Project report on Insurance

ASSIGNMENT ON INSURANCE
CHAPTER-1
BACKGROUND

1.1 HISTORY OF INSURANCE
In some sense we can say that insurance appears simultaneously with the appearance of human
society. We know of two types of economies in human societies: natural or non-monetary
economies (using barter and trade with no centralized nor standardized set of financial
instruments) and more modern monetary economies (with markets, currency, financial
instruments and so on). The former is more primitive and the insurance in such economies
entails agreements of mutual aid. If one family's house is destroyed the neighbors are committed
to help rebuild. Granaries housed another primitive form of insurance to indemnify against
famines. Often informal or formally intrinsic to local religious customs, this type of insurance
has survived to the present day in some countries where a modern money economy with its
financial instruments is not widespread.
Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in
which insurance is part of the financial sphere), early methods of transferring or distributing risk
were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC,
respectively. Chinese merchants travelling treacherous river rapids would redistribute their
wares across many vessels to limit the loss due to any single vessel's capsizing. The
Babylonians developed a system which was recorded in the famous Code of Hammurabi, c.
1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan
to fund his shipment, he would pay the lender an additional sum in exchange for the lender's
guarantee to cancel the loan should the shipment be stolen or lost at sea.
Achaemenian monarchs of Ancient Persia were the first to insure their people and made it
official by registering the insuring process in governmental notary offices. The insurance
tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of
different ethnic groups as well as others willing to take part, presented gifts to the monarch. The
most important gift was presented during a special ceremony. When a gift was worth more than
10,000 Derik (Achaemenian gold coin) the issue was registered in a special office. This was
advantageous to those who presented such special gifts. For others, the presents were fairly
assessed by the confidants of the court. Then the assessment was registered in special offices.
The purpose of registering was that whenever the person who presented the gift registered by
the court was in trouble, the monarch and the court would help him. Jahez, a historian and
writer, writes in one of his books on ancient Iran: "Whenever the owner of the present is in
trouble or wants to construct a building, set up a feast, have his children married, etc. the one in
charge of this in the court would check the registration. If the registered amount exceeded
10,000 Derik, he or she would receive an amount of twice as much”.
A thousand years later, the inhabitants of Rhodes invented the concept of the general
average. Merchants whose goods were being shipped together would pay a proportionally
divided premium which would be used to reimburse any merchant whose goods were
deliberately jettisoned in order to lighten the ship and save it from total loss.
The ancient Athenian "maritime loan" advanced money for voyages with repayment being
cancelled if the ship was lost. In the 4th century BC, rates for the loans differed according to
safe or dangerous times of year, implying an intuitive pricing of risk with an effect similar to
insurance. The Greeks and Romans introduced the origins of health and life insurance c. 600

BCE when they created guilds called "benevolent societies" which cared for the families of
deceased members, as well as paying funeral expenses of members. Guilds in the Middle
Ages served a similar purpose. The Talmud deals with several aspects of insuring goods. Before
insurance was established in the late 17th century, "friendly societies" existed in England, in
which people donated amounts of money to a general sum that could be used for emergencies.
Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of
contracts) were invented in Genoa in the 14th century, as were insurance pools backed by
pledges of landed estates. These new insurance contracts allowed insurance to be separated
from investment, a separation of roles that first proved useful in marine insurance. Insurance
became far more sophisticated in post-Renaissance Europe, and specialized varieties developed.
Some forms of insurance had developed in London by the early decades of the 17th century.
For example, the will of the English colonist Robert Hayman mentions two "policies of
insurance" taken out with the diocesan Chancellor of London, Arthur Duck. Of the value of
£100 each, one relates to the safe arrival of Hayman's ship in Guyana and the other is in regard
to "one hundred pounds assured by the said Doctor Arthur Duck on my life". Hayman's will was
signed and sealed on 17 November 1628 but not proved until 1633. Toward the end of the
seventeenth century, London's growing importance as a centre for trade increased demand for
marine insurance. In the late 1680s, Edward Lloyd opened a coffee house that became a popular
haunt of ship owners, merchants, and ships' captains, and thereby a reliable source of the latest
shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and
those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market
(note that it is an insurance market rather than a company) for marine and other specialist types
of insurance, but it operates rather differently than the more familiar kinds of insurance.
Insurance as we know it today can be traced to the Great Fire of London, which in 1666
devoured more than 13,000 houses. The devastating effects of the fire converted the
development of insurance "from a matter of convenience into one of urgency, a change of
opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his
new plan for London in 1667". A number of attempted fire insurance schemes came to nothing,
but in 1681 Nicholas Barbon, and eleven associates, established England's first fire insurance
company, the "Insurance Office for Houses", at the back of the Royal Exchange. Initially, 5,000
homes were insured by Barbon's Insurance Office.
The first insurance company in the United States underwrote fire insurance and was formed
in Charles Town (modern-day Charleston), South Carolina, in 1732. Benjamin Franklin helped
to popularize and make standard the practice of insurance, particularly against fire in the form
of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance
of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire
prevention. Not only did his company warn against certain fire hazards, it refused to insure
certain buildings where the risk of fire was too great, such as all wooden houses.
In the United States, regulation of the insurance industry primary resides with
individual state insurance departments. The current state insurance regulatory framework has its
roots in the 19th century, when New Hampshire appointed the first insurance commissioner in
1851. Congress adopted the McCarran-Ferguson Act in 1945, which declared that states should
regulate the business of insurance and to affirm that the continued regulation of the insurance

industry by the states is in the public's best interest. The Financial Modernization Act of 1999,
commonly referred to as "Gramm-Leach-Bliley", established a comprehensive framework to
authorize affiliations between banks, securities firms, and insurers, and once again
acknowledged that states should regulate insurance.
Whereas insurance markets have become centralized nationally and internationally, state
insurance commissioners operate individually, though at times in concert through the National
Association of Insurance Commissioners. In recent years, some have called for a dual state and
federal regulatory system (commonly referred to as the Optional federal charter (OFC)) for
insurance similar to the banking industry.
In 2010, the federal Dodd-Frank Wall Street Reform and Consumer Protection
Act established the Federal Insurance Office ("FIO"). FIO is part of the U.S. Department of the
Treasury and it monitors all aspects of the insurance industry, including identifying issues or
gaps in the regulation of insurers that may contribute to a systemic crisis in the insurance
industry or in the U.S. financial system. FIO coordinates and develops federal policy on
prudential aspects of international insurance matters, including representing the U.S. in
the International Association of Insurance Supervisors. FIO also assists the U.S. Secretary of
Treasury with negotiating (with the U.S. Trade Representative) certain international agreements.
Moreover, FIO monitors access to affordable insurance by traditionally underserved
communities and consumers, minorities, and low- and moderate-income persons. The Office
also assists the U.S. Secretary of the Treasury with administering the Terrorism Risk Insurance
Program. However, FIO is not a regulator or supervisor. The regulation of insurance continues
to reside with the states.
1.2 EVOLUTION OF INSURANCE INDUSTRY IN INDIA –IMPORTANT
MILESTONES
In India, insurance has a deep-rooted history. It finds mention in the writings of Manu
(Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk
in terms of pooling of resources that could be re-distributed in times of calamities such as fire,
floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient
Indian history has preserved the earliest traces of insurance in the form of marine trade loans
and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other
countries, England in particular.
Year Event
1818 The advent of life insurance business in India with the establishment of the
Oriental Life Insurance Company in Calcutta.
1834 Oriental Life Insurance Failure

1850 The advent of General Insurance in India with the establishment of Triton
Insurance Company Ltd in Calcutta
1870 The enactment of the British Insurance Act
1907 The Indian Mercantile Insurance Ltd was set up
1912 The Indian Life Assurance Companies Act, 1912 was the first statutory
measure to regulate life business.
1928 The Indian Insurance Companies Act was enacted.
1956 Nationalization of Life Insurance Sector and Life Insurance Corporation .The
LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident
societies.
1971 The General Insurance Corporation of India was incorporated as a company
1973  General insurance business was nationalized with effect from 1st January
1973.
 107 insurers were amalgamated and grouped into four companies namely:
1) National Insurance Company Ltd.,
2) The New India Assurance Company Ltd.,
3) The Oriental Insurance Company Ltd
4) The United India Insurance Company Ltd.
1993 The Government set up a committee under the chairmanship of RN Malhotra
former Governor of RBI to propose recommendations for reforms in the
insurance sector
2000  The IRDA was incorporated as a statutory body in April 2000.
 Foreign companies were allowed ownership of up to 26%.
2000-01 Insurance Industry had 16 new entrants, 10 in Life and 6 in General Insurance
2001-03 Insurance Industry had 5 new entrants, 2 in Life and 3 in General

2003-04 Insurance Industry had 1new entrant, Sahara India Insurance Company Ltd.
In Life Insurance category
2004-05 Insurance Industry had 1new entrant, Shri Ram Insurance company Ltd. In
Life Insurance category
2005-06 Bharti Axa Life insurance company was granted Certification of Registration
in July
2006 Bharti Axa Life insurance company commenced its operations the newest
player in the insurance sector.
1.3 EVOLUTION OF NON-LIFE INSURANCE IN INDIA
The boycott of British goods and British institutions, which occurred because of the nationalist
movement, encouraged formation of Indian-owned commercial and business houses. By 1907,
the Indian mercantile the first of the long lasting general insurance companies to be established
with Indian capital, had started functioning five offices, the New India, Vulcan, Jupiter, British
India General and the Universal, were established in 1919 almost simultaneously for transacting
general insurance business.
In 1928, prominent insurance men of Bombay met and formed the Indian insurance companies
association to protect the interest of Indian insurers. Leaders of the insurance industry began to
organize conferences, educate public on the benefit of insurance, focus attention on the annual
remove of national wealth through invisible export’s, and arise public interest in favour of Indian
insurance.
In 1950, the planning commission was set up to formulate plans for successive five years. This
five year plan brought about large scale economic development and increased insurance
consciousness among the people. As insurance business increased the number of claims for
compensation against losses also naturally increased. Settlement of too many large claims meant
a severe demand on the funds of insurance companies. So to prevent this situation the practice of
‘Reinsurance’ was adopted according to which insurers themselves reinsured portions of the
insurances they had undertaken. So Indian insurance companies with their expanding business
wanted to reinsure for which they had to seek foreign reinsurance markets.

Since the need for conserving foreign exchange was felt in India all the insurers in India as well
as foreigners operating in India formed the India Reinsurance Corporation in 1956. This
corporation provided reinsurance facilities. It was compulsory for insurers in India to reinsure a
fixed percentage of their insurances with the corporation.
The Insurance Amendment Act 1950 imposed certain limitations on expenses of management.
The general insurance council constituted what was called the tariff committee to control and
regulate terms and conditions of business.
In 1972, the General Insurance Business (Nationalization) Act 1972 was passed under the
provisions of this act. The general insurance corporation of India was established for the purpose
of directing, controlling and caring on the general insurance business and all the 106 insurers
were merged and grouped into four subsidiaries of the general insurance corporation of India
namely:
 National Insurance Company Ltd., with its head office at Calcutta.
 The New India Assurance Company Ltd., with its head office at Bombay.
 The Oriental Insurance company Ltd., with its head office at Delhi.
 The United India Insurance Company Ltd., with its head office at Madras.

CHAPTER-2
INTRODUCTION
OF
INSURANCE

2.1 INSURANCE
Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange
for payment. It is a form of risk management primarily used to hedge against the risk of a
contingent, uncertain loss.
An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder,
is the person or entity buying the insurance policy. The amount of money to be charged for a
certain amount of insurance coverage is called the premium. Risk management, the practice
of appraising and controlling risk, has evolved as a discrete field of study and practice.
The transaction involves the insured assuming a guaranteed and known relatively small loss in
the form of payment to the insurer in exchange for the insurer's promise to compensate
(indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract,
called the insurance policy, which details the conditions and circumstances under which the
insured will be financially compensated.
2.2 PRINCIPLES
Insurance involves pooling funds from many insured entities (known as exposures) to pay for the
losses that some may incur. The insured entities are therefore protected from risk for a fee, with
the fee being dependent upon the frequency and severity of the event occurring. In order to be
an insurable risk, the risk insured against must meet certain characteristics. Insurance as a
financial intermediary is a commercial enterprise and a major part of the financial services
industry, but individual entities can also self-insure through saving money for possible future
losses.
Insurability
Risk which can be insured by private companies typically shares seven common characteristics:
1. Large number of similar exposure units: Since insurance operates through pooling
resources, the majority of insurance policies are provided for individual members of
large classes, allowing insurers to benefit from the law of large numbers in which
predicted losses are similar to the actual losses. Exceptions include Lloyd's of London,
which is famous for insuring the life or health of actors, sports figures, and other famous
individuals. However, all exposures will have particular differences, which may lead to
different premium rates.
2. Definite loss: The loss takes place at a known time, in a known place, and from a known
cause. The classic example is death of an insured person on a life insurance
policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion.
Other types of losses may only be definite in theory. Occupational disease, for instance,
may involve prolonged exposure to injurious conditions where no specific time, place, or
cause is identifiable. Ideally, the time, place, and cause of a loss should be clear enough
that a reasonable person, with sufficient information, could objectively verify all three
elements.

3. Accidental loss: The event that constitutes the trigger of a claim should be fortuitous, or
at least outside the control of the beneficiary of the insurance. The loss should be pure, in
the sense that it results from an event for which there is only the opportunity for cost.
Events that contain speculative elements, such as ordinary business risks or even
purchasing a lottery ticket, are generally not considered insurable.
4. Large loss: The size of the loss must be meaningful from the perspective of the insured.
Insurance premiums need to cover both the expected cost of losses, plus the cost of
issuing and administering the policy, adjusting losses, and supplying the capital needed
to reasonably assure that the insurer will be able to pay claims. For small losses, these
latter costs may be several times the size of the expected cost of losses. There is hardly
any point in paying such costs unless the protection offered has real value to a buyer.
5. Affordable premium: If the likelihood of an insured event is so high, or the cost of the
event so large, that the resulting premium is large relative to the amount of protection
offered, then it is not likely that the insurance will be purchased, even if on offer.
Furthermore, as the accounting profession formally recognizes in financial accounting
standards, the premium cannot be so large that there is not a reasonable chance of a
significant loss to the insurer. If there is no such chance of loss, then the transaction may
have the form of insurance, but not the substance. (See the US Financial Accounting
Standards Board standard number 113)
6. Calculable loss: There are two elements that must be at least estimable, if not formally
calculable: the probability of loss, and the attendant cost. Probability of loss is generally
an empirical exercise, while cost has more to do with the ability of a reasonable person in
possession of a copy of the insurance policy and a proof of loss associated with a claim
presented under that policy to make a reasonably definite and objective evaluation of the
amount of the loss recoverable as a result of the claim.
7. Limited risk of catastrophically large losses: Insurable losses are
ideally independent and non-catastrophic, meaning that the losses do not happen all at
once and individual losses are not severe enough to bankrupt the insurer; insurers may
prefer to limit their exposure to a loss from a single event to some small portion of their
capital base. Capital constrains insurers' ability to sell earthquake insurance as well as
wind insurance in hurricane zones. In the US, flood risk is insured by the federal
government. In commercial fire insurance, it is possible to find single properties whose
total exposed value is well in excess of any individual insurer's capital constraint. Such
properties are generally shared among several insurers, or are insured by a single insurer
who syndicates the risk into the reinsurance market.
Legal
When a company insures an individual entity, there are basic legal requirements. Several
commonly cited legal principles of insurance include:
1. Indemnity – the insurance company indemnifies, or compensates, the insured in the case
of certain losses only up to the insured's interest.
2. Insurable interest – the insured typically must directly suffer from the loss. Insurable
interest must exist whether property insurance or insurance on a person is involved. The
concept requires that the insured have a "stake" in the loss or damage to the life or

