KOTEBE METROPOLITAN

UNIVERSITY

DEPARTMENT OF ACCOUNTING AND FINANCE

COURSE TITLE: RISK MANAGEMENT AND INSURANCE

COURSE CODE: AcFn 2111

GROUP MEMBERS
NAME ID.No. SECTION

1. EMEBET TESEMA EDAcF/037/10 A

2. BETWEDED MEKONNEN EDAcF/023/10 A
3. ALMAZ WURGIE EDAcF/010/10 A
4. DAWIT GETAHUN EDAcF/031/10 A
5. ABEL ASFAW EDAcF/005/10 A
6. DESALEGN TALE EDAcF/035/10 A
7. BETELEHEM HAREGWEIN EDAcF/022/10 A

Submitted to: Instructor Solomon

Submission date: May 25, 2019
 1. What does non-life insurance imply? Discuss the concepts.
Non-Life insurance also known as General insurance, is a form of insurance mainly concerned
with protecting the policy holder from loss or damage caused by specific risks. Non- life insurance
refers to the insurance of goods and properties. The insurance which is done for the physical
properties other than human life is known as non-life insurance. The individual or organizations
have to suffer a huge loss from the destruction of their physical things. Thus, they can ensure their
properties against the varieties of risks. Such risks may be fire risk, marine risk etc. Non- life
insurance is taken as a means of providing financial protection for building, machinery, equipment,
furniture, and vehicle and merchandise items against the risk of fire, earthquake, accident and theft.

Meaning and Importance of General Insurance

Insurance other than Life Insurance falls under the category of General Insurance. General
Insurance comprises of insurance of property against fire, burglary etc., personal insurance such
as Accident and Health Insurance, and liability insurance which covers legal liabilities. There are
also other covers such as Errors and Omissions insurance for professionals, credit insurance etc.
Non-life insurance companies have products that cover property against Fire and allied perils,
flood storm and inundation, earthquake and so on. There are products that cover property against
burglary, theft etc. The non-life companies also offer policies covering machinery against
breakdown, there are policies that cover the hull of ships and so on. A Marine Cargo policy covers
goods in transit including by sea, air and road. Further, insurance of motor vehicles against
damages and theft forms a major chunk of non-life insurance business.

A non-life insurance contract is different from a life insurance contract. A life insurance contract
is a long term contract, while general insurance contract is a one-year renewable contract. The risk
namely ‘death’ is certain in life insurance. The only uncertainty is as to when it will take place,
whereas in general insurance, the insured event may or may not take place. It is difficult to
determine the economic value of life, whereas the financial value of any asset to be insured under
a general insurance policy can be determined. Because of these peculiar features, a non-life
insurance contract is different from a life insurance contract.

General Insurance covers are necessary for every family. It is important to protect one’s property,
which one might have acquired from one’s hard earned income. A loss or damage to one’s property
can leave one shattered. Losses created by catastrophes such as the tsunami, earthquakes. Cyclones
etc. have left many homeless and penniless. Such losses can be devastating but insurance could
help mitigate them. Property can be covered, so also the people against Personal Accident. A
Health Insurance policy can provide financial relief to a person undergoing medical treatment
whether due to a disease or an injury. Industries also need to protect themselves by obtaining
insurance covers to protect their building, machinery, stocks etc. They need to cover their liabilities
as well. Financiers insist on insurance. So, most industries or businesses that are financed by banks
and other institutions do obtain covers. But are they obtaining the right covers? And are they

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insuring adequately? are questions that need to be given some thought. Also organizations or
industries that are self-financed should ensure that they are protected by insurance.

Types of General Insurance

Some of the different types of general insurance are:

1. Fire Insurance
2. Marine Insurance
3. Motor Insurance
4. Health Insurance
5. Fidelity Insurance
6. Travel Insurance
7. Burglary Insurance
8. Workers compensation Insurance
9. Liability Insurance
10. Bond Insurance
11. Green House/ Horticulture Insurance
12. Personal accident Insurance
13. Money Insurance

Fire Insurance
Fire insurance is a contract of indemnity under which the insured cannot claim anything more than
the value of goods lost by fire or the amount insured, whichever is less. Fire insurance is a recent
growth. The first fire insurance institution was established only after the “Great fire of London” in
1666 A.D. A fire insurance policy provides protection strictly against fire.

The following are the main definitions of fire insurance: -

 “Fire insurance is a device to compensate for the loss consequent upon destruction by
fire.” – M. N. Mishra
 “The basic intention of the fire policy is to provide compensation to the insured person in
the event of there being damaged to the property insured.” – Bill Weipers

Fire insurance is a type of insurance, which is taken for getting financial compensation against the
loss by fire. It is a contract in which the insurer promises to pay a certain sum of money to the
insured in case of loss of properties caused by setting a fire within specified period of time. On the
other hand, the insured agrees to pay the amount of premium in consideration. Thus, fire insurance
provides the financial compensation against the loss or damage of the physical goods or properties.

