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ROLLNO. 1208005653
1- Risk is use !" es#$i%e &'( si!u&!i"' i')"*)i'+ &' u'#e$!&i'!( &%"u! !,e "u!#"-e. .,&! is !,e
-e&'i'+ "/ $isk -&'&+e-e'!0 E12*&i' !,e Risk M&'&+e-e'! 2$"#ess &' -e!,"s 3i!, & /*"3 #,&$!.
Risk M&'&+e-e'!4
The process of identification, analysis and either acceptance or mitigation of uncertainty in investment
decision-making refers to risk management in business. It is a two-step process that can be represented as
follows in Figure.
Risk management involves essential features such as reliable resources, financial strategies and foresight. It
prevents or reduces the possibility of external as well as internal risks in business by employing intelligent
strategies, and thus forms an integral part of business or investment.
Risk M&'&+e-e'! 5$"#ess4
Regardless of the type of risk being considered, the risk management process involves several key steps
!. "ategori#e all significant risks.
$. %stimate the potential fre&uency and severity of losses.
'. Improve and choose methods for managing risk.
(. %xecute the risk management methods selected.
). *eep track of the performance and suitability of the risk management methods and strategies on a
continuous basis.
Risk M&'&+e-e'! Me!,"s
These methods are not mutually exclusive and may be largely categori#ed as
• loss control
• loss financing
• internal risk reduction
Risk M&'&+e-e'! 6*"3 7,&$!4
2- I'su$&'#e i'us!$( is ,i+,*( $e+u*&!e i' &** !,e #"u'!$ies. E12*&i' "' s"*)e'#( -&$+i' &' -e!,"s
"/ e!e$-i'i'+ s"*)e'#( -&$+i's. .$i!e "3' !,e #*&i- 2$"#eu$es i' $es2e#! "/ & +e'e$&* i'su$&'#e
S"*)e'#( -&$+i'4
It is necessary to have some safety margin to absorb sudden setbacks. Financial strength re&uired for this
purpose is usually provided by shareholders and promoters, which is why the owners+ funds in insurance
entities are termed as ,policy holders+ surplus+. There are multitudes of ways in which the financial prowess of
insurers may be ascertained. -ssessing of the ratio of owners+ funds to outsiders+ liability gives an idea of how
much a company is geared. If a company is highly geared, though increasing the profitability, it increases the
level of risk undertaken by any entity. IR.- had constricted its monitoring by raising the fre&uency of
solvency reporting to &uarterly.
Me!,"s "/ e!e$-i'i'+ s"*)e'#( -&$+i's4
/upervisory authorities follow any one of the following methods to determine the solvency of insurance
!. A%s"*u!e -&$+i'4 0inimum margin calculated as assets over liabilities.
$. 5e$#e'!&+e -e!,"4 0argin calculations are based on a fixed percentage of premium and 1or claims, net
of reinsurance.
'. Risk-3ei+,!e -e!,"4 0argin calculations are based on t he &uantification of risks relating to assets
and liabilities. 2eights are assigned to various risk categories for &uantification.
7*&i- 2$"#eu$e i' $es2e#! "/ & +e'e$&* i'su$&'#e 2"*i#(4
3!4 -n insured or the claimant shall give notice to the insurer of any loss arising under contract of insurance at
the earliest or within such extended time as may be allowed by the insurer. 5n receipt of such a
communication, a general insurer shall respond immediately and give clear indication to the insured on the
procedures that he should follow.
3$4 2here the insured is unable to furnish all the particulars re&uired by the surveyor or where the surveyor
does not receive the full cooperation of the insured, the insurer or the surveyor as the case may be, shall inform
in writing the insured about the delay that may result in the assessment of the claim.
3'4 If an insurer, on the receipt of a survey report, finds that it is incomplete in any respect, he shall re&uire the
surveyor under intimation to the insured, to furnish an additional report on certain specific issues as may be
re&uired by the insurer.
3(4 The surveyor on receipt of this communication shall furnish an additional report within three weeks of the
date of receipt of communication from the insurer.
3)4 5n receipt of the survey report or the additional survey report, as the case may be, an insurer shall within a
period of '6 days offer a settlement of the claim to the insured. If the insurer, for any reasons to be recorded in
writing and communicated to the insured, decides to re7ect a claim under the policy, it shall do so within a
period of '6 days from the receipt of the survey report or the additional survey report, as the case may be.
