Non-life insurance

Introduction

• The insurance industry of India has 58 insurance companies - 24 are in the life insurance
business, while 34 are non-life insurers. Among the life insurers, Life Insurance
Corporation (LIC) is the sole public sector company.

• There are six public sector insurers in the non-life insurance segment. In addition to these,
there is a sole national re-insurer, namely General Insurance Corporation of India (GIC Re).
Other stakeholders in the Indian Insurance market include agents (individual and
corporate), brokers, surveyors and third-party administrators servicing health insurance
claims.
 Insurance terms

• An insurer: a company selling the insurance

• Insured or policyholder: person or entity buying the insurance policy
• Premium: Amount of money to be charged for a certain amount of insurance coverage
• Risk management: Practice of appraising and controlling risk
• Contract: Insurance policy
• Indemnify: Compensation of financial loss
 Acts

• Insurance Act,1938
• Life Insurance Corporation Act,1956
• General Insurance Business (Nationalization) Act,1972
• IRDAI,1999
• PFRDA Act,2013
 Principles of Insurance

• Utmost good faith

• -Every person who enters into a contract of insurance has a legal obligation to act
with utmost good faith towards the company offering the insurance
• Must provide all Material Facts
• Misrepresentation
• Non-disclosure
 Principles of Insurance

• Insurable interest
• There must exist a financial relationship
• A person has an insurable interest in something when loss or damage to it would cause that
person to suffer a financial loss or certain other kinds of losses
 Principles of Insurance

• Indemnity
• security or protection against a loss or other financial burden
• Applicable only to general insurance
 Types of insurance

• Life Insurance
• Non-Life / General Insurance
• Motor insurance
• Fire insurance
• Health insurance
• Marine insurance
 Types of Life Insurance

• Term Insurance
• Pure Endowment
• Endowment
• Unit Linked Insurance Plan, Money Back, Child policy, Joint Life
• Whole Life
• Annuities or Retirement Plans or Pension Plans
 General Insurance

• Insurance contracts that do not come under the ambit of life insurance are
called general insurance.

• The different forms of general insurance are fire, marine, motor, accident
and other miscellaneous non-life insurance.
 Types of General Insurance

Fire Insurance
• Fire insurance is a contract of insurance against the loss/damage by
accidental fire or other occurrences customarily included under a fire policy.
 Types of Fire Policies

Standard Fire and Allied Perils Policy

• The “Standard Fire and Allied Perils Policy” popularly known as SFSP, covers the
following perils:
• Fire
• Lightning:
• Explosion / Implosion:
• Aircraft Damage:
• Riot, Strike and Malicious Damage(RSMD):
 Types of Fire Policies

• Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation(STFI):

• Impact Damage:
• Subsidence and Landslide including Rockslide
• Bursting and/or overflowing of Water Tanks, Apparatus and Pipes
• Missile Testing Operations:
• Leakage from Automatic Sprinkler Installations
• Bush Fire: It means fire spread from the bushes.
• More covers can be added(Add-on Covers) by endorsement and by paying additional premium under SFSP policy in
addition to the above covers.
 Motor Insurance

As per Section 146 of Motor Vehicles Act 1988 No person can drive a vehicle without proper
insurance, which reads as under:
Necessity for insurance against third party risk. —
• (1) No person shall use, except as a passenger, or cause or allow any other person to use,
a motor vehicle in a public place, unless there is in force in relation to the use of the
vehicle by that person or that other person a policy of insurance complying with the
requirements of this Chapter[1].

• [Provided that in the case of a vehicle carrying, or meant to carry, dangerous or hazardous
goods, there shall also be a policy of insurance under the Public Liability Insurance Act,
1991 (6 of1991).]
 Types of Policies

There are two types of Policies:

• Liability Only Policy: This covers Third Party Liability for bodily injury and/ or death and
Property Damage. Personal Accident Cover for Owner Driver is also included. This policy is
also known as ACT only policy etc.

• Package Policy(Comprehensive): This covers loss or damage to the vehicle insured in

addition to (i)above.

In Indian Market there are number of covers offered by Insurance companies under various
names the basic cover will be either of these two policies, of course, with some add on
covers.
 Comprehensive (Package)car insurance
policy

• In Car insurance, a comprehensive car insurance policy covers damage to

your vehicle caused by certain events. These include (but are not limited to)
fire, theft, vandalism and falling objects.

• This also comes with a deductible you volunteer to pay and which you are
obliged to pay before the insurance company pays the remainder.
 Comprehensive (Package)car insurance
policy

It is advisable to buy the Comprehensive insurance policy for your car because it
covers the insured, vehicle and third party in a single policy. This type of insurance
covers all the risks covered in the Motor Vehicles Act plus loss or damage caused to
the vehicle:
• by fire, explosion, self-ignition or lightning;
• by burglary, housebreaking or theft;
• by riot and strike;
 Comprehensive (Package)car insurance
policy

• by earthquake (fire and shock damage);

• by flood typhoon hurricane storm tempest inundation cyclone hail storm frost;
• by accidental external means;
• by malicious act;
• by terrorist activity;
• whilst in transit by road rail inland-waterway lift elevator or air;
• by landslide rockslide.
 Comprehensive (Package)car insurance
policy

• Personal Accident Cover -Coverage of Rs. 2 lakhs for the individual driver of the
vehicle while travelling, mounting or dismounting from the car. Optional personal
accident covers for co-passengers are also available.

