NMEC – I B.

Com CA – Semester – II – 2018

BASICS OF BUSINESS INSURANCE
 Basics of Business Insurance
Syllabus

Unit – I
Introduction to Insurance – Types of Insurance – Principles of Insurance

Unit – II
Salient Features of IRDA – Administration of IRDA Act – Regulatory Measures
of IRDA

Unit – III
Life Insurance Products – Term, Whole Life, Endowment

Unit – IV
Introduction to General Insurance – Fire, Marine and Motor Insurance

Unit – V
Government and Insurance Companies – LIC India – Private Players in
Insurance in India

UNIT – I
 INTRODUCTION TO INSURANCE

What is Insurance?
 Insurance is a means of protection from financial loss.
  It is a form of risk management primarily used to avoid the risk of a
contingent, uncertain loss.
 It is a “Little Price - For a Priceless Security.”

Definitions of Insurance
 “Insurance is a co-operative device to spread the loss caused by a
particular risk over a number of persons, who are exposed to it and who
agree to insure themselves against the risk” - D.S. Hamsell
 “A contract under which one party (that is insurer) accepts significant
insurance risk from another party (the policyholder) by agreeing to
compensate the policyholder if a specified, uncertain future event
(insured event) adversely affects the policyholder”. - International
Financial Reporting Standards for Insurance (IFRS - 4) in March
2004

Thus, the insurance is

A. A cooperative device to spread the risk
B. The system to spread the risk over a number of persons who are insured
against the risk;
C. The principle to share the loss of the each member of the society on the
basis of probability of loss to their risk; and
D. The method to provide security against losses to the insured

Insurance may be defined as form of contract between two parties (namely

insurer and insured or assured) whereby one party (insurer) undertakes in
exchange for a fixed amount of money (premium) to pay the other party
(Insured), a fixed amount of money on the happening of certain event (death or
attaining a certain age in case of life) or to pay the amount of actual loss when
it takes place through the risk insured (in case of property)

Terminology used in Definition of Insurance

1. Insurer or insurance company 
 The agency involved in Insurance business is known as insurer
2. Insured/ Assured 
 The person who gets his property/life insured is known as insured
3. Policy
 The agreement or contract which is put in writing is known as a Policy
4. Premium
 The consideration in return of which the insurer undertakes to make
goods the loss or give a certain amount in case of life insurance is known
as premium

Nature of Insurance
Following are the main characteristics of insurance which are applicable to all
types of insurance (life, fire, marine and general insurance).
1. Sharing of Risks - Insurance is a device to share the financial losses which
may occur to individual or his family on the happening of certain events
2. Co operative Device – Insurance is a co-operative device to spread the loss
caused by a particular risk over a large caused by a particular risk over a
large number of persons who are exposed to it and who agree to insure
themselves against the risk.
3. Value of Risk – Risk is evaluated at the time of insurance. There are
several methods of valuing the risk. Higher the risks, higher will be
premium
4. Payment on Contingency -If the contingency occurs, payment is made;
payment is made only for insured contingency. If there is no contingency,
no payment is made. In life insurance contract, payment is certain because
the death or the expiry of term will certainly occur. In other insurance
contract like fire, marine, the contingency may or may not occur

5. Amount of Payment of Claim - The amount of payment depends upon the

value of loss occurred due to the particular insured risk. The insurance is
 there up to that amount. In life insurance insurer pay a fixed sum on the
happening of an event or within a specified time period.
 Example – In fire insurance, if fire occurs and half the property is
destroyed, but the whole property is insured, then payment of claim
will be made only for that half building that is destroyed not the whole
amount of insured.
6. Insurance is different from Charity  - In charity, there is no consideration
but insurance is not given without premium
7. Large number of Insured Person - Insurance is spreading of loss over a
large number of persons. Larger the number of persons, lower the cost of
insurance and amount of premium and incase lower the number of
persons, higher the cost of insurance and amount of premium.
8. Insurance is different from Gambling - In gambling, there is no guarantee
of gain, by bidding the person expose himself to risk of losing. Whereas in
insurance, by getting insured his life and property, he protect himself
against the risk of loss.
 Functions of Insurance

Functions of insurance can be divided into parts;

