Module 7

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 Rural insurance
Cattle insurance
• Milk cows – 2 yrs avg at first calving
to 10 yrs
• Milk buffaloes – 3 yrs avg at first
calving to 12 yrs
• Bullocks/he buffaloes – 3 to 12 yrs
• Calves/heifers – 4 months upto date
of first calving
• Scope of cover: death due to
accidents including natural
calamities, diseases, surgical
operations, strike, riot, civil
commotion, terrorism, EQ
– Add-on cover: PTD
• Exclusions: willful act, overload,
unskilled treatment, pre-existing
diseases, slaughter, theft, partial
disablement, war& nuclear risks
• SI
– Market value
• Premium
– Refer policy schedule
• Claim procedure
– Immediate claim notice within 7 days
followed by submission of following
documents within 3 days
– Duly completed claim form
– Death certificate from a qualified
veterinary surgeon
– Postmortem report
– Submission of ear tag
Sheep and goat insurance
• Age group: 7 days to 4 months
• Scope: deaths from diseases or accidents
including natural calamities
• Exclusions: as in cattle insurance
• SI: as in cattle insurance
• Premium: refer policy schedule
• PTD cannot be covered – non IRDP& IRDP
(integrated rural development program)
• Groups Discount
• Upto 100 Nil
• 101-500 5%
• 501-1000 7.5%
• 1001-5000 10%
• 5001-10000 15%
• Above 10000 20% of total premium
Camel insurance
• Age: 3 to 12 yrs
• cover: as in cattle insurance
• Exclusions: as in cattle insurance
• SI: as in cattle insurance
• Premium: refer policy schedule
Pig insurance
– Age: 2 months to 3 yrs
– Cover: death due to disease or accident
– Exclusion: as in cattle insurance
– Premium: refer policy schedule
Horse/mule/pony/donkey/yak insurance
– Age: 2 to 8 yrs
– Cover: as in cattle insurance
– Exclusion: as in cattle insurance
– SI: as in cattle insurance
– Premium: refer policy schedule
 Project insurance
• Risks associated with new projects
• Commercial risks:
– delays& escalation of costs
• Operational risks
– poor performance
• Risks of disparity
• General risks
• Political risks
All risk project insurance
• Known as marine-cum-erection
policy
• Erection of a factory
– Shipment of the first consignment
– Subsequent storage
– Civil construction
– Erection of plant& machinery
– Commissioning& trials
– Third party liability is also covered
Important factors to be considered
• Insurance obligations under the
contract
• Documents to be examined for
appropriate policy
• Imported equipments invoice to be
converted in Indian currency
• The proper arrival of SI
– Factors :Plant& equipments etc
• Extension of policy to testing period
– Maximum testing period for successful
completion to be considered
– At inception costs lesser
– Even later, longer periods costs lesser
• Project period
– Possible delays to be considered
• Higher discount
– Higher excess
• Escalation
– To be availed at inception
– Escalation in basic project cost
– Fluctuation in exchange rate
– Max limit: 50% escalation
– Premium: half the escalation amount
• Basic insurance cover
– Transit: from supplier warehouse to site
of erection
• Risks covered: all risks, war, strike, riot& civil
commotion
– Storage-cum-erection
• Additional coverage
– Dismantling cover
– Third party liability
– Testing of second hand machinery
– Cross liability cover
– Maintenance period
– Terrorism cover
– Additional transits
– Clearance& removal of debris
– Additional customs duty
• Storage risks at premises
• Location risks: fire, lightning, theft&
burglary
• Handling risks: collision, failure of cranes
• Operational risks: failure of safety devices,
leakage of electricity, insulation failure,
short-circuit, explosion
• Human risks: carelessness, negligence, faults
in erection, malicious element, strike, riot
and terrorism
• AOG: STFI, EQ, AOG perils
• Subsidence: land slide, rock slide
• Other insurance policies required
– Employers liability/WC
– Employees Sickness& Accident
– Travel insurance
– Motor damage
– Public& product liability
• Policies required after project are
– Fire insurance, machinery breakdown,
advance loss of profit
 Old-age, survivors&
Disability Insurance (OASDI)
• OASDI program is known as social security
Covered occupations
• Pvt. firm Employees
• Federal civilian employees
• State &local Govt. employees
• Non-profit organization employees
• Self-employed
• Domestic employees in private home
• Other groups
Determination of insured status
• One credit for 3 months and
maximum 4 credits in a year
• Three types of insured status
– Fully insured: eligible for retirement
benefits (Min.40 credits)
– Currently insured: eligible for death,
disability or retirement benefits (Min.
