UNIT 1

INSURANCE

Meaning of Insurance – Insurance means a promise of compensation for any potential future
losses. It facilitates financial protection against by reimbursing losses during crisis. There are
different insurance companies that offer wide range of insurance options and an insurance
purchaser can select as per own convenience and preference. Several insurances provide
comprehensive coverage with affordable premiums. Premiums are periodical payment and
different insurers offer diverse premium options. The periodical insurance premiums are
calculated according to the total insurance amount.

In other words, a promise of compensation for specific potential future losses in exchange for
a periodic payment. Insurance is designed to protect the financial well-being of an
individual, company or other entity in the case of unexpected loss. Some forms of insurance are
required by law, while others are optional. Agreeing to the terms of an insurance policy creates
a contract between the insured and the insurer. In exchange for payments from the insured
(called premiums), the insurer agrees to pay the policy holder a sum of money upon the
occurrence of a specific event. In most cases, the policy holder pays part of the loss (called
the deductible), and the insurer pays the rest.

Some important definitions of insurance are as follows:

 Insurance is cooperative form of distributing a certain risk over a group of persons who are
exposed to it.
Ghosh and Agarwal
 Insurance is an instrument of distributing the loss of few among many.
Disnadle
 The collective bearing of risk is insurance.
W. Beverideges

Characteristics of Insurance:-

The insurance has the following characteristics which are, generally, observed in case of life,
marine, fire and general insurances.
1. Sharing of Risk: Insurance is a device to share the financial losses which might befall on
an individual or his family on the happening of a specified event. The event may be death
of a bread-winner to the family in the case of life insurance, marine-perils in marine
insurance, fire in fire insurance and other certain events in general insurance, e.g., theft in
burglary insurance, accident in motor insurance, etc. The loss arising nom these events if
insured are shared by all the insured in the form of premium.
2. Co-operative Device: The most important feature of every insurance plan is the co-
operation of large number of persons who, in effect, agree to share the financial loss
arising due to a particular risk which is insured. Such a group of persons may be brought
together voluntarily or through publicity or through solicitation of the agents.
3. Value of Risk: The risk is evaluated before insuring to charge the amount of share of an
insured, herein called, consideration or premium. There are several methods of evaluation
of risks. If there is expectation of more loss, higher premium may be charged. So, the
probability of loss is calculated at the time of insurance.
4. Payment at Contingency: The payment is made at a certain contingency insured. If the
contingency occurs, payment is made. Since the life insurance contract is a contract of
certainty, because the contingency, the death or the expiry of term, will certainly occur,
the payment is certain. In other insurance contracts, the contingency is the fire or the
marine perils etc., may or may not occur. So, if the contingency occurs, payment is made,
otherwise no amount is given to the policy-holder.
5. Amount of Payment: The amount of payment depends upon the value of loss occurred
due to the particular insured risk provided insurance is there up to that amount. In life
insurance, the purpose is not to make good the financial loss suffered. The insurer
promises to pay a fixed sum on the happening of an event.
6. Large Number of Insured Persons: To spread the loss immediately, smoothly and
cheaply, large number of persons should be insured. The co-operation of a small number
of persons may also be insurance but it will be limited to smaller area. The cost of
insurance to each member may be higher. So, it may be unmarketable.
7. Insurance is not a gambling: The insurance serves indirectly to increase the productivity
of the community by eliminating worry and increasing initiative. The uncertainty is
 changed into certainty by insuring property and life because the insurer promises to pay a
definite sum at damage or death.
8. Insurance is not Charity: Charity is given without consideration but insurance is not
possible without premium. It provides security and safety to an individual and to the
society although it is a kind of business because in consideration of premium it
guarantees the payment of loss. It is a profession because it provides adequate sources at
the time of disasters only by charging a nominal premium for the service.
Role and Importance of Insurance:-
Insurance has evolved as a process of safeguarding the interest of people from loss and
uncertainty. It may be described as a social device to reduce or eliminate risk of loss to life and
property.

Insurance contributes a lot to the general economic growth of the society by provides stability to
the functioning of process. The insurance industries develop financial institutions and reduce

uncertainties by improving financial resources.

1. Provide safety and security: Insurance provide financial support and reduce
uncertainties in business and human life. It provides safety and security against particular
event. There is always a fear of sudden loss. Insurance provides a cover against any
sudden loss. For example, in case of life insurance financial assistance is provided to the
family of the insured on his death. In case of other insurance security is provided against
the loss due to fire, marine, accidents etc.
2. Generates financial resources: Insurance generate funds by collecting premium. These
funds are invested in government securities and stock. These funds are gainfully
employed in industrial development of a country for generating more funds and utilized
for the economic development of the country. Employment opportunities are increased by
big investments leading to capital formation.
3. Life insurance encourages savings: Insurance does not only protect against risks and
uncertainties, but also provides an investment channel too. Life insurance enables
systematic savings due to payment of regular premium. Life insurance provides a mode
of investment. It develops a habit of saving money by paying premium. The insured get
the lump sum amount at the maturity of the contract. Thus life insurance encourages
savings.
4. Promotes economic growth: Insurance generates significant impact on the economy by
mobilizing domestic savings. Insurance turn accumulated capital into productive
investments. Insurance enables to mitigate loss, financial stability and promotes trade and
commerce activities those results into economic growth and development. Thus,
insurance plays a crucial role in sustainable growth of an economy.
5. Medical support: A medical insurance considered essential in managing risk in health.
Anyone can be a victim of critical illness unexpectedly. And rising medical expense is of
great concern. Medical Insurance is one of the insurance policies that cater for different
type of health risks. The insured gets a medical support in case of medical insurance
policy.
6. Spreading of risk: Insurance facilitates spreading of risk from the insured to the insurer.
The basic principle of insurance is to spread risk among a large number of people. A
large number of persons get insurance policies and pay premium to the insurer. Whenever
a loss occurs, it is compensated out of funds of the insurer.
7. Source of collecting funds: Large funds are collected by the way of premium. These
funds are utilized in the industrial development of a country, which accelerates the
economic growth. Employment opportunities are increased by such big investments.
Thus, insurance has become an important source of capital formation.
 Functions of Insurance:-

PRIMARY SECONDARY
FUNCTIONS FUNCTIONS

• PROVISION OF CERTAINTY • PREVENTION OF LOSS

OF PAYMENT AT THE TIME • PROVISION OF CAPITAL
OF LOSS. • IMPROVEMENT OF
• PROVISION OF EFFICIENCY
PROTECTION • ENSURING WELFARE OF
• RISK SHARING THE SOCIETY

Principles of Insurance:-

The main motive of insurance is cooperation. Insurance is defined as the equitable transfer of
risk of loss from one entity to another, in exchange for a premium.

1. Nature of contract: Nature of contract is a fundamental principle of insurance contract. An

insurance contract comes into existence when one party makes an offer or proposal of a contract
and the other party accepts the proposal. A contract should be simple to be a valid contract. The
person entering into a contract should enter with his free consent.