A. Primary Functions
B. Secondary Functions

A) Primary Functions
1.   Certainty of compensation of loss: Insurance provides certainty of
payment at the uncertainty of loss. The elements of uncertainty are reduced by
better planning and administration. The insurer charges premium for providing
certainty.
2.   Insurance provides protection: The main function of insurance is to
provide protection against risk of loss. The insurance policy covers the risk of
loss. The insured person is indemnified for the actual loss suffered by him.
Insurance thus provide financial protection to the insured. Life insurance
policies may also be used as collateral security for raising loans.
3.   Risk sharing: All business concerns face the problem of risk. Risk and
insurance are interlinked with each other. Insurance, as a device is the
outcome of the existence of various risks in our day to day life. It does not
eliminate risks but it reduces the financial loss caused by risks. Insurance
spreads the whole loss over the large number of persons who are exposed by a
particular risk.
B) Secondary Functions
1.   Prevention of losses: The insurance companies help in prevention of
losses as they join hands with those institutions which are engaged in loss
prevention measures. The reduction in losses means that the insurance
companies would be required to pay lesser compensations to the assured and
manage to accumulate more savings, which in turn, will assist in reducing the
premiums
2.   Providing funds for investment: Insurance provides capital for society.
Accumulated funds through savings in the form of insurance premium are
invested in economic development plans or productivity projects.
3.   Insurance increases efficiency: The insurance eliminates the worries and
miseries of losses. A person can devote his time to other important matters for
better achievement of goals. Businessman feel more motivated and encouraged
to take risks to enhance their profit earning. This also helps in improving their
efficiencies.
4.   Solution to social problems: Insurance takes care of many social
problems. We have insurance against industrial injuries, road accident, old
age, disability or death etc.
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5.   Encouragement of savings: Insurance not only provides protection
against risks but also a number of other incentives which encourages people to
insure. Since regularity and punctuality payment of premium is a perquisite for
keeping the policy in force, the insured feels compelled to save.


Principles of Insurance

The basic principles which govern the insurance are -

(1)  Utmost Good Faith
Under this insurance contract both the parties should have faith over
each other.

(2)  Insurable Interest

 Under this principle of insurance, the insured must have interest in the
subject matter of the insurance. Absence of insurance makes the
contract null and void. If there is no insurable interest, an insurance
company will not issue a policy.
o For example: The owner of a taxicab has insurable interest in the taxicab
because he is getting income from it. But, if he sells it, he will not have an
insurable interest left in that taxicab
(3)  Indemnity
 Indemnity means security or compensation against loss or damage.
 It states that an insured may not be compensated by the insurance
company in an amount exceeding the insured’s economic loss.

(4)  Contribution
 Principle of Contribution is a corollary of the principle of indemnity.
 According to this principle, the insured can claim the compensation only
to the extent of actual loss either from all insurers or from any one
insurer.
o For example: Mr. John insures his property worth Rs. 100,000 with two insurers
"AIG Ltd." for Rs. 90,000 and "MetLife Ltd." for Rs. 60,000. John's actual
property destroyed is worth Rs. 60,000, then Mr. John can claim the full loss of
Rs. 60,000 either from AIG Ltd. or MetLife Ltd., or he can claim Rs. 36,000 from
AIG Ltd. and Rs. 24,000 from Metlife Ltd.

(5)  Subrogation
 Subrogation means substituting one creditor for another
 According to the principle of subrogation, when the insured is
compensated for the losses due to damage to his insured property, then
the ownership right of such property shifts to the insurer.
o For example, if you get injured in a road accident, due to reckless driving of a
third party, the insurance company will compensate your loss and will also sue
the third party to recover the money paid as claim.

6) Principle of Causa Proxima (Nearest Cause)

 When a loss is caused by more than one causes, the proximate or the
nearest or the closest cause should be taken into consideration to decide
the liability of the insurer.

(7)  Mitigation of Loss

  According to the Principle of Loss Minimization, insured must always try
his level best to minimize the loss of his insured property, in case of
uncertain events like a fire outbreak or blast, etc.

Benefits of Insurance or Role and Importance of Insurance

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Benefit of insurance can be divided into these categories -

