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SYBFM- INSURANCE

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.

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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.

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Lets take some examples to understand how insurance actually works: Example 1 Example 2 SUPPOSE (General)
y y

SUPPOSE (Life)
y y

y y

y

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/-

y

y

y

y

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)

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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

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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
y

Indemnity means that the insured person is placed, financially, in the same position, as he was before the loss..

Implied conditions of a contract
y

Good faith & Utmost good faith
5

y Proximate cause A loss could be due to a cause of causes.CA. y Legality of parties to contract At law.the insurers. y Insurable Interest Insurance contracts without insurable interests have no sanction of the law as they amount to speculation. In other words. are illegal. The owner of a property has absolute insurance interest. He has a duty to disclose particularly.INSURANCE Both the parties to a contract are expected to observe good faith. It is always the duty of the insured to prove that the loss arose out of the insured peril. a minor cannot enter into a legal contract. Contracts entered with person of unsound mind or with a person from alien Country. However.CS. so long as the contract is for the benefit of the minor himself. y Consensus Ad Idem (of the same mind) In Insurance contracts only one party . such contract is valid. which is proximate.the proposer knows the details of the risk. y Existence of subject matter Existence of subject matter of insurance is necessary. In the chain reaction. However. 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.NAVEEN. each party should understand what is proposed for insurance and the same 6 . which would be the proximate cause to be considered for the purpose of a claim.ROHATGI SYBFM. material facts and the same should be understood by the other party to the contract . it is the dominant cause.

CA.INSURANCE should be covered by the insurance contract. 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. y Subrogation Subrogation condition is another corollary to the principle of Indemnity. 7 . A loss may occur accidentally or by the action or negligence of third party (not workmen). If the insured opts to recover the loss under the insurance policy. 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. which is faster and does not involve litigation. any ambiguity in the contract wording will be read against the insurers as they have drafted the contract. 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.CS.NAVEEN. he will surrender his rights against the third parties in favour of the Insurers signing a µLetter of subrogation¶ on an appropriate stamp paper. The express conditions include y Contribution Contribution condition is a corollary to the Principle of indemnity. Contribution condition checks that each policy pays only a ratable portion under each separate policy.ROHATGI SYBFM.

It finds mention in the writings of Manu ( Manusmrithi ).CA. to represent both of them. If the two separate arbitrators cannot reach an agreement. y Arbitration When liability under the policy is admitted but the quantum is disputed.ROHATGI SYBFM. 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. the Madras Equitable had begun transacting life insurance business in the Madras Presidency. Insurance in India has evolved over time heavily drawing from other countries. insurance has a deep-rooted history. England in particular. epidemics and famine. both the arbitrators can appoint a third arbitrator called umpire.CS. 1870 saw the enactment of the British Insurance Act and in the last three 8 . In keeping with the provisions of the Act. This was probably a pre-cursor to modern day insurance. Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). 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. floods. This Company however failed in 1834.NAVEEN. The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers¶ contracts. the insured cannot rush to a Court of law without first referring the dispute to Arbitration as per µIndian Arbitration and reconciliation Act -1996'.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. In 1829. They can also appoint a single arbitrator. the insured may appoint an arbitrator to be followed by appointment of another arbitrator by the insurers.

Principal insurance were also of India. namely Albert Life Assurance.INSURANCE decades of the nineteenth century. with a view to protecting the interest of the Insurance public. This era. 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 earlier legislation was consolidated and amended by the Insurance Act. There allegations of unfair trade practices. The LIC absorbed 154 Indian. 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. An Ordinance was issued on 19th January. The Indian Life Assurance Companies Act. decided to nationalize insurance business.NAVEEN. Royal Insurance. In 1938. However. In 1928. 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. Oriental (1874) and Empire of India (1897) were started in the Bombay Residency.CS. the Bombay Mutual (1871).ROHATGI SYBFM. 16 nonIndian insurers as also 75 provident societies²245 Indian and foreign insurers in all.CA. 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. however. there were a large number of companies and the level of competition was high. was dominated by foreign insurance offices which did good business in India. The Government therefore. The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade 9 . 1912 was the first statutory measure to regulate life business. 1938 with comprehensive provisions for effective control over the activities of insurers. In 1914.

This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. a wing of the Insurance Associaton of India. former Governor of RBI.ROHATGI SYBFM.... General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd. 1973. general insurance business was nationalized with effect from 1st January. The committee submitted its report in 1994 wherein . it recommended that the private sector be permitted to enter the insurance industry. 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. They stated that 10 . In 1972 with the passing of the General Insurance Business (Nationalisation) Act. the New India Assurance Company Ltd. the Indian Mercantile Insurance Ltd. In 1907. 1957 saw the formation of the General Insurance Council. It came to India as a legacy of British occupation. 107 insurers were amalgamated and grouped into four companies. In 1993.CS. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices. This was the first company to transact all classes of general insurance business.The objective was to complement the reforms initiated in the financial sector. In 1968. the Insurance Act was amended to regulate investments and set minimum solvency margins. namely National Insurance Company Ltd. in the year 1850 in Calcutta by the British. the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The Tariff Advisory Committee was also set up then. was set up. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973.INSURANCE and commerce in the 17th century. to propose recommendations for reforms in the insurance sector.NAVEEN. among other things. the Government set up a committee under the chairmanship of RN Malhotra.CA.

2000. Following the recommendations of the Malhotra Committee report. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums. Together with banking services.CA. 2002. A well-developed and evolved insurance sector is a boon for economic development as it provides 11 . In December.NAVEEN. The Authority has the power to frame regulations under Section 114A of the Insurance Act. insurance services add about 7% to the country¶s GDP. Parliament passed a bill de-linking the four subsidiaries from GIC in July.ROHATGI SYBFM. preferably a joint venture with Indian partners. Foreign companies were allowed ownership of up to 26%. The IRDA opened up the market in August 2000 with the invitation for application for registrations.INSURANCE foreign companies be allowed to enter by floating Indian companies. 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 IRDA was incorporated as a statutory body in April. in 1999. the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. while ensuring the financial security of the insurance market. 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.CS. 2000. 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.

