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INSURANCE & RISK MANAGEMENT (BBAA04A52)
Unit - 5:
GENERAL INSURANCE
Dr. J.Mexon ,
Department of Management,
Kristu Jayanti College, Bengaluru.
Contents
• Introduction to General Insurance
• Types of General Insurance
• Principles of General Insurance
• Fire Insurance
• Motor Insurance
• Personal Liability Insurance
• Burglary Insurance
• General Insurance Documentation
• General Insurance Underwriting
• General Insurance Claim
Introduction
A very broad classification of insurance is life and non-life (general
insurance).
General Insurance comprises of:
• Insurance of property against fire, theft etc.
• Personal Insurance such as Accident & Health Insurance.
• Liability Insurance which covers legal liability arising out of third party
claims such as claim from a person injured in a motor accident etc.
• Other types of Insurances such as Credit Insurance, Crop Insurance, etc.
Thus General Insurance provides indemnity against loss arising from
damage to property or assets, expenditure or loss of earning arising from
injury to a person, legal liabilities etc.
The transactions of general insurance business in India are governed
by two main statues, namely:
• The Insurance Act, 1938
• General Insurance Business (Nationalisation) Act, 1972
The Insurance Act was passed in 1938 and was brought into force
from 1st July, 1939. This act applies to the GIC and the four
subsidiaries. The act was amended several times in the years 1950,
1968, 1988, 1999. This Act specifies the restrictions and limitations
applicable as specified by the Central Government under powers
conferred by section 35 of the General Insurance Business
(Nationalization) Act, 1972. The important provisions of the Act
relate to:
• Registration: Every insurer is required to obtain a Certificate of Registration from the
Controller of Insurance, by making the payment of requisite fees. Registration should be
renewed annually.
• Accounts and audit: An insurer is required to maintain separate accounts of the receipts and
payments in each class of insurance viz. Fire. Marine and Miscellaneous Insurance. Apart
from the regular financial statements, the companies are required to maintain the following
documents in respect of each class of insurance:
1. Record of Cover notes specifying the details of the risk covered, policies, premiums,
endorsements, Bank guarantees, claims
2. Register of employees
3. Cash Books
4. Reinsurance details
5. Claims register
• Investments: Investments of insurance company are usually made in
approved investments under the provisions of the Act. The guidelines and
limitations are issued by the Central Government from time to time.
• Limitation on management expenses: The Act prescribes the maximum
limits of expenses of management including commission that may be
incurred by an insurer. The percentages are prescribed in relation to the
total gross direct business written by the insurer in India.
• Prohibition of Rebates: The Act prohibits any person from offering any
rebate of commission or a rebate of premium to any person to take
insurance.
Types of General Insurance
1. Fire Insurance
2. Marine Insurance
3. Motor Vehicle Insurance
4. Health Insurance
5. Personal Accident Insurance
6. Burglary or Theft Insurance
1. Fire Insurance: Fire insurance is a contract under which the insurer in
return for a consideration (premium) agrees to indemnify the
insured/assured for the financial loss which the Insured may suffer due to
destruction of or damage to property or goods, caused by fire, during a
specified period. Thus the basic ingredients of Fire Insurance are as
follows:
• i. The financial loss should be on account fire resulting in damage or
destruction of property or goods.
• ii. The maximum amount which the Insured can claim as compensation in
the event of loss is agreed to between the parties at the time of entering
into the contract.
2. Marine Insurance: Marine Insurance is an Insurance against loss or
damage or destruction of Cargo, freight, merchandise or means or
instruments of transportation whether by sea, land or air. Thus marine
insurance provides indemnity for loss or damage to ship, cargo or mode of
transport by which the property is taken, acquired or held between the
point of Origin and point of destination.
3. Motor Vehicle Insurance: It is a contract of Insurance under which the
Insurer indemnifies the Insured, who is the owner or an operator of a
Motor Vehicle, against any loss that he may incur due to damage to the
property (i.e. the Motor Vehicle) or any other person (i.e. Third Party) as a
result of an accident. There are two types of Motor Vehicle Insurance:
• a. Mandatory: In India it is mandatory ie required by Law, for every
owner or operator of a Motor Vehicle to take insurance that provides for
payment of compensation to a Third Party who dies or suffers injuries
due an accident caused by the said motor vehicle.
• b. Comprehensive: Under a comprehensive motor insurance policy apart
from the coverage of Third Party Liability (as provided in the mandatory
policy) various other risks are also covered. These include damage to the
Motor Vehicle caused by fire, accident, theft etc.
4. Health Insurance Policy: The Health Insurance or Medi Claim Policies
are those policies which cover hospitalization expenses for the treatment
of illness/ injury as per the terms and conditions of the policy.
• These policies may also cover pre hospitalization expenses prior to
hospitalization and also post hospitalization expenses for the period
specified in the policy.
• Some of the Insurers also cover the following expenses in this policy:
a. Ambulance Charges
b. Day Care treatment charges i.e. treatment by using advanced
technologies when even 24 hours of hospitalization is not required.
5. Personal Accident Insurance: The purpose of personal insurance is to
provide for payment of a fixed compensation for death or disablement
resulting from injury to the body of a human being caused due to an
accident.
6. Burglary or Theft Insurance: Theft Insurance Contract covers losses
from burglary, robbery and other forms of theft. Theft generally refers to
the act of stealing. Burglary is defined to mean the unlawful taking of the
property within the premises that have been closed and in which there are
visible marks evidencing forceful entry.
Principles of General Insurance
1. Nature of Contract
2. Principle of Utmost Good Faith
3. Principle of Insurable Interest
4. Principles of Indemnity
5. Principle of Subrogation
6. Principle of Contribution
7. Principle of Proximity Clause
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 the contract and
the other party accepts the proposal. The contract should
be simple to be understood by each party. The person
entering into the contract should enter with his/her free
consent.
2. Utmost Good faith:
In an Insurance contract utmost good faith means that ‘each party
to the proposed contract is legally obliged to disclose to the other all
information which can influence the others decision to enter the
contract. In case it is found that full and true disclosures were not
made at the time of the contract the effected party will have the
right to regard the contract as void. From the above we can arrive at
the following conclusion:
• Each party is required to tell the other the truth and the whole
truth and nothing but truth.
• Failure to reveal information even if not asked for gives the
aggrieved party the right to regard the contract void.
3. Insurable Interest: Thus insurable interest means that the Insured
must stand to suffer a direct financial loss if the event against which the
insurance policy is taken does actually occur. The insurable interest is
generally established by ownership, possession or direct
relationship. There are four essential components of Insurable interest:
• There must be some property, right, interest, life, limb or potential
liability which is capable of being insured.
• Any of the above i.e. property, right, interest etc must be subject matter
of insurance.
• The insured must have a formal or legal relationship with the matter
which is the subject of insurance.
• The relationship between the insured and the subject matter of
insurance must be recognized by law.
4. Indemnity:
Under the principle of indemnity the insured should be compensated
only for the loss that has been incurred by him as a result of the event
in respect of which the insurance has been taken. It will not be in
order if the Insured should make any profit out of such event (such as
fire, motor accident etc.)
In certain cases the amount of compensation given by the Insurer may
be less than the actual loss that has been incurred. However under no
circumstances the compensation to the Insured should be more than
the loss that has been incurred
5. Subrogation:
Subrogation may be defined as ‘transfer of legal right of the Insured to
recover to the Insured’. In case the insured, after having received
compensation for loss (i.e.indemnity) from the Insurer also receives
from another person any amount towards such loss then he will be
placed in a position of gain which is against the Principle of Indemnity.