property insured. What that "stake" is will be determined by the kind of insurance
involved and the nature of the property ownership or relationship between the persons.
The requirement of an insurable interest is what distinguishes insurance from gambling.
3. Utmost good faith – (Uberrima fides) the insured and the insurer are bound by a good
faith bond of honesty and fairness. Material facts must be disclosed.
4. Contribution – insurers which have similar obligations to the insured contribute in the
indemnification, according to some method.
5. Subrogation – the insurance company acquires legal rights to pursue recoveries on behalf
of the insured; for example, the insurer may sue those liable for the insured's loss.
6. Causa proxima, or proximate cause – the cause of loss (the peril) must be covered under
the insuring agreement of the policy, and the dominant cause must not be excluded
7. Mitigation – In case of any loss or casualty, the asset owner must attempt to keep loss to
a minimum, as if the asset was not insured.
Indemnification
To "indemnify" means to make whole again, or to be reinstated to the position that one was in, to
the extent possible, prior to the happening of a specified event or peril. Accordingly, insurances
generally not considered to be indemnity insurance, but rather "contingent" insurance (i.e., a
claim arises on the occurrence of a specified event). There are generally three types of insurance
contracts that seek to indemnify an insured:
1. a "reimbursement" policy, and
2. a "pay on behalf" or "on behalf of" policy, and
3. an "indemnification" policy.
From an insured's standpoint, the result is usually the same: the insurer pays the loss and claims
expenses.
If the Insured has a "reimbursement" policy, the insured can be required to pay for a loss and
then be "reimbursed" by the insurance carrier for the loss and out of pocket costs including, with
the permission of the insurer, claim expenses
Under a "pay on behalf" policy, the insurance carrier would defend and pay a claim on behalf of
the insured who would not be out of pocket for anything. Most modern liability insurance is
written on the basis of "pay on behalf" language which enables the insurance carrier to manage
and control the claim.
Under an "indemnification" policy, the insurance carrier can generally either "reimburse" or "pay
on behalf of", whichever is more beneficial to it and the insured in the claim handling process.
An entity seeking to transfer risk (an individual, corporation, or association of any type, etc.)
becomes the 'insured' party once risk is assumed by an 'insurer', the insuring party, by means of a
contract, called an insurance policy. Generally, an insurance contract includes, at a minimum, the
following elements: identification of participating parties (the insurer, the insured, the
beneficiaries), the premium, the period of coverage, the particular loss event covered, the amount
of coverage (i.e., the amount to be paid to the insured or beneficiary in the event of a loss), and
exclusions (events not covered). An insured is thus said to be "indemnified" against the loss
covered in the policy.

When insured parties experience a loss for a specified peril, the coverage entitles the
policyholder to make a claim against the insurer for the covered amount of loss as specified by
the policy. The fee paid by the insured to the insurer for assuming the risk is called the premium.
Insurance premiums from many insured’s are used to fund accounts reserved for later payment of
claims – in theory for a relatively few claimants – and for overhead costs. So long as an insurer
maintains adequate funds set aside for anticipated losses (called reserves), the remaining margin
is an insurer's profit.
2.3 SOCIAL EFFECTS
Insurance can have various effects on society through the way that it changes who bears the cost
of losses and damage. On one hand it can increase fraud; on the other it can help societies and
individuals prepare for catastrophes and mitigate the effects of catastrophes on both households
and societies.
Insurance can influence the probability of losses through moral hazard, insurance fraud, and
preventive steps by the insurance company. Insurance scholars have typically used morale
hazard to refer to the increased loss due to unintentional carelessness and moral hazard to refer to
increased risk due to intentional carelessness or indifference.[6] Insurers attempt to address
carelessness through inspections, policy provisions requiring certain types of maintenance, and
possible discounts for loss mitigation efforts. While in theory insurers could encourage
investment in loss reduction, some commentators have argued that in practice insurers had
historically not aggressively pursued loss control measures – particularly to prevent disaster
losses such as hurricanes—because of concerns over rate reductions and legal battles. However,
since about 1996 insurers have begun to take a more active role in loss mitigation, such as
through building codes.
2.4 INSURER’S BUSINESS MODEL
Underwriting and investing
The business model is to collect more in premium and investment income than is paid out in
losses, and to also offer a competitive price which consumers will accept. Profit can be reduced
to a simple equation:
Profit = earned premium + investment income - incurred loss - underwriting expenses.
Insurers make money in two ways:
 Through underwriting, the process by which insurers select the risks to insure and decide
how much in premiums to charge for accepting those risks
 By investing the premiums they collect from insured parties
The most complicated aspect of the insurance business is the actuarial science of ratemaking
(price-setting) of policies, which uses statistics and probability to approximate the rate of future
claims based on a given risk. After producing rates, the insurer will use discretion to reject or
accept risks through the underwriting process.

At the most basic level, initial ratemaking involves looking at the frequency and severity of
insured perils and the expected average payout resulting from these perils. Thereafter an
insurance company will collect historical loss data, bring the loss data to present value, and
compare these prior losses to the premium collected in order to assess rate adequacy.[8] Loss
ratios and expense loads are also used. Rating for different risk characteristics involves at the
most basic level comparing the losses with "loss relativities"—a policy with twice as many
losses would therefore be charged twice as much. More complex multivariate analyses are
sometimes used when multiple characteristics are involved and a univariate analysis could
produce confounded results. Other statistical methods may be used in assessing the probability of
future losses.
Upon termination of a given policy, the amount of premium collected minus the amount paid out
in claims is the insurer's underwriting profit on that policy. Underwriting performance is
measured by something called the "combined ratio"[9] which is the ratio of expenses/losses to
premiums. A combined ratio of less than 100 percent indicates an underwriting profit, while
anything over 100 indicates an underwriting loss. A company with a combined ratio over 100%
may nevertheless remain profitable due to investment earnings.
Insurance companies earn investment profits on "float". Float, or available reserve, is the amount
of money on hand at any given moment that an insurer has collected in insurance premiums but
has not paid out in claims. Insurers start investing insurance premiums as soon as they are
collected and continue to earn interest or other income on them until claims are paid out. The
Association of British Insurers (gathering 400 insurance companies and 94% of UK insurance
services) has almost 20% of the investments in the London Stock Exchange.
In the United States, the underwriting loss of property and casualty insurance companies was
$142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4
billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg, do
not believe that it is forever possible to sustain a profit from float without an underwriting profit
as well, but this opinion is not universally held.
Naturally, the float method is difficult to carry out in an economically depressed period. Bear
markets do cause insurers to shift away from investments and to toughen up their underwriting
standards, so a poor economy generally means high insurance premiums. This tendency to swing
between profitable and unprofitable periods over time is commonly known as the underwriting,
or insurance, cycle.
Claims
Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid
for. Claims may be filed by insured’s directly with the insurer or through brokers or agents. The
insurer may require that the claim be filed on its own proprietary forms, or may accept claims on
a standard industry form, such as those produced by ACORD.
Insurance company claims departments employ a large number of claims adjusters supported by
a staff of records management and data entry clerks. Incoming claims are classified based on
severity and are assigned to adjusters whose settlement authority varies with their knowledge and
experience. The adjuster undertakes an investigation of each claim, usually in close cooperation

with the insured, determines if coverage is available under the terms of the insurance contract,
and if so, the reasonable monetary value of the claim, and authorizes payment.
The policyholder may hire their own public adjuster to negotiate the settlement with the
insurance company on their behalf. For policies that are complicated, where claims may be
complex, the insured may take out a separate insurance policy add on, called loss recovery
insurance, which covers the cost of a public adjuster in the case of a claim.
Adjusting liability insurance claims is particularly difficult because there is a third party
involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer and
may in fact regard the insurer as a deep pocket. The adjuster must obtain legal counsel for the
insured (either inside "house" counsel or outside "panel" counsel), monitor litigation that may
take years to complete, and appear in person or over the telephone with settlement authority at a
mandatory settlement conference when requested by the judge.
If a claims adjuster suspects under-insurance, the condition of average may come into play to
limit the insurance company's exposure.
In managing the claims handling function, insurers seek to balance the elements of customer
satisfaction, administrative handling expenses, and claims overpayment leakages. As part of this
balancing act, fraudulent insurance practices are a major business risk that must be managed and
overcome. Disputes between insurers and insureds over the validity of claims or claims handling
practices occasionally escalate into litigation (see insurance bad faith).
Marketing
Insurers will often use insurance agents to initially market or underwrite their customers. Agents
can be captive, meaning they write only for one company, or independent, meaning that they can
issue policies from several companies. The existence and success of companies using insurance
agents is likely due to improved and personalized service.
2.5 TYPES OF INSURANCE
Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give
rise to claims are known as perils. An insurance policy will set out in detail which perils are
covered by the policy and which are not. Below are non-exhaustive lists of the many different
types of insurance that exist. A single policy may cover risks in one or more of the categories set
out below. For example, vehicle insurance would typically cover both the property risk (theft or
damage to the vehicle) and the liability risk (legal claims arising from an accident). A home
insurance policy in the US typically includes coverage for damage to the home and the owner's
belongings, certain legal claims against the owner, and even a small amount of coverage for
medical expenses of guests who are injured on the owner's property.
Business insurance can take a number of different forms, such as the various kinds of
professional liability insurance, also called professional indemnity (PI), which are discussed
below under that name; and the business owner's policy (BOP), which packages into one policy
many of the kinds of coverage that a business owner needs, in a way analogous to how
homeowners' insurance packages the coverage’s that a homeowner needs.

Auto insurance
Auto insurance protects the policyholder against financial loss in the event of an incident
involving a vehicle they own, such as in a traffic collision.
Coverage typically includes:
 Property coverage, for damage to or theft of the car
 Liability coverage, for the legal responsibility to others for bodily injury or property
damage
 Medical coverage, for the cost of treating injuries, rehabilitation and sometimes lost
wages and funeral expenses
Most countries, such as the United Kingdom, require drivers to buy some, but not all, of these
coverage’s. When a car is used as collateral for a loan the lender usually requires specific
coverage.
Gap insurance
Gap insurance covers the excess amount on your auto loan in an instance where your insurance
company does not cover the entire loan. Depending on the companies specific policies it might
or might not cover the deductible as well. This coverage is marketed for those who put low down
payments, have high interest rates on their loans, and those with 60 month or longer terms. Gap
insurance is typically offered by your finance company when you first purchase your vehicle.
Most auto insurance companies offer this coverage to consumers as well. If you are unsure if
GAP coverage had been purchased, you should check your vehicle lease or purchase
documentation.
Health insurance
Health insurance policies cover the cost of medical treatments. Dental insurance, like medical
insurance protects policyholders for dental costs. In the US and Canada, dental insurance is often
part of an employer's benefits package, along with health insurance.
Accident, sickness, and unemployment insurance
 Disability insurance policies provide financial support in the event of the policyholder
becoming unable to work because of disabling illness or injury. It provides monthly
support to help pay such obligations as mortgage loans and credit cards. Short-term and
long-term disability policies are available to individuals, but considering the expense,
long-term policies are generally obtained only by those with at least six-figure incomes,
such as doctors, lawyers, etc. Short-term disability insurance covers a person for a period
typically up to six months, paying a stipend each month to cover medical bills and other
necessities.
 Long-term disability insurance covers an individual's expenses for the long term, up until
such time as they are considered permanently disabled and thereafter. Insurance

companies will often try to encourage the person back into employment in preference to
and before declaring them unable to work at all and therefore totally disabled.
 Disability overhead insurance allows business owners to cover the overhead expenses of
their business while they are unable to work.
 Total permanent disability insurance provides benefits when a person is permanently
disabled and can no longer work in their profession, often taken as an adjunct to life
insurance.
 Workers' compensation insurance replaces all or part of a worker's wages lost and
accompanying medical expenses incurred because of a job-related injury.
Casualty Insurance
Casualty insurance insures against accidents, not necessarily tied to any specific property. It is a
broad spectrum of insurance that a number of other types of insurance could be classified, such
as auto, workers compensation, and some liability insurances.
 Crime insurance is a form of casualty insurance that covers the policyholder against
losses arising from the criminal acts of third parties. For example, a company can obtain
crime insurance to cover losses arising from theft or embezzlement.
 Political risk insurance is a form of casualty insurance that can be taken out by businesses
with operations in countries in which there is a risk that revolution or
other political conditions could result in a loss.
Life Insurance
Life insurance provides a monetary benefit to a decedent's family or other designated
beneficiary, and may specifically provide for income to an insured person's family, burial,
funeral and other final expenses. Life insurance policies often allow the option of having the
proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. In most states,
a person cannot purchase a policy on another person without their knowledge.
Annuities provide a stream of payments and are generally classified as insurance because they
are issued by insurance companies, are regulated as insurance, and require the same kinds of
actuarial and investment management expertise that life insurance requires. Annuities
and pensions that pay a benefit for life are sometimes regarded as insurance against the
possibility that a retiree will outlive his or her financial resources. In that sense, they are the
complement of life insurance and, from an underwriting perspective, are the mirror image of life
insurance.
Certain life insurance contracts accumulate cash values, which may be taken by the insured if the
policy is surrendered or which may be borrowed against. Some policies, such as annuities and
endowment policies, are financial instruments to accumulate or liquidate wealth when it is
needed.
In many countries, such as the United States and the UK, the tax law provides that the interest on
this cash value is not taxable under certain circumstances. This leads to widespread use of life
insurance as a tax-efficient method of saving as well as protection in the event of early death.

In the United States, the tax on interest income on life insurance policies and annuities is
generally deferred. However, in some cases the benefit derived from tax deferral may be offset
by a low return. This depends upon the insuring company, the type of policy and other variables
(mortality, market return, etc.). Moreover, other income tax saving vehicles (e.g., IRAs, 401(k)
plans, Roth IRAs) may be better alternatives for value accumulation.
Burial insurance
Burial insurance is a very old type of life insurance which is paid out upon death to cover final
expenses, such as the cost of a funeral. The Greeks and Romans introduced burial insurance
c. 600 CE when they organized guilds called "benevolent societies" which cared for the
surviving families and paid funeral expenses of members upon death. Guilds in the Middle
Ages served a similar purpose, as did friendly societies during Victorian times.
Property Insurance
Property insurance provides protection against risks to property, such
as fire, theft or weather damage. This may include specialized forms of insurance such as fire
insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance
or boiler insurance. The term property insurance may, like casualty insurance, be used as a broad
category of various subtypes of insurance, some of which are listed below:
 Aviation insurance protects aircraft hulls and spares, and associated liability risks, such as
passenger and third-party liability. Airports may also appear under this subcategory,
including air traffic control and refueling operations for international airports through to
smaller domestic exposures.
 Boiler insurance (also known as boiler and machinery insurance, or equipment
breakdown insurance) insures against accidental physical damage to boilers, equipment
or machinery.
 Builder's risk insurance insures against the risk of physical loss or damage to property
during construction. Builder's risk insurance is typically written on an "all risk" basis
covering damage arising from any cause (including the negligence of the insured) not
otherwise expressly excluded. Builder's risk insurance is coverage that protects a person's
or organization's insurable interest in materials, fixtures and/or equipment being used in
the construction or renovation of a building or structure should those items sustain
physical loss or damage from an insured peril.
 Crop insurance may be purchased by farmers to reduce or manage various risks
associated with growing crops. Such risks include crop loss or damage caused by
weather, hail, drought, frost damage, insects, or disease.
 Earthquake insurance is a form of property insurance that pays the policyholder in the
event of an earthquake that causes damage to the property. Most ordinary home
insurance policies do not cover earthquake damage. Earthquake insurance policies
generally feature a high deductible. Rates depend on location and hence the likelihood of
an earthquake, as well as the construction of the home.

