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Insurance is a co-operative device to spread loss caused by a particular risk over a number of persons, who are exposed to it and who agree to insure themselves against the risk. Analysis shows following points: 1. Co-operative device to spread risk. 2. System to cover a number of persons who are insured against the risk. 3. The principle to share the loss on the basis of probability of loss to the risk. 4. Method to provide security against losses to the insured. 5. Co-operative device of distributing losses.
Insurance is a contract where one party (insurer) agrees to pay to the other party (insured) or his beneficiary, a certain sum upon a given contingency (risk) against which insurance is sought. Analysis indicates; 1. Certain sum, called premium, is charged in consideration. 2. A large sum is guaranteed by the insurer who received the premium. 3. Payment will be made in a certain definite sum (loss or the policy amount whichever may be) 4. The payment is made only upon a contingency.
NATURE OF LIFE INSURANCE CONTRACT
1. 2. Nature of general contract- It includes offer and acceptance, free consent, legal consideration and legal objectives. Insurable Interest- interest on own life and interest on others’ life. For others life proof is required. Others are family relations and business relations. Exception regarding proof requirement is “wife has insurable interest in the life of her husband and vice versa. General rule for insurable interest are; Time of insurable interest. Services-except services of wife, services of others will not essentially form insurable interest. Must have financial relationship between the proposer and the life assured. Insurable interest must be valuable and valid. Legal relationship may be the basis. Must be definite and have legal consequence.
3. Utmost good faith- Both the parties proposer (insured) and insurer must be in same mind at the time of contract. They must make full and true disclosure of the fact material to risk. Material facts are age, income, occupation, health, habits, residence, family history and plan of insurance which is determined on the basis of opinion. Both the parties are responsible to disclose all the material facts. There should not be any concealment, misrepresentation, half disclosure and fraud of the subject matter. The duty of disclosure finishes at the moment of completion of proposal form. Contract is voidable at the option of affected person in the absence of utmost good faith. Indisputable clause – Section – 45 of Insurance Act, 1938. “No policy of Life Insurance, after expiry of 2 years from the date on which it was effected, be called into question by an insurer on the ground that a statement made in proposal for insurance. Following facts are not required to be disclosed. Circumstances, diminishing the risk, Facts waived by insurer, facts of public knowledge, superfluous. Implied facts. Facts known from ordinary course of business.
WARRANTIES Representations which are embodied in the policy and expressly or impliedly forming part of the basis of the contract, are called Warranties. Every information given by a proposer for insurance to the insurer during the negotiation is a representations. Material representation are the basis of insurance contract. Representation will be warranty. Warranties may be i) informative & ii) Promissory. In informative warranties, the proposer is expected to disclose all the facts to the best of his knowledge and belief.
Promissory warranties related to future may only be statements about his expectation or intention.
PROXIMATE CAUSE (CAUSA PROXIMA). The efficient or effective cause which causes the actual loss is called proximate cause. It is real and actual cause of loss. It is not of much practical importance in life insurance. But in following cases proximate causes are observed; 1. War risk 2. Suicide 3. Accident benefit. ASSIGNMENT AND NOMINATION- Life policies can be assigned freely either on the policy itself or by a separate deed. Once assigned cannot be revoked. Nomination can be made or cancelled any time during the tenure of the policy RETURN OF PREMIUM- Ordinarily, the premium once paid cannot be refunded. But it can be refunded on “equity” ground. Equity implies a condition that the insurer shall not receive the price of running a risk he runs.
OTHER FEATURES 1. It is a aleatory contract which implies contract depend on chance. 2. It is unilateral contract because, here, only the insurer makes an enforceable promise. If first premium is paid, the insurer is bound to accept subsequent premium and pay the claim amount. 3. It is a conditional contract because the insurer shall pay the assured sum only when the contract is continuing by payment of premium. 4. It is a contract of adhesion as the terms of the contract are not arrived by mutual negotiations between the parties as in case of ordinary contract 5. The indemnity contract is not applicable as the value of loss at death cannot be ascertained because non estimation of life period and amount of income during life period etc. Hence, doctrine of subrogation is not applicable to life policies.
CLASSIFICATION OF POLICIES
A) ON THE BASIS OF DURATION- whole life, term insurance, endowment insurance and survivorship policy. Whole Life- such polices are issued for life and the policy amount will be paid at the death of the assured. It can be effected either by payment of (i) single premium (ii) continuous premium payment (iii) limited premium. Limited payment whole life policy- premium payment is for a limited period but assured sum will be paid on the death of policy holder. The amount of premium is higher than whole life policy. Minimum sum assured under this is Rs.1000/Convertible whole life- such policies can be converted to endowment policy after certain period at the option of the insured. Minimum sum assured under this plan is Rs.5000/-.
