insured for whole life or till the time of his retirement and pays claim to the family of the insured only after his death. 25 or 30 years.ROHATGI
SYBFM. Assurances for i).CS. Ordinary life assurance can be further clasified into following types: Types of Ordinary Meaning Life Assurance 1.
TYPES OF LIFE INSURANCE POLICIES: Long-term Insurance Long term insurance is so called because it is meant for a long-term period which may stretch to several years or whole life-time of the insured. Endowment In case of endowment assurance. Accidental Death Benefits Many policies can also provide for an extra sum to be paid (typically equal to the sum assured) if death occurs as a result of accident. Child's Deferred Assurance: Under this policy.
claim for which is paid to the family of the assured only when he dies. There are two types of annuities.CA. Generally. In case the assured survives the term of policy.CS. the insured pays a lump sum amount (known as purchase price) and in return the insurer promises to pay him in installments a specified sum on a monthly/quarterly/half-yearly/yearly basis.
5. and the sum assured is paid through periodical payments to the
. Deferred Annuity: A deferred annuity can be purchased by paying a single premium or by way of installments. Money Policy
Back Money back policy is a policy opted by people who want periodical payments. A money back policy is generally issued for a particular period. if the parent dies before the option date.
4. on the life of the parent with the sum assured. A person entering into an annuity contract agrees to pay a specified sum of capital (lump sum or by instalments) to the insurer.INSURANCE
company is paid on the option date which is calculated to coincide with the child's eighteenth or twenty first birthday. Term Assurance
The basic feature of term assurance plans is that they provide death risk-cover.NAVEEN. The insured starts receiving annuity payment after a lapse of a selected period (also known as Deferment period). namely: Immediate Annuity: In an immediate annuity. the policy remains continued until the option date without any need for payment of premiums. Annuities
6. The insurer in return promises to pay the insured a series of payments untill insured's death.ROHATGI
SYBFM. However. policy may either be continued or payment may be claimed on the same date. School fee policy: School fee policy can be availed by effecting an endowment policy. life annuity is opted by a person having surplus wealth and wants to use this money after his retirement. In case the parent survives till option date. If the child dies before the option date. Term assurance policies are only for a limited time. the parent receives back all premiums paid to the insurance company. ii). no claim is paid to the assured. payable in installments over the schooling period.
CA. an number of times. In case of death of the insured within the term of the policy. it can be done at a later date either by an endorsement made at th back of the policy document or by making the endorsement of nomination on a piece of pape pasted on the policy.INSURANCE
2Who is a nominee The person designated by the policyholder to receive the proceeds of an insurance policy. 1938. When can nomination be done Nomination can be done at the inception of the policy itself.
3. upo the death of the insured. who is a major and the life insured under a policy can make a Nomination Nomination is not effective in a policy taken on the life of another person. Transfer or assignment of policy (except when it is made to an insurer in specified cases) automatically cancels
. If a nomination was not done at th time of filing the proposal. Who can nominate Any policyholder. All that a policyholder has to do to provide the details of the nominee in the proposal form. How can nomination be changed Subject to the provisions contained in Section 39 of the Insurance Act. spread over this time period. The life-assured is free to change or cancel a nomination and make a fres nomination any number of times during the currency of the policy. NOMINATION
SYBFM. What is nomination Nomination is a right conferred on the holder of the policy of life insurance on his own life t appoint a person or persons to receive the policy moneys in the event of the policy becoming claim by death.
4. there are n restrictions on the policyholder regarding changing his nomination at any point of time. full sum assured along with bonus accruing on it is payable by the insurance company to the nominee of the deceased.
particularly whole life insurance policies. address and relationship to the nominee.CA. What is successive nomination Successive nomination means that money should be paid to nominee A. to nominee C. failing whom. Surrender value is the amount payable to the policyholder should he decide to discontinue the policy and encash it.INSURANCE
nomination. Signatures of appointee as token of consent ar necessary on the proposal form. failing him. 'surrender value' and 'policyholder's equity'. etc. What are the details to be provided about the nominee(s) The following precautions are necessary at the time of filling in the proposal: Mention the Fu Name. Such a nomination is treated in favour of one individual i the order mentioned and is acceptable in law. This is also known as 'cash value'. age.
6. relationship to yourself of the nomine
Do not write the nomination in favour of wife and children as a class.
7. It is payable only after three full years' premiums have been paid to the insurance company. the bonus gets attached to it.ROHATGI
SYBFM. Moreover. This cash value is the savings component of most permanent life insurance policies. Surrender of policy is not recommended since the surrender value will
.NAVEEN. to nomine B. Address. SURRENDER VALUE OF INSURANCE
Surrender value is the sum of money an insurance company will pay to the policyholder or annuity holder in the event of his policy being voluntarily terminated before its maturity or the insured event occurring. if it is a participating policy. Give their specific name and particulars existing at that momen
If the nominee is a minor.CS. appoint a person who is a major as an appointee giving his full nam age.
or On death of the life insured.
If you decide to go in for another insurance policy at this stage. the insured basically gets the fund value of his investments minus the charges that the insurer levies on account of premature termination. Therefore. Intimation of death
. after charges are deducted. if it occurs before maturity of the policy.
Life Insurance Claims What are the situations when claims under life insurance arise? A Life Insurance Policy results into claim in the following situations:
On maturity of the policy i. it will come at a much higher premium because your age will have advanced since taking the earlier policy. The life cover provided by a life insurance policy ends with its surrender as it effects a termination of the contract between the insured and the insurer. if he terminates or surrenders the policy before the original maturity date.CA.CS.NAVEEN.INSURANCE
lower. retention of earlier policies and continuing all policies without allowing them to lapse is the best strategy.e. On surrender.ROHATGI
SYBFM. Surrender value is what an insurance company will pay an insured. completion of the term for which the insurance was taken in case of endowment policies . provided policy is in force on the date of death or has acquired
What is the procedure to be followed in case of claim by death of the policyholder? The following are the main steps for receiving claims: a.