A contract of fire insurance can be defined as a contract under which one party (the insurer) agrees
for consideration (premium) to indemnify the other party (the insured) for the financial loss which
the latter may suffer due to damage to the property insured by fire during a specified period of
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time and up to an agreed amount. The document containing the terms and conditions of the contract
is known as ‘Fire Insurance Policy’. A fire policy contains the name of the parties, description of
the insured property, the sum for which the property is insured, amount of premium payable and
the period insured against. The premium may be paid either in single installment or by way of
installments. The insurer is liable to make good the loss only when loss is caused by actual fire.
The phrase ‘loss or damage by fire’ also includes the loss or damage caused by efforts to extinguish
fire. Loss of life by fire is covered under Life insurance and loss of property by fire is covered
under fire insurance.
Standard Fire and special perils policy usually cover loss due to the following perils:
1. Fire: Destruction or damage to the property insured by its own fermentation, natural heating
or spontaneous combustion or drying process cannot be treated as damage due to fire.
2. Lightning: It may result in fire damage or other type of damage, such as cracks in a building
due to a lightning strike.
3. Explosion: An explosion is caused inside a vessel when the pressure within the vessel exceeds
the atmospheric pressure acting externally on its surface. This policy, however, does not cover
destruction or damage caused to the boilers or other vessels where heat is generated.
4. Storm, cyclone, typhoon, hurricane, tornado, landslide: These are all various types of
violent natural disturbances accompanied by thunder or strong winds or heavy rain fall. Loss
or damage directly caused by these disturbances are covered excluding those resulting from
earthquake, volcanic eruption etc.
5. Bush fire: This covers damage caused by burning of bush and jungles but excluding
destruction or damage caused by forest fire.
6. Riot, strike, malicious, and terrorism damages: Any loss or physical damage to the property
insured directly caused by such activity or by the action of any lawful authorities in suppressing
such disturbance is covered.
7. Aircraft damage: Loss, destruction or damage caused by Aircraft, other aerial or space
devices and articles dropped there from excluding those caused by pressure waves.
8. Overflowing of water tanks and pipes etc.: Loss or damage to property by water or otherwise
on account of bursting or accidental overflowing of water tanks, apparatus and pipes is
covered.
9. Add-on Covers: The insurer can issue the standard fire policy with added benefits at the option
of the policyholders by charging additional premium.
The following types of losses, however, are not covered by a fire policy:

 Loss by theft during and after the occurrence of fire.

 Loss caused by burning of property by order of any public authority.
 Loss caused by underground fire.
 Loss or damage to property occasioned by its own fermentation or spontaneous
combustion.

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  Loss happening by fire which is caused by earthquake, invasion, act of foreign enemy,
warlike operations, civil wars, riot etc.

In all the above cases the insurer is not liable, unless specifically provided for in the fire
insurance policy. The insurer can issue the standard fire policy as per the New Fire Tariff along
with added benefits at the option of the policyholders by charging additional premium.

Types of Fire Policies

The important fire insurance policies are discussed below:

 Valued Policy: They are the exception in fire insurance. Under valued policy, the value
declared in the policy is the amount the insurer will have to pay to the insured in the event of
a total loss irrespective of the actual value of loss. The policy violates the principle of
indemnity. The insurer has to pay a specified amount quite independent of the market or actual
value of the property at the time of loss. So such a policy is very rarely issued. It may be issued
only on artistic work, antiques and similar rare articles whose value cannot be determined
easily.
 Specific Policy: Under this policy, the insurer undertakes to make good the loss to the insured
up to the amount specified in the policy. Supposing, a building worth Rs.2,00,000 is insured
against fire for Rs. 1,00,000. If the damage to the property is Rs. 75,000 the insurer will get
the full compensation. Even if the loss is Rs.1,00,000 the insurer will get the full amount. But
if the loss is more than Rs. 1, 00,000 the insured will get Rs. 1,00,000 only. Hence, the value
of property is not relevant in determining the amount of indemnity in case of a specific policy.

 Average Policy: Under a fire insurance policy containing the ‘average clause’ the insured is
liable for such proportion of the loss as the value of the uncovered property bears to the whole
property. The amount of compensation to be paid by the insurer is calculated as follows:
(𝐼𝑛𝑠𝑢𝑟𝑒𝑑 𝑎𝑚𝑜𝑢𝑛𝑡 ∗ 𝐴𝑐𝑡𝑢𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡)
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑐𝑙𝑎𝑖𝑚 =
𝐴𝑐𝑡𝑢𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑝𝑟𝑜𝑝𝑒𝑟𝑡𝑦
 Floating policy: A floating policy is used for covering fluctuating stocks of goods held in
different lots for one premium. With every transaction of sale or purchase, the quantities of
goods kept at different places fluctuate. It is difficult for the owner to take a policy for a specific
amount. The best way is to take out a floating policy for all the stocks of goods.

 Reinstatement Policy: In such a policy, the insurer has the right to reinstate or replenish the
property destroyed instead of paying compensation to the insured in cash. It may be granted
on building, machinery, furniture, fixture and fittings only.

 Consequential loss Policy: Sometimes the insured has to suffer a greater financial loss on
account of dislocation of business caused by fire. E.g. close down business after fire for repair,

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 to meet fixed expenses such as rent, salaries, taxes and other expenses as usual. Such
considerable loss to the insured is not covered by the ordinary fire policy. In order to cover
such loss by fire, the ‘Consequential Loss Policy’ has been introduced. The loss so suffered is
separately calculated from the loss actually suffered.