Hence the Insurer will have the right to recover the indemnity or the
compensation paid to the Insured to the extent the same has been
received by the Insured.
The Insurer can only claim the amount of compensation paid by it to
the Insured and nothing over and above that.
6. Principle of Contribution:
An individual may have more than one policy for the same in
respect in of the same property and in case of a loss if the Insured is
able claim compensation for the said loss from all Insurers it is but
obvious that he would be making a profit from this loss. This is
against the Principal of Indemnity. This situation is taken care of by
the Principle of Contribution. Contribution may be defined as the
right of the Insurer who has for a loss to recover a proportionate
amount from other insurers who are also liable for the same loss.
The condition of contribution will arise if the following conditions are
met:
• Two or more policies should exist.
• The policies must cover a common interest.
• The policy must cover the same cause or event which results into a loss.
• The policies must cover a common subject matter i.e. the same
property.
• All the policies must be in operation at the time of loss.
It may be noted here that it is not essential that the policies should be
identical to each other.
7. Principle of Proximity Clause:
The loss to a property can be caused by more than one cause.
Under this principle in such a situation the nearest or the closest or
the most proximate cause shall be taken into consideration to
decide the liability of the insurer.
Example: A cargo ship’s base was punctured due to rats. This
resulted in the sea water entering the ship and accordingly the
cargo was damaged. Here there are two causes for the damage of
the cargo ship:
• The Cargo ship getting punctured because of rats.
• The sea water entering the ship through the punctures.
In this case the nearest cause of damage is the sea water which is
insured, the insurer must pay the compensation.
FIRE INSURANCE
Fire insurance is a contract under which the insurer in return for a consideration
(premium) agrees to indemnify the insured/assured for the financial loss which the
Insured may suffer due to destruction of or damage to property or goods, caused
by fire, during a specified period. Thus the basic ingredients of Fire Insurance are as
follows:
• The financial loss should be on account of fire resulting in damage or destruction
of property or goods.
• The maximum amount which the Insured can claim as compensation in the event
of loss is agreed to between the parties at the time of entering into the contract.
It should be understood here that the event that results into financial loss would be
fire and not accident. Secondly the financial loss resulting from damage to a
property may be much more than the sum assured. In such case the Insurer would
be liable to make payment of the sum assured only.
Features of Fire Insurance
(1) Offer & Acceptance:
(2) Payment of Premium:
(3) Contract of Indemnity:
(4) Utmost Good Faith:
(5) Insurable Interest:
(6) Contribution:
(7) Period of fire Insurance:
(8) Deliberate Act:
Procedures for taking Fire insurance Policy
A. Selection of Company: fire insurance company with which the
insurance is to be effected must be identified.
B. Proposal Form: The proposal Form would require the following
details to be filled up: Name and Address of the Proposer, Nature of
Business, Details of Asset to be Insured, Type of Fire Insurance
Policy, Current Market Value of the Asset and Amount for which the
Insurance is to be taken.
C. Evidence of Credibility (Authority) : The Insurance Company may
check the credentials of the proposer to establish his credibility and
ensure that he has not been involved in any unscrupulous activity.
D. Survey of the Property: The Surveyors are to inspect the property
carefully and to estimate the degree of risk involved. It is on this basis of
this report of the Surveyors that the Insurance Company accepts or
rejects the proposal and quotes the rate of premium.
E. Acceptance of Proposal Form: On the basis of the proposal and the
report of the Surveyor the Insurance Company would accept or reject the
proposal.
F. Commencement of Risk: The next step is to pay premium. Once the
premium is paid the coverage of risk would commence.
G. Cover Note: The Insurance Company may accept risk unconditionally
or subject to certain conditions and may give provisional protection to
the Insured by a document known as Cover Note.
H. Policy: The final step is to issue the Fire Insurance Policy.
Types of Fire Insurance Policy
1. Specific policy: A specific policy is a policy which insures the risk for a
fixed amount. Under this Policy the Insurer will pay the actual loss or
the Insured amount whichever is less.
2. Valued Policy: In such a policy a fixed amount is paid as
compensation irrespective of the loss. This type of policy violates the
principle of Indemnity and can be legally challenged, at the time of loss
the market value of the property is not taken into consideration.
3. Average Policy: A fire policy containing an average clause is called
Average Policy. An average policy requires the insurer to pay that
proportion of actual loss as the Insurance bears to the actual value of
the property at the time of loss.
4. Floating Policy (Floater Policy): This policy covers loss by fire caused
to property belonging to the same person but located at different
places under a single sum and for one premium.
5. Comprehensive policy: This is also known as 'all in one' policy and
covers risks like fire, theft, burglary, third party risks, etc. It may also
cover loss of profits during the period the business remains closed due
to fire.
6. Replacement or Re-instatement policy: In this policy the insurer
inserts a re-instatement clause, whereby he undertakes to pay the cost
of replacement of the property damaged or destroyed by fire. Thus, he
may re-instate or replace the property instead of paying cash.
Fire Hazard
The consideration of hazard is important when an insurance company is
deciding whether or not it should insure some risk and what premium to
charge.
So a hazard is a condition that creates or increases the chance of loss.
Therefore a hazard is a condition that increases the chances of loss. Thus, if a
person owns an older building with defective wiring, the defective wiring is a
physical hazard that increases the chance of a fire. Following are the hazards
in the fire insurance:
• Nature of the construction material:
• The lighting and the heating system in the premises:
• Smoking cigarette in the premises:
• Nature of business occupation:
• Nature of the adjoining premises:
MOTOR INSURANCE
• Motor insurance policy is a contract between the insured and the
insurer in which the insurer promises to indemnify the financial
liability in event of loss to the insured.
• Motor Vehicles Act in 1939 was passed to mainly safeguard the
interests of pedestrians. According to Section 24 of Motor Vehicles
Act, “No person shall use or allow any other person to use a motor
vehicle in a public place, unless the vehicle is covered by a policy of
Insurance.”
• The risks under motor insurance are of two types:
(1) Legal liability due to bodily injury, death or damage caused to the
property of others.
(2) Loss or damage to one’s own vehicle injury to or death of self and
other occupants of the vehicle.
Classification of Motor Vehicles
I. Private cars:
(a) Private Cars - vehicles used only for social, domestic and pleasure
purposes
(b) Private vehicles - Two wheeled
1. Motorcycle/Scooters
2. Auto cycles
3. Mechanically assisted pedal cycles
II. Commercial vehicles
(1) Goods carrying vehicles
(2) Passengers carrying vehicles
(3) Miscellaneous & Special types of vehicles
Basic principles of Motor insurance
Motor insurance being a contract has to fulfill the requirements of a valid contract
as laid down in the Indian Contract Act 1872. In addition it has certain special
features common to other insurance contracts. They are:
• Utmost good faith: The principle of Utmost good faith casts an obligation on the
insured to disclose all the material tracts. E.g. the driving history, physical health
of the driver, type of vehicle etc.
• Insurable Interest: In a valid insurance contract it is necessary on the part of the
insured to have an insurable interest in the subject matter of insurance.
• Indemnity: It aims at keeping the insured in the same position he was before the
loss occurred and thus prevent him from making profit from insurance policy.
• Subrogation and Contribution: Subrogation refers to transfer of insured's right of
action against a third party who caused the loss to the insurer. Subrogation comes
in the picture only in case of damage or loss due to a third party.
Types of Motor Insurance Policy
The All India Motor Tariff governs motor insurance business in India. According to
the Tariff all classes of vehicles can use two types of policy forms. They are form A
and form B. Form A which is known as Act Policy is a compulsory requirement of
the motor vehicle act. Use without such insurance is a penal offence. Form B which
is also known as Comprehensive Policy is an optional cover.