1.   Benefits to Individual
2    Benefits to Business or Industry
3.   Benefits to the Society   
It can be explained as under -
1.   Benefits to Individual
(a)  Insurance provides security & safety: Insurance gives a sense of security
to the policy holder. Insurance provide security and safety against the loss of
earning at death or in old age, against the loss at fire, against the loss at
damage, destruction of property, goods, furniture etc.
Life insurance provides protection to the dependents in case of death of
policyholders and to the policyholder in old age. Fire insurance insured the
property against loss on a fire. Similarly other insurance provide security
against the loss by indemnifying to the extent of actual loss.
(b) Encourage Savings: Life insurance is best form of saving. The insured
person must regularly save out of his current income an amount equal to the
premium to be paid otherwise his policy get lapsed if premium is not paid on
time.
(c)  Providing Investment Opportunity: Life insurance provides different
policies in which individual can invest smoothly and with security; like
endowment policies, deferred annuities etc. There is special exemption in the
Income Tax, Wealth Tax etc. regarding this type of investment
2    Benefits to Business or Industry
(a)  Shifting of Risk: Insurance is a social device whereby businessmen shift
specific risks to the insurance company. This helps the businessmen to
concentrate more on important business issues.
(b) Assuring Expected Profits: An insured businessman or policyholder can
enjoy normal expected profits as he would not be required to make provisions
or allocate funds for meeting future contingencies.
(c)  Improve Credit Standing: Insured assets are easily accepted as security
for loans by the banks and financial institutions so insurance improve credit
standing of the business firm
(d) Business Continuation – With the help of property insurance, the property
of business is protected against disasters and chance of closure of business is
reduced
3.   Benefits to the Society
(a)  Capital Formation: As institutional investors, insurance companies
provide funds for financing economic development. They mobilize the saving of
the people and invest these saving into more productive channels
(b) Generating Employment Opportunities: With the growth of the insurance
business, the insurance companies are creating more and more employment
opportunities.
(c)  Promoting Social Welfare: Policies like old age pension scheme, policies
for education, marriage provide sense of security to the policyholders and thus
ensure social welfare.
(d) Helps Controlling Inflation: The insurance reduces the inflationary
pressure in two ways, first, by extracting money in supply to the amount of
premium collected and secondly, by providing funds for production narrow
down the inflationary gap.

Types of Insurance

1. Life Insurance or Personal Insurance

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  A life insurance policy is a contract with an insurance company. In
exchange for premium payments, the insurance company provides a
lump-sum payment, known as a death benefit, to beneficiaries upon the
insured's death.

2. Property Insurance
 Property insurance provides protection against most risks to property,
such as fire, theft and some weather damage.

3. Marine Insurance
 Marine insurance covers the loss or damage of ships, cargo, terminals,
and any transport or cargo by which the property is transferred,
acquired, or held between the points of origin and the final destination.

4. Fire Insurance
 Fire insurance is property insurance covering damage and losses caused
by fire.

5. Liability Insurance
 Liability insurance is any insurance policy that protects an individual or
business from the risk that they may be sued and held legally liable for
something such as malpractice, injury or negligence. 

6. Social Insurance
 A system of compulsory contribution to enable the provision of state
assistance in sickness, unemployment, etc.
 Unit – II
Insurance Regulatory and Development Authority (IRDA)
Salient Features of IRDA (Insurance Regulatory and
Development Authority)
  The Insurance Regulatory and Development Authority (IRDA) is a
Statutory, autonomous and apex body to regulate the insurance sector
in India.
 It was created upon the recommendations by the Malhotra Committee
report of 1994.
 IRDA was setup in 2000 as an autonomous body with its headquarters
at New Delhi.
 The members and the Chairman of IRDA are appointed by the
Government of India.

Mission of Insurance Regulatory and Development Authority

(IRDA)
The IRDA has a mandate to fulfill the following:
1. To protect the interests of policyholders and ensure fair treatment to
them.
2. To facilitate speedy and orderly growth of the insurance industry sector
in Indian economy, for the benefit of common man, and to give long-
term funds which will accelerate growth of our economy.
3. To ensure that the customers of insurance receive clear and correct
information about the products as well as the services.

Administration of IRDA Act / Organizational setup of IRDA

The Insurance Regulatory and Development Authority (IRDA) is a ten member
team, appointed by the Government of India, consisting of the following:
 1. One Chairman 
2. Five whole-time members
3. Four part-time members
 In case if any member resign or die, the authority will still continue to
work
 A common seal with power to enter into a contract by affixing a stamp on
the documents

 Sue or be sued means the Authority can file a case against any person or
organization and vice versa.

Regulatory Measures of IRDA / Duties, Powers & Functions of

Authority
Duties
 The duty of the authority is to control, promote and safeguard orderly
growth of the insurance industry and reinsurance business subject to
the provisions of any other provisions of the act.

Powers & Functions to

A. To protect the interest of the policy holders related to surrender value of
policy, settlement of insurance claims, insurable interest, nomination by
policy holders, other terms & conditions of insurance contract.
B. In case of General Insurance, who assess the loss of policy holder should
be stated the code of conduct.
C. Promoting proficiency in the conduct of insurance business;
D. Promoting and regulating professional organizations connected with the
insurance and re-insurance business;
E. Calling for information from, undertaking inspection of, conducting
inquiries  including audit of the insurers, intermediaries, insurance
intermediaries and other organizations connected with the Insurance
business;
F. Stating the form and manner in which books of account shall be kept
and statement of accounts shall be rendered by insurers and other
insurance intermediaries;
G. Regulating investment of funds by insurance companies;
H. Regulating maintenance of margin of solvency i.e., having sufficient
funds to pay insurance claim amount;
I. To settle the disputes between insurers and intermediaries or insurance
intermediaries
J. Stating the percentage of life insurance business and general insurance
business to be accepted by the insurer in the rural or social sector; and
K. Exercising such other powers as may be prescribed.