SYBFM. which is to be signed by the person entitled to receive policy money. Payment and Discharge After completing all the above formalities. the branch office sends the necessary claim forms along with instructions regarding the procedure to be followed by the claimant. the nominee or the assignee of the policy or the deceased policyholder¶s nearest relative. in case nomination was made under the policy. iii. the date of death. the cause of death.CA. ix. assignee. name of the life assured a statement that the life assured is dead. vi. v.INSURANCE
The first requirement of the Corporation in the case of death claim is that an "intimation of death"¶ should be sent to the branch office of the LIC from where the policy was issued.
The letter of intimation of death should contain the following information: i.NAVEEN. viii. That is.) Submission of death proof Submission of proof of age.CS. ii. the insurance company issues a discharge form for completion. It may be: i. it should be signed by:
the nominee. etc. ii. and policy number / s claimant¶s relationship with the assured or his status (nominee. iv. vii.
Soon after the receipt of the intimation of the death. the place of death. iii. The intimation needs to be sent by the person who is entitled to get the proceeds of the policy.
In due course. burglary etc.CS.NAVEEN. the legal representative or successor. air and road. in case the policy was validity and unconditionally assigned.
In respect of insurance of property. The non-life companies also offer policies covering machinery against breakdown. Further. There are products that cover property against burglary. LIC sends the cheque for the amount due to the person entitled to receive the same. Where a property is undervalued for the purposes of insurance.100
. personal insurance such as Accident and Health Insurance. Non-life insurance companies have products that cover property against Fire and allied perils. theft etc. There are also other covers such as Errors and Omissions insurance for professionals. credit insurance etc.
MEANING OF GENERAL INSURANCE Insurance other than µLife Insurance¶ falls under the category of General Insurance. it is important that the cover is taken for the actual value of the property to avoid being imposed a penalty should there be a claim. there are policies that cover the hull of ships and so on. A Marine Cargo policy covers goods in transit including by sea. General Insurance comprises of insurance of property against fire. the insured will have to bear a rateable proportion of the loss. insurance of motor vehicles against damages and theft forms a major chunk of non-life insurance business.CA. flood storm and inundation. earthquake and so on. For instance if the value of a property is Rs. and liability insurance which covers legal liabilities.ROHATGI
50/-. Sometimes the insurers themselves process reimbursement claims. The cashless service is offered through Third Party Administrators who have arrangements with various service providers.CA. hospitals. in the event of a loss to the extent of say Rs.NAVEEN.CS. There are liability covers available for Products as well. Many industries insure against Public liability. A group could be a group of employees of an organization or holders of credit cards or deposit holders in a bank etc. Products offering Personal Accident cover are benefit policies. Normally when a group is covered. Accident and health insurance policies are available for individuals as well as groups.INSURANCE
and it is insured for Rs. Liability insurance covers such as Motor Third Party Liability Insurance.e. Health insurance covers offered by non-life insurers are mainly hospitalization covers either on reimbursement or cashless basis. The Workmen¶s Compensation Act etc. i. For
. The Third Party Administrators also provide service for reimbursement claims. This concept is quite often not understood by most insureds. Health etc. insurers offer group discounts.ROHATGI
SYBFM. Personal insurance covers include policies for Accident. There are general insurance products that are in the nature of package policies offering a combination of the covers mentioned above. Liability Insurance not compulsory by statute is also gaining popularity these days.50/-. Some of the covers such as the foregoing (Motor Third Party and Workmen¶s Compensation policy ) are compulsory by statute.25/.( 50% of the loss being borne by the insured for underinsuring the property by 50% ).. Workmen¶s Compensation Policy etc offer cover against legal liabilities that may arise under the respective statutes² Motor Vehicles Act. the maximum claim amount payable would be Rs.
so also the people against Personal Accident. Suitable general Insurance covers are necessary for every family. cyclones etc have left many homeless and penniless. there are package policies available for householders. most industries or businesses that are financed by banks and other institutions do obtain covers.INSURANCE
instance. It is important to protect one¶s property.CA.NAVEEN. chartered accountants etc. So. stocks etc. Also organizations or industries that are self-financed should ensure that they are protected by insurance. insurers also offer customized or tailor-made ones.CS. shop keepers and also for professionals such as doctors. Such losses can be devastating but insurance could help mitigate them. Losses created by catastrophes such as the tsunami.
. machinery. earthquakes. Property can be covered. A loss or damage to one¶s property can leave one shattered. Financiers insist on insurance.ROHATGI
SYBFM. Apart from offering standard covers. which one might have acquired from one¶s hard earned income. They need to cover their liabilities as well. But are they obtaining the right covers? And are they insuring adequately are questions that need to be given some thought. Industries also need to protect themselves by obtaining insurance covers to protect their building. A Health Insurance policy can provide financial relief to a person undergoing medical treatment whether due to a disease or an injury.
CS. The proposal form needs to be filled in completely and correctly by a proposer to ensure that the cover is adequate and the right one. However.CA.NAVEEN. FIRE INSURANCE STANDARD FIRE AND SPECIAL PERILS POLICY
Coverage under the policy y Buildings y Machinery and Accessories y Stock and stock in process y Contents including furniture
Most general insurance covers are annual contracts. It is important for proposers to read and understand the terms and conditions of a policy before they enter into an insurance contract. there are few products that are long-term.ROHATGI
NAVEEN. short circuit etc. defective materials Pollution or contamination Over-running. Strike Terrorism Storm. workmanship. landslide Bursting or overflowing of tanks Bush fire etc.
What is not Covered ? The policy does not cover any loss if
y y y y y y y
y y y y y y
Loss or damage to property due to : Spontaneous combustion. inundation Impact damage Subsidence . House breaking.CS.ROHATGI
SYBFM.CA. theft Normal Cracking or settlement or bedding down of new structures War or war like operations Defective design. Flood. Earthquake Spoilage loss
y y y y y y y y y y y
Fire Lightning Explosion/Implosion Aircraft damage Riot. fermentation Burning of property by order of any Public Authority Its undergoing any heating or drying process Explosion of boilers (other than domestic boilers) Total or partial cessation of work Permanent or temporary dispossession by order of Government Burglary.
.CA. Fi Loss of Profit Policy Pre-Requisite for the Policy This policy can be taken only if a Standard fire and Special Perils Policy exists for the risk.NAVEEN. Surveyors.ROHATGI
Add on Covers Some Add on covers. What Can Be Insured ?
