1. iN?URANCEiN iNDIAA DETAIL STUDY OFINSURANCEININDIADR. ATIK SHAIKH

2. Insurance In India -2014Page 2FOREWORDThe Insurance industry in India has undergone transformational changes over the last 12 years.Liberalization has led to the entry of the largest insurance companies in the world, who have taken astrategic view on India being one of the top priority emerging markets. The industry has witnessed phasesof rapid growth along with spans of growth moderation, intensifying competition with both life and generalinsurance segments having more than 20 competing companies, and significant expansion of the customerbase. There have also been number of product innovations and operational innovations necessitated byincreased competition among the players. Changes in the regulatory environment had path-breaking impacton the development of the industry. While the life insurance industry got affected by the introduction of capin charges, the general insurance industry got impacted by price detariffication and Motor third party riskpooling arrangements.While the insurance industry still struggles to move out of the shadows cast by the challenges anduncertainties of the last few years, the strong fundamentals of the industry augur well for a roadmap to bedrawn for sustainable long-term growth. The available headroom for development, sustainable externalgrowth drivers, and competitive strategies would continue to drive growth in the gross written premiums.However, insurance companies would need to address the key concern around losses that continue to be adrag on the capital and on the shareholders return expectations. In order to achieve profitable growth forlong term sustainability, insurers have two key imperatives. Firstly, they would need to conserve capitaland optimize the existing resource deployment and distribution networks. Secondly, they would need toinnovate not only in terms of value propositions but more importantly in terms of operating models in orderto develop sustainable competitive edge.This significant shift in the market trends brought along with it the increased need forenabling the customer to make an informed decision while choosing between differentplayers; and from among different products. For this to happen, it is absolutely essential thatthe distributor, who is the first point of contact with the clientele, is well-informed about allthe nuances of the contracts that he proposes to sell. It is no secret that the Indian insuranceindustry has been suffering from complaints of the wrong products being sold to theconsumers either inadvertently or deliberately. Quite often, it has been the case of thedistributor himself or she not knowing the details of what is in store for the customer; andthis has led to avoidable friction between the insurers and the insured.It is felt that a better equipped distributor would make a great deal of difference to avoidsuch undesirable situations; and for this to happen, it is vital that the knowledge skills of theagents and other intermediaries are updated from time to time with all the relevantinformation. This would greatly reduce the level of a client buying a policy without knowingits features, and the subsequent heartburn. Further, it would also lead to the clienteleseeking insurance on their own volition; rather than being pushed to it each time.The present book is a great step in this direction; and I have no doubt that after studying the course in detailand getting through the examination successfully, the agent will gain substantially in accomplishing thetasks that are assigned to him or her. and other professionals that were involved in the finalization of thematerial for a job well done.I would keenly look forward to its huge success in the Indian insurance domain in the days to come.-Dr. Atik Shaikh 3. Insurance In India -2014Page 3PREFACEA critical element of financial sector reforms is the development of a pool of human resourceshaving right skills and expertise in each segment of the industry to provide qualityintermediation to market participants.Quality intermediation requires personnel working in the industry to:a) follow a certain code of conduct andb) have an understanding of business and skills to connect with different constituents inthe marketIn the context of multiplicity of products and practices among insurers, the book hasadopted a generic treatment of fundamental principles of insurance, regulatory aspects,selling and marketing, policy documentations, various products and their coverage, extensionsof cover, theory and practice of premium rating, claims procedures, customer service etc.The focus is on conceptual knowledge rather than any specific individual approach of insurers.The Insurance book, thus, provides basic knowledge of insurance that enables agents tounderstand and appreciate their professional career in the right perspective. Needless to say,insurance business operates in a dynamic environment the agents will have to keep abreast ofchanges in law and practice, through personal study and participation in in-house traininggiven by insurers.Agents would do well to realize that passing of examination and obtaining the license in onlya beginning and the career of insurance agency is a profoundly rewarding one, not only interms of money but in terms of prestige and satisfaction of having done good to others.of knowledge acquired during the training. Irrespective of varying practices ofinsurers, the licensing examination of non-life insurance agents will be based on the contentsof this study book and questions will be framed and answers evaluated accordingly.I wishes all those who study this book and pass the examination, very brightcareers as insurance agents. 4. Insurance In India -2014Page 4CONTENTSChapterNo.Title Page No.1 Introduction to Insurance 42 Principles of Insurance 83 Types of Insurance 94 Selling and Marketing Insurance 135 Legal and Regulatory Aspects of Insurance Agency 146 Documentation 167 Practice of Premium Rating 178 Personal and Retail Insurance 189 Commercial Insurance 1910 Claims Procedure 2111 Customer Service 2212 Career 24KEY TERMS 25 5. Insurance In India -2014ServicesInsurancePage 5CHAPTER 1INTRODUCTION TO INDIAN INSURANCEChapter IntroductionIn day to day life every human being is engaged in some activity,it may be related to earn livelihood or household activity. Theactivity which provides livelihood is known as economic activity.Though there are so many economic activities likemanufacturing, trading, banking, transportation and insuranceand many more. But in this module we are explaining onlythe Insurance activity which can be taken by an individual orgroup of persons to earn their livelihood.The detail meaning of insurance is being explained in othermodule but in simple words insurance means transfer of risksof an individual (unexpected and uncertain) i.e Death, oldage. Disability, illness or business risks (unexpected anduncertain) i.e fire, earthquake, theft and liability to aninsurance company.The insurance sector is divided in two parts life and general ornon-lifeInsurance, through the ages, has been used as a mechanism whereby the insurer organizes theprocess by which the unfortunate few, who suffer losses, share the burden with many who areexposed to risk of similar losses. Such burden would include the primary burden of directlosses like damage due to fire and indirect losses like loss of production following suchdamage. It also includes secondary burden like physical and mental strain caused by anxietyof probable losses and the cost of maintaining reserves to mitigate such losses, if they occur.Thus we face risk in our everyday life and learn to manage these risks, so as to mitigate ourlosses.Risks are managed througha) Avoidance: doing away with the very activity that is risk prone,b) Retention: keeping the risk on ones own account,c) reduction and control through loss prevention, financing by creating reserves ord) Risk transfer: where risk is transferred to some other entity.Insurance is the best risk transfer methodology.The cost of risk is based on the factors of probability and impact of the perils occurring andcausing loss.Insurance activity is advantageous as it facilitates economic growth by investing the premiumfunds, by protecting individuals, industry and commerce, community and nation fromeconomic impact of losses, removing anxiety of losses and promotes investment.Life insurance deals with only human lives and non-life dealswith other than human life. Insurance is divided into twosegments i.e. Life and non-life/general and each segment havedeveloped independently therefore it is being discussed separately.lifeInsuranceNon-lifeInsuranceInsuranceRelatedProducts 6. Insurance In India -2014Page 6LIFE INSURANCEIn 1870 two British life insurance companies entered in Indiaand attempted to do life insurance business on Indian lives.After that, many Indian & foreign companies started businessin India and by the year 1955 there were 255 insurancecompanies operating in India and transacting the business tothe extent of Rs 200 crores. Due to the following reasons theGovernment decided to nationalize the life insurance industryw.e.f 1/7/1956.1. No full guarantee to the Policyholders (who are insured).2. The concept of trusteeship (confidence) was lacking.3. Many insurance companies went into liquidation (bankrupt).4. There was malpractice in the business.5. Non-Spreading of life insurance.6. No insurance in rural areas.7. No group insurance8. No social securityTo overcome the abovementioned problems the life insurancebusiness was