2. Principal of utmost good faith: Under this insurance contract both the parties should have
faith over each other. As a client it is the duty of the insured to disclose all the facts to the
insurance company. Any fraud or misrepresentation of facts can result into cancellation of the
contract.
3. Principle of Insurable interest: Under this principle of insurance, the insured must have
interest in the subject matter of the insurance. Absence of insurance makes the contract null and
void. If there is no insurable interest, an insurance company will not issue a policy.
An insurable interest must exist at the time of the purchase of the insurance. For example, a
creditor has an insurable interest in the life of a debtor, A person is considered to have an
unlimited interest in the life of their spouse etc.
4. Principle of indemnity: Indemnity means security or compensation against loss or damage.
The principle of indemnity is such principle of insurance stating that an insured may not be
compensated by the insurance company in an amount exceeding the insured’s economic loss.
In type of insurance the insured would be compensation with the amount equivalent to the actual
loss and not the amount exceeding the loss. This is a regulatory principal. This principle is
observed more strictly in property insurance than in life insurance. The purpose of this principle
is to set back the insured to the same financial position that existed before the loss or damage
occurred.

5. Principal of subrogation: The principle of subrogation enables the insured to claim the
amount from the third party responsible for the loss. It allows the insurer to pursue legal methods
to recover the amount of loss, For example, if you get injured in a road accident, due to reckless
driving of a third party, the insurance company will compensate your loss and will also sue the
third party to recover the money paid as claim.
6. Double insurance: Double insurance denotes insurance of same subject matter with two
different companies or with the same company under two different policies. Insurance is possible
in case of indemnity contract like fire, marine and property insurance.
Double insurance policy is adopted where the financial position of the insurer is doubtful. The
insured cannot recover more than the actual loss and cannot claim the whole amount from both
the insurers.

7. Principle of proximate cause: Proximate cause literally means the ‘nearest cause’ or ‘direct
cause’. This principle is applicable when the loss is the result of two or more causes. The
proximate cause means; the most dominant and most effective cause of loss is considered. This
principle is applicable when there are series of causes of damage or loss.
BENEFITS OF INSURANCE:

Benefits of insurance to Benefits of insurance Benefits of insurance to

the individual to the business the society

Loss control Protects wealth

Peace of mind
activities of the country

Adversion of Reduced credit Helps in economic

risk risk growth

Reduced cost of
Tools of savings Control inflation
capital
Classifications of Insurance:-

CLASSIFICATIONS

Classification on the Basis Classification from Classification from Risk

of Nature of Insurance Business point of view point of view

Life Insurance
Personal Insurance Property Insurance
Life Insurance Fire Insurance

General Insurance

Fidelity Guarantee
Liability Insurance
Social Insurance Marine Insurance Insurance

1. Classification on the basis of Nature of Business

I. Life Insurance: It may be defined as a contract in which the insurer in consideration of a

certain premium either in a lumsum or by a period payment agrees to pay the assured or
to the person for whose benefit the policies taken.

The risk insured against the risk is involved other matter than the company is not liable.

Fundamentals:-

A. Essentials of a valid contract

B. Principle of Utmost good faith
C. Principle of Insurable interest
II. Fire Insurance: It is a contract whereby the insurer in consideration of the premium paid
undertakes to make good any loss or damage cost by fire during specific period.
Normally fire insurance is for one year period and it will be renew from time to time.

Fundamentals:-

A. Insurable interest
B. Utmost good faith
 C. Principle of indemnity.
III. Marine Insurance: It is an agreement whereby insurer undertakes to compensate the
owner of a ship or cargo for complete or partial loss of sea.

Fundamentals:-

A. Utmost goods faith

B. Contract of indemnity
C. Principle of insurable interest.
IV. Social Insurance: It has developed to provide economic security to weaker section of the
society like pension plans, unemployment security, sleekness insurance etc.
V. Miscellaneous Insurance: These are some as:
 Motor insurance
 Personal accident insurance
 Liability insurance
 Duty insurance
 Cash insurance.

2. Classification on the Basis of Business point of View

I. Life Insurance: It may be defined as a contract in which the insurer, in payments, agrees
to pay the assured, or to the person for whose benefit the policy is taken, the assured sum
of money, on the happening of a specified event contingent on the human life or at the
expiry of certain period.
II. Non Life or General Insurance: It refers to fire, marine and miscellaneous insurance
business whether carried on singly or in combination with one or more of them.

3. Classification on the Basis Risk point of View

I. Personal Insurance: It refers to the loss of life by accident or sickness. Life insurance
covers elements of investment or protection.
II. Property Insurance: It is a contract of indemnity by the insured of loss either necessary
elements. It contains home breaking or theft etc.
III. Liability Insurance: It is the major field of general insurance in this insurer promise to
pay the damage of property or to compensate loss to third party.
IV. Fidelity Insurance: The insurer undertaker certain premium for losses arising out of
accidental measure in case where new and untrained employees are given position.
Or

Insurance is divided into two parts known as General Insurance and Private/ Life Insurance.
General insurance is the insurance other than the life insurance. General insurance includes the
insurance related to health, home, marine, auto, travel, agriculture etc. and Private or Life
insurance as the name indicate is the insurance of life. Life insurance is also known as the private
insurance. Let have a look on all the types of insurance:
1. GENERAL INSURANCE:
Insurance other the life insurance is known as the general insurance. General insurance is
offered by both public sector and private sector companies. General insurance is further
divided into four types but it includes some more types of insurance:

 FIRE INSURANCE:
Fire insurance covers the damages of property etc. from the fire. Fire insurance
helps to an individual to recover from the loss due to the fire. When a structure is
covered by fire insurance, the insurance policy will pay out in the event that the
structure is damaged or destroyed by fire.
 HEALTH INSURANCE:
Health insurance is an insurance policy where the insurer assures the insured to
compensate the loss incurred due to injury or illnessIn this insurance policy, the
insurer pays the medical expense of an individual or a group of consumers.
 MARINE INSURANCE:
Marine Insurance covers the loss or damage of ships, cargo, terminals, and any
transport or cargo by which property is transferred, acquired, or held between the
points of origin and final destination. This type of insurance normally includes the
loss or damages of ships, cargo, terminals, and any transport or cargo.
 AUTO INSURANCE:
Auto insurance often referred to as vehicle or motor insurance covers any loss
resulting from traffic accident. Auto insurance (also known as vehicle insurance,
car insurance, or motor insurance) is insurance purchased for cars, trucks, and
other vehicles. Its primary use is to provide protection against losses incurred as a
result of traffic accidents and against liability that could be incurred in an
accident.

2. PRIVATE/ LIFE INSURANCE:

Every human being lives in the world of uncertainty. It’s a big question for every earning
member of a family that in case of certain uncertainties like death, what would happen to
 his near and dear ones. A must for everybody, life insurance provides covers the Assured
against uncertainties of life. Insurance is basically a protection against a financial loss
which can arise on the happening of an unexpected event. By entering into contract the
Insurance company One agrees to pay the Policy holder or his family members a
predetermined sum of money in case of any unfortunate event for a predetermined fixed
sum payable which is in normal term called Insurance Premiums. Life Insurance are the
most sought after products of the insurance industry. Everybody infact every earning
member of a family needs this cover to ensure that on the event of his/her death, the
family doesn't suffer due to lack of financial flow. An Insurance company collects a small
percentage from you and in return promises to pay your family a predetermined sum in
case of an unfortunate event. Based on one's financial capability and need one can select
a pure risk insurance like Term Insurance or Endowment Insurance , Whole Life
Insurance, Money Back Policy or a Unit Linked Insurance Policy(ULIP) which are a mix
of life insurance as well as Investment's. Insurance of life which provides a security from
any uncertain event is known as life insurance.

