Examination Planning

Risk Management and Insurance Planning Module

Exam Style
Duration = 2 hrs Total Marks = 140 Passing Marks = 50% = 70 Negative marking = 20% of the assigned marks to question Results = graded (A = 75%+, B = 60 to 75%, C = 50 to 60%) Examination = Objective / multiple choice

Paper Pattern
Total = 140 marks Sections = 3
Section 1 = 40 questions x 1 mark = 40 marks Section 2 = 20 questions x 2 marks = 40 marks Section 3 = 15 questions x 4 marks = 60 marks

Avg. time for each question = 120 / 75 = 1.6 min

How to attempt the paper – which Section to start with Negative marking – treading carefully Double check – specially for numerical questions Elimination – arrive at right choice by eliminating the wrong ones Time Management Using calculator or excel

Learning Objectives - For Module 2
Understand the role of the financial planner in the personal risk management process. Implement insurance into a comprehensive, integrated financial plan. Identify and explain features of private and public insurance available to meet each identified need. Integrate the tax implications into insurance decisions. Evaluate client insurance and risk management needs.

Risk Management – 15% Insurance Concepts – 15% Insurance Policies & Strategies – 50% Environment of an Insurance Advisor – 20%

Fundamental Concepts in Risk Management Insurance Fundamentals: Risk Exposures, Needs Analysis & Premium Pricing Legal Principles in insurance Role of Insurance in Financial Planning Factors affecting Insurance needs General Insurance Policy Analysis Life Insurance Policy Analysis Comparing Life Insurance products Annuity Policy Analysis Health Insurance Policy Analysis Legislation Affecting Insurance Business Evaluating Life Insurance Cos. Consumer Protection & Life Insurance Code of Practice

Time Management
Available Time – 21 hrs over 7 sessions All sessions to be taken by Jagdish Bhat Time Management
Session 1 – Ch 1 to 3 Session 2 – Ch 4 to 6 Session 3 – Ch 7 to 9 Session 4 – Ch 10 to 13 Session 5 – Revision & ques. solving Session 6 – Revision & ques. Solving Session 7 – Revision & ques. Solving

Determination Attendance Involvement / Participation Interaction Self-Help

Basic Meaning / Nature of Risk
‘In this world nothing can be said to be certain, except death & taxes’ – Benjamin Franklin Uncertainty can lead to positive or negative outcome Risk - that in a given situation, there is uncertainty about the outcome and that the outcome will be unfavorable. Uncertainty – ignorance of what may or may not happen in future The examination process represents the uncertainty for u. There is risk of failing the exam. On failure there is a loss. Risk is defined differently for different professionals – economists, statisticians, insurance theoreticians, etc. Definition from risk management – Uncertainty about financial loss from an exposure. Loss is the end effect of risk

Some terms
Peril – defined as cause of loss

Car with drunk driver meets with accident – peril is car, driver or alcohol ?

Hazard – is condition that creates or increases probability of loss 3 main types

• • •

Physical – condition that increases chance of loss

• • •

oil spilled road increases chances of accident

Moral – Dishonesty or character defects of individual that increases occurrence or grievousness of loss
Faking sickness for mediclaim

Morale – slackness or indifference to a loss because of insurance cover
leaving the house unlocked due to burglary insurance

Risk & Chance
Difference between risk & chance Risk

• Possibility of loss • Risk of accident


• outcome is favourable • chance of winning bet

Types of Risks – Fundamental & Particular
Fundamental risk • affects the entire economy/society or large nos. / groups within society – economic, political, natural like hyperinflation, war, earthquakes, floods • Usually uninsurable – act of war, risk of unemployment • Where insurance is considered, govt assistance is needed – terrorism, third party pool Particular risk • affects only individuals / corporates • e.g. Fires, robbery, thefts • Risks are insurable

Dynamic & Static
Dynamic risk • result from changes in economy like changes in price levels, consumer tastes, technology, etc. • May cause financial loss to members but benefit society in longer run • Result of adjustment to misallocation of resources • e.g. effects of IT, modernization, globalization (WTO and the effect on Americans/Europeans) • for some losses, for some gains • Affect large no. of individuals and less predictable than static risks, since they don’t occur with any regularity

Dynamic & Static
Static risk

• • • • • •

losses that would occur even if no changes in economy Losses arise from causes other than changes in economy People end up with losses even when times are good or bad. e.g. EQ, floods, dishonesty. Unlike dynamic risks, static risks cause only losses – either devastation of wealth or transfer of assets from victim to dishonest party Tend to occur with a degree of regularity resulting in their predictability, becos of which they are more suited to treatment by insurance than dynamic risks

Pure & Speculative
Pure risk Speculative

• •

where only possibilities are loss or no loss chance of either loss or gain

Insurance deals mainly with pure risk Though speculative risks are uninsurable, pure risk consequences of speculative risk are insurable. Loss due to Marketing of product is uninsurable, but loss due to property damage is insurable.

Types of Pure risk
Personal risks- related to individual - 4 dominant

Property risk – Damage / loss to property

• • • • • • • •

Premature death Old Age / Retirement Deterioration of Health Unemployment Direct loss – is financial loss from physical damage, theft etc. Indirect or consequential loss – financial loss resulting from direct loss These are class of pure risks gaining prominence Liability arising from Property Damage or Bodily injury / death

Liability risk

Diff in human attitude towards risk
Perceived v/s objective risk

• • • •

Risk has objective and subjective (perceived) dimensions Pure risk has 2 parts – amount that could be lost, 2nd is chance of loss happening Risk is accepted or rejected after obj or sub evaluation Motor car may be insured for comprehensive loss depending on owner’s perception

Behaviour towards risk
Risk seeking –

• • • • • • •

aggressive persons who perceive risk as opportunity rather than danger preference for uncertainty over certainty Entrepreneur conservative persons preference for certainty over uncertainty persons are neutral neither attracted nor repelled by risk

Risk averting – Risk indifferent –

Risk Management
Systematic approach to the problem of handling pure risks faced by individuals or business Six-step process Step 1 - Establish risk mgmt objective

• pre loss objective • post loss objective

Risk Management
Step 2- Gather info for risk identification & evaluation allow loss exposure identification 3 classes of losses –

• property • liability and • Personal / personnel

Risk Management
Step 3- Analyse information to identify, measure & evaluate risk
identify thru discussion, physical observation, factfinding sheet, current cover measuring loss grievousness and chance of event occurring measuring personal risk, property risk (thru actual cash value = replacement cost-depreciation) measuring liability risk 3rd is evaluate the risk – worst case possible (total) loss and worst case probable (likely) loss

Risk Management
Step 4 - Develop risk management plan

• Risk avoidance • Risk (loss) control • Risk retention (is a loss financing technique) • Risk transfer (is a loss financing technique)

Risk Management
Step 5 - Implement risk mgmt plan Risk avoidance by

• elimination (re-deployment of accident prone • • •

employee) substitution (harmful food preservative with a safer version) separation (separating potential dangerous activities) and rational planning (have more than one source of supply)

Risk Management
Step 5 (contd.) Risk (loss) control by

• • • • • •

loss prevention (do not use a mobile during driving) loss reduction (install sprinkler, hydrant system) also called self-insurance set aside a contingency fund non-insurance transfer (outsource hazardous activity to specialists, through contract conditions like indemnity, hold harmless clauses) Insurance

Risk Retention

Risk Transfer by

Risk Management
Step 6 - Monitor & revise risk management plan continuous monitoring periodic reviews

What is Insurance
Insurance is

• •

pooling of fortuitous (unintentional) losses by transfer of such risk to insurers, who agree to indemnify insured for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk.