nationalized and formed Life InsuranceCorporation with following features:1. The Central Govt. guaranteed the Policyholders through the LIC.2. Being a Corporation formed under Special Act Passed bythe Parliament therefore the public can trust.3. The LIC cannot be liquidated without the order of the CentralGovt.4. Under the LIC Act, all day-to-day functions of theCorporation and the method of Investment in Govt.Securities were defined. Therefore, the malpractices wereeliminated.After the nationalization the life insurance business has grownsubstantially in very first year i.e. from Rs 200 crore upto1956 to Rs 328 crores in 1957 and till privatization in 2000the business was transacting worth Rs 73436 crores.GENERAL INSURANCEPrior to nationalization of the General Insurance Business in1972 by enactment of the General Insurance BusinessNationalization Act 1972 (GIBNA 1972) there were 55 IndianCompanies and 52 non-Indian Companies carrying of thebusiness of General Insurance in India. Before thenationalization the total premium written by these companieswas Rs.170 crores as on 1971. At that time the key Economicindicators were as follows:Gross Domestic Product Rs. 36503 CroresPer Capita Income Rs. 675 CroresPopulation 541 mnsINDIAS PROFILETotal Area 3287263 Sq. Kms.Land Area 2973190 Sq.Kms.Coastlines 7000 KmsStates 29UT 6Districts 463Population 1.03 (Billion)Urban Population 27%Population Growth 2.14%Sex Ratio927 Females 1000 MalesDensity of population 273persons per KMLiteracy Rate 52.1%Life Expectancy(Male-62 & Female -64 years) 7. Insurance In India -2014Page 7To understand the why of nationalization in the first place itis sufficient to read the following excerpts from the speech ofthe then Finance Minister Mr.Y.B.Chavan.The primary objective of nationalization of general Insurancewas to make it meaningful to the common man, to carry itsmessage to the remotest corner of the country and to give itits rightful place in the economy of the country. When it wasin the private sector it was a mere handmaid to trade andindustry and served to cater to the interests of a limitedclientele. Worse still it functioned in a manner favoring theinterests of a few at the expense of, needless to say, themajority. There were allegations of malpractices on a big scale.It was the objective of nationalization to remove thesemalpractices and usher in an era of Insurance run on soundbusiness principles and functioning on healthy and egalitarianlines. The emphasis should be on spreading the message ofInsurance as widely as possible and on ensuring that it givesthe right weightage to the weaker sections of the society. Theprinciple of competition must have its useful role to play, butnot at the expense of unhealthy rivalry.General Insurance is a service and proper and efficient serviceis due to the policyholder as a matter of right. The Corporationexists for the benefit of the policyholder.Business must cease to work under purely mercenary motives.Whenever, one feels the need for protection against anunpredictable contingency, a suitable Insurance cover shouldbe available. No excuse should be given that a particular coveris not conventionally given or that other markets of the worlddo not give it. Healthy employer-employees relationship isof vital importance to achieve the main objectives ofnationalization.It will be necessary for the Corporation to review the ratingstructure in order to ensure that all classes of the policyholderreceive a fair deal and the equitable rate of premium.The Act led to the formation of the General InsuranceCorporation (GIC) and the shares of the Indian InsuranceCompanies and the units of other Insurance Companiesoperating in India along with the General Insurance businessof LIC were transferred to the GIC. The Indian companiesbecame subsidiaries of GIC and the non-Indian Companieswere transferred to 4 companies selected as flag companies tooperate from 4 zones as under:1. National Insurance Co. Ltd., with its Head Office atCalcutta.2. The New India Assurance Co. Ltd. with its Head Office atMumbai.3. The Oriental fire & Insurance Co. Ltd., with its Head Officeat New Delhi (from 1974) (now named as The OrientalInsurance Co. Ltd.) 8. Insurance In India -2014Page 84. United India fire & General Insurance Co. Ltd., with itsHead Office at Madras (now named United India InsuranceCo. Ltd.)The basis of allocation of the 107 companies was thegeographical areas of operation i.e. south based companieswere allotted to United India, the North based to the OrientalInsurance, the West based to the New India Assurance andEast based National Insurance. The 4 flag companies becamethe subsidiaries of General Insurance Corp. with effect from1/1/1973.The total business has gone from Rs 1145 croresin 1973 to Rs 9522 crores in 2000. 9. Insurance In India -2014Page 9CHAPTER 2PRINCIPLES OF INSURANCEChapter IntroductionThe purpose of insurance is to make good the financial losses suffered by the insured due toloss or damage to assets, having some economic value, owned by him. These losses occur dueto the happening of an uncertain event called risk to which the asset is exposed. Risks, interms of impact, can be:a) critical / catastrophic,b) major orc) minor / insignificantRisks, in terms of nature, can be:a) static (always present) orb) dynamic (changing with circumstances)Risks, in terms of who they affect, can be:a) fundamental (affecting entire community) orb) particular (affecting individuals)Risk, in terms of results, can bea) speculative (loss or gain) orb) pure (no gain, only loss if peril occurs).The conditions that increase the probability or severity of a loss are known as hazard, whichcould be physical, moral or legal. Insurance pools a large number of similar fortuitous risks solong as losses caused by such risks are measurable and such pooling are economically feasible.Thus insurance facilitates sharing of losses of a few by many. Like any other contract,insurance contracts are subject to offer & acceptance (by proposer & Insurance companyrespectively), consideration by way of premium, agreement between parties (consensus adidem) through contents of proposal form and policy wordings, legal competencies of partieslike proposer being a major and legality of contract being enforceable in law as it prevails. Asa corollary, insurance contracts where coercion, undue influence, fraud and / or mistakes inunderstanding occur are held to be void or voidable. Insurance seeks to put the policyholderwho suffers a loss in the same economic position she occupied prior to occurrence of suchloss. (principle of indemnity)This is done through repairing, replacing / reinstating the damaged asset or cash paymenttowards the cost thereto. Once this is done, any rights of recovery, the policyholder has fromany third party, are transferred to the insurance company. This process is known assubrogation. It prevents the policyholder from claiming from both insurer and the third party.Insurance contracts are also governed by the concept of Uberrima Fides (Utmost good faith)since the policy terms are based on information or facts provided by proposer.Any non-disclosure or wrong declaration by proposer will render the insurance contract void /voidable. Only such person who has Insurable Interest can avail insurance. Its necessary insome policies for the interest to be present both at the time of taking the policy as well as atthe time of loss. However, in some policies its essential that the insurable interest is thereonly at the time of loss. And finally, for insurance to trigger, an insured peril ought to haveproximately, not remotely, caused the loss. Causa Proxima, which means its the most activeand efficient cause which sets into motion the chain of events leading to the loss. 10. Insurance In India -2014Page 10CHAPTER 3TYPES OF INSURANCEChapter IntroductionInsurance occupies an important place in the modern world because the risk, which can beinsured, have increased in number and extent owing to the growing complexity of the presentday economic system. It plays a vital role in the life of every citizen and has developed on anenormous scale leading to the evolution of many different types of insurance. In fact, now a dayalmost any risk can be made the subject matter of contract of insurance. The different types ofinsurance have come about by practice within insurance companies, and by the influence oflegislation controlling the transacting of insurance business. Broadly, insurance may beclassified into the following borad categories:(1) Classification on the basis of nature of insurance(a) Life Insurance(b) Fire Insurance(c) Marine Insurance(d) Social Insurance(e) Miscellaneous Insurance(2) Classification from business point of view:(a) Life Insurance(b) General Insurance(3) Classification from risk point of view:(a) Personal Insurance(b) Property Insurance(c) Liability Insurance(d) Fidelity Guarantee Insurance(i) Life InsuranceA contract of life insurance (also known as life assurance) is a contract whereby the insurerundertakes to pay a certain sum either on the death of the insured or on the expiry of a certainnumber of years. In return, the insured agrees to pay an amount as premium either in a lump sumor in periodical instalments, annually or half-yearly. The risk insured against in this case is certainto happen. Hence, life insurance is also referred to as life assurance. The written form ofcontract is known as life insurance policy. It provides for the payment of a fixed sum to theinsured either on a fixed date or on the happening of an event, which is certain. Businessmen canprovide for life insurance of all their employees by way of group insurance. It also developsloyalty among employees and can be used as a security for raising loans.There are two basic types of life assurance policies(a) Whole-life policy, and(b) EndowmentPolicy.A whole life policy runs for the whole life of the insured and premium is payable all along.The sum assured becomes due for payment to the heirs of the insured only after his death. Anendowment policy on the other hand, runs for a limited period or upto a certain age of the 11. Insurance In India -2014insured. The sum assured becomes due for payment at the end of the specified period or on thedeath of the insured, if it occurs earlier.