The Responsibilities of the Insured and Insurer:-

Insurance policies are looked at as one-sided contracts because the only person making a legally
binding promise is the insurer. However, that doesn’t mean the insured can live life as though
they have no duties when it comes to having an insurance policy. For the policyholder to receive
the benefits of their policy and for it to be continuously renewed, they have certain things they
need to handle too. Here’s a look at the responsibilities of both parties to help you understand it
from both perspectives.

The Insurer

1. Pay Benefits: Once an insurable accident happens and the damages have been reviewed,
if it’s found that the claim qualifies based on the benefits, time periods and exclusions
given in your policy, your insurance provider has to pay you (beneficiaries too, if
applicable) within the financial limitations of your policy. Remember that your insurer
isn’t liable for the deductible of your policy and that they have the option of paying only
the replacement value or actual value, based on the type of coverage you have. Also if
 you have a life insurance policy with cash values, your benefits may decrease if you have
any outstanding loans.

2. Risk Assessment: Underwriters are hired by insurance companies to figure out the
amount of risk that each potential insured person presents and to charge a premium in
accordance to that. If they don’t do this then they risk having more claims than premiums
and not being able to hold up there end of the bargain for policy holders.

3. Reserves for Policy: Insurance companies have to set aside a certain amount of their
income for policy reserves. Policy reserves mirror the potential amount of claims they’ll
be required to pay. Because the money is in reserves, it ensures they’ll be able to pay it
out.

4. Privacy Protection: In order to protect your privacy, insurance companies have to abide
by privacy and HIPAA regulations. Therefore, they have to keep and give out your
information in accordance with strict rules for your protection. In case you want someone
else to have access to your information, that person may be required to have a power of
attorney or written proof of authorization on file, according to whatever’s dictated by the
privacy guidelines.

The Insured

1. Application honesty: A potential insured person can’t lie to an insurance company;

otherwise the policy will be under false pretenses. If any false information is discovered
in the underwriting, there’s a chance that you’re policy will be canceled and you will be
returned all the premium payments you made.

2. Keep down exposure to risk: If insurance companies discover you’ve been behaving
recklessly, in a way that could increase your chances of a claim, they’ll consider
discontinuing your insurance coverage.

3. Pay your premiums: Your responsibility as an insured person is to pay your premiums
on time, whenever they are due. Should you not pay your premiums, your policy will end
and your insurance company won’t be required to pay your benefits anymore. Regardless
of how many premiums you’ve paid for in the past, once you stop paying for your policy
 the insurance company is no longer responsible for their end of the deal. (Having a life
insurance policy with cash values could be an exception.)

4. Keep your information current: If you move, change your beneficiaries, or you no
longer own the property that you had insured, make sure you let your insurance provider
know.

Rights of Policyholders:-

1. Get what you pay for: As a policyholder, you have the right by law to be treated fairly
and with respect. Your insurer must serve you to the best of its ability. Basically, this
means that if you are paying for insurance cover and it is detailed in your policy
schedule, you must receive it.
2. Be fully informed when purchasing a policy: Your insurer is required to offer you
financial advice and products that best suit your needs. They must explain all the terms
and conditions clearly.
3. Confirm information submitted for an insurance application: You should always
read and confirm the accuracy of the insurance application yourself. You can request to
be shown a copy of the policy before you purchase it and be advised on all excesses,
which is the first amount payable by you in the event of a loss, if any is applied.
THE BASIC LOGIC OF INSURANCE IS TO:
 Provide Financial Security to your family.
 Protect your Assets such as Car, Equipments, House etc from Accidents or natural
disasters.
 As a means of Investments and Savings
Difference between Insurance and Assurance:-

Both insurance and assurance are financial products offered by companies operating
commercially but of late the distinction between the two has increasingly become blurred and the
two are taken to be somewhat similar. However, there are subtle differences between the two
which are as follows.

Insurance policy refers to protection against an event that might happen whereas assurance
policy refers to protection against an event that will happen. This means that insurance policy is
taken to prevent a risk or provide cover against a risk while assurance policy is taken against an
event that is definite.

Assurance policies are undertaken by people knowing that their death is certain. They keep on
paying premiums knowing that their heirs will receive a big amount whenever they die.
Company issuing assurance policy is assured of the death of the person and also that it has to pay
the amount whenever the person dies. Because of this assurance factor, such a policy is called
assurance policy.

In case of insurance policy, the company pays the amount to the dependants of the person if all
the premiums have been paid on time and the person dies within the duration of the policy. In
most of the cases, the person does not die within the term of the policy, hence it is called life
insurance.

Insurance Policy Assurance Policy

protection against an event that might happen Protection against an event that is
definite

In life insurance, the dependants receive the In life assurance, a person can choose to
policy if all premiums paid on time and the cash out his policy anytime he so
person dies within the duration of policy. desires.
DIFFERENCE BETWEEN L.I. AND G.I.

BASIS LIFE INSURANCE GENERAL INSURANCE

1. TYPE Life insurance is a non-personal General insurance is always a
insurance contract. This means that personal contract where the insurance
the policyholder and the person being company contracts with you directly
insured do not have to be the same for insurance protection.
person.
2. SIGNIFICANCE Life insurance insures your life or the General insurance insures homes,
life of someone that you have an automobiles and other personal
economic interest in, like your property. This type of insurance is
spouse, children, siblings or business sometimes referred to as "property
partners. and casualty" insurance.
3. BENEFIT The benefit of life insurance is that it General insurance is beneficial in that
pays off any financial obligations you the insurance ensures that, almost
have left after you die. It can pay regardless of the damage done, that
more than that, however, because life the property will be repaired or
insurance pays a fixed amount. replaced.
4. EXPERT INSIGHT When buying life insurance, only buy When purchasing general insurance,
enough insurance to cover your the maximum coverage should not
current and expected future financial extend beyond the total replacement
liabilities. value of your property.
5. FUNCTION It ensures you that after you die, the It ensures that this gives you the
insurance policy serves your family amount of damage which is insured.
financially.
 UNIT 2
INSURANCE CONTRACT

Meaning of Insurance – Insurance means a promise of compensation for any potential future
losses. It facilitates financial protection against by reimbursing losses during crisis. There are
different insurance companies that offer wide range of insurance options and an insurance
purchaser can select as per own convenience and preference. Several insurances provide
comprehensive coverage with affordable premiums. Premiums are periodical payment and
different insurers offer diverse premium options. The periodical insurance premiums are
calculated according to the total insurance amount.

Essentials of an Insurance Contract

Insurance may be defined as a contract between two parties whereby one party called insurer
undertakes in exchange for a fixed sum called premium to pay the other party called insured a
fixed amount of money after happening of a certain event.
According to the Act “A Contract may be defined as an agreement between two or more parties
to do or to abstain from doing an act, with an intention to create a legally binding relationship.”