 Fidelity bond is a form of casualty insurance that covers policyholders for losses incurred
as a result of fraudulent acts by specified individuals. It usually insures a business for
losses caused by the dishonest acts of its employees.
 Flood insurance protects against property loss due to flooding. Many insurers in the US
do not provide flood insurance in some parts of the country. In response to this, the
federal government created the National Flood Insurance Program which serves as the
insurer of last resort.
 Home insurance, also commonly called hazard insurance or homeowners insurance (often
abbreviated in the real estate industry as HOI), provides coverage for damage or
destruction of the policyholder's home. In some geographical areas, the policy may
exclude certain types of risks, such as flood or earthquake, that require additional
coverage. Maintenance-related issues are typically the homeowner's responsibility. The
policy may include inventory, or this can be bought as a separate policy, especially for
people who rent housing. In some countries, insurers offer a package which may include
liability and legal responsibility for injuries and property damage caused by members of
the household, including pets.
 Landlord insurance covers residential and commercial properties which are rented to
others. Most homeowners' insurance covers only owner-occupied homes.
 Marine insurance and marine cargo insurance cover the loss or damage of vessels at sea
or on inland waterways, and of cargo in transit, regardless of the method of transit. When
the owner of the cargo and the carrier are separate corporations, marine cargo insurance
typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc.,
but excludes losses that can be recovered from the carrier or the carrier's insurance.
Many marine insurance underwriters will include "time element" coverage in such
policies, which extends the indemnity to cover loss of profit and other business expenses
attributable to the delay caused by a covered loss.
 Supplemental natural disaster insurance covers specified expenses after a natural disaster
renders the policyholder's home uninhabitable. Periodic payments are made directly to
the insured until the home is rebuilt or a specified time period has elapsed.
 Surety bond insurance is a three-party insurance guaranteeing the performance of the
principal.
 Terrorism insurance provides protection against any loss or damage caused
by terrorist activities. In the United States in the wake of 9/11, the Terrorism Risk
Insurance Act 2002 (TRIA) set up a federal Program providing a transparent system of
shared public and private compensation for insured losses resulting from acts of
terrorism. The program was extended until the end of 2014 by the Terrorism Risk
Insurance Program Reauthorization Act 2007 (TRIPRA).
 Volcano insurance is a specialized insurance protecting against damage arising
specifically from volcanic eruptions.
 Windstorm insurance is an insurance covering the damage that can be caused by wind
events such as hurricanes.

Liability Insurance
Liability insurance is a very broad superset that covers legal claims against the insured. Many
types of insurance include an aspect of liability coverage. For example, a homeowner's insurance
policy will normally include liability coverage which protects the insured in the event of a claim
brought by someone who slips and falls on the property; automobile insurance also includes an
aspect of liability insurance that indemnifies against the harm that a crashing car can cause to
others' lives, health, or property. The protection offered by a liability insurance policy is twofold:
a legal defense in the event of a lawsuit commenced against the policyholder and indemnification
(payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies
typically cover only the negligence of the insured, and will not apply to results of willful or
intentional acts by the insured.
 Public liability insurance covers a business or organization against claims should its
operations injure a member of the public or damage their property in some way.
 Directors and officers liability insurance (D&O) protects an organization (usually a
corporation) from costs associated with litigation resulting from errors made by directors
and officers for which they are liable.
 Environmental liability insurance protects the insured from bodily injury, property
damage and cleanup costs as a result of the dispersal, release or escape of pollutants.
 Errors and omissions insurance (E&O) is business liability insurance for professionals
such as insurance agents, real estate agents and brokers, architects, third-party
administrators (TPAs) and other business professionals.
 Prize indemnity insurance protects the insured from giving away a large prize at a
specific event. Examples would include offering prizes to contestants who can make a
half-court shot at a basketball game, or a hole-in-one at a golf tournament.
 Professional liability insurance, also called professional indemnity insurance (PI),
protects insured professionals such as architectural corporations and medical
practitioners against potential negligence claims made by their patients/clients.
Professional liability insurance may take on different names depending on the
profession. For example, professional liability insurance in reference to the medical
profession may be called medical malpractice insurance.
Credit Insurance
Credit insurance repays some or all of a loan when certain circumstances arise to the borrower
such as unemployment, disability, or death.
 Mortgage insurance insures the lender against default by the borrower. Mortgage
insurance is a form of credit insurance, although the name "credit insurance" more often
is used to refer to policies that cover other kinds of debt.
 Many credit cards offer payment protection plans which are a form of credit insurance.
 Trade credit insurance is business insurance over the accounts receivable of the insured.
The policy pays the policy holder for covered accounts receivable if the debtor defaults
on payment.

Other types
All-risk insurance is an insurance that covers a wide range of incidents and perils, except those
noted in the policy. All-risk insurance is different from peril-specific insurance that cover losses
from only those perils listed in the policy. In car insurance, all-risk policy includes also the
damages caused by the own driver.
 Bloodstock insurance covers individual horses or a number of horses under common
ownership. Coverage is typically for mortality as a result of accident, illness or disease
but may extend to include infertility, in-transit loss, veterinary fees, and prospective foal.
 Business interruption insurance covers the loss of income, and the expenses incurred,
after a covered peril interrupts normal business operations.
 Collateral protection insurance (CPI) insures property (primarily vehicles) held as
collateral for loans made by lending institutions.
 Defense Base Act (DBA) insurance provides coverage for civilian workers hired by the
government to perform contracts outside the US and Canada. DBA is required for all US
citizens, US residents, US Green Card holders, and all employees or subcontractors hired
on overseas government contracts. Depending on the country, foreign nationals must also
be covered under DBA. This coverage typically includes expenses related to medical
treatment and loss of wages, as well as disability and death benefits.
 Expatriate insurance provides individuals and organizations operating outside of their
home country with protection for automobiles, property, health, liability and business
pursuits.
 Kidnap and ransom insurance is designed to protect individuals and corporations
operating in high-risk areas around the world against the perils of kidnap, extortion,
wrongful detention and hijacking.
 Legal expenses insurance covers policyholders for the potential costs of legal action
against an institution or an individual. When something happens which triggers the need
for legal action, it is known as "the event". There are two main types of legal expenses
insurance: before the event insurance and after the event insurance.
 Livestock insurance is a specialist policy provided to, for example, commercial or hobby
farms, aquariums, fish farms or any other animal holding. Cover is available for
mortality or economic slaughter as a result of accident, illness or disease but can extend
to include destruction by government order.
 Media liability insurance is designed to cover professionals that engage in film and
television production and print, against risks such as defamation.
 Nuclear incident insurance covers damages resulting from an incident involving
radioactive materials and is generally arranged at the national level. (See the nuclear
exclusion clause and for the US the Price-Anderson Nuclear Industries Indemnity Act.)
 Pet insurance insures pets against accidents and illnesses; some companies cover
routine/wellness care and burial, as well.
 Pollution insurance usually takes the form of first-party coverage for contamination of
insured property either by external or on-site sources. Coverage is also afforded for
liability to third parties arising from contamination of air, water, or land due to the

sudden and accidental release of hazardous materials from the insured site. The policy
usually covers the costs of cleanup and may include coverage for releases from
underground storage tanks. Intentional acts are specifically excluded.
 Purchase insurance is aimed at providing protection on the products people purchase.
Purchase insurance can cover individual purchase protection, warranties, guarantees,
care plans and even mobile phone insurance. Such insurance is normally very limited in
the scope of problems that are covered by the policy.
 Title insurance provides a guarantee that title to real property is vested in the purchaser
and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in
conjunction with a search of the public records performed at the time of a real
estate transaction.
 Travel insurance is an insurance cover taken by those who travel abroad, which covers
certain losses such as medical expenses, loss of personal belongings, travel delay, and
personal liabilities.
 Tuition insurance insures students against involuntary withdrawal from cost-intensive
educational institutions
 Interest rate insurance protects the holder from adverse changes in interest rates, for
instance for those with a variable rate loan or mortgage
 Divorce insurance is a form of contractual liability insurance that pays the insured a cash
benefit if their marriage ends in divorce.
Insurance financing vehicles
Fraternal insurance is provided on a cooperative basis by fraternal benefit societies or other
social organizations. No-fault insurance is a type of insurance policy (typically automobile
insurance) where insured’s are indemnified by their own insurer regardless of fault in the
incident.
 Protected self-insurance is an alternative risk financing mechanism in which an
organization retains the mathematically calculated cost of risk within the organization
and transfers the catastrophic risk with specific and aggregate limits to an insurer so the
maximum total cost of the program is known. A properly designed and underwritten
Protected Self-Insurance Program reduces and stabilizes the cost of insurance and
provides valuable risk management information.
 Retrospectively rated insurance is a method of establishing a premium on large
commercial accounts. The final premium is based on the insured's actual loss experience
during the policy term, sometimes subject to a minimum and maximum premium, with
the final premium determined by a formula. Under this plan, the current year's premium
is based partially (or wholly) on the current year's losses, although the premium
adjustments may take months or years beyond the current year's expiration date. The
rating formula is guaranteed in the insurance contract.
Formula: retrospective premium = converted loss + basic premium × tax multiplier.
Numerous variations of this formula have been developed and are in use.

 Formal self-insurance is the deliberate decision to pay for otherwise insurable losses out
of one's own money. This can be done on a formal basis by establishing a separate fund
into which funds are deposited on a periodic basis, or by simply forgoing the purchase of
available insurance and paying out-of-pocket. Self-insurance is usually used to pay for
high-frequency, low-severity losses. Such losses, if covered by conventional insurance,
mean having to pay a premium that includes loadings for the company's general
expenses, cost of putting the policy on the books, acquisition expenses, premium taxes,
and contingencies. While this is true for all insurance, for small, frequent losses the
transaction costs may exceed the benefit of volatility reduction that insurance otherwise
affords.
 Reinsurance is a type of insurance purchased by insurance companies or self-insured
employers to protect against unexpected losses. Financial reinsurance is a form of
reinsurance that is primarily used for capital management rather than to transfer
insurance risk.
 Social insurance can be many things to many people in many countries. But a summary
of its essence is that it is a collection of insurance coverage’s (including components of
life insurance, disability income insurance, unemployment insurance, health insurance,
and others), plus retirement savings, that requires participation by all citizens. By forcing
everyone in society to be a policyholder and pay premiums, it ensures that everyone can
become a claimant when or if he/she needs to. Along the way this inevitably becomes
related to other concepts such as the justice system and the welfare state. This is a large,
complicated topic that engenders tremendous debate, which can be further studied in the
following articles (and others):
 National Insurance
 Social safety net
 Social security
 Social Security debate (United States)
 Social Security (United States)
 Social welfare provision
 Stop-loss insurance provides protection against catastrophic or unpredictable losses. It is
purchased by organizations who do not want to assume 100% of the liability for losses
arising from the plans. Under a stop-loss policy, the insurance company becomes liable
for losses that exceed certain limits called deductibles.
Closed community self-insurance
Some communities prefer to create virtual insurance amongst themselves by other means than
contractual risk transfer, which assigns explicit numerical values to risk. A number of religious
groups, including the Amish and some Muslim groups, depend on support provided by
their communities when disasters strike. The risk presented by any given person is assumed
collectively by the community who all bear the cost of rebuilding lost property and supporting
people whose needs are suddenly greater after a loss of some kind. In supportive communities
where others can be trusted to follow community leaders, this tacit form of insurance can work.

In this manner the community can even out the extreme differences in insurability that exist
among its members. Some further justification is also provided by invoking the moral hazard of
explicit insurance contracts.
In the United Kingdom, The Crown (which, for practical purposes, meant the civil service) did
not insure property such as government buildings. If a government building was damaged, the
cost of repair would be met from public funds because, in the long run, this was cheaper than
paying insurance premiums. Since many UK government buildings have been sold to property
companies, and rented back, this arrangement is now less common and may have disappeared
altogether.
2.6 INSURANCE COMPANIES
Insurance companies may be classified into two groups:
 Life insurance companies, which sell life insurance, annuities and pensions products.
 Non-life, general, or property/casualty insurance companies, which sell other types of
insurance.
General insurance companies can be further divided into these sub categories.
 Standard lines
 Excess lines
In most countries, life and non-life insurers are subject to different regulatory regimes and
different tax and accounting rules. The main reason for the distinction between the two types of
company is that life, annuity, and pension business is very long-term in nature – coverage for life
assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover
usually covers a shorter period, such as one year.
In the United States, standard line insurance companies are insurers that have received a license
or authorization from a state for the purpose of writing specific kinds of insurance in that state,
such as automobile insurance or homeowners' insurance. They are typically referred to as
"admitted" insurers. Generally, such an insurance company must submit its rates and policy
forms to the state's insurance regulator to receive his or her prior approval, although whether an
insurance company must receive prior approval depends upon the kind of insurance being
written. Standard line insurance companies usually charge lower premiums than excess line
insurers and may sell directly to individual insured’s. They are regulated by state laws, which
include restrictions on rates and forms, and which aim to protect consumers and the public from
unfair or abusive practices. These insurers also are required to contribute to state guarantee
funds, which are used to pay for losses if an insurer becomes insolvent.
Excess line insurance companies (also known as Excess and Surplus) typically insure risks not
covered by the standard lines insurance market, due to a variety of reasons (e.g., new entity or an
entity that does not have an adequate loss history, an entity with unique risk characteristics, or an
entity that has a loss history that does not fit the underwriting requirements of the standard lines
insurance market). They are typically referred to as non-admitted or unlicensed insurers. Non-

admitted insurers are generally not licensed or authorized in the states in which they write
business, although they must be licensed or authorized in the state in which they are domiciled.
These companies have more flexibility and can react faster than standard line insurance
companies because they are not required to file rates and forms. However, they still have
substantial regulatory requirements placed upon them.
Most states require that excess line insurers submit financial information, articles of
incorporation, a list of officers, and other general information. They also may not write insurance
that is typically available in the admitted market, do not participate in state guarantee funds (and
therefore policyholders do not have any recourse through these funds if an insurer becomes
insolvent and cannot pay claims), may pay higher taxes, only may write coverage for a risk if it
has been rejected by three different admitted insurers, and only when the insurance producer
placing the business has a surplus lines license. Generally, when an excess line insurer writes a
policy, it must, pursuant to state laws, provide disclosure to the policyholder that the
policyholder's policy is being written by an excess line insurer.
On July 21, 2010, President Barack Obama signed into law the Non admitted and Reinsurance
Reform Act of 2010 ("NRRA"), which took effect on July 21, 2011 and was part of the Dodd-
Frank Wall Street Reform and Consumer Protection Act. The NRRA changed the regulatory
paradigm for excess line insurance. Generally, under the NRRA, only the insured's home state
may regulate and tax the excess line transaction.
Insurance companies are generally classified as either mutual or proprietary companies. Mutual
companies are owned by the policyholders, while shareholders (who may or may not own
policies) own proprietary insurance companies.
Demutualization of mutual insurers to form stock companies, as well as the formation of a hybrid
known as a mutual holding company, became common in some countries, such as the United
States, in the late 20th century. However, not all states permit mutual holding companies.
Other possible forms for an insurance company include reciprocals, in which policyholders
reciprocate in sharing risks, and Lloyd's organizations.
Insurance companies are rated by various agencies such as A. M. Best. The ratings include the
company's financial strength, which measures its ability to pay claims. It also rates financial
instruments issued by the insurance company, such as bonds, notes, and securitization products.
Reinsurance companies are insurance companies that sell policies to other insurance companies,
allowing them to reduce their risks and protect themselves from very large losses. The
reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer
may also be a direct writer of insurance risks as well.
Captive insurance companies may be defined as limited-purpose insurance companies
established with the specific objective of financing risks emanating from their parent group or
groups. This definition can sometimes be extended to include some of the risks of the parent
company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the
form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a
"mutual" captive (which insures the collective risks of members of an industry); and of an
"association" captive (which self-insures individual risks of the members of a professional,