The business of transferring pure risks by means of a 2 party contract. Law of large nos. – greater the no. of exposures, more closely will the actual results approach the probable results expected from an infinite no. of (homogeneous) exposures.

Principles of Insurance Utmost Good Faith
Flows from requirement of contractual arrangement Contract defined as agreement between 2 or more parties to do or to abstain from doing an act. Agreement designed to have legal consequences. Simple contract should have following elements in order to be enforceable:

• • • • • • • •

intention to create legal relations offer & acceptance consideration capacity to contract certainty of terms consensus ad idem (genuine meeting of minds) legality of purpose possibility of performance

Utmost Good Faith…
Caveat Emptor – Let the Buyer Beware most contracts allow subject matter (whether item or service) to be examined by each party so far as there is no misleading or answers are answered truthfully, neither party can avoid the contract Equally, there is no need to disclose information, which is not asked for

Utmost Good Faith…
Insurance contracts Nature is intangible (promise) Circumstances surrounding the subject matter are known by proposer only Even if survey / examination is done before u/w, all facts cannot get disclosed.

Utmost Good Faith…
Uberrima Fides – Utmost Good Faith Law imposes greater duty on parties to insurance contract than commercial contracts As underwriter knows nothing & proposer knows everything, it is duty of insured to make full disclosure without being asked of all material circumstances. Duty of full disclosure rests on both parties Definition – A positive duty voluntarily to disclose, accurately and fully, all facts material to the risk being proposed, whether requested or not

Utmost Good Faith…
Material fact Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium or determining whether he will take the risk. Facts which must be disclosed Material facts

• •

Fact which was immaterial during u/w, but becomes material later need not be disclosed Exception when policy condition requires continuous disclosure (most GI policies)

Utmost Good Faith…

• • • • • •

facts showing greater exposure of particular risk due to nature or class (PA) external factors making risk greater (private vehicle used commercially) previous losses & claims Special terms / declines by other insurers Existence of benefit or non-indemnity policies (Life / PA) Full facts of subject matter (goods description for marine cover)

Utmost Good Faith…

• • • • • •

Fire – construction, occupancy, fire detection equipment, etc. Theft – nature of contents & storage, security arrangements, etc. Motor – make, cc, geograhical region, driver’s age, color, etc. Marine – terms of sale, mode, packing, FCL / LCL PA – age, physical deformities, occupation Life – age, medical history, occupation, family history, other policies (free cover limit)

Utmost Good Faith…
Facts which need not be disclosed

• • • • • •

Facts of Law Facts of common knowledge – strife in some location, normal processes of trade Facts which lessen the risk – existence of guards, alarm system Facts which could reasonably be discovered – from facts given in proposal form or from previous records with insurer (like claims history) Facts which a survey should reveal Facts covered by policy conditions – burglar alarms or extinguishers are maintained properly

Insurable Interest
All risks are not insurable Certain characteristics for being insurable

• • • • • •

financial measurement sufficient no. of similar risks for rating pure and particular risk (certain fundamental also qualify) occurrence of insured event should not be against public policy premium has to be reasonable insurable interest should be present (fundamental & important principle)

Insurable Interest
While the subject matter can be property or financial liability, the pecuniary interest of the insured in the subject matter which is important. It is the interest of the insured in the subject matter which is insured. Definition -

The legal right to insure arising out of a financial relationship recognized under law, between the insured and the subject matter of insurance.

Insurable Interest

• • • •

There must be some property or potential liability capable of being insured This property or liability must be the subject matter Insured should have relationship with subject matter whereby he benefits from its safety and prejudiced by its loss Relationship between insured and subject matter must be recognized by law

Insurable Interest
When insurable interest must exist

• Life – Must at inception, no requirement at • •

time of claim Marine – No need at inception, Must at time of loss Others – Must during both inception as well as loss


• • • • • • •

Protection or security against damage or loss or security against legal responsibility Mechanism by which insurers provide financial compensation to place the insured in the same pecuniary position after the loss as enjoyed immediately before it. Since the subject matter that is insured is the insured’ interest, the indemnity cannot exceed the extent of his interest. All policies are strictly on the principle of indemnity The insured cannot make a profit out of his loss or gain any benefit / advantage The measure of indemnity for loss of or damage to property is generally the intrinsic market value of the property at the place and time of loss Exceptions are life, accident, agreed value policies (marine, art, etc.)

Corollaries of Indemnity Subrogation
may be defined as the transfer of rights and remedies of the insured to the insurer who has indemnified the insured in respect of the loss. It is implied in all contracts of indemnity Arises only after payment of loss Fire & some miscellaneous policies (motor) contain express condition that insurer can exercise right even before claim payment to ensure there are no delays.

Corollaries of Indemnity Contribution
right of insurers who have paid a loss under a policy to recover proportionate amount from other insurers who are liable for same loss common law principle allows the insured to recover his full loss within SI from any insurer he likes however, in some policies like fire, accident (for medical, weekly expenses) contain condition that the insurer is liable only for proportionate loss

Proximate cause
Nature of perils Can be classified under 3 headings

• • •

Insured perils (fire, lightening, storm theft, etc.) Excepted or excluded perils - either as cause of insured peril e.g. riot, EQ, war or a result of insured peril e.g. certain types of explosion Uninsured or other perils – not mentioned in policy. Smoke & water damage may neither be excluded nor mentioned as insured in fire policy

Proximate cause
Need for Doctrine

• • • • •

If loss is due to 2 or more causes, operating simultaneously or one after the other, Necessary to ascertain the proximate cause which brought about the loss e.g. During war, an army officer visiting sentries posted along the railway line was killed by a passing train. Policy excluded death / injury ‘directly or indirectly caused by war, etc.’ Proximate cause – Passing of train, Indirect cause War Claim – Payable / Unpayable

Proximate cause
Meaning of Proximate cause • Based on the principle of cause & effect – • states that having proved the effect and traced the cause, it is not necessary to go further. • To be proximate, a cause should be immediate • ‘Immediate’ does not mean cause nearest to loss in point of time • It is in terms of effectiveness or efficiency or the cause effectual in producing that result • Proximate cause means direct, most dominant & most effective cause of which loss is natural consequence.