TERM INSURANCE POLICIES- It is for a period ranging from 3 months to 7 years but sum assured is payable on death of assured during the period but the assurance comes to an end, should the life assured survive. Premium is paid through out the term period till death. These are cheapest policies and always ‘without profit’. Different policies under this are; 1. Straight-Term (Temporary) insurance- issued for two years and called two-years temporary assurance policy. Sum assured payable on death within two years from the commencement. A single premium is required to be paid at the outset and issued under without profit plan, have no surrender value and no loan can be granted on the security thereof as it is not accumulative nature where payment is not always certain. This plan cannot be converted into other plans.
2. Renewable Term policies- it is renewable at the expiry of term for an additional period without medical examination but premium is changed as per age. The policy holder can renew it many times provided the attainment age has not crossed 55 years. 3. Convertible Term policies- option to convert into whole life or endowment policy provided the policy is in force. The premium rates, will be increased according to the age attained. Persons following hazardous occupation including armed force persons and ladies are not eligible under this plan. Medical examination cost borne by the proposer. Minimum sum assured is Rs.5000/-. Admission of age before issuing of policy is essential. No surrender values loan, no rebate in premium
Pure Endowment policy- sum assured is payable on the life assureds surviving the endowment term. It is opposite of term policy because the insured is paid if he survives. Pure endowment and Term policies, are the bases of all other policies. Pure endowment is for the benefit of the policy holder and term policy is for the benefit of others. Pure endowment has an element of investment and term policy has the element of protection. Paid-up and surrender values are allowed and mode of premium payment is yearly or half-yearly. Ordinary Endowment policy- represents the life insurance in true sense. It provides an ideal combination of protection and investment, taken for a specified period. Sum assured being payable on death during the period or on his survival to the end of the period. Premiums are payable throughout the term of the policy or to a limited period or till the prior death of the life assured.
Joint Life Endowment policy- covers more tan one life. Sum assured is payable on expiry of term or on death of one of the assured during the endowment period. Premium is payable throughout the period or till the death of anyone of the lives assured. Premium calculated according to age with little modification. Double Endowment Policy- if the life assured dies during the endowment period, the basic sum assured is payable and if he survives to the end of term double the sum assured is paid. Maturity age is not beyond 65. The term of policy is ranging from 10 years to 40 years but no policy is insured to mature at an age exceeding 65 years.
Fixed Term (marriage) Endowment policy- sum assured is payable at the end of stipulated period but premium ceases if the death of assured occurs earlier. Educational annuity policy- sum assured is not payable in lump sum but payable in equal half yearly installments over a period of 5 years. It is like fixed term policy. Triple benefit policy- is a combination of whole life limited payment and pure endowment with a guaranteed annual bonus payable on death during the term period. Term period varies from 15 to 25 years. It has a guaranteed and steadily increasing family provision during the selected period along with the old age benefit. Family benefit does not terminate on payment of old age benefit. Sum assured is paid on death of assured. Anticipated Endowment policy- similar to endowment assurance except a part of the sum assured is paid at certain interval before death within maturity of the policy and the balance sum is payable at maturity. On death during term period full sum assured is payable without deduction of installment paid earlier. The term may be for 15, 20, 25 years and with or without profit plan.
sum assured. Only first class lives will be accepted under this plan. The sum assured increases automatically by half the initial sum assured at the end of 5 years and again by half the initial sum Progressive protection policy with profit- deemed to be for double the assured at the end of 10 years. Anticipated whole life policy with profit- provides benefit of whole life limited payment policy and anticipated payment at 5 year intervals. New jana raksha policy- designed by considering the problem of non-payment of premium in time. A special facility whereby the policy continues to provide full cover for 3 years on payment of initial extra single premium. The benefits are same as applicable for all endowment assurance policy with profit. Minimum and maximum age for entry are 18 and 40 years respectively. Sum assured will be available in the denomination of Rs.5000, 10,000, and 15,000. revived on payment of arrears with interest.
Mortgage redemption assurance policy- designed to ensure that outstanding loan is automatically extinguished in the event of borrower’s death. Normally issued only male lives aged up to 50 yrs at entry subject to the condition that the insurance cover would in no case extend beyond 65 yrs. Children’s deferred endowment assurance- premium payment by parent or guardian for first few years and by the assured in the subsequent years. The risk does not commence immediately at the issue but only on policy anniversary following completion of 18 or 21 years. Children anticipated policy with profit- where life risk will commence at the age of 18 or 21 yrs as required by the proponent, automatically vest in child at the end of deferment period and half of premiums paid during this period will be paid to him in lump sum. Policy will be cancelled in case the life assured dies before the deferred date. No loan is granted, contains disability benefit unless specifically excluded.
Jeevan sathi- only the lives of husband and wife are jointly covered. Sum assured along with bonus are payable in the event of survival to maturity of either or both of the partner. Married women’s property act policy- a married man can effect a policy on his own life, wife and/ or children and shall be deemed to be a trust for their benefit and shall not, so long as any object of the trust remains, be subject to the control of the husband or his creditors, or form part of his estate. Survivorship, reversionary or contingent assurance- two persons in this policy, insured and another named person. Sum assured is payable if the life assured dies before another specified person or counter life. If the counter life dies first, nothing is payable and the contract ceases.