 Comprehensive policy: This policy covers the risks of the fire arising out of any cause that is
civil commotion, lightening, riots, thefts, labor disturbances and strikes etc. It is also known as
‘all insurance policy’.

 A Blanket policy: This policy is issued to cover all the fixed and current assets of an enterprise
by one insurance.
 Declaration policy: In this policy, trader takes out a policy for the maximum value of stock
which may be expected to hold during the year. At a fixed date each month, the insured has to
make a declaration regarding the actual value of stock at risk on that date. On the basis of such
declaration, the average amount of stock at risk in the year is calculated and this amount
becomes the sum assured.
 Sprinklers leakage policy: It covers the loss arising out of water leakage from sprinklers
which are setup to extinguish fire.

Claim Procedure for Fire Insurance

1. In the event of fire, the insured must immediately give the insurer a notice about the loss
caused by fire. A written claim should be delivered with in 15days from the date of loss.
The insured is required to furnish all plans, invoices, documents, proofs and other relevant
information’s required by the insurer. If the insured failed to submit these documents
within 6 months from the date of loss, the insurer has the right to consider it as no claim.

2. On receipt of the claim the insurer verifies whether the essentials of a valid claim are
satisfied or not. e.g. The cause of fire should be an insured peril.
3. The insured completes the form, signs the declaration given in the form as to the
truthfulness and accuracy of the information and returns the same.
4. An official employed by the insurer investigates small and simple claims. For large claims,
the insurance company employs independent loss surveyor.
5. On the basis of the claim form and the investigation report, the company then settles the
claim.

Marine Insurance
Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo
by which property is transferred, acquired, or held between the points of origin and final
destination. Cargo insurance — discussed here — is a sub-branch of marine insurance, though

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Marine also includes Onshore and Offshore exposed property (container terminals, ports, oil
platforms, pipelines); Hull; Marine Casualty; and Marine Liability.

Marine insurance is a type of insurance, which is taken for getting the financial compensation
against the losses due to perils of the sea in the course of a sea voyage. It is the contract made
between the insurers and insured to indemnify against the cursor damage of goods using a ship.
There may be different risk such as accident ship, collision, jettison, barratry etc. The subject
matter of the marine insurance is a ship, cargo, and freight. The premium is paid periodically or in
a lump sum by the insured to the insurer.

The following are the main definitions of marine insurance

“Marine insurance is a contract whereby the insurer undertakes to indemnify the insured in a
manner and to the extent thereby agreed, against marine losses, that is to say, the losses incidental
to marine adventures.” – Indian Marine Insurance Act, 1963

“Marine insurance has been defined as a contract between insurers and insured whereby the insurer
undertakes to indemnify the insured in a manner and to the interest thereby agreed, against marine
losses incident to marine adventures.” – M. N. Mishra

Meaning & Principles of Marine Insurance

Marine insurance is concerned with overseas trade. International trade involves transportation of
goods from one country to another country by ships. There are many dangers during the
transshipment. The persons who are importing the goods will like to ensure the safe arrival of their
goods. The shipping company wants the safety of the ship. So marine insurance insures the
coverage of all types of risks which occur during the transit. Marine insurance may be called a
contract whereby the insurer undertakes to indemnify the insured in a manner and to the extent
thereby agreed upon against marine losses.

Marine insurance has two branches:

1. Ocean Marine Insurance
2. Inland Marine Insurance
Ocean marine insurance covers the perils of the sea whereas inland marine insurance is related to
the inland risks on the land.

The general principles of marine insurance are the same as with other types of insurance in that
there are two parties: the assured and assurer (or carrier). The assured or insured agrees to pay a
premium and the insurer agrees that, if certain losses or damage occurs to certain interests of the
insured, the insurer will indemnify the insured. The similarities pretty much end here. The complex
circumstances involved in sea voyages require very specific arrangements for the provision of
marine insurance. The fixing of rates and special conditions, for example, requires a vast
knowledge of the nature of vessels and cargos and of the conditions of navigation.

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The marine policy may cover the risks of a single voyage, or may insure for a certain period of
time. Cargo is almost always insured by voyage. Vessels are usually insured for certain duration
of time, usually year by the year. Cargo policies may be on a single lot or may be open to cover
cargo as shipped by the insured. Hull insurance, or vessel insurance, may cover a ship or a whole
fleet.

Typical of marine insurance is the principle that no contract of marine insurance is valid unless the
insured has an insurable interest in the subject matter at the time of loss. The term insurable interest
has been variously defined. According to the English Marine Insurance Act of 1906, "every person
has an insurable interest who is interested in a marine adventure.... a person is interested in a marine
adventure where he stands in any legal or equitable relation to the adventure or to any insurable
property at risk therein, in consequence of which he may benefit by the safety or due arrival of
insurable property, or may be prejudiced by its loss, or damage thereto, or by the detention thereof,
or may incur liability in respect thereof".
The nature and scope of marine insurance is determined by reference to the Marine Insurance Act
and by the definitions of “marine adventure” and “maritime perils”. A contract of marine insurance
is a contract whereby the insurer undertakes to indemnify the insured, in the manner and to the
extent agreed in the contract, against losses that are incidental to a marine adventure or an
adventure analogous to a marine adventure, including losses arising from a land or air peril
incidental to such an adventure if they are provided for in the contract or by usage of the trade; or
losses that are incidental to the building, repair or launch of a ship.