3- .,&! " ("u u'e$s!&' %( !,e #"'#e2! "/ i'su$&%*e i'!e$es!0 .$i!e "3' &%"u! !,e esse'!i&*s8
#$e&!i"' &' &22*i#&!i"' "/ i'su$&%*e i'!e$es!. H"3 "es & *i/e i'su$&'#e 2*&' 3"$k &' 3$i!e &%"u!
!,e !3" ke( e*e-e'!s. A*s" 3$i!e &%"u! $ie$s.
7"'#e2! "/ I'su$&%*e I'!e$es!
.espite the conventional belief that everything is insurable, all risks are not insurable. The risks must be
financially measurable and there should be ade&uate number of comparable risks for the purpose of rating.
Further, there must been pure and specific risks. The happening of the event insured against should not be
against public policy, the premium should be logical, and most importantly, there must be insurable interest on
the part of the insuring individual.
7$e&!i"' "/ i'su$&%*e i'!e$es!4
There are a number of ways in which insurable interest will arise or be limited
9&: B( #"--"' *&34 2here the essential elements of insurable interest are automatically present, the same
can be described as having arisen at common law. The common law duty of care which one owes to the other
may give rise to a liability, which again is insurable.
9%: B( #"'!$&#!4 In some contracts a person will agree to be liable for something which he or she would not
ordinarily be liable for.
9#: B( s!&!u!e4 /ometimes an -ct of the 8arliament will create an insurable interest either by granting some
benefit or imposing a duty. 2hile the statute may create insurable interest where none would otherwise exist,
there can be statutes which restrict liability and thereby also restrict insurable interest.
A22*i#&!i"' "/ i'su$&%*e i'!e$es!4
There are three main categories of application of insurable interest as follows
• life
• property
• liability
Li/e I'su$&'#e 5*&'s4
9ife insurance is intended to mitigate the adverse financial conse&uences that may follow because a person
does not live long enough or because he lives too long. %very possible adverse conse&uence that re&uires to be
taken care of constitutes a need for insurance.
These possess two key elements
9&: De&!, #")e$ "$ $isk #")e$4 It gives the benefit of being paid on the death of the insured person within a
stipulated time period.
9%: Su$)i)&* %e'e/i!4 It ensures the benefit of being paid on survival over a stipulated time period.
- rider is a clause or condition added to a basic policy providing an extra advantage, at the choice of the
/ome of the riders offered by the insurers in India are
• Increased death benefit, being twice or more than the survival benefit.
• -ccident benefits allowing double /-, in case of occurrence of death as a result of accident.
• 8ermanent disability benefits, providing for additional payments in the event of loss of limbs, eyesight,
hearing, speech, etc., as a result of an accident.
• 8remium waiver, which would be beneficial in the case of children+s assurances, if the parent dies before
the vesting date or in the case of permanent disability and sickness.
4- Li&%i*i!( i'su$&'#e is #*&ssi/ie i'!" !3" #&!e+"$ies. E12*&i' "' !,e !(2es "/ *i&%i*i!( 2"*i#ies &'
e12*&i' "' &)i&!i"' i'su$&'#e 3i!, &** !,e !,$ee se#!i"' "/ !,e 2"*i#(.
T(2es "/ Li&%i*i!( 5"*i#ies4
7"-2u*s"$( 2u%*i# *i&%i*i!( 2"*i#(4
The 8ublic 9iability Insurance -ct, !::! imposes no fault liability, i.e., irrespective of any wrongful act,
neglect or default on the part of the owner of any ha#ardous substance, he has to pay relief in the event of
death or in7ury to any person other than a workman or damage to property of any person arising out of an
accident involving the ha#ardous substance. ;o fault liability means the claimant is not re&uired to prove that
the death, in7ury or damage was due to any wrongful act, neglect or default of any person.
V"*u'!&$( 2u%*i# *i&%i*i!( 2"*i#(4
The owner of any industrial risk or non-industrial risk may take a voluntary public liability policy to cover his
legal liability in respect of accidental physical death1 in7ury1property damage of a third party arising out of his
property. Industrial risks are manufacturing premises including god owns and warehouses. ;on-industrial risks
are hotels, restaurants, cinema halls, auditoriums, residential premises, office premises, schools, amusement
parks and film studios.