(ii) Fire InsuranceA contract of fire insurance is a contract whereby the insurer, on payment of premium by theinsured, undertakes to compensate the insured for the loss or damage suffered by reason ofcertain defined subject matter being damaged or destroyed by fire. It is a contract of indemnity,that is, the insured cannot claim anything more than the value of property lost or damaged by fireor the amount of policy, whichever is lower. The claim for loss by fire is payable subject to twoconditions, viz; (a) there must have been actual fire; and (b) fire must have been accidental, notintentional; the cause of fire being immaterial. The basic principle applied with regard to claim isthe principle of indemnity. The insured is entitled to be compensated for the amount of actual losssuffered subject to a maximum amount for which he had taken the policy. He cannot make aprofit through insurance. For example, if a person takes a fire insurance policy of Rs. 20,000/-on certain goods. Out of these, goods worth Rs. 15,000/- are destroyed by fire. The insured canonly claim an amount to the extent of loss i.e., Rs. 15,000/- (and not Rs. 20, 000/-) for thedamage from the insurance company.(iii) Marine InsuranceMarine insurance is an agreement (contract) by which the insurance company (also known asunderwriter) agrees to indemnify the owner of a ship or cargo against risks, which are incidentalto marine adventures. It also includes insurance of the risk of loss of freight due on the cargo.Marine insurance that covers the risk of loss of cargo by storm known as cargo insurance. Theowner of the ship may insure it against loss on account of perils of the sea. When the ship is thesubject matter of insurance, it is known as hull insurance. Further, where freight is payable by theowner of cargo on safe delivery at the port of destination, the shipping company may insure therisk of loss of freight if the cargo is damaged or lost. Such a marine insurance is known as freightinsurance. All marine insurance contracts are contracts of indemnity.The followings are the different types of marine insurance policies(a) Time Policy This policy insures the subject matter for specified period of time, usuallyfor one year. It is generally used for hull insurance or for cargo when small quantities areinsured.(b) Voyage Policy - This is intended for a particular voyage, without any consideration fortime. It is used mostly for cargo insurance.(c) Mixed Policy Under this policy the subject matter (hull, for example) is insured on aparticular voyage for a specified period of time. Thus, a ship may be insured for a voyagebetween Mumbai and Colombo for a period of 6 months under a mixed policy.(d) Floating Policy - Under this policy, a cargo policy may be taken for a round sum andwhenever some cargo is shipped the insurance company declares its value and the totalvalue of the policy is reduced by that amount. Such shipments may continue until the totalvalue of the policy is exhausted.(iv) Other types of InsuranceApart from life, fire and marine insurance, general insurance companies can insure a variety ofother risks through different policies. Some of these risks and the different policies are outlinedbelow.(a) Motor vehicles Insurance: Insurance of all types of motor vehicles- passenger cars,vans, commercial vehicles, motor cycles, scooters, etc., covers the risks of damage of thevehicle by accident or loss by theft, as also risks of liability arising out of injury or death ofthird party involved in an accident. Third party risk insurance is compulsory under thePage 11 12. Insurance In India -2014Motor Vehicles Act.(b) Burglary Insurance: Under this insurance the insurance company undertakes to indemnifythe insured against losses from burglary i.e., loss of moveable goods by robbery and theftby breaking the house.(c) Fidelity Insurance: As a protection against the risks of loss on account of embezzlementor defalcation of cash or misappropriation of goods by employees, businessmen may getpolicies issued covering the risks of loss on account of fraud and dishonesty on the part ofemployees handling cash or in charge of stores. This is called fidelity insurance policy. Theemployees may also be required to sign a fidelity guarantee Bond.Page 12Types: Insurance as a service activity may be classified into four broad types:INSURANCE RELATED PRODUCTS Commercial Marine Loss Control and Marine Advisory Services Risk Management Services (ESIS) Insurance Buying Consultation fraud identification marketing, loss control, and premium audit catastrophe modelling systems employment screening rating and underwriting rules motor vehicle records litigation and regulatory support mortgage fraud analytic healthcare cost analytics restoration and remodelling-estimation services and software Actuary Consulting Legal life InsuranceLets look detail into a new service introduced in the insurance related products 13. Insurance In India -2014Page 13Legal life InsuranceChanging customer behaviour and expectations, Increasing consumer awareness andinvolvement.Blurring boundaries between the online and offline world, with demonstrated multi-channelbehaviour, e.g., 6070% of online users conduct digital research before purchasing any financialservices product; two-thirds change their mind about the product and brand after online research.Emergence of various segments of customers with different needs and expectations, requiring thedevelopment of a finer customer centric approach Customers increasingly expect a solutionoriented approach rather than a claim linked transactional approach, e.g., cover for entirehealthcare needs and not just IPD claims.Very few remedies are available to the Indian insurance holder to act against the claim refusal ofinsurance company.Legal life insurance is a insurance designed to cover the legal expenses arising during the legal ornon legal proceedings while taking action against the claim refusal event of insurance company.Generally Nominee of the policy claims the Legal life Insurance.In LIP (Legal Insurance Policy) the event underwritten is that of illegal refusal of claim for thenominee in case of claim of policy.The premium are collected in the form of premium for the services prior to the policy claim. Theextent of legal services expense provided depends upon the claim amount and service charge paidfor the policy.The main aspect of this service is to provide legal help to nominee of a deceased policy holder.Legal life Insurance is introduced by Legallife Insurance Consultancy Ltd. From India.Right now these are the only provider of Legal life insurance and it is applicable to life insurancepolicy.Claim refusal protection can be given to all types of polices depending upon the requirement andregulations available for it.This type of insurance is not just limited to payment of legal expenses it is also cover theproviding and assisting in policy claim procedure. 14. Insurance In India -2014Page 14CHAPTER 4SELLING AND MARKETING INSURANCEChapter IntroductionSale is an ancient art of giving a product or service in return for money, unlike marketingwhich is the process of identifying prospects, converting them as customers, serving themsatisfactorily and retaining them. Insurance agents are sales persons who use persuasive skillsto sell insurance.Insurance marketing involves:a) identifying and segmenting the market geographically, demographically,b) targeting each segment according to their needs and positioning relevant products andselling through a competitive strategy that involves product, price, promotion andplace, also known as the 4Ps of marketingThe steps involved in insurance sales process include:a) prospecting through immediate and natural markets, use of centers of influence /other service providers, referencing, introductions & testimonials, conductingseminars & events, reaching out through information pieces, newsletters, blogs & webbased networking and cold calling,b) pre-interview to create interest,c) sales interview that identifies & highlights the need,d) determining & presenting appropriate solutions ande) closing the saleThe post sales steps include follow-through and service by setting expectations of servicedeliverables & ensuring they are met, staying in continuous contact and periodic review ofinsurance program. The agent should understand the need for insurance by the proposer andthe various insurance products offering the plausible solution.Non-life insurance selling also brings with it the finesse of fine tuning between individual(retail), small medium enterprises and corporate customers. For business to survive, securityin form of insurance is necessary. More sales to the same prospect become possible throughanalyzing gaps in their existing insurance and cross-selling of products that bridge such gaps.Its however essential that long term customer relations are maintained along with areputation for professionalism by the agents Parameters that define Insurance marketdevelopment include Premium, Insurance penetration and Density. 