"Marine adventure" means any situation where insurable property is exposed to maritime perils,
and includes any situation where the earning or acquisition of any freight, commission, profit or
other pecuniary benefit, or the security for any advance, loan or disbursement, is endangered by
the exposure of insurable property to maritime perils, and any liability to a third party may be
incurred by the owner of, or other person interested in or responsible for, insurable property, by
reason of maritime perils. "Maritime perils" means the perils consequent on or incidental to
navigation, including perils of the seas, fire, war perils, acts of pirates or thieves, captures, seizures,
restraints, detainments of princes and peoples, jettisons, barratry and all other perils of a like kind
and, in respect of a marine policy, any peril designated by the policy.

Subject Matter of Marine Insurance

The insured may be the owner of the ship, owner of the cargo or the person interested in freight.
In case the ship carrying the cargo sinks, the ship will be lost along with the cargo. The income
that the cargo would have generated would also be lost. Based on this we can classify the marine
insurance into four categories:

1. Hull Insurance: Hull refers to the ocean going vessels (ships trawlers etc.) as well as its
machinery. The hull insurance also covers the construction risk when the vessel is under

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 construction. A vessel is exposed to many dangers or risks at sea during the voyage. An
insurance effected to indemnify the insured for such losses is known as Hull insurance.

2. Cargo Insurance: Cargo refers to the goods and commodities carried in the ship from one place
to another. The cargo transported by sea is also subject to manifold risks at the port and during
the voyage. Cargo insurance covers the shipper of the goods if the goods are damaged or lost.
The cargo policy covers the risks associated with the transshipment of goods. The policy can
be written to cover a single shipment. If regular shipments are made, an open cargo policy can
be used that insures the goods automatically when a shipment is made.

3. Freight Insurance: Freight refers to the fee received for the carriage of goods in the ship.
Usually the ship owner and the freight receiver are the same person. Freight can be received in
two ways- in advance or after the goods reach the destination. In the former case, freight is
secure. In the latter the marine laws say that the freight is payable only when the goods reach
the destination port safely. Hence if the ship is destroyed on the way the ship owner will lose
the freight along with the ship. That is why, the ship owners purchase freight insurance policy
along with the hull policy.

4. Liability Insurance: It is usually written as a separate contract that provides comprehensive

liability insurance for property damage or bodily injury to third parties. It is also known as
protection and indemnity insurance which protects the ship owner for damage caused by the
ship to docks, cargo, illness or injury to the passengers or crew, and fines and penalties.

Types of Marine Policy

There are different types of marine policies known by different names according to the manner
of their execution or the risk they cover. They are:

(i)Voyage Policy: Under the policy, the subject matter is insured against risk in respect of a
particular voyage from a port of departure to the port of destination, e.g. Mumbai to New York.
The risk starts from the departure of ship from the port and it ends on its arrival at the port of
destination. This policy covers the subject matter irrespective of the time factor. This policy is
not suitable for hull insurance as a ship usually does not operate over a particular route only.
The policy is used mostly in case of cargo insurance.

(ii)Time Policy: It is one under which the insurance is affected for a specified period of time,
usually not exceeded twelve months. Time policies are generally used in connection with the
insurance of ship. Thus if the voyage is not completed within the specified period, the risk shall
be covered until the voyage is completed or till the arrival of the ship at the port of call.
(iii)Mixed Policies: It is one under which insurance contract is entered into for a certain time
period and for a certain voyage or voyages, e.g., Kolkata to New York, for a period of one

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 year. Mixed Policies are generally issued to ships operating on particular routes. It is a mixture
of voyage and time policies.

(iv) Valued Policies: It is one under which the value of subject matter insured is specified on
the face of the policy itself. This kind of policy specifies the settled value of the subject matter
that is being provided cover for. The value which is agreed upon is called the insured value. It
forms the measure of indemnity in the event of loss. Insured value is not necessarily the actual
value. It includes (a) invoice price of goods (b) freight, insurance and other charges (c) ten to
fifteen percent margin to cover expected profits.

(v) Unvalued policy: It is the policy under which the value of subject matter insured is not
fixed at the time of effecting insurance but has to be ascertained wherever the subject matter is
lost or damaged.

(vi) Open policy: An open policy is issued for a period of 12 months and all consignments
cleared during the period are covered by the insurer. This form of insurance Policy is suitable
for big companies that have regular shipments. It saves them the tedious and expensive process
of acquiring an insurance policy for each shipment. The rates are fixed in advance, without
taking the total value of the cargo being shipped into consideration. The assured has to declare
the nature of each shipment, and the cover is provided to all the shipments. The assured also
deposits a premium for the estimated value of the consignment during the policy period.

(vii) Floating Policy: A merchant who is a regular shipper of goods can take out a ‘floating
policy’ to avoid botheration and waste of time involved in taking a new policy for every
shipment. This policy stands for the contract of insurance in general terms. It does not include
the name of the ship and other details. The other details are required to be furnished through
subsequent declarations. Thus, the insured takes a policy for a huge amount and he informs the
underwriter as and when he makes shipment of goods. The underwriter goes on recording the
entries in the policy. When the sum assured is exhausted, the policy is said to be “fully
declared” or “run off”.