Net profit due to the stoppage of business as a result of an insured peril Standing charges which continue to accrue in spite of stoppage of business Additional expenditure incurred by the insured to maintain normal business activity. during the period in which the normal business is affected. Consulting Engineers fees Earthquake (Fire and Shock only) Spontaneous combustion Startup expenses Spoilage Material Damage Cover Leakage and Contamination cover
These additional covers are available by payment of additional premium.
y y y y y y y y
Terrorism Removal Of Debris Architects.
CA. salvage charges Earthquake. sinking etc.INSURANCE
Indemnity Period The indemnity period commences with the date of damage and lasts till such a time as the business is restored to its pre damaged level or the period stipulated policy which ever comes first.ROHATGI
SYBFM. MARINE INSURANCE MARINE CARGO INSURANCE Coverage Any loss or damage to goods in transit by rail. Who can Insure ? Owners or bankers of goods in transit/shipment. The policy insures earnings of the business lost during the indemnity period. lightning Washing overboard
. road. stranding.NAVEEN. air or post.
Insured against what Risks ? The policy covers loss/damage to the property insured due to:
y y y y y y y y
Fire or explosion. sea.CS. Overturning. derailment ( of land conveyance) Collision Discharge of cargo at port of distress Jettison General average sacrifice.
Premium can be collected in advance for the entire estimated value during the policy period . lake.INSURANCE
y y y
Sea. Open Policy This policy is issued for transit of goods within India. It is a stamped document. river water Total loss of package lost overboard or dropped in loading or unloading War and SRCC is specifically covered
Premium Rating The normal basis of valuation for ocean/air consignment will be CIF + incidentals up to a percentage which is agreed upon at the inception of the policy ( normally this is 10 %) Open Cover Open cover is usually issued for import/export. specific policies are issued as evidence of the contract and on collection of premium.CS. whereby the insurance company agrees to provide insurance cover to all shipments coming within the scope of the open cover.ROHATGI
SYBFM.CA. The open cover is a contract effected for a period of 12 months . It is an unstamped agreement. Policy is valid for one year and all transits during the policy period and declared are automatically covered by the insurance company subject to the availability of the overall suminsured.NAVEEN. Stamp duty is collected in advance along with premium for despatches to be declared periodically
. In this case specific policies are not issued for each consignment . Open cover is not a policy. As and when shipments are declared .
SYBFM.terms and conditions of cover. forwarding and commission agents or freight forwarders or in joint names. clearing . cargo description etc like all other marine policies. These policies can not be issued to transport operators .NAVEEN.CS. They can not be assigned or transferred.. tankers.INSURANCE
Specific Voyage Policy This policy is valid for a single voyage or transit.It should contain particulars of conveyance/Vessel name/ Bill of Lading or Way bill and date . The specific voyage policy must show complete details of the risk. Marine Hull Insurance
Coverage Any loss or damage to ships. The coverage will cease immediately on completion of the voyage. The goods covered must belong to or held in trust by the insured .. voyage . For such policies the sum insured should not be less than Rs 5000/-. bulk carriers.
. The policy will be issued before the voyage starts. Annual Policy This policy may be issued to cover goods in transit by road or rail or sea from specified depots or processing units owned or hired by the insured.CA. sum insured . smaller vessels.
Who can Insure ? Owners or bankers of ships or vessels.INSURANCE
fishing boats and sailing vessels. sinking etc. Overturning.
. attributable to.ROHATGI
SYBFM.NAVEEN. stranding. derailment ( of land conveyance) Collusion General average sacrifice.CS. salvage charges
What is not Insured? The policy does not pay any loss/damage caused by. What is Insured The various vessels that are covered under this policy are :
y y y y
Fishing Vessels Ocean Going Vessels Sailing Vessels Other Vessels
Insured against what Risks ? The policy covers loss/damage to the property insured due to:
y y y y
Fire or explosion.
Financiers or Lessee.ROHATGI
SYBFM. Riot or Civil Commotion Any terrorist or person/s acting with political motive
MOTOR INSURANCE Motor Package and Liability only Policies
Motor vehicle which includes private cars. Insured's Declared Value (IDV) (a) In case of vehicle not exceeding 5 years of age. Two wheelers and Commercial vehicles excluding vehicles running on rails
Who can Insure ? y Owners of the vehicle.CS.NAVEEN.CA. (b) In case of vehicles exceeding 5 years of age and Obsolete models (manufacture of those vehicles which have been stopped by the manufacturers).INSURANCE
Deliberate damage/destruction of the vessel by wrongful act of any person Use of any weapon of war employing atomic / nuclear fission and or fusion Insolvency or financial default of the vessel owner / operators / charterers War / civil war · Strike. the IDV has to be arrived at by applying the percentage of depreciation specified in the tariff on the showroom price of the particular make and model of the vehicle. they have to be insured for the prevailing market value of the
. who have insurable interest in a motor vehicle.
air. house breaking or theft Terrorist activity Riot. For private car it is covered 2.OD) of Package Policy : Section I of package policy covers loss or damage to the vehicle and / or accessories due to
y y y y y y y y y
Accidental external means Fire. lightning Burglary.ROHATGI
SYBFM.CS. Strike and Malicious Damage Earthquake Flood. In case of Motorised Two Wheelers this can be covered on payment of
Package Policy . Loss or damage to accessories by burglary/house breaking/theft 1. road.NAVEEN.INSURANCE
same as agreed to between the insurer and the insured. Self ignition.CA.Section I Section I (Own Damage . cyclone and Inundation etc While in transit by rail. lift or inland waterways Landslide or workslide
None of the above perils can be excluded from the scope of a policy.
CA. cover is provided for the reasonable cost of the following :
Its removal to nearest reapirers The cost of reasonalble repairs immediately necessary
subject to the limit provided for. Liability to third parties bodily injury and or death and property damage 2.Section II Section II (Liability) of Package Policy : 1. his legal representative will be indemnified in place of insured. bumpers etc. Loss or damage to Lamp. Tyres.CS.NAVEEN.. If the vehicle is disabled in an accident. Personal accident cover for the owner driver for a specified sum insured The following are payable under Section II of the Package Policy subject to the limit of liability laid down in the Motor Vehicles Act :
y y y y y
The insured's legal liability for death / disability of third party Loss or damage to third party property Claimant's cost as decided by the court All costs and expenses incurred with company's written consent In case of death of an Insured person. if he observed all conditions as the insured himself.INSURANCE
an additional premium at 3% of the IDV of such accessories 3. This is applicatble only to Commercial Vehicles. can be covered on payment of additional premium. mudguard and / or bonner side parts. (a) Package Policy .