Unit – III
LIFE INSURANCE
 Unit – III
LIFE INSURANCE

What is life insurance?

  A life insurance policy is a contract with an insurance company.
 In exchange for premium payments, the insurance company provides a
lump-sum payment, known as a death benefit, to beneficiaries upon the
insured's death.

Advantages of Life Insurance

1. Economic protection against the loss of life. The emotional loss caused to
the family of the insured cannot be measured in terms of money. However, the
financial responsibility of the insured towards his family members is to an
extent shared by the Life insurers. On the death of the insured, the family will
have some money to continue having a comfortable life. The life insurance
policy provides an option to choose the nominee.
2. A form of investment or saving. Many people buy life insurance as part of
their investments. Most insurance policies guarantees a fixed sum of money
payable either on the death of the insured or at the expire of the pre-
determined tenure. Hence, many people keep aside a part of their savings for
the payment of Life insurance premium in the form of investment.
3. Life insurance is simple to understand in terms of premium and the
maturity of the compensation. The investment amount, policy term, and the
maturity amount are clearly mentioned on the policy document.
4. Some Life insurance policies are flexible. The give the insured an option
to change the policy amount with the change in his needs. When the insurance
needs of the insured changes, they can talk to the insurer so that they can
adjust their insurance plan. However, it should be kept in mind that not all
insurance policies are flexible enough to satisfy the ever-changing need of the
policy holder. Hence, the policy buyer should read all the term and conditions
of the policy at the time of first purchase.
5. Loan against Life Insurance Policies (LAIP) is a newest form of financial
revolution. Many financial institutions offer loan against the surrender value of
the insurance policy. This a safe and quick way to generate cash.
6. The insured pays the premium depending on the sum
insured. Depending on the age of the insured, they can select the amount they
want to pay per month that won’t be a burden to them.
7. Enable the insured to be able to select their beneficiary. When buying a
policy, one has to choose who the beneficiary of the insurance policy will be. In
this way, they make sure that the material needs of their loves ones would
always be met.
8. Reduces the financial implication of death. Life insurance reduces the
financial burden that comes with the death of the breadwinner.
9. There is a range of policies to choose from. Life insurance has a range of
policies to choose from. In some policies, one is compensated when a certain
period of time elapses.
10. Tax saving weapon. In most countries, the final amount that you get from
the insurer is not taxable. In India, the amounts of Life insurance policy
premiums are allowed as deduction under section 80C of the Income Tax Act,
1961. The maturity proceeds are also exempted from Income Tax. Hence,
investment in a life insurance policy is an amazing tax saving weapon.

Disadvantages of Life Insurance

1. Insurance policies are expensive. Life insurance means that you have to

contribute your premium until you die or a fixed tenure that is very long. This
will be expensive for the insured. The part of the life insurance premium paid
towards risk coverage is an expense. However, the quanta of financial risk
mitigated by these policies are much more than these expenses. Hence, people
treat life insurance premiums as mandatory expense.

2. Some insurance companies may refuse to pay the sum insured. Some

insurers will use dirty tricks to evade the pay the sum insured even after
maturity of the policy. For this reason, it is important that you read all the
clauses of the life policy at the time of entering into the contract. Further, you
can consult your financial advisor before buying a policy.

3. People buying the insurance they don’t need. Some people may buy the
insurance policy when they don’t need one. Paying for a policy that do not meet
the need of the paying person is a waste of money.

4. Some people give falsified information. Some people give false

information to the insurance company e.g., age leading to the insurer making
losses.

5. The beneficiary may decide to waste the amount they receive. The

beneficiary may not use the funds as it was intended leading to wastage of the
sum insured.

6. Many life insurance policies keep on changing. In such policies, the

premium amount is low during the initial years. However, the premium
amount does not remain constant. They keep changing with time. You may be
required to pay more premiums as you grow older than when you were young.

7. Having it doesn’t necessarily mean better quality of life. Life insurance

may mean poor quality of life to be able to pay the premium. The deduction
may be too many.

8. There are so many complex insurance policies. The insurance policies are

complex that one may not be able to understand. There are ‘good’ and there are
‘not so good’ insurance companies. Similarly, there are some ‘not so simple’
insurance policies that is beyond the understanding capability of a common
man. Hence, it can be a very daunting task to choose the right life policy.