6 credits)
– Disability insured: disabled age and
credits required chart
Types of benefits
• Retirement benefits
– Full retirement age: 65
– Early retirement age: 62
– Monthly retirement benefits
• Retired worker: reduced benefit for 62
• Spouse of a retired worker: min.62
• Unmarried children: younger than 18
• Unmarried disabled children: 18 or more
• Spouse with dependent children younger
than 16: at any stage
Retirement benefit amount
• Primary Insurance Amount (PIA)
– It is a monthly amount paid to a
retired worker at the full retirement
age or to a disabled worker
– It is based on average indexed monthly
earnings (AIME)
• Delayed retirement credit
– PIA increased by certain % if the
worker works beyond full retirement
age
• Automatic cost-of-living adjustment
– The cash benefits are automatically
adjusted every year for change in cost of
living (consumer price index)
• Earnings test
– Reduction or Loss of monthly benefits for
workers with earned incomes above
certain annual limits
– Beneficiary under full retirement age
– Calendar year in which the beneficiary
attains full retirement age
– Earnings test eliminated after attainment
of full retirement age
Survivor benefit
• Unmarried children younger than 18
• Unmarried disabled children: 18 or
above
• Surviving spouse with children under
16
• Surviving spouse age 60 or more
• Disabled widow or widower ages 50 or
more
• Dependent parents: 62 or more
• Lump-sum death benefit: for eligible
widow, widower or entitled child
Disability benefits
• Eligible requirements
– Be disability insured
– Meet a 5 month waiting period
– Satisfy the definition of disability
– The worker must have physical or
mental condition that prevents him or
her from doing any substantial gainful
work and is expected to last at least
12 months or expected to result in
death
Eligible groups
• Disabled worker
• Spouse of a disabled worker
– Min. 62 or children below 16
• Unmarried children younger than 18
• Unmarried disabled children: 18 or above
Taxation of OASDI benefits
• It depends on combined income (adjusted
gross income, plus tax free interest plus
one-half of social security benefits)
• Taxation on part of the benefits
• Financing social security benefits
– Financed by a payroll tax paid by the
employees, employers and the self-
employed etc
– Long range OASDI actuarial deficit
– Reducing the long-range deficit
– 4 Basic approaches
• Increasing payroll taxes
• Decreasing benefits
• Using general revenue to fund benefits
• Investment in private venues
Changes for long-range deficit
• Compulsory social security coverage to
state& local Govt employees
• Increase in retirement age
• Reduce benefits for future retirees
• Increase taxable earnings for social
security benefits
• Subject all benefits to federal income
tax
• Trust fund investment in private
investments
Voluntary personal retirement
accounts
• Part of Social Security payroll tax
used to establish a personal
retirement account and invested in
approved investments
• At retirement worker would receive
from traditional social security&
individual account also
 Unemployment insurance
• These are federal state programs pays
weekly cash benefits to workers who
are involuntarily unemployed
• Basic objectives
– Provide cash benefit during involuntary
unemployment
– Help unemployed workers find jobs
– Encourage employers to stable
employment
– Help stabilize the economy
• Coverage (subject to no.of
employees and wages)
– Private firm (pays federal
unemployment tax)
– State& local Govt (reimburse)
– Non-profit charitable, educational or
religious organizations (right to pay
federal unemployment tax or
reimburse)
– Agricultural firms
– Domestic employment
Eligible requirements
• The applicant must earn qualifying
wages of a specified amount during
base year
• The applicant must be physically&
mentally capable of working and must
be available for work
• The applicant must not be disqualified
from receiving benefits
• 1 week waiting period to avoid short-
term claims
Benefits
• Based on worker’s past wages subject
to minimum and maximum conditions
• Formula that pays on a fraction of the
workers high quarter wages
• Extended benefits programs
– 13 additional weeks or one-half of the
regular benefits whichever is less
– Overall limit of 39 weeks (for both
regular& extended benefits)
– Cost shared among federal& state Govt.