ESSENTIALS

Elements of
Elements of Special contract
General Contract relating to
insurance

1. Elements of General Contract:

The essentials of any Insurance Contract are discussed as under
with reference to the life Insurance only.
A. Offer & Acceptance: In Life Insurance an offer can be made either by the Insurance
company or the applicant (proposer) & the acceptance will follow. e.g., subsequently
 An offer made by the Insurance company to proposer that the premium amount will be
Rs.100/- per annum for the Insurance amount of Rs.1000/-. It is for the proposer to accept
the offer or not.
  An advertisement in the newspaper about the availability of different life Insurance
policies is an invitation for an offer. If a proposer makes an application then it will be
offer from the applicant and the Insurance Company may or may not accept it.
 An offer may be considered accepted either when the Insurance company issues the
policy or the first premium is paid by the applicant.
B. Consideration: There is no validity of a contract if there is no consideration, which is
the act or promise offered by one party and accepted by the other as the price of his
promise. In Insurance contracts the consideration is the premium that the Insured pays to
the Insurer as the price of the promise that the Insurer has made that he shall indemnify
the insured. Hence premium payment is the consideration on part of the insured and the
promise to Indemnify is the consideration on part of the Insurer.
C. Legal Capacity to Contract or Competency: For an agreement to be binding on all
parties, the parties involved must have the legal capacity to enter into a contract. With
respect to the insurer, if the company is formed as per laws of the country & empowered
to solicit insurance then the insurer is capable of entering into an agreement.
D. Consensus “ad idem” (Same mind): The understanding between the insurer & insured
person should be of same thinking or mind. The reasons for taking the Insurance policy
should be understandable to both the parties.
E. Legality of Object: To be a valid, a contract must be for a legal purpose & not contrary
to public policy. Insurance is legal business therefore it cannot be illegal on the part of
the insurer. An individual can take the life Insurance of his own life or his/her family
members. If an individual takes a policy on the life of an unknown person it will not be a
valid contract as it will amount to gambling.
2. Elements of Special contract relating to Insurance:
A. Life Insurance
a. Utmost Good Faith (Uberrima Fides)
b. Insurable Interest
B. General Insurance
a. Utmost Good Faith (Uberrima Fides)
b. Insurable Interest
c. Indemnity
d. Subrogation
e. Proximate Cause
Insurance Contract vs. wagering contract

Contract of Insurance
1. A contract of insurance is a contract to make good the loss of property (or life) of another
person against some consideration called premium.
2. In a contract of insurance the insured must have insurable interest. Without insurable
interest it will be a wagering agreement.
3. In a contract of insurance both the parties are interested in the protection of the subject
matter, i.e., there is mutuality of interest.
4. Except life insurance, a contract of insurance is a contract of indemnity, i.e. a contract to
make good the loss.
5. Contracts of insurance are based on scientific and actuarial calculation of risks.
Wagering Agreement
1. A wagering agreement is an agreement to pay money or money's worth on the happening
of an uncertain event.
2. No insurable interest is necessary in case of a wagering agreement.
3. In a wagering agreement there is conflict of interest and in reality there is no interest at
all to protect.
4. In case of a wagering agreement there is no question of indemnity. On the happening of
the event fixed amount becomes payable.

Wagering agreements are not based on such calculations and are in the nature of gambling.

Insurance vs. risk

Selection of Insurance:-

The selection of the risk is the process whereby inferior lives are weld out.
The functions of selection process is to determine whether the degree of risk presented by
applicant for insurance his consultable with the premium established for person in his category or
some additional premium should be charged for the applicant should be rejected the insurance.
Purpose/Objectives of Selection:-

1. It is the determine whether the proposals is determine or not

2. Premium (to determine rate of premium to be charged)
3. Degree of risk (vary person to person)
4. The fourth aim of selection is to avoid any discrimination on the fact of life assured

Factors affecting of Risk:-

1. Age
2. Build (weight, height)
3. Physical conditions
4. Personal history
5. Family history
6. Occupation
7. Residence
8. Present habits
9. Morals
10. Plan of insurance.

Sources of Risk Information:-

Information from various servers can be collected from:

1. The proposal form/application form

2. Medical report
3. The inspection report
4. Private friends report
5. Medical information burro
6. Commercial credit insurable burro.

Classification of Risk:-

1. Standard risk
 2. Sub-standard risk

Methods of Risk Classifications:-

1. Judgmental method
2. Numerical rating method.

Social security vs. Insurance

Introduction: The path of insurance has been evolve to look after the interest of people for
uncertainty by providing eternity of the compensation at a given contingencies. The insurance
principle comes to be more useful in modern affairs. It not only secure the ends of individual, or
of special group of individual but also tends to spread through and renovate modern social order.

1. Social security to Individuals

 Insurance provides safety and security
 Insurance offers peace of mind
 Insurance protects mortgaged property
 Insurance eliminates dependency
 Life insurance encourage savings
 Life insurance provide profitable investment
 Life insurance fulfills the need of person i.e., family need, old age need, readjustment
need, special need, clean up need.
2. Social security to Business
 Uncertainty of business and losses are reduced
 Business efficiency is increased by insurance
 Enhancement of credit
 Business continuation
 Key man indemnification.
 UNIT 3

Distribution Channels in Insurance

Introduction: Insurance intermediaries are autonomous populace or firms who carry the insurer
and the insured together and act as the mediator. Some groups of intermediaries also act as a
distribution channel for bringing the product of the insurance to the customers as in the case of
broker. An insurance intermediaries act either on behalf of the client or the insurance company.
In India the insurance intermediaries were not in existence till 1999. But with LPG of insurance
the insurance distribution channel also been widened and the IRDA Act, 1999 included the term
insurance intermediaries in the insurance act 1938.

Definition:-

In India the insurance intermediaries have been defined in the IRDA Act, 1999 and section
2(1)(f) of the act states: “Intermediaries or Insurance intermediary includes Insurance Broker,
reinsurance brokers, insurance consultants, surveyors and loss assessors”.

Distribution
Channels
Surveyors
Insurance Insurance
and Loss
Broker Agents Assessors

1) Insurance Broker: These are such individuals who contributes maximum share of
insurance business. A high standard of professional skills and conduct is expected to the
broker. The insurance broker can be issued license under section 42-D of the insurance
act, 1938 but he regulations about their qualifications, capital and functions are yet to be
passed by the parliament.
Who can become an Insurance Broker:- Any person may be an individual, a
partnership firm or a company formed and registered under the companies act, 1956 can
apply for grant of license to be a broker.
Functions:-
 Obtaining a detailed knowledge of the client’s business and philosophy
  Maintaining clear records of the client’s business so that this can be explained to an
insurer and other parties
 Maintaining a detailed knowledge of available markets
 Selection and recommendation of an insurer and group of insurers
 Negotiating with insurers on the client’s behalf
 Assisting in the negotiation of claims
 Maintaining precise records of past claims.

Code of Conduct:- The Code of Conduct is required to establish a recognized standard

of professional conduct of which all insurance brokers, should, in the interest of the
public and in the performance of their duties, conform and in doing so they should bear in
mind this objective and the underlying spirit of this code in the matter of regulation of
their professional standard. The Code of Conduct will cover the following:

 Relationship with clients

 Sales practices
 Duty to disclose information
 Explanation of the contract
 Renewal procedure
 Claims
 Complaints
 Documentation
 Advertising
 Remuneration.
2) Insurance Agents: The business of insurance people against perils is done by the
insurance companies whose main business is to club people sharing the same risk, collect
the share of contribution from all of them, and then pay out the compensation to the
sufferers. All agents, in order to obtain a license, have to go through a training
programmer and appear for an examination. The businesses of insurance company both
life and non-life is procured through an individual who is appointed as an agent. An agent
is a person licensed by the IRDA to do insurance business. U/S 42(4) of the amended
insurance act 1938 states that a agent to be one who is not:
  A Minor
 Fraud to be of unsound mind
 Fraud guilty of criminal misappropriations
 Fraud guilty of knowingly participate fraud and dishonesty.