9. The investment is not highly paying. Life insurance is primarily an

instrument to cover risk. The investment function is of secondary nature.
Unlike other types of investment that have high returns, life insurance does not
give high returns. Hence, people seeking high return on their investment may
not find it attractive for investment.

Life Insurance Products / Types of Life Insurance / What are

the various types of life insurance?

There are certain basic forms of life insurance. The different types of life
insurance policies include:
Sr Type of Features
No. Insurance
 Policy
Term insurance is a life insurance product offered by
Term Life an insurance company which offers financial
1
Insurance coverage to the policy holder for a specific time
period.
The policyholder pays regular premiums until his
Whole Life
2 death, upon which the corpus is paid out to the
Policy
family.
Endowment Endowment plans pay out the sum assured under
3
Plans both scenarios - death and survival
ULIP is a life insurance product, which provides risk
Unit Linked cover for the policy holder along with investment
4 Insurance
options to invest in any number of qualified
Plans
investments.
Money back plan is a life insurance product as well
Money Back as an investment plan which provides life insurance
5
Policy cover against death of the policy holder along with
periodic returns as a percentage of sum assured.

There are two basic types of life insurance policies viz. Traditional Whole Life
and Term Life Insurance. A whole life is a policy you pay till death of the policy
holder and term life is a policy for a fixed amount of time.
The basic types of life insurance policies are:
Term insurance
 Term plans are the most basic form of life insurance. They provide life
cover with no savings / profits component. They are the most affordable
form of life insurance as premiums are cheaper compared to other life
insurance plans.
 Online term insurance plans provide pure risk cover, which explains the
lower premiums. A fixed sum of money - the sum assured – is paid to the
beneficiaries if the policyholder expires over the policy term. If the
policyholder survives, there is no pay out.

Endowment Plans
  Endowment plans differ from term plans in one critical aspect i.e.
maturity benefit. Unlike term plans which pay out the sum assured,
along with profits, only in case of an eventuality over the policy term,
endowment planspay out the sum assured under both scenarios – death
and survival. However, endowment plans charge higher fees / expenses –
reflected in premiums – for paying out sum assured, along with profits,
in either scenario – death or maturity. The profits are an outcome of
premiums being invested in asset markets – equities and debt.

Unit Linked Insurance Plans (ULIP)

 ULIPs are a variant of the traditional endowment plan.They pay out the
sum assured (or the investment portfolio if its higher) on death/maturity.
 ULIPs differ from traditional endowment plans in certain areas. As the
name suggests, performance of ULIP is linked to markets. Individuals
can choose the allocation for investments in stock/debt markets. The
value of the investment portfolio is captured by the NAV (net asset value).
To that end, there are many similarities between ULIPs and mutual
funds. ULIPs differ in one area, they are a combination of investment and
insurance, while mutual funds are a pure investment avenue

Whole Life Policy

 A whole life insurance policy covers a policyholder over his life. The main
feature of a whole life policy is that the validity of the policy is not defined
so the individual enjoys the life cover throughout his life. The
policyholder pays regular premiums until his death, upon which the
corpus is paid out to the family. The policy expiresonly in case of an
eventuality as there is no pre-defined policy tenure.

Money Back Policy

 A money back policy is a variant of the endowment plan. It gives periodic
payments over the policy term. To that end, a portion of the sum assured
is paid out at regular intervals. If the policy holder survives the term, he
gets the balance sum assured. In case of death over the policy term, the
beneficiary gets the full sum assured.

Unit – IV
GENERAL INSURANCE
 Unit – IV
GENERAL INSURANCE

What is General Insurance?

  Insuring anything other than human life is called general insurance.
 General insurance is defined as any insurance that is not determined to
be life insurance.
 General insurance or non-life insurance policies, including automobile
and homeowners policies, provide payments depending on the loss from
a particular financial event.

Fire Insurance
1. Definition
  Fire Insurance is a contract whereby one (the insurer) promises, for a
consideration (the premium) to indemnify another, (the Assured) for
direct loss or damage of the latter’s property by fire or lightning.

2. Policy Term
 Refers to the period of insurance, that is, the time limit within which a
policy will remain in force. Fire policies are usually written for a period of
twelve (12) months or one year and are therefore issued on an annual
basis.