• Third Party Legal Liability -Protection against legal liability due to accidental
damages resulting in the permanent injury or death of a person, and damage
caused to the surrounding property.
 Comprehensive (Package)car insurance
policy
• Subject to the limits of liability as laid down in Motor Vehicles Act 1988 as amended from
time to time, the insurance Company under this section will indemnify the insured in the
event of an accident caused by or arising out of the use of the vehicle against all sums
which the insured shall become legally liable to pay in respect of: -

• death of or bodily injury to any person including occupants carried in the vehicle (provided
such occupants are not carried for hire or reward) but except as far as it is necessary to
meet the requirements of Motor Vehicles Act, the Company shall not be liable where such
death or injury arises out of and during the employment of such person by the insured.

• damage to property other than property belonging to the insured or held in trust or in the
custody or control of the insured.
 Comprehensive (Package)car insurance
policy
Exclusions
The Comprehensive Insurance policy excludes the loss or damage caused due to:
• Normal wear and tear and general ageing of the vehicle
• Depreciation or any consequential loss
• Mechanical/ electrical breakdown
• Loss/ damage due to war, mutiny or nuclear risk
• Damage to/ by a person driving any vehicles or cars without a valid license
• Damage to/ by a person driving the vehicle under the influence of drugs or liquor
• Vehicles including cars being used otherwise than in accordance with limitations to use
• Wear and tear
• Consumables
• Damage to tyres and tubes unless the vehicle is damaged at the same time, in which case the liability of the company shall be
limited to 50% of the cost of replacement
• Driving the vehicle against the limitations as to use.
 INSURED DECLARED VALUE

Each car is insured at a fixed value which is termed as the Insured’s Declared
Value (IDV).

It refers to the maximum claim an insurer will pay if the insured vehicle is
damaged beyond repair or is stolen.
 Health Insurance

• The term ‘Health Insurance’ relates to a type of insurance that essentially

covers your medical expenses.

• A health insurance policy like other policies is a contract between an insurer

and an individual / group in which the insurer agrees to provide specified
health insurance cover at a particular “premium” subject to terms and
conditions specified in the policy.
 Health Insurance

•A Health Insurance Policy would normally cover expenses reasonably and

necessarily incurred under the following heads in respect of each insured person
subject to overall ceiling of sum insured (for all claims during one policy period):
• Room, Boarding expenses
• Nursing expenses
• Fees of surgeon, anesthetist, physician, consultants, specialists
• Anesthesia, blood, oxygen, operation theatre charges, surgical appliances,
medicines, drugs, diagnostic materials, X-ray, Dialysis, chemotherapy, Radio
therapy, cost of pace maker, Artificial limbs, cost or organs and similar expenses.
 Health Insurance
• The Sum Insured offered may be on an individual basis or on floater basis for the family as
a whole.

• In order to become eligible to make a claim under the policy, minimum stay in the Hospital
is necessary for a certain number of hours. Usually this is 24 hours.

• This time limit may not apply for treatment of accidental injuries and for certain specified
treatments. Read the policy provision to understand the details.

• Pre and post hospitalization expenses:

• Expenses incurred during a certain number of days prior to hospitalization and post
hospitalization expenses for a specified period from the date of discharge may be
considered as part of the claim provided the expenses relate to the disease / sickness.
 Health Insurance

• Two modes of settlement of health insurance claims

Cashless Facility:
• Insurance companies have tie-up arrangements with a network of hospitals in the country. If
policyholder takes treatment in any of the network hospitals, there is no need for the insured person to
pay hospital bills.

• The Insurance Company, through its Third-Party Administrator (TPA) will arrange direct payment to the
Hospital. Expenses beyond sub limits prescribed by the policy or items not covered under the policy
have to be settled by the insured direct to the Hospital.

• The insured can take treatment in a non-listed hospital in which case he has to pay the bills first and
then seek reimbursement from Insurance Co.
• There will be no cashless facility applicable here.
 Health Insurance

Reimbursement facility:
• Here the insured intimates the insurer that he is undergoing treatment &
incurs all expenses in the course of medical treatment. After discharge from
hospital he submits the claim form with all necessary documents claiming
reimbursement.
 Marine Insurance

•A contract of marine insurance is an agreement whereby the insurer

undertakes to indemnify the insured, in the manner and to the extent
thereby agreed, against transit losses, losses incidental to transit.

• A contract of marine insurance may by its express terms or by usage of trade

be extended to protect the insured against losses on inland waters or any
land risk which may be incidental to any sea voyage
 Marine Insurance

Features of marine insurance

• Offer & Acceptance: It is a prerequisite to any contract. Similarly, the goods
under marine (transit) insurance will be insured after the offer is accepted by
the insurance company.