Proximate cause
Practical Application of Doctrine Single Cause Concurrent Causes

• • •

where no excepted peril involved – liability under policy when an insured & excepted peril operate together – claim outside policy scope if operation of insured peril can be separated from effects of excluded peril, there is liability

Proximate cause
Direct Chain of events – Unbroken sequence (successive causes) If excepted peril precedes insured peril claim unpayable If insured peril is followed by excepted peril, part of the claim is payable Certain consequential loss payable.

• • •

Damage to property by water used to extinguish fire Damage caused by fire brigade while fire fighting Damage to property during removal to a safe place

Proximate cause
Some examples

• • •

An incendiary bomb dropped by enemy aircraft set fire to a warehouse. The loss was caused by fire, but the proximate cause was enemy action. (Held - War is excluded peril). Thieves took advantage of a blackout during air raid (Held – War was not proximate cause) Captain lost course and took ship inshore to pick out a lighthouse. Due to hostilities, light was out & ship ran aground. (Held – Hostilities was too remote, proximate cause – bad seamanship)

Proximate cause

Insured fell from horse, suffered some injuries forcing him to lie in cold, contracted pneumonia and eventually died. (Illness – excluded peril, remote cause, Accident – insured peril, proximate cause) Insured suffered from accidental injuries taken to hospital. Contracted infectious disease while undergoing operation, causing death. (Held – disease proximate cause, accident – remote cause)

Business of insurance
is to bring together persons of common interest (sharing the same risks) collecting the share or contribution from all of them (called premium) and paying out compensation to those to suffer (called claims) Insurer is a Trustee

Essential characteristics of Insurance

Principle of Risk Transfer Principle of Indemnity Principle of Pooling (spreading) Losses (law of large nos.) Principle of Payment of Fortuitous (unintentional) Losses

Concepts of Insurable Risks
Financial value should be present & determinable Loss should not exceed catastrophic size Loss should be fortuitous Possibility, magnitude and wavering of future losses must be mathematically predictable Premium charged should make economic sense Insurable interest Should not be against public policy

Common Mistakes
to avoid while buying insurance Buying too little Buying too much Missing out on essential covers

Risk Exposures of individual
The needs analysis of an individual for insurance is based for 3 broad categories of risks –
Personal Risk exposures Property Risk exposures Liability Risk exposures

Need Analysis - I Personal Risk Exposures
Identifying the risks : Expenses & Income loss of dependents / self Measuring the Personal Risks
Human Life Value method
(earning ability of person, amount that would be lost in case of premature death)

• •

Need Analysis method
(cash & income needs of dependents after deducting available assets of deceased at time of death)

Human Life Value method
based on income earning ability is the PV of income lost by the dependents as a result of death Cons

• income keeps changing over the years • assumptions of interest rates can be •

erroneous if deprivation of income does not effect, there is no need for insurance

Needs Analysis Method
based on the needs of dependents when breadwinner dies First part is to determine the cash & income needs of dependants 2nd part to identify resources that the proposer may posses 3rd is compute the deficiency – diff between needs and available resources

Some common Risks
risks associated with superannuation risks associated with disability risks associated with medical ailments

Need Analysis-II Property Risks Exposure
2 types of losses associated with property –

• • • • • • • •

direct & indirect (consequential) Owner’s residence Other Property ownership (identical) Consequence of under-insurance Type of cover Sum Insured Rating (de-tariffed w.e.f. 01-01-07)

Measuring the Risks – For Real Estate

Measuring the Risks – For Motor vehicles

Need Analysis-III Liability Risks Exposure
covers negligence & legal liability concerned with Tort (violation of another’s rights) and Tort Feasor (wrongdoer)

Insurance Contracts
Requirements of insurance contracts

• Offer & Acceptance • Consideration • Legal Capacity to contract • Legality of purpose • Consensus Ad idem (Meeting of minds)

Modification of Utmost Good faith principle – Sec. 45 (indisputability after 2 yrs) Agent filling form – Proposer is responsible for nondisclosure of information by agent Void & voidable contract

Authority of Agent
by express authority or stipulated authority is that which is specifically granted to the agent either orally or in writing implied authority is incidental to make express authority meaningful Apparent authority or ostensible authority is a perceived authority and based on the principle of estoppel. Arises when a third party believes that the agent is vested with some authority because of circumstances created by the principal. Action of agent is binding on the principal.

Principle of Estoppel
is a doctrine which protects a party who would suffer detrimentally if the other party has done or said something to induce an expectation and if the sufferer has relied (reasonably) on the expectation and would suffer loss if that expectation were false. e.g. a landlord might inform a tenant that rent has been reduced, for example, if there is construction or a lapse in utility services. If the tenant relies on this advice, the landlord could be estopped from collecting rent retroactively. If insurer provides a person with some vestiges of authority like signboards, receipt books, etc. that will lead a third-party to conclude that the agency relationship exits, the insurer will be estopeed from denying that the person is not its agent.

Crime & Tort
A person can commit 2 classes of wrongs, one is public wrong, the other is private wrong Public wrong is a crime where the government will make prosecution Private wrong (tort) is the violation of the rights of another person and may cause action against the wrongdoer (tort feasor) for damages. Action taken against tort is called civil action.

Crime & Tort…
Insurance does not deal with criminal behavior or intentional torts because it is against public policy to provide such protection. Unintentional torts dealt by insurance are those actions that are result of negligence or carelessness. e.g. resident of a flat accidentally dropping a flowerpot from his eight floor and damaging a car parked below.

Contributory negligence

based on the idea that every person has a duty to look after his own safety and hence cannot blame others for the damages resulting from his or her personal negligence.

Professional negligence

law imposes an implied duty of care on a professional because his public claim to have a special skill is a representation to everyone that they can rely on that ability and skill to get a certain job done satisfactorily and within reason.