Who may be insured?

a) Absolute or Registered Owner of Property
b) Part Owner or Joint Owner of Property
c) Mortgagor or Mortgagee
d) Lessor or Lessee
e) Bailee – to whom property has been entrusted

What may be insured?

a) Building (completed or under construction)
b) Contents
c) Stocks in trade, goods or merchandise
d) Machinery, equipment, spare parts, accessories and tools.
e) Business or household appliances, utensils, furniture, fixtures and
fittings.
f) Personal effects and belongings (money and jewelry excluded).
g) Other materials, property, such as postage stamps, books, motor
vehicles and others.

Perils Covered by Fire Insurance Policy

The following perils are covered in a Standard Fire Policy:
 a) Fire (subject to certain exclusions)
b) Lightning, whether fire ensues or not

The following forms of damage are likewise covered:

A. Damage during or immediately following a fire caused by:
B. Smoke or Scorching
C. Falling walls and the like
D. Damage caused by fire brigade or other competent authority in the
discharge of their duty
E. Damage to property removed from a burning building in an effort to save
such property.

Special Perils Insurance (Extended Cover)

1. Earthquake
2. Typhoon and Flood
3. Riot and Strike
4. Loss or damage caused directly by impact of land vehicle or falling object.
5. Bursting or overflow of water tanks, apparatus or pipes.

Marine Insurance
Definition
 Marine Insurance is an insurance against risks connected with
navigation in which a ship, cargo, freightage, profit or other insurable
interest in movable property may be exposed during a certain voyage or a
fixed period of time.

Classes of Marine Insurance

Marine Insurance is classified according to the subject matter insured, as
follows:

a) Cargo Insurance – this refers to insurance on goods or movables. According

to the Rules of Construction of Policy, the term goods mean goods in the nature
of merchandise, and do not include personal effects or provision and stores for
use on board.

b) Hull Insurance – this refers to insurance on ship, i.e., hull and machinery
and specially covers loss of or damage to hull or machinery directly caused by
accidents in loading, discharging or shifting cargo or fuel; explosions on
shipboard or elsewhere; breakdown of or accident to nuclear installations or
reaction on shipboard or elsewhere bursting of boilers, breakage of shafts or
any latent defect in the machinery or hull; contact with an aircraft; negligence
of master, officers, crew or pilots provided such loss or damage has not
resulted from want of due diligence by the assured, owners or managers.

c) Freight Insurance – as the name suggests, this refers to insurance on

freight. The rules for construction of policy defines freight as including the
profit derivable by ship owner from the employment of his ship to carry his own
goods or movables, as well as freight payable by a third party, but does not
include passage money. A freight insurance policy covers a sum not exceeding
15% of the value of hull and machinery. Loss of freight is recoverable if directly
caused by the perils mentioned above. In the event of a total loss of the insured
vessel, the sum insured shall be paid in full.

Some of the Perils Insured Against

The plain form of marine policy enumerates the perils insured against, as
follows:

a) Fire – hardly needs definition. Damage due to fire, lightning, smoke,

scorching, damage done by water or by chemicals used in extinguishing fire,
are compensable.

b) Collision – loss or damage caused by the impact of vessel with another or

any stationary object (including ice).

c) Stranding – when in consequence of some accidental or unusual

occurrence, she comes in contact with the ground or other obstruction, and
remains hard fast upon it. It may be on the rocks, on piles which have been
driven into the harbour bed, and so forth.

d) Grounding – this is almost similar to stranding. This is a situation where

ship or vessel cannot move as it has struck bottom. Vessel, however, has not
sunk.

e) Sinking – this is a situation where ship or vessel goes underneath the

surface of the water. In respect of sinking, it must generally be of such a
nature that the vessel is completely covered with water. If the vessel could still
be further immersed, there is no sinking.

MOTOR INSURANCE
Motor Vehicle (Auto) Insurance, defined as “any kind of insurance
pertaining to the ownership, maintenance or use of motor vehicle”.

Major Divisions of Auto Insurance Coverage

1. Physical or Material Damage Coverage
This is the insurance that protects the insured from loss or damage to the car
itself. Examples of covered losses are as follows:
A. Collision or overturning
B. Fire, lightning, self-ignition
C. External explosion
D. Burglary, theft
E. Malicious act, other than by the insured
F. Whilst being transported by road, rail, inland transit, lift or elevator.
2. Casualty Coverage
Refers to the liability and personal accident coverage afforded under the motor
car policy; consists of the following sub-groupings:
A. Bodily Injury Liability
B. Property Damage Liability the insured shall become legally obligated to
pay for injury and/or damage to property belonging to others caused by
accident, arising from the use, ownership and maintenance of the
insured vehicle, subject to policy limits.
C. Personal Accident – this covers death or injuries to occupants of the
vehicle resulting from accident whilst boarding, riding or alighting from
the insured vehicle, regardless of liability.
Motor Vehicle Policy Forms in Use
1. Private Car Policy Form - for private use cars
2. Commercial Vehicle Form - for vehicles used for carriage of own goods and
for domestic and social purposes
3. Motor Trade Policy - this is the policy for motor car dealers for vehicles
whilst on display and on demonstration
4. Motor Cycle Policy - for motorcycles and tricycles
5. Land Transportation Operators Policy - for vehicles used for carriage of
passenger and cargo for hire or reward.