Financing
• Federal unemployment fund trust
– Payroll taxes by employers
– Employees contribution (in few states)
– Each state has separate account&
credit the tax contribution
– Experience rating
• firms with favorable employment records
pays reduced tax rates
Problems& issues
• Decline in the proportion of total
unemployed who receive benefits
• Reasons
– Tighter eligible requirements& restrictive
policy changes at state, federal levels
– Decline in % of unionized workers
– Decline in % of workers employed in
manufacturing sector
– Increase in % of unemployed in states
where the unemployment benefits below
the national avg.
• Inadequate unemployment trust fund
balance
• State can borrow from federal
• Average high cost multiple
– It is a measure of solvency indicates how
many years a state can pay unemployment
benefits
• Imperfect experience-rating formula
– Special industry tax rates, caps on
changes in annual employer tax rates and
low state taxable wage base
– Subsidy to high-cost firms with negative
balance
 Workers compensation
• It is a social insurance provides
workers who are disabled due to job
related accidents or disease
– Medical care
– Cash benefits
– Rehabilitation services
Development of WC
• Common law of industrial accidents,
1837
– Employer can use 3 common law defenses
against law employee suits
• Contributory negligence doctrine
• Fellow servant doctrine
• Assumption-of-risk doctrine
• Employer liability laws (1885-1910)
– Employers to provide safe working
conditions but still employer negligence to
be proved from worker end
• Workers compensation law (1908)
• Liability with out fault
– Employer is held absolutely liable for
work related injuries to worker
regardless who is at fault
– Payment according to the scheduled
benefits without any law suits
– Prompt payment with min. legal
formalities
Objectives of WC
• To provide broad coverage of
employees for job-related accidents&
injuries
• To provide substantial protection
against the loss of income
• To provide sufficient medicare&
rehabilitation services
• To reduce job-related accidents& to
develop effective safety programs
– Experience rating
• Designed to reduce litigation
Complying with law
• WC policy from pvt. Insurer
• Self-insurance
– Group self-insurance for smaller firms
• State fund
– Monopoly state fund
– Competitive state fund
• Covered occupations
– Certain occupations are excluded or have
incomplete coverage – farm workers,
domestic servants and casual employees
Eligible requirements
– Disabled person must work in a covered
occupations
– Injury or disease must arise out of and in
the course of employment
– The following situations are also covered
• An employee who travels is injured whilst
engaging in job-related activities
• Injured while performing specific duties at
specified location
• Inside the premises& injured while moving
towards work area
• Heart attack while lifting heavy items
WC benefits
• Unlimited medical care
– Generally covered in full
– Managed care organization
• HMOs and PPOs
• Disability income
– Waiting period (3 to 7 days)
– 4 types of disability
• TTD (most common), PTD, TPD and PPD
• Weekly cash benefit based on avg weekly wage
(two-thirds) and the degree of disability
• Death benefits
– Burial allowances
– Weekly compensation to dependents
• Two-thirds to spouse till her death or
remarriage
• Rehabilitation services
– Board, room, travel, books&
equipments and training allowances
• Second injury funds
– To encourage employers to hire
handicapped worker
– otherwise employer will be reluctant to
hire handicapped because of higher
benefits in case of second injury
• Problems& issues
– Continued threat of terrorism
– Substantial underwriting losses
– Increased litigation
• Denial of claims by employers