Policies according to premium payment
1. Single premium policy- whole premium is paid at the beginning of the policy. 2. Level premium policy- regular and equal premiums are paid at a definite interval. POLICIES ACCORDING TO PARTICIPATION IN PROFIT: 1. Without profit or non-participating policies.- policy holder will get the sum assured and no profit. 2. With profit or participating policies- policy holder will receive a share of profit along with the sum assured.
POLICIES ACCORDING TO THE NUMBER OF PERSONS INSURED: 1. Single Life Policy- life of one individual is covered. 2. Multiple life policies- more than one life is insured. 3. Joint life policy- covers two or more lives. 4. Last survivorship policy- policy amount is payable at the last death. POLICIES ACCORDING TO THE METHOD OF PAYMENT OF POLICY AMOUNT: 1. Lump Sum policies- sum assured is paid in one installment. 2. Installment or annuity policies- policy amount paid in several installments.
NON-CONVENTIONAL PLOICIES These policies generally gives more features of investment. Important new policies are; Policies under LIC Mutual Fund Jeevan Akshay Jeevan dhara Jeevan Kishor Jeevan Chhaya
1. 2. 3. 4. 5.
Mutual Fund Policies
Close Ended schemes; 1. Dhanashree 1989 2. Dhan 80 CC (I) 3. Dhanvarsha Open Ended schemes 1. Dhanraksha 1989 2. Dhanavridhi 1989 Jeevan Akshay- it is a pension plan. Last payment would be falling due prior to death. On death of assured the original amount invested along with bonus will be returned to the nominee or legal heirs. Minimum sum is Rs.10,000/ and multiple thereof. No upper limit and insured can avail tax benefit.
Jeevan Dhara- also a pension plan. The payment of annuity has to start one month after the completion of deferment period. There is provision of centralized payment. Hence, it is necessary to build master record for all policy holders. As the final installment will be received only after the date of vesting, this policy is discontinued under salary saving scheme. Premium paying term under this plan is one year less than the deferment period. Jeevan Kishor- children, both male and female, between the ages of 1-12 years are eligible. Parents or guardian can propose for this plan. The risk will commence either two years after the date of commencement of the policy or policy anniversary falling immediately after the completion of 7 years of age, whichever is later. The period starting from the date of commencement of the policy to the date of commencement of risk will be known as waiting period. Sum assured along with bonus will be payable on maturity or on death. In case of death of assured before commencement of risk the premiums paid will be refunded. Minimum sum assured is Rs.10,000/-.
Jeevan Chhaya- introduced in march 1991, combination of jeevan mitra and money back plan. It is financial provision for a single child for higher education. Child must be less than one year at the time of proposal. Premium payment ceases on death of assured. ¼ th of the sum assured payable at the end of n-3, n-2, n-1 and nth year and bonus for the full term on full sum assured on maturity. The term can be 20-25 years. Minimum and maximum sum assured is Rs.10,000 and Rs. 1,00,000 respectively. Minimum and maximum age of entry is 20 and 40 years respectively. Maximum maturity age is 65 years.
Provided by government on compulsory basis by using power and its resources. These program are especially vulnerable to individuals and families with limited income. In India it is in premature stage due to vast cultural, economic, social diversities. In developed countries there has been a tendency to look to the private insurance industry for the coverage of risk that society deem important. When such risk have not handled adequately by private insurance, social insurance programme comes into picture. IRDA Act 1999 has amended the section 32B and 32C of Insurance act for implementation of social insurance which create obligations of insurance industry to take appropriate step . The social sector is defined as including the unorganized sector, the informal sector, the economically vulnerable or backward classes and others in both rural and urban areas.
Section 32B: Every insurer shall, after the commencement of IRDA Act 1999, undertake such percentage of life insurance and general insurance business in rural and social sector as may be specified, in the official gazette by the authority in this behalf. Section 32C: Every insurer shall, after commencement of IRDA Act 1999, discharge the obligation specified u/s 32B to provide life insurance or general insurance policies to those residing in the rural sectors, workers in the unorganized sector or informal sector or economically vulnerable or backward classes of the society and other categories of persons as may be specified by the regulation made by the authority and such insurance policies shall include insurance for crops. The IRDA regulation 2000 makes it compulsory for the insurers, existing and new to promote the social insurance as per the requirement and also provide benchmark percentage for the players.
1. 2. 3. It is based on law, rather than on contract. Cost and benefit are established by and can be changed by govt. Coverage is compulsory for all persons to whom the law applies.they cannot choose to decline to participate, nor can they select the coverage or the amount of benefits. Objective is to provide some minimum level of security for the large portion of population. The basic ideology is to provide an economic system that stresses free enterprise and individual initiative, people should not rely entirely on govt. programs. Focus is to provide maximum benefit to the lower income groups. Unless such groups are subsidies to higher income groups, the payments of the former will not be large enough to furnish the minimum level of protection. Social insurance usually covers only those who are or who have been employed. Such plans are concerned for interruption of income (by death, unemployment or retirement) earned through employment.