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. NEED AND IMPORTANCE OF LIFE INSURANCE Superior to any Other Savings Plan Unlike any other savings plan. Life insurance is a contract between the policy holder and the insurer. the policy owner has to pay a stipulated amount called a µpremium¶ at regular intervals or in lump sums. In return. such as terminal illness or critical illness.CA.CS. a life insurance policy affords full protection against risk of death. 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. 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.ROHATGI SYBFM. where the insurer agrees to pay a sum of money upon the happening of the insured individual's death or other event.INSURANCE long. If he/she dies while the contract is in force.NAVEEN. the insurance company makes available the full sum 12 . 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. 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).

however. Encourages and Forces Thrift A savings deposit can easily be withdrawn.ROHATGI SYBFM.CA. Typically. many policies also include disability benefits.CS. Evidently. a student loan. Several policies have foreseen this possibility and provide for payments over a period of years or in a combination of installments and lumpsum amounts. be surrendered for a cash value. such savings can be much lesser than the sum assured. The policy is also acceptable as a security for a commercial loan. Ready Marketability and Suitability for Quick Borrowing A life insurance policy can.NAVEEN. after a certain time period (generally three years). If the death occurs prematurely. In comparison. for example. the potential financial loss to the family of the policyholder is sizable. any other savings plan would amount to the total savings accumulated till date. Thus. a life insurance policy in effect brings about compulsory savings.INSURANCE assured to the policyholders¶ near and dear ones. these provide for waiver of 13 . 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. Administering the Legacy for Beneficiaries Speculative or unwises expenses can quickly cause the proceeds to be squandered. Disability Benefits Death is not the only hazard that is insured. 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. is considered sacrosanct and is viewed with the same seriousness as the payment of interest on a mortgage. The payment of life insurance premiums.

Ordinary life assurance can be further clasified into following types: Types of Ordinary Meaning Life Assurance 1. 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. 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.INSURANCE future premiums and payment of monthly installments spread over certain time period. claim by insurance 14 . 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. Insurance against risk to one's life is covered under ordinary life assurance. Assurances for i). 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. 3.NAVEEN. Long-term insurance covers all life insurance policies. Tax Benefits LIC premium paid is allowed as deduction from gross total income under sec 80 C. the term of policy is defined for a Assurance specified period say 15. 20. 2. Whole Assurance Life In whole life assurance. 25 or 30 years.ROHATGI SYBFM. Endowment In case of endowment assurance. Child's Deferred Assurance: Under this policy.CS.CA.

Deferred Annuity: A deferred annuity can be purchased by paying a single premium or by way of installments. namely: Immediate Annuity: In an immediate annuity. the policy remains continued until the option date without any need for payment of premiums. If the child dies before the option date.INSURANCE Children company is paid on the option date which is calculated to coincide with the child's eighteenth or twenty first birthday. A money back policy is generally issued for a particular period. claim for which is paid to the family of the assured only when he dies. 5. and the sum assured is paid through periodical payments to the 15 . the parent receives back all premiums paid to the insurance company. Term assurance policies are only for a limited time. no claim is paid to the assured. Money Policy Back Money back policy is a policy opted by people who want periodical payments. 4. The insurer in return promises to pay the insured a series of payments untill insured's death. life annuity is opted by a person having surplus wealth and wants to use this money after his retirement. payable in installments over the schooling period. In case the parent survives till option date. There are two types of annuities. ii). The insured starts receiving annuity payment after a lapse of a selected period (also known as Deferment period).ROHATGI SYBFM. In case the assured survives the term of policy.CS.CA. However. on the life of the parent with the sum assured. Generally. A person entering into an annuity contract agrees to pay a specified sum of capital (lump sum or by instalments) to the insurer. School fee policy: School fee policy can be availed by effecting an endowment policy. Annuities 6. if the parent dies before the option date. Term Assurance The basic feature of term assurance plans is that they provide death risk-cover.NAVEEN. policy may either be continued or payment may be claimed on the same date. 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.

CS. 1938. 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. When can nomination be done Nomination can be done at the inception of the policy itself. NOMINATION Q1. 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. 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. 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. 3. 4. 5.INSURANCE insured. 2Who is a nominee The person designated by the policyholder to receive the proceeds of an insurance policy.CA. If a nomination was not done at th time of filing the proposal. spread over this time period. Transfer or assignment of policy (except when it is made to an insurer in specified cases) automatically cancels 16 . 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. upo the death of the insured.ROHATGI SYBFM. an number of times.NAVEEN. full sum assured along with bonus accruing on it is payable by the insurance company to the nominee of the deceased. Who can nominate Any policyholder. In case of death of the insured within the term of the policy. there are n restrictions on the policyholder regarding changing his nomination at any point of time.

to nomine B. Surrender value is the amount payable to the policyholder should he decide to discontinue the policy and encash it. 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. This cash value is the savings component of most permanent life insurance policies.INSURANCE nomination. 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. failing whom. 7.CA. appoint a person who is a major as an appointee giving his full nam age. 6. Signatures of appointee as token of consent ar necessary on the proposal form. What is successive nomination Successive nomination means that money should be paid to nominee A.NAVEEN. Address. Moreover. if it is a participating policy. failing him. Surrender of policy is not recommended since the surrender value will 17 . particularly whole life insurance policies. Such a nomination is treated in favour of one individual i the order mentioned and is acceptable in law.CS. the bonus gets attached to it. This is also known as 'cash value'. 'surrender value' and 'policyholder's equity'. It is payable only after three full years' premiums have been paid to the insurance company. address and relationship to the nominee. to nominee C.ROHATGI SYBFM. relationship to yourself of the nomine Do not write the nomination in favour of wife and children as a class. Give their specific name and particulars existing at that momen If the nominee is a minor. age.