• Dissatisfied with WC amount& sue for higher
amounts
 Automobile insurance
• Need
– Footpaths
• Encroached by hawkers – pedestrians
• Large potholes& manholes – untold damage
– Drunken driving
– Reckless driving
– Theft
– fire
• Types of motor policies
• Form A (Act liability)
– Unlimited liability towards
• third party liability
• Passengers of the vehicle
– Liability towards third party property
damage (Max.6000 Only)
– Liability towards employees (as per WC)
• Form B (Comprehensive policy)
– Loss or damage to vehicles& its
accessories, extra fittings, protection&
removal costs and towing for disabled
vehicles (only commercial vehicles)
– Liability towards third party property
damage (in excess of Rs.6000)
– Liability to employees under Common
law& fatal accidents act (in addition to
WC)
– PA benefits to owner, passenger and
employees
Form A policy
• Period of insurance
– 12 months and short term policies
• In case of death of person entitled to
compensation -legal heirs (provided driver
holding valid license)
• MACT – decides the TP compensation
• TPPD unlimited coverage – add on cover
• Compensation of Rs.20,000 – if the vehicle
is driven by employee other than paid driver
• Limitations: geographical area, purpose etc
• Form B policy
• Section I
– Fire, explosion, self-ignition& lightning
– Burglary, housebreaking and theft
– Riot, strike, malicious& terrorism damage
(RSMTD)
– EQ
– Flood, typhoon, hurricane, storm, tempest,
inundation, cyclone, hailstorm
– Accidental external means
– Transit by road, rail, inland waterway, lift,
elevator or air
• Discount in premium
– RSMTD, terrorism, EQ, flood& storm –
can be deleted
• Protection & removal costs
– Two wheelers: Rs.300
– Pvt cars& taxis: Rs.1500
– Other CV: Rs.2500
• authorization for repairs
– Without bills Rs.500
• Section II
– Liabilities towards third parties
• Section III
– Applicable only to CV
– Covers the vehicle whilst used to tow
disabled vehicles
– Covers TP liabilities of insured& towed
vehicle
– Not liable for damages to towed
vehicle& properties thereby
• Exclusions to comprehensive cover
– Driver under intoxication
– Driver not holding valid license
– Damage to tires only
– Wear& tear, mechanical breakdown
• Calculation of premium
– Private car
• Geographical area, CC, value, electrical& non-
electrical items
– Two wheeler
• Purpose, CC, Value, accessories (not covered
unless vehicle is stolen at the same time)
• CV
– Goods carrying vehicles
• GVW (Gross Vehicle Weight), Value,
accessories etc
– Passenger carrying vehicles
• No.of passengers& value of the vehices,
accessories etc
• Factors to be considered for
premium rating
– Driver classes
• Age, gender, marital status, use of
automobile, driving education, driving
record
• Higher risk group: younger, males, married
ones, new& inexperienced drivers
• Loading: no.of claims& amount of claims
– Territorial rating
• Group A and Group B
• Risk descending order - Larger cities,
suburban, smaller cities, smaller towns and
rural areas
• Vehicle classification
– Type (technical specifications)
• Goods carrying vehicle – GVW – heavier
vehicles are riskier – more premium
• Passenger carrying vehicle – higher
carrying capacity – more risk – more
premium
• Pvt car& 2 wheeler – Cubic Capacity
– Value of the vehicle
• SI - IDV (Insured Declared Value) or
market value whichever is lower
• Partial losses – full repair value payable
• Use of the vehicle
– Goods Carrying Vehicle – Private carrier
Vs Public Carrier
– Passenger Carrying Vehicle – Private
carrier Vs Public Carrier
• Geographical area of operation
– Zone A (Chennai, Mumbai region –
excluding mumbai city)
– Zone B (Kolkotta, delhi, Mumbai city)
– Not applicable to all India permit vehicle
– Discount – school bus, company bus to
carry employees etc