commercial or industrial association). Captives represent commercial, economic and tax
advantages to their sponsors because of the reductions in costs they help create and for the ease
of insurance risk management and the flexibility for cash flows they generate. Additionally, they
may provide coverage of risks which is neither available nor offered in the traditional insurance
market at reasonable prices.
The types of risk that a captive can underwrite for their parents include property damage, public
and product liability, professional indemnity, employee benefits, employers' liability, motor and
medical aid expenses. The captive's exposure to such risks may be limited by the use of
reinsurance.
Captives are becoming an increasingly important component of the risk management and risk
financing strategy of their parent. This can be understood against the following background:
 Heavy and increasing premium costs in almost every line of coverage
 Difficulties in insuring certain types of fortuitous risk
 Differential coverage standards in various parts of the world
 Rating structures which reflect market trends rather than individual loss experience
 Insufficient credit for deductibles and/or loss control efforts
There are also companies known as "insurance consultants". Like a mortgage broker, these
companies are paid a fee by the customer to shop around for the best insurance policy amongst
many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for
the best insurance policy amongst many companies. However, with insurance brokers, the fee is
usually paid in the form of commission from the insurer that is selected rather than directly from
the client.
Neither insurance consultants nor insurance brokers are insurance companies and no risks are
transferred to them in insurance transactions. Third party administrators are companies that
perform underwriting and sometimes claims handling services for insurance companies. These
companies often have special expertise that the insurance companies do not have.
The financial stability and strength of an insurance company should be a major consideration
when buying an insurance contract. An insurance premium paid currently provides coverage for
losses that might arise many years in the future. For that reason, the viability of the insurance
carrier is very important. In recent years, a number of insurance companies have become
insolvent, leaving their policyholders with no coverage (or coverage only from a government-
backed insurance pool or other arrangement with less attractive payouts for losses). A number of
independent rating agencies provide information and rate the financial viability of insurance
companies.
2.7 ACROSS THE WORLD
Global insurance premiums grew by 2.7% in inflation-adjusted terms in 2010 to $4.3 trillion,
climbing above pre-crisis levels. The return to growth and record premiums generated during the
year followed two years of decline in real terms. Life insurance premiums increased by 3.2% in
2010 and non-life premiums by 2.1%. While industrialized countries saw an increase in

premiums of around 1.4%, insurance markets in emerging economies saw rapid expansion with
11% growth in premium income. The global insurance industry was sufficiently capitalised to
withstand the financial crisis of 2008 and 2009 and most insurance companies restored their
capital to pre-crisis levels by the end of 2010. With the continuation of the gradual recovery of
the global economy, it is likely the insurance industry will continue to see growth in premium
income both in industrialized countries and emerging markets in 2011.
Advanced economies account for the bulk of global insurance. With premium income of
$1,620bn, Europe was the most important region in 2010, followed by North America $1,409bn
and Asia $1,161bn. Europe has however seen a decline in premium income during the year in
contrast to the growth seen in North America and Asia. The top four countries generated more
than a half of premiums. The United States and Japan alone accounted for 40% of world
insurance, much higher than their 7% share of the global population. Emerging economies
accounted for over 85% of the world’s population but only around 15% of premiums. Their
markets are however growing at a quicker pace. The country expected to have the biggest
impact on the insurance share distribution across the world is China. According to Sam
Radwan of Enhance International, low premium penetration (insurance premium as a % of
GDP), an ageing population and the largest car market in terms of new sales, premium growth
has averaged 15–20% in the past five years, and China is expected to be the largest insurance
market in the next decade or two.
2.8 REGULATORY DIFFERENCES (INSURANCE LAW)
In the United States, insurance is regulated by the states under the McCarran-Ferguson Act, with
"periodic proposals for federal intervention", and a nonprofit coalition of state insurance agencies
called the National Association of Insurance Commissioners works to harmonize the country's
different laws and regulations. The National Conference of Insurance Legislators (NCOIL) also
works to harmonize the different state laws.
In the European Union, the Third Non-Life Directive and the Third Life Directive, both passed
in 1992 and effective 1994, created a single insurance market in Europe and allowed insurance
companies to offer insurance anywhere in the EU (subject to permission from authority in the
head office) and allowed insurance consumers to purchase insurance from any insurer in the
EU.As far as insurance in the United Kingdom, the Financial Services Authority took over
insurance regulation from the General Insurance Standards Council in 2005; laws passed include
the Insurance Companies Act 1973 and another in 1982, and reforms to warranty and other
aspects under discussion as of 2012.
The insurance industry in China was nationalized in 1949 and thereafter offered by only a single
state-owned company, the People's Insurance Company of China, which was eventually
suspended as demand declined in a communist environment. In 1978, market reforms led to an
increase in the market and by 1995 a comprehensive Insurance Law of the People's Republic of
China was passed, followed in 1998 by the formation of China Insurance Regulatory
Commission (CIRC), which has broad regulatory authority over the insurance market of China.
In India IRDA is insurance regulatory authority. As per the section 4 of IRDA Act 1999,
Insurance Regulatory and Development Authority (IRDA), which was constituted by an act of

parliament. National Insurance Academy, Pune is apex insurance capacity builder institute
promoted with support from Ministry of Finance and by LIC, Life & General Insurance
companies.
2.9 INSURANCE CYCLE
The tendency to swing between profitable and unprofitable periods over time is commonly
known as the underwriting or insurance cycle.
The underwriting cycle is the tendency of property and casualty insurance premiums, profits, and
availability of coverage to rise and fall with some regularity over time. A cycle begins when
insurers tighten their underwriting standards and sharply raise premiums after a period of severe
underwriting losses or negative stocks to capital (e.g., investment losses). Stricter standards and
higher premium rates lead to an increase in profits and accumulation of capital. The increase in
underwriting capacity increases competition, which in turn drives premium rates down and
relaxes underwriting standards, thereby causing underwriting losses and setting the stage for the
cycle to begin again. For example, Lloyd's Franchise Performance Director Rolf Tolle stated in
2007 that “mitigating the insurance cycle was the “biggest challenge” facing managing agents in
the next few years”. The Insurance Cycle affects all areas of insurance except life insurance,
where there is enough data and a large base of similar risks (i.e. people) to accurately predict
claims, and therefore minimize the risk that the cycle poses to business.
For the sake of argument let's start from a 'soft' period in the cycle, that is a period in which
premiums are low, capital base is high and competition is high. Premiums continue to fall as
naive insurers offer cover at unrealistic rates, and established businesses are forced to compete or
risk losing business in the long term.
The next stage is precipitated by a catastrophe or similar significant loss, for example Hurricane
Andrew or the attacks on the World Trade Center. The graph below shows the effect that these
two events had on insurance premiums.

After a major claims burst, less stable companies are driven out of the market which decreases
competition. In addition to this, large claims have left even larger companies with less capital.
Therefore, premiums rise rapidly. The market hardens, and underwriters are less likely to take on
risks.
In turn, this lack of competition and high rates looks suddenly very profitable, and more
companies join the market whilst existing business begin to lower rates to compete. This causes
a market saturation and Insurance Cycle begins again.
2.9.1 Dealing with insurance cycle
While many underwriters believe that the cycle is out of their hands, Lloyd’s is trying to push for
more proactive management of the ups and downs of the industry. In 2006 they published their
‘Seven Steps’ to managing the insurance cycle:
1. Don’t follow the herd. Insurers need to be prepared to walk away from markets when prices
fall below a prudent, risk-based premium.

2. Invest in the latest risk management tools. Insurers must push for continuous improvement
of these tools based on the latest science around issues such as climate change, and make full use
of them to communicate their pricing and coverage decisions.
3. Don’t let surplus capital dictate your underwriting. An excess of capital available for
underwriting can easily push an insurer to deploy the capital in unsustainable ways, rather than
having that capital migrate to other uses such as hedge funds and equities, or returning it to
shareholders.
4. Don’t be dazzled by higher investment returns. Don’t let higher investment returns replace
disciplined underwriting as base rates creep up on both sides of the Atlantic. Notionally, splitting
the business into insurance and asset management operations, and monitoring each separately, is
one way to achieve this.
5. Don’t rely on “the big one” to push prices upwards. The spectacular insured loss should not
be used as an excuse to raise prices in unrelated lines of business. Regulators, rating agencies,
and analysts – not to mention insurance buyers – are increasingly resisting such behavior.
6. Redeploy capital from lines where margins are unsustainable. There is little that individual
insurers can do to alter overall supply-and-demand conditions. But insurers can set up internal
monitoring systems to ensure that they scale back in lines in which margins have become
unsustainable and migrate to other lines.
7. Get smarter with underwriter and manager incentives. Incentives for key staff should be
structured to reward efficient deployment of capital, linking such rewards to target shareholder
returns rather than volume growth. The Lloyd’s Managing Cycle report has several problems. It
focuses on the industry as a whole being able to work together to reduce the effect of market
fluctuations. However, this is somewhat unrealistic, as if underwriters do not write business in a
soft market (i.e. at cheap prices for the customer), it will be hard to win this business back in a
hard market due to loyalty issues.
Rolf Tolle asserts that “There is nothing complex about the cycle. It is about having the courage
of your convictions to act with strength.”. Swiss Re argue that instead of ‘beating’ the cycle,
insurers should learn to anticipate its fluctuations. “Cycle management is essentially proper
timing. Monitoring the market, predicting market trends and accurately assessing prices play an
important role”.
Swiss Re give several examples of potential business strategies. One is to write risks at a roughly
fixed rate. This is clearly not practicable as it does not allow for the cyclical nature of the market.
Another is to fail to react fast enough to changes in the market, which leaves a company even
more exposed. The recommended strategy is one that relies on prediction of the business cycle
and setting premiums based on models and experience.

CHAPTER-3
CLAIMS MANAGEMENT

3.1 BASIS OF CLAIMS MANAGEMENT
Claims management comprises of all the managerial decisions, and the processes involved
regarding the settlement and payment of claim with regard to the terms in the insurance contract.
The main emphasis here is on monitoring and lowering the costs related in carrying out the claim
process. The elements or the basis of claims management are claims preparation, claims
philosophy, claims processing and claims settlement.
Claims preparation - Claims preparation includes reporting the damages occurred to
property, or injuries to people along with documentary proof of the assessment of loss and details
of the loss.
Claims philosophy - Claims philosophy deals with the claims handling methods and
procedures. It also contains the guidelines required to prepare the receipt of claims from the
insurers, analysis of the claim, the decision to be taken on the issue or dispute, evaluation of the
claim cost and expenses, supervise the claim payment, and enhance the efficiency of claims
settlement.
Claims processing - The claim process deals with the claims procedures and handling of
claims. Handling of claims is keeping track of the events which causes the loss to the insured and
gives a cause to the insured to file a claim. The claims process has two procedures for the insurer
and insured to be pursued. Considering from the view of the insured, it includes the loss or
damage by understanding the cause for the loss, giving notice of the loss to the insurer, make
available the required proof of the loss to the insurer or the loss assessor and surveyors. From the
point of the insurer on receiving the receipt of the claim from the insured, the immediate steps
such as verification of the claim, reviewing the claim application, responding to the insured and
carrying out claims investigation, claims negotiation and claim settlement.
Claims settlement - Settling a claim is a process of negotiation between the insured person
and insurance provider. Insurance companies receive claims relating to accidents and medical
procedures. If there is evidence to support claims, the claims settlement claims is very easy. The
insurer may try to compare the claim with similar ones in the past and try to lower the settlement.
Thus good negotiation skills are essential for an insured to get a good claims settlement.
3.2 CLAIMS SETTLEMENT
.
An insurance company to the insured to settle an insurance claim according the guidelines
stipulated in the insurance policy defines claims settlement as the payment of proceeds.
The information furnished in the proposal form of an insurance contract is proved correct only at
the time of claim. If after inspection of the property, the claim appears to be misinterpreting or
false, then the insurance company can decline the claim or avoid the policy or in certain
instances the reduced amount of the claim is paid. The points to be covered in case of a claim
settlement procedure are:
possible. On intimation, the insurance company is to forward a claim form.

port the loss.
an insured peril.
3.2.1 General guidelines for claims’ settlement
There are some guidelines that must be followed while settling the claims. These guidelines are
general in nature, and are not compiled to be the same always. Therefore, the claim settling
authority uses discretion and records reasons.
Appointment of surveyor
The Insurance Act states that surveyor should survey claims above Rs. 20,000. The surveyor’s
appointment should be based on the following points:
the type of loss and nature of the claims.
expertise assists the surveyor.
for both.
Appointment of investigator
Depending on circumstances, it is necessary to appoint an investigator for verifying the claim
version of loss. The appointing letter of the investigator o mentions all the reference terms to
perform.
3.3 GUIDELINES FOR SETTLEMENT OF CLAIMS BY IRDA
3.3.1 Proposal for insurance
The proposals for insurance are:
written document). But a written proposal form is not required for marine insurance markets.
be made available in the languages recognised by the constitution of India.
under the guidance of the provisions of section 45
of the Insurance Act.
a proposal form is not used, the insurer has to record the information obtained, orally or in
writing, and confirmation is to be done by the insurer within 15 days. If any information is not
recorded, the burden of the missing information lies on the insurer, in case he claims that the
insured is suppressing information or is providing misleading information.
nominee or any facility based on the terms of act or conditions of policy.
confirmations should not exceed 15 days from the receipt of proposal by the insurer.

3.3.2 Matters to be stated in life insurance policy
A life insurance policy should clearly state the following:
g.
benefits are payable.
um, the grace period to pay premium.
-up policy, surrender value, non-
forfeiture and to revive lapsed policy.
e provision for loan keeping the policy as the security and the rate of interest on the loan
amount is to be mentioned at the time of taking the loan.
im under a policy.
the letter forwarded has a time span of 15 days from the date of receipt, to review the terms and
conditions of the policy. If, in case, the insured do not agree, they can return the policy stating
the reasons for objection. The insured is entitled to refund the premium which is subjected to a
deduction with respect to a proportionate risk premium.
With respect to the policy coverage, if the premium charge depends on age, the insurer should
verify the age before issuing the policy document. If the premium charge does not depend on
age, the insurer is to obtain the proof of age as soon as possible.
3.3.3 Claims procedure of life insurance policy
The claims procedures with respect to life insurance policy are:
1. A life insurance policy should state all the documents to be submitted by a claimant, to
support a claim.
2. A life insurance company on receiving a claim, has to process the claim. Any additional
document, if needed, is to be raised within a period of 15 days of the receipt claim.
3. A claim under a life policy has to be paid or disputed, by giving relevant reasons, and
clarifying within 30 days from the date of receipt. All investigations, that is, initiations and
completions of investigations, must be done not later than 6 months.
4. If a claim is ready for payment, but the payment is not made because of reasons related to
proper identification of the payee, the insurer has to hold the amount for the benefit of the payee,
and earn interest at the rate applicable to a savings bank account.
5. If there is a delay in payment from the part of the insurer, in processing a claim, then the
insurance company has to pay the claim amount at a rate two percent above the bank rate,
according to the rate at the beginning of the financial year, in which the claim is reviewed.

3.4 TYPES OF CLAIMS
The basic process of filing a claim is similar for different types of insurance policies. But there are
certain differences according to the nature of the policies which the insured must be aware of in
order to file the claims.
3.4.1 Life insurance claims
A life insurance policy claim is filed in the following situations:
icy
on the date of death is acquired.
The various types of claims covered under life insurance claims are:
Death claim - This claim is paid, when the person insured dies. Following are the conditions
to be fulfilled for a death claim to be paid:
o The policy document, original death certificate, burial permit copy of the ID of the deceased
must be provided to the insurance company.
o A report from the doctor who treated the deceased.
o Filled in claim form.
o A police abstract report is required if death occurs in an accident.
Maturity claim - A maturity claim is paid on endowments and education insurance policies
whose duration has expired. Payment in a maturity claim is straightforward, where the customer
returns the original policy document and signs a discharge form. The claim cheque is cleared in a
period of about two weeks, once all the required conditions are fulfilled.
Partial maturity claim - Many endowments and education policies provide a provision for
payment of partial maturities after a given duration. The partial maturity is paid according to the
set dates in the policy document. For example, an education policy of 10 years has an option for
payment of 20% of the sum insured after four years and every year after that until the expiry of
the policy. Partial maturity cheques are prepared in an automated manner, and there is no need
for claim.
Surrender value claim - This claim is raised when a customer is unable to continue with the
payment of premiums due to unforeseen events. He/she has the option of encashing the policy to
receive the surrender value if the policy has been in force for more than 3 years. The procedure
for lodging this claim is simple, and the procedures are similar to the maturity claim where the
customer returns the policy document and signs a discharge form. The claim cheque is paid to
the customer within two weeks.
Disability claim - This claim is seen in life insurance policies where the customer procures
the personal accident policy as an additional benefit. Disability claims are payable, when
subjected to sufficient medical evidence being provided as proof of disablement.