15. Insurance In India -2014Page 15CHAPTER 5LEGAL AND REGULATORY ASPECTS OF INSURANCEAGENCYChapter IntroductionInsurance regulations primarily help to address common concerns that insuring public hastowards insurance, mainly regarding the payment of claims. In India, such regulation hasgrown through The Insurance Act, 1938 and The Insurance Regulatory & DevelopmentAuthority Act, 1999.The Insurance Act 1938 is the basic insurance legislation of the country, which governsinsurance business in India. Insurance Regulatory and Development Authority (IRDA) wasestablished in 2000 as an independent authority to regulate and develop the insuranceindustry by an act of Parliament.Insurance is also impacted by other Acts / Legislations likea) The Employees Compensation Act, 1923 & various amendments thereof, latest beingof 2009 effective, Jan 2010,b) The Employees State Insurance Act, 1948,c) The Marine Insurance Act, 1963,d) The Motor Vehicles Act, 1988,e) The Public Liability Insurance Act, 1991, etc.The purpose of IRDA is to protect the interest of the policyholder, by scrutinizing the policywordings, rates and issuing guidelines regarding prompt settlement of claims. Propergrievance handling systems have also been put into place. IRDA has prescribed regulationsstipulating obligations on both insurers as well as intermediaries. These regulations prescribeinsurers obligations at the point of sale, towards policy servicing, claims servicing, andcontrol on their expenses, investment and financial strength to meet the commitments topolicy holdersIRDA has also mandated the compulsory business to be done in the rural areas.All people dealing with selling and servicing of insurance policies, viz. agents, corporateagents, brokers, surveyors, Third Party Administrators and insurance companies are licensedas well as regulated by IRDA as per various regulations.IRDA also deals with matters relating to agents recruitment, in terms of who can be an agent,their responsibility towards disclosures in proposal, the trainings an agent has to undergo.IRDA has issued separate guidelines for different type of agents, individual and corporate, asalso for agents operating for stands alone health companies and for Agricultural InsuranceCorporation. It also provides regulations regarding the code of conduct to be followed by theagents.Some of the dos of such code of conduct include:a) offer clear identity of self and the insurance company to prospects,b) disclose validity of license,c) provide all information on all relevant products, indicate premium to be charged,d) explain questions in proposal form,e) invite insurance companys attention to adverse risk features in proposal,f) render assistance in claims, assignment etc.Some of the donts include:a) soliciting business without valid license, 16. Insurance In India -2014Page 16b) omission of material information,c) indulging in discourteous behavior,d) interfering with prospects of other agents, and distorting rates and terms offered byinsurance company,e) demanding share in claims and migrating insured from one policy to another withoutvalid reasonsAn agent cannot offer any rebates on premium as an inducement to the policyholder,except as allowed by the insurer.Apart from the agents, there are other insurance intermediaries like corporate agents,banks and brokers who intermediate between the customer and the insurancecompany.The Indian Contract Act prescribes the role of an agent. It talks about who can be anagent, his duty towards the principal, skills expected and the termination of agency. Italso enumerates the rights of a principal when the agent deals in the business ofagency without the principal's consent, and how the agent is to be indemnified againstconsequences of acts done in good faith. 17. Insurance In India -2014Page 17CHAPTER 6DOCUMENTATIONChapter IntroductionThe purpose of insurance documentation is to bring understanding and clarity between theinsured and insurer. Common documents include proposal form filled by proposer, providingdetails of material facts and containing proposers declarations, The agent has to get thesefilled up from the proposer.Others are premium receipt, cover note / certificate of insurance / policy documentenshrining terms and conditions, endorsements that incorporate changes during policy periodand renewal notices, inviting renewal of insurance.A proposal form contains details of proposers identity, the subject matter of insurance, suminsured, details of past and concurrent insurance and previous loss experience. Based on suchinformation in proposal and any further documents called for, the insurance companyprocesses the proposal in what is known as the underwriting process.The number and nature of questions in a proposal form vary according to the class ofinsurance concerned. Where a proposal form is not used, the insurer records the informationobtained orally or in writing, and confirms it within a period of 15 days with the proposer andincorporates the information in its cover note or policy.An agent or a broker, who acts as the intermediary between the insurance company and theinsured has the responsibility to ensure that all material information about the risk isprovided by the insured to insurer. The principle of utmost good faith and the duty ofdisclosure of material information begin with the proposal form. The company will not be onrisk until the proposal has been accepted by the company and full premium paid. Premiumreceipt gains significance since, in India, as per Section 64VB of The Insurance Act, 1938, noinsurance company can assume a risk without having received premium in advance.Cover notes are used predominantly in marine and motor insurance to signify cover prior toavailability of all material information like name of the vessel, exact value of theconsignment, registration number of vehicle, etc.Certificate of Insurance is issued in motor insurance as evidence of insurance to Police &Registration authorities.A standard policy document is a stamped document and contains details of insured, subjectmatter & sum insured, perils covered, exclusions, premium, terms, conditions & warranties. Italso provides details of action to be taken by insured in event of loss, special conditions, ifany, cancellation provisions, contact details of insurance company and survey / claim settlingagents, and details of grievance mechanisms available to insured.Warranties are incorporated in policy to better define insureds obligations, so as to limit theliability of the insurer under a contract, non-compliance of which will render the insurancecontract void. Any change/s during the course of the policy period is incorporated in thepolicy through endorsements.While interpreting the policy, express conditions override implied conditions, handwrittencontent overrules typewritten content that overrules printed conditions, endorsementoverrules policy wordings, italics overrides ordinary print, margin prints have greatersignificance than body prints, clauses attached override original content and ordinary rules ofgrammar and punctuation are applied in event of ambiguity.Though there is no obligation on part of insurance company to send renewal notices,insurance companies always send those detailing relevant particulars of policy at the time ofexpiry and the renewal premium, and also stating that renewal premium is to be paid on orbefore the expiry date of policy and that risk cannot be renewed until renewal premium isreceived . 18. Insurance In India -2014Page 18CHAPTER 7PRACTICE OF PREMIUM RATINGChapter IntroductionInsurance involves creating a pool of premiums paid by many, such premium depending on arate, which is determined by probability of loss due to operation of a peril and the quantumof loss that may be thus caused. Therefore, to arrive at a rate, a large number of identicalrisks need to be involved which is rarely the case. Determining a specific rate for each riskwould be cumbersome & time consuming. Insurers therefore create risk classificationsdepending on the degree of risk present and apply rates (price or premium per unit ofinsurance) for each such classification.Underwriting is the process for determining acceptability of a risk, along with the rate, termsand conditions for insurance cover. Careful underwriting is required as all risks are not equal.Therefore, underwriting primarily involves assessment and evaluation of risks, formulatingcoverage for such risks and fixing adequate and reasonable premium rates in an equitable andsustainable way. The mathematical value of the risk arrived at by applying ratio of past lossesto the value at risk known as pure premium.This is loaded for cost of administration (expenses of Management), cost of procurement(agency commission), cost of funds to provide for unexpected large losses and margin ofprofit to arrive at final premium. Since arriving at common pure premium rates is rendereddifficult by the subjectivities of each risk, a base rate is arrived at which is loaded ordiscounted based on adverse/favorable features specific to each risk.The premium = (sum insured) x (premium rate) is the price of a given risk of insurance. Ratesvary according to the likelihood and potential size of loss. Each rate is established afterlooking at past trends and changes in the current environment that may affect potentiallosses in the future.The rate charged to the insured should be adequate and reasonable, sufficient to provide