SYBFM. entitled to indemnity for a liability incurred under this policy.
IDV of vehicles that are more than 5 years oldand of models that manufacturers have discontinued is to be determined on the basis of an understanding between the insurer and the insured.000 1-2 years 20 Year 3: 1. the onus is on you to justify the higher IDV. on account of.1 year 15 Year 2: 1.000 2-3 years 30 Year 4: 89.ROHATGI
SYBFM. which is the starting point for deciding the IDV of a vehicle: this IDV figure is scaled up or down depending on the condition of the vehicle.600 3-4 years 40 Year 5: 53. IDV Depreciation Schedule Vehicle Age Depreciation(%) IDV (Rs) 6 Months 5 Year 1: 2. in case of a claim.760 4-5 years 50 Year 6: 26.INSURANCE
IDV Depreciation Schedule The premium is calculated on the basis of something called the Insured Declared Value (IDV) of the vehicle. LIABILITIES POLICIES
. better maintenance or high-priced accessories.The IDV of a vehicle reduces with age.CA. say. which is basically the depreciated value of the vehicle agreed upon by the insurer and the policyholder. However. The depreciation schedule is identical for two-wheelers and four-wheelers (See table: IDV Depreciation Schedule) You can get your vehicle insured for a value greater than the IDV calculated on the basis of the specified depreciation schedule. Cover for occupants of vehicle.000 6 Months .CS. This section provides cover against death or injury to the vehicle driver and passengers.880 Note: The depreciation rate is charged as a percentage of the cost of a new vehicle.00.NAVEEN.60. on a reducing balance basis. Insurers give a depreciation schedule for up to five years. The maximum cover that can be taken under this section is Rs 1 lakh for a driver and Rs 2 lakh for each passenger.28.
CA. collection. conversion. offering for sale. treatment. ³Hazardous substances´ as defined in the Act are given below. The definition of ³Owner´ is so comprehensive as to cover any person who owns or has control over any hazardous substance at the time of accident. The various terms like ³Accident´. means the manufacture. 1991 was made effective from 1st April 1991. The object of this Act is to provide through insurance immediate relief to persons affected due to ³accident´ while ³handling´ ³hazardous substance´ by the owners on ³no fault liability basis´. use.ROHATGI
Public Liability Insurance
Coverage The Public Liability Act. Company or its Directors and all other persons associated and responsible to that Company in the conduct of their business. intermittent or repeated exposure to death of. transfer or the like of such hazardous substance.CS. ³Handling´in relation to any hazardous substance. ³Hazardous Substance´ means any substance or preparation which is
. package. ³Accident´ means an accident involving a fortuitous. Association or its members. transportation by vehicle.NAVEEN. or injury to any person or damage to any property but does not include an accident by reason only of war or radioactivity. processing. destruction. sudden or unintentional occurrence while handling any hazardous substance resulting in continuous. storage. This includes any Firm or its partners. This has also been brought under Tariff.
Contribution to the relief fund An amount equal to the insurance premium chargeable is to be paid simultaneously by every owner with the insurance premium to the underwriting Company. plants. ³Hazardous Substance´means any substance or preparation which. The liability beyond the total of the insurance and the Relief / Fund is to be borne by the ³Owner´. Insurance Limits Any one accident : Minimum equal to Paid up Capital upto a maximum of Rs. Any one year : 3 times of `Any one accident¶ limit subject to a maximum of Rs. 1986 and exceeding such quantity as may be specified by notification by the Central Government.CA. it is to be met by the Environmental Relief Fund to be set up under Section 7A of the Act and managed by the Authority appointed by the Central Government. micro-organism.15 crores. by reason of its chemical properties or handling is liable to cause harm to human beings.ROHATGI
. Liability beyond Insurance In case of claim/s exceeding the above statutory limit/s. property or the environment (as per the Environment (Protection) Act.NAVEEN. other living creatures.5 crores. All proposals can be rated and accepted at DO level in terms of the rating structure laid down.INSURANCE
defined as hazardous substance under the Environment (Protection) Act.CS. 1986).
LIABILITIES INSURANCE roduct Liability Insurance
Coverage his insurance is intended to provide an indemnity to the insured (upto the limit of liability) in vent of a claim being brought against him. bodily injury. For the purp f determining the indemnity granted :
1. Injury shall mean death.NAVEEN. The Comp n addition will reimburse all costs and expenses incurred with its written consent defending su laim for compensation. illness or disease of or to any person 2. Damage shall mean actual and / or physical damage to the atmosphere or of any water. replacin epairing defective products or loss of use thereof. Pollution shall mean pollution or contamination of the atmosphere or of any water. fees and expenses) in respect of injury damage or pollution for third parties laims arising out of accidents due to any defects in the products specified in the policy during eriod of the insurance and first made against the insured during the policy period. lan other tangible property 3. This may be caused by anything harmful or defectiv he products sold or supplied by the insured in connection with the business specified. lan other tangible property
. The insurance will however not cover the cost of removing.
The policy seeks to indemnify the insured against his legal liability to pay compensation (includ laimants costs.CA.