CA.CS. or On death of the life insured. completion of the term for which the insurance was taken in case of endowment policies . after charges are deducted. Therefore. provided policy is in force on the date of death or has acquired y 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. retention of earlier policies and continuing all policies without allowing them to lapse is the best strategy. 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. On surrender.ROHATGI SYBFM. the insured basically gets the fund value of his investments minus the charges that the insurer levies on account of premature termination. if it occurs before maturity of the policy. Intimation of death 18 . Life Insurance Claims What are the situations when claims under life insurance arise? A Life Insurance Policy results into claim in the following situations: y On maturity of the policy i.NAVEEN.INSURANCE always be proportionately lower. it will come at a much higher premium because your age will have advanced since taking the earlier policy. if he terminates or surrenders the policy before the original maturity date.e. If you decide to go in for another insurance policy at this stage. Surrender value is what an insurance company will pay an insured.

the cause of death. v.) Submission of death proof Submission of proof of age. the branch office sends the necessary claim forms along with instructions regarding the procedure to be followed by the claimant.CS. it should be signed by: y the nominee. 19 . It may be: i. ix. The letter of intimation of death should contain the following information: i. vi. ii. iv. iii. That is. the nominee or the assignee of the policy or the deceased policyholder¶s nearest relative. assignee. which is to be signed by the person entitled to receive policy money. The intimation needs to be sent by the person who is entitled to get the proceeds of the policy.CA.ROHATGI SYBFM. and policy number / s claimant¶s relationship with the assured or his status (nominee. viii. Soon after the receipt of the intimation of the death. ii. name of the life assured a statement that the life assured is dead. vii. the place of death. etc. the insurance company issues a discharge form for completion. in case nomination was made under the policy.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. iii. the date of death.NAVEEN. Payment and Discharge After completing all the above formalities.

100 20 . For instance if the value of a property is Rs. in case the policy was validity and unconditionally assigned. In respect of insurance of property. Non-life insurance companies have products that cover property against Fire and allied perils. Where a property is undervalued for the purposes of insurance. earthquake and so on. and liability insurance which covers legal liabilities.CA. MEANING OF GENERAL INSURANCE Insurance other than µLife Insurance¶ falls under the category of General Insurance. General Insurance comprises of insurance of property against fire. the legal representative or successor.ROHATGI SYBFM. flood storm and inundation. There are also other covers such as Errors and Omissions insurance for professionals. credit insurance etc. theft etc. air and road. LIC sends the cheque for the amount due to the person entitled to receive the same.INSURANCE y the assignee. 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. A Marine Cargo policy covers goods in transit including by sea. There are products that cover property against burglary. insurance of motor vehicles against damages and theft forms a major chunk of non-life insurance business. The non-life companies also offer policies covering machinery against breakdown. burglary etc. the insured will have to bear a rateable proportion of the loss.CS. y In due course. personal insurance such as Accident and Health Insurance. Further. there are policies that cover the hull of ships and so on.NAVEEN.

INSURANCE and it is insured for Rs. Liability insurance covers such as Motor Third Party Liability Insurance. Products offering Personal Accident cover are benefit policies. Personal insurance covers include policies for Accident.NAVEEN. The Third Party Administrators also provide service for reimbursement claims.CS. hospitals. The Workmen¶s Compensation Act etc. Sometimes the insurers themselves process reimbursement claims.e. Some of the covers such as the foregoing (Motor Third Party and Workmen¶s Compensation policy ) are compulsory by statute. i. Health insurance covers offered by non-life insurers are mainly hospitalization covers either on reimbursement or cashless basis. There are liability covers available for Products as well.. Normally when a group is covered. Health etc.50/-. The cashless service is offered through Third Party Administrators who have arrangements with various service providers. the maximum claim amount payable would be Rs. in the event of a loss to the extent of say Rs.25/. Liability Insurance not compulsory by statute is also gaining popularity these days. For 21 . This concept is quite often not understood by most insureds. Accident and health insurance policies are available for individuals as well as groups.CA.50/-.ROHATGI SYBFM.( 50% of the loss being borne by the insured for underinsuring the property by 50% ). insurers offer group discounts. Workmen¶s Compensation Policy etc offer cover against legal liabilities that may arise under the respective statutes² Motor Vehicles Act. Many industries insure against Public liability. There are general insurance products that are in the nature of package policies offering a combination of the covers mentioned above. A group could be a group of employees of an organization or holders of credit cards or deposit holders in a bank etc.

A Health Insurance policy can provide financial relief to a person undergoing medical treatment whether due to a disease or an injury.INSURANCE instance. cyclones etc have left many homeless and penniless. Also organizations or industries that are self-financed should ensure that they are protected by insurance. which one might have acquired from one¶s hard earned income. Industries also need to protect themselves by obtaining insurance covers to protect their building. there are package policies available for householders. A loss or damage to one¶s property can leave one shattered. so also the people against Personal Accident. insurers also offer customized or tailor-made ones. 22 . earthquakes. Suitable general Insurance covers are necessary for every family. Losses created by catastrophes such as the tsunami. Apart from offering standard covers. machinery. It is important to protect one¶s property. stocks etc.CA. Such losses can be devastating but insurance could help mitigate them.ROHATGI SYBFM. Property can be covered.CS. So. But are they obtaining the right covers? And are they insuring adequately are questions that need to be given some thought. Financiers insist on insurance. most industries or businesses that are financed by banks and other institutions do obtain covers.NAVEEN. chartered accountants etc. shop keepers and also for professionals such as doctors. They need to cover their liabilities as well.

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.INSURANCE Most general insurance covers are annual contracts.CS.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 Perils Covered 23 . 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 SYBFM.CA.