Legal characteristics of insurance contracts
Aleatory contract (value exchanged is not equal). Different from commutative contract (value exchanged is equal) Unilateral contract (one party – insurer - makes promise). Different from commercial contract (bilateral) contract Conditional contract (insurer’s obligation to pay depends on conditions fulfilled by insured) Personal contract (even if property is insured, it is actually the insured’s interest which is protected) Contract of adhesion (no negotiation between the parties, insured has to accept the contract in toto from the insurer)

Premium Pricing
For Life Insurance, 3 components • Expenses / costs • Mortality • Interest / Benefits / Investment Mortality - the proportion of deaths to population Mortality Table - an actuarial table based on mortality statistics over a number of years Morbidity - the relative incidence of disease Actuary - a person who calculates insurance and annuity premiums, reserves, and dividends

Premium Pricing
Rate Making – process of valuing the benefits contained in policy Single Premium – PV of future benefits to be paid to insured Level Premium – actuarial equivalent of single premium spread over periodic payments during the policy term

Life insurance products
Term Endowment Pension Market Linked / Traditional (Non-linked)

Non-Life insurance
Premium pricing takes into a/c

• • • • • •

Expenses Risk exposure Reserves Degree of hazard (wooden v/s concrete building) Classification of hazards (4 wheelers, 2 wheelers) Past loss experience

Rate Making depends on

Non-Life products
Tariff / Non-Tariff TAC – Tariff Advisory Committee Chairman (IRDA chairman), ViceChairman (Sr. IRDA member), 10 Indian & 4 Non-Indian insurer representatives www.tac.org.in

IRDA (Insurance Brokers) Regulations, 2002
Meaning within the regulations Insurance broker can be a direct broker, a reinsurance broker or a composite broker Direct Broker – for a remuneration, carries out the functions either in life insurance or general insurance or both on behalf of his clients Reinsurance Broker- for a remuneration, arranges reinsurance for direct insurers with insurance & reinsurance companies. Composite Broker - for a remuneration, carries out the functions of both a Direct Broker as well as a reinsurance broker Principal Officer - means Proprietor or a Partner or a Director or CEO Persons who can become an insurance broker – Individual, Firm, Company, a Co-operative Society or any other person recognized by the Authority to act as an insurance broker; An insurance broker cannot do any other business than what is stated as its main object.

IRDA Brokers Regulations
Functions of a direct broker - shall include any one or more of the followingobtaining detailed information of the client's business and risk management philosophy; familiarising himself with the client's business and underwriting information so that this can be explained to an insurer and others; rendering advice on appropriate insurance cover and terms; maintaining detailed knowledge of available insurance markets, as may be applicable; submitting quotation received from insurer/s for consideration of a client; providing requisite underwriting information as required by an insurer in assessing the risk to decide pricing terms and conditions for cover; acting promptly on instructions from a client and providing him written acknowledgements and progress reports; assisting clients in paying premium under section 64VB of Insurance Act, 1938 (4 of 1938); providing services related to insurance consultancy and risk management; assisting in the negotiation of the claims; and maintaining proper records of claims;

IRDA Brokers Regulations
Functions of a re-insurance broker - shall include any one or more of the followingfamiliarising himself with the client’s business and risk retention philosophy; maintaining clear records of the insurer's business to assist the reinsurer(s) or others; rendering advice based on technical data on the reinsurance covers available in the international insurance and the reinsurance markets; maintaining a database of available reinsurance markets, including solvency ratings of individual reinsurers; rendering consultancy and risk management services for reinsurance; selecting and recommending a reinsurer or a group of reinsurers; negotiating with a reinsurer on the client’s behalf; assisting in case of commutation of reinsurance contracts placed with them; acting promptly on instructions from a client and providing it written acknowledgements and progress reports; collecting and remitting premiums and claims within such time as agreed upon; assisting in the negotiation and settlement of claims; maintaining proper records of claims; and exercising due care and diligence at the time of selection of reinsurers and international insurance brokers having regard to their respective security rating and establishing respective responsibilities at the time of engaging their services.

IRDA Brokers Regulations
Functions of composite broker - shall carry out any one or more of the functions mentioned in regulations covering functions of Direct and Reinsurance broker.

IRDA Brokers Regulations
Application for grant of licence – can be made by a person for any of the 3 categories alongwith the requisite licence fees The applicant or its principal officer shall, if so required, appear before the Authority for a personal representation in connection with an application. Principal Officer should possess certain minimum qualifications and passed the IRDA exam conducted by NIA, Pune Broker should have at least 2 persons who have passed the exam Any employee responsible for soliciting and procuring insurance business on behalf on an insurance broker shall also have to pass the exam Application for change from one category to another can be made only after 1 year Licence will be valid for 3 years, after which it can be renewed for further period of 3 years. For renewal the broker has to undergo at least 25 hours of theoretical and practical training. No exams.

IRDA Brokers Regulations
Minimum capital requirementDirect Broker – Rs.50 lacs Reinsurance Broker – Rs.200 lacs Composite Broker – Rs.250 lacs Non-Indian interest can hold only upto 26%. Deposit requirement – 20% of initial capital as fixed deposit

IRDA Brokers Regulations
Licence fees Direct Broker – Rs.25,000 Reinsurance Broker – Rs.75,000 Composite Broker – Rs.1,25,000 Brokerage Non-Life – 6¼% to 17.5% Life – Individual - upto 30% for fresh, 5% for renewal Group Life – 0.5% to 7½% Ceiling on business from single client • 1st year – 50% • 2nd year – 40% • 3rd year onwards – 30% Captive Broker

IRDA Brokers Regulations
Professional Indemnity insurance limits • Direct Broker – min. of 3 times annual remuneration or Rs.50 lacs • Reinsurance Broker - min. of 3 times annual remuneration or Rs.250 lacs • Composite Broker - min. of 3 times annual remuneration or Rs.500 lacs Submission of Results – • Audited Annual Report – within 90 days • ½ yearly unaudited results – before 31st Oct & 30 Apr each year All books of accounts should be preserved for 10 yrs
Read Code of Conduct – to be mailed separately

Policy Components
Heading – insurer’s details Preamble – recites parties to contract, reference to proposal form Signature – validates policy document Operative/Insuring Clause – essence of contract, specifies insuring perils Exceptions or Exclusions – circumstance in which insurer is not liable Policy Schedule – information/details of the risk covered Definitions Conditions

• • • •

Express & Implied Conditions Conditions Precedent to the Contract Conditions Subsequent to the Contract Conditions Precedent to Liability

Cover Notes Certificates Renewals – No legal obligation on insurer to advise Non-Payment of Premiums - Grace Period Long-Term Agreements Declarations

Some Terms
Cover Note – issued in advance of policy – not stamped Certificate of Insurance – issued in addition to policy – Motor, Marine Endorsements – sets out modifications in terms & conditions of policy which is issued in standard form Renewal Notice – no legal obligation on part of insurers to advise. Claim Form – to elicit full information about the loss Survey Report – information / details about claim submitted by surveyors / loss assessors Policy cancellation – Short period / Pro-rata

All Risks / Named Perils Salvage Excess / Deductible Bonus (CB, NCB) - Discount Malus – Loading Built-in covers / Add-on covers (Rider) Longevity - long duration of individual life or length of life Corollary - something that naturally follows Congenital - existing at or dating from birth Pro-rata, Short Period MACT – Motor Accident Claims Tribunal

Co-insurance -

• •

In India, it is sharing of a risk by agreeing to share the premium and also partake in the loss at a fixed proportion. Lead insurer is appointed. abroad – sharing agreement between insured & insurer whereby both share covered costs after deductible in a pre-determined percentage.