1. Liability only policy – This covers third party liability and/or death and property
damage. Compulsory personal accident covers for the owner in respect of owner
driven vehicles is also included.
2. Package policy – This covers loss or damage to the vehicle insured in addition to
1 above.
3. Comprehensive policy- Apart from the above-mentioned coverage, it is
permissible to cover private cars against the risk of fine and/or theft and third
party/ theft risks.
Motor Insurance Claim Settlement
Claim arise when
(1) The insured’s vehicle is damaged or any loss incurred.
(2) Any legal liability is incurred for death of or bodily injury
(3) Or damage to the third party‘s property.
The claim settlement in India is done by opting for any of the following
by the insurance company
(a) Replacement or reinstatement of vehicle
(b) Payment of repair charges
Motor insurance claims are settled in three stages
• In the first stage the insured will inform the insurer about loss. The
loss is registered in claim register
• In the second stage, the automobile surveyor will assess the causes of
loss and extent of loss. He will submit the claim report showing the
cost of repairs and replacement charges etc.
• In the third stage, the claim is examined based on the report
submitted by the surveyor and his recommendations.
Personal Liability Insurance
•Health Insurance
•Personal Accident Insurance
•Travel Insurance
•Micro Insurance
1. HEALTH INSURANCE
“Health insurance is an insurance, which covers the financial loss arising out
of poor health condition or due to permanent disability, which results in loss
of income.”
A health insurance policy is a contract between an insurer and an individual
or group, in which the insurer agrees to provide specified health insurance at
an agreed upon price (premium). It usually provides either direct payment or
reimbursement for expenses associated with illness and injuries.
The reasons for rise in health care costs are:
(a) Increase in medical treatment costs.
(b) Technological advancements in medical equipment.
(c) High labour costs.
The health insurance policies available in India are:
(a) Mediclaim policy (individuals and groups)
(b) Overseas Mediclaim policy
(c) Raj Rajeshwari Mahila Kalyan Yojna
(d) Bhagyashree Child Welfare Policy
(e) Cancer Insurance Policy
(f) Jan Arogya Bima Policy
a.) Mediclaim Policy (individuals and groups): Mediclaim policy is offered to
individuals and groups. It covers the hospitalization for diseases or sickness and
for injuries. The medical expenses will be reimbursed only if the insured is
admitted in the hospital for a minimum duration of 24 hours. Cost of treatment
includes consultation fee of doctors, cost of medicines and hospitalization
charges.
b.) Overseas Mediclaim Policy: In 1984, the Overseas Mediclaim Policy was
developed. This policy will reimburse the medical expenses incurred by Indians
upto 70 years of age while traveling abroad. The premium will be charged based
on their age, purpose of travel, duration and plan selected by the insured under
the policy. This policy is provided is provided to businessmen, people going on
holiday tour, traveling for educational professional and official purposes.
c.) Raj Rajeshwari Mahila Kalyan Yojna: It is offered to women residing in
rural and urban areas. Women between 10-75 years of age are eligible for
this policy irrespective of their occupation and income level.
d.) Bhagyashree Child Welfare Policy: It is offered to girls between 0-18
years. The age of the parents of the girls shouldn’t be more than 60 years. It
provides coverage to one girl child in a family who loses her father or mother
in an accident.
e.) Cancer Insurance Policy: It is designed for cancer patient’s aid association
members. The insured will pay premium to their association along with the
membership fee.
f.) Jan Arogya Bima Policy: This policy provides medical insurance to poorer
section of the people. This policy covers illness like heart attack, jaundice,
food poisoning, and accidents etc. that requires immediate hospitalization.
2. PERSONAL ACCIDENT INSURANCE: Personal Accident is an insurance cover wherein, in the event
of the person sustaining bodily injuries resulting solely and directly from an accident caused by
EXTERNAL, VIOLENT & VISIBLE means , resulting into death or disablement. Personal Accident
insurance covers but not limited to an accident may include events like:
• Rail/Road/Air Accident.
• Injury due to any collision/fall.
• Injury due to Bursting of gas cylinder.
• Snake-bite, Frost bite/Dog bite.
• Burn Injury, Drowning, Poisoning etc.
This Policy is available to persons between the age of 5 and 70 years (Male & Female).
Factors affecting Sum Insured under Personal Accident Insurance
(a) Income from gainful employment,(b) Type of occupation,(c) Age as on date of proposal,(d)
Period of insurance (e) Conditions prevailing at the place from where the proposal is made etc.
3. TRAVEL INSURANCE:
Travel insurance coverage is usually limited to the period of your travel. However,
some insurance companies may offer various combinations of protection to cater
to the specific needs of customers, including long-term annual policies for a
frequent traveler. Travel insurance can be purchased for you and/or your family to
insure against travel-related accidents, losses or interruptions, such as:
(a) Personal accident and Medical-related expenses
(b) Loss of travel or accommodation expenses due to cancellation or curtailment
of the journey
(c) Losing your passport
(d) Personal liability
(e) Delayed baggage and ravel delay
(f) Hijacking
4. MICRO INSURANCE: Micro insurance is the protection of low -
income people against specific perils in exchange for regular premium
payments proportionate to the likelihood and cost of the risk involved.
In India, it is often assumed that a micro insurance policy is simply a
low -premium insurance policy. Low-income clients often:
(a) Live in remote rural areas, requiring a different distribution channel
(b) Are often illiterate and unfamiliar with the concept of insurance,
requiring new approaches to both marketing and contracting
(c) Tend to face more risks than wealthier people do because they
cannot afford the same defenses
(d) Have little experience of dealing with formal financial institutions;
BURGLARY INSURANCE
For the business house Burglary insurance is as essential as Fire insurance, as
it enables them to recoup the losses suffered by them consequent on
burglary or house breaking. In addition to the burglary policy, other types of
policies giving wider covers have also been devised by the burglary
department.
• Burglary: The criminal law of the country does not speak of an offence
called burglary. Hence it becomes necessary for the insurers to lay down in
the policy the definition of the term. As normally understood burglary is:
(a) Theft of property from the premises following upon felonious entry of the
said premises by violent and forcible means.
(b) Theft by a person in the premises who subsequently breaks out by violent
and forcible means provided there shall be visible marks made upon the
premises at the place of such entry or exit by tools, explosives, electricity or
chemicals. Use of force may be against property and person.
• Theft: Indian Penal Code in Section 378 defines theft as follows: "whoever
intending to take is honestly any movable property out of the possession of
any person without the consent of that person or of any person having for
that purpose authority, moves that property in order to such taking is said
to commit theft."
• House-breaking: The word in practice is equal to 'Burglary'. Section 445 of
the Indian Penal Code has laid down a definition of the term. A person is
said to commit housebreaking who commits house trespass if he effects his
entrance into the house (or any part of it), or if being in the house (or any
part of it) for the purpose of committing an offence, or having committed
an offence therein he quits the house, such entrance or exit being made by
use of force in one of the six ways as described in the Indian Penal Code.