Social insurance in India
It is the baby of the social security systems prevailing in the country. Social security is the security cover which society furnishes through appropriate organization against risks to which its members are exposed. Basic idea is to prevent deprivation and vulnerability to deprivation. Studies by UNICEF and world bank indicates that it has been the direct public support rather than the average income of population that has been the driving force behind the success of social security schemes worldwide. A comprehensive social security system includes social insurance, health insurance, disability compensation, unemployment compensation, old age pension schemes etc. Opening up the insurance sector has created increased awareness about insurance and also provide a sustainable revenue model to carry out the task of social insurance. It is not a constitutional right of the citizens of India.
Schemes: 1. GIC- it has launched certain social insurance covers like krishi bima yojana, personal accident social security scheme, hut insurance scheme. But these schemes failed to achieve desired objectives. 2. LIC – schemes are- landless agricultural labourers scheme, group insurance scheme for the beneficiaries of IRDP, rural group life insurance, krishi shramik samajik suraksha yojana, janashree bima yojana etc. but failed to achieve desired objective. 3. It necessitates creation of a separate body for social insurance for following reasons.
Cost minimization Avoidance of duplication of work. The biggest concern in implementation of schemes are to reach the target population and cost effectiveness. In India work based and community based social insurance system should be encouraged as it has a vary narrow tax base and low tax revenue. Decentralization, that is participation of local administration is required for better implementation. It pertains to the delegated authority and not devolved authority. The insurer will collect the premium directly from the nodal agency and nodal agency will do the collection in parts or at one time from the group. Co-operatives, unions, associations, SHGs, and registered NGOs may act as nodal agency.
Critical success factors in selection of nodal agencies: 1. High level of mutual trust. 2. Monetary transaction.-existence of monetary transaction between nodal agency and the groups. 3. Frequency of interaction of nodal agency with the group. 4. Organizational structure of the nodal agency. 5. Interest of nodal agency. Unemployment Insurance- is designed to provide short term protection for regularly employed persons who lose their job and who are willing and able to work. US have well defined law in this regard. The objectives are; 1. Provide cash income during involuntary unemployment. 2. Help unemployed workers find job. 3. Encourage employers to stabilize employment. 4. Help to stabilize economy.
Governed by All India Fire Tariff Act 2001, which lays the terms of coverage, the premium rates and the conditions of the policy Section 2(6A) of insurance act 1938 defines “fire insurance business” as the business of effecting, otherwise than incidentally, to some other class of insurance business, contract of insurance against loss by incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies. There is no statutory enactment for regulation of fire business in India akin to Marine insurance which is governed by the Indian Marine Insurance Act, 1963.
FEATURES- FIRE INSURANCE
1. Personal in nature- purpose is to see that insured does not suffer loss by reason of his interest in the insured property. It involves the payment of money if loss occurs. 2. Cause of fire is immaterial- the doctrine of cause proxima applied unless there is a suspicion of fraud or willful act or otherwise falling outside the scope of contract. 3. Indivisibility- covers the fire loss in whole and generally indivisible unless specifically provided by the contract. 4. Other principle applied to fire insurance are (i) insurable interest (ii) indemnity (iii) utmost good faith (iv) subrogation and contribution (v) contract from year to year. The policy has been nomenclatured as standard Fire and Special Perils policy. The standard risks covered, add-on covers, exclusions, conditions as prescribed by the tariff.
Fire- damage by its own fermentation, natural heating or spontaneous combustion or its undergoing any heating or drying process cannot be treated as damage due to fire. Property insured by order of any public authority is excluded from the scope of cover. Lightning- both fire and other types of damages caused by lightning are covered. Explosion/Implosion- explosion is a violent burst with a loud report. Implosion means bursting inward or collapses. Boilers are not covered here but covered in a boiler and pressure plant insurance policy. Aircraft damage- damage directly caused by aircraft and other aerial devices and/or articles dropped there from is covered. But damage resulting from pressure waves caused by aircraft traveling at supersonic speed is excluded from the scope of the policy.
Riot, Strike, Malicious and terrorism damage- loss directly due to such activity or by the action of any lawful authorities in suppressing such disturbances or minimizing its consequences is covered but not any willful act of such nature. Storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation- loss due this covered. Impact damage- impact by any rail/road vehicle or animal by direct contact with insured property is covered. But such things must not be owned by the insured. Subsidence and landslide including rockslide- loss is covered. Bursting and/or overflowing of water tanks, apparatus and pipes- loss covered if loss occurs accidentally. Missile testing operation- loss is covered. Leakage from automatic sprinkler installation- accident loss is covered. Bush fire- this covers damage caused by burning, whether accident or otherwise, of bush and jungles and the clearing of lands by fire but excluding damage caused by forest fire.
1. 2. 3. 4. 5% of claim resulting from natural calamities. Loss or damage caused by war or war like situations. Damage due to nuclear activities. Loss due to pollution except (a) pollution which result from a peril hereby insured against, (b) any peril hereby insured against which itself result from pollution. Loss up to Rs.10,000/- due to giving a finishing touch to a work for value addition. Damage to the stocks in cold storage premises caused by change of temperature. Loss due to excessive use of property insured. Indirect losses. Expenses on surveyor’s fees and debris removal up to 3% and 1% of claim amount.