forthe payment of claims, expenses and taxation and leave an adequate margin for catastrophesand for profit. Rating factors and the information given in the proposal form as also any preinspection survey helps the insurer to decide on the rate.There may be certain features that may enhance the risk of the subject matter of insurance.These are known as hazards. Varying presence of hazards in risks is addressed by loading ofpremium and/or through warranties and clauses that create obligation on insured to bettermanage such hazards, by imposing deductibles restricting coverage and, at times, evendeclining cover for a specific hazard, the insurers are able to limit their exposure.On the other hand, to promote reduction / control over hazards, discounts are offered wheresuch control features exist and when insured has a claim free year. While the above work incase of physical hazards, declining cover is the only resort in case of moral hazard.To prevent insured taking cover only during part of the year when the risk is high, or forperiods less than a year, insurers charge short period rates of premium that is more than theproportionate premium for the period of cover. To cover administrative costs, insurancecompanies also prescribe minimum premium per policy to cover costs involved.The sum insured is fixed by the insured keeping in the view the exposure to his asset and thefinancial and legal loss he is likely to suffer. This is the maximum liability that an insurer isgoing to pay in the eventuality of a claim. The selection of sum insured is based on the typeof policy taken; for health insurance its based on age, income, occupation, whereas in caseof liability, it would depend on legal exposure. 19. Insurance In India -2014Page 19CHAPTER 8PERSONAL AND RETAIL INSURANCEChapter IntroductionIt is not only large commercial entities and business houses that have assets of monetaryvalue; even common people and small businesses have various assets like residences,vehicles, personal belongings, appliances, etc. that have monetary value. In any economy,the sum total of values of such assets owned by individuals would far surpass the value ofassets of commercial establishments. A peril that causes damage to assets does notdifferentiate between assets of commercial houses and those of individuals. So, such assetsof individuals and small businesses are also exposed to loss / damage by operation of perils,putting the owner to financial loss.Even in matters like contingencies and liabilities, the exposure of common people is same asit exists for commercial / business houses. Burglaries in homes are as common as burglariesin shops; and small shops are more exposed to such risks than large ones. A flower potaccidentally falling off a terrace of a householder and damaging a car parked below wouldmake the resident liable in law to make good the damage to the car.It is but natural, therefore, that insurance companies have developed products that servesuch insurance needs of common people and small businesses. Insurances like PersonalAccident and Health are by definition people-oriented. Personal Accident insurance providescoverage for Death, PTD PPD arising out of accidents. A group may also be provided with PAcover as long as it is centrally monitored.Similarly health insurance coverage provides cover for all age groups and there are manyplans and products from OPD to hospitalisation and day care surgeries, available for varioussegments of the market. IRDA comes out with various regulations for the health insuranceindustry from time to time. It provides for cashless facility with the help of TPAs and networkof hospitals which has made things easier for the customers.There is travel insurance coverage offering various options for students, businessmen, holidaymakers, travelling to different countries to take care of medical exigencies .This cover alsohas extensions to cover travel related risks like repatriation, emergency dental relief, loss ofchecked-in baggage, delay or cancellation of trip, delay of baggage, loss of passport, personalliability, etc. A householder or a shopkeeper may need various different kinds of insurances,like fire, theft, mechanical breakdown of appliances or equipment. These insurances can begiven as a package, which makes it administratively easier for both the parties and reducesthe premium also.It is mandatory under the Motor Vehicles Act, 1988 with amendments to take a motor policyto cover Third Party Liability (bodily injury and property damage) by anyone who uses a motorvehicle on public roads.Package policies are available to cover even damage to the vehicle due to accident / loss dueto theft. Personal accident cover is available for owner, driver and passengers. Employeescompensation liability to paid drivers and cleaners is also covered.The above insurances together constitute personal and retail insurances. All these coverage'shave perils that are either covered or excluded or can be added after paying extra premium.They all have different methodologies for deciding the sum insured and calculation ofpremium. Again it may vary from insurer to insurer. 20. Insurance In India -2014Page 20CHAPTER 9COMMERCIAL INSURANCEChapter IntroductionCommercial general insurance deals with the policies which suit commercial establishmentsand business firms. These insurances provide cover against perils and hazards that propertiesand assets, (financial as well as human) are exposed to and also in respect of potentialliabilities.It has to be noted that in modern world there is a clear trend for making certain classes ofinsurance compulsory by legislation and sometimes as an aspect of business prudence. Forexample, there may be a contractual requirement for property insurance or liability insurancefor mortgages, leases, supply of products or finances. In the context of modern complexities,it has become necessary for commercial establishments to arrange for an appropriateinsurance to safeguard the interest of the establishments against heavy possible lossesCommon commercial insurances include:a) Fire insurance,b) Consequential loss insurance,c) Burglary insurance,d) Money insurance,e) Fidelity guarantee insurance,f) Bankers indemnity insurance,g) Jewelers block insurance,h) Industrial All Risks insurance,i) Marine insurance andj) Liability insuranceFire insurance is a named peril policy covering fire, explosion / implosion, and large numberof other perils suitable for commercial establishments as well as for the owner of other typesof property. Some losses are excluded but can be covered by other policies and some can becovered on payment of additional premium, like earth quake, (fire and shock), deteriorationof stock in the cold storages following power failure as a result of insured peril. There aremarket value / reinstatement / floater or declaration basis policies.Fire could result in interruption of business and cause loss of profits for which the insured cantake a business interruption cover by a separate policy . Burglary insurance policy coverscontents against loss or damage by burglary housebreaking, theft, robbery and is available tocommercial establishments, shops etc. For a claim to get triggered off under this policyactual, forcible and violent entry exit or hold up has to be established.Money insurance covers mainly money in transit between the insureds premises and banks orother specified places including branch offices. This also covers money in safe. Fidelityguarantee insurance covers the employer in respect of any direct financial loss which he maysuffer as a result of employees dishonesty. The majority of policies issued are to commercialand manufacturing organization.Bankers indemnity insurance is a combination of several covers and provides protection tobanks against losses involving money and securitiesa) on premises,b) in-transitc) due to forgery or alterationd) due to dishonesty of any employee 21. Insurance In India -2014e) due to fraud by employees in respect of hypothecated goodsf) due to fraud of appraisers andg) while money in the hands of Janata agentsh) during despathches by registered post.Jewelers block policy was initially devised for establishment dealing with diamonds. Howevernow it is also given to shops dealing in jewellery. It covers loss or damage to specifiedproperty by fire and allied perils including burglary when in the premises or when property isin custody of persons not in regular employment of the insured and property in transitEngineering insurance includes several policies:a) All risk cover for contractors in civil engineering projects, building bridges, tunnelsetc.b) All risk cover for erection of electrical plants, equipment and structure.c) Machinery breakdown and boiler explosiond) Machinery Loss of Profitse) Advance loss of profitsIndustrial all risk insurance cover fire, burglary, machinery breakdown, business interruptionand are issued on All Risks terms. These are generally allowed for large industriesMarine cargo insurance provides cover for goods in transit by sea, air, rail or road. Export andimport shipments are covered for perils of fire /explosion, stranding of vessel, theft,pilferage, loss of package during loading and unloading. War, strikes, riots and civilcommotion can be given as added cover.Marine Hull insurance covers loss or damage to ocean going ships and fishing and, sailingvessels. Freight and stores are also covered under disbursement policies. War cover is alsogiven separately. All the Covers are provided in terms of the Institute time clauses.Liability policies: public liability policies