(viii) Block Policy: This policy covers other risks also in addition to marine risks. When goods
are to be transported by ship to the place of destination, a single policy known as block policy
may be taken to cover all risks. E.g. when the goods are dispatched by rail or road transport
for shipment, a single policy may cover all the risks from the point of origin to the point of
destination.

Assignment of Marine Policy

A marine insurance policy may be transferred by assignment unless the terms of the policy
expressly prohibit the same. The policy may be assigned either before or after loss. The assignment
may be made either by endorsement on the policy itself or on a separate document. The insured
need not give a notice or information to the insurer or underwriter about assignment. In case of
death of the insured, a marine policy is automatically assigned to his heirs. At the time of

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assignment, the assignor must possess an insurable interest in the subject matter insured. An
insured who has parted with or lost interest in the subject matter insured cannot make a valid
assignment. After the occurrence of the loss, the policy can be assigned freely to any person. The
assignor merely transfers his own right to claim to the assignee.

Motor Insurance
Motor vehicle insurance: This policy has developed into an important form of contract arising from
its compulsory nature and increasing public demand for coverage .it provides indemnity against
loss of, or damage to or arising out of or in connection with the use of motor vehicle including
third party risks. The nature of the protection afforded here, permits development of three different
types of the motor insurance market as; third party only policy, third party, fire and theft policy,
and comprehensive. Third party covers limited amount only for damages for third party persons
and property only, if the insured is legally liable for that fault Comprehensive, covers for third
party damage and indemnified for own vehicle too. If the purpose of the vehicle is uses for
commercial purpose the cover can be extended for the cargo, passengers if the motor vehicle is
busses.
Motor insurance is insurance purchased for cars, trucks, and other vehicles. Its primary use is to
provide protection against losses incurred as a result of traffic accidents and against liability that
could be incurred in an accident.

The insurance which is done in order to get the financial compensation for the loss of motor or
similar types of vehicles caused by accident, the or other risk is called motor insurance. While
traveling on land using car, bus, van, truck, etc. If the accident took place and happened the events,
the insurer compensates for the loss. Thus, it compensates the loss of goods and amount for the
death of passenger and loss of vehicles separately.

Motor insurance policy is a contract between the insured and the insurer in which the insurer
promises to indemnify the financial liability in event of loss to the insured. Motor Vehicles Act in
1939 was passed to mainly safeguard the interests of pedestrians. According to the Act, a vehicle
cannot be used in a public place without insuring the third part liability. According to Section 24
of Motor Vehicles Act, “No person shall use or allow any other person to use a motor vehicle in a
public place, unless the vehicle is covered by a policy of insurance.”

The risks under motor insurance are of two types:

1. Legal liability due to bodily injury, death or damage caused to the property of others.
2. Loss or damage to one’s own vehicle\ injury to or death of self and other occupants of
the vehicle.

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 Types of motor policies

When you buy a motor vehicle, you need to buy a motor insurance. There are, however, many
types of motor insurance policies available. The common types are:

• Third party cover - This policy insures you against claims for bodily injuries or deaths caused to
other persons (known as the third party), as well as loss or damage to third party property caused
by your vehicle.

• Third party, fire and theft cover - This policy provides insurance against claims for third party
bodily injury and death, third party property loss or damage, and loss or damage to your own
vehicle due to accidental fire or theft.

• Comprehensive cover - This policy provides the widest coverage, i.e. third party bodily injury
and death, third party property loss or damage and loss or damage to your own vehicle due to
accidental fire, theft or an accident.

Exclusions/Extensions

A standard motor insurance will not cover certain losses, such as your own death or bodily injury
due to a motor accident, your liability against claims from passengers in your vehicle (except for
passengers of hired vehicles such as taxis and buses) and loss or damage arising from an act of
nature, such as flood, storm and landslide. However, you may pay additional premiums to extend
your policy to cover flood, landslide, landslip as well as cover your passengers. It is important to
check your policy for the exclusions.

Important points to consider when buying motor insurance policies

Insured value/sum insured: If you are buying a policy against loss/damage to your vehicle, you
must ensure that your vehicle is adequately insured as it will affect the amount you can claim in
the event of loss/damage. For a new vehicle, the insured value will be the purchase price while for
other vehicles, the insured value is the market value of the vehicle at the point you apply for the
insurance policy.

• Under-insurance – If you insure your vehicle at a lower sum than its market value, you will be
deemed as self-insured for the difference, i.e. in the event of loss/damage, you will only be partially
compensated (up to the proportion of insurance) by your insurance company.

• Over-insurance – Should you insure your vehicle at a higher sum than its market value, the
maximum compensation you will receive is the market value of the vehicle as the policy owner
cannot ‘profit’ from a motor insurance claim.

Duty of disclosure: You should disclose fully all material facts, including previous accidents (if
any), modification to engines, etc. When in doubt as to whether a fact is relevant or not, it is best
to ask your insurance company. If you fail to disclose any material fact, your insurance company
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may refuse to pay your claim or any claim made by a third party against you. In such cases, you
are personally liable for such claims.

