INSURANCE MANUAL

Version: 1.1

TATA Consultancy Services
2nd Feb 2000

TATA Consultancy Services

Insurance Manual (Version 1.0)

Revision History

Author

Date

Version

Change Details

Shankar B.G. Sanjay Patil Kishan Kumar Sanjay Patil

26 Nov 99

1.0

Initial

2nd Feb 2000

1.1

Added Chapter 2 – Insurance basics

TCS CONFIDENTIAL

Page 2 of 74

TATA Consultancy Services (Version 1.0) Table of Contents

Insurance

Manual

1Introduction......................................................................................... ...........................4 2.Insurance Basics.............................................................................................. .............5
2.1 2.2 2.3 2.4 Need for Insurance............................................................................................. 5 Risk ......................................................................................................... ..........5 Principles of Insurance .................................................................... .................6 Benefits of Insurance................................................................... ......................8

2.5 Business Functions ...................................................................................... ....8

................................................................................................................. ................8

.................................................................................................................. ...............10 3Life cycle of a policy................................................................................ .....................12
3.1 Principles of Life Insurance ................................................ .............................14 3.2 Various types of Life Assurance Policies............................................... ............15

2Policy Servicing................................................................................................ ............19
4.1 4.2 4.3 4.4 New Business............................................................................................ .......19 Endorsements ....................................................................................... ..........26 Reinsurance................................................................................... ..................28 Claims ................................................................................................... ..........29

3Premium Calculation............................................................................... .....................33 4Product Features................................................................................................... .......39 5Agent....................................................................................................................... .....43 6General Insurance................................................................................................ ........45
8.1 8.2 8.3 8.4 8.5 8.6 8.6 8.7 8.8 9.1 9.2 9.3 9.4 Quote..................................................................................................... ..........46 New Business............................................................................................ .......46 Policy Enquiry..................................................................... .............................47 Endorsement..................................................................... ..............................48 Renewal....................................................................................... ....................48 Claims.................................................................................................... ..........49 Premium Accounting.......................................................................... ..............50 General Ledger......................................................................... .......................50 Reinsurance................................................................................... ..................50 Life Insurance....................................................................... ...........................52 Investment, Annuity and Pension................................................................ .....57 General Insurance....................................................................................... .....62 SuperAnnuation.......................................................................... .....................66

7Insurance Dictionary.................................................................................................. ...52

......................................................................................................................... .............66 8 Popular Packages................................................................................. .....................68
10.1 CLOAS............................................................................................. ...............68 10.2 HUON Application............................................................ ..............................70

9 Insurance Products.......................................................................... ...........................72 12 Glossary of Terms...................................................................... ..............................73 APPENDIX...................................................................................................... ...............74
Appendix Appendix Appendix Appendix Appendix Appendix A DFD for New Business ......................................................... ...............75 B DFD for Endorsement.................................................................... ......76 C DFD for Claims Death........................................................................ ..78 D DFD for Claims Maturity.............................................................. ........79 E DFD for Reinsurance ........................................... ...............................81 F DFD for Premium Accounting.............................................................. .82

TCS Confidential

Page 3 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

1 Introduction
Insurance provides financial protection against some of the uncertainties in life. Evidence exists of burial societies as far back as the days of the Roman Empire, where the members contributed to a fund and had their burial costs met by the society. Over a period of time Insurance has grown into an multifaceted industry encompassing all areas of society. The present day Insurance can be broadly classified as Life Insurance, General Insurance and Health Insurance. The scientific basis for conducting life assurance was developed by a mathematics teacher James Dodson, who realized that the premiums paid into the fund rested on the principle of probability, i.e., how likely it was that the person might die. He produced the first mortality table – a table showing the numbers of people who died at each age between the years 1756 and 1759. Using this mortality table, compound interest and probability he calculated a premium for each age which would remain fixed for life and which would yield a guaranteed sum on death. This system became known as the Level Premium System and it has been modified to form the basis of the many life assurance contracts available today. The present day Insurance covers not only risk but is also a medium of savings and pension. Insurance - Normally refers to protection against a loss resulting from an Accident which may or may not happen e.g., Motor insurance Assurance - Refers to protection against the occurrence of something bound to happen, e.g., Life assurance. Life Assurance is a contract which is bound to produce a death benefit, although this is not always the case. Usually, it is a long-term contract for which the premium is fixed and cannot normally be lowered or raised. In comparison, General Insurance contracts are for a term of one year and must be renewed at the end of the term. Short-term contracts are also available for Holiday and Travel. At each renewal the case is reviewed and premiums depend on the Claim history. If there is no claim the insured will get a discount in premium. This Document deals with both Life Insurance and General Insurance. It gives a indepth analysis about the various process in the business of Insurance and also talks about the Insurance Products available in the market.

TCS Confidential

Page 4 of 80

TATA Consultancy Services

Insurance Manual (Version 1.0)

2. Insurance Basics
2.1 Need for Insurance
Insurance exists because people need security. Individuals or organisations constantly run risks like accidents, thefts, loss due to fire, arson, injury at work, business interruption etc. They want to carry on their everyday life and business and at the same time do not wish to be exposed financially to all the risks involved in their endeavors. Insurance gives them the security they need and relief from a great deal of financial hardship. The individual or organisation seeking insurance is referred to as the ‘insured’ and the person or company that insures them as the ‘insurer’. How does the insurer provide this security ? The fable of the pig that died. The insurer because of long experience in dealing with risk, knows that it is not everyone who will suffer loss due to risk occurrence based on Law of Averages. The insurer is able to offer protection by grouping together a large number of people who feel exposed to the same form of risk. The Law of Large Numbers dictates that larger the group of similar exposure units, the closer the actual losses experienced will approach those that can be anticipated. By collecting an amount of money (‘premium’) from each person in the group, the insurer accumulates a fund out of which the losses suffered by the few who become victims can be paid. The premium paid to the insurer will be very small in comparison with the value of the insured subject. Other concepts defining insurance

Spreading risk among many so that a single party will not lose everything

2.2 Risk
     Possibility of an undesirable occurrence Absent minded surgeon We are running a risk by insufficient outlay for fire prevention Uncertainty regarding a particular loss - whether it will occur or not Subject of Insurance The risk to be insured is a petrol station

TCS CONFIDENTIAL

Page 5 of 74

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Risk flow

Fundamental Risks cannot be controlled even partially by any one person. Risks are present in the forces of economy, nature etc. and governments would deal with the consequences of such events. Speculative Risk is present if either beneficial or adverse outcome could stem from a specific event => wagering. If possible harm or damage is the only outcome, the situation is one of Pure Risk. Risk Management : Risk identification, Measurement and Control. Risk characteristics

Not all risks are insurable. To deserve insurance, a risk should have the following characteristics:  It must involve a loss that can be measured in monetary terms. Eg. Obsolescence is not insurable  There must exist a large number of similar risks. However, one-off risks may also be insured, but the premium will be very high and prohibitive. Eg. Space vehicles  Insurance should not aim at profit making. It should be for security. Eg. A shop cannot insure to have guaranteed profits  A loss must be entirely fortuitous or accidental. Eg. Loss should not be pre-mediated  Insurance must not be against public good. Eg. Penalties for traffic rules violation  The person insuring should be the person who will suffer if loss occurs.

2.3 Principles of Insurance

Insurable interest

Person insuring should have insurable interest in the risk being insured. Essentials of insurable interest are:  There must be a property capable of being insured  Such property must be the subject of insurance  Insured should have a legal relation and right to the subject matter  Insured should benefit from subject matter’s survival and suffer from damage or loss to it or incur liability in respect of it. Insurable interest exists between husband & wife but not between parent & child. Employer is deemed to have insurable interest in employees and on their acts of dishonesty.

TCS Confidential

Page 6 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Indemnity

The object of insurance is to place the insured in the same financial position as he was just before the loss. This principle prevents the insured from making a profit out of a loss. Exceptions are PA policies as it is not possible to place a value on life as such and these policies are called “benefit policies”. Methods of indemnification :    

Cash payment Repair Replacement Reinstatement Utmost good faith

Proposer should furnish all material facts concerning the property proposed for insurance. Insured needs to inform the insurer of all changes. Following facts need not be disclosed :  which would diminish the risk of insured peril. Eg. appointment of a watchman  that are presumed to have been known to insurer. Eg. large scale rioting  which could be understood from info already furnished. Eg. Customary process in an industry  which ought to have been enquired but omitted by the insurer.

Subrogation

Right of insurer to receive back from the insured, anything the insured may recover from another source.

Average loss

To prevent insured from under-valuing insured property. In case the insured has purposely understated the value, in the event of loss, the actual loss will not be paid; only a proportion of the actual loss as the insured value bears to total actual value is paid : Loss amount payable = Actual Loss Amount (claimed) x (Sum Insured / Actual value of insured property)

TCS Confidential

Page 7 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

2.4 Benefits of Insurance
 Relieves insured from worry  Stimulates economic growth as business can take bigger risks to gain larger profits  Insurance companies have the expertise to reduce losses and often suggest ways in which the likelihood of some risk occurring may be reduced  Premiums collected become investible funds  Eases burden on governments - reduces payment towards calamities.

2.5 Business Functions

Business Planning

Prepare and review corporate plan Assess market potential Prepare market strategy Prepare and monitor budgets Prepare and monitor business plan Prepare rates scales based on claims experience feed-back from claims dept. Performed by Actuarials

Policy Underwriting

Marine Cargo was the first class to be insured. In Edward Lloyd’s coffee house, details of a particular marine adventure would be documented and circulated. Consenting merchants would write their names underneath, indicating proportion of risk they were willing to cover and the premium. That’s how the word “underwriter” was coined.

Claims Processing

Register claims Validate claims Assess loss Arrange survey / Appoint surveyors (adjusters) - could be third party Analyze claims Settle claims Process salvage Implement loss control measures

Reinsurance
TCS Confidential Page 8 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Insurance of insurance - Insurable interest exists Retrocession Reinsurance of reinsurance

Investments Insurance generates investible funds which need to be invested wisely in various instruments
 

Finance and Accounts

Business Participants Insured Person with insurable interest at the time of arranging cover and at the time of loss occurrence. Exceptions : Marine (only at the time of loss); Life (only at the time of arranging cover).

Insurer Insurance companies or individuals - Proprietary organisations. Lloyds of London is a group of unincorporated proprietary insurers (only individuals) and these members are referred to as “Names”. Mutual Cos. - No stock-holders. Policy-holders get share of profits in the form of reduced premiums.
  

Reinsurer Captive insurer Self insurance - Eg. Rent-a-car Middlemen

Brokers - Experts in insurance. Bring insured and insurer together and are involved in all aspects incl. claim settlement. Enjoy freedom of choice in where to place business Agents - Not experts. Commission is paid to both by the insurer, as a percentage of premiums written through them. This forms part of acquisition costs and is recorded as an expense by the insurer. As a recent development, direct insurers have started marketing personal lines products directly to its customers through tele-insurance. Such insurer however

TCS Confidential

Page 9 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

continue to use brokers for commercial lines and those brokers who offer value added service to personal lines customers. Third parties In some situations third parties (including other insurers) could lodge a claim in respect of a risk covered by the insurance co.
 

Modern classes of business

Bonds : Bonding involves not two but three parties. In a Surety bond the parties are the Principal (insured), Surety (insurer) and the Obligee. The surety guarantees something about the principal’s performance to the obligee. Surety does not guarantee employee honesty. It may guarantee the performance of contracts or other obligations. Eg. Surety to guarantee that a contractor will build a factory properly at a certain price in a certain time period. Fidelity bonds insure against employee dishonesty. The principal is the employee, the obligee is the employer and the surety is the insurance co.