3.4.2 Marine insurance claims
Marine insurance claims are made due to many causes which depend on weather conditions,
collisions, loss of cargo and so on. But Marine insurance policy does not cover loss or damage
due to willful misconduct, ordinary leakage, improper packing, delay, war, strike, riot and civil
commotion.
Marine insurance claim procedure:
e carrier within the
time limit to protect recovery rights.
the nature, cause and extent of loss/damage is must.
he value of loss incurred.
-3 weeks.
Depending on the nature of operations, deployment and the hazards that can occur, the marine
hulls are divided into vessels under tariff advisory committee, vessels insured under policies. The
types of claims which are covered under marine insurance claims are total loss, particular or
partial charges, salvage and salvage charges, general expenses, collision liability and accident
claims.
The procedure to claim with respect to hulls is:
the vessel is available for inspection a licensed surveyor is appointed.
constructing total loss claims as
a notice. The insurer refuses the acceptance of the abandonment of the wreck till the probable
liabilities attached to the wreck are estimated.
veyors report.
A survey report consisting the following is required for processing and documentation for the
settlement of hull claims:
vessel.
validity.
ements, salvage and labour as applicable.
3.4.3 Fire insurance claims
Fire insurance covers damages due to fire for buildings, equipments and stocks. Hence, it is
essential that the insurance company officials visit the site of losses to assess the damage caused

by fire. If the loss incurred is within Rs. 20,000, and loss of profits claim is not involved, then the
officer has the discretion to do an independent survey and settle the claim on the basis of the
documents.
The documents generally required for processing fire insurance claims are:
assessment of loss,
confirmation of policy terms.
Salvage from fire and allied peril losses deteriorate. Hence disposal of the salvage is undertaken
on priority basis without waiting for the liability to be established. In circumstances where the
records required are destroyed in fire or through perils like flood, then settlement is negotiated by
the surveyor who asses such losses on a realistic and reasonable basis.
3.4.4 Motor insurance claims
Motor insurance claim, facilitates the repair of the vehicles in any of the cashless garage
network. Nevertheless, if the vehicle is serviced in a garage outside the network, then an insured
person can reimburse the claim.
The documents that are required for settling motor claims are:
loss incurred to the parked vehicles.
, to verify the load carried was within the permissible limits.
claim, the detailed explanation of the
happening and the list of the replacement of parts.
The insurance company appoints a surveyor on intimation of loss. In case of major accidents, the
insured arranges the photographs of the vehicle at the spot of the accident, depicting the external
damages and the number plate of the vehicle. If for any reason the driving license cannot be
produced, the claim is considered on non-standard basis.
3.4.5 Mediclaim insurance
Medical insurance is also known as Mediclaim policy or Mediclaim insurance in India. It is a
tool to deal with health related crisis. It offers financial assurance during medical emergencies.
Mediclaim insurance covers medical and hospitalization expenses.
Mediclaim insurance plays a significant role in individual’s financial planning. It offers many
benefits by lessening the burden on financial aspects and assisting in solving medical problems.
Mediclaim insurance is a non-life insurance. The documents to be submitted, to avail mediclaim
are hospitalization claim form consisting duly completed claim form, bills receipts, discharge

card, cash memos, bills from chemists with the prescription, test reports and surgeon’s bill and
receipt consisting of the nature of operation.
The cases which are to be given special care in Mediclaim are:
are asked for verification.
malpractice in the cash memos and bills.
3.4.6 Miscellaneous insurance claims
Miscellaneous insurance claims cover claims based on the nature of package policies. These
policies are made user friendly, and they require a high degree of skill and tact as they deal with
emotions and sentiments of individuals. The different types of miscellaneous insurance claims
are:
Workmen’s compensation insurance claims - Worker's compensation claims are raise by an
employee who has been hurt on the job to obtain reimbursement for medical treatment and salary
lost. To receive this compensation, the injured employee or the nominee must file a claim within
a specified time period. In some cases, the employee may need to undergo a check-up by a
physician who is authorized by the Worker's Compensation Board. For permanent disablement
claims, the agreement letter is to be submitted to the workmen’s compensation commissioner
while demanding compensation as per the Workmen Compensation Act.
In addition to the claims form, the following documents must also be submitted:
o Medical certificate.
o Wages statement.
o Age proof as given in the company.
Personal accident insurance claims - Personal accident insurance claims can be raised when
some accidents occur that results in either death or disablement of the policy holder. Following
documents are to be submitted to process this personal accident insurance claim:
o Filled in claim form.
o Doctor’s report.
o Investigation reports, like lab tests, x-rays and reports to confirm the injury.
o Age proof, in case the claim is for a dependent child.
o Medical bills, if there is provision to claim for medical expenses.
In case of fatal claims, the claim payment is made to the assignee. If there is no assignee, then
the legal representative receives the payment. In case of group policy, the payment is made to the
individual beneficiary, but payment to the employer is also made with respect to the employee.

3.5 FACTORS AFFECTING THE CLAIM MANAGEMENT
3.5.1 General factors affecting claims
The factors that affect claim settlement are:
cause of event is directly related to the loss, a remote cause cannot be placed in the
settlement.
conditions and warranties are not fulfilled according to the cover of the policy, the cover of
insurance does not come into effect even though premium is paid.
of the insurable interest for the property insured at the time of loss, the
benefit or compensation cannot be availed.
nature as it makes good the loss suffered.
The insured has the following alternatives for settling the claims:
-versed in insurance, and come to an
agreement, if it is a disputed claim
the litigation.
ar asset can be made.
Repaired assets should continue to provide service as before.
3.5.2 Time element in the claims payment
The time value is very important in the settlement of a claim. Insurer should submit the claim
details within the specific period mentioned in the policy document. In few cases, either the
policyholder or the claimant or the claimant representative, has to intimate the death of a person
or the accident of vehicle, either orally or in person, immediately.
The reasons for the importance of time element in the claims payment are as:
unfavorable opinion about the insurer.
the due insurance amount, or
insurers may have to pay the case costs to the assured, as per the direction of the court, which
increases the costs.
he insurer due to the unproductive use of manpower to
defend, expenses incurred and waste of time on legal actions.
insurance business.

rease the number of cases with consumer protection councils.
Thus, the delay in the claims payment influences the present and future insurance business along
with the cost burden. Therefore, it is necessary to settle the claim payments faster.
The reasons for the delay in claims settlement may include:
Late submission of claim form: The reasons for the late submission of claim form may be:
o The ignorance or lack of knowledge of the existence of the insurance policies against the lives
of the persons, who face the event.
o Non-availability of the information to the beneficiary.
o The policy may not have any nominee details.
Innocence and illiteracy of the claimant: The claimant or assured may not have the
knowledge, and may fail to:
o File the claim papers.
o File the insurance claims within a specified period.
o Follow the claims procedure.
Incompletely filled claims forms: If the insured do not properly fill the claim forms, then the
insurers will:
o Fail to provide the necessary information to settle the claims.
o Delay the claim settlement asking for the desired information.
Insufficient proof: If the assured fails to submit the sufficient proof or the supporting
documents along with the claim form, which assists the claim evaluator to know the event date
or cause, then it may lead the claim evaluator to delay the settlement of claims. The reasons
include:
Reasons from insured’s or claimant’s side:
-operation with the insurer to settle the claim or attain some compromise.
estimation of the loss payable under the claim.
oviding the information about the changes in the constitution of the organisation or the
changed address or any other information necessary to settle the claim.
Reasons from insurer’s side:
motivation.
organizations or imperfect supervision or
organizational structure.
Insurers can avoid the delay in submitting the claims or settlements, by providing the awareness
of the facts and importance of the insurance and the claims procedure, to the claimant or the
assured. They can take the help of agent or the local staff to attain certain compromises with the
claimants in the complex cases. They must design the organisation in such a way, that it avoids

holding of papers. They should have well-trained and motivated staff. They can also use the
latest technologies, to assess the losses and recruit suitable staff for using the same.
3.6 TERMS IN CLAIMS
.
The general terms used in claims, on the basis of variety of claims, are maturity and death
claims. These claims are life insurance claims based on the type of life policies.
3.6.1 Maturity claims
Maturity claims are availed in general endowment policies, which include money back policies.
The insurance company makes the payment on the maturity date or post-dated cheques should be
sent to policy holders in advance. The policyholder or the nominee to of the policy makes the
claims on maturity. If the life assured dies before the maturity date, the claim is considered as
death claim.
Those who can claim these policies are:
e benefit schedule of the policy as a party interested.
Amount payable
The amount paid on the maturity of the policy is the sum assured, plus profits and bonus that
increases with the policy. The profits are paid on pro-rata basis, i.e., in the proportion of the
premium paid and declared bonuses. The payment of profits is a clause in the policy. Hence it is
compulsory for the insurer to pay the bonus.
Dispute in payment of maturity claims
The general dispute that arises in payment of maturity claims, is regarding the proof of age. If the
age is not correctly checked at the time of issuing the policy document, then malpractice can take
place. Another dispute is regarding the good title of the claimant on the policy. In case the
insurer delays the payment of bonus to the insured upon maturity, and if the payment of bonus is
not as per the contract, the policy holder can move to the court to claim such payment.
3.6.2 Death claims
Death claim policy is a request made by the beneficiary of a life insurance policy on the death of
the insured to the insurance company to make the payment according to the terms of the policy.
Death claim is claimed, if the insured dies before the expiry term of the policy. The occurrence
of death must be intimated to the insurance company in writing. The intimation must be from a
concerned person, and must beyond doubt establish the identity of the deceased person. The
claimants paid on the happening of the event are:
ed
The claim amount which is paid in a life insurance policy includes:

share of profits in case of participation policy.
-payment of the premium or if the assured
surrenders the policy, the insurance company may pay a percentage of the premium paid,
according to the ordinances of the company.

CHAPTER-4
LIFE INSURANCE CORPORATION
OF
INDIA

4.1 COMPANY PROFILE : LIFE INSURANCE CORPORATION OF INDIA (LIC)
Life Insurance Corporation of India
Type State-owned
Industry Financial services
Founded 1 September 1956
Headquarters Mumbai, India
Key people S K Roy(West), Rahul Grewal(North),N R Guha(East),
Debashish Sen(South), Zonal Managing Director
Products Life and health insurance,investment
management, mutual fund
Total assets 1325000 crore(US$220 billion) (2010)
Owner(s) Government of India
Employees 115,966 (2010)
Subsidiaries LIC Housing Finance
LIC Pension Fund Ltd.
LIC International
LIC Cards Services
LIC Nomura Mutual Fund

Life Insurance Corporation of India (LIC) (Hindi: भारतीय जीवन बीमा ननगम) is the
largest insurance group and investment company in India. It's a state-owned company
where Government of India has 100%stake. It has assets estimated of
1325000 crore (US$220 billion).[1] It was founded in 1956 with the merger of 245 insurance
companies and provident societies(154 life insurance companies,16 foreign companies & 75
provident companies).
Headquartered in Mumbai, financial and commercial capital of India, the Life Insurance
Corporation of India currently has 8 zonal Offices and 113 divisional offices located in different
parts of India, around 3500 servicing offices including 2048 branches, 54 Customer Zones, 25
Metro Area Service Hubs and a number of Satellite Offices located in different cities and towns
of India and has a network of 13,37,064 individual agents, 242 Corporate Agents, 79 Referral
Agents, 98 Brokers and 42 Banks (as on 31.3.2011) for soliciting life insurance business from
the public.
The slogan of LIC is "Yogakshemam Vahamyaham" which translates from Sanskrit to "Your
welfare is our responsibility". The slogan is derived from the Ancient Hindu text, the Bhagavad
Gita's 9th Chapter, 22nd verse.[2] The literal translation from Sanskrit to English is "I carry what
you require". The slogan can be seen in the logo, written in Devanagiri script.
The basic plan is that where the payment of a specified amount of money to the insured person is
made, at the plan’s maturity, or to the family in the event of the insured person’s death. Often
you don’t realize the importance of your life, LIC has made its prime objective to make sure
people know the importance of their life and keep their future safe by investing in different
policies of LIC as per their requirements. The insecurity of people is fully taken care of by the
LIC.
Most of the policies do not care about the future of the individual. But LIC takes care of the
whole endowment policy by providing a bonus that is accumulated with the policy. LIC offers
various plans for its policy holders such as; Endowment plans, children plans, special plans for
handicaps, money back plans, whole life plans, pension plans, group plans, health insurance
plans. All these plans are especially designed for the welfare of the people.
Due to the formulated plans and objectives of the LIC Corporation, it has hit the mark where
most insurance companies never reached. They have stayed as the biggest competitor and
therefore have been termed as one of the biggest Life Insurance in the republic.
Important Dates:
 LIC was founded on September 1, 1956, hence Every year LIC celebrates 1st September as
LIC day and
 First week of September as Insurance Week.

4.2 OBJECTIVES OF LIC
Spread Life Insurance widely and in particular to the rural areas and to the socially and
economically backward classes with a view to reaching all insurable persons in the country and
providing them adequate financial cover against death at a reasonable cost.
• Maximize mobilization of people's savings by making insurance-linked savings adequately
attractive.
• Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose
money it holds in trust, without losing sight of the interest of the community as a whole; the
funds to be deployed to the best advantage of the investors as well as the community as a whole,
keeping in view national priorities and obligations of attractive return.
•Conduct business with utmost economy and with the full realization that them one’s belong to
the policyholders.
•Act as trustees of the insured public in their individual and collective capacities.
•Meet the various life insurance needs of the community that would arise in the changing social
and economic environment.
•Involve all people working in—the corporation to the' best of their capability in furthering the
interests of the insured public by providing efficient service with courtesy.
•Promote amongst all agents and employees of the Corporation a sense of participation, pride
and job satisfaction through discharge of their duties with dedication towards achievement of
Corporate Objective.
4.3 GOLDEN JUBILEE FOUNDATION
LIC Golden Jubilee Foundation was established in 2006 as a charity organisation. This entity has
the aim of promoting education, alleviation of poverty, and providing better living conditions for
the under privileged. Out of all the activities conducted by the organisation, Golden Jubilee
Scholarship awards is the best known. Each year, this award is given to the meritorious students
in standard XII of school education or equivalent, who wish to continue their studies and have a
parental income less than 60000 (US$1,000).
4.4 PRACTICE
The practice of insurance regulatory law requires knowledge and understanding of administrative
law, general business and corporate law, contract law, trends and jurisprudence in insurance
litigation, legislative developments and a variety of other topics and areas of law. An insurance
regulatory attorney provides legal services and practical business solutions on a wide variety of
administrative, corporate, insurance, transactional and regulatory issues.