• Payment of premium: An owner must ensure that the premium is paid well
in advance so that the risk can be covered.
 Marine Insurance
• Contract of Indemnity: Marine insurance is contract of indemnity and the insurance
company is liable only to the extent of actual loss suffered.

• Utmost good faith: The owner of goods to be transported must disclose all the relevant
information to the insurance company while insuring their goods.

• Insurable Interest: The marine insurance will be valid if the person is having insurable
interest at the time of loss.

• Contribution: If a person insures his goods with two insurance companies, then in case of
marine loss both the insurance companies will pay the loss to the owner proportionately.
 Marine Insurance

• Period of marine Insurance: The period of insurance in the policy is for the normal time taken for a
transit. Generally, the period of open marine insurance will not exceed one year.

• Deliberate Act: If goods are damaged or loss occurs during transit because of deliberate act of an
owner then that damage or loss will not be covered under the policy.

• Claims: To get the compensation under marine insurance the owner must inform the insurance
company immediately so that the insurance company can take necessary steps to determine the
loss.
 Personal Accident insurance

• Or P.A. insurance is an annual policy which provides compensation in the event of

injuries, disability or death caused solely by violent, accidental, external and visible
events. It is different from life insurance and medical & health insurance.

• This policy is basically designed to offer some sort of compensation to the insured
person who suffers bodily injury solely as a result of an accident which is external,
violent and visible. Hence death or injury due to any illness or disease is not
covered by the policy
 Commercial Insurance
• Commercial insurance encompasses solutions for all sectors of the industry arising
out of business operations.

• Insurance solutions for automotive, aviation, construction, chemicals, foods and

beverages, manufacturing, oil and gas, pharmaceuticals, power, telecom, textiles,
transport and logistics sectors.

• Itcovers small and medium scale enterprises, large corporations as well as

multinational companies. For example, liability insurance, energy insurance,
engineering insurance etc.
 Miscellaneous Non-life Insurance
Products for Retail

• Household Insurance
• Baggage Insurance
• Travel Insurance
• Transit Insurance
• Pet Insurance
 Corporate Products in Non-life
Insurance
• Group health insurance
• Cargo Insurance and hull Insurance
i. Export or Import cargo
ii. Inland cargo
iii. Hull insurance (loss due to fire, explosion, stranding, sinking in sea, overturning,
derailment, collision)
• Industrial Insurance
• Fire Insurance
 Miscellaneous Non-life Insurance
Products for Corporate Customers
• Shopkeepers policy
• Fidelity insurance
• Jeweler’s block insurance
• Liability insurance
• Weather Insurance – For farmers by ICICI Lombard
• Patent Insurance – Generally taken by pharma companies
 Product Planning and Development

• New Product Development

• Customisation
 Pricing of Non life Insurance Products

• Life Insurance v/s Non-life Insurance

 Differences between the Pricing of Life and
Non-life Insurance Products
Basis Life Insurance
Rating Mechanism Deciding on the extent of risks is
simple. The use of age and gender is
more rational and easy to
understand. It varies only for the
group life insurance policies.
Constancy The rates do not change frequently
as morality by and large remains
unchanged. Overhead costs also do
not experience significant changes
from one year to another.
Non-life Insurance
The risk rating process is complicated.
It makes use of several rating systems
for different kinds of exposure to
commercial risks.
Rates experience continuous changes
owing to the kind of operating
environment and also the varying
claim experiences.
 Differences between the Pricing of Life and
Non-life Insurance Products
Basis Life Insurance
Correctness Rating in life insurance is more
accurate. This is due to the relative
constancy in morality,
expenditures and investment
income. Also the adverse events
are certain to occur. Claims are
known in advance to the insurer.
Pricing factors In life insurance, the main factors
for determining the premium rates
are morality, expenses and rate of
interest.
Non-life Insurance
The rates are not as accurate as in life
insurance policies. This is because losses
are circumstantial, which are uncertain.
Only the maximum amount is specified
but not the loss payment amount.
The factors considered when pricing
general insurance products are claims
cost, business acquisition cost,
management expenses, margin for
fluctuations in claims experience and a
reasonable profit.
 Factors affecting the Pricing of Non-life
Products

• Portfolio level factors --- Average claim expenditure, reinsurance costs,

acquisition costs, servicing costs, profit margin and cost of value additions
offered if any to customer.
• Case level factors --- case to case basis
• Other factors – inflation rate, exchange rate, cash flow underwriting,
investment practices followed by insurer and pay out patterns.
 Pricing Objectives

• Adequacy
• Reasonableness
• Fairness
• Consistency and flexibility
 Promotional Mix

• Advertising
• Effectiveness of advertising
• Advertising appeals --- Fear based advertising, Humour-based advertising
 Distribution

• Designing a Distribution system

• Distribution Channels
• Direct mail and Direct sale force
• Insurance agents, brokers and agencies
• Modern Channels of distribution --- Call centres, Tie - ups , Worksite
marketing, Chit fund firms / Trade financing companies, Bancassurance