Unit – V
 GOVERNMENT AND INSURANCE COMPANIES
India’s Insurance History
 Insurance in India in its current form has its history dating back until
1818, when Oriental Life Insurance Company was to cater to the needs
of European community. In 1870, Bombay Mutual Life Assurance
Society became the first Indian insurer.
 In the year 1912, the Life Insurance Companies Act and the Provident
Fund Act were passed to regulate the insurance business.
 The Life Insurance Companies Act, 1912 made it necessary that the
premium-rate tables and periodical valuations of companies should be
certified by an actuary.
 The oldest existing insurance company in India is the National Insurance
Company Ltd., which was founded in 1906. It is in business.

India’s Insurance Nationalization – Formation of LIC and GIC

 The Government of India issued an Ordinance on 19th January, 1956
nationalizing the Life Insurance sector and Life Insurance Corporation
came into existence in the same year.
 The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian
insurers as also 75 provident societies—245 Indian and foreign insurers
in all.
 In 1972 with the General Insurance Business (Nationalization) Act was
passed by the Indian Parliament, and consequently, General Insurance
business was nationalized with effect from 1st January, 1973.
 107 insurers were amalgamated and grouped into four companies,
namely National Insurance Company Ltd., the New India Assurance
Company Ltd., the Oriental Insurance Company Ltd and the United India
Insurance Company Ltd.
LIC and GIC Subsidiaries – Breaking of the Monopoly
  The LIC had monopoly till the late 90s when the Insurance sector was
reopened to the private sector.
 Now more than 20 life insurance companies in India have started
operations with the industry size expected to reach a mammoth $350-
400 billion by 2020.
 Before that, the industry consisted of only two state insurers: Life
Insurance Corporation of India, LIC and General Insurers (General
Insurance Corporation of India, GIC). GIC has four subsidiaries
1. National Insurance Company Limited
2. Oriental Insurance Company Limited
3. New India Assurance Company Limited,
4. United India Insurance Company Limited.

Government Life Insurance Companies

Life Insurance Corporation of India

 Life Insurance Corporation of India (LIC) is a Government of India

enterprise, and is the largest life insurance company and also the largest
investor of the country.

 LIC had been established in 1956, after the Life Insurance Corporation
Act had been passed by the Parliament of India in the same year.

 It also provides savings features along with various insurance policies.

 LIC continues to be the dominant life insurer even in the liberalized

scenario of Indian insurance and is moving fast on a new growth
trajectory surpassing its own past records.

 It had crossed the milestone of issuing 1,01,32,955 new policies by 2005,

posting a healthy growth rate of 16.67%.
 Government General Insurance Companies

General Insurance in India too has seen increasing competition with the
liberalization in the 90s.The growing Indian market has attracted all the top
insurance companies worldwide.Almost 12 private general insurance
companies in India have commenced operations providing tough competition to
the government owned general insurers.

1. United India Insurance Company –  General Insurance operations of

southern region of Life Insurance Corporation of India were merged with
United India Insurance Company Limited in 1972. United India has been
designing and implementing complex covers to large customers, as in
cases of ONGC Ltd , GMR- Hyderabad International Airport Ltd, Mumbai
International Airport Ltd Tirumala-Tirupati Devasthanam etc.
2. The Oriental Insurance Company Ltd– The Company was a wholly
owned subsidiary of the Oriental Government Security Life Assurance
Company Ltd and was formed to carry out General Insurance business. 
In 2003 all shares of our company held by the General Insurance
Corporation of India has been transferred to Central Government.  The
Gross Premium went up to Rs.58 crores in 1973 and grew to Rs. 4078
crores in 2009
3. National Insurance– Consequent to passing of the General Insurance
Business Nationalisation Act in 1972, National became a subsidiary of
General Insurance Corporation of India. It is the second largest non life
insurer in India having a large market presence in Northern and Eastern
India. The products cater to the diverse insurance requirements of its 14
million policyholders.
4. The New India Assurance Co. Ltd. -The company like the other GIC
subsidiaries is a leading insurance group, with offices and branches
throughout India and various countries abroad. There are policies to
 cover all types of vehicles plying on public roads such as Scooters
&Motorcycle, Private cars, all types of commercial vehicles, Motor Trade
(vehicles in show rooms and garages). Liability is covered for an
unlimited amount in respect of death or injury and damage to third party
property for Rs.7.5 lacs under Commercial vehicle and private and Rs. 1
lakh for Scooters / Motor Cycles. This policy covers loss or damage to the
insured vehicle and its accessories due to fire, self-ignition, burglary,
earthquake, flood, inundation, cyclone or while in transit.