Arising out of fines. Arising out of deliberate. punitive and exemplary damages. 10. conscious or intentional disregard of the insured¶s technica administrative management of the need to take all reasonable steps to prevent claims. constructed. Arising out of any product which is intended for incorporation into the structure. For injury and/or damage occurring prior to the Retroactive date shown in the schedule. altered or repaired by on behalf of the Insured 5. 11. distributed. treated. 7.CA. etc. The policy excludes liability for costs in the repair. For injury to any person under a contract of employment or apprenticeship with insured w such injury arises out of the execution of such contract. unexpected unintentional including resultant continuous. Arising out of pure financial loss such as loss of goodwill. Arising out of claims for failure of the goods or products to fulfill the purpose for wh they were intended
. 6. s supplied. formulated. 12. 4.CS. For cost arising out of the recall of any product or part thereof. Accident shall mean a fortuitous event or circumstance which is sudden. willful or intentional non-compliance of any statutory provision. 9. Arising out of contractual liability which would not have existed in the absence of specific contract. 2. machiner control of any aircraft.ROHATGI
4. intermittent or repeated exposures arising ou the same fortuitous event or circumstances
pecial Exclusions 1. reconditioning. 3. manufactured. Arising out of deliberate. penalties. 8. Product shall mean any tangible property after it has left the custody or control of the Insu which has been designed. specified. installed. loss of market. 5.NAVEEN. serviced. Arising out of any product guarantee. modification replacement of any part of any product which is or is alleged to be defective.
The definition of ³Owner´ is so comprehensive as to cover any person who owns or has control over any hazardous substance at the time of accident. This includes any Firm or its partners.NAVEEN.
. Association or its members. consequential loss Nuclear group of perils Gross and wilful negligence of Insured Violation of policy conditions Loss/damage/liability where Insured¶s family or Insured¶s employee are involved principal/accessory Intentional act/self injury/ influence of drug/intoxicant. Company or its Directors and all other persons associated and responsible to that Company in the conduct of their business.
Public Liability Insurance
The Public Liability Act. ³Hazardous substances´ as defined in the Act are given below.CS.ROHATGI
SYBFM. 1991 was made effective from 1st April 1991. depreciation. The object of this Act i o provide through insurance immediate relief to persons affected due to ³accident´ while ³handling´ ³hazardous substance´ by the owners on ³no fault liability basis´.CA.
The various terms like ³Accident´.INSURANCE
What will Policy not Pay ? oss or damage due to
y y y y y y
War and war like perils Wear and tear. This has also been brought under Tariff.
intermittent or repeated exposure to death of.
All proposals can be rated and accepted at DO level in terms of the rating structure laid down
. destruction. transportation by vehicle.15 crores.
Liability beyond Insurance
In case of claim/s exceeding the above statutory limit/s. storage. it is to be met by the Environmenta Relief Fund to be set up under Section 7A of the Act and managed by the Authority appointed by the Central Government.
³Handling´in relation to any hazardous substance.
Contribution to the relief fund
An amount equal to the insurance premium chargeable is to be paid simultaneously by every owner with the insurance premium to the underwriting Company. other living creatures. or injury to any person or damage to any property but does not include an accident by reason only of war or radioactivity.CA.CS. sudden or unintentional occurrence while handling any hazardous substance resulting in continuous. by reason of its chemica properties or handling is liable to cause harm to human beings.INSURANCE
³Accident´ means an accident involving a fortuitous. property or the environment (as per the Environment (Protection) Act. means the manufacture.
³Hazardous Substance´means any substance or preparation which.
The liability beyond the total of the insurance and the Relief / Fund is to be borne by the ³Owner´.NAVEEN.
Any one year : 3 times of `Any one accident¶ limit subject to a maximum of Rs. 1986).5 crores.
Any one accident : Minimum equal to Paid up Capital upto a maximum of Rs. collection.ROHATGI
SYBFM. transfer or the like of such hazardous substance. conversion offering for sale. package. use. processing reatment. plants micro-organism.
Professional Indemnity Policy
The cover granted under the policy provide indemnity for legal liability to third party aris out of errors and omissions or negligence in professional service rendered by the insured Policies will be issued for a period of 12 months (1 year) .NAVEEN. Willful neglect or deliberate act Third Party Public Liability
Who can be Insured ? y Doctors y Medical Establishments y Engineers y Architects y Chartered Accountants y Lawyers
What is not Covered ?
Applicable in case of Doctors Policy
y y y
Any criminal act or violation of any Act of Statute Services rendered under the influence of intoxicants or narcotics Performance by Dentists under general anesthesia or any procedures carried out under gene anesthesia unless performed in a hospital.CS.
Pure financial loss due to loss of goodwill or loss of market
Workmen Compensation Insurance
Coverage Liability of an employer for employment injury (including death) of any of his employees who is a µworkman¶ as defined under Workmen Compensation Act.NAVEEN.CA.
which arise out of and in the course of employment
What will Policy not Pay ?
y y y y y
Any injury which does not result in fatality or partial disablement for period exceeding 3 days First 3 days of disablement where the total disablement is less than 28 days For any non-fatal injury caused by any accident which is directly attributable to a) Influence of drinks or drugs b) Willful disobedience of an order for securing safety of the workman c) Willful removal or disregard of safety guard device. Liability of insured assumed under an agreement For occupational diseases mentioned in part "C" of schedule III of WC Act . on additional premium. and hospital expenses including the cost of transport to hospital for accidental employment injuries Liability in respect of diseases mentioned in Part C / schedule III of WC Act.ROHATGI
Who can be Insured ? Any employer whether as a Principal or contractor engaging "workmen" as defined in WC Act to cover his liability to them under statute and at common law. surgical. On extra premium-medical.CA. Employer can cover Employees who do not qualify as "Workmen" under separate table Insured against what risks ?
Indemnity to insured against his liability as an µemployer¶ to accidental injuries (including fatal) sustained by the µworkman¶ whilst at work. unless
. War group and nuclear group of perils Liability to employees of contractors of the insured (unless specifically declared) Employee who is not a "workman" as per WC act.NAVEEN.
In case of government funded health c
system. with proliferation of vari
health care technologies and general price rise. Vietn
and Sri Lanka in health indicators (Satia et al 1999). This private sector bridges most of the g
between what government offers and what people need.CS.NAVEEN. the quality and access of services has always remained major concern. the cost of care has also become very expensive
unaffordable to large segment of population. The government and people have started explor
various health financing options to manage problems arising out of growing set of complexities
private sector growth. Under more than one statute / one forum for the same injury
HEALTH INSURANCE: Over the last 50 years India has achieved a lot in terms of hea
cover is extended on extra premium.CA. Increase due to any change in statute provisions after policy had incepted. A very rapi
growing private health market has developed in India.
. But still India is way behind many fast developing countries such as China.ROHATGI
SYBFM. However. increasing cost of care and changing epidemiological pattern of diseases.