An agent must have:

 Passed in 12th class

 Has been trained in minimum period of 4 weeks
 Has been pass in an examination prescribed by the authority.
3) Surveyors and Loss Assessors: The category of intermediaries is related to only non-life
business. Their main functions are to survey and assess any mis-happening or disaster
and evaluate the evaluate the financial loss to the insurance companies. The insurance
companies make financial assistance on the basis of the evaluation made surveyor.
Functions:
 Conduct inspection, re-inspection, pre-inspection of the property in question
suffering a loss
 Examine, inquire, investigate, verify and check upon the causes and the
circumstances of the loss in question including their nature and extent of loss and
related factors
 Estimate-measure-determine the quantum-description-valuation of the subject under
loss
 Intimate immediate measure to protect damage property and to present aggravation
of loss
 Advice on repair and replacement techniques
 Satisfy queries of the insurer/insured and of persons incidentals thereto in respect of
the loss

Eligibility:-

I. Degree of a recognized university in any branch of engineering

II. Fellow or associate member of Institute of Chartered Accountants of India or
Institute of Cost Works Accountants of India
 III. Actuarial qualifications or holds a degree or diploma of any recognized
university or Institute in relation to insurance
IV. Holds a diploma in insurance granted or recognized by the government.

Code of Conduct:-

 To exhibit the identity card and/or the license issued by the authority while carrying out
the job of survey and loss assessment and be physically fit to undertake the rigors of the
job
 To conduct the survey job in a manner and behavior which is transparent, honest, sincere,
fair, objective and free from personal interest and ensure that the professional, technical
standard of competence are upheld
 To Endeavour to keep abreast with professional standards and advancements by attending
professional courses, trainings, seminars, and workshops meant for upgrading the
required skills
 To issue survey and loss assessment report including the annexure duly signed and
stamped after due verification and satisfaction.

Modus Operandi for License:- Any person possessing the abovementioned conditions can
apply to the Insurance Authority in a prescribed format provided he is not disqualified on the
following grounds:

1. That a person is minor

2. That he is found to be unsound mind by a court of competent jurisdiction
3. That he has been found guilty of criminal misappropriation
4. He does not possess the requisite qualifications and practical; training for a period not
exceeding twelve months.

Weaknesses in Distribution Channels:-

1. Lack of professional approach, technical and material know how on the part of
investment himself
2. Fewer number of instructor in comparison to training requirements of agents
3. Lack of proper infrastructure & training facilities
 4. Improper approach on the part of development officers in promoting professionalism
amongst their agents.

Suggestions for Improvements:-

1. Selection of agent
2. Eligibility of agent
3. Confirmation of agent
4. Governed by various regulations and conditions
5. Loyalty of the agents
6. Use of proper promotional channels
7. Role perceived by special & chief agents.
 UNIT 4

LIFE INSURANCE

Introduction: Life insurance comes under 2(ii) under the act 1938. Life insurance is a contract
in which the insurer in consideration of a certain premium either in lumsum or periodical
payments agrees to pay the assured for a specific period of time.

In other words, it is contract of insurance upon human life including any contract whereby the
payment of money is assured on death or the happening of any event.

There are various definitions of the Life Insurance Contract. Some of these are as under:

1. As defined by Bunyon (UK),in his legal textbook,Law of Life Assurance: “A Contract

of Life Insurance is one in which one partyagrees to pay a given sum upon the happening
of a particular event contingent upon the duration of human life, in consideration of the
immediate payment of a smaller sum or certain equivalent periodical payments by
another.
2. According to the Indian Contract Act 1872, “A contract is an agreement between two or
more parties to do or to abstain from doing an act. It is intended to create a legally
binding relationship”.

FEATURES:

Following mentioned are some important features of life insurance:

1. SIMPLE AND CONVENIENT JOINING PROCESS: Life insurance benefit for all
the members of the plan is provided through one policy document that is issued to the
master policyholder. E.g. In the case of a Bank providing life insurance cover to their
deposit account holders, the Bank will be the master policyholder and the deposit account
holder shall be a member of the policy.

2. LEVEL SUM INSURED THROUGHOUT THE COVER TERM: The sum insured
will remain same throughout the policy term.

3. RETURN OF PROPORTIONATE PREMIUM AT THE COVER EXPIRY DATE:

On survival of an insured member at the cover expiry date at the cover expiry date, a
 percentage of the total basic premiums paid will be returned to the insured member
depending upon the cover term selected.

4. CHOICE OF COVER TERM AND AMOUNT OF INSURANCE COVER: The plan

is designed to provide a life cover for any amount ranging from Rs. 300,000 to Rs.
10,00,000 per member depending upon the group requirement or upon mutual agreement
at inception of the master policy.

5. ADVANTAGE WOMEN (DISCOUNT ON PREMIUM RATES FOR FEMALE

MEMBERS): There will be a premium discount for a female insured member under this
insurance cover. Basic premium payable will be equivalent to the premium for a three-
year younger male insured member.

6. DISCOUNT ON HIGHER SUM INSURED: The plan offers an attractive premium

discount structure, where you can avail a discount. The discount is available for the sum
insured of Rs. 5 lacs or above and cover term is 10 & 15years.

OBJECTIVES:

1. The primary purpose of life insurance is to protect families from loss of income caused
by the death of a wage earner.
2. The beneficiary is the person who receives the benefits from a life-insurance policy when
the insured person dies. There can be more than one beneficiary of an insurance policy.
3. A key to the amount of life insurance a person needs is the amount of additional money
the survivors will need to maintain their quality of life if the insured person dies.

ADVANTAGES:

Following are the advantages of life insurance:

1. Life insurance provides an infusion of cash for dealing with the adverse financial
consequences of the insured’s death.

2. Life insurance enjoys favorable tax treatment unlike any other financial instrument.

 Death benefits are generally income-tax- free to the beneficiary.

  Death benefits may be estate-tax free if the policy is owned properly.

 Cash values grow tax deferred during the insured’s lifetime.

 Cash value withdrawals are treated on a first-in-first-out (FIFO) basis, therefore

cash value withdrawals up to the total premiums paid are generally income-tax
free.

 Policy loans are income tax free.

 A life insurance policy may be exchanged for another life insurance policy (or for
an annuity) without incurring current taxation.

Note: All of the above statements are generally true; however the tax benefits of life
insurance have certain limitations which under the wrong set of circumstances can cause
the tax benefits mentioned to be lost.

3. Many life insurance policies are exceptionally flexible in terms of adjusting to the
policyholder’s needs. The death benefit may be decreased at any time and the premiums
may be easily reduced, skipped or increased.

4. A cash value life insurance policy may be thought of as a tax-favored repository of easily
accessible funds if the need arises; yet, the assets backing these funds are generally held
in longer-term investments, thereby earning a higher return.

DISADVANTAGES:

Following are the major demerits of taking life insurance:

1. Policyholders forego some current expenditure to pay policy premiums. Moreover, life
insurance is typically purchased for the benefit of others and usually only indirectly for
the insured person.

2. Cash surrender values are usually less than the premiums paid in the first several policy
years and sometimes a policy owner may not recover the premiums paid if the policy is
surrendered.
 3. The life insurance purchase decision and the positioning of the life insurance can be
complex especially if the insurance is for estate planning, business situations or complex
family situations.