NAVEEN.CA. Strike Terrorism Storm.ROHATGI SYBFM. short circuit etc. workmanship. House breaking. 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 y y Loss or damage to property due to : Spontaneous combustion.INSURANCE y y y y y y y y y y y Fire Lightning Explosion/Implosion Aircraft damage Riot.CS. landslide Bursting or overflowing of tanks Bush fire etc. 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. Earthquake Spoilage loss 24 . inundation Impact damage Subsidence . defective materials Pollution or contamination Over-running. Flood. theft Normal Cracking or settlement or bedding down of new structures War or war like operations Defective design.

25 .ROHATGI SYBFM. Surveyors.INSURANCE Add on Covers Some Add on covers.. during the period in which the normal business is affected. y y y y y y y y Terrorism Removal Of Debris Architects.CS.NAVEEN.CA. 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. What Can Be Insured ? y y y 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. 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.

sea.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. Who can Insure ? Owners or bankers of goods in transit/shipment. lightning Washing overboard 26 . derailment ( of land conveyance) Collision Discharge of cargo at port of distress Jettison General average sacrifice. 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. MARINE INSURANCE MARINE CARGO INSURANCE Coverage Any loss or damage to goods in transit by rail. The policy insures earnings of the business lost during the indemnity period.CS. sinking etc.ROHATGI SYBFM. Overturning. stranding. road. salvage charges Earthquake. air or post.CA.NAVEEN.

lake. It is a stamped document.CA. Open Policy This policy is issued for transit of goods within India. It is an unstamped agreement. whereby the insurance company agrees to provide insurance cover to all shipments coming within the scope of the open cover.CS. Open cover is not a policy. specific policies are issued as evidence of the contract and on collection of premium. Stamp duty is collected in advance along with premium for despatches to be declared periodically 27 . The open cover is a contract effected for a period of 12 months . 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.INSURANCE y y y Sea.ROHATGI SYBFM. 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.NAVEEN. As and when shipments are declared . Premium can be collected in advance for the entire estimated value during the policy period . In this case specific policies are not issued for each consignment .

. They can not be assigned or transferred. 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.NAVEEN. tankers. 28 . voyage .. smaller vessels. cargo description etc like all other marine policies.CS. The specific voyage policy must show complete details of the risk. sum insured . The goods covered must belong to or held in trust by the insured . clearing . The policy will be issued before the voyage starts. These policies can not be issued to transport operators .terms and conditions of cover.CA.INSURANCE Specific Voyage Policy This policy is valid for a single voyage or transit. Marine Hull Insurance Coverage Any loss or damage to ships.It should contain particulars of conveyance/Vessel name/ Bill of Lading or Way bill and date . The coverage will cease immediately on completion of the voyage. bulk carriers.ROHATGI SYBFM. For such policies the sum insured should not be less than Rs 5000/-. forwarding and commission agents or freight forwarders or in joint names.

stranding.INSURANCE fishing boats and sailing vessels. sinking etc.NAVEEN. 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. Overturning. 29 . derailment ( of land conveyance) Collusion General average sacrifice.CS.ROHATGI SYBFM.CA. attributable to. Who can Insure ? Owners or bankers of ships or vessels. salvage charges What is not Insured? The policy does not pay any loss/damage caused by.

CS. they have to be insured for the prevailing market value of the 30 . who have insurable interest in a motor vehicle. Financiers or Lessee. Two wheelers and Commercial vehicles excluding vehicles running on rails Who can Insure ? y Owners of the vehicle.INSURANCE due to y y y y y 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.CA. Insured's Declared Value (IDV) (a) In case of vehicle not exceeding 5 years of age. 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. Riot or Civil Commotion Any terrorist or person/s acting with political motive MOTOR INSURANCE Motor Package and Liability only Policies y Motor vehicle which includes private cars. (b) In case of vehicles exceeding 5 years of age and Obsolete models (manufacture of those vehicles which have been stopped by the manufacturers).ROHATGI SYBFM.NAVEEN.

Loss or damage to accessories by burglary/house breaking/theft 1. In case of Motorised Two Wheelers this can be covered on payment of 31 . house breaking or theft Terrorist activity Riot. road.NAVEEN. lightning Burglary. air.ROHATGI SYBFM. lift or inland waterways Landslide or workslide None of the above perils can be excluded from the scope of a policy.CS. Package Policy .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.INSURANCE same as agreed to between the insurer and the insured.Section I Section I (Own Damage . Strike and Malicious Damage Earthquake Flood. elevator. Self ignition.CA. cyclone and Inundation etc While in transit by rail. For private car it is covered 2.

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. bumpers etc. (a) Package Policy . This is applicatble only to Commercial Vehicles. cover is provided for the reasonable cost of the following : y y Its removal to nearest reapirers The cost of reasonalble repairs immediately necessary subject to the limit provided for. his legal representative will be indemnified in place of insured. entitled to indemnity for a liability incurred under this policy. mudguard and / or bonner side parts.CA.CS..NAVEEN. Liability to third parties bodily injury and or death and property damage 2.INSURANCE an additional premium at 3% of the IDV of such accessories 3.ROHATGI SYBFM. Loss or damage to Lamp.Section II Section II (Liability) of Package Policy : 1. Tyres. if he observed all conditions as the insured himself. 32 . can be covered on payment of additional premium.