Basically. An effective tool to cross sell various products to the members of the group. members of a club or an association or members of a co-operativ society etc. Discount offered depends of the size of the group. Many employers now provide medical insurance as a perquisite to their employees
Individual insurance: Individual insurance caters to the specific needs of an individual.
Floater: A floater is a unique plan wherein the value of sum insured opted can be used by all th members of the family or by a single-family member.CA. Group insurance is more flexible and provide more benefits. then either a three members of the family can use Rs 1 lac each or one member can use the entire cover of lacs. For example: if the policy is bought for 3 lacs. a loading is charged on the premium. top
SYBFM. the sum insured amount floa over all the members covered. For additional benefits.CS. Premium for an individu insurance is higher than group insurance.INSURANCE
The new economic policy and liberalization process followed by the Government of India since
What are the types of Health Insurance? Group insurance: Group medical insurance offers insurance cover to a group with a common trait ± it may b employees of a company. top
What are the benefits of Group Insurance? Benefits of Group Insurance: Premium under group insurance is less than a stand-alone personal insurance policy. A quick and effective way to extend cover to a large chunk of population.NAVEEN. Products can be customised to the size of the group.
can be covered. top
What is the difference between Group and Individual insurance? One of the major difference between group and individual insurance is evidence of insurabilit To purchase individual insurance. health. Members of co-op societies. The sum insured floats over the entire family.CA. Single premium for the entire family. doctors. chartered accountants etc. lawyers. Or the insurer may issue policy with limitations on coverag
However. credit societies etc Weaker sections of society. Group insurance ensures that all the members of the group are insure regardless of their health.INSURANCE
What are the benefits of a Floater Plan? Benefits of a floater plan are :A single policy takes care of your entire family.CS. a person must generally answer a health questionnaire an undergo a medical examination to provide evidence of insurability to the insurance compan An insurer may decline coverage on the basis of the applicant's personal habits.NAVEEN. top
What are the kind of groups? Group can be of various types: Employer-employee group. Association of professionals viz. even those with health problems. group insurance is issued without medical examination or any other evidence o individual insurability.
. Thus. medic history. who might not be eligible fo individual insurance. No hassles of tracking renewals for different members. banks. income or any other factors that bear on risk acceptance. One single policy covers the details of entire family. age.ROHATGI
in case the loss has occurred due to any cause like Fire. Flood. Th insurance company will reimburse the amount.NAVEEN. check for exclusions. Collect relevant claim form. read the fine print (policy wordings) carefully an present your claim at the earliest.. Damage to third party. For speedy reimbursement. Submit claim form to the Policy issuing office either directly or by an authorised Agent along with documents required /asked for. Doctors
. Theft. for any reason other than Act of God Peril e. top
How does a Floater Plan work? You make a claim to an insurance company. Earthquake. Fill up the claim form correctly after reading it thoroughly.INSURANCE
What is the difference between Individual and Floater Plan? Floater offers common cover for all members while an individual policy offers single cove for each member. such as Police Reports. You have to support your claim with bills. In case of your treatment in a network hospita you can opt for cashless settlement.e. Burglary.g. Floater offers flexibility to a policyholder since any member of the family can use the sum insured amount. inundation etc.ROHATGI
Procedure for lodging and settlement of Claims in case of general insurance The following steps are involved in general for lodging and settlement of claims :-1. inform the company at the earlies keep all bills safely. choose the right insurer.CA. The insurance company will directly settle the hospit bills. 5. 4. After the occurrence of a loss normally intimation to be given to the Policy issuing office immediately. Accident etc. 3. the unutilized limit can be transferred to other members.CS. Moreover. Above step will be preceded by lodging a FIR to the nearest Police Station . 2.
who was to carry the risk read the details. Where upon a grou ailors/traders began the practice to insure against the perils involved in a sea voyage. The prac volved with the times and the insurance model took shape. Cash Memos from the Chemists Shop for the medicine purchased. depending on the merits of the case. The genesis of nsurance business also evolved from the United Kingdom and the first insurers were the Llo ndustries. Receipts from Surgeon.ma r the pricing function of an insurer. 8.NAVEEN.ROHATGI
SYBFM. It is directly related to rate. In the early days of marine insurance etails of a ship or cargo to be insured were described on a slip. the person carrying the risk became known as the underwriter. Admission and Discharge Certificates.
Prescriptions. as the case may be. The Policy issuing office may appoint Surveyor/ Loss Assessor or may refer the case to panel Doctors.CA.INSURANCE
6. Claim is finally settled by the Policy issuing office and payment is made to the Policy holder as a full and final settlement of claim.
. The above list is not exhaustive but only indicative. 9. This slip was taken to Lloyd¶s he person. weather perils and goods ge estroyed in the voyage against the payment of a pre-agreed sum by the trader(s).
Underwriting is the prices of selecting and classifying exposures.
Underwriting : UNDERWRITING PROCESS AND METHODS
Underwriting as an art began in the United Kingdom since Victorian times. then signed the slip under the details of the n this way. 7. Further details can be ascertained from the nearest office.CS. Please note in some cases provisional payment is also made to the Policy holder pending the final processing of the claim. it included nsuring of the goods in transit against known perils such as piracy. Reports of Pathological tests. Doctors etc. if necessary. because computed rates contemplate some composition of l roducing characteristics to which they will be applied.
but these decisions may be subject to nderwriting at a higher level because the contracts are cancellable on due notice to the insured fe insurance.CS.
n life insurance business.. however.ROHATGI
SYBFM. It make them financially stronger and helps secure competitive advant his is obvious in the sense that if risks are assessed properly. who produce the applications initially in the field. such as a farm.NAVEEN. In all field nsurance. the decision made by the underwriter concerning lassification and rating is called as the underwriting decision. and the underwriter must see that these standards are observed when a risk is accep or e. underwriting is performed by home or regional office personnel.