provide indemnity in respect of damages payable byinsured under law for injuries to third parties or damage to their property. Covers forprofessional indemnity to doctors, hospitals, engineers and products liability formanufactured products causing harm are also available. Directors and officers liabilityprovides coverage for them for any wrongful acts in performance of their duties. Someinsurance are compulsory that under the Public Liability Insurance Act 1991 for those ashandling hazardous goods.Page 21 22. Insurance In India -2014Page 22CHAPTER 10CLAIMS PROCEDUREChapter IntroductionPrompt and professional claim settlement is the very cornerstone of insurance process.Various steps in claims processing include intimation of claim to insurance company as wellas to other agencies like Police, Carrier, Fire Brigade, et al, The purpose of an immediatenotice is to allow the insurer to investigate a loss in its early stages as delays may result inloss of valuable information.Further, it requires submission of claim related information through claim form which mayvary with each class of insurance. It enables to get full information regarding thecircumstances, estimate, time and date of loss and details of damaged property.Then the insurance company carries out investigation to ascertain the cause and the quantumof loss through surveyors who are unbiased in their opinion. These surveyors are licensed bythe IRDA. Different policies require different documents or reports to be submitted as per therequirement of the insurers.Thereafter, the assessment of insurers liability is essential as it quantifies the amount theinsurers have to pay the claimant keeping in view the indemnity principle and the other policyterms and conditions. Settlement of claim is made based on these inputs after ascertaining ifthe loss actually occurred, if the peril is covered under the policy, if any exclusions applyand, if payable, what is the quantum of claim payable.Settlement of claims has to be based on consideration of fairness and equity. If all is fine,claim is settled as a standard claim; however, if there are minor deviations that do notdirectly contribute to loss, claims are settled on Non-standard basis also known asNegotiable Settlement. If the loss is big and delay in proper assessment is expected, onaccount settlements are made to facilitate cash flow for insured. Each company has internalguidelines based on IRDA regulations about time taken for claims processing, which itsemployees would follow. This is generally known by the term Turnaround Time i.e. TAT.Post settlement, Insurance Company seeks to mitigate their loss by disposing off the salvage(damaged material) and by claiming from third parties responsible for the loss by gettingsubrogated to such rights of recovery as available to insured claimant.If claimant is dissatisfied with the settlement, the grievance mechanisms available includeInsurance companies internal grievance cells, Insurance ombudsman in case of Personal lineclaims, Consumer forums and civil courts and arbitration generally, only if the dispute is onlyon the quantum of claim. 23. Insurance In India -2014Page 23CHAPTER 11CUSTOMER SERVICEChapter IntroductionCustomer is the reason why business exists. Insurance being a service sector, is morecustomer oriented and hence the emphasis on customer service. The quality ofservice needs to reflect reliability, responsiveness, assurance, empathy of the agentand ambience of the insurance companys office.The patronage and support of existing clients also helps to build business. In fact alarge part of agents income comes from the commissions for renewal of thecontracts. These clients are also the source for acquiring new customers.Commitment to serving their customers is the mantra for the success.Customer service becomes paramount at the same level by understanding the needs of thecustomer. At the stage of point of sale it's important for agents to understand thatrecommendations have to be based on the risk perceptions, probability of loss and laws of theland. The agent needs to advice the various ways by which the risk can be managed by thecustomer, like using deductible, risk retention, copayment to reduce the cost of handling therisk.Hence he needs to be a risk assessor, underwriter, risk management counselor, designer ofcustomized solutions and a relationship builder who thrives on building trust and long-termrelationships. Then comes the proposal stage at which support is required by the customer tofill the proposal form. The acceptance stage results in issuance of cover note, policydocument or renewal of policy, wherein an agent is in touch with the customer to ensuresmoothness of the process.The claims stage is where the agent has a crucial role to play in terms of prompt reportingand procedural advice given to the customer. In order to ensure long term retention ofclients all insurers are mandated by IRDA to have in place Grievance redressal mechanism.Role of agent gets activated at this stage as there may be negative emotions involved.A complaint is a crucial moment of truth in the customer relationship; if the company getsit right there is potential to actually improve customer loyalty. Despite all efforts if there aredisputes, the following mechanism is there to deal with it.Integrated Grievance Management System [IGMS]: is the central depository of the insurancegrievance data launched by IRDA as a tool for monitoring grievance redressal in the industry.Customer Protection Act, 1986: An Act passed to provide for better protection of theinterest of consumers and to make provision for the establishment of consumer councils andother authorities for the settlement of consumers disputes. The act has been amended bythe Consumer Protection (Amendment) Act 2002.District Consumer Redressal Forum: Insurance is included as a service. Hence if there isdeficiency of service in terms of policy issuance or claim settlement then the insured can seekredressal in the District consumer redressal forum if the claim amount is up to Rs. 20 lacs,and thereafter with State commission up to 1 crore and National commission for largerclaims. The last 2 would look into appeal arising from decision of the lowerforum/commission. 24. Insurance In India -2014Insurance Ombudsman: are appointed under the Redressal of Public Grievances Rules, 1998to resolve complaints in respect of dispute between policy holders and insurer relating to onlypersonal lines of insurances up to 20 lacs in a cost effective, efficient and impartial mannerThe decision of the ombudsman is binding on the insurance company.Page 24 25. Insurance In India -2014Page 25CHAPTER 12CAREERChapter IntroductionFor an agent to have a successful career, two qualities are paramount, empathy and egodrive. The major rewards of a career in insurance sales includes social recognition as aknowledgeable worker and a professional, with satisfaction of providing solutions to problemsof people around, along with the prestige that comes from being instrumental in financiallyhelping out people who are affected by a misfortune, the ability to protect people fromfinancial impact of accidents, illness, etc.Thus they have the unique advantage to work as per their own career ambitions and decidethe level they want to reach. The insurance environment is constantly changing and henceawareness is essential in terms of distribution channels, products offered. Insurance sellingcareer opportunities are available as corporate agents, insurance brokers and bancassurancechannel also.A firm, Banking Company, Rural Banks, Co-operative Societies and Banks, along withPanchayats and Local Authorities can also become corporate agents.With experience a successful agent can also branch off within the insurance industry intodomains like branch manager, sales trainer for pre recruitment training, product, sales, softskills training, marketing research, brand management and product development. Thus thereis a wide array of choices available with someone who has chosen insurance agency as acareer. 26. Insurance In India -2014Page 26KEY TERMSActive listening: It is letting the other person know you hear and understand what theyare saying by asking pointed questions and summarizing. The mainpoints to active listening are paying attention, acknowledging that theother person is talking, and giving feedback. Active listening enables aperson to make need based selling and avoid mis-selling.Adjustment andSettlement:After a claim on receipt of the survey report, the insurer ascertains ifthe loss suffered by the insured is caused by an insured peril, if there isno breach of any policy condition or warranties, thereafter the claimamount is adjusted and settled taking into account/adjusting theunderinsurance, deductible / excess, depreciation, salvage to arrive atthe final amount.Advance paymentof premium:Premium is the consideration paid by the proposer to purchase theinsurance. In the Indian context the Insurance Act, 1938 andamendments thereof under Section 64(V) (B) makes it compulsory foritspayment in advance.Agent: The Insurance Act defines an insurance agent as one who is licensedunder Section 42 of the Act and is paid by way of commission orotherwise, in consideration for soliciting or procuring insurancebusiness, including business relating to the continuance ,renewal orrevival of policies. In short an agent is an authorized sales person forinsurance and needs a license from IRDA to do so.Arbitration: It is a condition of some insurance policies and it is invoked where theinsurance company has accepted liability