Li-i!s "/ i'e-'i!(4
The insured has to select limits of indemnity in the ratio of !!, !$, !' or !( between -ny 5ne -ccident
3-5-4 and -ny 5ne <ear 3-5<4. It means for the insured period of one year and all individual accidents
falling within that period he can at best claim from the insurer a stipulated proportional amount irrespective of
the liability that may be attached on him by the claimant.
5$"u#!s *i&%i*i!( 2"*i#(4
8roducts sold to their users1consumers, if defective, may cause death, bodily in7ury, illness or property
damage. The manufacturers1marketers of such products are liable to pay relief to the accidental victims of their
products under law. The product liability insurance policy provides insurance cover to manufacturers1
marketers. The structure of the policy is similar to voluntary public liability policy with differences relating to
only the coverage and some exclusion.
5$"/essi"'&* i'e-'i!( 2"*i#(4
8rofessional indemnities are designed to provide insurance protection to professional people such as doctors,
solicitors, chartered accountants, architects, etc., against their legal liability to pay damages arising out of
negligence in the performance of their professional duties.
A)i&!i"' I'su$&'#e4
This class of insurance has been mainly because of the steep increase in the values of aircraft and the
conse&uent phenomenal increase in the limits of indemnity under third party and other legal liability covers. It
may be interesting to note here that the =umbo =ets which are being operated by -ir India are covered
Flights operated on scheduled routes by recogni#ed airlines as also chartered flights are covered. The rate of
premium for chartered flights is higher because of the greater ha#ard involved.
Ai$#$&/! #"-2$e,e'si)e 2"*i#(4
The policy is divided into three sections
9i: L"ss "/ "$ &-&+e !" &i$#$&/!4
The indemnity is provided for the loss of or damage to the aircraft 3also known as aircraft hull, i.e. 8 the body of
the aircraft and its component parts4 by any cause whatever accepts those that are specifically excluded by the
policy. The cover is also granted in respect of standard component parts 3of the aircraft4 temporarily detached
in connection with overhaul or repair while in the custody or control of the insured. The cover is operative
whilst the aircraft is in flight or is taxing or is on the ground or is moored.
9ii: T,i$ 2&$!( *e+&* *i&%i*i!(4
Insurers indemnify the insured or any member of the operative crew of the aircraft acting in the course of their
duties with the insured, against all sums which they may become legally liable to in respect of death, sickness
or disease, and bodily in7ury sustained by any person and caused by an accident arising out of the ownership,
maintenance or use of the aircraft. There are ordinarily two limits under third party liability a limit per
accident and a limit per policy year. >nder this section of the aircraft comprehensive policy, however, limit per
accident is the only limit that is specified. In other words, the liability of the insurers per policy year is
unlimited. The limit of indemnity depends on the type of aircraft to be covered and the route over which it is to
be flown.
9iii: 5&sse'+e$ *e+&* *i&%i*i!(4
Insurers indemnify the insured or any member of the operative crew of the aircraft acting in the course of his
duties with insured in respect of all sums which insured or any such, member of crew, shall become legally
liable to pay as compensation in respect of
3a4 .eath, personal in7ury, sickness or diseases caused to any passenger by an occurrence arising out of the
ownership, maintenance or use of such aircraft whilst such passenger is entering into, being carried in or
alighting from the aircraft?
3b4 9oss of or damage to passenger+s baggage and personal effects whether registered or personally retained by
the passengers whilst in the course of carriage by the insured.
)- .,e' & 2"*i#( ,&s %ee' issue8 !,e $isk /"$ !,e &'+e$ i'su$e &+&i's! +e!s #")e$e. E12*&i'
"' !,e e)ie'#e &' #*&i- '"!i#e. A*s" 3$i!e &%"u! !,e E1!e'! "/ *i&%i*i!(
E)ie'#e &' 7*&i- N"!i#e4
2hen the policy has been issued, the risk for the danger insured against gets covered. In the case of the
occurrence of the contingency against which protection is given, the insured has to file a claim on the insurer
for the indemnification of the loss. In case the incidence of loss does not happen, the insured is not entitled for
the payment.