When reviewing an application for property insurance for a piece of property.g. crutinize applications for coverage and make decisions as to whether they will be accepted.
he person responsible for evaluation and acceptance/rejection of risks and computation of prem called as the underwriter. an gents. a company may decide that it will accept no fire exposures situated in areas where the o fire department protection or will accept no one for life insurance who has had cancer within revious five years.INSURANCE
Underwriting is the insurance function that is responsible for assessing and classifying the degre sk a proposed insured or group represents and making a decision concerning coverage of that ris
Underwriting includes all the activities necessary to select risks offered to the insurer in su manner that general company objectives are fulfilled. Good underwriting helps the insur ompanies in many ways. agency personnel usually do considerable screening of risks before submi hem to home office underwriters. To this ertain standards of selection relating to physical and moral hazards are set up when rates alculated. Accordingly.CA. th ocated where there is no fire department protection or when reviewing an application for
.2 The Objectives and Principles of Underwriting
he primary objective of underwriting is to see that the applicant accepted will not have a xperience that is very different from that assumed when the rates were formulated. Underwriting decisions are crucia nsurers since they can make or mar an insurance company. pricing will be effective and there he company can well compete and build up reputation. agents seldom have authority to make binding underwriting decisions.
Product Equitable to Customer²The underwriter should fairly assess the risk in a proposal fix the premium justifiable to the consumer. the underwriter is assisted by medical reports from the physicians that exam he applicant. the underwriter asks uestion. 2. the underwriter robably reject the application. yet their contribu is as vital as that of actuaries. Financially Feasible to the insurance Company²The insurers are not in the business of cha The underwriting benefit must be reflected by the financial statements. the onus is on underwriters to carry an introspection of the various factors that caused differences between consumers and company¶s expectations. the amoun overage to be permitted on various types of exposure. or must I reject it because it does not c within the technical limitations of my instructions?´ In answering this question.INSURANCE
nsurance in which the individual had cancer four and half years ago. do not involve in forming the company underwriting. the individual who applies the underwriting rules uidelines. Deliverable to the Customer²Consumers are the final authority for buying the products.CA. Although.
he underwriting philosophy also describes in general terms how the underwriter will use reinsur or its risk management. Generally. the underw isualises what would happen to the company¶s loss experience if a very large number of iden sks were accepted. because they operationalise the business of risk. ³Can I make an exception for this application. If marketers are not able to sell so that the product becomes undeliverable. by information from the agent. and similar restrictions. The underwriting po pecifies the line of insurance that will be written as well as prohibited exposures.
he objectives of underwriting can be therefore expressed as follows: 1.CS. called the desk underwriter. In property-liability insurance (as well as life insurance). It is also called as the underwriting philosophy.ROHATGI
SYBFM. and by advice from ompany¶s own medical advisor.
. The underwriting philosophy can be translated into underwriting guidel which specify the general standards that specify which applicants are to be assigned to the stablished for each insurance product. by an independent report (called inspection report he applicant prepared by an outside agency created for that purpose.NAVEEN. If the aggregate experience would be very unfavourable. 3.
n life insurance. the area of the country in which each line e written. underwriters are not directly involved in the pricing of insurance products.
Most of the insurance companies formulate underwriting policy which provides the framework nderwriting decisions.
(i) Income (to help determine suitability).. (d) Nature of Group¶s business-based on nature of industry.g. and increase the rise of death). and any additional insurance s/he prop to buy. level of benefits which ca offered. An impairment in any respect of a proposed insur ersonal health.
While underwriting risk of an individual in life insurance. race . (g) The amount of insurance the applicant already has. and (m) Foreign travel (certain foreign travel is risky). Mortality risk for an insurer is he insured will die prior to the stipulated life.CS. or other activities ould increase that person¶s expected mortality risk. piloting non-commercial aircraft).
. imilarly in case of group insurance the following factors are considered: (a)Proposed Coverage²which includes assessment of eligibility. (c)Height and weight. (j) Smoking or tobacco use this is an important factor.
. health habits. or business or for family protection (f) Marital status and number of children. occupation. (b) Cause of existence of the relevant group²classified on the basis of the nature of job.CA. administration of the group and the mode of payment to intermediaries. (e)The purpose of the insurance (such as for estate planning. (d) Health history (and often family health history²parents and siblings).ROHATGI
SYBFM.NAVEEN. (l) Certain hobbies (e. (c)Size of the group²large groups are always better than small groups for obvious reasons. cement plants and coal mines wor are more prone to respiratory/kidney problems. following factors are generally consid y life insurance companies: (a)Age. (k) Alcohol (excessive drinking seriously hurts life expectancy). (e)Geographical location of the group. spe agendas etc.car driving. hang-gliding. medical history.INSURANCE
nderwriter has the services of reinsurance facilities and credit departments to report on the finan anding of applicants and also can review loss histories of applicant. as smokers have shorter lives). family history. (b) Sex.3 Underwriting in Life Insurance
ife insurance underwriting is mainly concerned with mortality. (h) Occupation (some are hazardous.
or have occupat or avocations that significantly increase their degree of risk.
n case of renewals.
. Underwriters place otential insureds in the appropriate risk class (based on various criterion) generally classifie ollows: a)Preferred Class where the happening of an adverse event or the possibility of claims is the l i. ocumentation.4 Underwriting in Non-life Insurance
he underwriting of commercial. the most important factor is the claims experience. is then passed to the underwriter and negotia an commence on the terms. which may be extremely extensive. The insurance companies may take the help of brokers in these cases.NAVEEN. b) Standard Class²where the risk exposed is at par with the average risk..e.CA. conditions. Detail of the risk could not be confine proposal form since there is just too much information to condense. cover and price. This may mean site inspection he broker and the preparation of plans and reports on the relevant aspects of the risk. In small cases he may be able to do this from reading a proposal form orresponding with the sponsor. c)Sub-standard Class²where the anticipated risk is -higher than the average risk. Most of the ins belong to this class.
he essence of the task is that the underwriter has to evaluate the hazard associated with the which is being proposed. The broker in t ases will be in a position to prepare the case for the underwriter. age and work profile. but certain basic principles undamental. (g) Attributes of group members²sex. (i) Persistency and prior experiences. no matter how large the f may be. Insur companies typically establish this risk class for proposed insureds that have permanent med impairments or conditions. the inherent risk is lesser than average risk.INSURANCE
(f) Stability of the group. The degree of complexity of the underwr equired would obviously vary with the sheer size of the risk. In large cases this is simply impossible.ROHATGI
SYBFM. perations in many countries throughout the world.