4. The life insurance acquisition process can be annoying and perplexing (e.g. Is the life
insurance agent trustworthy? Is this the right product and carrier? How can medical
underwriting be streamlined?)

IMPORTANCE:

Life Insurance is of great importance to individuals, groups, business community and general
public. Some of the main benefits of life insurance are given below.

1. PROTECTION AGAINST UNTIMELY DEATH: Life insurance provides protection

to the dependents of the life insured and the family of the assured in case of his untimely
death. The dependents or family members get a fixed sum of money in case of death of
the assured.
2. SAVING FOR OLD AGE: After retirement the earning capacity of a person reduces.
Life insurance enables a person to enjoy peace of mind and a sense of security in his/her
old age.
3. PROMOTION OF SAVINGS: Life insurance encourages people to save money
compulsorily. When a life policy is taken, the assured is to pay premiums regularly to
keep the policy in force and he cannot get back the premiums, only surrender value can
be returned to him. In case of surrender of policy, the policyholder gets the surrendered
value only after the expiry of duration of the policy.
4. INITIATES INVESTMENTS: Life Insurance Corporation encourages and mobilizes
the public savings and channelizes the same in various investments for the economic
development of the country. Life insurance is an important tool for the mobilization and
investment of small savings.
5. CREDIT WORTHINESS: Life insurance policy can be used as a security to raise loans.
It improves the credit worthiness of business.
6. TAX BENEFIT: Under the Income Tax Act, premium paid is allowed as a deduction
from the total income under section 80C.
Documentation in Life Insurance:-

A life insurance policy is a long term contract. Documentation is

therefore important.

1) The first document in the insurance file is the proposal or application for insurance.
2) Declaration becomes necessary if someone other than the proposer has filled up the
proposal form, or the proposer has answered the questions in a language different from
the questions in proposal form or if the proposer is illiterate.
3) The proposal form contains a declaration at the end stating that all the statements therein
are true in every respect and that if any fact is untrue, the insurer will be entitled to
declare the contract as null and void and forfeit the premium paid. This declaration makes
the principle of utmost good faith operational.
4) If the policy is to be issued under the Married Women’s Property Act, then the relevant
forms have to be filled up, stating the beneficiaries and the trustees.
5) The personal statement is to be completed along with the proposal. The declaration at the
end of the proposal form applies to the statements in the personal statement as well.
Incorrect statements can nullify the contract
6) Under the regulations issued by the IRDA in April 2002, a copy of the proposal is to be
supplied to the policyholder within 30 days of the completion of the contract.
7) The IRDA regulations require that the decision on the proposal should be made by the
insurer within 15 days.
8) The First Premium Receipt is the evidence that the insurance contract has begun. If the
claim arises before the policy is issued, but after the FPR is issued, the insurer is liable.
9) The issue of the FPR signifies the conclusion of the contract and it is binding on both the
parties. The IRDA regulations provide that the policyholder has the option to withdraw
from the contract within 15 days of the issue of the policy. This period of 15 days is
called the ‘free look-in period’ or ‘cooling-off period’.
10) When the policyholder pays the premiums due under the policy Renewal Premium
Receipts are issued.
11) Renewal receipts are not issued in respect of policies under SSS.
12) if Policy Documents are lost.
In case of Death Claim - Nominee has to provide Proof of Title.
 In case of Maturity Claim - Policy Holder has to give Advertisement/Declaration in
News paper as well an Indemnity Bond is required to get the Maturity Claim without the
Policy Documents.
In case of Survival Claim - Policy Holder has to apply for a Duplicate Policy Document.
13) Electronic systems are being developed for payment of premium. These include
electronic clearing systems, direct debit to the bank account or payment through the
internet. Credit and debit cards, may also be accepted.
14) The policy document is the evidence of the contract. The policy document is to be signed
by the competent authority and stamped, according to the Indian Stamp Act.
15) The Policy Document Consists of
•Preamble: States that the proposal and declaration signed by the party form the basis of
the contract.
•Operative clause: lays down the mutual obligations of the parties regarding payment of
premiums and payment of SA on the happening of the insured event and on production of
age proof and title of the claimant.
•Schedule: gives all essential particulars of the policy,
16) Instructions issued by the IRDA require that the policy information statement should be
issued with every policy stating eg. Mode of payment, person/office to be contacted in
case of any enquiry, information on Insurance Ombudsman.
17) Changes /modifications in the existing policy conditions are made by way of
endorsements .These changes may be in age, plan or term
18) Nominations/assignments made after the issue of the policy are to be made on the back of
the policy itself as endorsements. Assignments can also be made on the back of the policy
19) Reminders to policyholders regarding premiums due and bonus intimation notices are not
a must. The IRDA has stipulated that once a year, the insurer should inform the
policyholder about the status of the policy.
20) As per IRDA Regulations, the Prospectus or brochure issued by the insurer, should
explicitly state the scope of benefits, conditions, warranties, entitlements, exceptions,
right for participation in bonus, etc., under each plan of insurance.
Claims procedure in respect of a life insurance policy:-
1. A life insurance policy shall state the primary documents which are normally required to
be submitted by a claimant in support of a claim.
2. A life insurance company, upon receiving a claim, shall process the claim without delay.
Any queries or requirement of additional documents, to the extent possible, shall be
raised all at once and not in a piecemeal manner, within a period of 15 days of the receipt
of the claim.
3. A claim under a life policy shall be paid or be disputed giving all the relevant reasons,
within 30 days from the date of receipt of all relevant papers and clarifications required.
However, where the circumstances of a claim warrant an investigation in the opinion of
the insurance company, it shall initiate and complete such investigation at the earliest.
Where in the opinion of the insurance company the circumstances of a claim warrant an
investigation, it shall initiate and complete such investigation at the earliest, in any case
not later than 6 months from the time of lodging the claim.
4. Subject to the provisions of Section 47 of the Act, where a claim is ready for payment
but the payment cannot be made due to any reasons of a proper identification of the
payee, the life insurer shall hold the amount for the benefit of the payee and such an
amount shall earn interest at the rate applicable to a savings bank account with a
scheduled bank (effective from 30 days following the submission of all papers and
information).
5. Where there is a delay on the part of the insurer in processing a claim for a reason other
than the one covered by sub-regulation (4), the life insurance company shall pay interest
on the claim amount at a rate which is 2%.
Actuarial Process in India:-
Meaning of Actuary: The actuary is a specialist who combines an understanding of risks and
mathematical technique to develop financial products to manage these risks, price these products
and compute reverse to be held for liabilities of companies undertaking these financial risks.

In other words, the actuary helps in designing insurance plans and then evaluates the financial
risk of the company which it takes while selling an insurance policy.

Eligibility of Actuary:-

A person shall be eligible to be appointed as an appointed actuary for an insurer, if

he or she shall be:

1. Ordinarily resident in India

2. Fellow member of the actuarial society of India
3. An employee of the insurer or a consulting actuary in case of general insurance business
4. An employee of life insurer in case of life insurance business
5. A person who has not committed any breach of professional conduct
6. A person against whom no disciplinary action pending with any other actuarial
professional body
7. A person who possess a certificate of practice issued by the Actuarial Society of India
8. Not over the age of seventy years.