Types of Covers

Life : Pensions & Annuities Annuity is a contract by which the purchaser (annuitant) in return for a lump sum or a series of payments, receives a guaranteed income, often for the rest of his or her life. In short it is the reverse of insurance. In an annuity, the risk for the insurer is that the annuitant will live for longer than expected. Policy Underwriting Process Proposal : Utmost good faith Vs. Caveat Emptor : Bob / Steve - Sale of soupedup car.

Policy Underwriting Process Cancellations Other causes :  Insured  Voluntary cancellation by insured  Cessation of insurable interest  Insurer Bad claim experience - only in case of inclusion of a ‘cancellation clause’ in the agreement which will require due notice of cancellation to insured.  Voidable contracts.

Refunds :  Only if no claims  Refund pro-rata amount or on short term cover basis.

TCS Confidential

Page 10 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Policy contents

 Agreement Gives the outline of coverage offered (Fire - states the perils insured Liability states legal actions for which the insured will be defended).  Exclusions Exclusions are designed to protect the insurer against non provable losses and against catastrophic losses (flooding, war, invasion etc.)  Schedule / Declarations What is covered, Who is insured, Period of policy, Policy limits, premium amount. Declaration states all facts about the parties and the contract.  Conditions Sets out the rights duties and responsibilities of both parties.

Government regulations

Why ? Public funds are being pooled. Protection of public interest is essential. Insurance industry being a major finance force failure of an insurance company can have a negative effect on investment markets and public confidence in financial institutions. Who? What ? All state governments have regulations in place. Each state has an insurance department headed by a Commissioner who is vested with powers to license agents, brokers, adjusters and companies; to control rates and policies; to conduct audits; to specify types of investments and to settle the finances of bankrupt companies. The National Association of Insurance Commissioners is an association of state insurance officials which attempts to provide national guidelines and suggestions. It helps to iron out unnecessary differences in state regulations.

TCS Confidential

Page 11 of 80

TATA Consultancy Services

Insurance Manual (Version 1.0)

3 Life cycle of a policy
The duration from the purchase of a policy to its maturity is called the life of a policy. A policy passes through various stages of growth or change before it finally matures or closed.  Purchase of Policy A life assurance policy can be purchased through  Life Office  Insurance Broker  Independent Insurance Agents  Banks and Building societies  Direct Salesman The new life assurance proposals are usually termed as New Business by the Insurance Company. However, if the proposal is canceled at the very onset or before the start of the premium payment then the policy is termed as Not Taken Up.  Premium Payment After issuing the policy, the policyholder will continue to pay the premiums at regular intervals ( weekly, monthly, Quarterly, Yearly ) until a claim arises. The following are the common modes of payments followed - Conventional i.e. agents collect the premium - Regular payments deducted from Salary - Direct Debit from the bank account - Bank Standing Order Customer Enquiries / Changes The Customers will call the service line or approach life office to enquire about the status of their policies or to make changes to their policy details. These changes include changing the customer address, changing the mode of premium payment etc.  Changes to the Policy Customers might call the life office and ask their policy to be changed to a different type of a policy. This is done depending on what kind of policy the customer originally has. The change could lead to recalculation of premium, Sum Assured etc. 1.

TCS CONFIDENTIAL 74

Page 12 of

TATA Consultancy Services (Version 1.0)

Insurance

Manual

2.

Lapse of the Policy

The Policy will lapse if the customer fails to pay the premium for a specific period of time. If the customer is not able to pay the premium for a reasonable period then the insurer will work out a strategy where it will pay the premium for the customer and finally deduct that amount when the policy matures or close the policy and pay the customer whatever is due at that point. 3. Paid-up Policy

This is another way of converting the policy. In this the reduced sum assured will be paid in the event of a claim. The reduced amount being calculated by multiplying the original sum assured by the number of premiums actually paid and dividing by the total no of premiums that would have been paid over the term of the contract. Appropriate calculations take account of bonus additions on with profits policies and on whole life contracts which do not have a fixed term. No further premium would be payable.  Surrendering the policy This is an option where the customer can decide in the middle of the policy term, to surrender the policy and get whatever amount is due at that point. He could stop paying premiums and cancel the policy by accepting its current value in cash which is called the surrender value. The surrender value is the part of the reserve built up under the policy. It is very low in the early years of a policy but increases steadily as the policy nears maturity.  Cancellation of the policy The customer can cancel the policy at the middle of the term and claim whatever is due to him at that point of time. 1. Death of the Policy Holder If the policy holder dies in the middle of the policy term then the insurer will Pay the beneficiary mentioned in the policy, the sum assured amount and any bonuses that have accrued. 2. Taking a Loan The customer can take a loan from the insurance company, using the policy as security and assigning it to the insurance company. The amount of

TCS Confidential

Page 13 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

loan available is proportion of the current surrender value of the policy. Interest will be payable on the loan outstanding. when a claim arises, will be deducted by the insurance company before the policy proceeds are paid. 3. Maturity of the Policy If the policyholder pays the premium till the end of the specified term, the policy is matured and the proposer receives the sum assured together with any bonuses in the case of with profit policies, or the value of units attaching for unit-linked policies. 4. Payment / Closure of the policy

Once the policy has matured or has been terminated then the insurer will pay the customer the amount of money due to him and close the policy.

3.1 Principles of Life Insurance
 Insurable interest An insurable interest is necessary for the contract to be valid. It means a life or limb, property, potential liability, or financial interest should be involved. The insured should suffer loss due to the occurrence of the insured event. The loss should be pecuniary. Loss should be recognized by law e.g. Father has no insurable interest in the event of death of the son, unless the father can prove that he has a financial dependency on the son.  Indemnity It is the concept of ‘Exact financial compensation’ when a loss occurs. This implies that the insured is placed in the same financial position before and after the event. However, loss due to death of a person is linked to an extent to the income status and potential of the person. Because such a loss cannot be exactly compensated, it is not an indemnity but only a guarantee of a benefit. Hence we use the term ‘assurance’ for life, whereas we use ‘insurance’ for motor and other non-life risks.  Subrogation On payment of claim, the insurer is entitled for any rights the insured might have enjoyed before the claim.  Average Clause

TCS Confidential

Page 14 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

If a property is insured for a value lesser than the current value, the claim will also be settled at a proportionately reduced value. This average clause is not applicable to life Insurance.

3.2 Various types of Life Assurance Policies
Life Assurance policies can be broadly classified into Term, Whole of Life and Endowment Assurance. BOOKMARK  Term assurance In this case the life is assured for a fixed term. The Sum Assured is paid if death occurs within the term. However, on survival of the term no benefit is payable to the insured. Normally premiums will be low compared to other types as there are no benefits on survival. In some contracts, however, premiums may be paid back with little or no interest, on survival. Different variants of term assurance policies are available in the market.  Level term assurance The Life is assured for a fixed term, the premium and sum assured remain the same throughout the period.  Renewable term assurance This is same as Level term assurance, but with an option for the policyholder to renew for another term without any further medical evidence at ordinary rates. The rates for the renewed policy will be high as it will be based on the age at renewal.  Convertible term assurance This is Level term assurance, with an option for the policyholder to convert into an endowment or whole of life policy without further evidence of health.  Decreasing term assurance This is term assurance where the Sum assured decreases every year by a preset amount, decreasing to nil at the end of term. These are usually taken to cover a reducing debt, such as capital outstanding on a house purchase loan.  Expanding term assurance Because of inflation, a level term assurance gives reduced real cover every year. To overcome this the sum assured is increased at a preset rate of the original sum assured every year in this type of policy.

TCS Confidential

Page 15 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

 Index Linked Term assurance To combat the effects of inflation, the sum assured and premium are escalated in proportion to the rate of inflation by linking them to the Retail Price Index (RPI), with a maximum limit on the increase (say 10%).  Family income policies This is term assurance where, instead of a lump sum payment at death, an income is paid to the beneficiary. The intention is to replace the income which the life assured would have provided if he were alive. Family income policies could also be of type expanding or index-linked.  Basics of Investment linked policies Whereas term assurance is only a way of insuring the risk of death, the next two types are effective investment media. Both Whole of life and Endowment polices can be for a guaranteed return only - in which case they are called ‘non-profit’. Or they could be linked to the life office’s investment performance. Two ways to link a policy to the investment performance are - having a ‘with-profits’ policy or having a ‘Unit Linked’ policy.  With profits policy Every year the life office evaluates the assets and liabilities of its life fund, to determine the surplus funds. A major part of this surplus (such as 90%) is allocated to with-profits policyholders as bonus, in the form of an addition to the sum assured. The bonus so declared cannot be subsequently reversed by the life office. There are two distinct stages of bonus namely  Reversionary Bonus which is declared annually and added to the Sum Assured under the policy. It is called reversionary bonus as it is payable only at the time of claim and not at declaration.  Terminal bonus where the bonus is payable only on the policy resulting in a claim. While the reversionary bonus additions every year are on a cautious assessment approach, the terminal bonus can be construed as a reflection of fair return to policyholder at the last opportunity. Premiums for With-profits policies are always higher than those corresponding non-profit contracts, since higher benefits are paid out. for

 Unit Linked Policy The value of the policy is directly linked to units in one or more unitised funds run by the life office. Part of the premium is used to purchase life and disability cover and remaining premium is used to buy units in the fund. Usually the life office operates a variety of funds and the policyholder has options to invest in any of them and also switch periodically. On claim or maturity, the

TCS Confidential

Page 16 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

value of the policy is calculated based on the unit value on that date. The life office usually levies charges for fund management and fund switching. Unlike the With profits policy where the bonus is attached irrevocably, here the profits will vary depending on the Unit value on the date of claim or maturity. Various flavours of whole of life and endowment assurance policies are structured based on their investment linkage.  Whole of Life assurance Benefit is paid on death of the life assured, irrespective of term. Premiums for this type tend to be high as a pay out is a sure event and the cover extends over a long term till death. Whole life policies can be used as security for a loan, either from the life office or other lenders.  Non-profit whole life policies It has a level premium payable throughout life and the sum assured is fixed. No bonus is paid to the policyholder.  With-profit whole life policies Here in addition to the sum assured, whatever profits that have been declared as bonuses so far will be paid on maturity or death. A terminal bonus may also be payable, if the insurer follows this practice. While the reversionary bonus additions are on a cautious assessment approach, the terminal bonus can be construed as a reflection of fair return to the policyholder at the last opportunity, by the insurer.  Low-cost whole life policies This is a with-profit whole life policy with a guaranteed life cover. They are structured with sum assured in two parts, one which is basic and has bonus applied every year, and the other which remains constant throughout the term. In principle, this combines the with-profit and non-profit concepts.  Single Premium Unit Linked whole of life policies When the policy is effected, the premium is used to purchase units in the chosen fund and thereafter the policy value is dependent on unit price.  Regular premium Unit Linked whole of life policies These policies have gained popularity in the recent past as they offer a variable mix between life cover and investment. The initial level of cover is set for every few years based on the growth rate of the fund to which premiums are linked. They are periodically reviewed when the sum assured is compared with value of units purchased and increased.

TCS Confidential

Page 17 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

 Endowment assurance Here again the life is assured for a fixed term, but benefit is payable either on earlier death or at the end of the term. This type of assurance is usually taken for long terms such as 20 or 30 years. Very often the maturity date is kept closer to the retirement date, though not necessarily so. An endowment policy can be used as security in getting loans because a return is assured. This is the most popular type of assurance in U.K. All the variants of Whole of life policies are also available for Endowment assurance policies.