The main types of policies are as follows:
(i) Business Premises Policy,
(ii) Jewellary and Valuable Policy,
(iii) All Risk Policy, and
(iv) Fidelity Insurance
i.) Business Premises Insurance Policies: Policies issued to business
premises cover stock-in-trade, goods in trust or on commission, fixtures
and fittings, tools of trade and other similar property and cash and
currency notes in locked safe against the risk of burglary and house-
breaking. In regard to stock-in-trade and other goods the policy may
be issued on full value basis or on "first loss" basis ('Policy insures the
property up to a specified amount only )
i.) Business Premises Insurance Policies: Policies issued to business
premises cover stock-in-trade, goods in trust or on commission, fixtures
and fittings, tools of trade and other similar property and cash and
currency notes in locked safe against the risk of burglary and house-
breaking. In regard to stock-in-trade and other goods the policy may
be issued on full value basis or on "first loss" basis ('Policy insures the
property up to a specified amount only )
ii.) Cash-in-Safe Insurance: The cover includes only when the cash is
secured in a safe and is granted only if the safe is burglar proof and is of
an approved make and design. Safe which is permanently installed in
the premises is a better risk than a safe which can be shifted.
iii.) All Risks (Jewellery and Valuables) Insurance: Policies under this form of
insurance cover risks in respect of jewellery, plate, watches, personal
ornaments and other valuables. Loss or damage by any accident or
misfortune including fire, theft, robbery from the person, defective settings
or fastening and accidental damage are thus covered. The policies do not,
however, cover loss or damage:
• Occasioned by or in consequence of war, revolution, riot, earth-quake or
other convulsions of nature etc.
• Caused by or arising from any process of repairing, restoring or renovating
any property insured;
• Due to moth, wilder, wear or other deterioration or inherent defect in any
property insured.
iv.) Fidelity Insurance: Fidelity insurance protects organizations from loss of
money, securities, or inventory resulting from crime. Common Fidelity claims
allege employee dishonesty, embezzlement, forgery, robbery, safe burglary,
computer fraud, wire transfer fraud, counterfeiting, and other criminal acts.
Liabilities covered by crime insurance usually fall into two categories,
although many polices combine both types of coverage:
• Money and security coverage pays for money and securities taken by
burglary, robbery, theft, disappearance and destruction.
• Employee dishonesty coverage pays for losses caused by most dishonest
acts of your employees, such as embezzlement and theft
General Insurance Policy Structure or Key Elements
• Heading – The name of the insurer and other particulars regarding
the issuing office- the name of the policy etc.
• Preamble – This contains relevant information regarding the subject
matter of insurance, the locations, identity, value, and period of
insurance required etc.
• Signature – The signature of an authorized official empower to accept
the offer of the proposer and issue a policy.
• Operative or insuring clause - States the peril(s) which are to be
insured against.
• Exclusions – States the various conditions under which the policy will
not pay.
General Insurance Documentation
1. Proposals
2. Policy Schedule
3. Certificates of insurance
4. Cover note
5. Endorsements
• Renewal Notice
• Warranties
1. Proposals: It is also said that a proposal is the basis of insurance. In
other words, the facts mentioned in the proposal form becomes the
basis for the insurance policy cover. It contains all the relevant
information about-
• Generic details about the insured/proposer – name, address etc.
• Specific details about the subject matter to be insured-it contains
details about projects which are to be insured-eg.hydro electric
project, oil rigging platform etc.
• Details regarding the value to be sum insured; duration of insurance
covered required.
2. Policy Schedule: The policy schedule is the document which together with
various clauses, warranties and conditions forms the contract. Naturally, this would
include such details as name address, nature of business, policy number etc. Other
more particular information detailed in the policy schedule would be
• Full details and description of the subject matter to be insured.
• Sum insured based on value of the sum insured. The basis of valuation and the
adequacy of the sum insured is to be measured and specified clearly to avoid
dispute in future in the event of a claim.
• Period of insurance.
• Premium
• The terms and conditions which details the actual cover
• The various clauses which attach to the policy schedule.
3. Certificates of insurance: These are usually given in marine transit
insurance under open policies and also for motor insurance. In motor
insurance they are mandatory as it confirms that there is insurance cover
existing for the vehicle plying on public roads. They are less detailed than
a policy and not stamped, but essentially give the same information
regarding insurance
4. Cover note: These are documents that are issued immediately to
prove that insurance cover is existing and valid for 60 days from the date
of issue. Mostly used in motor insurance and transit insurance,
particularly for import covers by sea. The cover note in marine insurance
would be valid for duration of transit. The cover note is valid for a
maximum period of 60 days.
5. Endorsements: There may be instances, when during the policy, certain
changes may be advised by the customer. Eg. Change in location, correction
of name or other details of subject matter insured. There may be instances
of increase in the value to be insured, inclusion of extra covers or deletion of
covers etc. In such cases, the insurer would, on being so solicited by the
insured customer, issue an endorsement which would reflect the changes
and form part of the policy document. Generally endorsements are issued
for such alterations as
• Change in insurable interest and Value at Risk
• Cancellation of insurance
• Change in the location or situation of risk
• Reduction or addition to the risk
• Change of the insured as when a transfer of interest etc.
• Renewal Notice: While it is not obligatory to issue renewal notices
reminding insured that the policy is due for renewal, it is
recommendatory as an excellent customer service initiative.
• Warranties: Warranties are an extension of the terms and conditions
contained in the clauses which attach to the policy schedule.
Warranty is a statement by which the insured undertakes to do/not
do a particular thing or fulfil a condition, or whereby he affirms or
negates the existence of a particular state of facts which affect the
incidence of a claim. Warranties can either relate to facts existing at
the time of the contract or relate to the future.
General Insurance Underwriting Process
Underwriting is defined as assumption of liability. The underwriting process
follows a series of stages, at the end of which the status of a risk is decided.
It is only after the risk has been weighed and all possible alternatives
evaluated that the final underwriting is done. When a proposal for insurance
is received, the underwriter has four possible courses of action:
• Accept the risk at standard rates, Charge extra premium depending on the
risk factor, Impose special conditions and Reject the risk.
There are different types of hazard which can influence his decision to accept
or reject a risk ─
1. Physical hazards
2. Moral hazards
3. Financial hazards
4. Morale hazard
The underwriter can accept a proposal, reject it or accept it with
certain modifications. Some of the modifications that can be made are:
• Hazard incidence can be reduced: For loss prevention and
minimization, underwriters can recommend certain changes that will
safeguard against physical hazards.
• Changing rating plans and policy terms: Sometimes a proposal that
seems unacceptable at one rate may become a desirable business
under another rating plan or with Special Conditions such as
‘compulsory excess’.
General Procedure for Claim Settlement
1. Intimation/Submission of the Claim by the Insured: The insured
would intimate the insurance company of the occurrence of a peril
or risk which has caused loss of or damage.
2. Evaluation/Registration of Claim: The insurer would briefly initiate
process check –
(i) Whether the policy has been issued by the insurer
(ii) Whether the policy is in existence
(iii) Whether correct premium has been received by the insurer
(iv) Whether the peril causing loss/damage is an insured peril
3. Appointment of surveyor/loss assessor/investigator etc: The
insurer would immediately arrange for surveyor to be appointed who
would look into the circumstances of the loss, assess the actual loss
suffered in money terms and advise the insurer.
4. Settlement of claims: The insurer would ensure claims are settled on
the receipt of the final report from the surveyor, generally within the
TAT (Turn around time) stipulated by various regulations and
committed by the insurance company.
5. Recovery: The next step for the insurance company, in certain cases
is initiating process for recovery from the third person– (eg in marine
cargo transit claims & motor third party liability claims)
Settlement of Claims
(a) Repair & replacement: The insurer has the option of repairing
and/or replacing the damaged or destroyed property. Only conditions
would be that the cost of repair/replacement will not exceed the sum
insured.
(b) Replacement: In Total loss, the subject matter is totally destroyed
and the insurer, subject to applicable terms and conditions agrees to
replace the same. Constructive Total Loss cost of recovery and/or
salvage would be more than the cost of the goods itself.