Powers of Appointed Actuary:

The appointed actuary has been vested with substantial powers, the powers having
enormous significance in insurance business are listed below:

1. An appointed actuary shall have access to all information or documents in possession, or

under control of the insurer if such access is necessary for the proper and effective
performance of functions and duties of the appointed actuary
2. He may seek any information for the purpose of fulfilling his duties of an appointed
actuary from any officer or employee of the insurer
 3. He is entitled to attend all meeting of the management including that of the director of the
insurer
4. He is empowered to speak and discuss matter relating to the actuarial advice given to the
directors, matters affecting solvency of the insurer, matters that may affect the ability of
the insurer to meet the reasonable expectations of policyholder
5. He may attend any meeting of the shareholders or the policy holder of the insurer.

Duties and Obligations of the Actuary:-

1. Rendering actuarial advice to the management of the insurer, in particular in the areas of
product design and pricing, insurance contract wording, investments and reinsurance
2. Ensuring the solvency of the insurer at all times
3. Complying with the provisions of Section 64V of the act, 1938 in regard to certification
of assets, liabilities that have been valued accordingly
4. Complying with the provisions of Section 64V of the act, 1938 in regard to maintainece
of required solvency margin in the manner required under that provision
5. Drawing the attention of management of the insurer
6. Complying with the Authority’s directions from time to time
7. Ensuring in general insurance business:
 That the rates are fair in respect of those contracts that are governed by the insurer’s in
house tariff
 That the actuarial principles, in the determination of liabilities have been used in the
calculation or reserves for incurred but not reported and other reserves where actuarial
advice is soughed by the authority.
8. Informing the authority in writing of opinion, within a reasonable time.

Functions of Actuary:-

functions

Functions of an Actuaryin Functions of an Actuary in

Life Insurance Business General Insurance Business
Role of an Actuary in Investment Process:-
 UNIT 5
GENERAL INSURANCE
General insurance or non-life insurance policies, including automobile and homeowners policies,
provide payments depending on the loss from a particular financial event. General insurance is
typically defined as any insurance that is not determined to be life insurance.
Definition: Insurance contracts that do not come under the ambit of life insurance are called
general insurance. The different forms of general insurance are fire, marine, motor, accident and
other miscellaneous non-life insurance.

Types of General Insurance:

Basically, the types of insurance can be broadly categorized as :

1. Property Insurance: The policies falling under this category are :

No. Type Purpose

1. Home Contents Insurance Insurance of the house/property

2. Homeowner Insurance Insurance of the contents of the house

3. Motor Insurance Insurance of your motor vehicle

2. Insurance of the Person: This includes :

No. Type Purpose

1. Personal Accident Insurance Protection of the Insured &/or his family

2. Healthcare Insurance Medical and hospitalisation Insurance

3. Lifestyle Protection Insurance Lump cash payment for major illnesses

Education for the children with the benefits
4. Child Education Insurance
protected under a trust fund
Specially tailored personal accident cover for
5. Senior Citizen Insurance
senior citizens
 3. Lifestyle Insurance: Specially designed policies to suit our lifestyles :

No. Type Purpose

Comprehensive travel insurance to make our travelling a

1. Travel Insurance
'no worries' event.

2. Golfers' Insurance Total protection for golfers and the precious golf sets.

Insurance to cover outstanding balances of your credit card

3. Credit Card Insurance
should you be unable to settle those balances.

Covers your legal liability towards third parties in respect of

4. Personal Liability
injury and loss of or damaged properties.
Documents in General Insurance:-
In this chapter we have tried to explain the nature
of the various documents which are required • Prospectus
• Endorsement
from the time of taking the insurance to the
• Renewal notice
settlement of the claim. • Claim form
1) Prospectus: Every insurance company • Proposal form
• Cover note
issues the prospectus wherein the profile • Policy document
of the company and the features of the • Survey report

products are explained. After going

through the company profile and the
product feature the person may decide
whether to buy the product of a particular documents
company or not. It is like the school or
college prospectus which parents buy
before admitting the child in the particular school or college.
2) Proposal Form: As in every contract, offer and acceptance are important parts of an
insurance contract. In insurance the proposal form is an offer or application made to the
Insurance Company for purchase of Insurance cover. The applicant or prospect is
required to complete the printed proposal form supplied by the insurer. The proposal
forms are designed in such a manner and the questions framed as to elicit all material
 facts. The questions may vary according to the class of insurance. A brief description of
the Insurance cover and its benefits is usually given on the reverse of the proposal form.
Some questions common to all proposal forms are:
 Proposer’s name in full
 Proposer’s address
 Proposer’s profession/ occupation/ business
 Previous and Present Insurance
 Claim Experience
 Sum Insured
 Signatures, date and agent’s recommendation.
3) Cover Note: A cover note is a temporary document issued as confirmation of the
insurance contract in advance of the policy as it may take some time for the policy to be
issued. Till the policy is ready the cover note is the proof that the insurance cover is in
force. The cover note contains brief details of the Insurance cover and is valid for 15 days
extendable to a maximum of 60 days. Once the policy is issued the validity of the cover
note ceases. In certain cases, instead of a cover note, the insurers issue only a letter
confirming the cover.
A typical cover note will contain the following details:
 Name and addresses of the insured
 Sum insured
 Period of insurance
 Risk covered
 Rate of premium or provisional rate if the actual rate is not known
 Description of the subject matter of insurance. In case of cars the details will
include make, model, CC, seating capacity etc. and in Fire Insurance the particulars
of the building, i.e. whether it is Kutcha and the nature of activity carried on in the
premises.
 Serial no., date of issue, time of issue