TCS Confidential

Page 18 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

2 Policy Servicing
4.1 New Business
Issuing a New Life Policy to a client is known as known as New Business. The following are the tasks to be carried out.     Proposal Underwriting Premium Calculation Policy Issue Client Submits Proposal

Validation of The

Underwritin g

Premium Calculati

Issuing the The Data Flow diagram for New Business is as shown in Appendix A

TCS Confidential

Page 19 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

4.1.1 Proposal
The proposal is the beginning of the New Business. The client who is getting insured will submit the proposal to the Agent or to the Life office. The proposal has the following information 1. Proposal details This contains the basic details like Name, Address, Date of Birth, Sex, Occupation, Family history, Annual Income, Policy Plan, Sum Assured, Agent Name, Previous policy details. 2. Medical certificate This consists of the medical fitness of the person who is getting insured. This will be taken into account in order to fix the premium in addition to other factors. 3. Age Proof The date of birth certificate is the proof to check the eligibility criteria of the person for taking the policy. The policy plan will have Minimum and Maximum age criteria for entry. 4. Agent Confidential Report Agent will have to provide the confidential report regarding the correctness of the proposal details. This is to avoid any frauds. 5. Deposit A minimum amount will have to deposited along with the proposal as a commitment by the client. The minimum amount depends on the Sum Assured and plan of the policy. The Client will submit the proposal to the agent or Life office. The following initial scrutiny of the proposal will be done by the insurer administration before passing it to the Underwriter.  Proposal Details  Previous policy history  Client status  Declined policies  Age

TCS Confidential

Page 20 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

4.1.2 Underwriting
This is a process performed by the insurer, on receipt of a proposal, to decide whether or not to accept the risk, and if so, on what terms. An underwriter is the person authorized to accept, reject or fix terms for accepting a risk. The underwriter looks for factors adversely affecting the longevity of the life assured, such as health, occupation, industry and life style. The underwriter scrutinizes the facts given in the medical part of the proposal. He can also check in the alphabetical name index maintained by the life office to find out whether the proposer has been offered an under-average rate for an earlier policy or has been declined a policy previously. He will compare the sum assured and age with the non-medical limits set by the life office, and also will examine whether the insurance cover including earlier insurance is at a reasonable level and not too high. Some of the Important things we should know about Underwriting are as follows

Definition Purpose

The Process of Selection and classification of risk is called as underwriting

The purpose of Underwriting is to • Ascertain correct Mortality of the life proposed • Prevent Anti Selection

Automatic and Manual underwriting

The process of underwriting is automatic once the proposal is submitted. Based on the facts and details he will calculate the risk. This is called Automatic underwriting If the underwriter finds that there is something wrong then Manual underwriting is done. Here underwriter has a discussion with the proposer, there will be a medical checkup once again, he can request for a Moral Hazard report and based on all these facts underwriting is done.

Hazards

Any factor that would influence the rate of mortality adversely is a hazard,they can be classified into • Physical Hazard • Occupational Hazard • Moral Hazard

TCS Confidential

Page 21 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Physical Hazard

The Probability of death or expectancy of Life are largely dependent upon these physical factors like • Age • Sex • Present state of Health • Family history • Hobbies and Vacation

Moral Hazard

The Likelihood of withholding or distortion of vital information relating to the financial standing of the proponent or insurable interest in the life to be insured , affecting risk appraisal is called moral hazard.Here, Underwriter has to find out the Reasons for distortion of facts.

Occupational Hazard

The Occupation of the Proposer may affect the risk attached to the proposal. Some of the occupations where these restrictive clauses may apply are • Military Personnel • Aviation • Submarine Employees • Mine workers • Race car driver • Stunt masters

Medical Underwriting

Here the Underwriter will examine the Medical reports of the proposer in order to find out whether he is Standard life or substandard life. The Underwriter can also get more information about any medical problems of the proposer through a questionnaire .The questionnaire has to be answered by the proposer and the attending medical practitioner . Based on all these factors he can assign Extra Mortality rating for each condition other than normal. For normal person the Extra Mortality rating is 0%. The Extra Mortality rating can be upto 400% . Medical Underwriting is done for Policies above a certain Insurable limit. Medical underwriting forms a very important part of underwriting.

Agent Confidential Report

The Underwriter can also get the Report from Agent. This is called Agent Confidential report. Agent who is part of the Insurance company has to give a Report on the proposer thereby complimenting the facts that the underwriter has at his disposal for underwriting.

TCS Confidential

Page 22 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Clauses

Clauses are the restrictions on the policy. The Underwriter can sometimes accept a policy with some clauses. The Clauses tells that the policy is not insured for these exclusions. The clauses can be • War and Aviation Clause • Suicide Clause • First Pregnancy • Minority Clause If there is any claim for any of these clauses for the policy then no Sum assured is payable by the Insurer. Based on all these factors the underwriter can classify the proposer into • Standard life • Sub-standard life This is further divided into Class1, Class2, Class3, Class4, Class5 and Class6 depending on Medical / Physical /Moral Hazard report Based on this the underwriter arrives at a decision on the risk. The various underwriting decisions are:

Accept at ordinary rates as proposed

All lives which are within the non-medical limits and do not have any adverse evidence will be accepted at the normal premium rates. They reflect assumptions of risk underlying normal premium rates. They are called ‘standard lives’. Proposers being assessed by the underwriter as having a greater risk of death than implied in the premium rates are termed sub-standard lives and they will be offered special terms.

Offer ordinary rates for a limited type of policy

If the extra risk becomes high at a later stage in life then the office may choose to offer a term cover rather than whole of life cover, but at standard rates. Similarly, under an endowment plan term may be reduced to fall below a certain age such as 60.

Charge an extra premium

If the proposer has risky hobbies like hang-gliding or motor racing or if the medical reports reveal extra risk such as high blood pressure then an extra premium proportional to per $100 (per mille) sum assured may be charged.

TCS Confidential

Page 23 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Impose a rating

By rating, the proposer’s age is hiked up by a few years. For example a person aged 50 with asthma may be rated as ‘plus 2’ and he will be charged the rates for a 52 year old person.

Impose a debt

A debt is a reduction from the sum assured. It will often decrease and become nil at the end of the term. This may be offered if the proposer disagrees to pay the extra premium quoted for the extra risk and the nature of risk is not of increasing type.

Decline the risk

The underwriter decides that the risk is not insurable because it is extremely high and declines the proposal. In practice less than 1% of proposals are declined, while majority of the under-average lives are offered some form of special terms.

Defer the Policy

If the Underwriter feels that there is a element of doubt and wants to wait for some more time before the policy can be issued then he can defer the policy for a period ranging from 3 – 6 months. At the end of the specified period the proposal is once again reviewed by the underwriter and decision taken either to issue the policy or decline it. The decision of the underwriter is written on the Application form or sometimes a review slip is attached with the underwriter decision.

4.1.3 Policy Issue
Once the underwriter decision is known then a letter is sent to the Client for his consent / approval because insurance is a contract between the proposer and the Life office which has to be agreed by both the people. This Letter of consent is sent only when there is a change in the terms of the policy or premium based on Extra Mortality rating applied by the Underwriter. Once the Proposer gives his consent then Premium is calculated based on the Plan , Underwriter loading , accident benefit extra , age , occupation , sum assured , frequency and other options. The initial deposit is adjusted with the first premium if the premium deposit is equal to the proposal deposit. If the installment deposit is less than the first premium then the deficit amount is called for from the client. If there is a excess in deposit then the extra amount is refunded.

TCS Confidential

Page 24 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

The proposal is checked for whether it requires Reinsurance if the risk is high. If Reinsurance is required then the Reinsurance retention limit table is read to select the Reinsurer. The Proposal is updated with the reinsurance details and details of reinsurance is sent to the Reinsurer. After all this activity the Proposal becomes the Policy. The Policy is printed and sent to the Client along with Premium advice and Specific Terms and conditions as applicable to this policy for which he has taken an Insurance. Advice is sent to the agent along with first Commission which is due to him. Also a advice is sent to the Medical officer with the Medical advice fee. A report is generated and sent to the management for information.

TCS Confidential

Page 25 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

4.2 Endorsements
A lot of details can be changed by the policyholder when the policy is in force, with the consent of the insurer and as per the provisions laid out in the policy contract. All changes to policy terms like additional benefits, additional premiums, increased or decreased term, fund switches, indexation changes, date of birth change are called Policy Endorsements. A lot of other details that do not affect the terms of the policy but alter data held for the policy like bank account details, address details can also be altered when a policy is in force. This is called General Amendments. The following are the processes involved in endorsements Validate Endorsements Receive the endorsement request from the policyholder and validate the request. If the request is not valid then the declination of the request is sent to the Policyholder. Process Endorsements The valid endorsement requests are processed and the new premium rate is fixed for the policy. Effect Endorsements After processing all the requests the original is endorsed and an intimation is sent to the policyholder along with the new premium statement. The Following diagram illustrates the Endorsement process

TCS Confidential

Page 26 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Client Or Policyhol der

Validate Endorsem

Process Endorsem

Effect Endorsem

Client Or Policyholde

The Data flow diagram for Endorsement is in Appendix B

TCS Confidential

Page 27 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

4.3 Reinsurance
This is a method where the insurer takes insurance to cover the risks that he has underwritten. It is an effective risk sharing method where a portion of the risk is transferred to the reinsurer. All insurance companies assess the risks they underwrite and reinsure based on their past experience on claims. Reinsurers also provide assistance to insurance companies, particularly in the area of underwriting, when the insurers Underwriter wants to have a second opinion on the life at risk. Some of the world largest reinsurers are in the UK. The type of reinsurance used is determined by the needs of the insurer. The most common reasons for purchasing reinsurance are - Allows the Insurer to write larger amounts of insurance. - Protects the Insurer against a single, catastrophic loss or multiple large losses. - Helps smooth the Insurer’s overall operating results from year to year. - Eases the strain on the insurer’s surplus during rapid premium growth. - Provides a means for the reinsured to withdraw from a line of business or geographic area or production source. - Helps the reinsured spread the risk on new lines of business until premium volume reaches a certain point of maturity; can add confidence when in unfamiliar coverage areas. - Provides the insurer with a source of underwriting information when entering new line of insurance or a new market. Types of Reinsurance There are two types of Reinsurance arrangements 1. Facultative Reinsurance Reinsurance transacted on an individual risk basis. The insured company has the option to offer individual risk to the reinsurer and the reinsurer retains the right to accept or reject the risk. 2. Treaty Reinsurance In this there will be a contract between the insurer and reinsurer. The Reinsurer must accept all business within the terms of the contract. The Data Flow Diagram for Reinsurance is in Appendix E

TCS Confidential

Page 28 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

4.4 Claims
Claims is one of the most important events in the Life cycle of a Policy. The main purpose of Insurance is protection against risk . Whenever a risk happens the person will be down by emotions. In addition to this if he has financial problems then the situation will be very worse. Insurance is there to mitigate the problems of the insured when he suffers a loss. At the end of the term if the policy has savings benefit then he can make a claim for the sum assured. The handling of claims by the Insurance department is very sensitive because on one hand they are dealing with people who have suffered a risk and on the other hand the company will be under loss if they are complacent . In handling of Claims the Insurance company’s reputation is at stake and their basic aim is to see that the insured person / survivors get their claim as quickly and as easily as possible. A Insurance company is gauged by its ability to settle claims as quickly as possible with ease to the insured . The true worth of Insurance and Insurer is found only when the insured person suffers a loss and gets relief by way of insurance. Under Indian tax laws the claim paid by life insurance company is tax free. In Life Insurance there are two type of claims. They are  Maturity Claims  Death claims