The practice of insurance regulatory law involves providing legal services and counseling on a
wide variety of administrative, corporate, insurance, transactional and regulatory issues such as
the following:
 The formation, acquisition, sale, merger, restructuring, reorganization and dissolution of
insurance companies, their affiliates and other businesses in the insurance industry;
 Negotiating, structuring and executing associated transactions, such as the purchase or sale
of blocks of insurance business, or providing compliance services relative to public and
private financing;
 Drafting and submitting National Association of Insurance Commissioners (NAIC) Uniform
Certificate of Authority Applications (UCAA) and related documentation with respect to
insurance company formation, admission, licensing, expansion, re-domestication and other
transactions;
 Drafting and submitting other required applications and related documentation with respect
to the formation, admission, licensing, expansion, redomestication and other transactions of
insurance affiliates, holding companies and other businesses in the insurance industry;
 Representing insurance industry clients before state insurance regulatory and other
government agencies with respect to compliance issues, complaint resolution, administrative
hearings and other administrative processes;
 Creating, drafting, developing, submitting for regulatory approval, negotiating, revising,
supplementing and withdrawing various types of insurance products, policies, contracts,
forms, rates, fees, schedules and other regulatory filings, including compliance programs
required under state and federal law; and
 Providing general advice and counsel to the officers, directors and management of
companies in the insurance industry with respect to issues from day-to-day insurance
operations up to board and shareholder/member level matters.
4.5 PRODUCTS OF LIC
 Insurance Plans
 Pension Plans
 Unit Plans
 Special Plans
 Micro Insurance Plans
 Group Scheme
 Withdrawn Plans
 Health Plans

4.5.1 INSURANCE PLANS

 JeevanBharati-I
LIC’s Jeevan Bharati-I – is a plan exclusively for women. It is a with profit plan having special
features considering the needs of women. The plan also provides for Accident Benefit, Critical
Illness Benefit and Congenital Disability Benefit as optional Riders.
FEATURES
1. Encashment of Survival Benefit as and when needed: The policyholder at her option may avail
the survival benefit any time on or after its due date. If opted to avail later, increased survival
benefit at the rate decided by the corporation from time to time will be payable.
2. Flexibility to pay premiums in advance: The mode of premium payment is only yearly under
this plan. However, policyholder may pay the next yearly premium in advance in installments
(maximum up to 3 installments) during the year. If premiums are paid in advance a premium
rebate may be allowed as may be decided by the Corporation from time to time
3. Option to receive maturity proceeds in the form of an annuity: The policyholder shall have the
option to receive the maturity proceeds in the form of annuity. The rate of annuity will be based
on the annuity rates prevalent at the time of stipulated Date of Maturity.
4. Auto Cover: After two years premiums have been paid, whenever premium payment is
discontinued, the life cover for full sum assured will continue for 3 years from the due date of
first unpaid premium.
If death occurs during the Auto Cover period, then death benefit after deducting unpaid
premiums, with interest is payable along with the vested bonus, if any.
The auto cover shall not be available for rider benefits.

OPTIONAL RIDERS:
The following riders are available under this plan:
A. CRITICAL ILLNESS (CI) RIDER :
An amount equal to the Critical Illness Rider Sum Assured will be payable in case of diagnosis
of defined categories of critical illnesses. A person is eligible for this benefit upto a maximum
age of 60 years but subject to a maximum of the policy term. This benefit can be availed for a
minimum Sum of Rs 50000 and for a maximum Sum equal to the Sum assured under the basic
plan subject to the maximum of Rs 5 lakh overall limit taking all critical illness riders under all
existing policies of the Life Assured.
(For details refer the sales brochure of Critical Illness rider)
B. ACCIDENT BENEFIT RIDER:
An additional amount equal to the Accident Benefit Rider Sum Assured is payable upon death or
total and permanent disability due to accident during the policy term.
This benefit can be availed for a minimum sum of Rs 50000 and for a maximum sum equal to
the Sum Assured under the Basic Plan subject to the maximum of Rs.50 lakhs.
C. CONGENITAL DISABILITIES BENEFIT (CDB) RIDER:
This rider can be opted for by a female between the ages of 18yrs and 35 years.
An amount equal to 50% of the CDB Sum Assured is payable if the Life Assured gives birth to a
child with specified congenital disabilities. This benefit is available for a maximum of two such
children and this benefit ceases at the age of 40 years.
This benefit can be availed for a minimum Sum of Rs 50000 and a maximum sum of Rs 500000.
(For details refer the sales brochure of Congenital Disability Benefit Rider)
ELIGIBILITY CONDITIONS (For Basic Plan):
Minimum age at entry : 18 years (completed)
Maximum age at entry : 55 years (nearest birthday)
Maximum age at maturity : 70 years (nearest birthday)
Policy term : 15 and 20 years
Minimum Sum Assured : Rs. 50,000/-
Maximum Sum Assured : Rs. 25,00,000/-
(Sum Assured shall be in multiples of Rs.5,000/-)

SAMPLE PREMIUM RATES FOR BASIC PLAN :
Tabular Annual Premium per 1000 SA
AGE/TERM 15 20
20 79.35 63.90
25 79.45 64.10
30 79.70 64.55
35 80.25 65.45
36 80.45 65.70
37 80.60 66.00
40 81.35 67.00
45 83.15 69.50
50 86.05 73.50
HIGH SUM ASSURED REBATES:
Sum Assured (in Rs) Rebate per thousand Sum Assured
1,00,000 to 4, 99,999 Rs 2.00
5, 00,000 and above Rs 4.00
LOAN:
Loan is available under the plan after the policy acquires paid-up value.
GRACE PERIOD:
A grace period of one-month but not less than 30 days will be allowed for payment of premium .
REVIVAL:
A. REVIVAL DURING THE AUTO COVER PERIOD:
(i) If Critical Illness Rider is not opted for:
During the Auto Cover Period, the Life Assured can pay one or more installments of premiums
with interest without submission of any evidence of health. On payment of part or full arrears of
premiums with interest, the Auto Cover Period of 3 years from the due date of new FUP shall
again be available during the term of the Policy.
If any survival benefit falls due during the above 3-year auto cover period the same will be paid
after deduction of unpaid premiums with interest until the due date of the survival benefit,
provided it is more than the unpaid premiums with interest. If the survival benefit is insufficient
to cover the arrears of premiums with interest up to the due date of such survival benefit, then the
survival benefit will be payable only on payment of such arrears of premiums with interest ,
during the period of the aforesaid 3 years or on revival of the policy thereafter.

(ii) If Critical Illness Rider is opted for:
During the auto cover period, the policy can be revived by payment of full arrears of premium
together with interest and subject to submission of proof of continued insurability of the Life
Assured to the satisfaction of the Corporation. The Corporation reserves the right to accept at
original terms, accept at revised terms or decline the revival of the policy. The revival of the
policy shall take effect only after the same is approved by the Corporation and is specifically
communicated to the Life Assured.
If any survival benefit falls due during the above 3-year auto cover period the same will be paid
only after revival of the policy as stated above.
B. REVIVAL OTHER THAN DURING AUTO COVER PERIOD :
If the Policy has lapsed, and the policy is not under the period of auto cover, the policy can be
revived within a period of 5 years from the date of first unpaid premium and before the date of
maturity by payment of full arrears of premium together with interest and subject to submission
of proof of continued insurability of the Life Assured to the satisfaction of the Corporation. The
Corporation reserves the right to accept at original terms, accept at revised terms or decline the
revival of a discontinued policy. The revival of discontinued policy shall take effect only after
the same is approved by the Corporation and is specifically communicated to the Life Assured.
The Rider/s shall be revived along with the Basic plan and not in isolation.
PAID UP VALUE:
If after at least three full years’ premiums have been paid and any subsequent premium not paid,
this policy shall not be wholly void after the expiry of three years Auto Cover Period ,but shall
continue as a paid up policy. The Sum Assured of the policy shall be reduced in the same
proportion as the number of premiums actually paid bears to the total number of premiums
stipulated for in the policy , less any survival benefit paid. This reduced Sum is called the paid up
value.
The policy thereafter shall be free from all liabilities for payment of the premiums, but shall not
be entitled to the future bonuses. The existing vested reversionary bonuses, if any, will remain
attached to the reduced paid-up Policy. This paid up value shall be payable on the date of
maturity or at Life Assureds prior death. No survival benefit shall be payable under paid up
policies.
The rider benefits will cease to apply if the policy is in lapsed condition and will not acquire any
paid up value.

SURRENDER VALUE:
The Guaranteed Surrender value will be available after the expiry of 3 policy years provided the
premiums have been paid for at least three years. The Guaranteed Surrender Value is equal to
30% of the total amount of premiums paid excluding the premiums paid for the first year, any
premiums paid towards riders, all extra premiums that may have been paid less the amount of
survival benefits paid earlier. The cash value of any existing bonuses, if ,any will also be paid .
Corporation may, however, pay special surrender value as the discounted value of Paid up sum
assured and vested bonus, if any, as applicable on date of surrender, provided the same is higher
than guaranteed surrender value.
EXCLUSIONS:
Suicide: This policy shall be void if the Life Assured commits suicide (whether sane or insane at
that time) at any time on or after the date on which the risk under the policy has commenced but
before the expiry of one year from the date of commencement of risk under the policy and the
Corporation will not entertain any claim by virtue of this policy except to the extent of a third
party’s bonafide beneficial interest acquired in the policy for valuable consideration of which
notice has been given in writing to the branch where the Policy is being presently serviced
(where the policy records are kept), at least one calendar month prior to death.
COOLING OFF PERIOD:
If you are not satisfied with the “Terms and Conditions” of the policy, you may return the policy
to us within 15 days.
A. Survival Benefits:
On Survival the following benefits are payable:
For 15 Years Term
20% of the Sum Assured payable at the end of 5 years.
60% of the Sum Assured payable together with vested bonus, and Final Additional Bonus, if any,
at the end of 15 years.
For 20 Years Term
40% of the Sum Assured payable together with vested bonus and Final Additional Bonus, if any
at the end of 20 years.
B. Death Benefit:
In case of death of the life assured during the policy term, the full sum assured is payable

irrespective of the survival benefits paid earlier. The vested bonuses and Final Additional Bonus,
if any are also payable.
Statutory warning:
“Some benefits are guaranteed and some benefits are variable with returns based on the future
performance of your Insurer carrying on life insurance business. If your policy offers
guaranteed returns then these will be clearly marked “guaranteed” in the illustration table on
this page. If your policy offers variable returns then the illustrations on this page will show two
different rates of assumed future investment returns. These assumed rates of return are not
guaranteed and they are not the upper or lower limits of what you might get back, as the value
of your policy is dependent on a number of factors including future investment performance.”
Benefit Illustration
Age of LA (Yrs.) 35
Term (Yrs.) 20
Sum Assured(Rs.) 100000
Annual Premium 6345
End
of
Year
Total
premiums
paid till
end of
year
Death Benefit during the year
Guaranteed Variable Total
Scenario
1
Scenario
2
Scenario
1
Scenario
2
1 6345 100000 2200 4500 102200 104500
2 12690 100000 4400 9000 104400 109000
3 19035 100000 6600 13500 106600 113500
4 25380 100000 8800 18000 108800 118000
5 31725 100000 11000 22500 111000 122500
6 38070 100000 13200 27000 113200 127000
7 44415 100000 15400 31500 115400 131500
8 50760 100000 17600 36000 117600 136000
9 57105 100000 19800 40500 119800 140500
10 63450 100000 22000 45000 122000 145000
15 95175 100000 36667 75000 136667 175000
20 126900 100000 48900 100000 148900 200000

End
of
Year
Total
premiums
paid till
end of
year
BENEFIT ON SURVIVAL / MATURITY AT THE
END OF YEAR
Scenario
1
Scenario
2
Scenario
1
Scenario
2
1 6345 0 0 0 0 0
2 12690 0 0 0 0 0
3 19035 0 0 0 0 0
4 25380 0 0 0 0 0
5 31725 20000 0 0 20000 20000
6 38070 0 0 0 0 0
7 44415 0 0 0 0 0
8 50760 0 0 0 0 0
9 57105 0 0 0 0 0
10 63450 20000 0 0 20000 20000
15 95175 20000 0 0 20000 20000
20 126900 40000 48900 100000 88900 140000
Note: This illustration is applicable to a standard (from medical, life style and occupation point
of view) life.
i) The non-guaranteed benefits (1) and (2) in above illustration are calculated so that they are
consistent with the Projected Investment Rate of Return assumption of 6% p.a.(Scenario 1) and
10% p.a. (Scenario 2) respectively. In other words, in preparing this benefit illustration, it is
assumed that the Projected Investment Rate of Return that LICI will be able to earn throughout
the term of the policy will be 6% p.a. or 10% p.a., as the case may be. The Projected
Investment Rate of Return is not guaranteed.
Section 45 of Insurance Act, 1938:
No policy of life insurance shall after the expiry of two years from the date on which it was
effected, be called in question by an insurer on the ground that a statement made in the
proposal for insurance or in any report of a medical officer, or referee, or friend of the insured,
or in any other document leading to the issue of the policy, was inaccurate or false, unless the
insurer shows that such statement was on a material matter or suppressed facts which it was
material to disclose and that it was fraudulently made by the policyholder and that the
policyholder knew at the time of making it that the statement was false or that it suppressed
facts which it was material to disclose. Provided that nothing in this section shall prevent the
insurer from calling for proof of age at any time if he is entitled to do so, and no policy shall be
deemed to be called in question merely because the terms of the policy are adjusted on
subsequent proof that the age of the life assured was incorrectly stated in the proposal.
Prohibition of Rebates (Section 41 of INSURANCE ACT ,1938) :

(1) No person shall allow or offer to allow, either directly or indirectly, as an inducement to any
person to take out or renew or continue an insurance in respect of any kind of risk relating to
lives or property in India, any rebate of the whole or part of the commission payable or any
rebate of the premium shown on the policy nor shall any person taking out or renewing or
continuing a policy accept any rebate except such rebates as may be allowed in accordance
with the published prospectuses or tables of the insurer provided that acceptance by an
insurance agent of commission in connection with a policy of life insurance taking out by
himself on his own life shall not be deemed to be acceptance of a rebate of premium within the
meaning of this sub-section if at the time of such acceptance the insurance agent satisfies the
prescribed conditions establishing that he is a bona fide insurance agent employed by the
insurer.
(2) Any person making default in complying with the provision of this Section shall be
punishable with a fine, which may extend to 500 rupees.
Note: Conditions apply for which please refer to the Policy document or contact our nearest
Branch Office
 The Whole Life Policy
Features:
This plan is mainly devised to create an estate for the heirs of the policyholder as
the plan basically provides for payment of sum assured plus bonuses on the death
of the policyholder. However, considering the increased longevity of the Indian
population, the Corporation has amended the above provision, thereby providing
for payment of sum assured plus bonuses in the form of maturity claim on
completion of age 80 years or on expiry of term of 40 years from date of
commencement of the policy whichever is later.
The premiums under the policy are payable up to age 80 years of the policyholder
or for a term of 35 years whichever is later.
If the payment of premium ceases after 3 years, a paid-up policy for such reduced
sum assured will be automatically secured provided the reduced sum assured
exclusive of any attached bonus is not less than Rs.250/-. Such reduced paid-up
policy is not entitled to participate in the bonus declared thereafter but the
bonuses already declared on the policy will remain attach, provided the policy is

converted in to a paid-up policy after the premiums are paid for 5 years.
Suitable For: This policy is suitable for people of all ages who wish to protect
their families from financial crises that may occur owing to the policyholder’s
premature death.
Benefits
Insurance Regulatory & Development Authority (IRDA) requires all life insurance companies
operating in India to provide official illustrations to their customers. The illustrations are based
on the investment rates of return set by the Life Insurance Council (constituted under Section
64C(a) of the Insurance Act 1938) and is not intended to reflect the actual investment returns
achieved or may be achieved in future by Life Insurance Corporation of India (LICI). For the
year 2004-05 the two rates of investment return declared by the Life Insurance Council are 6%
and 10% per annum.
Product summary
This is a whole of life assurance plan that provides financial protection against death through out
the lifetime of the Life Assured.
Premiums:
Under Table Nos 2 & 5 the premiums are payable yearly, half-yearly, quarterly, monthly or
through Salary deductions, as opted by you. Under Table No 8 the premium is payable in one
lump sum (Single Premium).
Under Table No 2 the premiums are payable for a period of 35 years or up to age 80 years,
whichever is later. Under Table No 5 the premiums are payable up to the selected premium
paying period.
Under Table No 2 the premiums are payable for a period of 35 years or up to age 80 years,
whichever is later. Under Table No 5 the premiums are payable up to the selected premium
paying period.
The premiums are payable for the periods as specified above or up to earlier death