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. on a reducing balance basis. Insurers give a depreciation schedule for up to five years.INSURANCE IDV Depreciation Schedule The premium is calculated on the basis of something called the Insured Declared Value (IDV) of the vehicle.000 2-3 years 30 Year 4: 89. the onus is on you to justify the higher IDV. on account of.60. IDV Depreciation Schedule Vehicle Age Depreciation(%) IDV (Rs) 6 Months 5 Year 1: 2.1 year 15 Year 2: 1.600 3-4 years 40 Year 5: 53.ROHATGI SYBFM.760 4-5 years 50 Year 6: 26.CS.The IDV of a vehicle reduces with age.880 Note: The depreciation rate is charged as a percentage of the cost of a new vehicle.28.NAVEEN. The maximum cover that can be taken under this section is Rs 1 lakh for a driver and Rs 2 lakh for each passenger. This section provides cover against death or injury to the vehicle driver and passengers. LIABILITIES POLICIES 33 . 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. better maintenance or high-priced accessories. Cover for occupants of vehicle. say. which is basically the depreciated value of the vehicle agreed upon by the insurer and the policyholder. 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. in case of a claim.000 6 Months .000 1-2 years 20 Year 3: 1.00. However.CA.

Company or its Directors and all other persons associated and responsible to that Company in the conduct of their business. use. or injury to any person or damage to any property but does not include an accident by reason only of war or radioactivity. intermittent or repeated exposure to death of. Association or its members. This includes any Firm or its partners. destruction. sudden or unintentional occurrence while handling any hazardous substance resulting in continuous.ROHATGI SYBFM. transportation by vehicle. transfer or the like of such hazardous substance. package. 1991 was made effective from 1st April 1991. means the manufacture.CS. The various terms like ³Accident´. ³Hazardous Substance´ means any substance or preparation which is 34 . This has also been brought under Tariff.INSURANCE Public Liability Insurance Coverage The Public Liability Act. processing. offering for sale. ³Handling´in relation to any hazardous substance. ³Hazardous substances´ as defined in the Act are given below. conversion.CA. storage. 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´. ³Accident´ means an accident involving a fortuitous. collection. treatment. 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.NAVEEN.

Any one year : 3 times of `Any one accident¶ limit subject to a maximum of Rs. by reason of its chemical properties or handling is liable to cause harm to human beings. The liability beyond the total of the insurance and the Relief / Fund is to be borne by the ³Owner´. micro-organism.15 crores. property or the environment (as per the Environment (Protection) Act. 1986). 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. other living creatures. All proposals can be rated and accepted at DO level in terms of the rating structure laid down. 35 .NAVEEN.INSURANCE defined as hazardous substance under the Environment (Protection) Act.CS. ³Hazardous Substance´means any substance or preparation which.5 crores. Liability beyond Insurance In case of claim/s exceeding the above statutory limit/s.CA.ROHATGI SYBFM. 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. 1986 and exceeding such quantity as may be specified by notification by the Central Government. Insurance Limits Any one accident : Minimum equal to Paid up Capital upto a maximum of Rs.

lan other tangible property 36 .ROHATGI SYBFM.INSURANCE 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. For the purp f determining the indemnity granted : 1. This may be caused by anything harmful or defectiv he products sold or supplied by the insured in connection with the business specified. The insurance will however not cover the cost of removing. Liability Covered The policy seeks to indemnify the insured against his legal liability to pay compensation (includ laimants costs. Injury shall mean death. illness or disease of or to any person 2.CS.CA. replacin epairing defective products or loss of use thereof. bodily injury. 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. The Comp n addition will reimburse all costs and expenses incurred with its written consent defending su laim for compensation. Damage shall mean actual and / or physical damage to the atmosphere or of any water. lan other tangible property 3.NAVEEN.

manufactured. For cost arising out of the recall of any product or part thereof. 9. 5.ROHATGI SYBFM. Arising out of any product guarantee. 2. distributed. machiner control of any aircraft. reconditioning. formulated. specified. 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 37 . 11. Arising out of deliberate. Arising out of fines. Arising out of contractual liability which would not have existed in the absence of specific contract. 3. treated. unexpected unintentional including resultant continuous. 10. punitive and exemplary damages. Product shall mean any tangible property after it has left the custody or control of the Insu which has been designed. 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. willful or intentional non-compliance of any statutory provision. Accident shall mean a fortuitous event or circumstance which is sudden. 8. 7.INSURANCE 4. For injury and/or damage occurring prior to the Retroactive date shown in the schedule. constructed.CS.CA.NAVEEN. The policy excludes liability for costs in the repair. Arising out of deliberate. s supplied. Arising out of any product which is intended for incorporation into the structure. altered or repaired by on behalf of the Insured 5. conscious or intentional disregard of the insured¶s technica administrative management of the need to take all reasonable steps to prevent claims. 6. penalties. etc. modification replacement of any part of any product which is or is alleged to be defective. 4. installed. serviced. 12. loss of market. intermittent or repeated exposures arising ou the same fortuitous event or circumstances pecial Exclusions 1.

ROHATGI SYBFM. The various terms like ³Accident´. This includes any Firm or its partners.NAVEEN. Public Liability Insurance Coverage The Public Liability Act. 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´. depreciation.CS.INSURANCE What will Policy not Pay ? oss or damage due to y y y y y y y War and war like perils Wear and tear. 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. Association or its members.CA. 38 . 1991 was made effective from 1st April 1991. ³Hazardous substances´ as defined in the Act are given below. Company or its Directors and all other persons associated and responsible to that Company in the conduct of their business. This has also been brought under Tariff. 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.

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. 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. 1986). ³Handling´in relation to any hazardous substance. sudden or unintentional occurrence while handling any hazardous substance resulting in continuous. intermittent or repeated exposure to death of.5 crores. destruction.NAVEEN. processing reatment. Any one year : 3 times of `Any one accident¶ limit subject to a maximum of Rs. storage. plants micro-organism. All proposals can be rated and accepted at DO level in terms of the rating structure laid down 39 . conversion offering for sale. other living creatures. transfer or the like of such hazardous substance. Liability beyond Insurance In case of claim/s exceeding the above statutory limit/s.15 crores.INSURANCE ³Accident´ means an accident involving a fortuitous. by reason of its chemica properties or handling is liable to cause harm to human beings.CS.ROHATGI SYBFM. collection. property or the environment (as per the Environment (Protection) Act. 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. use.CA. means the manufacture. package. or injury to any person or damage to any property but does not include an accident by reason only of war or radioactivity. transportation by vehicle. ³Hazardous Substance´means any substance or preparation which.