but there is a disputeregarding the amount claimed by the insured and the amount offeredfor settlement by the insurance company. The procedure for sortingout the differences is as per the Arbitration and Conciliation Act, 1996.Asset: Anything tangible or intangible that gives benefit and has an economicvalue for the owner, by way of generating income or adding value.Bancassurance: It is a tie up between banks and insurance company to enable banks todistribute the insurance products to the banks customer base. It hasemerged as an important distribution channel globally and hasoperational cost effectiveness and efficiency.Bankers indemnityInsurance:It is a combination of several covers and provides protection to banksagainst losses to money, securities on premises, in transit, againstforgery or alteration, dishonesty of any employee, fraud in respect ofhypothecated goods, and fraud of appraisers.Body Language: reflects the way we talk, walk, sit and stand. All these mannerisms saysomething about us, and what is happening inside us. Positive bodylanguage creates confidence and trust in prospects which translatesinto policy holders.Brokers: are intermediaries representing the insured in all their interactions withthe insurance company specifically in helping them choose the rightproduct and company that would best fit their particular needs. Aninsurance broker has the liberty to deal with many insurancecompaniesBurden of risk: Costs, losses and liabilities one has to bear by being exposed to a losssituation/event.Burglary Insurance: The policy covers contents against loss or damage by burglary, 27. Insurance In India -2014Insurance: housebreaking, theft, robbery as defined under appropriatesections ofthe Indian penal code. And is available to commercial establishment,factories and shops.Caveat emptor: Commercial contracts are normally subject to the principle of caveatemptor i.e. let the buyer beware. It is assumed that each party to thecontract can examine the item or service which is the subject matterof the contract. Each party can verify the correctness of the statementof the other party. There is no need to take the statements on trust.Proof can be asked for.Page 27Certificate ofinsurance:Provides proof of existence of insurance policy. In Motor Insurance, theform is as prescribed under the motor vehicles Act 1988. Thiscertificate provides evidence of insurance to the Police and RegistrationAuthorities.Claim forms: A form designed to get full information regarding the circumstances,estimate, time and date of the loss along with details of damage toproperty, details of sickness /injury in respect of personal insurances.Closing the sales: is the process of persuading the prospect to buy insurance now after allthe earlier steps of sale have been through.Cold calling: Cold calling is soliciting potential customers who were not expecting tospeak with you. The term 'cold' refers to the fact that you haven't laidany groundwork for your call. In this process the agent may findcustomers reluctant to listen to them and even if they listen they mayturn down the proposal.Consensus adidem:For a valid contract both the parties to the contract must be of thesame mind. The insurance given should match the insurance asked forwith reference to the subject matter, perils and add on cover if any.Contribution: Ensures that the indemnity provided is proportionately borne by otherinsurers in case of multiple policies where the subject matter is coveredfor the same peril and duration and the claim occurs within the samepolicy period as of the other insurers.Cover note: Also known as Interim Protection Note, Cover Note is issued byInsurance Companies as proof of cover once premium is paid till theInsurance Policy is ready and issued.CustomerProtection Act,1986An Act passed to provide for protection of the interest of consumersand to make provision for the establishment of consumer councils andother authorities for the settlement of consumers disputes. The act hasbeen amended by the Consumer Protection (Amendment) Act 2002.Deductibles A deductible is a sum of money the insured pays before a company willprovide the benefits outlined in an insurance policy. The object ofthese clauses is to eliminate small claims. Further, as the insured ismade to pay part of a loss, he is encouraged to exercise more care andto practice loss prevention.Disputes in ClaimSettlement:Disputes in claim settlement can arise out of the following; a) denial ofliability b) underinsurance c) depreciation d) salvage e) excess.District ConsumerForumEstablished under the consumer protection act. Its a forum whereinsured can seek redressal for claims up to Rs. 20 lacs.Ego drive: refers to the salespersons intense drive and effort to make the salesuccessful not merely for the money but for personal satisfaction and tofulfill an internal emotional need to excel in ones chosen profession.Empathy: The ability to feel as the other person does by putting oneself in theother's shoes. This enables the agent to sell the right kind of productand to provide appropriate level of service especially in event of aclaim and grievance. 28. Insurance In India -2014Page 28EngineeringInsuranceIncludes several policies:(a) All risk cover for contractors in civil engineering projects, buildingbridges, tunnels etc.(b) All risk cover for erection of electrical plants, equipment andstructure.(c) Machinery breakdown and boiler explosion(d) Machinery Loss of ProfitsEthical behavior: involves showing concern for others and keeping the best interests ofthe client in mind, keeping their information confidential and disclosureof all material facts, above ones own direct or indirect benefits.Excess Excesshelps in better claims management by taking care of small losses.Claims get triggered only if the assessed loss amount exceeds theexcess amount, thereby reducing the administrative work and alsodiscouraging the insured from preferring small claims which he /shecanbear.Family covers: are health insurance covers given to families. The definition of familyvaries according to different insurers. They are available on individualsum insured basis / floater basis. The premium may attract a familydiscount.Fidelity guaranteeinsurance:This policy covers the employer in respect of any direct financial losssuffered as a result of employees dishonesty. The majority of policiesissued are to commercial or financial organization.Fire insurance ofProperty:Fire insurance covers loss or damage to property insured arising onaccount of any perils listed therein and consequential loss followingthereafter. Variants of this insurance are reinstatement valueinsurance, declaration policies and floater policies. Consequential lossinsurance pays for loss of profits resulting from an event that leads to apayable claim towards Material Damage.Group policy: In a group policy a large number of individuals are covered under asingle policy called a master policy. The insurance contract is enteredinto with the body that represents the individuals, the employer or theassociation, who is the policy holder. The individuals are beneficiaries.Both Personal Accident and Health insurances are available for groupson the above basis.Hazard: Condition or situation that creates or increases chance of loss inan insured risk, separated into two kinds Physical and Moral hazard.Health insurance: A contract between the insurer and the insured wherein insurer agreesto pay hospitalization expenses to the extent of an agreed suminsuredin the event of any medical treatment arising out of an illness or aninjury.HouseholdersInsurance:This is a package policy meant for householders, which cover theresidential building and contents of the insured for fire, and contentsagainst burglary. Domestic appliances, Television and other electronicitems are also covered. Since this is a package policy the insured getsdiscount for availing covers under more than one section.Indemnity: means placing the insured in the same financial position after a loss ashe enjoyed before it, not better, with no allowances for anyimprovements.Industrial all Risk: Coverage is for Mega risk policies and on all risks terms withexclusions.Requires risk inspection before insuring and wordings guided by the 29. Insurance In India -2014Page 29reinsurance marketInsurable interest: Insurable interest arises out of financial relationship between theinsured and the subject matter of the insurance, such that he stands tolose by the destruction of the same. Insurable interest is required atthe time of taking a policy and continues throughout the policy term.Marine insurance being an exception.Insurance density: It is measured by premium per head of population and is arrived at bydividing the total amount of premiums in a country [or given market] byits population. Density is a measure of the reach and spread ofinsurance in a given population.InsuranceOmbudsman:are appointed under the Redressal of public grievances rules 1998 toresolve complaints in respect of dispute between policy holders andinsurer relating to only personal lines of insurances in a cost effective,efficient and impartial manner. The decision of the ombudsman isbinding on the insurance company.Insurancepenetration:it is given by the ratio of total premiums to gross domestic product [orpremium/GDP]. Penetration is a measure of the economic significanceof insurance. It tells us what portion of an economys income is spenton insuranceIntegratedGrievanceManagementSystem [IGMS]:is the central depository of the insurance grievance data launched byIRDA as a tool for monitoring