The New India Assurance Company Limited

 The company was founded by Sir Dorabji Tata on July 23rd, 1919 and
nationalized in 1973 with merger of Indian companies.
 The Company has 2329 offices and the employee strength is 18783 as on
31.03.2016. The company provides insurance services to the customers
having over 170 products catering to almost all segments of general
insurance business.
 The authorized capital and paid-up equity capital of the company is
Rs.300 crore and Rs.200 crore respectively.

United India Insurance Company Limited

 United India Insurance Company Limited was incorporated in 1938.
 With the nationalization of General Insurance business in India, 12
Indian Insurance Companies, 4 Cooperative Insurance Societies and
Indian operations of 5 Foreign Insurers, besides General Insurance
operations of southern region of Life Insurance Corporation of India were
merged with United India Insurance Company Limited.
 The Company has 2080 offices and employee strength of 16345 as on
31.03.2016.
 The company provides insurance services to the customers catering to
almost all segments of general insurance business.
  The authorized capital and paid-up equity capital of the company is
Rs.200 crore and Rs.150 crore respectively.
The Oriental Insurance Company Limited
 The Oriental Insurance Company Ltd was incorporated in the year 1947.
In 2003 all shares of the company held by the General Insurance
Corporation of India were transferred to the Government of India.
 The Company has 1924 offices in the country and has employee strength
of 13923 as on 31.03.2016.
 The company provides insurance services to the customers catering to
almost all segments of general insurance business.
 The authorized capital and paid-up equity capital of the company is
Rs.200 crore.

National Insurance Company Limited

 The Company was incorporated in the year 1906.
 After nationalization it was merged, along with 21 foreign and 11 Indian
companies, to form National Insurance Company Ltd.
 The Company has 1998 offices all over India and employee strength of
15079 as on 31.03.2016.
 The company provides insurance services to the customers catering to
almost all segments of general insurance business.
 The authorized capital and paid-up equity capital of the company is
Rs.200 crore and Rs.100 crore respectively.

Agriculture Insurance Company Of India Limited

 'Agriculture Insurance Company Of India Limited’ (AIC) was incorporated
to exclusively cater to the insurance needs of the persons engaged in
agriculture and allied activities in India under the Companies Act, 1956
on 20th December 2002.
  General Insurance Corporation of India (GIC), NABARD and four public
sector general insurance companies have contributed towards the share
capital of the Company.
 The Authorized Share Capital of the Company is Rs. 1500 crore with
initial Paid-up Equity Share Capital of the Company of Rs. 200 crore.

The Company having received approval from Insurance Regulatory &

Development Authority (IRDA) commenced its business operations w. e. f. 1st
April, 2003. The total number of employees as on 31st March, 2015 is 274 all
over the country. It has its Head Office in New Delhi, 17 Regional Offices in
various State Capitals and 3 one man offices at District levels.

Private Sector Life Insurance Companies

1. Aegon Life Insurance Company
2. Aviva India
3. Bajaj Allianz Life Insurance
4. Birla Sun Life Insurance Company Limited
5. Exide Life Insurance
6. HDFC Standard Life Insurance
7. ICICI Prudential Life Insurance
8. IDBI Federal Life Insurance
9. IndiaFirst Life Insurance Company
10. Kotak Life Insurance
11. Max Life Insurance
12. Peerless Group
13. PNB MetLife India Insurance Company
14. Reliance Life Insurance
15. Sahara India Pariwar
16. SBI Life Insurance Company
17. TATA AIG
 Private Non-Life Insurance Companies
1. Apollo Munich Health Insurance
2. Cholamandalam MS General Insurance
3. Bajaj Allianz General Insurance
4. Bharti AXA General Insurance
5. Cigna TTK
6. Future Generali India Insurance
7. HDFC ERGO General Insurance Company
8. ICICI Lombard
9. IFFCO Tokio
10. Kotak Mahindra General Insurance
11. Liberty Videocon General Insurance
12. Reliance General Insurance
13. Royal Sundaram General Insurance
14. Star Health and Allied Insurance
15. Tata AIG General
16. Universal Sompo General Insurance Company
17. Cholamandalam MS General Insurance
18. Religare Health Insurance Company Limited