4.4.1 Maturity Claims
The Life Insurance policy can be Term assurance and also Savings. At the end of the term the Insured can make a Claim. This is called Maturity Claim. All Maturity processing starts a few weeks before the maturity date as life offices endeavor to release the cheque, so that it reaches the policy holder on Maturity date. Normally the Claim processing for Maturity claims will start four to six weeks before the due date. The Policy status should be in ‘ In force ‘. Once Maturity processing starts then the policy status is updated to ‘ Maturity Intimation’. This tells the Life office that the Maturity proceedings have started against this policy. Four to six weeks before the maturity date, the Maturity value is calculated and a letter is sent to the policyholder stating the amount, listing the requirements for payment and enclosing a claim form. On receipt of the completed claim form and all required documents the cheque will be sent out. For whole life policies, when the insured person attains a age of 85 then it is taken as end of life and claim is settled. The Maturity processing will involve the following activities  Maturity value The Maturity value is calculated based on the Sum assured, Policy Benefits, Bonus, Occupational extra, Sex extra and other factors. Any Loans or Outstanding premiums are deducted .
TCS Confidential Page 29 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

 Maturity requirements The Life office will send a voucher to the policy holder informing him of the maturity date and amount with the details of his bonus and deductions. This voucher has to be signed by the Life assured and sent back to the insurer along with the Original Policy certificate and other details which the insurer will want.  Validate requirements The details of the Insured is validated by the Life office. The details normally looked into are Policy Certificate , Age proof , Legal evidence and other details If the requirements are met with in the maturity date then the Claim is processed as normal maturity claim. If the requirements are not met with in the maturity date then a remainder is sent to the Policy holder and even then if there is no reply then the agent is sent to the house of the policy holder for information. If the Life office is not able to locate the policy holder then the Claim will be written off.  Cheque preparation The Claim is processed and a cheque is sent to the policy holder so that he is able to encash the amount on the maturity date. After the claim is paid the claim status is updated as ‘Claim paid ‘ and the Policy status is updated as Exit . The Data Flow diagram for Claim (Maturity) is in Appendix D

TCS Confidential

Page 30 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

4.4.2 Death Claims
Whenever a Insured person suffers a risk his nominees / survivors / Legal heirs can make a claim . Normally a death claim will be initiated by the claimant or the solicitors of the deceased when the life assured dies. On receipt of a death claim the life office will calculate the amount payable. In case of with profit policies this will include the bonuses declared till date and also any terminal bonus. For Unit Linked policies it will be the higher of the Guaranteed Minimum Death benefit or the bid value of units held by the policy holder. A Claim form, a letter stating the claim amount and request for documents to settle the claim will be sent .The main requirements are proof of death, proof of entitlement by the claimant, proof of age ( if age is not given at proposal time ) . On receipt of the completed claim form and all required documents the cheque will be sent out. If the claim is with in three years of its inception then it is called a Early claim which requires a lot of investigation before it is settled because there is a possibility that the contract could have been entered knowing the possibility of early death. Likewise if there is a suicide clause in the policy which is operative for one year and the cause of death is suicide then no amount is payable. Normally if it is a ordinary claim and all documents are correct then it will be settled in one week. If it is a accident claim or early claim requiring investigation then it may take between one to three months. If the claim has legal problems then it may take anywhere between 6 months to 1 year. If no person makes a claim then the claim is written off. If the client has more than one policy then all policies of the policy holder are taken up and processed simultaneously. A single voucher / cheque for the amount of all the policies is issued. The Processing of Death claims involves  Receive Death intimation Here Death intimation is received and the policy status is updated as ‘Death intimated ‘. There will be no regular processing of the policy like premium notice and other things.  Claim Admission This is basically to check if the claim is a admissible one. There should not be any Fraudulent Suppression of Material facts. If the claim is with in three years of its inception then it is called a Early claim which requires a lot of investigation before it is settled because there is a possibility that the contract could have been entered knowing the possibility of early death. Likewise if there is a suicide clause in the policy which is operative for one year and the cause of death is suicide then no amount is payable.

TCS Confidential

Page 31 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

The reason of death also plays a key factor in settling claims as the claim period. There is a benefit called double accident benefit. This benefit will be added only if the life assured died by accident and his policy covers this benefit. In ordinary claims the basic claim is settled first and if there is death due to accident the accident claim is settled later. If it is a early claim both the basic and accident claim are paid only if the accident is established.  Process Accident cases If it is a accident then he will get double accident benefit ( if the policy has this benefit) . In case it is a accident if it is established that the cause of the accident is life assured or claimant himself, then no claim is payable.  Process Illness cases If anything adverse is found from the requirements that are obtained from the client that is if the period of illness was found to be prior to the date of proposal/revival date then after investigation the claim can be repudiated. In all these cases a ex-gratia payment can be made.  Calculate Death benefit Death benefit is normally sum assured and all benefits like bonus. All deductions like outstanding premium, loans etc are subtracted from the sum assured. If the policy status is ‘paid up’ only the paid up value is paid.

The Data Flow Diagram for Claims (Death) is in Appendix C

TCS Confidential

Page 32 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

3 Premium Calculation
The Premium Calculation for each Plan is very Complex and critical because the very survival of the Life office depends on it. The Premium rates have to be competitive as compared to other Life office products and it should bring profits to the Life office . The Premium Rate table or the Commutation table is calculated by the Actuary. The Department where a Actuary works is called the Actuary Department . Actuary is the person who is key to the Life office and he is responsible for designing new Plans and its associated Premium Rate Tables. Premium Rates depends on the Mortality rate and Life Expectancy of the people of a particular country or region .  Life Expectancy The average number of years a person aged X is bound to live is called Life Expectancy  Mortality Rate The Probability that a person aged X will die in next one year is called the Mortality The Mortality rate is calculated using Mathematical techniques like  Theory of Probability  Law of Large Numbers Now a days since most of the Life offices are computerized the Mortality rate tables are calculated every two years. By finding out the number of claims from survivors of Policy holders in the last two years and the age of the people who have died the Mortality rate tables are created . Each Life office has their own set of Mortality rate tables. This tables are used by the Actuary for calculation of Premium Rate tables.  Premium Calculation I= rate of interest ( 0.06 for 6% )

V = Present value of 1 Rupee payable after 1 year V = 1 / (1 + I) Vn = Present value of Rupee 1 payable after n years Lx = no of person living at age x

TCS Confidential

Page 33 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

dx = Mortality rate x = Age at entry n = term

Dx = V x *

Lx

Cx = Vx+1 * dx Nx = Dx + Dx+1+Dx+2+ …….. Dw Mx= Cx + Cx+1+ Dx+2+……… Cw

TCS Confidential

Page 34 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Term Assurance Sum Assured = 1000 Term = 10 Yrs Assumptions Ignore Expenses Claims at the end of year Premium received for all 10 years P( LX + VLX+1 +…… V9LX+9 ) Amount paid as Claims 1000(VdX + V2dx+1+……..V10dx+9) Mulitply by V30 P(N30 – N40) = 1000 (M30 – M40) P = 1000 ( M30 – M40) --------------------------(N30 - N40) General formula P = 1000 ( MX – MX+N) --------------------------(NX - NX+N)
TCS Confidential Page 35 of 80

Age = 30 years P = Premium

TATA Consultancy Services (Version 1.0)

Insurance

Manual

ENDOWMENT Sum Assured = 1000 Term = 10 Yrs Assumptions Ignore Expenses Claims at the end of year

Age = 30 years P = Premium

Premium received for all 10 years P( LX + VLX+1 +…… V9LX+9 ) Amount paid as Claims 1000(VdX + V2dx+1+……..V10dx+9) + 1000 * V10L40 Mulitply by V30 P(N30 – N40) = 1000 (M30 – M40) +1000 * D40 P = 1000 ( M30 – M40 + D40) --------------------------(N30 - N40) General formula P = 1000 ( MX – MX+N +DX+N ) --------------------------(NX - NX+N)
TCS Confidential Page 36 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

DOUBLE ENDOWMENT Sum Assured = 1000 Term = 10 Yrs Assumptions Ignore Expenses Claims at the end of year

Age = 30 years P = Premium

Premium received for all 10 years P( LX + VLX+1 +…… V9LX+9 ) Amount paid as Claims 1000(VdX + V2dx+1+……..V10dx+9)+2*1000*V10L40 Mulitply by V30 P(N30 – N40) = 1000 (M30 – M40) +2000 * D40 P = 1000 ( M30 – M40 +2*D40) --------------------------(N30 - N40) General formula P = 1000 ( MX – MX+N +2*DX+N ) --------------------------TCS Confidential Page 37 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

(NX - NX+N)
These Formulas are generic and are same for all Insurance companies. The only difference is the Loadings and Assumptions that are specific to each company. These Loadings can be yearly Bonus , Terminal bonus , Expenses and agent commission . The values for M , N and D can be taken from Premium rate or Commutation tables and premium calculated.

TCS Confidential

Page 38 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

4 Product Features
Every Life Assurance Contract has well defined features. This Life Assurance Contract is called a Plan or sometimes as Product. The Product is designed after doing a Market Analysis. Normally Market analysis is done by the Insurance company. Sometimes they will also employ other research agencies to do the study. Like any other Commodity Product, Life Insurance policy is also a Product. Market analysis means knowing the needs of the people based on the trends and based on the needs / trends developing products that will cater to a wide variety of people . Unlike other products Insurance is a concept and it is very difficult to sell an Insurance product to the ordinary man because here you get only a Certificate. It requires a great deal of advertising and marketing to sell Insurance Products. The marketing of Insurance products is called Concept Marketing. The Product is designed by the Actuary based on the Market analysis and Actuary experience . Each Product has standard features and many options . The Insured can take the standard policy and optionally take some of the options . Some of the attributes in a product are  Contract type Which tells what type contract it is like Term Assurance, Endowment or Whole life.  Contract name Which tells the name of the Plan like Bima Kiran , Asha Deep etc.

 Qualifying status
Tells whether the premium paid by the Insurer is eligible for Tax benefits under the relevant tax laws.  Purpose Which tells the purpose of the product like Life cover , savings , Mortgage redemption , Health cover , disability cover , Tax savings or Investment .  Age Limits Gives the Minimum and Maximum age at entry . It also gives the maximum age at expiry and Maximum age at Premium paying term

TCS Confidential

Page 39 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

 Lives Covered
Tells what type of lives are covered like Single life , Joint life first death , Joint life survivor , life of Minor and Life of another

 Term limits
Gives the Minimum and Maximum term of the policy and also the Maximum Premium paying term of the policy .

 Sum Assured
Gives the Minimum and Maximum Sum assured for this policy and also the sum assured Limitations to cover like death , maturity , critical illness , disability or Mortgage redemption.

 Premium
Premium gives the Minimum premium for this policy , premium paying frequencies like Annual / quarterly / Monthly , discount in premium if paid correctly , Smoker / Non smoker rates , Low start version , Agent Commission , Policy fee .

 Types of cover
The Types of cover of this policy like Death , Maturity , Critical/Serious illness , disability and Mortgage redemption .

 Privileges Granted by the Policy
The Privileges granted by this policy like days of Grace , Surrender value , Revival facility , Automatic non-forfeiture , Loan , Premium suspension , Paid-up , and Free cover for Individuals and groups , Guaranteed Renewal and Cooling off period.

TCS Confidential

Page 40 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

 Policy conditions
Some of the Conditions attached with this policy like Lapse , Paid-up , Automatic non-forfeiture , Deductions from premium , policy review , Early surrender penalty , fund switching .

 Options Inception
The Options of this policy at Inception like Additional Life cover , Additional Health cover , Premium waiver benefit and child option.

Term
The options of this policy during the Term of this policy like Increase in Premium , Decrease in Premium , Increase in sum Assured , decrease in sum assured , increase in term , decrease in term , paid up option , additional Life cover , Additional Health cover , Premium waiver benefit , Inclusion of additional life , Exclusion of additional life and change of life Maturity The options of this policy at Maturity/Death like Return of fund , Sum assured + return of fund , greater of sum assured and return of fund , tax free lump sum , income benefit , partly lump sum and partly pension , term extension , surrender and term extension + part lump sum.