E)ie'#e4 To admit a claim, appropriate evidence related to the policy is needed. In marine insurance the
policy is generally issued on mutual understanding and good faith of both the parties. @owever, at the time of
claim, the insurer should satisfy itself about the information furnished by the insured. The value of sub7ect
matter, nature of the sub7ect matter, warranties, insurable interest, etc., are some of the matters to be
considered at the time when the claim arises. For these purposes, the production of certain documents becomes
N"!i#e "/ #*&i-4 In the event of the occurrence of the insured contingency, the insured has to serve a prompt
notice of claim. The notice receipt or the endorsement of the course of action undertaken by the insured does
not imply the acknowledgement of liability of the loss. The notice for damage should be given before the
survey by the insurer+s representative. -fter performing the survey, the survey report signed by him is availed.
The compliance with the rules of notice is necessary to enforce the right of recovery of the loss by the insured.
-fter the notice, the insured must take delivery of the damaged goods at once or otherwise deal with the
damage because the insurer is not responsible for further and continued depreciation of the interest damaged.
In case of any theft or pilferage, the insured must give notice to the insurer within !6 days from the date on
which the risk expired. In case of marine insurance, if the ship-owner is also liable for any loss or damage, he
or his agent is also entitled to a written notice. The notice is generally given at the time of taking delivery of
goods. Aut if loss could not be determined or detected before such delivery, the notice is to reach the ship-
owner or his representative within ' days of the delivery. The notice is an important factor in the matter of
E1!e'! "/ Li&%i*i!(4
The insured can recover from the underwriter a loss to the level of the insured property+s insurable value in
case of an unvalued policy. In the instance of a valued policy, the assured is liable to recover the loss to the full
degree of the value assigned in the policy. /ub7ect to the average clause, where there are two or more
underwriters, they shall bear the loss in the proportion of their subscription.
Su##essi)e *"sses4 The underwriters are generally not liable for more than the insured value. @owever, they
may be liable for successive losses, which may in the aggregate exceed the insured value, by payment of extra
premium and stamp duty. This provision is made by ,reinstatement clause+. The assured is liable to recover
7ust the total loss in the instance where there is fractional loss, which has not been repaired or else made good,
is followed by a complete loss.
O!,e$ #,&$+es4 The amount of claim cannot include survey fees, cost of certificates and professional average
ad7uster+s fees. 5nce the claim is proved to be recoverable, these charges can be recovered in full from the
underwriters. The ,/ue and 9abour+ clause defines the procedure of payment of the expenses.
B- I'su$&'#e O-%us-&' 3&s #$e&!e /"$ ;ui#k is2"s&* "/ !,e +$ie)&'#es "/ !,e i'su$e #us!"-e$s.
.$i!e !,e #"-2*e!e i'/"$-&!i"' "' I'su$&'#e O-%us-&'.
I'su$&'#e O-%us-&'4
The institution of Insurance 5mbudsman was created by a Covernment of India ;otification dated !!
;ovember !::D with the purpose of &uick disposal of the grievances of the insured customers and to mitigate
their problems involved in redressal of those grievances. This institution is of great importance and relevance
for the protection of the interests of policyholders and also in building their confidence in the system. The
institution has helped to generate and sustain the faith and confidence amongst the consumers and insurers.
A22"i'!-e'! "/ I'su$&'#e O-%us-&'4
The governing body of insurance council issues orders of appointment of the Insurance 5mbudsman on the
recommendations of the committee comprising the IR.- "hairman, 9I" "hairman, CI" "hairman and a
representative of the "entral Covernment. Insurance "ouncil comprises the members of the 9ife Insurance
"ouncil and Ceneral Insurance "ouncil formed under /ection (6" of the Insurance -ct, !:'D. The governing
body of Insurance "ouncil consists of the representatives of insurance companies.
5mbudsman is drawn from Insurance Industry, "ivil /ervices and =udicial /ervices.
Te$-s "/ "//i#e4
-n Insurance 5mbudsman is appointed for a term of three years or till the incumbent attains the age of B)
years, whichever is earlier. Re-appointment is not permitted.
Te$$i!"$i&* <u$isi#!i"' "/ O-%us-&'4
The governing body has appointed twelve 5mbudsmen across the country allotting them different
geographical areas as their domains of 7urisdiction. The 5mbudsman may hold sitting at various places within
its area of 7urisdiction in order to expedite the disposal of complaints.