INSURANCE Professional Indemnity Policy Coverage y y 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) .CA.CS. Willful neglect or deliberate act Third Party Public Liability 40 . 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 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.ROHATGI SYBFM.NAVEEN.

41 .CS.NAVEEN.ROHATGI SYBFM.CA.INSURANCE y 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.

Liability of insured assumed under an agreement For occupational diseases mentioned in part "C" of schedule III of WC Act . unless 42 . Employer can cover Employees who do not qualify as "Workmen" under separate table Insured against what risks ? y Indemnity to insured against his liability as an µemployer¶ to accidental injuries (including fatal) sustained by the µworkman¶ whilst at work.CA. surgical. 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. which arise out of and in the course of employment y y What will Policy not Pay ? y y y 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.NAVEEN.INSURANCE 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. on additional premium. On extra premium-medical. 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.ROHATGI SYBFM.CS.

INSURANCE y cover is extended on extra premium. A very rapi growing private health market has developed in India.CS. increasing cost of care and changing epidemiological pattern of diseases. But still India is way behind many fast developing countries such as China. the quality and access of services has always remained major concern.CA. 43 .ROHATGI SYBFM.NAVEEN. Vietn and Sri Lanka in health indicators (Satia et al 1999). with proliferation of vari health care technologies and general price rise. However. This private sector bridges most of the g between what government offers and what people need. 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. Increase due to any change in statute provisions after policy had incepted. In case of government funded health c system. 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 mprovement.

top 44 . For example: if the policy is bought for 3 lacs. An effective tool to cross sell various products to the members of the group. the sum insured amount floa over all the members covered.CA. Many employers now provide medical insurance as a perquisite to their employees Individual insurance: Individual insurance caters to the specific needs of an individual. Premium for an individu insurance is higher than group insurance. Products can be customised to the size of the group. a loading is charged on the premium. A quick and effective way to extend cover to a large chunk of population. members of a club or an association or members of a co-operativ society etc.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. then either a three members of the family can use Rs 1 lac each or one member can use the entire cover of lacs. Discount offered depends of the size of the group.NAVEEN. Group insurance is more flexible and provide more benefits. For additional benefits.ROHATGI SYBFM.CS. Basically. 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.

even those with health problems. doctors. can be covered. who might not be eligible fo individual insurance. No hassles of tracking renewals for different members. top What are the kind of groups? Group can be of various types: Employer-employee group. credit societies etc Weaker sections of society. Single premium for the entire family. The sum insured floats over the entire family.CS.NAVEEN.INSURANCE What are the benefits of a Floater Plan? Benefits of a floater plan are :A single policy takes care of your entire family. age. One single policy covers the details of entire family. Group insurance ensures that all the members of the group are insure regardless of their health. 45 . 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.CA. group insurance is issued without medical examination or any other evidence o individual insurability.ROHATGI SYBFM. Thus. lawyers. banks. 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. medic history. health. Association of professionals viz. Or the insurer may issue policy with limitations on coverag However. income or any other factors that bear on risk acceptance. chartered accountants etc. Members of co-op societies.

Damage to third party. choose the right insurer. Theft. check for exclusions. 4. Th insurance company will reimburse the amount. Above step will be preceded by lodging a FIR to the nearest Police Station . For speedy reimbursement. Fill up the claim form correctly after reading it thoroughly. Accident etc. You have to support your claim with bills. 2. for any reason other than Act of God Peril e.g. i. 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.ROHATGI SYBFM.NAVEEN. Flood. Collect relevant claim form. The insurance company will directly settle the hospit bills.INSURANCE top 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. top How does a Floater Plan work? You make a claim to an insurance company. Burglary.e. In case of your treatment in a network hospita you can opt for cashless settlement. 5.CA. Earthquake. in case the loss has occurred due to any cause like Fire. Floater offers flexibility to a policyholder since any member of the family can use the sum insured amount.. Moreover. inundation etc.CS. Doctors 46 . After the occurrence of a loss normally intimation to be given to the Policy issuing office immediately. 3. such as Police Reports. inform the company at the earlies keep all bills safely. read the fine print (policy wordings) carefully an present your claim at the earliest. the unutilized limit can be transferred to other members. Submit claim form to the Policy issuing office either directly or by an authorised Agent along with documents required /asked for.

The Policy issuing office may appoint Surveyor/ Loss Assessor or may refer the case to panel Doctors. 47 . The prac volved with the times and the insurance model took shape. Admission and Discharge Certificates.INSURANCE 6. because computed rates contemplate some composition of l roducing characteristics to which they will be applied. This slip was taken to Lloyd¶s he person. Underwriting Defined Underwriting is the prices of selecting and classifying exposures. It is directly related to rate. it included nsuring of the goods in transit against known perils such as piracy.CA. weather perils and goods ge estroyed in the voyage against the payment of a pre-agreed sum by the trader(s). Reports of Pathological tests.NAVEEN. Prescriptions. The genesis of nsurance business also evolved from the United Kingdom and the first insurers were the Llo ndustries. 9. Receipts from Surgeon. Underwriting : UNDERWRITING PROCESS AND METHODS Underwriting as an art began in the United Kingdom since Victorian times. if necessary. Please note in some cases provisional payment is also made to the Policy holder pending the final processing of the claim. Cash Memos from the Chemists Shop for the medicine purchased. 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. Where upon a grou ailors/traders began the practice to insure against the perils involved in a sea voyage. then signed the slip under the details of the n this way. depending on the merits of the case. 8.ma r the pricing function of an insurer.CS. as the case may be. who was to carry the risk read the details. Further details can be ascertained from the nearest office. the person carrying the risk became known as the underwriter. 7. The above list is not exhaustive but only indicative. In the early days of marine insurance etails of a ship or cargo to be insured were described on a slip. Doctors etc.ROHATGI SYBFM.