5. 6. 7. 8. 9.
Add – on covers
1. Architect, surveyor and consulting engineer’s fees excess of 3%. 2. Debris removal excess of 1%. 3. Loss in clod storage due to power failure. 4. Forest fire. 5. Impact damage due to insured’s own vehicles, forklifts and the like and articles dropped there from. 6. Spontaneous combustion. 7. Omission to insure additions, alterations. 8. Earthquake as per premium rates and excess applicable as specified in the tariff.
Reasons of Exclusion
1. To restrict the cover to normal coverage required by average insured. 2. To exclude loss which are extra-ordinary or catastrophic nature. 3. To precisely define and clarify the scope of cover. 4. To exclude risk which requires more information. 5. To exclude losses which are convertible under other policies. 6. To exclude risks which cause losses of high degree of frequency. 7. To exclude loss which are caused intentionally. 8. To exclude losses which are inevitable. 9. To exclude losses that commercially uninsurable. 10. To match the requirement of particular policy.
Standard policy coverage
The tariff advisory committee has prescribed 3 types of fire coverage, policy A, B & C. POLICY “A”.- covers (i) fire (ii) lightning (iii) explosion or implosion (iv) impact damage (v) aircraft damage (vi) riot, strike and malicious and terrorist damage (vii) storm, cyclone, tempest, hurricane etc (viii) earthquake, (ix) subsidence and land slide. Policy ‘A’ can be issued to cover artisans workshops, bio-gas plant, village and cottage industries, tiny and small scale industries. POLICY “B”- covers fire, lightning,explosion/implosion, impact damage, aircraft damage, riot, strike etc,. The cover is similar to policy ‘C’. The tariff permits exclusion of riot, strike and malicious and terrorist damage perils, with specified reduction in premium rate under the policy.
1. 2. 3. 4. 5. 6. 7. 8.
Policy ‘C’ is issued to cover industrial/ manufacturing and storage risks covering fire, lightning, explosion or implosion, impact damage, riot, strike and malicious damage. The riot, strike and malicious damage can be excluded on specific request with an agreed reduction in premium. May be extended to cover followings on an extra premium. Spontaneous combustion Earthquake Storm, tempest, flood etc, Subsidence and landslide Accident leakage or contamination of oil. Spoilage Deterioration of stock due to power failure, Bursting, sprinkler leakage, bush fire, missile testing etc.
Special coverage Reinstatement value policies- losses are settled on market value of the property. Stock policies- includes floater and declaration policies. Stock at different location covers under floater policies. Firms facing frequent fluctuation in stock quantity or value covers under declaration policies. Consequential loss policies- covers those heavy industries having high investment in fixed assets.
Type of Fire Policies
Specific policies- amount is fixed irrespective of the value of property. Valued policy- where it is difficult to determine the value of property. Average policy- contains average clause. Insured is considered to be a self insurer to the extent of under insurance. Floating policy- covers loss of goods in different locations. Replacement policy- covers the market value of the insured property. Also known as re-instatement policy.
Declaration policy- granted only in respect of stock of inventories. Every month the insured must declare in writing the stock covered under the policy. Comprehensive policy-covers full protection not only the risk of fire but combining with risk against burglary, riot, civil commotion, theft, damage from pest lightning. Consequential loss policy- indemnification of loss of profit due to dislocation of business covers loss of property or goods, loss of net profit, outstanding expenses, prepaid expenses etc. Adjustable policy- premium is adjustable on pro-rata basis as per valuation of stock. Issued to remove disadvantage of declaration policy.
Declaration Policy Vs. Adjustable Policy
Insurer’s liability is the insured’s last declaration made. Insurer’s liability is the last declaration made on amount. Periodical declaration have no direct Direct bearing of periodical declaration bearing on measurement of indemnity. Maximum amount insured would be considered risk during the period of policy. Premium calculation is based on the ascertainment of average by the periodical actual declaration. Risk cover is always for the declared value.
Declaration is on the basis of policy amount adjusted by endorsement
High premium is fixed at the beginning Premium is calculated according to the for maximum coverage and excess variation of the risk and the liability of actual premium will be returnable at the insurer. the end of the year.
Rate calculation is made in following manner; i) Base rate for the class of property. ii) Reduction in rates based on exclusion and add on covers. iii) Extra tariff for hazardous assets. iv) Discount is allowed for claim experience. v) Further discount is allowed for betterment of risk. Followings are to be considered on fixation of premium i) Type of insured ii) Location of property iii) Storage facility and other infrastructure iv) Additional premium on ‘add-on covers’ and discount on ‘exclusion’.
Proposal Form- contains details of proposer, type of coverage, details of subject matter, sum insured, insured declaration/authentication, risk inspection report. Cover note- is issued pending issue of policy covers proposer’s detail, sum insured, details of risk covered, premium detail, date of issue and validity, date of commencement and expiry of cover, authentication, warranties and clauses. Policy document- must follow the format prescribed by the tariff. Must contain all the information as contained in the cover note, and endorsement and alteration made to the policy.