(c) Repair: The compensation by the insurer would be in the form of
cost of repairs to the subject matter damaged by the insured peril,
subject to the maximum level of indemnity (sum insured) under the
policy.
(d) Reinstatement: Reinstatement of the insured to the position he was
in prior to the loss occurrence. Here new items are replaced in place of
damaged ones even if the original items were not new.
Thank you

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General Insurance

  • 1. INSURANCE & RISK MANAGEMENT (BBAA04A52) Unit - 5: GENERAL INSURANCE Dr. J.Mexon , Department of Management, Kristu Jayanti College, Bengaluru.
  • 2. Contents • Introduction to General Insurance • Types of General Insurance • Principles of General Insurance • Fire Insurance • Motor Insurance • Personal Liability Insurance • Burglary Insurance • General Insurance Documentation • General Insurance Underwriting • General Insurance Claim
  • 3. Introduction A very broad classification of insurance is life and non-life (general insurance). General Insurance comprises of: • Insurance of property against fire, theft etc. • Personal Insurance such as Accident & Health Insurance. • Liability Insurance which covers legal liability arising out of third party claims such as claim from a person injured in a motor accident etc. • Other types of Insurances such as Credit Insurance, Crop Insurance, etc. Thus General Insurance provides indemnity against loss arising from damage to property or assets, expenditure or loss of earning arising from injury to a person, legal liabilities etc.
  • 4. The transactions of general insurance business in India are governed by two main statues, namely: • The Insurance Act, 1938 • General Insurance Business (Nationalisation) Act, 1972 The Insurance Act was passed in 1938 and was brought into force from 1st July, 1939. This act applies to the GIC and the four subsidiaries. The act was amended several times in the years 1950, 1968, 1988, 1999. This Act specifies the restrictions and limitations applicable as specified by the Central Government under powers conferred by section 35 of the General Insurance Business (Nationalization) Act, 1972. The important provisions of the Act relate to:
  • 5. • Registration: Every insurer is required to obtain a Certificate of Registration from the Controller of Insurance, by making the payment of requisite fees. Registration should be renewed annually. • Accounts and audit: An insurer is required to maintain separate accounts of the receipts and payments in each class of insurance viz. Fire. Marine and Miscellaneous Insurance. Apart from the regular financial statements, the companies are required to maintain the following documents in respect of each class of insurance: 1. Record of Cover notes specifying the details of the risk covered, policies, premiums, endorsements, Bank guarantees, claims 2. Register of employees 3. Cash Books 4. Reinsurance details 5. Claims register
  • 6. • Investments: Investments of insurance company are usually made in approved investments under the provisions of the Act. The guidelines and limitations are issued by the Central Government from time to time. • Limitation on management expenses: The Act prescribes the maximum limits of expenses of management including commission that may be incurred by an insurer. The percentages are prescribed in relation to the total gross direct business written by the insurer in India. • Prohibition of Rebates: The Act prohibits any person from offering any rebate of commission or a rebate of premium to any person to take insurance.
  • 7. Types of General Insurance 1. Fire Insurance 2. Marine Insurance 3. Motor Vehicle Insurance 4. Health Insurance 5. Personal Accident Insurance 6. Burglary or Theft Insurance
  • 8. 1. Fire Insurance: Fire insurance is a contract under which the insurer in return for a consideration (premium) agrees to indemnify the insured/assured for the financial loss which the Insured may suffer due to destruction of or damage to property or goods, caused by fire, during a specified period. Thus the basic ingredients of Fire Insurance are as follows: • i. The financial loss should be on account fire resulting in damage or destruction of property or goods. • ii. The maximum amount which the Insured can claim as compensation in the event of loss is agreed to between the parties at the time of entering into the contract.
  • 9. 2. Marine Insurance: Marine Insurance is an Insurance against loss or damage or destruction of Cargo, freight, merchandise or means or instruments of transportation whether by sea, land or air. Thus marine insurance provides indemnity for loss or damage to ship, cargo or mode of transport by which the property is taken, acquired or held between the point of Origin and point of destination.
  • 10. 3. Motor Vehicle Insurance: It is a contract of Insurance under which the Insurer indemnifies the Insured, who is the owner or an operator of a Motor Vehicle, against any loss that he may incur due to damage to the property (i.e. the Motor Vehicle) or any other person (i.e. Third Party) as a result of an accident. There are two types of Motor Vehicle Insurance: • a. Mandatory: In India it is mandatory ie required by Law, for every owner or operator of a Motor Vehicle to take insurance that provides for payment of compensation to a Third Party who dies or suffers injuries due an accident caused by the said motor vehicle. • b. Comprehensive: Under a comprehensive motor insurance policy apart from the coverage of Third Party Liability (as provided in the mandatory policy) various other risks are also covered. These include damage to the Motor Vehicle caused by fire, accident, theft etc.
  • 11. 4. Health Insurance Policy: The Health Insurance or Medi Claim Policies are those policies which cover hospitalization expenses for the treatment of illness/ injury as per the terms and conditions of the policy. • These policies may also cover pre hospitalization expenses prior to hospitalization and also post hospitalization expenses for the period specified in the policy. • Some of the Insurers also cover the following expenses in this policy: a. Ambulance Charges b. Day Care treatment charges i.e. treatment by using advanced technologies when even 24 hours of hospitalization is not required.
  • 12. 5. Personal Accident Insurance: The purpose of personal insurance is to provide for payment of a fixed compensation for death or disablement resulting from injury to the body of a human being caused due to an accident. 6. Burglary or Theft Insurance: Theft Insurance Contract covers losses from burglary, robbery and other forms of theft. Theft generally refers to the act of stealing. Burglary is defined to mean the unlawful taking of the property within the premises that have been closed and in which there are visible marks evidencing forceful entry.
  • 13. Principles of General Insurance 1. Nature of Contract 2. Principle of Utmost Good Faith 3. Principle of Insurable Interest 4. Principles of Indemnity 5. Principle of Subrogation 6. Principle of Contribution 7. Principle of Proximity Clause
  • 14. 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 the contract and the other party accepts the proposal. The contract should be simple to be understood by each party. The person entering into the contract should enter with his/her free consent.
  • 15. 2. Utmost Good faith: In an Insurance contract utmost good faith means that ‘each party to the proposed contract is legally obliged to disclose to the other all information which can influence the others decision to enter the contract. In case it is found that full and true disclosures were not made at the time of the contract the effected party will have the right to regard the contract as void. From the above we can arrive at the following conclusion: • Each party is required to tell the other the truth and the whole truth and nothing but truth. • Failure to reveal information even if not asked for gives the aggrieved party the right to regard the contract void.
  • 16. 3. Insurable Interest: Thus insurable interest means that the Insured must stand to suffer a direct financial loss if the event against which the insurance policy is taken does actually occur. The insurable interest is generally established by ownership, possession or direct relationship. There are four essential components of Insurable interest: • There must be some property, right, interest, life, limb or potential liability which is capable of being insured. • Any of the above i.e. property, right, interest etc must be subject matter of insurance. • The insured must have a formal or legal relationship with the matter which is the subject of insurance. • The relationship between the insured and the subject matter of insurance must be recognized by law.
  • 17. 4. Indemnity: Under the principle of indemnity the insured should be compensated only for the loss that has been incurred by him as a result of the event in respect of which the insurance has been taken. It will not be in order if the Insured should make any profit out of such event (such as fire, motor accident etc.) In certain cases the amount of compensation given by the Insurer may be less than the actual loss that has been incurred. However under no circumstances the compensation to the Insured should be more than the loss that has been incurred
  • 18. 5. Subrogation: Subrogation may be defined as ‘transfer of legal right of the Insured to recover to the Insured’. In case the insured, after having received compensation for loss (i.e.indemnity) from the Insurer also receives from another person any amount towards such loss then he will be placed in a position of gain which is against the Principle of Indemnity. Hence the Insurer will have the right to recover the indemnity or the compensation paid to the Insured to the extent the same has been received by the Insured. The Insurer can only claim the amount of compensation paid by it to the Insured and nothing over and above that.