Co-pay - insured pays a specified amount while the remaining is borne by insurer Retroactive date - A date stipulated in a claims-made liability policy as the first date from which incidents covered by the policy. Is designed to provide coverage for claims resulting from incidents that take place prior to the current but continuous policy term. Renewal claims-made policies usually have the retroactive date of the first policy issued to the insured. When this is not done, there is a gap in coverage. Claims-made policy - provides coverage for a claim if first reported or filed during the policy period. Occurrence based policy – liability policy for claims arising out of incidents that occur during the policy period, regardless of whether the policy is still in effect at the time the claim is made. Losses to be reported during ‘discovery period’.

Under Evidence Act, person who has disappeared is pronounced dead only if he has not been heard of for 7 yrs. Decree of presumption of death needed from court of law. Claim is time barred if intimation of claim is received after 3 yrs from date of death. Agency maxim – Qui facit per alium, facit per se • one who acts through other, acts through himself. • Contracts entered into by an agent will have same legal consequences on the principal.

Life Terms
Mortality Table or Actuarial Table Morbidity Table Life Expectancy - statistical measure of the average length of survival of a living thing Longevity - is the length of a person's life (Life Expectancy) Premium Construction (mortality, interest, expense) Net Premium (age, gender, benefits, mortality, interest rate) Gross Premium (add expenses – which change with premium rate, amount of insurance and constant for all contracts) For GI premium, net is without commission, gross is with commission

Life Table factors
age x lx dx qx px Lx Tx ex

exact age of person in years number of persons alive at exact age x note: the value for age 0 is called the radix number of persons dying between age x and age x+1 probability of dying between age x and age x+1 probability of surviving between age x and age x+1 number of person-years lived between ages x and x+1 total number of person-years lived at and after age x life expectancy at exact age x

Life Terms
DOP – Date of Proposal DOB – Date of Birth IP – Installment Premium SA – Sum Assured TP – Tabular Premium DAB – Accidental Death Benefit Rider (can also be Disability Benefit Rider) SSS – Salary Savings Scheme LBD – Last Birth Date NBD – Near Birth Date or Next Birth Date DOC – Date of Commencement LUP – Last Unpaid Premium DOM – Date of Maturity PV – Paid-up Value SV – Surrender Value LPP – Last Paid Premium DOS – Date of Surrender VB – Variable Bonus

Reinsurance Terms
Re-insurance – transfer of risk from insurer to re-insurer Re-insurer – risk assuming insurer Cedent – ceding insurer Cession – insurance coverage transferred to re-insurer by cedent Retrocession – transfer of re-insurance to another reinsurer Retention – amount of risk kept of cedent’s own account Methods of Reinsurance – Facultative (transfer of individual risks), Treaty (transfer of all risks in a class of business)

Reinsurance Terms
Treaties basically Proportional & Non-Proportional Proportional

• • • •

Quota Share - Premium & losses shared in equal proportion Surplus – shared in excess of retention and arranged in lines Excess of Loss (layered)


• •

Risk basis Occurrence basis (Catastrophic)

Stop Loss (a/c based)

Lloyds Market

Types of Insurance
Engineering Property & Casualty Accident & Health Liability Specialised Individual & Group

Fire Insurance
Standard Fire & Special Perils Policy 1. Fire 2. Lightning 3. Explosion / Implosion 4. Aircraft Damage 5. Impact Damage from vehicle or animal 6. Riot, Strike, Malicious Damage (RSMD) 7. Storm, Tempest, Floods, Inundation (STFI) 8. Subsidence and Landslide including Rock slide 9. Bursting and / or overflowing of Water Tanks, Apparatus & Pipes 10. Missile Testing operations 11. Leakage from Automatic Sprinkler installations 12. Bush Fire (xcludes Forest Fire)

Fire Insurance
Fire Peril excludes damage caused by own fermentation, heating process, burning of property by public authority Add-ons – EQ, Terrorism Condition of AverageProperty Value – Rs.2,00,000 Sum Insured – Rs.1,50,000 Under insurance – Rs.50,000 (SI-Value)
= UI / Value = 25%

IAR – for risks with SI (MD) > 100 crores in 1 or more locations Mega Risk – PML > 1054 cr or SI > 10,000 cr at one location

Loss of Profit (LOP) insurance
also called Consequential Loss (Fire) or Business Interruption insurance covers loss of profit following losses to physical assets from perils covered under fire policy compensation may include

Variable charges are not payable payment of loss under LOP policy is made only if there is liability under material damage insurance (fire policy) Insured has to choose indemnity period (time taken for reinstatement and start of business)

• •

Loss of Gross Profit (Net Profit + Standing Charges) from reduction in turnover Increase in cost of working

Marine Insurance
Oldest branch – covers hull & cargo Insurable interest – only at time of loss ICC – Institute Cargo Clauses by ILU ICC ‘C’ – jettison, general avg sacrifice, port of distress discharge, collision / sinking of vessel, fire or explosion ICC ‘B’ – ICC ‘C’ + EQ, LOB / WOB, entry of water, while loading / unloading ICC ‘A’ – All Risks (War, SRCC at extra) ICC (Air) – All Risks Inland Transit (Rail/Road) Clause ‘C’, ‘B’, ‘A’ Open Policy / Open Cover

Marine Insurance
ILU – Institute of London Underwriters FOB – Free on Board FOR – Free on Rail C & F – Cost & Freight CIF – Cost, Insurance & Freight Ex-works or WW – Warehouse to Warehouse B / L – Bill of Lading L / R, R / R – Lorry Receipt, Rail Receipt CTL – Constructive Total Loss DWT – Dead Weight Tonnage War risk is covered only at sea & not on land Particular Average – Partial Losses General Average – shared proportionately

Motor Insurance
Loss or damage to your vehicle: The policy covers you against any loss or damage caused to the vehicle or it’s accessories due to the following natural and man made calamities. • Natural Calamities – Fire, explosion, self-ignition or lightning, earthquake, flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost, landslide, rockslide. • Man made Calamities – Burglary, theft, riot, strike, malicious act, accident by external means, terrorist activity, any damage in transit by road, rail, inland waterway, lift, elevator or air. IDV – Insured’s Declared Value. The rates of the vehicle and its parts are subject to depreciation as per the schedule provided by the Indian Motor Tariff. Personal accident cover: The motor insurance provides compulsory personal accident cover for individual owners of the vehicle while driving. You can also opt for a personal accident cover for passengers. Third party legal liability: This protects you against legal liability arising due to accidental damages • Any permanent injury/ death of a person (Unlimited) • Any damage caused to the property (Rs.7.5lacs-4 wheeler, Rs.1lac-2 wheeler)