Right of insurer
Right to avoid the policy- in case of willful act and misrepresentation. Right of entry control over the property- arises on the happening of the event to take the possession of the property. Right of reinstatement- replace the asset paying the amount of loss. Right of subrogation-entitled to all rights and remedies available to the insured after paying for the loss to the insured. Right to contribution- when more than one policies are taken by the insured, loss will be shared proportionately among the insurers. Right to salvage- it is the duty of assured to hand over the salvage to the insurance company in case of loss to the property insured.
A Contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured in a manner and to the extent thereby agreed, against marine losses, that is, the losses incidental to marine adventure. Protect from total or partial loss or damage of sea going ship and cargoes. Contracts are amongst the least charging and most familiar of all types of risk business. There is a marine adventure when any insurable property is exposed to marine perils/sea perils. Perils of sea refers only to fortuitous accidents or causalities of the sea, and does not include the ordinary action of the winds and wave. Collision with rock or with another ship, ventilators problem etc. considered as sea perils.
ELEMENTS OF MARINE INSURANCE
Fundamental features of general contract. Insurable interest. Utmost good faith. Contract of indemnity. Principle of subrogation and contribution. Warranties.- express warranties are safety of ship, neutrality of ship and goods, no deviation of route, date of sailing. Implied warranties includes sea- worthiness, nondeviation, legality of the voyage and proper documentation of the ship. Proximate cause Assignment and nomination of policy. Return of premium- if the insurer have never been on the risk, they cannot be said to have earned the premium. The insurer is known as ‘underwriter’.
Types of Marine Insurance
Two broad categories- ocean marine insurance and Inland marine insurance. Ocean marine insurance is one of the form of transportation insurance. The contract reflect basic marine law, trade customs, and court interpretation. It is classified into 4 category indicating various insurable interest. They are: Hull insurance- covers physical damage to the ship or vessel similar to collision insurance. Cargo insurance- covers the shipper of the goods if the goods are damaged or lost. Open cargo policy can be used for regular shipment. The open cargo policy has no expiration date and remains in force until it is cancelled. Protection and Indemnity (P&I) Insurance- is usually written as a separate contract that provides comprehensive liability insurance for property damage or bodily injury to third parties. Freight Insurance- indemnifies the ship owner for the loss of earnings if the goods are damaged or lost and are not delivered.
Fundamental concept of ocean marine insurance
Covered Perils- includes sea perils and others which includes loss from fire, enemies, pirates, thieves, jettison(throwing goods overboard to save ship), battery(fraud by the master or crew at the expenses of the ship or cargo owners) and similar perils. It can also be written on an ‘all risk’ basis. All unexpected and fortuitous losses are covered except those specifically excluded. Particular average- refers partial loss that falls entirely on a particular interest. Under the free of particular average clause (FPA) partial losses are not covered unless the loss is caused by certain peril. The FPA clause can be written with franchise deductible, where the franchise amount is stated as a percentage of the property. Thus FPA clause of 3% means that loss under 3% falls entirely on the insured.
1. 2. 3. 4.
General average- is a loss incurred for the common good and consequently is shared by all parties to the venture based on their proportion. Conditions to be satisfied to have a general average loss are; Necessary- the sacrifice is necessary to protect all interests in venture-ship, cargo, & freight. Voluntary- the sacrifice must be voluntary. Successful- the effort must be successful. Free from fault- parties must be free from fault. Sue and labour- the insured is required to do everything possible to save and preserve the goods in case of loss. Warehouse to warehouse- protections as is afforded under the agreement extends from the time the goods leave the warehouse of the shipper, until they reach the warehouse of the consignee.
Abandonment- two types of losses are considered: actual and constructive. Actual total loss occurs when the property is completely destroyed. Constructive losses are partial losses but it would cost more to restore it than it is worth. The ship may be abandoned to the insurer and the insured collects the full amount of the policy. Coinsurance-if the insurance carried does not equal the full value of the goods at the time of loss, the insured must share in the loss though ocean marine insurance does not contain such clause. Warranties- express warranties are written into the contract and become a condition of coverage of insurance.it can be ‘free of capture and seizure’ (FC&S), Strike, riot and civil commotion (SR&CC), delay warranty, trading warranty. Implied warranties become part of the contract by custom.
INLAND MARINE INSURANCE
1. 2. 3. 4. 5. Ocean marine insurance first covered property from the point of embarkation to the place where the goods landed. Inland marine insurance developed in 1920. It is classified as followings; Domestic goods in transit. Property held by bailees- bailees are liable for damage to customer’s property only if their or they are negligent. Mobile equipment and property- inland marine property floaters can be used to cover property that is frequently moved from one location to another. Property of certain dealers- certain ‘block’ policies are used to insure dealers. Most policies provide coverage on an ‘allrisk’ basis. Means of transportation and communication- refers to property at a fixed location that is used in transportation or communication.