  • 19. 6. Principle of Contribution: An individual may have more than one policy for the same in respect in of the same property and in case of a loss if the Insured is able claim compensation for the said loss from all Insurers it is but obvious that he would be making a profit from this loss. This is against the Principal of Indemnity. This situation is taken care of by the Principle of Contribution. Contribution may be defined as the right of the Insurer who has for a loss to recover a proportionate amount from other insurers who are also liable for the same loss.
  • 20. The condition of contribution will arise if the following conditions are met: • Two or more policies should exist. • The policies must cover a common interest. • The policy must cover the same cause or event which results into a loss. • The policies must cover a common subject matter i.e. the same property. • All the policies must be in operation at the time of loss. It may be noted here that it is not essential that the policies should be identical to each other.
  • 21. 7. Principle of Proximity Clause: The loss to a property can be caused by more than one cause. Under this principle in such a situation the nearest or the closest or the most proximate cause shall be taken into consideration to decide the liability of the insurer. Example: A cargo ship’s base was punctured due to rats. This resulted in the sea water entering the ship and accordingly the cargo was damaged. Here there are two causes for the damage of the cargo ship: • The Cargo ship getting punctured because of rats. • The sea water entering the ship through the punctures. In this case the nearest cause of damage is the sea water which is insured, the insurer must pay the compensation.
  • 22. FIRE INSURANCE Fire insurance is a contract under which the insurer in return for a consideration (premium) agrees to indemnify the insured/assured for the financial loss which the Insured may suffer due to destruction of or damage to property or goods, caused by fire, during a specified period. Thus the basic ingredients of Fire Insurance are as follows: • The financial loss should be on account of fire resulting in damage or destruction of property or goods. • The maximum amount which the Insured can claim as compensation in the event of loss is agreed to between the parties at the time of entering into the contract. It should be understood here that the event that results into financial loss would be fire and not accident. Secondly the financial loss resulting from damage to a property may be much more than the sum assured. In such case the Insurer would be liable to make payment of the sum assured only.
  • 23. Features of Fire Insurance (1) Offer & Acceptance: (2) Payment of Premium: (3) Contract of Indemnity: (4) Utmost Good Faith: (5) Insurable Interest: (6) Contribution: (7) Period of fire Insurance: (8) Deliberate Act:
  • 24. Procedures for taking Fire insurance Policy A. Selection of Company: fire insurance company with which the insurance is to be effected must be identified. B. Proposal Form: The proposal Form would require the following details to be filled up: Name and Address of the Proposer, Nature of Business, Details of Asset to be Insured, Type of Fire Insurance Policy, Current Market Value of the Asset and Amount for which the Insurance is to be taken. C. Evidence of Credibility (Authority) : The Insurance Company may check the credentials of the proposer to establish his credibility and ensure that he has not been involved in any unscrupulous activity.
  • 25. D. Survey of the Property: The Surveyors are to inspect the property carefully and to estimate the degree of risk involved. It is on this basis of this report of the Surveyors that the Insurance Company accepts or rejects the proposal and quotes the rate of premium. E. Acceptance of Proposal Form: On the basis of the proposal and the report of the Surveyor the Insurance Company would accept or reject the proposal. F. Commencement of Risk: The next step is to pay premium. Once the premium is paid the coverage of risk would commence. G. Cover Note: The Insurance Company may accept risk unconditionally or subject to certain conditions and may give provisional protection to the Insured by a document known as Cover Note. H. Policy: The final step is to issue the Fire Insurance Policy.
  • 26. Types of Fire Insurance Policy 1. Specific policy: A specific policy is a policy which insures the risk for a fixed amount. Under this Policy the Insurer will pay the actual loss or the Insured amount whichever is less. 2. Valued Policy: In such a policy a fixed amount is paid as compensation irrespective of the loss. This type of policy violates the principle of Indemnity and can be legally challenged, at the time of loss the market value of the property is not taken into consideration. 3. Average Policy: A fire policy containing an average clause is called Average Policy. An average policy requires the insurer to pay that proportion of actual loss as the Insurance bears to the actual value of the property at the time of loss.
  • 27. 4. Floating Policy (Floater Policy): This policy covers loss by fire caused to property belonging to the same person but located at different places under a single sum and for one premium. 5. Comprehensive policy: This is also known as 'all in one' policy and covers risks like fire, theft, burglary, third party risks, etc. It may also cover loss of profits during the period the business remains closed due to fire. 6. Replacement or Re-instatement policy: In this policy the insurer inserts a re-instatement clause, whereby he undertakes to pay the cost of replacement of the property damaged or destroyed by fire. Thus, he may re-instate or replace the property instead of paying cash.
  • 28. Fire Hazard The consideration of hazard is important when an insurance company is deciding whether or not it should insure some risk and what premium to charge. So a hazard is a condition that creates or increases the chance of loss. Therefore a hazard is a condition that increases the chances of loss. Thus, if a person owns an older building with defective wiring, the defective wiring is a physical hazard that increases the chance of a fire. Following are the hazards in the fire insurance: • Nature of the construction material: • The lighting and the heating system in the premises: • Smoking cigarette in the premises: • Nature of business occupation: • Nature of the adjoining premises:
  • 29. MOTOR INSURANCE • Motor insurance policy is a contract between the insured and the insurer in which the insurer promises to indemnify the financial liability in event of loss to the insured. • Motor Vehicles Act in 1939 was passed to mainly safeguard the interests of pedestrians. According to Section 24 of Motor Vehicles Act, “No person shall use or allow any other person to use a motor vehicle in a public place, unless the vehicle is covered by a policy of Insurance.” • The risks under motor insurance are of two types: (1) Legal liability due to bodily injury, death or damage caused to the property of others. (2) Loss or damage to one’s own vehicle injury to or death of self and other occupants of the vehicle.
  • 30. Classification of Motor Vehicles I. Private cars: (a) Private Cars - vehicles used only for social, domestic and pleasure purposes (b) Private vehicles - Two wheeled 1. Motorcycle/Scooters 2. Auto cycles 3. Mechanically assisted pedal cycles II. Commercial vehicles (1) Goods carrying vehicles (2) Passengers carrying vehicles (3) Miscellaneous & Special types of vehicles
  • 31. Basic principles of Motor insurance Motor insurance being a contract has to fulfill the requirements of a valid contract as laid down in the Indian Contract Act 1872. In addition it has certain special features common to other insurance contracts. They are: • Utmost good faith: The principle of Utmost good faith casts an obligation on the insured to disclose all the material tracts. E.g. the driving history, physical health of the driver, type of vehicle etc. • Insurable Interest: In a valid insurance contract it is necessary on the part of the insured to have an insurable interest in the subject matter of insurance. • Indemnity: It aims at keeping the insured in the same position he was before the loss occurred and thus prevent him from making profit from insurance policy. • Subrogation and Contribution: Subrogation refers to transfer of insured's right of action against a third party who caused the loss to the insurer. Subrogation comes in the picture only in case of damage or loss due to a third party.