Price: The price you pay for your motor insurance will depend on the type of policy selected. The
insurance premium charged by your insurance company is the standard minimum rate in
accordance with the Motor Tariff. However, in addition to the standard minimum rate, your
insurance company may impose additional premiums known as loadings to the premium payable
in view of higher risk factors involved such as age of vehicle and claims experience.

No-claim-discount: The premium payable may be reduced if you have no-claim-discount (NCD)
entitlement. NCD is a ‘reward’ scheme for you if no claim was made against your policy during
the preceding 12 months of policy. Different NCD rates are applicable for different classes of
vehicles. For a private car, the scale of NCD ranges from 25% to 55% as provided in the policy.

Transfer of ownership: In case of any sale of vehicle involving transfer of policy, the insured
should apply to the insurer for consent to such transfer. The transfer is allowed, if within 15 days
of receipt of application, the insurer does not reject the plea. The transferee shall apply within
fourteen days from the date of transfer in writing to the insurer who has insured the vehicle, with
the details of the registration of the vehicle, the date of transfer of the vehicle, the previous owner
of the vehicle and the number and date of the insurance policy so that the insurer may make the
necessary changes in his record and issue fresh Certificate of Insurance.

Excess: Also known as a ‘deductible’. This is the amount of loss you have to bear before your
insurance company will pay for the balance of your vehicle damage claim. The types of excess
applicable are as follows:

· Compulsory excess : If your vehicle is driven by a person not named in your policy or a person
named in your policy who is under the age of 21, the holder of a provisional (L) driving license or
the holder of a full driving license of less than two years.

· Other excess: applicable at the discretion of your insurance company and in some cases, no excess
is imposed. You can negotiate with your insurance company on this excess.

What you should do in the event of an accident/loss

• Take notes of the accident – If you are involved in a motor accident, take notes of the accident,
i.e. the names and addresses of all drivers and passengers involved, vehicle registration numbers,
make and model of each vehicle involved, the drivers’ license numbers and insurance
identification as well as the names and addresses of as many witnesses as possible

• Make a police report – You are required by law to lodge a police report within 24 hours of a road
accident.

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• Notify your insurance company – You must notify your insurance company in writing with full
details as soon as possible. Depending on the type of claim you intend to make, you may have to
notify other insurance companies. If you fail to report the accident, you will be liable for your own
loss as well as any third party claim against you.

• Select the workshop – You must send your damaged vehicle to a workshop approved by your
insurance company. If the accident occurs during office hours, you may call the hotline/ emergency
assistance numbers provided by your insurance company. Otherwise, you may call your insurance
company for the nearest approved workshop. Should the accident occur outside office hours and
you are making a claim against your policy, i.e. an own damage claim, you should ensure that your
vehicle is towed to a workshop approved under Repairers Scheme.

Claim Settlement

Claim arises when:

1. The insured’s vehicle is damaged or any loss incurred.

2. Any legal liability is incurred for death of or bodily injury
3. Or damage to the third party ‘s property.

The claim settlement is done by opting for any of the following by the insurance company.

 Replacement or reinstatement of vehicle

 Payment of repair charges

In case, the motor vehicle is damaged due to accident it can be repaired and brought back to
working condition. If the repair is beyond repair, then the insured can claim for total loss or for a
new vehicle. It is based on the market value of the vehicle at the time of loss. Motor insurance
claims are settled in three stages. In the first stage the insured will inform the insurer about loss.
The loss is registered in claim register. In the second stage, the automobile surveyor will assess
the causes of loss and extent of loss. He will submit the claim report showing the cost of repairs
and replacement charges etc. In the third stage, the claim is examined based on the report submitted
by the surveyor and his recommendations. The insurance company may then authorize the repairs.
After the vehicle is repaired, insurance company pays the charges directly to the repairer or to the
insured if he had paid the repair charges.

Section 110 of Motor Vehicle Act, 1939 empowers the State Government in establishing motor
claim tribunals. These tribunals will help in settling the third party claims for the minimum amount

Theft claims

• After submission of the claim form, you must cooperate fully with your insurance company or
its representative during the course of investigation of the theft claim.

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• In view that the police and your insurance company will require time to investigate your claim,
you will receive the offer of settlement from your insurance company within six months from the
theft notification or upon completion of police investigations, whichever is earlier.

Exclusions/extensions
A standard motor insurance will not cover certain losses, such as your own death or bodily injury
due to a motor accident, your liability against claims from passengers in your vehicle (except for
passengers of hired vehicles such as taxis and buses) and loss or damage arising from an act of
nature, such as flood, storm and landslide. However, you may pay additional premiums to extend
your policy to cover flood, landslide, landslip as well as cover your passengers. It is important to
check your policy for the exclusions.
Health Insurance
Health insurance, like other forms of insurance, is a form of collectivism by means of which people
collectively pool their risk, in this case the risk of incurring medical expenses. The collective is
usually publicly owned or else is organized on a non-profit basis for the members of the pool,
though in some countries health insurance pools may also be managed by for-profit companies. It
is sometimes used more broadly to include insurance covering disability or long-term nursing or
custodial care needs. It may be provided universally through government as a feature of social
solidarity, as is typical in many industrial countries, or as form of government charity such as the
United States Medicaid program. It may be purchased privately on a group basis (e.g., by a firm
to cover its employees) or purchased by an individual for himself or his family. In each case, the
covered groups or individuals pay a fee, premium, or tax, to help protect themselves from health
care expenses.