underwriting is performed by home or regional office personnel. 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.CA. Good underwriting helps the insur ompanies in many ways. he person responsible for evaluation and acceptance/rejection of risks and computation of prem called as the underwriter.CS. In all field nsurance.NAVEEN. pricing will be effective and there he company can well compete and build up reputation. When reviewing an application for property insurance for a piece of property. Underwriting decisions are crucia nsurers since they can make or mar an insurance company. . agents seldom have authority to make binding underwriting decisions. who produce the applications initially in the field. It make them financially stronger and helps secure competitive advant his is obvious in the sense that if risks are assessed properly. To this ertain standards of selection relating to physical and moral hazards are set up when rates alculated.ROHATGI SYBFM. the decision made by the underwriter concerning lassification and rating is called as the underwriting decision. however. crutinize applications for coverage and make decisions as to whether they will be accepted. n life insurance business. Accordingly.g. an gents. such as a farm. 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. th ocated where there is no fire department protection or when reviewing an application for 48 .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.. and the underwriter must see that these standards are observed when a risk is accep or e.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. agency personnel usually do considerable screening of risks before submi hem to home office underwriters.

If the aggregate experience would be very unfavourable. the amoun overage to be permitted on various types of exposure. 3. and similar restrictions.NAVEEN. he objectives of underwriting can be therefore expressed as follows: 1. n life insurance.INSURANCE nsurance in which the individual had cancer four and half years ago. ³Can I make an exception for this application. Generally. In property-liability insurance (as well as life insurance). Although. the area of the country in which each line e written. If marketers are not able to sell so that the product becomes undeliverable. The underwriting po pecifies the line of insurance that will be written as well as prohibited exposures. Financially Feasible to the insurance Company²The insurers are not in the business of cha The underwriting benefit must be reflected by the financial statements. 49 . Product Equitable to Customer²The underwriter should fairly assess the risk in a proposal fix the premium justifiable to the consumer. the underwriter asks uestion. he underwriting philosophy also describes in general terms how the underwriter will use reinsur or its risk management. the underwriter is assisted by medical reports from the physicians that exam he applicant. underwriters are not directly involved in the pricing of insurance products. or must I reject it because it does not c within the technical limitations of my instructions?´ In answering this question. called the desk underwriter. Deliverable to the Customer²Consumers are the final authority for buying the products. by information from the agent. 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.CS.CA. Most of the insurance companies formulate underwriting policy which provides the framework nderwriting decisions. the underwriter robably reject the application. do not involve in forming the company underwriting. the onus is on underwriters to carry an introspection of the various factors that caused differences between consumers and company¶s expectations.ROHATGI SYBFM. because they operationalise the business of risk. It is also called as the underwriting philosophy. yet their contribu is as vital as that of actuaries. the individual who applies the underwriting rules uidelines. 2. by an independent report (called inspection report he applicant prepared by an outside agency created for that purpose. the underw isualises what would happen to the company¶s loss experience if a very large number of iden sks were accepted. and by advice from ompany¶s own medical advisor.

(c)Size of the group²large groups are always better than small groups for obvious reasons. .NAVEEN.CS.CA. administration of the group and the mode of payment to intermediaries. (d) Nature of Group¶s business-based on nature of industry. as smokers have shorter lives).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.ROHATGI SYBFM. piloting non-commercial aircraft). or other activities ould increase that person¶s expected mortality risk. 50 . and any additional insurance s/he prop to buy. race . family history. (g) The amount of insurance the applicant already has. An impairment in any respect of a proposed insur ersonal health. medical history.. (e)The purpose of the insurance (such as for estate planning. (l) Certain hobbies (e. health habits. spe agendas etc. (b) Sex. (h) Occupation (some are hazardous. (e)Geographical location of the group. While underwriting risk of an individual in life insurance. and (m) Foreign travel (certain foreign travel is risky). (k) Alcohol (excessive drinking seriously hurts life expectancy). or business or for family protection (f) Marital status and number of children. (c)Height and weight. Mortality risk for an insurer is he insured will die prior to the stipulated life. (i) Income (to help determine suitability). and increase the rise of death). occupation. (d) Health history (and often family health history²parents and siblings). cement plants and coal mines wor are more prone to respiratory/kidney problems.3 Underwriting in Life Insurance ife insurance underwriting is mainly concerned with mortality.car driving. following factors are generally consid y life insurance companies: (a)Age.g. hang-gliding. imilarly in case of group insurance the following factors are considered: (a)Proposed Coverage²which includes assessment of eligibility. (j) Smoking or tobacco use this is an important factor. level of benefits which ca offered. (b) Cause of existence of the relevant group²classified on the basis of the nature of job.

age and work profile. Insur companies typically establish this risk class for proposed insureds that have permanent med impairments or conditions. (i) Persistency and prior experiences. no contribution by members. n case of renewals.ROHATGI SYBFM. Most of the ins belong to this class. In large cases this is simply impossible. he essence of the task is that the underwriter has to evaluate the hazard associated with the which is being proposed. The degree of complexity of the underwr equired would obviously vary with the sheer size of the risk.CS. 51 . In small cases he may be able to do this from reading a proposal form orresponding with the sponsor. It may be that a local inspector is asked to call and see the sho actory for himself. cover and price. conditions. is then passed to the underwriter and negotia an commence on the terms. perations in many countries throughout the world. the most important factor is the claims experience. the inherent risk is lesser than average risk. (h) Level of participation²contribution by members or else.e.. This may mean site inspection he broker and the preparation of plans and reports on the relevant aspects of the risk.4 Underwriting in Non-life Insurance he underwriting of commercial. but certain basic principles undamental. no matter how large the f may be. ocumentation. business insurances is a much more complicated and involved ommercial insurances range from small shops and factories to large multinational corporations. b) Standard Class²where the risk exposed is at par with the average risk. which may be extremely extensive.NAVEEN. are recovering from serious illnesses or accidents. The insurance companies may take the help of brokers in these cases. c)Sub-standard Class²where the anticipated risk is -higher than the average risk. . or have occupat or avocations that significantly increase their degree of risk. The broker in t ases will be in a position to prepare the case for the underwriter.INSURANCE (f) Stability of the group. 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.CA. Detail of the risk could not be confine proposal form since there is just too much information to condense. (g) Attributes of group members²sex.