  • 32. Types of Motor Insurance Policy The All India Motor Tariff governs motor insurance business in India. According to the Tariff all classes of vehicles can use two types of policy forms. They are form A and form B. Form A which is known as Act Policy is a compulsory requirement of the motor vehicle act. Use without such insurance is a penal offence. Form B which is also known as Comprehensive Policy is an optional cover. 1. Liability only policy – This covers third party liability and/or death and property damage. Compulsory personal accident covers for the owner in respect of owner driven vehicles is also included. 2. Package policy – This covers loss or damage to the vehicle insured in addition to 1 above. 3. Comprehensive policy- Apart from the above-mentioned coverage, it is permissible to cover private cars against the risk of fine and/or theft and third party/ theft risks.
  • 33. Motor Insurance Claim Settlement Claim arise when (1) The insured’s vehicle is damaged or any loss incurred. (2) Any legal liability is incurred for death of or bodily injury (3) Or damage to the third party‘s property. The claim settlement in India is done by opting for any of the following by the insurance company (a) Replacement or reinstatement of vehicle (b) Payment of repair charges
  • 34. Motor insurance claims are settled in three stages • In the first stage the insured will inform the insurer about loss. The loss is registered in claim register • In the second stage, the automobile surveyor will assess the causes of loss and extent of loss. He will submit the claim report showing the cost of repairs and replacement charges etc. • In the third stage, the claim is examined based on the report submitted by the surveyor and his recommendations.
  • 35. Personal Liability Insurance •Health Insurance •Personal Accident Insurance •Travel Insurance •Micro Insurance
  • 36. 1. HEALTH INSURANCE “Health insurance is an insurance, which covers the financial loss arising out of poor health condition or due to permanent disability, which results in loss of income.” A health insurance policy is a contract between an insurer and an individual or group, in which the insurer agrees to provide specified health insurance at an agreed upon price (premium). It usually provides either direct payment or reimbursement for expenses associated with illness and injuries. The reasons for rise in health care costs are: (a) Increase in medical treatment costs. (b) Technological advancements in medical equipment. (c) High labour costs.
  • 37. The health insurance policies available in India are: (a) Mediclaim policy (individuals and groups) (b) Overseas Mediclaim policy (c) Raj Rajeshwari Mahila Kalyan Yojna (d) Bhagyashree Child Welfare Policy (e) Cancer Insurance Policy (f) Jan Arogya Bima Policy
  • 38. a.) Mediclaim Policy (individuals and groups): Mediclaim policy is offered to individuals and groups. It covers the hospitalization for diseases or sickness and for injuries. The medical expenses will be reimbursed only if the insured is admitted in the hospital for a minimum duration of 24 hours. Cost of treatment includes consultation fee of doctors, cost of medicines and hospitalization charges. b.) Overseas Mediclaim Policy: In 1984, the Overseas Mediclaim Policy was developed. This policy will reimburse the medical expenses incurred by Indians upto 70 years of age while traveling abroad. The premium will be charged based on their age, purpose of travel, duration and plan selected by the insured under the policy. This policy is provided is provided to businessmen, people going on holiday tour, traveling for educational professional and official purposes.
  • 39. c.) Raj Rajeshwari Mahila Kalyan Yojna: It is offered to women residing in rural and urban areas. Women between 10-75 years of age are eligible for this policy irrespective of their occupation and income level. d.) Bhagyashree Child Welfare Policy: It is offered to girls between 0-18 years. The age of the parents of the girls shouldn’t be more than 60 years. It provides coverage to one girl child in a family who loses her father or mother in an accident. e.) Cancer Insurance Policy: It is designed for cancer patient’s aid association members. The insured will pay premium to their association along with the membership fee. f.) Jan Arogya Bima Policy: This policy provides medical insurance to poorer section of the people. This policy covers illness like heart attack, jaundice, food poisoning, and accidents etc. that requires immediate hospitalization.
  • 40. 2. PERSONAL ACCIDENT INSURANCE: Personal Accident is an insurance cover wherein, in the event of the person sustaining bodily injuries resulting solely and directly from an accident caused by EXTERNAL, VIOLENT & VISIBLE means , resulting into death or disablement. Personal Accident insurance covers but not limited to an accident may include events like: • Rail/Road/Air Accident. • Injury due to any collision/fall. • Injury due to Bursting of gas cylinder. • Snake-bite, Frost bite/Dog bite. • Burn Injury, Drowning, Poisoning etc. This Policy is available to persons between the age of 5 and 70 years (Male & Female). Factors affecting Sum Insured under Personal Accident Insurance (a) Income from gainful employment,(b) Type of occupation,(c) Age as on date of proposal,(d) Period of insurance (e) Conditions prevailing at the place from where the proposal is made etc.
  • 41. 3. TRAVEL INSURANCE: Travel insurance coverage is usually limited to the period of your travel. However, some insurance companies may offer various combinations of protection to cater to the specific needs of customers, including long-term annual policies for a frequent traveler. Travel insurance can be purchased for you and/or your family to insure against travel-related accidents, losses or interruptions, such as: (a) Personal accident and Medical-related expenses (b) Loss of travel or accommodation expenses due to cancellation or curtailment of the journey (c) Losing your passport (d) Personal liability (e) Delayed baggage and ravel delay (f) Hijacking
  • 42. 4. MICRO INSURANCE: Micro insurance is the protection of low - income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved. In India, it is often assumed that a micro insurance policy is simply a low -premium insurance policy. Low-income clients often: (a) Live in remote rural areas, requiring a different distribution channel (b) Are often illiterate and unfamiliar with the concept of insurance, requiring new approaches to both marketing and contracting (c) Tend to face more risks than wealthier people do because they cannot afford the same defenses (d) Have little experience of dealing with formal financial institutions;
  • 43. BURGLARY INSURANCE For the business house Burglary insurance is as essential as Fire insurance, as it enables them to recoup the losses suffered by them consequent on burglary or house breaking. In addition to the burglary policy, other types of policies giving wider covers have also been devised by the burglary department. • Burglary: The criminal law of the country does not speak of an offence called burglary. Hence it becomes necessary for the insurers to lay down in the policy the definition of the term. As normally understood burglary is: (a) Theft of property from the premises following upon felonious entry of the said premises by violent and forcible means. (b) Theft by a person in the premises who subsequently breaks out by violent and forcible means provided there shall be visible marks made upon the premises at the place of such entry or exit by tools, explosives, electricity or chemicals. Use of force may be against property and person.
  • 44. • Theft: Indian Penal Code in Section 378 defines theft as follows: "whoever intending to take is honestly any movable property out of the possession of any person without the consent of that person or of any person having for that purpose authority, moves that property in order to such taking is said to commit theft." • House-breaking: The word in practice is equal to 'Burglary'. Section 445 of the Indian Penal Code has laid down a definition of the term. A person is said to commit housebreaking who commits house trespass if he effects his entrance into the house (or any part of it), or if being in the house (or any part of it) for the purpose of committing an offence, or having committed an offence therein he quits the house, such entrance or exit being made by use of force in one of the six ways as described in the Indian Penal Code.
  • 45. The main types of policies are as follows: (i) Business Premises Policy, (ii) Jewellary and Valuable Policy, (iii) All Risk Policy, and (iv) Fidelity Insurance
  • 46. i.) Business Premises Insurance Policies: Policies issued to business premises cover stock-in-trade, goods in trust or on commission, fixtures and fittings, tools of trade and other similar property and cash and currency notes in locked safe against the risk of burglary and house- breaking. In regard to stock-in-trade and other goods the policy may be issued on full value basis or on "first loss" basis ('Policy insures the property up to a specified amount only )
  • 47. i.) Business Premises Insurance Policies: Policies issued to business premises cover stock-in-trade, goods in trust or on commission, fixtures and fittings, tools of trade and other similar property and cash and currency notes in locked safe against the risk of burglary and house- breaking. In regard to stock-in-trade and other goods the policy may be issued on full value basis or on "first loss" basis ('Policy insures the property up to a specified amount only ) ii.) Cash-in-Safe Insurance: The cover includes only when the cash is secured in a safe and is granted only if the safe is burglar proof and is of an approved make and design. Safe which is permanently installed in the premises is a better risk than a safe which can be shifted.