Inland marine insurance classified into two categories for the purpose of regulation. They are ‘filed forms’ and nonfiled forms. With filed forms, the policy forms and rates are filed with the state insurance department. It is used where there are large number of potential insured and the loss exposures are reasonably homogenous. Non-filed forms refers to policy forms and rates that are not filed with state insurance department. It is used in situation where the insured has specialized or unique needs, the number of potential insured is relatively small, and loss exposures are diverse.
Marine insurance in India
It was practised in India 3000 years ago. Travelers are exposed to risk of loosing due to piracy. Moreland has maintained that the practice of insurance was quite common during the rule of Akbar to Aurangzeb but the nature and coverage is not well known. Britishers opened general insurance in India around 1700. The Sun Insurance Office Ltd was first company set up in 1710 followed by several insurance companies around the world in marine insurance field. In 1972, the government of India nationalized the general insurance businesses by forming GIC.
Kinds of marine insurance policies.
Voyage Policy- limits the risk are determined by place of particular voyage. Time policy- designed to cover for some specified period of time. Voyage and time policy or mixed policy- combination of voyage and time policy. Valued policy- specifies the agreed value of the subject matter insured. It is not common now-a-days Unvalued policy- the value of the subject matter insured is not specified at the time of effecting policy. Wagering policy- issued without there being any insurable interest, or a policy bearing evidence that the insured is willing to dispense with any proof of interest. If policy contains ‘policy proof of interest’ or ‘interest’ or ‘no-interest’ it is wagering or honour policy. It is void in law but continued to be common.
Floating policy- method of obtaining a long term contract for goods insurance. Construction or builder’s risk policy- covers the risk incidental to the building of a vessel. Open cover policy- to manage their marine insurance in advance and to be assured to cover at all times, and also to avoid the effects of possible fluctuating rate, importers and exporters avail some kind of ‘blanket insurance’. Most popular one is ‘open cover’. It is an agreement between the assured and his underwriter under which the former agrees to declare and later to accept, all shipment coming within the scope of the open cover during some stipulated period of time. Port risk policy- cover a ship or cargo during a period in port against risk peculiar to a port as distinguished from voyage risks. Rare now-a days.
The concept of “caveat Emptor” has changed to “caveat Vendor”. Marketing is a total system of interacting business activities for satisfaction of present and potential customer. Hence, total system should be designed in such a way to generate maximum benefit. Business decision should be market oriented. Marketing is a dynamic business process- a total integrated process. Marketing program starts with the germination of the product idea and continues till the customers wants are completely satisfied. Marketing program is done with a maximum of effectiveness and a minimum of cost. Marketing must increase profitable sales over the long run.
COMPONENTS OF MARKETING CONCEPT: 1. Adoption of a predominantly market or product orientation. 2. A co-ordinate set of activities that allows the organization to achieve the goals. 3. Result oriented marketing. Operating
Satisfaction of Customers Wants and desires
Knowledge of Wants and desire
Recognition of Results desired
MARKETING OF INSURANCE PRODUCT
The most important function of insurance company includes product design, distribution services, delivery and investment performance. The distribution chain is now assuming focus with new players exploring various possibilities to reach out to customers and service them effectively. The future of insurance market and accordingly the marketing strategy is likely to be influenced by the followings; The convergence of financial services Rise of E- commerce. The emergence of new distribution channels.
1. 2. 3.
ISSUES IN INSURANCE MARKETING
The peculiar nature of the insurance industry creates implementation of marketing strategy a difficult task in following ways. 1. Insurance is unpatented, subjective requires prior experience and physical evidence is difficult to establish. 2. There is a involvement of customers in production of services, mass production is impossible. 3. The services cannot be inventoried and standardized.
Characteristics of Insurance Services.
1. 2. 3. Intangibility Heterogeneity Inseparability- life products continues to exist over a long period of time, and for making its service available, the insured has to go on paying the purchase price (premium) through out the term of the policy. This ensures that the benefit already accrued under sale are not lost. Therefore, direct sale of services is the only channel of distribution. 4. Changing Demand.
Objectives of life insurance marketing
1. 2. 3. 4. 5. 6. 7. 8. Spread of life insurance massage. Mobilization of savings in the form of pension. Profit maximization. Successful distribution of products. Improving customers services. Increasing customer base and its spread. Developing corporate image. Developing guiding policies and their implementation for a better result. 9. Suggest solution by studying the problems relating to life insurance business.
Importance of life insurance marketing
1. 2. 3. 4. 5. 6. 7. 8. 9. Mobilizes the savings of the people for further investment in productive uses and thus, avoids their wastage. Provides incentives to savings and facilitates capital formation by offering stable rate if interest and bonus as the price of their investment. Facilitates increase in production and productivity in the economy and thus enhances the economic value. Insurance market consisting of expert intermediaries, promotes stability in value of different insurance schemes. Generate employment. Makes available new variety of useful and quality products to customers. Insurance marketing is the sole source of business income. Convert latent demand into effective demand and enable people to raise their standard of living. It is a connecting link between the consumer and the producer.