Motor Insurance
No Claim Bonus: If you do not make a claim during the policy period, a No Claim Bonus (NCB) is offered on renewals (only on Own Damage Section). This discount can go as high as 50%. (NCB will only be allowed provided the policy is renewed within 90 days of the expiry date of the previous policy.) Transfer your NCB: You can transfer full benefits of No Claim Bonus when you shift your motor insurance policy to another company. Voluntary Excess discount: A further discount on the premium is available if you opt for a Voluntary Excess in addition to the Compulsory Excess. (Compulsory Excess is the amount of loss which the insured has to bear in each and every claim.) Additional discounts: You can also avail of additional discounts if you are a member of a recognized Automobile Association in India. ARAI (Automotive Research Association of India) devices: In case you have installed ARAI approved anti theft device in your vehicle, you get a discount of 2.5 % on the OD Premium to a maximum of Rs. 500. CTL – Constructive Total Loss – when aggregate cost of repairs exceeds 75% of IDV Homologation – approve or confirm officially

Motor Insurance
Sum Insured The vehicles are insured at a fixed value called the Insured’s Declared Value (IDV). IDV is calculated on the basis of the manufacturer’s listed selling price of the vehicle (plus the listed price of any accessories) after deducting the depreciation for every year as per the schedule provided by the Indian Motor Tariff. If the price of any electrical and / or electronic item installed in the vehicle is not included in the manufacturer’s listed selling price, then the actual value (after depreciation) of this item can be added to the sum insured over and above the IDV. Policy Exclusions - Under this policy, you are not covered against Normal wear, tear and general aging of the vehicle Depreciation or any consequential loss Mechanical/ electrical breakdown Wear and tear of consumables like tyres and tubes Vehicle being used otherwise than in accordance with limitations as to use Damage to/ by a person driving the vehicle without a valid license Damage to/ by a person driving the vehicle under the influence of drugs or liquor Loss/ damage due to war, mutiny or nuclear risk Solatium Scheme – scheme for compensation to ‘hit & run’ motor accident victims. RS.25,000 for death and Rs.12,500 for grievous hurt

Onus of proof that loss is within scope of policy is on insured If loss is caused by excepted peril, onus of proof is on insurer Standard Claim – within terms & conditions of policy Non-Standard Claim – insured has committed breach of condition / warranty Ex-gratia payments – losses outside scope of cover hence un-payable. However, consideration shown for genuine oversight Survey Report – right of insured to get copy Average Adjusters – for general average losses In-house Surveyor – limit upto Rs.20,000

Condition of average
Comes into effect in case of claims settlement when there is under-insurance Insured has to bear portion of loss (to the extent of underinsurance) on his own a/c In case of Total Loss, claim amount payable is SI or RV / MV whichever is less Formula: Claims Settlement if Indemnity is on Reinstatement Value basis property value = Rs.2 lacs sum insured = Rs.1.50 lacs

• • • • • •

Sum Insured / Value x loss

Loss = 50,000, claim payable = 37,500 Loss = 1 lac, claim payable = 75,000 Loss = 1.50 lac, claim payable = 1,12,500 Loss = 1.75 lac, claim payable = 1,31,250 Loss = 2.00 lac, claim payable = 1,50,000

Condition of average
If indemnity is on Market Value basis, claim settlement is as followssum insured = Rs.1.50 lacs property value = Rs.2 lacs depreciation = 10% after depreciation property value = Rs.1.80 lacs

• • • • •

Loss = 50,000, claim payable = 37,500 Loss = 1 lac, claim payable = 75,000 Loss = 1.50 lac, claim payable = 1,12,500 Loss = 1.75 lac, claim payable = 1,31,250 Loss = 2.00 lac, claim payable = 1,50,000

Rural Insurance
LALGI - Landless Agricultural Labourers Group Insurance Scheme IRDP – Integrated Rural Development Programme Jan Shree Bima Yojana

• • • • • • • • • • • •

Premium borne by GOI. SA – Rs.2,000 for both ND & AD Premium borne by GOI SA – Rs.5,000 (ND), Rs.10,000 (AD) Premium paid thru Nodal Agency (State Govt. Dept.) & Social Security Fund of LIC Minimum group size - 25 SA – Rs.20,000 (ND), Rs.50,000 (AD) Object of scheme is to provide life insurance protection, periodical lump sum survival benefit and pension to the agricultural workers Premium paid thru Nodal Agency (Gram Panchayat) & Social Security Fund of LIC Minimum group size - 20 SA – Rs.20,000 (ND), Rs.50,000 (AD) RS.3,000 paid on earning member’s accidental death

Krishi Shramik Samajik Suraksha Yojana

PASS – Personal Accident Social Security Scheme

Group Schemes
Minimum members – 25 persons Should be an already existing group Types of Schemes Group Term Life Insurance (GTLI) Scheme

• • •

Covers only death (pure risk cover) and there is no maturity value at the end of the term Insurance benefit is equal to the average balance to the credit of the deceased employee in EPF a/c during last 12 months, provided that where such balance exceeds Rs.35,000, insurance cover would be equal to Rs.35,000 plus 25% of the amount in excess of Rs.35,000 subject to a maximum of Rs.60,000. Insurance schemes offered by Life Cos. in lieu of the EDLI scheme offer higher benefits which is excepted by the CPFC.

Employee’s Deposit Linked Insurance (EDLI) Scheme, 1976

Group Schemes
Group Gratuity Scheme

• • • • • •

Under the Payment of Gratuity Act, 1972, it is employer’s statutory liability to pay 15 days salary (15/26 of a month's wages) for every completed year’s service to each of his employees on their exit, for any reason after five years of continuous service, subject to maximum limit of 3.5 lacs. Higher benefits can be paid if the employer so desires. Employers can fund this liability through a scheme managed by Life Cos. Can also be called a Pension scheme and seeks to provide pension benefits to employees (not obligatory on the part of employer to provide for pension). Mostly the employer contributes, but both employer and employees can also contribute, in which case the scheme is called a Contributory Pension Fund Scheme. The maximum annual contribution that an employer can make to the Pension Fund and Provident Fund is restricted by the Income Tax Provisions to 27% of the annual salary (basic plus D.A.)

Group Superannuation Scheme

Group Schemes
Group Savings Linked Insurance Scheme • Similar to Endowment product for a Group. • Premium comprises of risk premium + savings component (which is accumulated in member’s a/c) Group Leave Encashment Scheme • Funding of Leave Encashment benefit (including Medical Leave Encashment) liability of the corporate. • The amount depends upon the leave to the credit of the employee and his / her salary at the time of exit. Group Mortgage Redemption Assurance Scheme • for borrowers of Housing/Vehicle Loans from Financial Institutions where Loan is recovered under EMI. • Insurance cover every year will be almost equal to the loan outstanding at the anniversary date of each borrower.