  • 48. iii.) All Risks (Jewellery and Valuables) Insurance: Policies under this form of insurance cover risks in respect of jewellery, plate, watches, personal ornaments and other valuables. Loss or damage by any accident or misfortune including fire, theft, robbery from the person, defective settings or fastening and accidental damage are thus covered. The policies do not, however, cover loss or damage: • Occasioned by or in consequence of war, revolution, riot, earth-quake or other convulsions of nature etc. • Caused by or arising from any process of repairing, restoring or renovating any property insured; • Due to moth, wilder, wear or other deterioration or inherent defect in any property insured.
  • 49. iv.) Fidelity Insurance: Fidelity insurance protects organizations from loss of money, securities, or inventory resulting from crime. Common Fidelity claims allege employee dishonesty, embezzlement, forgery, robbery, safe burglary, computer fraud, wire transfer fraud, counterfeiting, and other criminal acts. Liabilities covered by crime insurance usually fall into two categories, although many polices combine both types of coverage: • Money and security coverage pays for money and securities taken by burglary, robbery, theft, disappearance and destruction. • Employee dishonesty coverage pays for losses caused by most dishonest acts of your employees, such as embezzlement and theft
  • 50. General Insurance Policy Structure or Key Elements • Heading – The name of the insurer and other particulars regarding the issuing office- the name of the policy etc. • Preamble – This contains relevant information regarding the subject matter of insurance, the locations, identity, value, and period of insurance required etc. • Signature – The signature of an authorized official empower to accept the offer of the proposer and issue a policy. • Operative or insuring clause - States the peril(s) which are to be insured against. • Exclusions – States the various conditions under which the policy will not pay.
  • 51. General Insurance Documentation 1. Proposals 2. Policy Schedule 3. Certificates of insurance 4. Cover note 5. Endorsements • Renewal Notice • Warranties
  • 52. 1. Proposals: It is also said that a proposal is the basis of insurance. In other words, the facts mentioned in the proposal form becomes the basis for the insurance policy cover. It contains all the relevant information about- • Generic details about the insured/proposer – name, address etc. • Specific details about the subject matter to be insured-it contains details about projects which are to be insured-eg.hydro electric project, oil rigging platform etc. • Details regarding the value to be sum insured; duration of insurance covered required.
  • 53. 2. Policy Schedule: The policy schedule is the document which together with various clauses, warranties and conditions forms the contract. Naturally, this would include such details as name address, nature of business, policy number etc. Other more particular information detailed in the policy schedule would be • Full details and description of the subject matter to be insured. • Sum insured based on value of the sum insured. The basis of valuation and the adequacy of the sum insured is to be measured and specified clearly to avoid dispute in future in the event of a claim. • Period of insurance. • Premium • The terms and conditions which details the actual cover • The various clauses which attach to the policy schedule.
  • 54. 3. Certificates of insurance: These are usually given in marine transit insurance under open policies and also for motor insurance. In motor insurance they are mandatory as it confirms that there is insurance cover existing for the vehicle plying on public roads. They are less detailed than a policy and not stamped, but essentially give the same information regarding insurance 4. Cover note: These are documents that are issued immediately to prove that insurance cover is existing and valid for 60 days from the date of issue. Mostly used in motor insurance and transit insurance, particularly for import covers by sea. The cover note in marine insurance would be valid for duration of transit. The cover note is valid for a maximum period of 60 days.
  • 55. 5. Endorsements: There may be instances, when during the policy, certain changes may be advised by the customer. Eg. Change in location, correction of name or other details of subject matter insured. There may be instances of increase in the value to be insured, inclusion of extra covers or deletion of covers etc. In such cases, the insurer would, on being so solicited by the insured customer, issue an endorsement which would reflect the changes and form part of the policy document. Generally endorsements are issued for such alterations as • Change in insurable interest and Value at Risk • Cancellation of insurance • Change in the location or situation of risk • Reduction or addition to the risk • Change of the insured as when a transfer of interest etc.
  • 56. • Renewal Notice: While it is not obligatory to issue renewal notices reminding insured that the policy is due for renewal, it is recommendatory as an excellent customer service initiative. • Warranties: Warranties are an extension of the terms and conditions contained in the clauses which attach to the policy schedule. Warranty is a statement by which the insured undertakes to do/not do a particular thing or fulfil a condition, or whereby he affirms or negates the existence of a particular state of facts which affect the incidence of a claim. Warranties can either relate to facts existing at the time of the contract or relate to the future.
  • 57. General Insurance Underwriting Process Underwriting is defined as assumption of liability. The underwriting process follows a series of stages, at the end of which the status of a risk is decided. It is only after the risk has been weighed and all possible alternatives evaluated that the final underwriting is done. When a proposal for insurance is received, the underwriter has four possible courses of action: • Accept the risk at standard rates, Charge extra premium depending on the risk factor, Impose special conditions and Reject the risk. There are different types of hazard which can influence his decision to accept or reject a risk ─ 1. Physical hazards 2. Moral hazards 3. Financial hazards 4. Morale hazard
  • 58. The underwriter can accept a proposal, reject it or accept it with certain modifications. Some of the modifications that can be made are: • Hazard incidence can be reduced: For loss prevention and minimization, underwriters can recommend certain changes that will safeguard against physical hazards. • Changing rating plans and policy terms: Sometimes a proposal that seems unacceptable at one rate may become a desirable business under another rating plan or with Special Conditions such as ‘compulsory excess’.
  • 59. General Procedure for Claim Settlement 1. Intimation/Submission of the Claim by the Insured: The insured would intimate the insurance company of the occurrence of a peril or risk which has caused loss of or damage. 2. Evaluation/Registration of Claim: The insurer would briefly initiate process check – (i) Whether the policy has been issued by the insurer (ii) Whether the policy is in existence (iii) Whether correct premium has been received by the insurer (iv) Whether the peril causing loss/damage is an insured peril
  • 60. 3. Appointment of surveyor/loss assessor/investigator etc: The insurer would immediately arrange for surveyor to be appointed who would look into the circumstances of the loss, assess the actual loss suffered in money terms and advise the insurer. 4. Settlement of claims: The insurer would ensure claims are settled on the receipt of the final report from the surveyor, generally within the TAT (Turn around time) stipulated by various regulations and committed by the insurance company. 5. Recovery: The next step for the insurance company, in certain cases is initiating process for recovery from the third person– (eg in marine cargo transit claims & motor third party liability claims)
  • 61. Settlement of Claims (a) Repair & replacement: The insurer has the option of repairing and/or replacing the damaged or destroyed property. Only conditions would be that the cost of repair/replacement will not exceed the sum insured. (b) Replacement: In Total loss, the subject matter is totally destroyed and the insurer, subject to applicable terms and conditions agrees to replace the same. Constructive Total Loss cost of recovery and/or salvage would be more than the cost of the goods itself. (c) Repair: The compensation by the insurer would be in the form of cost of repairs to the subject matter damaged by the insured peril, subject to the maximum level of indemnity (sum insured) under the policy. (d) Reinstatement: Reinstatement of the insured to the position he was in prior to the loss occurrence. Here new items are replaced in place of damaged ones even if the original items were not new.