Bonuses:
This is a with-profit plan and participates in the profits of the Corporation’s life insurance
business. It gets a share of the profits in the form of bonuses. Simple Reversionary Bonuses are
declared per thousand Sum Assured annually at the end of each financial year. Once declared,
they form part of the guaranteed benefits of the plan. A Final (Additional) Bonus may also be
payable provided a policy has run for certain minimum period.
Death Benefit :
The Sum Assured plus all bonuses to date is payable in a lump sum upon the death of the life
assured.
Maturity Benefit :
This is a whole of life assurance plan and hence does not have a maturity date. You, however,
have the option to take the Sum Assured plus all bonuses declared under the policy anytime after
40 years from the date of commencement of the policy provided you have attained, at least, 80
years of age.
Supplementary/Extra Benefits :
These are the optional benefits that can be added to your basic plan for extra protection/option.
An additional premium is required to be paid for these benefits.
Surrender Value :
Buying a life insurance contract is a long-term commitment. However, surrender value is
available under the plan on earlier termination of the plan.
Guaranteed Surrender Value :
The policy may be surrendered after it has been in force for 3 years or more. The guaranteed
surrender value is 30% of the basic premiums paid excluding the first year’s premium. In case of
a single premium policy the guaranteed surrender value is 90% of the single premium paid
excluding any extra/additional premium.
Corporation’s policy on surrenders :
In practice, the Corporation will pay a Special Surrender Value – which is either equal to or more
than the Guaranteed Surrender Value. The benefit payable on surrender reflects the discounted
value of the reduced claim amount that would be payable on death. This value will depend on the
duration for which premiums have been paid and the policy duration at the date of surrender. In
some circumstances, in case of early termination of the policy, the surrender value payable may
be less than the total premiums paid.
The Corporation reviews the surrender value payable under its plans from time to time

depending on the economic environment, experience and other factors.
Survival Benefit
Sum assured plus accrued bonuses and the terminal bonuses, if any, on the policyholder attaining
age 80 years or on expiry of term of 40 years from the date of commencement of the policy
whichever is later.
Death Benefit
Sum assured plus accrued bonuses and the terminal bonuses, if any, on the death of the
policyholder are paid to his/her nominees/heirs.
Benefit Illustration
Statutory warning
“Some benefits are guaranteed and some benefits are variable with returns based on the future
performance of your insurer carrying on life insurance business. If your policy offers guaranteed
returns then these will be clearly marked “guaranteed” in the illustration table on this page. If
your policy offers variable returns then the illustrations on this page will show two different rates
of assumed future investment returns. These assumed rates of return are not guaranteed and they
are not upper or lower limits of what you might get back as the value of your policy is dependent
on a number of factors including future investment performance.”
Illustration 1:
Table No 2
Age at entry: 35 years
Sum Assured: Rs.1,00,000/-
Premium Paying term: 45 years
Mode of premium payment: Yearly
Annual Premium: Rs.2917/-
End
of
year
Total
premiums
paid till
end of
year
Benefit payable on death / maturity at the end of year
Scenario
1
Scenario
2
Scenario
1
Scenario
2
1 2917 100000 3900 10800 103900 110800
2 5834 100000 7800 21600 107800 121600
3 8751 100000 11700 32400 111700 132400
4 11668 100000 15600 43200 115600 143200
5 14585 100000 19500 54000 119500 154000
6 17502 100000 23400 64800 123400 164800
7 20419 100000 27300 75600 127300 175600

Illustration 2:
Table No 5
Premium Paying term: 15 years
Mode of premium payment: Yearly
Annual Premium: Rs.4,444/-
8 23336 100000 31200 86400 131200 186400
9 26253 100000 35100 97200 135100 197200
10 29170 100000 39000 108000 139000 208000
15 43755 100000 58500 162000 158500 262000
20 58340 100000 104000 288000 204000 388000
25 72925 100000 130000 360000 230000 460000
30 87510 100000 156000 432000 256000 532000
35 102095 100000 182000 504000 282000 604000
40 116680 100000 208000 576000 308000 676000
45 131265 100000 234000 648000 334000 748000
End
of
year
Total
premiums
paid till
end of
year
Scenario
1
Scenario
2
Scenario
1
Scenario
2
1 4444 100000 3900 10800 103900 110800
2 8888 100000 7800 21600 107800 121600
3 13332 100000 11700 32400 111700 132400
4 17776 100000 15600 43200 115600 143200
5 22220 100000 19500 54000 119500 154000
6 26664 100000 23400 64800 123400 164800
7 31108 100000 27300 75600 127300 175600
8 35552 100000 31200 86400 131200 186400
9 39996 100000 35100 97200 135100 197200
10 44440 100000 39000 108000 139000 208000
15 66660 100000 58500 162000 158500 262000
20 66660 100000 104000 288000 204000 388000
25 66660 100000 130000 360000 230000 460000
30 66660 100000 156000 432000 256000 532000
35 66660 100000 182000 504000 282000 604000
40 66660 100000 208000 576000 308000 676000
45 66660 100000 234000 648000 334000 748000

Illustration 3:
Table No 8
Premium Paying term: 1 year
Single Premium: Rs.45,565/-
Note :
i) This illustration is applicable to a non-smoker male/female standard (from medical, life style
and occupation point of view) life.
ii) The non-guaranteed benefits (1) and (2) in above illustration are calculated so that they are
consistent with the Projected Investment Rate of Return assumption of 6% p.a. (Scenario 1) and
10% p.a. (Scenario 2) respectively. In other words, in preparing this benefit illustration, it is
assumed that the Projected Investment Rate of Return that LICI will be able to earn throughout
the term of the policy will be 6% p.a. or 10% p.a., as the case may be. The Projected Investment
Rate of Return is not guaranteed.
iii) The main objective of the illustration is that the client is able to appreciate the features of the
product and the flow of benefits in different circumstances with some level of quantification.
iv) Future bonus will depend on future profits and as such is not guaranteed. However, once
End
of
year
Total
premiums
paid till
end of
year
Scenario
1
Scenario
2
Scenario
1
Scenario
2
1 45565 100000 4300 18700 104300 118700
2 45565 100000 8600 37400 108600 137400
3 45565 100000 12900 56100 112900 156100
4 45565 100000 17200 74800 117200 174800
5 45565 100000 21500 93500 121500 193500
6 45565 100000 25800 112200 125800 212200
7 45565 100000 30100 130900 130100 230900
8 45565 100000 34400 149600 134400 249600
9 45565 100000 38700 168300 138700 268300
10 45565 100000 43000 187000 143000 287000
15 45565 100000 64500 280500 164500 380500
20 45565 100000 114500 498500 214500 598500
25 45565 100000 143000 623000 243000 723000
30 45565 100000 172000 748000 272000 848000
35 45565 100000 205000 872500 305000 972500
40 45565 100000 229000 997000 329000 1097000
45 45565 100000 258000 1122000 358000 1222000

bonus is declared in any year and added to the policy, the bonus so added is guaranteed.
v) The Maturity Benefit is the amount shown at the end of 45 years.
Plan Parameters
Age at entry:
Minimum - 15 years last birthday Maximum - 60
years
Sum Assured: Minimum - Rs.50,000/- Maximum - No limit
Mode of payment: Yearly, half-yearly, quarterly, monthly and SSS
Policy Loan: Yes
4.5.2 PENSION PLANS
Pension Plans are Individual Plans that gaze into your future and foresee financial stability
during your old age. These policies are most suited for senior citizens and those planning a
secure future, so that you never give up on the best things in life.
4.5.3 UNIT PLANS
Unit plans are investment plans for those who realize the worth of hard-earned money. These
plans help you see your savings yield rich benefits and help you save tax even if you don't have
consistent income.

Endowment Plus
Flexi Plus
4.5.4 SPECIAL PLANS
LIC’s Special Plans are not plans but opportunities that knock on your door once in a lifetime.
These plans are a perfect blend of insurance, investment and a lifetime of happiness!
New BimaGold
Bima Nivesh 2005
Jeevan Saral
4.5.5 MICRO INSURANCE PLANS
LIC’s Micro Insurance Plans are not plans but opportunities that knock on your door once in a
lifetime. These plans are a perfect blend of insurance, investment and a lifetime of happiness!.
Jeevan Madhur
Jeevan Mangal
Jeevan Deep
4.5.6 GROUP INSURANCE SCHEME
Group Insurance Scheme is life insurance protection to groups of people. This scheme is ideal
for employers, associations, societies etc. and allows you to enjoy group benefits at really low
costs.

Group Term Insurance Schemes
Group Insurance Scheme inLieuOfEDLI
Group Gratuity Scheme
Group Savings LinkedInsurance Scheme
Group Leave Encashment Scheme
Group Mortgage Redemption Assurance Scheme
Group Critical IllnessRider
JanaShree Bima Yojana (JBY)
ShikshaSahayog Yojana
Aam Admi Bima Yojana
4.5.7 WITHDRAWN PLANS
Jeevan Nischay Market PlusI
Wealth Plus Profit Plus
Jeevan Aastha Money Plus-I
Jeevan Varsha ChildFortune Plus
Fortune Plus Jeevan Saathi Plus
Health Plus Samridhi Plus
PensionPlus Jeevan Nidhi
New Jeevan Dhara-I New Jeevan Suraksha-I
Jeevan Vriddhi Jeevan Vaibhav (SinglePremium Endowment AssurancePlan)
Jeevan Sugam
4.5.8 HEALTH PLANS
Health Protection Plus

Jeevan Arogya
4.6 GROWTH OF PRIVATE LIFE INSURANCE COMPANIES IN THE LAST 5YEARS
The insurance industry recorded a booming growth of 35% in premium income during2004-05
with the 13 private sector players walking away with. An impressive 129%while the Life
Insurance Corporation of India recorded a 21% growth. Thus the market share of state
behemoths dropped to 78% in 2004 05 from 87% a year ago. According to ASSOCHAM Eco
Pulse (AEP) Study, the industry premium increased to Rs253.42bn in 2004-05 from Rs187.1bn
in 2003-04. The LIC total premium for the year 2004-05 amounted to Rs197.85bn as against the
Rs162.84bn during previous year. The figures for the first two months of the fiscal 2005-06 also
speak of the growing share of the private insurers. The share of LIC for this period has further
come down to 75%, while the private players have grabbed over 24% share."With the huge
potential the market has, the Government should, more seriously look into increasing the FDI
cap in the sector" said Mahendra K. Sanghi, ASSOCHAM President. During April-June 2005,
the largest private company ICICI Prudential has increased its share from 6.25% in 2004-05 to
7.68% in current fiscal. The opening up of the sector has given some of the most innovative
products like the customized insurance policies and now the unit linked policies that have gained
much of customer attention. The sector has huge potential and certain other new and innovative
areas can also be looked into for enhancing market share and premium income, said Sanghi.
HDFC is next in the row with 2.91% market share which has increased from 1.92%last fiscal
followed by TATA AIG which now shares 2% of the market from 1.18%last fiscal. Birla Sun
life's share has dropped from 2.45% during FY'05 to 1.76% in first two months of FY'06. SBI
life comes next with 1. 72% share and has in fact dropped a few percent points from last year.
Max New York life and Aviva Life Insurance have captured more than 1% share each from less
than 1% share during FY'05. Others like ING, AMP Sanmar, Met Life and Sahara India have
less than 1 % share. The detail of the market share of life insurance companies is attached. The
market share of the private players has doubled every year from 5.6% in 2002-03 to, 12%
in2003-04 and close to 22% in 2004-05.The state run insurance company has the biggest
advantage of its huge network which the company can use to penetrate into rural market that is
still lying untapped. Another option with the life insurance companies to capture more and more
market share could be product innovation and constantly developing an insurance product in
order to meet the ever-changing requirements of the customer. Quality customer service and
education can be another area where a company can differentiate itself from other companies.
IT to boost life market growth?
THE LIFE Insurance Corporation of India (LIC) has turned to information technology in a bid to
shed its image as a dinosaur among more nimble private sector companies.LIC, India's dominant
life insurer, is encouraging policyholders to use its web site to pay premiums and make claims.
Last- month, it announced new mobile phone SMS(testing) services to alert policyholders of

news about their plans. These moves, unmatched by most of LIC's smaller private sector rivals,
are part of an effort to open new channels to increase the speed and quality of customer service -
long seen as LIC's weakness after decades as India's monopoly life insurer. LIC's performance in
the year to March 2004 suggests that these efforts are working. It sold27 million new policies
generating Rs85.7 billion (US$1.9 billion) in premium income - an annual growth of about 11
percent. LIC's deployment of information technology may have helped it maintain its 88 percent
market share of premium sales. Yet few believe that technology alone will drive the company's -
and in effect, the Indian life industry's expansion."Ultimately the growth of life insurance
depends on growth of the economy," said TK. Banerjee, a board member of the Insurance
Regulatory Development Authority. India's economic growth rate in March 2004 hit double-digit
figures to become Asia's fastest-growing economy. Most economists forecast growth to stabilize
at around 7 percent to 2005. Banerjee said that this climate of rising economic prosperity is
encouraging consumers to think more about insurance. Nonetheless, most life companies believe
consumers still need Sanmar: "People still don't think that insurance is important. Most sales
happen after personal interaction."AMP Sanmar, a two-year old joint venture between south.-
Indian based conglomerate Sanmar and Australia's AMP, has employed some 3,000 sales agents
w4o are targeting small and medium-sized towns that have low penetration rates of life
insurance. India's life insurance penetration is less than three percent. "We're focused on places
where there is no other company - not even LIC," Subramaniam said,-remarking that unlike LIC,
AMP Sanmar regards the internet and mobile phones as channels for promotion, not sales. He
said that the internet is not widespread as a channel to sell consumer products in India, but
Subramaniam has not ruled out deploying such technology in the future. Whatever the merits of
new distribution channels, the industry fears a decline in sales following new taxes levied on
single premium products. Single premium life insurance has been popular in India
mainly because guaranteed returns were tax-free. This encouraged policyholders to pay
large premiums with minimal risk cover, for payments at maturity that often exceeded the returns
of more sophisticated financial products such as mutual funds. But last October, the government
decided to tax premiums that paid above 20 percent of the sum assured. The decision has
reduced sales of single premium products, which is likely to restrain the overall growth of India's
life industry. The industry regulator has forecast growth of life premiums to be around 20 percent
to March -2004, about the same level as 1999, down from a burst of sales in 2002 of 43.5
percent. India's life insurers have rallied to persuade the government to rescind the ruling later
this year, but any decision must wait for the end of parliamentary elections currently underway.
4.7 CURRENT STANDING OF PRIVATE LIFE INSURANCE COMPANIES IN URBAN
SECTOR
Life insurance is possibly the most- retail of all financial services, and is required by people of
all segments and in all locations. At a broad level, ICICI Prudential aims to secure the families of
the middle and upper class working people in urban India. To this end, they have pursued a pan-
India distribution strategy and backed it up with a range of products that meets the needs of a
wide range of people, be they from rural or urban areas. Today, they have branches in 74
locations and rural presence in more than 15 states. Certainly, the majority of the business still
comes from urban areassuch as metros and mini-metros. However, they have seen rural business
growsignificantly and expect it to continue making greater contribution in the years to come.