Personal Accident Ins.
Features Scope of Cover Policy offers compensation in case of death or bodily injury to the insured person, directly and solely as a result of an accident, by external, visible and violent means. The policy operates worldwide and is a 24 hours cover Available in following combinationsAD cover only (Table A) AD + PTD (Table B) AD + PTD + PPD (Table C) AD + PTD + PPD + TTD (Table D) (AD=Accidental Death, PTD=Permanent Total Disablement, PPD=Permanent Partial Disablement, TTD=Temporary Total Disablement; details of definitions as per insurers) Medical Extension On payment of additional premium, this benefit provides for reimbursement of actual medical expenses incurred following an accident limited to 20% of the Sum Insured or 40% of valid claim under main PA policy whichever is earlier. 5 to 100 yrs. However, premium is loaded above certain age (70 yrs) Following extensions are built-in with the main policy Education Grant In case of AD or PTD, a specified percentage of SI subject to a maximum limit is paid as education allowance to dependent children. Carriage of Body Payment for transportation of dead body in case of unfortunate AD, is paid as a percentage of SI subject to maximum limit. Some common exclusionsCompensation under more than one clause for same period of disability Any payment after admission of claim for 50% / 100% of Capital Sum Insured Any claim in the same period of insurance exceeding the Capital Sum Insured Suicide, attempted suicide, self injuries, VD, breach of law, influence of liquor/drugs Pregnancy related claim War and nuclear perils The maximum sum insured is limited to around 60 to 75 times of the monthly earnings / salary of proposer. The sum payable is increased by 5% for each claim free year up to a maximum of 50%. Family discount of 10% is available Depends on the risk class (I to III) of the proposer. Indicative premium per Rs.1 lac Sum Insured for risk class I is – Rs.45, Rs.70, Rs.100, Rs.150 for Table A to D resp. (serv.tax extra) Attractive discounts on premium are available for group policies. Some features of group policies will differ from individual policies. Individuals, families, groups / corporates


Min / Max Age Cover Extensions


Sum Insured Bonus Discount / Loading Premium Group Policy Who can take

Domestic Mediclaim
Features Scope of Cover Policy provides for Financial Assistance against Hospitalisation Expenses towards disease / illness / injury in India requiring at least 24 hours of hospitalisation. Includes Domiciliary Hospitalisation and Day Care treatment (certain types only) expenses. Cashless services through TPA (Third Party Administrator). Hospitalisation expenses like Room/Boarding, Nursing, Doctor’s/Anesthetist/others fees, Investigation, Medical Consumables, etc. in any registered nursing home/hospital in India. Pre & Post hospitalization expenses – upto 30 days and 90 days resp. Pre & post hospitalization expenses includes Doctor’s Fees, Prescription Medicines, Diagnostic tests-Lab, ultrasound, MRI, CT Scan etc. as prescribed by Doctor. Available only with Group policies on paying extra premium 30 day exclusion waiver Pre-existing illness / diseases cover Maternity Benefit cover Family Floater cover (available with some individual policies) Corporate Float 30 days to 80 yrs. However, restrictions on entry age vary across insurers Some common exclusionsAny claim during first 30 days (exception accident claims) Waiting period of 1 / 2 year for certain diseases like Cataract, Hernia, Piles, Sinusitis, etc. Pre-existing diseases / Congenital diseases Cosmetic / aesthetic treatment or plastic surgery, other than necessitated due to an accident or as a part of any illness. Naturopathy Medical treatment for intentional self-injury, suicide attempt, alcohol/drug abuse. Sexually transmitted diseases, AIDS Diagnosis and treatment of infertility / sub fertility Rest cure i.e. treatment for convalescence, general debility etc. Dental treatment or surgery of any kind unless requiring hospitalisation. Treatment arising from childbirth including caesarean section Voluntary medical termination of pregnancy during the first 12 weeks from the date of conception. Charges incurred at Hospital primarily for diagnostic studies not consistent with the positive existence or presence of any ailment, sickness or injury for which confinement is required at a Hospital Rs.50,000 to Rs.10 lacs (from one Co.) For multiple policies ‘contribution clause’ will apply The sum payable is increased by 5% for each claim free year up to a maximum of 50%. Inversely, 10% gets reduced from the Bonus amount for claim(s) made year. However, basic sum insured remains intact if bonus is unavailable. For Individuals - Family discount of 10% is available For Groups – various like group discount Depends on the age and sum insured opted Individuals, families, groups / corporates


Min / Max Age Exclusions

Sum Insured Bonus

Discount / Loading Premium Who can take

Overseas Travel
Features Scope of Cover Policy covers persons undertaking overseas travel and provides for emergency medical expenses, compensation for personal accident, repatriation / evacuation, travel related losses like checked baggage loss, loss of passport, personal liabilities, etc. For individuals, policies typically cover per trip duration or multi trips during annual period (with restriction on no. of days per trip & per year) For corporates, group policies can cover group travel or frequent travelers for actual no. of days traveled. Some available sectionsMedical Expenses Dental Treatment Loss of Passport Total / Partial loss of checked in Baggage Personal Accident Personal Liability Daily Allowance in case of Hospitalization Financial Emergency Assistance Hijack Distress Allowance Trip Delay Trip Cancellation & Interruption Missed Connections Compassionate Visit Home Burglary Insurance 0.5 to 70 yrs. Beyond 70yrs on case-to-case basis with medicals. Cover extension for treatment upon return to India on service provider’s advice is built-in. Cover extension for specified period on account of uncontrollable reasons of insured is built-in. Policies extensions beyond normal period can be made on paying extra premium & Co. permission. Pre-existing health conditions. Other sectional exclusions / deductible / excess will be in terms of amount or time. Only Standard SI available – typically USD50,000; USD1,00,000; USD2,50,000; USD5,00,000 The sum payable is increased by 5% for each claim free year up to a maximum of 50%. Discounts available for Groups, Corporate policies-depending on no. of travel dates. Depends on Age No. of travel days Geographical region (like Asia, World excluding & including North America) Sum Insured / package opted Can be taken for Groups, Corporates with frequent fliers. Also individuals with frequent overseas travel can take an Annual policy covering multiple trips instead of per trip cover. Individuals, families, groups / corporates

Min / Max Age Cover Extensions


Sum Insured Bonus Discount / Loading Premium

Group Policy Who can take

Householders Package
Features Scope of Cover Package policy of various sections which covers household / domestic property of the Insured against various perils. Commonly available covers Section I: Fire and Allied Perils Section II: Burglary and Housebreaking Section III: All Risk (for valuables) Section IV: Electrical and Mechanical Appliances Breakdown Section V: Electronic Equipments Section VI: Fixed Plate Glass Section VII: Baggage Section VIII: Pedal Cycle Section IX: Personal Accident Section X: Legal Liability Add-ons Min Sections Exclusions Sum Insured Bonus Discount / Loading Regular add-ons which are available with stand-alone policies 1 to 2 Regular exclusions as per the Sections Different as per Sections Only for PA Section, as per stand-alone policy terms. Sectional Discount (only on non-tariff sections) Renewal Discount Favourable Claims Ratio discount High Claim Ratio loading Premium Who can take Depends on the Section and sum insured opted Individuals