grievance redressal in the industry.Intimation of loss: As per the policy condition, any event that triggers a claim should beforthwith intimated/ informed to the insurance company. Delay inintimation may result in the claim being denied.Investigation andassessment:The insurance company on receipt of intimation of loss will verify thepolicy for liability in respect of the period of insurance and perilcovered and would send an investigator if there is any doubt regardingthe genuineness of cause of loss. They will also send a surveyordepending on the estimate of loss to assess the loss within the term ofthe policy. Assessment is essential as it quantifies the amount keepingin view the indemnity principle. Investigation is also done in respect ofpersonal accident claims.Jewelers blockpolicy:The policy was initially devised for establishment dealing withdiamonds. However now it is also given to shops dealing in Jewelry. Itcovers damage to specified property by fire and allied perils andburglary when in the premises, property in custody of persons not inregular employment of the insured and property in transit.Lawfulconsideration:Premium paid by the insured must be from known source of incomeandlegal income. It cannot be from unknown source or amount to moneylaundering.Liability policies: These policies provide indemnity to insured in respect of damagespayable under law for injuries to third parties or their property. Coversfor professional indemnity to doctors, hospitals, engineers,accountants, advocates, are also availableLoading of premiums: is resorted to by the insurer to take care of any adverse feature or badclaims experience.Marine HullInsurancecovers loss or damage to ocean going ships and other vessels againstperils of sea. Freight and stores are also covered under disbursementpolicies.Marine cargoinsurance:Marine cargo insurance provides cover for goods in transit by sea, air,rail or road, for fortuitous maritime perils 30. Insurance In India -2014Material facts: Information relating to the subject matter of insurance that have abearing on the decision regarding acceptance/rejection of risk byinsurance companyMoney insurance: covers mainly money in transit between the insureds premises andbanks or other specified places including branch offices. This alsocovers money in safe premises.Page 30Moral Hazard: means character of persons proposing for insurance. Dishonestpersonsare likely to attempt frauds and make money by misusing insurance.Motor Insurance: provides coverage to two wheelers/ private cars/ commercial vehicles,both passenger /goods carriers. Its mandatory under the MotorVehicles Act to cover third party liability (bodily injury and propertydamage) by anyone who uses a motor vehicle on public roads.Personalaccident cover is available for owner driver and passengers.Employeescompensation liability to paid drivers and cleaners is also covered.Negotiation: a methodology used to reconcile the differences between therequirements of the insured and the offer of the insurer. The agentneeds to deftly act to reconcile these differences so as to arrive at awin-win situation.Offer andAcceptance:For a valid insurance contract there has to be a legal offer and theacceptance of the same to be conveyed to the insured. Here theProposer offers his asset/property for insurance. The insurancecompany accepts the offer if it is satisfied with the risk elements.Overseas Mediclaim/Travel Policy:An insurance that covers medical expenses incurred arising out ofillnessor accident occurring while travelling abroad along with extensions.Customized plans to suit certain types of travel such as business trips,family trips etc. are available.Personal accidentInsurance:Personal accident policy is available for residents of India and theirdependent family members, and covers accidental death, permanenttotal disability, permanent partial disability and temporary totaldisability arising from sudden, unforeseen & unexpected events causedby external, violent & visible means.Physical Hazard: consist of those physical attributes of the subject matter of insurancethat increase the exposure and quantum of loss from the risk(E.g.) Hutslocated near coasts where tidal waves occur frequently are physicalhazard for flood related perils as the probability of damage is greater inthis case.Policy form: The stamped and legal document that evidences the contract betweenthe insured and the insurer specifying the subject matter, the peril, theliability of insurer and the amount of premium payment.Pooling: relating to risks. Collecting numerous individual contributions (calledpremium) from various persons having similar assets exposed tosimilarrisks.Prohibition ofRebates:as per the Insurance Act no person can induce someone to takeinsurance by offering rebate of the commission or premium payable,except as allowed in accordance with the published prospectus ortables of the Insurer.Prospecting: Prospects are people to whom we can sell insurance. Prospecting istheprocess of gathering names of people whom we can approach and 31. Insurance In India -2014secure a sales interview with. Continuous prospecting is absolutelyvital to a successful agency career.Page 31Proximate cause: Active, direct, and efficient cause of lossin insurance that sets in motion an unbroken chain of events whichbring damage, destruction, or injury without the intervention of a newand independent force.Quality of service: Refers to reliability, responsiveness, assurance, empathy of the agentand ambience of the insurance companys office.Rate making: a procedure for fixing rate of premium according to exposure anddependent on classification of risk and past loss experience.Renewal notice: insurers issue a renewal notice ahead of the date of expiry of the policyinviting renewal of the policy. This is more as a courtesy rather thanstatutory. It also advices the insured to intimate material changes if anyso that actual premium can be charged.Risk Avoidance: option of doing away with the activity that is risk prone.Risk control: Taking steps to reduce the chance of occurrence of a loss and/or tominimize severity of its impact, should a loss occur.Risk: Means the happening or not happening of an event. Quite often theterm Risk is used to denote the property i.e. subject matter ofinsurance. It is also used to denote a peril. The student shouldunderstand this in the context in which it is used.Risk retention: Paying for ones losses from ones own means and fundsRisk transfer: Transferring the burden of loss to another party i.e. to the insurerShop KeepersInsuranceThis is a package policy meant basically for small shopkeepers. Itcoversthe building and stock and other contents of the insured for fire, andburglary. Appliances, Electronic Equipment like computers; laptops arecovered against mechanical/electronic breakdown. Money belonging toinsureds shop, Personal Baggage and Personal accident cover is alsoincluded; workmen compensation to workers is also available.Subrogation: refers to transfer of the insureds right of action against a third party tothe insurer who pays the loss. Insurer can take the insureds place andsue the party that caused the loss to recover Subrogation comes in thepicture only in case of damage due to a third party.Surveyors: Surveyors are service providers to a general insurance company,usuallyat the time of claim or carrying out pre inspection of risk. They carryout claim surveys and estimate the quantum of loss.Uberrima fides: means Utmost good faith: applies to both the insured and the insurer.The former must disclose everything within their knowledge about therisk involved, which would affect the contract of insurance. The latter,the details of terms & conditions of cover.Underwriting: Is an important process in the insurance office. Once the proposal isreceived it is scrutinized to decide if the risk is to be accepted orrejected, subject to what rate, terms and conditions. Assessing andclassifying the risk is an important aspect of underwriting.Warranty: these are express or implied warranties. These may be printed on thepolicy itself, or more commonly, attached to the policy in separatewarranty forms. The insurer would like to ensure that the risk remainsthe same as it existed at the time of the proposal and be protectedagainst the introduction of some feature which may increase the risk.For this purpose, warranties are inserted in the policy. 32. Insurance In India -2014Page 32References used1. Principles of Risk Management and Insurance by George E. Rejda (Published by PearsonEducation Asia)2. Risk Management and Insurance by Trieschmann, Gustavason & Hoyt (Published byThomson South - Western)3. Life and Health Insurance by Kenneth Black & Harold Skipper Jr. (Published by PrenticeHall)4. Manual of Insurance Laws5. Publications of Insurance Institute of IndiaIC35 -GENERAL INSURANCE WORK BOOKIC 51 - Fire hazards of specific industriesIC 52 - General fire hazardsIC 54 - Fire insurance underwritingIC 55 - Consequential loss insuranceIC 56 - Fire insurance claimsIC 57 - Fire & consequential loss insuranceIC 61 - Cargo loss preventionIC 62 - Commercial geographyIC 63 - Marine clausesIC 65 - Marine underwritingIC 66 - Marine insurance claimsIC 85 ReinsuranceSOURCE: RBI; IRDA; IIB; Planning Commission; Public Health Foundation of India; public disclosures; McKinseyanalysisSOURCE: IHS Global Insights; Autocar; IIB; IRDA; NCAER; RSBY website; US census bureau; AM Best; Association ofBritish Insurers; RBI; McKinsey Global Insurancepools; McKinsey analysisSOURCE: IRDA; annual reports of GI companies; McKinsey analysis