 Clauses
Tells what are the clauses for this policy like War Pregnancy Aviation Self inflicted injuries Suicide

 Exclusions
Tells what are the Exclusions for this policy like Restrictions on cover due to suicide

TCS Confidential

Page 41 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

 Unit Allocation
Tells how Units are allocated like Allocation period , Deductions from premium like Mortality cover charges , Morbidity cover charges , Administration fee , Policy fee , Bid/offer spread , Fund management charges.

 Fund Management
Fund management tells how many funds are available , when policy can be reviewed to change the funds , Restrictions on fund switch , Fund switching charges , Minimum switch amount .

 Special features
Like Early repayment , Child option , Variable cover option , Home insurability option , replacement option , change of house option , segmentation of policies , continuation and income option.

 Benefits
Tells what are the benefits from this policy like Death benefit Terminal Illness benefit Disability benefit Living benefit Buy back benefit Inflation protection

 Profits
Tells what are the profits from this policy like Annual Bonus Loyalty bonus Premium discount on correct payment

TCS Confidential

Page 42 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

5 Agent
Agent is a intermediary between the Insured and the Life office. He markets the products of Life office and in the process gets commission for the amount of business he has done. In countries like UK/US a broker and agent can be different. As far as Insured person is concerned he is a broker or financial advisor who can advice the client about the products of various insurance companies so that client can select the one that is most suited to him. The agents of Insurers are Individual sales persons , firms and others like accountants , motor dealers etc. The agents of the client are independent insurance brokers , consultants . In Indian context a agent and broker are same . Some times Life office will have fixed salary employees as agents and these people called Sales Officer. Clients can take the policy through the agent or can approach the life office directly for the policies. Agent is not employed by life office but has to be registered with the life office. The Life office will select prospective agents, provide training for the agents so that they are aware of the plans and products, are able to calculate premium, aware of the market trends and finalize terms of appointment. Agent can be dual agent in the sense he can be a agent of more than one insurance company. For the agent to be with the life office he has to do a minimum amount of business else his membership will be cancelled. Agents can be of specialised agents in the sense they will be catering to different sectors like salary savings business, defence personnel because the rules will be different. Some of the agent activities are  Examining client circumstances  Advising prospective clients about insurance products  Recommending suitable insurers  Premium calculation  Check and define policy features to client like extent of cover , conditions etc  Remind premium payment  Collect premium payments  Negotiate claim settlements  Agent Confidential report For the amount of Business that is done by the agent he will receive commission. The agent will get the commission only if the proposal is accepted by the life office and also on the regular premium that is paid by the client. The commission rates are as follows Deposit 35 % Second premium 7.5 % Third premium 7.5 % Fourth premium onwards 5 %

TCS Confidential

Page 43 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

In some countries the initial commission rate can be as high as 135% The commission that is payable to the agent is accumulated and paid at the end of the month The agent is penalized if he does some fraudulent activity. At the first instance he will be Warned if his crime is less severe. If he does some activity like not paying premium collected by the client he will be suspended by the life office. If he continues doing the same he will be terminated. If the Life office finds that he has colluded with the client then he will be black listed and his name will be circulated to all insurers so that he cannot act as agent to any other insurer. In order to motivate the agents he is given due recognition and other benefits based on the quantum of business he brings. Some of the benefits to agents other than the commission are Club membership Interest free loan Advances for purchase of vehicle, PC etc Allotment of status symbols When the agent does very good business continuously for a certain period they will be appointed as Development Officer. The Development officer will have a set of agents under him. The Development officer will get 20 % Salary and 80% commission. When agent retires all his policies will be transferred to a new agent in that area. The new agent will get the commission here afterwards. The agents are governed by the guidelines set by Consumer Forum in India Financial act in UK for agency (1997)

TCS Confidential

Page 44 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

6 General Insurance
Non Life Insurance also called as General Insurance covers customers house, contents, motor vehicles and other things. It deals with all forms of Insurance except Life Insurance. Cover can also be arranged for travel and Personal Accident insurance. General Insurance companies also insure small businesses, offering a range of commercial insurance products tailored to different type of business such as shop keepers, hoteliers and tradesmen. Commercial insurance also covers small commercial vehicles, offices and farms. Each Policy belongs to a Product like House & Home, Motor Car, Shop, Personal accident and Sickness. Policy under each Product can also have Class and Sub-Class. Class and Subclass will give the salient features of that insurance.

Some of the differences between General Insurance and Life Insurance are as follows

Non-Life Insurance Insurance Indemnity one Policy Term is one year Renewal IRA Main & Secondary Claim Tax Product

Life Insurance Assurance Guarantee Many Policies Fixed or whole Life Maturity IRA Main claim No Tax Plan

TCS Confidential

Page 45 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

The Important Process in General Insurance is          Quote New Business Policy Enquiry Endorsement Renewal Claims Premium Accounting General Ledger Reinsurance

8.1 Quote
The Quote System is useful in getting a quick quote based on the Client requirements. Normally Clients will be requesting for a quick quote from different General Insurance companies, so that they can evaluate the premium amount from different companies and select the company with the lowest Premium. The Quote system will calculate the Premium based on certain broad parameters. The Client will ask for a Quote and will give the major features of the insured item. This Premium will be approximate and the actual premium will be slightly different because it takes into account all the parameters of the insured risk . The difference in premium will be within the tolerance limits. Quote system is very simple but powerful tool for any Insurance company business and is prominently used by the Insurers , Agents and Sales representatives.

8.2 New Business
The New Business Process involves the following activities         Receiving the Proposal Validating Information Declined Index Underwriting Premium Calculation Premium Accounting Policy Issue Reinsurance

TCS Confidential

Page 46 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

 Agent Intimation The Client will submit a proposal with details of the risk to be insured. The proposal can be submitted through the Agent or directly to the Insurer incorporating the Agent details. The Insurer will check for all the details in the Proposal. They will check whether he is a existing client, whether the client has any previous policies and the Client Status and if it is a new client the client details are stored in the Client table. They will also check whether any of his previous policies has been declined. The Agent details are validated Like in Life Insurance the Proposal undergoes Underwriting where the insured risk is validated. The purpose of Underwriting is to make sure whether the risk compensates for the premium that is charged or charge an appropriate premium if the risk is more. The Underwriter will check all the details of the risk and then the Premium is calculated. If the insurance is for a standard item like House, Computer or Motor Car then the insured risk is accepted directly. If the insured item is of very large value or which includes complexity it is referred to a panel of experts who will decide whether to accept the risk or not and the premium to be charged. The premium is calculated based on a number of parameters of the insured risk item. Once the proposal is accepted the Premium is calculated and the initial deposit is converted into first premium. The agent commission is calculated and apportioned proportionately. The Policy is issued to the Insured with all the details and Schedule. Normally General Insurance Policies have a term of one year. Short term policy for a period of three months can be taken for Holiday and Travel. If the Policy is declined then it is stored in the Declined Index table with all the details of the Client and risk insured. The Agent is intimated about the Policy details. Reinsurance is done on the Policy depending on the Reinsurance treaty.

8.3 Policy Enquiry
Client requests for information related to policy are handled by the Call center. The Policy Information module facilitates • Policy Enquiry like Names on the policy, term, Start and end dates of the policy, risk items and conditions of the policy. • Premium Enquiry like Premium overdue, date of payment, cheque realization and any other discrepancies. • Client information like Client name, address, telephone no, age and other details • Claims like Claim information, Claim status, Claim payment details and other information. This is most frequently used module in the General Insurance office.
TCS Confidential Page 47 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

8.4 Endorsement
Endorsement is the change on the existing policy. The change can be adding new items of insurance to the existing policy, changing client information, change of Risk Address, Change in Frequency of payment, Addition/ deletion of Drivers, etc. In all these cases the premium changes and a new policy with all the information is sent to the client. Instead of taking a new policy for additional items, New Items can be added to the existing policy at any time during the term of the policy. The premium changes accordingly. Also Items can be deleted from the Policy. In this case any excess premium paid is refunded. One more change on the policy is the change in Risk address. On Endorsement a new policy is issued with all the details. The term of the policy will remain the same. The Change in Premium frequency from monthly to annually or vice versa is also called endorsement. When the Client details change like Change in client address, telephone no and other details the information is updated on the policy. No new policy certificate is issued in this case and the premium does not change. The Agent is intimated about the Endorsement.

8.5 Renewal
At the end the term, which is normally one year, the policy is renewed. The Renewal Process is one of the important events in General Insurance. The process requires understanding the Business policies of the Insurance company. Renewal takes place in three stages spanning a period of 6 weeks before the renewal date. The Policy is checked whether it is eligible for Renewal about 6 weeks before the due date. In this validation it will check whether the policy is in force, and all the premiums are paid and if any premium is due a remainder is sent to the client to pay. During this stage the policy will not be endorsed for new items of insurance or deletion of existing items. About three weeks before the Renewal date the policy is checked once again whether it is eligible for Renewal. The Policy should be in force and all the premiums should be paid. The new premium is calculated and a letter is sent to the client for his consent. During this stage the client can also add new items to the policy which is to be renewed. The Client has also the option to refuse the Renewal in which case the policy is Lapsed.

TCS Confidential

Page 48 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

About three days before the Renewal date the Policy is once again checked whether it is eligible for Renewal. The policy should be in force and the client should have given the consent. The policy is Renewed and a new policy is sent to the client

8.6 Claims
Claims is one of the most important events in Insurance. The primary purpose of insurance is to compensate for the loss suffered by the insurer. Whenever the Insured suffers a Loss (s)he can inform the Insurance company about the Loss details. After the loss information is received by the Insurance company on the specified form along with all necessary proof and estimates, the Claim details are validated and stored for further processing. The policy should be in force and all the premium due should have been paid and the risk should have been insured for the type of Loss. The Insurer will investigate the details of the Loss and if it is a Small claim it is settled immediately. If it is a big claim or where loss cannot be easily estimated the help of Chartered Loss adjustor (CLA) is taken. CLA are experts in Loss valuation. Based on their recommendation the Claim is settled. Normally Insurance companies will try to replace the items that is under Loss. If it is a damage to the building or car insurance company will ask the insurer to repair the damage and send the bill directly to the Company for which the Insurer will pay. You can also Associate a event No to a series of Claims for some Natural Calamity, for Example Floods in Scotland in 1997. All claims under this category will belong to this event no. This will help the insurance company management to find out at any point of time how much this event cost the company. Claims can be of two types Main Claim and Secondary claims. The Main claim will have a Claim no ending with 00. Secondary claim have a claim no ending with 01 and there can be 99 secondary claims for each main claim. If a motor car meets with a accident then that claim is a Main Claim. If in the accident some pedestrians are injured and make a claim that is called the secondary claim.

TCS Confidential

Page 49 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

8.6 Premium Accounting
The Premium Accounting module will generate the Premium notice for Annual and quarterly policies to be sent to the client. Usually it is done by a batch process which identifies premiums payable two to three weeks ahead of the due date, sets up a premium record for the policy and generates a renewal notice. It also generates direct debit BACS file to be sent to the bank. When premiums thus billed are received the Accounting process starts. Here the received payment is tallied with the bill pending for the policy. On receipt of premium payment a record is created with status ‘Policy suspense’ which is called a suspense account record. Then the premium dues for the policy for which payment has been received is picked up and payments are allocated and settled. If premium is received as cheques and they bounce the payment has to be Unsettled where the old premium record is cancelled and a new premium record is created. The premium paying frequencies can be monthly, quarterly or yearly. Yearly and quarterly payments will be manual by cheque. Monthly payments will be by direct debit. Everyday a BACS file is generated and sent to the bank for payment.

8.7 General Ledger
The Financial accounting is performed in the General Ledger. The inflows like Premium should match the Outflow like claims, agent commission and Tax. The Premium amount is accounted in the General Ledger and sub-Ledger under various heads. The money paid as Claims is also accounted in the General Ledger and various sub-ledgers. The Tax payments are calculated and paid to the Government authorities. Various Reports are generated on monthly basis and sent to the Regulatory authorities.