. (h) Level of participation²contribution by members or else. are recovering from serious illnesses or accidents. business insurances is a much more complicated and involved ommercial insurances range from small shops and factories to large multinational corporations.CS. It may be that a local inspector is asked to call and see the sho actory for himself. no contribution by members.
In case of exis clients where the claims experience has been unfavourable.INSURANCE
everal sources of information are available to the underwriter regarding the hazards of a comme pplicant for property and liability insurance: a)Application Containing the Insurers Statements : The basic source of underwriting informatio the application.CA. it has expanded during the last century to encompass virtually every aspect of modern insurance market. for a premium. or. competitive industry whose existence makes possible a more effective institution of risk
Reinsurance Defined einsurance is a transaction in which one insurer agrees. c)Prior Experiences : The past history of claims is also a source of information. the company selling reinsuran nown as the assuming insurer. While the early focus of reinsurance was in the marine and nsurance lines. The questions on application are designed to give the underwriter the information needed to decide whethe accept the exposure. d) Inspection : Surveys are also conducted by the company¶s specialists/consultants to find ou accuracy of information as contained in the proposal form. For commercial insurances. reinsurance evolved into usiness as it operates today. which varies for each line of insurance and for each type of coverage. The bro and more liberal the contract. REINSURANCE
Although to many. the reinsurer. to indemnify another ins gainst all or part of the loss that insurer may sustain under its policy or policies of insurance. usually more detailed information is required. From that time forward. more simply. the profit-sharing contracts also entered with the agents. its roots e traced as far back as the late 14th century. reject it or ask for additional information. reinsurance is a relatively unknown aspect of the insurance industry. Reinsurance is a device whereby the insurance company may reduc sk by transferring a portion to one or more insurance companies.NAVEEN.CS. b) Information from the Agent or Broker : In some line of non-life insurance. hi echnical. Reinsurance is a special. the insurance company penalises loads premium for new businesses or renewals of the existing ones.
. Reinsurance can also be de scribe he ³insurance of insurance companies´. ompany purchasing reinsurance is known as the ceding insurer.ROHATGI
SYBFM. whereby the agent derives a special incentive if the business bro by him has resulted in a profit to the company. the agent exercise his underwriting authority.
Diffe ypes of reinsurance contracts are available in the market commensurate with the ceding compa oals
Types of Reinsurance
Following are the important types of Reinsurance 1. Quota Share Reinsurance
The ceding company and the reinsurer take a balanced share of losses and premiums.CS.
. Proportional reinsurance Proportional reinsurance involves one or more reinsurers taking a stated percent share of ea policy that an insurer produces. Non-proportional 3.
There are two types of proportional reinsurance.ROHATGI
SYBFM.2 Objectives of Reinsurance nsurers purchase reinsurance for essentially four reasons: (1) to limit liability on specific risks. ( abilise loss experience. and (4) to increase capacity. Reinsurance can cquired either directly from a reinsurer or through a broker or reinsurance intermediary. (3) to protect against catastrophes. a.NAVEEN. whi is generally expressed as a fixed percentage of loss on each risk. Facultative Reinsurance:
1. the insurer may not have sufficient capital to carefu keep all of the exposure that it is capable of producing. This means that the reinsurer will accept that stated percentage each of premiums and will pay that percentage of each loss. The insurer may appear for su coverage for many reasons for example.INSURANCE
einsurance provides reimbursement to the ceding insurer for losses covered by the reinsur greement. It enhances the fundamental objective of insurance²to spread the risk so that no si ntity finds itself saddled with a financial burden beyond its ability to pay.CA. Proportional reinsurance 2. A ceding charge is paid the reinsurer to the primary insurer to reimburse for the expenses incurred in writing t
Advantages of the Facultative Reinsurance:
Flexibility . apart from the risks are n ceded to the reinsurer.CS. the retention or priority. so they can reduce the insure esponsibility in certain high-risk areas. Disadvantages of the Facultative Reinsurance:
Uncertainty . b. y Stability .
SYBFM. insurer is responds to the loss suffered by the insurer exceeds certain amount.The capability to arrange a reinsurance contract to fit any particular case. Surplus Share Reinsurance
Surplus share reinsurance is related to quota share reinsurance.The ceding insurer cannot plan before as it does not know whether t reinsurer will accept the risk.
3. or "line". y More Business ± It Increases the insurer's capability to take on larger amounts of insuran business. Non-proportional Under this type of reinsurance. a ceded
2. Facultative Reinsurance: Facultative reinsurance is coverage where the reinsurer evaluates a particular risk on a case-b case basis. only risks exceeding a minimum dollar amount.CA. Facultative reinsurance also allows the prime insurers get the reinsurer's advice on uncertain risks. it is called as.NAVEEN. This type of reinsurance contract can be in pro-ra orm or excess of loss. instead.Stability in the operations of the insurer as losses can be transferred to t reinsurer.INSURANCE
business. Facultative reinsurance is negotiated separately for each insurance contract that is to einsured. The flexibility of facultative reinsurance allows various ceding insurers to reinsu dangerous risks which are not covered by continuing contract.
4. The ceding company contractually bound to cede and the reinsurer is bound to assume a particular element or kind isk insured by the ceding company. Once the negotiations of the contract are over.
Advantages of Treaty Reinsurance:
Economical .CA. y Fast .The policy will not be issued apart from the reinsurance obtained. it leads to delay
Unreliability .Treaty Reinsurance is difficult and requires larger record keeping. the reinsu must automatically allow all business included within the conditions of the reinsurance contra with the ceding company.CS.Dire market circumstances and poor loss outcomes can decline t reinsurance market.INSURANCE
Delays for the Insurer .The insurer does not have to shop for a reinsurer before underwriting t policy so it is economical. Disadvantages of Treaty Reinsurance:
Expensive . Treaty Reinsurance Treaty reinsurance is a contract between insurers and reinsurers.
. making it difficult for the insurer to reach reinsurance. Complex .Administrative expenditure can be quite high in Treaty Reinsurance.NAVEEN.ROHATGI
SYBFM.There is no delay or uncertainty involved in Treaty Reinsurance.