the company selling reinsuran nown as the assuming insurer. 52 . reinsurance is a relatively unknown aspect of the insurance industry. Reinsurance is a special. b) Information from the Agent or Broker : In some line of non-life insurance. From that time forward. usually more detailed information is required. c)Prior Experiences : The past history of claims is also a source of information. or. d) Inspection : Surveys are also conducted by the company¶s specialists/consultants to find ou accuracy of information as contained in the proposal form. The bro and more liberal the contract. ompany purchasing reinsurance is known as the ceding insurer. For commercial insurances. While the early focus of reinsurance was in the marine and nsurance lines. its roots e traced as far back as the late 14th century. In case of exis clients where the claims experience has been unfavourable. more simply. reject it or ask for additional information. to indemnify another ins gainst all or part of the loss that insurer may sustain under its policy or policies of insurance. the agent exercise his underwriting authority.ROHATGI SYBFM. whereby the agent derives a special incentive if the business bro by him has resulted in a profit to the company. Reinsurance is a device whereby the insurance company may reduc sk by transferring a portion to one or more insurance companies. the reinsurer.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. Reinsurance can also be de scribe he ³insurance of insurance companies´. hi echnical. the insurance company penalises loads premium for new businesses or renewals of the existing ones.NAVEEN. REINSURANCE Although to many. the profit-sharing contracts also entered with the agents. which varies for each line of insurance and for each type of coverage. it has expanded during the last century to encompass virtually every aspect of modern insurance market. for a premium. reinsurance evolved into usiness as it operates today.CS. The questions on application are designed to give the underwriter the information needed to decide whethe accept the exposure. competitive industry whose existence makes possible a more effective institution of risk Reinsurance Defined einsurance is a transaction in which one insurer agrees.CA.

Quota Share Reinsurance The ceding company and the reinsurer take a balanced share of losses and premiums.ROHATGI SYBFM. ( abilise loss experience. This means that the reinsurer will accept that stated percentage each of premiums and will pay that percentage of each loss.NAVEEN. 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. whi is generally expressed as a fixed percentage of loss on each risk. Facultative Reinsurance: 1. Non-proportional 3. . A ceding charge is paid the reinsurer to the primary insurer to reimburse for the expenses incurred in writing t 53 . the insurer may not have sufficient capital to carefu keep all of the exposure that it is capable of producing. The insurer may appear for su coverage for many reasons for example. Proportional reinsurance 2. Reinsurance can cquired either directly from a reinsurer or through a broker or reinsurance intermediary. and (4) to increase capacity.CS. 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.CA. (3) to protect against catastrophes. There are two types of proportional reinsurance.INSURANCE einsurance provides reimbursement to the ceding insurer for losses covered by the reinsur greement.2 Objectives of Reinsurance nsurers purchase reinsurance for essentially four reasons: (1) to limit liability on specific risks. a. Proportional reinsurance Proportional reinsurance involves one or more reinsurers taking a stated percent share of ea policy that an insurer produces.

The ceding insurer cannot plan before as it does not know whether t reinsurer will accept the risk. b. Facultative Reinsurance: Facultative reinsurance is coverage where the reinsurer evaluates a particular risk on a case-b case basis. y Stability . so they can reduce the insure esponsibility in certain high-risk areas. Disadvantages of the Facultative Reinsurance: y y Uncertainty . insurer is responds to the loss suffered by the insurer exceeds certain amount.CA. Advantages of the Facultative Reinsurance: Flexibility .The capability to arrange a reinsurance contract to fit any particular case. Facultative reinsurance also allows the prime insurers get the reinsurer's advice on uncertain risks. or "line". Non-proportional Under this type of reinsurance. 54 . y More Business ± It Increases the insurer's capability to take on larger amounts of insuran business.Stability in the operations of the insurer as losses can be transferred to t reinsurer. the retention or priority. Facultative reinsurance is negotiated separately for each insurance contract that is to einsured.CS. The flexibility of facultative reinsurance allows various ceding insurers to reinsu dangerous risks which are not covered by continuing contract. This type of reinsurance contract can be in pro-ra orm or excess of loss. it is called as.INSURANCE business. 3.ROHATGI SYBFM. a ceded 2. Surplus Share Reinsurance Surplus share reinsurance is related to quota share reinsurance. apart from the risks are n ceded to the reinsurer. instead. only risks exceeding a minimum dollar amount.NAVEEN.

y Advantages of Treaty Reinsurance: Economical . Complex .There is no delay or uncertainty involved in Treaty Reinsurance. Disadvantages of Treaty Reinsurance: y y y Expensive . Treaty Reinsurance Treaty reinsurance is a contract between insurers and reinsurers. 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.CA. making it difficult for the insurer to reach reinsurance.NAVEEN.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.INSURANCE y Delays for the Insurer .The insurer does not have to shop for a reinsurer before underwriting t policy so it is economical.Administrative expenditure can be quite high in Treaty Reinsurance. y Fast .CS.Dire market circumstances and poor loss outcomes can decline t reinsurance market.ROHATGI SYBFM. 4. 55 . Once the negotiations of the contract are over.

ROHATGI SYBFM.INSURANCE 56 .NAVEEN.CA.CS.

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