8.8 Reinsurance
Reinsurance is Insurance against Insurance. In order to distribute the risk companies take to Reinsurance. The same Company can act as a Insurer and Reinsurer for some other insurance companies. Reinsurance module helps in managing Reinsurance Treaties with Reinsurers. Reinsurance Treaty can be • Reinsurance for 25 % of all policies • Reinsurance for Policies above a certain limit

TCS Confidential

Page 50 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Reinsurance for certain Products

Depending upon the Reinsurance treaty the policies are reinsured. The Premium that are payable to the Reinsurers are paid. The Claim payment is received for the claims that are paid to the Clients for reinsurance policies. The Reinsurance can be done with more than one Reinsurer

TCS Confidential

Page 51 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

7 Insurance Dictionary
The Business of Insurance is very complex and exhaustive . There are various Jargons and terminology’s used in conducting the Business of Insurance. These differ from one Country to another Country and also from one Insurance Company to another Insurance Company in the same country. The same word has different meanings in different Insurance companies .All this makes it very difficult to understand what are the different types of Insurance Business a particular company is involved, its various Products and Schemes, future plans etc. This Dictionary on Insurance will contain the general terminology’s that is used in the Jargon of Insurance Industry and will go a long way in understanding the Business Concepts of a particular Insurance company. This document will also act as a quick reference guide to understand and decipher the Jargons of Insurance Business. Data has been compiled based on two Insurance companies Pearl Assurance Company, UK Westpac Financial Services, Australia These companies are involved in Life Insurance, General Insurance, Annuity and Pensions, Investments and Superannuation.

9.1 Life Insurance

Actuary

A professional person qualified to calculate the risks and premiums for pension, life assurance and investments.

Actuarial Dept.

The department that develops the product and defines the business rules that govern it.

Adjustable Policies

where the exact extent of the risk insured cannot be known at the outset, e.g., employer's liability , in such cases adjustments are made to the premium charged at regular intervals.

Agency

The company owned by the Insurer that sells Insurance products. A commission is paid for the sold products depending on the rules that govern the particular product

Agent

The Individual who interacts with prospective clients and sells the products. Generally most of the agents are employees of the Agency

TCS Confidential

Page 52 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Assignment

An assignment is a transfer of ownership from one person, the assignor, to another, the assignee. There are various types of assignment. The most common involving life policies is where a policy is used as security for a loan. Notice of an assignment should be sent to the chief office. Company representatives must not have any policy assigned to or deposited with them or aid in the drawing up or completion of assignments.

Bonuses

These are additions to the sum assured of 'with profits policies declared out of surplus in the Industrial Branch for IB policies and the Ordinary Branch for the OB policies.

 

Brokers

Similar to Agents but possibly external ones.

Capital Accumulator

An ordinary branch endowment assurance with profits and options available on a single life basis only. This policy allows for the sum assured plus any reversionary and terminal bonuses applicable to be paid at the end of the initial ten year period or on the earlier death of the life assured. The maturity proceeds may be taken as a lump sum or in installments.

Capital Investments Plan Cash Surrender Value

An Ordinary Branch single premium endowment assurance with profits available on a single life basis only. It is the immediate cash value of a policy if premiums are discontinued. The value will be calculated after allowing for expenses and life cover given to date. In the early years a policy may acquire little or no surrender value.

Cashiering
or receipt number

Posting of cash with application. Posted with policy number

Cancellation If

a client does not prefer to proceed with the policy and conveys his intention to Insurer within the government specified 14 days cooling-off period , the policy gets canceled without any charges or fees accrued into it.

Children's gift Plan

Unit Linked endowment assurance which is written on the life of a child. It matures at the plan anniversary coincident with or immediately preceding the child's 21st birthday.

TCS Confidential

Page 53 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Children's Policy

The normal minimum age for policies is 16 next birthday. The exception to this is the First step savings plan and the Children's Gift Plan. It should be noted that life assurance cover for children under the age of 16 is not available under these or any other Pearl Plan.

Co-insurance

describes a situation where the insured risk is shared between a number of insurance companies.

Company Representative Conservation officer

An agent appointed by a life insurance company who is authorized to sell that company's products. An employee of the Insurance office who tries to keep policies from getting lapsed/surrendered/canceled by personally interacting with the client. Also tries to revive a policy after its lapse. Belongs to the Business conservation Dept.

Consultant

Similar to Agents but external ones who will sell products of the Insurance company and receives the commission.

Contingency
is provided.

A happening, as defined by the policy for which cover

Contributions

Term used to describe the regular or single payments a person makes into their personal pension plan.

Convertible Protection

A rider benefit which provides additional , reducing temporary assurance benefit which may be attached to certain basic plans. A guaranteed option is included for cases where the life assured is a first class life.

Convertible Term Assurance

Is a Term Assurance Contract with the opportunity of converting to other contracts. The new premium is calculated based on the age at conversion.

Declaration

A statement attesting to the accuracy of the information entered on a proposal form. The declaration appears on every proposal and must be signed and dated by the proposer.

Decreasing Term Assurance

Term assurance cover where the level of cover decreases throughout the term of contract . This Insurance is

TCS Confidential

Page 54 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

helpful for cases in capital repayment of mortgage where the sum assured decreases in line with the repayment of mortgage based on a maximum rate of interest. 

Economy Cover Plan

Temporary life assurance available as single or joint life. Cover provides for the sum assured to be paid on the death of the life assured. The life cover operates during the selected term of the assurance only.

Endorsement

An amendment to an insurance policy which then becomes a part of it. Endorsement can be any changes to the existing policy like adding of new element of Life cover , change / addition of client details , superannuation benefit or investment .

Endowment Policy

A life assurance policy which pays a sum of money after an agreed period of time, or on the earlier death of the assured.

Ex Gratia Payment Front End Loading

A payment made to the insured where there is no liability under the policy for the insurer to make payment. Term used in connection with unit linked policies to describe charges being deducted from the first years premiums hence the phrase 'front end loading'.

Gold Plan
as single or joint life.

A unit linked endowment assurance policy available

Intermediary Indexation

A person or organization that offers advice and arranges policies for clients. Value of the sum assured loses its value progressively, when the premium is kept constant due to price increase in commodities. So to counter this effect the premium payable is increased by a rate fixed earlier or variably depending on the commodity price index (CPI). The sum assured too is similarly modified.

LAUTRO

Life Assurance and Unit Trust Regulatory Organization under whose rules the Pearl operates to meet the requirements of the Financial Services Act.

Level Premium

Applies to policies where the premium remains the same throughout the term of the policy.

TCS Confidential

Page 55 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Life Assurance Contract

is a agreement between two parties , the insurer and the proposer , that one party (Insurer) will pay a sum of money called the Sum Assured , to the other party (proposer) on the occurrence of a specific event .

Life Cover Plan

An Industrial Branch whole life assurance policy with limited period of premium payment.

Life Expectancy

the average number of years expected to be lived in future by a group of people of the same age . A government executive who polices the

 Life Insurance Commissioner activities of Insurance companies . 

Maturity

If the policy holder pays the premium till the end of the specified term the policy is matured and the customer receives the sum assured together with any bonus.

Payment/Closure of Policy

once the policy has matured or has been terminated then the insurer will pay the amount of money due to the customer and close the policy.

Paid Up Policy
assured.

A policy free of further premiums for a reduced sum

Plan

A scheme or a policy of the Insurance company and assures a specific benefits for Clients who invest money in it

Policy

Once the Insurance company has accepted the proposal and the premium has been paid , it will issue a policy as evidence of the contract. This policy would contain the details of contract and policy holders personal information.

 Proposer The person or company who affects the policy. This may be on his/her own life or on the life of another.  Proposal The action of applying for a policy to the Insurance company by a prospective client

TCS Confidential

Page 56 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

 Risk For practical purposes a Risk can be considered the Sum assured for a type of Product on a policy or for a client  Surrender A mode of claim where the client cashes a policy after it acquires a surrender value that is the policy is past the cooling off period and all set up expenses, commission and charges have been paid. This usually does not happen until a few years since the policy was set into force. 

Term Assurance

the Term assurance policy is for protection only and no savings is attached. This is the cheapest form of Life Insurance.

 Underwriting evaluation specifying any outstanding requirements , application of loadings and sign off of the proposal before it can be set in force.  Underwriter A employee of the Insurance company who actually assesses the risk involved in a new proposal and directs the administration department to reject/accept/defer with underwriting requirements /modify the proposal for different terms of risk acceptance or other decisions. 

Whole Life

The Whole Life policies provide both protection and savings which could be with profit or non profit.

9.2 Investment, Annuity and Pension

Accumulation Unit

Applies to the following unit linked plans Ultima, Gold, Children’s Gift Plan and Unit Linked Prosperity Plan. Premiums invested into these plans are used to purchase units in the mixed fund or for Prosperity Plans mixed or sterling funds. The initial units purchased equal to 2 times the annual premium are known as Capital units. Once the capital units obligation for the plan has been met then the money invested will be used to purchase what are known as accumulation units. Accumulation units have a lower periodical management charge and therefore will increase at a faster rate than capital units. The term is also used in connection with the Unit Trust investments to describe a type of unit where all income earned is re-invested automatically in the Unit Trust and thereby increases the value of the unit.

Allocation

Direction of Money to a selected fund or funds

TCS Confidential

Page 57 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Attribution
purchase units

Application of Unit price to the money in the cash fund to

Alterations

Internal Alterations Alterations generated by the system when due For Ex. Decreasing term assurance , expiry of loadings , reduction in sums at risk relating to increases in investment value , premium expiry , renewable term processing , premium resumption following waiver , policy memo processing etc. External Alterations Alterations generated by the users like unit price input , switching policy investment funds , canceling a policy or a benefit from inception , reviving a policy from Lapse and assigning a policy to Banks/building societies .

Annuity

A vehicle by which Insurer will pay a guaranteed income in return for a lump sum investment.

 

Annuitant

a person receiving a annuity .

Appropriate Personal Pension

Another term for a Protected Rights Pension Policy which is an alternative to the State Earnings Related Pension Scheme.

Bid Price

Applies to Unit Fund and Unit Trust business and is the price which the company uses for determining benefits and to buy back units from the investor.

Bonus Interest

The term given to additions to 'with profits' personal pension plans resulting from any distribution of profits of the Company's pension fund business. Bonus interest is declared as a rate percent per annum and will be applied on a day to day basis to the balance of the retirement account.

Capital Gains Tax

A tax which may be payable on an increase in value of a capital asset. Any tax liability applicable would be calculated after due allowance for a person's exemptions.

Capital Units

Applies to Ultima, Gold, Children Gift Plan and Unit Linked Prosperity Plans. Capital units are used to help recoup initial expenses including commission and commission related expense. There is an obligation to invest money into Capital Units in the following circumstances when a new policy is issued, when the premium is increased each year

TCS Confidential

Page 58 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

through indexation provision, and when the premium is increased by the policy holder. The capital unit obligation will equal two times the regular annual premium. When the annual premium is increased (whether by indexation or by the policy holder voluntarily increasing their own contribution) a further Capital Unit obligation will arise equal to two times the annual increase in premiums. 

Cash Value

The face value of a Prosperity Pension Plan scheme reduced in accordance with the Company's basis for early retirement. This applies where the retirement account is transferred, the pension age commenced before the age of 60 years, the plan has been in force for less than 5 years, or where regular contributions have been increased or single contribution made in the previous five years.

Equity Fund

A fund used for unit linked policies, which invests mainly in ordinary shares of industrial and commercial companies.

Family Income Benefit

An additional temporary assurance rider benefit for a specified term which provides an income from the date of death until the end of a specified term. Family Income Benefit is also available as a stand alone policy.