4) Policy Forms: The policy form is a stamped document, which provides evidence of an
Insurance contract. The insurance policy is required to be stamped in accordance with the
 provisions of the Indian Stamp Act, 1899. The policy document is typically divided into
the following parts: In Fire and Accident Insurance, the policy form used is on a
scheduled basis, i.e., all individual details relating to a particular Insurance are grouped
together in a schedule. The scheduled type of policy may be divided into certain distinct
sections.
5) Endorsements: Normally policies are issued in a standard form by the insurers. However
if it is intended to modify the terms and conditions at the time of issuing the policy, this
modification is done by setting out the alterations in a memorandum which is attached to
the standard policy form. Such a memorandum is called an endorsement. Endorsements
are also used for recording changes in the policy, during its currency, and some of the
endorsements commonly required relate to:
 Change in sum insured (increase/ decrease)
 Change of insurable interest due to sale, mortgage or hypothecation
 Change in nominee
 Inclusion of additional perils to be covered
 Change of risk, e.g., change in occupancy of the building in Fire Insurance
 Transfer of property to another location
 Cancellation of insurance
 Change in name or address etc.
Extension of cover to include extra peril:
 At the request of the insured it is hereby agreed to include
 the risk of _______ under the above policy. In consideration
 thereof an additional premium is charged to the assured
6) Renewal Notice: In General Insurance the cover is granted normally for one year and in
Fire Insurance the preamble states that the indemnity under the policy applies “during the
period of insurance mentioned in the schedule or to any subsequent period in respect of
which the insured shall have paid, and the insurers shall have accepted, the premium
required for the renewal of the policy.”
7) Claim Form: Claim forms are issued to the insured when he notifies a loss under a
policy. Claim forms vary according to different classes of insurance but are generally
 designed to elicit complete information regarding the loss, i.e., circumstance of loss, date
and time of loss, cause of loss and extent of loss etc.
8) Survey Report: This report is submitted by duly–licensed surveyors who are appointed
by the insurers to investigate the loss when notice of loss and claim form is received. The
report provides independent evidence of the cause and extent of loss and other
information to the insurers for processing and settling of claims.
Claims Management in General Insurance - Issues & Concerns:- Underwriting and claims
settlement are the two most important aspect of the functioning of an insurance company. Out of
any insurance contract, the customer has the following expectations:
1. Adequate insurance coverage, which does not leave him high and dry in time of need,
with right pricing.
2. Timely delivery of defect free policy documents with relevant endorsements / warranties
/ conditions / guidelines.
3. Should a claim happen, quick settlement to his satisfaction.
The insurance companies have hitherto been handling the claim rather than managing them.
Typically this process involves –
1. As soon as a claim is reported, the insurance company checks as to whether the cover
was in force at the time of loss and whether the peril is covered under the policy.
2. A surveyor is appointed who visits the spot, does the assessment and submits the report.
3. Insurance company examines the report, calls for relevant supporting documents.
4. On receipt of survey report and documents, the same are examined. The claim file is
processed and settlement is offered.
The claims handling is thus more process oriented and does not pay adequate attention to the
monitoring and claims cost aspect as also to the service parameters.
In the present liberalized scenario, with cut-throat competition being the order of the day, the
insurance companies have to go much beyond the handling of claims. The following aspect
needs to be kept in mind.
1. General insurance being a market driven service industry, the customer has to be kept
satisfied. With so many options available, a customer once lost is most likely a loss
forever. Claim settlement can be used as a marketing tool. Brining in a new customer is
much more costly than retaining the existing ones
2. In a de-tariff market, pricing will be the key factor. Proper claims management quick
settlement at optimal cost will help keep the price competitive.
3. A dissatisfied customer is a bad publicity. It has all the potential to damage the
reputation of the company. It is an accepted fact that most of the customers complaint
relate to claims. It should be the Endeavour of any insurance company to ensure that such
complaints do not occur in the first place and in some cases if they do occur it is attended
promptly, efficiently and transparently.
4. IRDA guidelines on ‘protection of policyholders’ interest’ stipulate certain obligation on
the part of insurance company including time limit for claim settlement. This is a
regulatory requirement and insurance company personnel at every level must understand
its implication.
5. Delayed claim settlement generally result in higher claims cost. Claims cost is a very
important factor vis-à-vis profitability. Why do delays take place in claim settlement?
Nobody will buy the excuse that the claimant is not forthcoming with documents and
other requirements for settlement of claim.
6. Claims files must be monitored as they progress. A little time spent thinking clearly right
from the beginning will avoid lot of unnecessary and time consuming patch-ups and
straightening out later on. Unpleasant decisions conveyed timely with proper justification
of the decision is better than procrastination which is bound to create more problems and
unpleasant situations.
7. Proper u/w is essential as defective u/w results in complication at the time of settlement
of claims. U/w and claims department should not work in isolation. There has to be a
coordination between them. Defective U/w may saddle the companies with unwanted
claims. Various court judgments and consumers forum awards bear testimony to the same
8. Lot of time / energy / money is spent when claim cases go to Ombudsman / Consumer
Forum/ Court. Besides, adverse comment bring bad name, when we are held liable.
Insurance companies are invariably at the receiving end. The “watch and wait” attitude
must change. There is a need to find out why so many cases go to consumer forum or the
ombudsman and what should be done about it.
9. Claims-settlement have social service angle which must be met. In times of natural
calamity lot of bad publicity comes to insurance company for delay in settlement of
 claims. This is in spite of the fact that in such situation insurance companies goes out of
their way to settle claims. In any case claims relating to the assets of weaker section
needs to be attended on priority. So do the health /medical related claims.
Tariff Advisory Committee (TAC), India: Tariff Advisory Committee (TAC) in India -
controls and regulates the rates, advantages, terms and conditions that may be offered by insurers
in respect of Indian General Insurance Business relating to Fire, Marine (Hull), Motor, Engg. and
Workmen Compensation. Tariff Advisory Committee has been designated by IRDA as the data
repository for the non-life insurance industry. The transaction level data on Motor, Health and
other lines are being collected for the Repository presently. It will be good news for insurers and
the common man when general insurance premium will get detariffed. Once detariffing comes
into force, Tariff Advisory Committee (TAC) will keep a track of any deviation or disparity in
the market behavior and inform IRDA about it.

 TAC was brought into existence so as to calculate premiums for general insurance
companies. With the recent change, the scope of TAC will also transform. It will now pay
heed to the public grievances on non-availability of insurance and will get these problems
solved through the insurers.
 Considering the years of experience it has, TAC is best suited and recommended for this
new task. Besides, IRDA wants TAC to handle training programmes for underwriters at
the market level. Collecting data on premiums, analyzing them and distributing results to
all insurers will be added work for TAC. Considering the new work allotted, it is likely to
be called as Technical Advisory Committee.

Establishment of Tariff Advisory Committee:- 64U (1) With effect from the
commencement of the Insurance (Amendment) Act,.1968, there shall be established a
Committee, to be called the Tariff Advisory Committee (hereafter in this Part referred to as
the Advisory Committee) to control and regulate the rates, advantages, terms and conditions
that may be offered by insurers in respect of general insurance business. (2) The Advisory
Committee shall be a body corporate having perpetual succession and a common seal, with
power, subject to the provisions of this Act, to acquire, hold and dispose of property, both
moveable and immoveable, and to contract, and may, by the said name, sue and be sued.
 Powers of TAC:- Power of the Advisory Committee to regulate rates, advantages, etc 64UC.

1. The Advisory Committee may, from time to time and to the extent it deems expedient,
control and regulate the rates, advantages, terms and conditions that may be offered by
insurers in respect of any risk or any class or category of risks, the rates, advantages,
terms and conditions of which, in its opinion, it is proper to control and regulate, and any
such rate, advantages, terms and conditions shall be binding on all insurers:
2. In fixing, amending or modifying any rates, advantages, terms or conditions, relating to
any risk, the Advisory Committee shall try to ensure, as far as possible, that there is no
unfair discrimination between risk of essentially the same hazard, and also that
consideration is given to past and prospective loss experience:
3. Every decision of the Advisory Committee shall be valid only after and to the extent it is
ratified by the Authority, and every such decision shall take effect from the date on which
it is so ratified by the Authority, or if the Authority so orders in any case, from such
earlier date as he may specify in the order.
4. The decisions of the Advisory Committee in pursuance of the provisions of this section
shall be final.
5. Where an insurer is guilty of breach of any rate, advantage, term or condition fixed by the
Advisory Committee, he shall be deemed to have contravened the provisions of this Act.

Advantages of General Insurance:-The benefits of a general insurance policy may be

enumerated as below:

1. Health and medical insurance policies take care of the costs of medical treatments
2. Pet insurance policies are necessary for taking care of important costs associated with the
pets
3. Accident insurance policies are helpful when it comes to costs associated with accidents
4. Home insurance policies help in securing the home against various forms of dangers like
fires and natural calamities
5. Motor vehicle insurance plans account for the expenses incurred in repairing a vehicle
damaged in an accident
6. Unemployment insurance comes in handy in case the insured loses his or her job
 7. Travel insurance plans help to deal with costs resulting out of unfortunate and serious
situations while traveling outside the country
8. Personal liability policies take care of any issues arising while doing one’s job.
Insurance Jurisdiction of Insurance related Companies:-