“Health insurance is an insurance, which covers the financial loss arising out of poor health
condition or due to permanent disability, which results in loss of income.” A health insurance
policy is a contract between an insurer and an individual or group, in which the insurer agrees to
provide specified health insurance at an agreed upon price (premium). It usually provides either
direct payment or reimbursement for expenses associated with illness and injuries. The cost and
range of protection provided by health insurance depends on the insurance provider and the policy
purchased.

Health Insurance Policies and Main Features

Types of Health Insurance Policies

Health Insurance policies are broadly classified into two types-Individual Health Insurance and
Group Health Insurance.

Major Characteristics of Individual Health Insurance Policy

Coverage: Individual coverage are generally classified into the following broad heads:

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 1. Hospital Surgical Insurance
2. Major Medical Insurance
3. Long-term Care Insurance
4. Disability Income Insurance

Hospital Surgical Insurance: It covers the following expenses:

 Hospital expenses: A typical Individual Health Insurance policy covers impatient hospital
expenses subject to a specified limit and subject to certain amount of deductible or co-
insurance
 Surgical expenses
 Cost of medicines and nursing
 Domiciliary expenses up to certain limits

Major characteristics of Medical Insurance: It covers major or broader coverage than basic
coverage with the following characteristics:

1. Broad coverage for hospital charges, drugs, nursing, medical equipment’s, etc.
2. High maximum limit, say Rs. 5,00,000 or Rs. 10,0000, etc.
3. Benefit period: maximum amount paid under a major benefit policy depending on the
length of the policy
4. Deductible that must be satisfied before the benefit is granted, which may be yearly
deductible, family deductible, etc.
5. Co-insurance is provided in most of the policies to avoid moral hazards
6. Taxation benefits subject to compliance of certain requirements
7. Pre-exiting conditions clause to avoid adverse selection

Common exclusions

1. Expenses caused by war or military conflict

2. Cosmetic surgery
3. Dental care except as a result of an accident
4. Eye and examination aids unless there is an accident
5. Pregnancy or childbirth unless specifically provided
6. Expenses covered under W.C. laws or similar laws
7. Services furnished by governmental agencies unless the patient has the obligation to pay
8. Experimental surgery

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 Fidelity Insurance
Fidelity Insurance is a process of making financial compensation against the loss caused by
embezzlement, theft, error, or fraud committed by the staff of the business. So, the loss which was
cause knowingly or unknowingly by the staff can be compensated through this type of insurance.

Fidelity insurance protects organizations from loss of money, securities, or inventory resulting
from crime. Common Fidelity claims allege employee dishonesty, embezzlement, forgery,
robbery, safe burglary, computer fraud, wire transfer fraud, counterfeiting, and other criminal acts.
These schemes involve every possible angle, taking advantage of any potential weakness in your
company’s financial controls. From fictitious employees, dummy accounts payable, non-existent
suppliers to outright theft of money, securities and property. Fraud and embezzlement in the
workplace is on the rise, occurring in even the best work environments. Liabilities covered by
crime insurance usually fall into two categories, although many polices combine both types of
coverage:

Money and security coverage pays for money and securities taken by burglary, robbery, theft, disappearance
and destruction.

Employee dishonesty coverage pays for losses caused by most dishonest acts of your employees, such as
embezzlement and theft.

Fidelity insurance includes comprehensive coverage of:

 Employee theft
 Money and securities while on premises or in transit
 Forgery
 Funds transfer fraud
 Computer fraud
 Money order and counterfeit currency fraud
 Credit card fraud

Travel Insurance
Travel insurance provides cover for unforeseen incidents during travels outside one’s usual
country of residence. Its purchased for persons travelling or residing outside of their home country.
It covers baggage loss, medical expenses and personal liability. Travel insurance covers travel
related accidents also. While traveling outside India, individuals face risks such as loss of baggage,
accidents involving injuries, illnesses and medical emergencies requiring hospitalization
treatment. All this can pose serious consequences to the overseas travelers. A rational person
should therefore secure the required coverage before leaving his home country.

This policy provides cover for travelers worldwide for business, leisure, training, Hajji &Umrha
and more against the following incidents

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  Baggage loss or delay
 Travel delay
 Loss of passport, driving license, national identity card abroad
 Compensation for in-flight loss of checked-in baggage
 Emergency medical expense& hospitalization
 Emergency repatriation
 Repatriation of mortal remains
 Emergency return home following death of a close family member
 Emergency dental care

Burglary Insurance
Burglary insurance provides cover for property belonging to the insured against loss by theft, but
only if accompanied by actual forcible and violent breaking into or out of the building or any
attempted threat.