Financial Advisor Freedom Bond

A holder of a license to advice clients of the financial implications of taking up a particular product. This is a single premium ordinary branch policy which provides for a sum of money to be made available with which to purchase a pension.

Fund Manager

a person who manages a investment fund of which a client can be a member through unit linked policies or personal portfolio services .

Gilt and Fixed Interest Fund

A fund used for unit linked policies which invests in bank deposits and very short term British Government or public authority debt. It provides for security but with little prospect of growth.

Immediate Income Plan

This is an immediate temporary annuity combined with a deferred annuity available on a single life basis only ( this policy is also referred to as a guaranteed income bond). The single premium invested is divided into two portions, one to purchase an immediate

TCS Confidential

Page 59 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

temporary annuity for either 5 or 10 years, the remaining portion to purchase a deferred annuity. 

Immediate Life Annuity

A single premium investment used to purchase an annuity which will provide the annuitant with a regular income for the remainder of their lifetime.

Investment

investment linked Life assurance policies are usually either single premium contracts or annual premium contracts for ten years or more. Part of the premium is used to cover the Insurers charges and pay for life assurance cover. The balance is used to buy units either in a unit trust or investment funds run by the Insurer.

Managed Fund

An investment fund used in connection with unit linked products. This fund invests in ordinary shares, properties and UK giltedged stocks giving a mix of different types of investment to provide growth with reduced risk.

Maximum Investment Plan

A unit-linked endowment assurance contract with a guaranteed minimum death benefit. This product is available on a single life basis only.

Offer

This is one of the elements of a valid contract (e.g., an insurance policy) which means that the offer may be made to a definite person, must not be vague, must state all the terms of the offer, may be terminated at any time before acceptance, i.e., by revocation, death, rejection etc.

Offer Price

Used in connection with unit linked and unit trust investments and is the price at which the company allocates units in the chosen fund or trust.

Pension

Pensions are normally periodic payments from the government or a former employer when someone reaches the end of his working life. Insured schemes through a Insurance company can be arranged for the employee to get pension.

Pension Fund
in the form of pensions.

a superannuation fund which pays retirement benefits

Rebalancing

The act of switching parts of investment from one fund to another in a portfolio and then balancing them based on request from client or PPS fund manager

TCS Confidential

Page 60 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Switching Trustee

The act of moving the capital from one fund /portfolio to another. The insurance company will levy a small charge on this transaction. a person or company appointed under the terms of the trust deed to hold the trust property for the beneficiaries and to make sure that the plan is operated in accordance with the trust deed.

Trust deed Unit Trust

a document which sets out the rules for establishment and operation of a fund. Unit Trust will pool the small amount of investors money and places it under the control of Investment managers . This money is then invested in property or stocks. The investment being held by a trustee or trustees on behalf of the investor. Each pool is divided into equal units and the investor then receives a number of units depending on the amount of his investment.

Unit Linked Insurance Policy a ULIP as it is called, is for a fixed term
of 10 or 15 years and is managed by a trust, who will invest part of the money paid as premium to take a life insurance policy on insured and will invest the remaining in units managed by investment funds.

TCS Confidential

Page 61 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

9.3 General Insurance

All Risks

Describes a type of policy which gives wider cover than usual. Can cover any loss or damage caused subject to any exclusion stated in the policy.

 Associated Claims these are secondary or additional claims to the main claim. For e.g. there is a damage to the Building due to a Storm for which there is a main claim . After two days the water seeps in and destroys the carpet. The claim due to this is called an Associated claim.  Business Associates (BIA) BIA as they are called are experts in Insurance and usually BIA advice is taken for large Insurance’s on Commercial undertakings / Industry . In addition to the Agent, BIA will also get some part of the commission.  Chartered Loss Adjustor (CLA) CLA are experts in Loss evaluation. The help of CLA is taken whenever there is a very large Claim. CLA will evalauate the Loss and based on his recommendation the Insurance company will settle the Claim. 

Client

an individual or company associated with the office. Could be a Personal Client - an individual associated with the office like Policy owner , proposer beneficiary , insured or Business Client - any Company associated with the Insurance company

 Class Within each Segment (Product) there are various schemes to cater to the specific needs of the people Ex. For Product House Home Standard the Classes are Buildings Content Holiday and Travel All risk  Claims Whenever a Insured person suffers a Loss he can approach the Insurance company to Compensate for the Loss. This is called a Claim.  Comprehensive this insurance will cater to all form of claims from the insured as well as third party damage.

TCS Confidential

Page 62 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Contribution

A principle of general branch insurance which means that if for example, a person had an item insured with company A and also company B then should a claim arise the two companies concerned would pay half the claim amount each in settlement.

Direct Debit

Mode of payment in which the payment is done by a debit directly from a bank .

Duration of Policy

normally General Insurance policies is for a period of one year. At the end of a year it is Renewed.

 Event No you can associate a Event no to a set of claims due to disaster like Floods. This helps the Insurance management to know, at any point of time, how much this Event has cost the company.  Facultative Reinsurance Facultative Reinsurance is usually taken on a Individual policy where the single policy has a very large sum assured or there are extra factors that increase the risk of the policy  Indemnity Compensation for Loss

 Insurance Arbitrator Whenever there is a dispute on the amount of Claim the advice of Insurance Arbitrator is taken who will in turn study the case and settle the claim to the mutual satisfaction of both the parties  Insurer A Insurance Company doing the business of Insurance  Insured Any person who has taken a Policy with the company 

Lapse

Happens when the policy holder defaults the payment of premium. Reviving a policy from Lapse is allowed within a set period free of charge. Beyond this tolerance period it can be revived for a fee until it goes out of force.

Legal Dept.

The department that is responsible for the compliance of the product to statutory guidelines.

No Claim Discount

Whenever a Policy has no Claims , the Premium reduces at Renewal . No Claim Discount will be for a period of five years ranging from 30% - 50% .

TCS Confidential

Page 63 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

 Product A scheme that is developed by the Insurance Company that assures a specific benefit for Clients who take this policy. A Insurance company has Products to cater to each and every segment Ex . House and Home Standard (HHS) Drivewise Gold (DWG)  Product Manager A Person who is responsible for the product from Inception to the end , including the proper implementation of the product into the system. 

Recapturing When a new reinsurance treaty is negotiated for all existing
risk as well as new risk and it replaces all other treaties with the reinsurer then this is called ‘Recapturing’ .

 Reinsurance Reinsurance is Insurance taken out by the Insurer on a Risk. If a claim is made the Reinsurer shares the burden of the Claim to the agreed sum reinsured.  Reinsurance Commission Is commission paid to the Insurer for placing the business with the reinsurer. 

Renewal

at the end of the year the policy is Renewed for further term of one year subject to clients acceptance else the policy is Lapsed .

Retention Limits

specifies how much risk the insurer is to retain. For ex. if a policy has risk of 10K and retention limit is 2K , then the sum reinsured is 8K. The first 2K of risk is retained by the insurer.

 Sub-Class Within each Product-Class, Sub class represents the salient features of the Insurance. Ex . For Product /Class House and Home Standard /Buildings the SubClass is With Accident damage No Accident damage 

Short Term Policy sometimes

while going on Travel/Holiday short term policy for a period of 1 to 3 months are taken. It will generally come as part of the Holiday package .

Taxation Office

Details of Contribution tax, Lumpsum tax, group tax reconciliation, unclaimed money etc goes to this government agency. Details about the surcharge/surtax also is received/sent to this department.

TCS Confidential

Page 64 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

 Third Party this insurance will cater to claims only from the others who have suffered a loss. Insured person will not be compensated for any loss or damage he has suffered.

 Treaty Reinsurance a reinsurance treaty specifies a set of reinsurance rates and retention limits on a group of products for a selection criteria. The Reinsurer agrees to reinsure all risks that fall within the agreed guidelines. There is a set formulae for the calculation of reinsurance premium that is used for all risks reinsured. 

User

Any person who uses the system to enter / alter / enquire the data corresponding to a member or can suggest business changes.

TCS Confidential

Page 65 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

9.4 SuperAnnuation

AGC

Australian Guarantee corporation Ltd. is a wholly owned subsidiary of Westpac Banking corporation which is a finance company for WFS. Money invested in Westpac Fixed rate Superannuation Bond is in turn invested in first charge debentures issued by AGC.

Benefit

the amount of money in the superannuation fund to which the fund member is entitled

Beneficiary Lump sum

a person for whose benefits, assets are being held . Beneficiaries can be members and their dependents. in superannuation terms the benefit taken as a single payment rather than taken as a pension or annuity .

Occupational Superannuation Superannuation

superannuation provided by an employer as part of terms and conditions of employment . a long term savings arrangement which operates primarily to provide income for retirement.

Superannuation Division

A regulated Superannuation Fund in a Insurance company that complies with the provisions of the Superannuation Industry Supervision (SIS) Act .

Superannuation Fund/Plan/scheme

usually a trust fund to provide benefits for members on retirement/resignation/death/disability or other specified events. The funds are governed by a trust deed and administered by trustees

Superannuation Industry (Supervision ) Act Superannuation Pension
superannuation fund . a pension

SIS act prescribes prudential standards and rules that govern the superannuation entities . payable from a

TCS Confidential

Page 66 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Surplus

is the amount by which the current value of assets plus present value of future contributions is greater than the present value of expected liabilities .

Unclaimed Monies

money in the superannuation fund which is not claimed by the beneficiary who is eligible for it.

TCS Confidential

Page 67 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

8 Popular Packages
Some of the popular packages available in the market are CLOAS Life Insurance HUON Non-Life Insurance

10.1 CLOAS
CLOAS – Comprehensive Life Office Administration System, a product developed by Continuum Australia in 1975. The main objective of this product was to manage and execute the Life assurance business for the insurance companies. Later on the product functionality’s are enhanced to take care of Superannuation business also. Currently many insurance companies around the globe are efficiently using the CLOAS system for their day to day business needs, which includes Pearl Assurance from U.K, Westpac Insurance Company from Australia to name the few.

 Overview of CLOAS
Initially CLOAS system was built around flat files as their data source, later on moved to a single, centralized database structure. This centralized database stores all the relevant information of Life office. The information includes client details, client’s policy details, agencies and agent details, the government rules and regulations, Company’s product details, Sales and marketing details. Only authorized users can access the database and because of its centralized nature the duplication of data is also minimized to a great extent. CLOAS maintains a three level security mechanism: terminal level, user level and transaction level. These security features can be tailored according to requirement of a company. CLOAS functionality’s are executed via numerous transactions. A transaction is nothing but an execution of a business function in the system right from its initiation to its end. A simple example of a transaction could be an interaction between the system and a user, who captures the policy proposal details via online screens and finally, stores it in the main database. Internal activities will also trigger a variety of transactions based on next activity date. These activities might be maturity of a policy, notice on premium due, statement generation etc. CLOAS basically deals with Life, Superannuation and Investment products. The business functions that CLOAS supports are, proposal processing, policy maintenance, policy billing and accounting, client administration, general ledger, agency & commission and statistics.

TCS Confidential

Page 68 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

Currently, the CLOAS application programs are written in COBOL and execute in the IBM mainframe environment. CICS panels serve as user interface to the system. Different CICS panels represent different business function. The centralized database can be IDMS or IMS/DB or DB2.

 Product Features • • • • • • • • All application modules will execute under the environment of control programs, a special kind of programs. These control programs are mostly written in Assembler. On-line transactions captured initially will be stored in the intermediate database called Transaction Capture database (TCDB). Majority of application transactions will execute during over night batch run. This also includes the moving of TCDB transaction to main database. The concept of TCDB helps in the reducing the load on the main database during peak day time. However, some of the important transactions can be processed in real time by using ‘Dripfeed’ technique. Dripfeed is a technique in which CICS application programs will be executed side by side with the batch application programs. CLOAS generates lot of reports that caters to various business requirements.