Scope of insurance marketing 1. Changing policies of insurance companies. 2. Evolving consumer needs. 3. Importance of distribution 4. Innovation in insurance marketing. 5. Development of rural market. 6. Entry of public sector banks. 7. Pension plan. 8. Changing government policies. The above factors helps in widening the scope of insurance marketing.
Critical success factor for insurance players
1. 2. 3. 4. 5. 6. 7. 8. Following factors must be considered for success of any insurance company as well as insurance industry. Change in attitude of the population. Open and transparent environment created under IRDA. Well established net work. Trained professionals to build and sell products. Rationale approach to the investment criteria. Stringent accounting practices to prevent failures amongst the insurer. Level playing field at all stages of development in the sector for all players. Changing policies of authorities to protect interest of policy holders.
LIFE INSURANCE MARKETING MIX IS AS UNDER.
LIFE INSURANCE MARKETING STRATEGY PROMOTION MIX PRODUCT MIX
CHANNELS OF DISTRIBUTION Life insurance is solely depend on the agency distribution and general insurance on development officers. There are 3 players in insurance market. Mainly two channels- traditional and new
1. Buyer- consists of consumers, employees and employers. 2. Carriers- or the policy issuers will focus on mainly on life and annuities, property and causalities, health and ancillaries. 3. Distributor- forms a critical link in the System , provide value added low Cost services.
Traditional Channels Agents- most companies in India follow the traditional route of marketing through agents. In case of private players they are named as ‘Insurance Advisors/ planners. Brokers- are professionals who assess risk on behalf of client, advice on mitigation of that risk, identify the optimal insurance policy structure, bring together the insurer and insured, carry out work preparatory to insurance contract and where necessary assist in the administration and performance of such contract,in particular when claim arise.
1. Direct Marketing- Company owned sales team concept is now employed by a majority. 2. Broker/corporate agent- authorized by IRDA to sell and customized products on behalf of insurance companies. 3. Independent Financial Advisors- authorized agents of insurance companies having tie-up may be with more than one company. 4. Telemarketing- marketing through telephonic devices generating leads through cold calls and forwarding the leads to the main sales team of the company.
5. Work Site Marketing- the seller send his team to the target groups and explain the products and services suitable to them. HDFC, ICICI, Kotak etc. are using this effectively. 6. Retail Chains- cross selling of products at retail outlets. 7. Internet Marketing- internet based product offerings. 8. Banc assurance- distribution of insurance products through banks.
MARKETING STRATEGY FOLLOWED BY INSURANCE COMPANIES IN INDIA.
1. 2. 3. 4. 5. 6. Marketing strategy involve mobilization and utilization of intangible assets that enables the company to; Develop customer relationship- retaining and servicing of customer effectively. Introduce new products as per the desire of targeted customers. Produce better products at low cost and with short lead time. Mobilize employee skills and motivation for continuous improvement in process capabilities, quality, and response time. Deploy information technology, database and systems in an optimum manner. For developing a marketing strategy, a coordinated effort of organization structure, systems, process, employees, organization culture and the share value system is to be integrated.
Strategies by companies
LIC: 1. Tie-up with banks for distribution of its product. (tieup with Vijaya Bank, Corporation Bank). 2. Development of core banking system. 3. Launching of customized focused product for different target group. 4. For customer retention “revival of lapsed policies campaign has been launched. 5. On line payment of premiums. 6. Promotional activities emphasizing on tax benefit attached to different products. 7. Opening of branches in sub- urban areas and in small towns to penetrate rural market.
ICICI Prulife; 1. Strategy is to achieve scale in premium income and distribution force in shortest time. 2. Work station marketing, corporate marketing, road shows, stall in fair etc. to build awareness level among customers. More focus on direct selling apart from communication. HDFC Standard Life: 1. Using direct marketing tactics, worksite marketing and corporate marketing. 2. Multi channel distribution model. 3. Sell its products as long term investment plan.
MAX NEWYORK LIFE: 1. Using individual agent to sell its product. 2. Flexible options has been introduced in products. 3. Using media advertising and event sponsorship. 4. Tie-up with Geojet Infofin Technologies for marketing and distribution of products. 5. ‘Bundle Method” of product offering includes investment options ranging from insurance, equities, derivatives, mutual funds etc. 6. Focus on South Indian & J.K market and selling group policies. TATA-AIG 1. Mass marketing strategy to cover as many lives as possible in the initial years. 2. Stressing creditworthiness of the company and its partner. OM KATAK Mahindra:- targeting middle income affulent segment and high net worth individuals.
Bajaj-Allianz: Focus on “cash less” insurance products. (automobile) Birla-Sun Life: 1. Only unit linked products. 2. Targeting high net worth customers. AVIVA & ING Vysya: Targeting the customer base of respective banking partners. SBI Life: 1. Utilizing its huge network of SBI. 2. Offers simple products. 3. Branch wise segmentation and product offerings. 4. Smaller average size of policies.