Insurance provided against the damage in one’s residence as a result of burglary, theft, house-
breaking etc. It provides financial compensation against loss or damage to property contained in
your premises. Burglary Insurance Such a policy provides protection against loss or damage
caused by housebreaking, robbery or theft. It is also known as ‘robbery, theft or larceny insurance’.
For this purpose, a comprehensive policy may be taken or each risk may be separately insured.
Full details of the article insured are given in the policy. Insured items include gold and gold
ornaments and other assets including household items such as TV, fridge, air conditioner etc. A
burglary policy for business premises would provide cover against loss to damage by house
breaking and burglary of stock-in -trade, goods in- transit, cash-in-safe, fixture and fittings etc.

Burglary Insurance Policies

 Private Dwelling Burglary Policy

 Business Premises Burglary Policy
 Policy for Money-in-Transit
 Legal Opinion
 Inspection of Claim
 Settlement of Claim

Private Dwelling Burglary: In such policies owner’s or occupier’s personal belongings, personal
effects, property article, jewelry, ornaments etc. are secured against the risk of theft, dacoit,
burglary, house-breaking etc.

Business Premises Burglary Policy: It covers

 Personal assets and properties of the insured.

 Articles of decorations and display in the business premises

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  Goods or property in the contract of bailment, trust, etc.
 Valuable and cash kept in the locked safe
 Stock in trade lying in the business premises or go downs of the business premises

Policy for Money-in-Transit: Under this policy insurance company agrees to indemnify the
losses of cash, postal orders, bank drafts, cheques, money orders stamps and bills of exchange of
the insured while in transit.

Legal Opinion: Legal Opinion about the case is obtained by the company. If necessary, it may
file compromise petition if there is negligence on the part of the driver or he is convicted on some
charges.

Inspection of Claim: After the receipt of claim form, there is an inspection of the claim through
surveyors or investigators to find out the truth in the cases. The causes of accident or loss, loss to
be indemnified by the company, ultimate liability of the insurer are determined by the
investigators.

Settlement of Claim: On the basis of report submitted by the surveyor or investigator the extent
of its liability and the loss is indemnified. After getting a satisfaction report about repair from the
insured, the company makes payment to the repairer.

Workers compensation Insurance

An employer is required to pay compensation to his workers who receive injuries or contract
occupational diseases during the course of their work. An employer may obtain an insurance policy
to cover such liability. The premiums are payable usually on the basis of wages. It is also known
as ‘Employers Liability Insurance’. This policy is essential to every employer who employs
‘workmen’ as defined under the Workmen’s Compensation Act in order to protect himself against
the legal liabilities arising out of death or bodily injury to this workman. It also extends coverage
through reimbursement of medical, surgical and hospitalization expenses including transportation
costs on the payment of additional premium.

Liability insurance
Liability insurance provides coverage for bodily injury or property damage arising out of the
insured’s ownership, maintenance, or use of the insured himself. There are different types of
liability insurance classifies depends on the nature of the business nature such as product liability
provides coverage any loss of third party or purchaser of the product due to the inherent risk of the
product. Professional liability insurance product can be covered any loss arises due the
professional negligence. Public liability insurance coverage to any public damage or injury arises
due the insured own property defect.
Bond insurance
Surety policy (bond insurance): insurance Bond is not an indemnity insurance it is contact of
guarantee. A main object of contract of guarantee is to enable a person to obtain an employment,

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or a loan, or some goods or services on credit. Contract of guarantee is to perform the promise, or
discharge the liability, of third person in case of default. Bond insurances are mainly given to cover
frailer of contractual agreement made between two or more parties. In surety there are three parties
the ‘surety or guarantor’ is the insurer and the ‘creditor’ is the contractor to whom the guarantee
is given and the ‘principal debtor’ is the principal who will be entitled to be compensated in case
of the default of the performance of the project.

Green House/Horticulture insurance

It is a policy to be issued for a structure made of steel or wooden poles designed and constructed
so as to clad in polyvinyl chloride(PVC) sheeting wherein flowers are grown and produced for
commercial purpose.
The policy provides cover for parts of Green House

 Green House structures

 Plastic cladding on Green House structure
 Crop(flowers) in green houses
 Machinery breakdown (pre-cooler &cold room)
 Deterioration of Horticultural produce in cold storage
 Irrigation equipment

Personal accident insurance

Personal accident insurance covers the insured against any bodily injury caused by violent,
accidental external and visible means which injury shall independently of any other cause be the
direct and immediate cause of death or disablement of the insured. The cover can be extended by
endorsement to cover medical expenses for illness.

Money Insurance
Money insurance covers loss of money being stolen either from the business premises, or while it
is being carried to or from the bank.
The money policy provides cover in the following circumstances

 From premises to bank

 From bank to premise
 Cash in safe

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 Reference
 Fundamentals of Risk and Insurance, Emmett J. Vaughan & Therese Vaughan, 10th
Edition, Wiley, 2007.

 Principles of Risk management and insurance, George E. Rejda Michael J. McNamara

12th Edition

 Mishra K.C and Guria, R.C(2009), practical approach to General insurance underwriting,
Cengage learning, Delhi

 Gupta P.K., (2005), Insurance and risk management, Himalaya publisher, New Delhi

 Ethio life and General Insurance S.C

 Research on Ethiopian Insurance sector and its Contribution to Economic Growth by:
Kahase G/Michael Atsebaha January,2018

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