 Highlights of the Product
• • • Because of Control programs the application code is completely independent of hardware, operating systems, DBMS and on-line systems. System can be ported across hardware, operating systems and DBMS. Easier to transaction program development using standard calling sequences to perform common functions.

TCS Confidential

Page 69 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

10.2 HUON Application
Huon application was developed by Huon corporation of Australia in the year 1989. It is a high value integrated Client based software solution for Insurance companies to map their business processes to their IT systems. The package is functionally advanced to meet needs of the financial services corporations today and well into the next millennium The evolution of the huon solution since 1986 has been due to implement the requirements of the Customers. The latest version provides many new enhancements like  Multi language support Which allows the customers to write the policy in different languages on the same system.  Enterprise Server Enablement Allows the users to access the system via a variety of interfaces. This interfaces could be either Huon developed GUI using Java or other Graphical Front end Enterprise Server Enablement positions companies to exploit the emerging business available through internet  Electronic Data Interface EDI has long been a focus of efficient business processing Huon application is made of four modules all working on the Relational Database management system. Each of these modules can be implemented separately or as part of the Huon solution.  Client The Huon solution is a client based software package and stores information on each and every client associated with the insurer. These can include policy holders, claimants, agents, banks and loss adjusters. The information held against the client include multiple names, addresses, telephone no and bank accounts. The client module enables the business to take into account the entire relationship with the customer.  Protect Protect is the Insurance module of the Huon solution. It provides end-to-end policy and claims administration from quotations to reinsurance for both commercial and personal classes of insurance

TCS Confidential

Page 70 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

The Protect module has Full policy processing like quotations, New business, Endorsements, Lapses and cancellations. These are all affected by the associated underwriting acceptance, rating , taxation and commission rules controlled by the business analyst using the business manager subsystem. Claims processing includes new claim registration, amendments, express claims handling and payments. These are also controlled by the business manager subsystem. The Policy, claims, and Agent administration can be tailored to each company’s requirements allowing rapid development of new products.  Provision Provision is the fully integrated General Ledger and Financial Accounting module of the Huon solution. It also provides for all back office support for banking receipts, payables, receivable, disbursements, agent accounts and reinsurance accounting. Provision also provides full Audit trails of transactions carried out with in Huon system.  Billing Billing is the payment management module of the Huon solution. It allows you to vary the payment collection method by the Product or the distribution channel through which the policy is sold. Collection methods can be either lump sum payments or installments. Installments methods can be set up with various collection frequencies and amounts.

TCS Confidential

Page 71 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

9 Insurance Products
Life Insurance Corporation is a government of India undertaking is the only company dealing with Life Insurance Products in India . A lot of Foreign companies are eager to enter Indian market. They have tied up with Indian counterparts and financial institutions . They are waiting for the Insurance Regulatory authority (IRA) bill to be passed in the parliament. As of now LIC is the only Indian company dealing with Life Insurance products. Life Insurance Corporation of India is having a large number of Products to cater to people in different sectors and different Income groups. They have more than 128 Plans . Some of it have been withdrawn but around 34 of them are in force as of now. They are also introducing new plans to cater to changing trends and requirements of the people. LIC is having Plans of all three basic types Term assurance, Endowment and whole Life Policy. Some of the Plans are a combination of these basic types. These Plans are for term assurance, Savings oriented and profits. In LIC there is no Health Insurance Products as of now . Some of the Plans of Life Insurance corporation are

Sl No
1 2 3 4 5 6 7 8 9 10 11 12 13

Plan
Term Plans Convertible Term Ass Endowment Plan 1 Endowment Plan 2 Bima Kiran Money Back Policy Whole Life Plan1 Whole Life Plan2 Jeevan Raksha Jeevan Dhara Jeevan suraksha Asha Deep Jeevan Mitra

Type
Term Assurance Term Assurance Endowment Endowment Endowment Endowment Whole Life Whole Life Annuity Annuity Pension Term + Critical Illness Triple cover Endowment

TCS Confidential

Page 72 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

12 Glossary of Terms

AGC BIA CLA CPI DTI DWG HHS IB IRA LAUTRO LIC OB SIS NCD WFS

Australian Guarantee corp. Business Insurance Associate Chartered Loss Adjustor Consumer Price Index Department of Trade and Industry (UK) Drivewise Gold House Home Standard Industrial Branch ( A Division of Pearl) Insurance Regulatory Authority Life Insurance and Unit Trust Regulatory Life Insurance Corporation of India Ordinary Business ( A Division of Pearl) Superannuation Industry Supervision Act No Claim Discount Westpac Financial Services

TCS Confidential

Page 73 of 80

TATA Consultancy Services (Version 1.0)

Insurance

Manual

APPENDIX

TCS Confidential

Page 74 of 80

TATA Consultancy Services

Insurance Manual (Version 1.0)

Appendix A DFD for New Business
1

Plan table Agent'S Confidential report AGENT Decline index Proposal details

Policy Details Party Details Age,income, occupation details P2

Medical details Health Chart

Insurance history, MHR

Medical details

2

Declined request/call for deficit amount CLIENT Client, Proposal details P1 Receive Proposal and Perform Scrutiny Moral Hazard Report[M.1]
3

Life assured's name, address, father's name

Standard Parameters[M.4] P3 Perform Automated Underwriting

plan details Client details

Client,proposal details

Store proposal details

Automated UW results[M.5]

Automated UW results in review slip

Policy Details

UW rating details UW decision

SALES OFFICER P9 Advice to pay amount
4

P5 Postponeme nt Intimation to Clients

Review Slip

5

UNDER WRITER

Premium rate lookup

MEDICAL OFFICER

Medical Report[M.2] Financial transaction Reinsurance retention limit P7 Issue policy policy details Policy details Policy Details

cheque details

FP Cheque dishonour action[M.3]

Postponed Proposal Details

Intimatio n to Client P4 Call for Additionaldetails Additional details Reasons for declination

Rates UW decision P6 Premiu m Details Instalment Premium Policy Details Refund Excess/Call for deficit amount Payment details for deficit amount additional details Documents required Declined cases

Process Review Slip

Policy reinsurance Reinsurance amt Reins retention limit

Reverse proposal entries

Premium Validation[M.6]

Policy details

P8

Refund Proposal deposit

2

MIS

Advice to adjust proposal deposit, Medical fee advice First Premium Commission Advice/reverse comm entries Intimation to reinsurer Policy Completi on Advice Policy, FPR, Acceptance[M.7]

CLIENT

Declined Index

Reports
8

MANAGE MENT

1

2

7

6

AGENT/ UNIT MANAGER

CLIENT

REINSURER

ACCOUNTS DEPT

DFD (LEVEL1) - New Business

TCS Confidential

Page 75 of 74

TATA Consultancy Services

Insurance Manual (Version 1.0)

Appendix B DFD for Endorsement
Policy Master Policy details Client details

Policy details

Client details P2 Process Endorsement Additional rqts rates Premium rates Endorsement details

1

P1 Declination of the request CLIENT Request for Endorsement Additional requirements Validate Endorsements

Valid policies

1

CLIENT Call for arrears, consent letter,original policy

Endorsement request, status

Requirements file

Endorsed original policy, refund amount

P3 Effect endorsement

status Altered details Altered details

Policy Master Client details

Consent letter,original policy , arrears

Level 1 DFD - Endorsements

TCS Confidential

Page 76 of 74

TATA Consultancy Services

Insurance Manual (Version 1.0)

TCS Confidential

Page 77 of 80

TATA Consultancy Services

Insurance Manual (Version 1.0)

Appendix C DFD for Claims Death
D9 status
E1

policy Benefits

D1 Policy details

policy

sum_assured,benefits,deductions D10 settlement breakup repudiation Amount payable status P5 Calculate Death Benefit D4 Legal Notes
E1

Client

Death Intimation details details

P1 Receive death intimation

D8 L/a name,date_of-death,reason of death D6 polocy_no,status

Death details

Client

policy claim

call for requirements

requirements p2 status,claim_type status Admission of claim Cause of death P4

D3

System Parameters

E3

Legal Heir Indemnity Bond

D6 D8

Policy claim Death details Requirements

Process Accident cases

P6 Prepare Discharge voucher

E3

Legal Heir
E4

P3 D7 D2 Documents Required Documents Required Process early claims

P5 Process Illness cases rival claim legal heir

Indemnity Bond discharge voucher title D6 D2 D7 Documents Required Documents Received

Surety
E7

policy claim cheque

Nominee

decision adverse case
E1

Client Requirements
E2 E5

E6

Investigation/ Deciding team

P8 Court Settle Payment

signed D.V.

Assignee

D1 discharge voucher status

policy

Death Claims

TCS Confidential

Page 78 of 74

Appendix D DFD for Claims Maturity

Underwriting rates details

Terminal bonus External loan

Bonus rates policy Age Admittance flag System parameters limit periods Maturity details P2 Call For Maturity Requirements Maturity Details Settlement breakup

Refunded extras Policy Master Policy details Calculate Maturity Value P1 Loan Details

Policy benefits

Maturity requirements documents required documents received

Written off claims

Policy Benefits

Policy claim Policy claim Maturity value Revesed entry Claim Paid Status, amountpaid, Date of Payment Valid cases

Maturity requirements P3 Validate Requirements or write off claim maturity date Maturity requirements Request for indemnity, age proof

written off claims

guardian evidence Request for Maturity Requirements

2

GUARDIAN

Policy

P5 Preparation Of Cheque CLIENT Cheque Legal heir evidence

P4
1

1

Receive Death Intimation Documents received

CLIENT

Cheque

Cheque

Cheque

Request for Death Certificate, Legal Evidence

Death Certificate,
2 4 3

5

GUARDIAN

COURT

LEGAL HEIR

Agent/Bank/ Relatives of Client

LEVEL1 DFD - AFM MATURITY

Appendix E DFD for Reinsurance
E1

P1 New Business Choose reinsurance company

D1 D2

Reinsurance Treaty Policy

policy no, treaty no, cession no,Reinsurance amount D3 Policy Reinsurance

E2

Revival P2 Decide Medthod
E3

premium method D1 D4 Reinsurance Treaty ReinsurancePremium rates

Policy Alteration
E$

status

P3 Process Reinsurance

case for assessment

Reinsurer decision

D3

Policy reinsurance D7 Reinsurance indicator Reinsurance loading

E1

E2

E3

New Business

Revival

Policy Alteration

D4

Reinsurance Premium rates Reinsurer & Treaty number Financial Transactions Last paid date D2 policy

D5

P4 Premium payment & settling claims paymen t Policy number, premium method
E$

P5

Cancellation of assured,policy term, maturity date,status sum Reinsurance D3 Policy Reinsurance

D1

Reinsurance Treaty frequency

Reinsurer

D3

Policy Reinsurance

Level1 DFD - Reinsurance

Appendix F DFD for Premium Accounting
outstanding deposits Client premium notice FinTran entry Policy master charge rates premium amount, policy status, next due date P1 Generate premium notice & create dues next due date Policy suspense Charges Error financial transactions

Bank

premium notice

premium/deposit receipt policy number, instalment premium, outstanding payment amount P2

Client

cheque/cash/DD Collect premium and make FinTran entry

premium/deposit receipt

outstanding dues new due entries direct debit/standing orders FinTran entry Policy dues Bank

outstanding dues Accounts cheque dishonour/ realisation advice P4 Cheque dishonour / realisation action unsettle policy dues cancelled / clawback commission settle dues commission entry P3 Match FinTran entry with Policy dues

Financial transactions

FinTran entry

FinTran entry

outstanding deposits create / clear deposits

Financial transactions

Commission payments

policy suspense

DFD (Level 1) - Premium Accounting

Sign up to vote on this title
UsefulNot useful