Shopkeepers Package
Features Scope of Cover Package policy of various sections which covers property / contents / liability of the Shop-owner against various perils. Commonly available covers Section I: Fire and Allied Perils Section II: Burglary and Housebreaking Section III: Electrical and Mechanical Appliances Breakdown Section IV: Electronic Equipments Section V: Money Insurance Section VI: Fixed Plate Glass / Sanitary fittings Section VII: Baggage Section VIII: Signboard Section IX: Personal Accident Section X: Fidelity insurance Section XI: Legal Liability Add-ons Min Sections Exclusions Sum Insured Bonus Discount / Loading Regular add-ons which are available with stand-alone policies 2 to 4 Regular exclusions as per the Sections Different as per Sections Only for PA Section, as per stand-alone policy terms. Sectional Discount (only on non-tariff sections) Renewal Discount Special Discount Favourable Claims Ratio discount High Claim Ratio loading Premium Who can take Depends on the Section and sum insured opted Shop-owners

Postal Life Insurance
Started in 1884 – 122 yrs old Is open for employees of all Central and State Government Departments, Nationalized Banks, Public Sector Undertakings, Financial Institutions, Local Bodies like Municipalities and Zila Parishads, Educational Institutions aided by the Government etc. On 24th March, 1995, the benefits of Postal Life Insurance were extended to rural populace of the country under the banner of Rural Postal Life Insurance.

Insurance Ombudsman
created w.e.f. 11-11-1998 Purpose - quick disposal / mitigation of grievances of the insured Appointed by governing body of insurance council - on recommendations of the committee comprising of IRDA Chairman, LIC Chairman, GIC Chairman and Central Govt. representative. Ombudsman are drawn from Insurance Industry, Civil Services and Judicial Services. Appointed for a term of three years or till the incumbent attains the age of sixty five years, whichever is earlier. Reappointment is not permitted. Territorial jurisdiction – 12 Ombudsman across the country allotting them different geographical areas as their areas of jurisdiction.

Insurance Ombudsman
Power – 2 types of functions to perform Conciliation and Award making. Is empowered to receive and consider complaints in respect of personal lines of insurance from any person who has any grievance against an insurer. Complaint may relate to any grievance against the insurer i.e.

Ombudsman's powers are restricted to insurance contracts of value not exceeding Rs. 20 lakhs. The insurance companies are required to honour the awards passed by an Insurance Ombudsman within three months.

• • • • •

any partial or total repudiation of claims by the insurance companies, dispute with regard to premium paid or payable in terms of the policy, dispute on the legal construction of the policy wordings in case such dispute relates to claims; delay in settlement of claims and non-issuance of any insurance document to customers after receipt of premium.

Insurance Ombudsman
Manner of lodging complaint

The complaint by an aggrieved person has to be in writing, and addressed to the insurance Ombudsman of the jurisdiction under which the office of the insurer falls. The complaint can also be lodged by the legal heirs of the insured. Before lodging a complaint:

• •

i) the complainant should have made a representation to the insurer named in the complaint and the insurer either should have rejected the complaint or the complainant have not received any reply within a period of one month after the concerned insurer has received his complaint or he is not satisfied with the reply of the insurer. ii) The complaint is not made later than one year after the insurer had replied. iii) The same complaint on the subject should not be pending with before any court, consumer forum or arbitrator.

Insurance Ombudsman
Recommendations of the Ombudsman

• • • • • •

When a complaint is settled through the mediation of the Ombudsman, he shall make the recommendations which he thinks fair in the circumstances of the case. Such a recommendation shall be made not later than one month and copies of the same sent to complainant and the insurance company concerned. If the complainant accepts recommendations, he will send a communication in writing within 15 days of the date of receipt accepting the settlement. The ombudsman shall pass an award within a period of three months from the receipt of the complaint. The awards are binding upon the insurance companies. If the policy holder is not satisfied with the award of the Ombudsman he can approach other venues like Consumer Forums and Courts of law for redressal of his grievances.


At a Glance
Risk Peril Hazard Principles of Insurance Situation in which outcome is uncertain and unfavourable. defined as cause of loss condition that creates or increases probability of loss. 3 types – Physical, Moral, Morale 1. Utmost Good Faith 2. Insurable Interest 3. Indemnity Subrogation (Corollary) Contribution (Corollary) 4. Proximate Cause Protects a party from suffering detrimentally if the other party does or says something to induce an expectation. e.g. insurer providing receipt books is liable for agent’s actions. Public wrong – State is Prosecutor Private wrong – Civil action taken by aggrieved party Value exchanged is not equal. Premium v/s Sum Assured No negotiation between the parties - insured has to accept the contract in toto from the insurer

Principle of Estoppel Crime Tort Aleatory contract Contract of adhesion

Fundamental Risks affects the entire economy or large nos. / groups within economy Usually uninsurable Hyperinflation, war

Particular Risks affects only individuals / corporates insurable Fire, theft

Dynamic Risks result from changes in economy causing financial loss to people for some losses, for some gains Less predictable so uninsurable Effects of IT, modernization
Pure Risks where only possibilities are loss or no loss Insurable Personal Risks – Death, Old Age, Health Property Risks – Home, Car Liability Risks – claim from TP

Static Risks losses that would occur even if no changes in economy Cause only losses More predictable so insurable Dishonesty, cheating
Speculative Risks chance of either loss or gain Uninsurable (consequence of speculative risk is insurable) Business Loss Default Risk (insurable)

Thumb Rules
Income Rule – 6 to 8 times of gross annual income Income plus expenses – 5 times gross income + total expenses (like loans, debt, etc.) Premium as % of income – Premium = 6 % of breadwinner’s gross annual income + additional 1% for each dependent Multiples of Salary If 1 breadwinner, family can live adequately on 75% of breadwinners salary

Needs Approach
Step 1 - Asses Cash Needs (funds required for major expenses) and Net Income Needs (funds required for living expenses) Net Income needs Readjustment Period – 1 to 2 years after insured’s death Dependency Period – years needed to support children till their majority Blackout Period – children grow up but surviving spouse hasn’t retired Retirement Period – surviving spouse’s retirement years Step 2 - Subtract available assets Life Insurance = Cash needs + PV of Net Income needs – Expected available assets Capital Retention Method Capital Liquidation Method

Human Life Value
Step 1 - Determine the insured person’s after tax earnings Step 2 - Deduct the personal expenses of the insured Step 3 - Consider no. of years for which income stream is required Step 4 - Consider anticipated salary growth and inflation Step 5 - Determine the total anticipated future income for supporting the family Step 6 - Determine a discount rate for the insurance proceeds and calculate PV Step 7 - Determine the PV of expected income stream, using the discount rate Step 8 - Making adjustments to HLV Step 9 - Add in large lump-sum expenses Step 10 - Considering differences in income replacement needs during different future periods

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