CHAPTER-5
IMPORTANCE
OF
JOINT VENTURES

5.1 IMPORTANCE OF JOINT VENTURES
5.1.1 HDFC STANDARD LIFE INSURANCE COMPANY LIMITED
HDFC
Incorporated in 1977 with a share capital of Rs. 10 crores, HDFC has since emerged as the
largest residential mortgage finance institution in the country. The corporation has had a series of
share issues raising its capital to Rs. 119 crores. The net worth of the corporation as on March
31, 2000 stood at Rs. 2,096 crores. HDFC operates through 75 locations throughout the country
with its Corporate Headquarters in Mumbai, India. HDFC also has an international office in
Dubai, V.A.E., with service associates in Kuwait, Oman and Qatar.
Standard Life
Standard Life is Europe's largest mutual life assurance company. Standard Life, which has been
in the life insurance business for the past 175 years, is a modern company surviving quite a few
changes since selling its first policy in 1825. The company expanded in the 19th century from its
original Edinburgh premises, opening offices in other towns and acquiring other similar
businesses. Standard Life currently has assets exceeding over £70 billion under its management
and has the distinction of being accorded
"
AAA
"
rating consequently for the past six years by Standard & Poor.
The Joint Venture
HDFC Standard Life Insurance Company Limited was one of the first companies to be granted
license by the IRDA to operate in life insurance sector. Each of the JV player is highly rated and
been conferred with many awards. HDFC is rated 'AAA' by both CRISIL and ICRA. Similarly,
Standard Life is rated 'AAA' both by Moody's and Standard and Poor’s. These reflect the
efficiency with which DFC and Standard Life manage their asset base of Rs. 15,000 Cr and Rs.
600,000 Cr respectively. HDFC Standard Life Insurance Company Ltd was incorporated on 14th
August 2000.HDFC is the majority stakeholder in the insurance JV with 81.4 % stake and
Standard Life has a stake of 18.6%. Mr. Deepak Satwalekar is the MD and CEO of the venture.
HDFC Standard Life Insurance Products
•Money Back
•Endowment
•Term Assurance Plan
•Flexible Bond
•Development Insurance Plan

5.1.2 ICICI PRUDENTIAL LIFE INSURANCE COMPANY
ICICI
ICICI Ltd. was established in 1955 by the World Bank, the Government of India and the Indian
Industry, to promote industrial development of India by providing project and corporate finance
to Indian industry. Since inception, ICICI has grown from a development bank to a financial
conglomerate and has become one of the largest public financial institutions in India.ICICI has
thus far financed all the major sectors of the economy, covering 6,848companies and 16,851
projects. As of March 31, 2000, ICICI had disbursed a total of Rs. 1,13,070 crores, since
inception.
Prudential plc.
Prudential policy was founded in 1848. Since then it has grown to become one of the largest
providers of a wide range of savings products for the individual including life insurance,
pensions, annuities, unit trusts and personal banking. It has a presence in over 15 countries, and
caters to the financial needs of over 10 million customers. It manages assets of over US$ 259
billion (Rupees 11, 39,600 crores approx.) as of December 31, 1999.Prudential is the largest life
insurance company in the United Kingdom (Source :S&P's UK Life Financial Digest, 1998).
Asia has always been an important region for Prudential and it has had a presence in Asia for
over 75 years. In fact Credential’s first overseas operation was in India, way back in 1923 to
establish Life and General Branch agencies.
The Joint Venture
ICICI Prudential Life Insurance Company Limited was incorporated on July 20, 2000.The
authorized capital of the company is Rs.2300 Million and the paid up capital is Rs. 1500 Million.
The Company is a joint venture of ICICI (74%) and Prudential plc UK (26%). The Company
was granted Certificate of Registration for carrying out Life Insurance business, by the Insurance
Regulatory and Development Authority on November 24, 2000. It commenced commercial
operations on December 19, 2000, becoming one of the first few private sector players to
enter the liberalized are ICICI Pru Life Insurance Products
•ICICI Pru Forever Life
•ICICI Pru Single Premium Bond
•ICICI Save 'n' Protect
•ICICI Pru Cash Back
•ICICI Pru Life Guard
•ICICI Pru Assure Investment
•ICICI Pru Life Link
•ICICI Pru Reassure

5.1.3 BIRLA SUN LIFE INSURANCE COMPANY LIMITED
The Aditya Birla Group
Aditya Birla Group is India's second largest, business house, with a turnover of
over $4.75bn and an asset base of$3.8 bn. The Group is a well diversified
conglomerate with 72,000 strong workforce spanning 40 Companies spread across 17
countries. The flagship companies of the Group - Grasim, Hindalco, Indian
Rayon and Indo Gulf - hold leadership positions in their respective areas of business.
Sun Life Assurance
Sun Life Assurance Co. of Canada, established in 1871, is licensed in Canada, the U.S., the
Philippines, Hong Kong, and the U.K. Its major lines of business are life insurance, annuities and
mutual funds and investment services. Sun Life's rating reflects extremely strong diversification
of revenues and profitability, outstanding capitalization, good fundamental earnings, and high-
quality investments. In Canada, the company is especially strong. in the corporate life and health
insurance and savings markets. In the U.S., the company is a top 20 player in the variable
annuity market and a significant force in the upscale individual insurance market. In the U.K.,
Sun Life is among top 20 life and health insurers.
The Joint Venture
Birla Sun Life Insurance Company, the 74: 26 joint ventures between Aditya Birla Group and
Sun Life financial Services --of Canada, has an equity capital of Rs. 150crore. Birla Sun Life has
Mr. Nalli B Javari as its CEO.A six member Board, with equal representation from each of the
JV Companies has been constituted to run the Company. Mr. Donald A. Stewart, Chairman and
CEO, Sun Life Financial Services will head the Board. Mr. Kumar Mangalam Birla will be a
director on the board. Other directors include Mr. Douglas Henck, Executive Vice President of
Sun Life's Asian operations, Mr. Vijay Singh, Vice President India, Sun Life Financial Services,
Mr. B. N. Puranmalka, Group Vice-Chairman, and Mr. S. K. Mitra, Group Director, Financial
Services of the Aditya Birla Group. The area of focus will be the rural segment as the company
plans to leverage the network of the Aditya Birla Centre for Community Initiative and Rural
Development in rural areas. Its multi-channel distribution set up comprises insurance advisors
for life and an expert marketing team for group products.
Birla Sun Life Insurance Products
•Money Back
•Endowment
•Whole Life
•Birla Sun Life Term Plant

CHAPTER-6
INSURANCE PRICING
AND
MARKETING

6.1 OVERVIEW OF INSURANCE PRICING
The success of the competitive market depends on pricing. Basically, price is the value that
sellers set on the products they offer for marketing.
Insurance pricing determines the premiums collected for an insurance contract. Insurance pricing
is a difficult actuarial technique. In insurance, the sales price or premium is collected before
specific services, such as claim payments are made. It is difficult for the insurers to decide the
price of insurance products. Insurers build a reserve from the premiums collected and invest it in
financial markets according to the norms of the appropriate regulatory authority. Thus, insurance
firms fulfills an important financial intermediary function.
The basic principle of insurance pricing is that insurers selling policies or insurance coverage
must receive premiums that are enough to fund their expected claim costs and managerial costs,
and provide an expected profit to pay off for the cost of acquiring the investment necessary to
support the coverage sale.
The base premium is calculated using the equivalence principle on the basis of expected claims
distribution as,
P = E(s) + k + R Where, E(s) = Mathematical expectation of claims
k = Ongoing company running costs
R = Risk premium
The risk premium allows for coverage of unforeseen deviations in the claims amount to be paid,
but still provides the company with the standard pricing methods. Within large, expanded and
identical underwriting securities, the claims payload should meet its expected value.
Insurance prices or premiums consist of three components. They are pure premium, operating
expenses, and margins and other income.
Types of Insurance Premiums
Pure Premium – Pure premium is the most important component of the insurance premiums.
It includes the amount that covers expected losses, and loss adjustment costs based on actuarial
estimations.
Operating Costs – Operating costs include the sales commission, marketing costs, taxes, and
claims’ handling costs. These costs depend on the extent and variety of policyholder services
which the insurer provides.
Margins and Other Incomes – Margins and other incomes include an allowance for
unforeseen events, and contingency funds. Contingency funds are necessary to meet unexpected
increase in the number or amount of benefit payments, and underwriting profits are necessary to
provide funds for growth and expansion.

6.2 PRICING PROCEDURE
The previous section dealt with the concept of insurance pricing. This section will deal with the
pricing procedure, and its determination.
Basically, pricing procedure is a methodical and sequential use of technique to determine the
right price of the product. The insurer can determine the pricing procedure based on Sales area
(Sales Organisation, Distribution Channel, and Division), Customer Pricing Procedure (CPP),
and Document Pricing Procedure (DPP).
The following elements are considered while pricing insurance products:
Claims cost – It includes claims paid in conjunction with settlement expense, estimate far
outstanding claim, and so on.
Business acquirement cost – It includes commission, brokerage and business development
cost, and so on.
Management expenses – These include salaries, rent and other expenses necessary for
managing an organisation.
Profit – It include return on the capital cost.
Pure premium method
The pure premium is the average loss per coverage unit, or in particular, the product of the
average severity and the average frequency of loss.
The average frequency of loss (F) is obtained by dividing the number of losses invited (NL) from
the number of coverage units (NE) in the appropriate class. This concept is used to calculate the
average number of losses for all insured.
The average severity loss (S) is obtained by dividing the monetary amount of all losses (SL)
from the number of losses invited (NL). It represents the severance of the loss.
Thus, the pure premium is determined by multiplying the average frequency of loss and the
average severity of loss, but it reflects the average loss of insured expectations. In order to meet
all the losses, each insured who are involved in the particular class of business must pay the
amount before commissions and administrative expenses.
Pure Premium (PP) = (average frequency of loss) * (average severity of loss)
PP = (NL/NE) * (SL/NL) = (SL/NE)
These concepts can be used to determine the losses, but they do not consider the distribution of
losses. Thus, the pure premium distribution is defined as the probability distribution of total
losses for an appropriate class of business.
A measure of the intrinsic variation in the population is the variance represented by:
σPP2 = Σ (PP - μ) / (n-1)
Where, μ = theoretical pure premium distribution mean.

However, the marketing manager refers only a sample but not the entire pure premium
population. Thus, while estimating μ they are expected to refer to the true value.
Assume that the insurance marketing manager refers to a sample randomly from the basic pure
premium distribution. Then, it shows that the average losses for a sample of n coverage units
follow a normal distribution. In other words, if they refer random samples continually then it
represents the average or mean of the sample pure premium follows a normal distribution. Thus,
the standard variation or error of the mean of a sample pure premium distribution (σm) is defined
as the standard deviation of the pure premium population distribution adjusted by the number of
coverage units and is given by,
σm = σPP / √n
The calculation of standard error of the pure premium distribution is necessary because the
average pure premium is incremented by a risk factor that compensates the error to the expected
variations in the productivity.
In addition, the accuracy of the estimation increases with the increase in the number of coverage
because the standard error of the average of the pure premium decreases with the increase in the
sample size.
Two other factors also come into picture during the estimation of pure premium, which are
credibility factor and loading factor.
Credibility factor refers to the extent to which an experience of an appropriate insured considered
in the pricing process. It refers to the amount of confidence of the price-maker (marketing
manager) to show that the available data represents the losses to be expected in the future
accurately. Thus, the equation for the acceptable pure premium is given by,
PPacceptable = (C*PPi) + ((1 – C)*PP)
Where, PPi = pure premium derived from the experience of the insured.
PP = pure premium derived from the experience of the actual population.
C = credibility factor, 0 ≤ C ≤ 1
Loading factors refers to the transaction expenses and the profit margin expressed in terms of
percentage. Taking into account the traditional issues in concern with the economic objectives of
regulation and the fair price discrimination, the gross premium value is determined by using the
equation,
Gross premium = Pure premium / (1 – loading factor)
The pure premium can also be determined as follows,
Let,
The costs of set of events to be covered for an individual on yearly basis,
{c} = {c1,c2,…,cn}
Probabilities that occur for each events in a year, {p}={p1,p2,…,pn}
The risk function of this insurance policy be X. Then, X(ci) =pi
Group of persons insured, {H} = {1,2,…,h}
Thus, without security charges the pure premium is calculated as follows:

6.3 PRICING OBJECTIVE
The marketing manager has to decide the objectives of pricing. Pricing objectives guides the
decision makers to make price policies, to plan pricing strategies and to set actual prices.
Pricing objectives are the overall goals that describe the role of price in the long-range plans of
organizations. The pricing objectives guide the marketing manager in developing marketing
plans.
The insurance pricing has the following general objectives:
1) The rating system must create adequate premium income for the insurance corporation to be
able to settle its claims and expenses; to provide a realistic return rate to the sponsors of funds
and to finance continuing growth and expansion.
2) The rate must not be excessively high and allow unusual gains for the insurer. The rate must
be justifiable.
3) The rates must not be discriminatory, in the sense that it must not be the same for
heterogeneous buyers and must not be different for homogeneous buyers.
4) The rating system must be easily understandable.
5) The pricing system should not be expensive to use.
6) The rates should not be frequently changed as the public cannot face wide variation in costs
every year.
7) The methods should encourage the reduction of losses by providing inducement to the insured
to avoid losses.
6.4 BASIC PRICING METHODS
Basically, the pricing method gives us an idea on how to set the product price. The price value
that is set for the product in the insurance company will change over time for many reasons. The
company can decide to change the pricing method only when it finds out the customers’ needs
and competition in the market.
The pricing methods allow companies to think about their business, industry and customer. The
vendors must understand the variety of options available along with the merits and demerits of
the pricing methods, before any one of them. They may also merge a number of pricing methods
to suit their business and the type of products they sell.
There are three basic pricing methods, which are:
Cost-based pricing – In this method, the price includes the cost of ingredients and cost of
operating the business. This method is based on product cost subtotal, which includes the costs
of operating the business such as costs of reserves, transportation, advertisement, rent and other
costs involved in manufacturing the products. The cost-based pricing comprise of three methods,
which are:
o Mark-up pricing – Mark-up pricing includes a profit percentage with product cost. All
businesses with many products use this type of pricing because it is simple to calculate. The
profit level must be specified in terms of percentage. This is added to the production cost to set
product price. This type of pricing is common in retail business as they have many types of
products and purchases from many vendors.

o Cost-plus pricing – In a cost-plus pricing, a percentage is added to an unknown product cost.
This type of pricing works properly when production costs are not known. The only difference
between mark-up and cost-plus pricing is that, in cost-plus pricing both consumer and vendor
settle on the profit percentage and believe that product cost is unknown whereas in mark-up
pricing product cost is known. The cost-plus pricing reduces your risk if you produce custom
order products for other firms or individuals.
o Planned-profit pricing – Planned profit pricing method enables you to earn a total profit for
the business. It is different from the first two types of cost-based pricing. The first two pricing
methods focus on per unit price. In planned-profit pricing, the product price is calculated by
combining per unit costs with output projections. Planned-profit pricing uses break-even analysis
to calculate product price. This method is suitable for manufacturing businesses since the
manufacturer has the ability to increase or decrease the production depending upon the available
demand or profit.
Advantage of cost-based pricing
The main advantage of this type of pricing is that it enables the manufacturer to determine how
different levels of output can affect the product price as well as to examine how different prices
affect the amount of output needed.
Disadvantages of cost-based pricing
The following two disadvantages of cost-based pricing result in it not working for some
businesses:
-based pricing does not consider how customer demand affects price.
-based pricing method does not include competition in the market.
Competition-based pricing – In this method, the product price includes costs of raw
materials and the cost of operating the business and is similar to the competitor’s price. In
competition-based pricing, vendors must ensure the following three factors:
o The product price needs to be similar to the competitor’s price.
o Set price to increase the customer base.
o Larger market share through price.
Advantage of competition-based pricing:
The main advantage of this pricing method is that it focuses on industry as well as competition.
The companies that follow competition-based pricing examine the types of existing and
upcoming competition. It helps you to manage the business according to the competition.
Products that have a unique or innovative quality can be priced more than their net-worth.
Disadvantages of competition-based pricing:
Though the competition-based pricing has advantages, there are few disadvantages:
the focus on the prices set by
competitors.

Customer-based pricing – Customer-based pricing is also known as value-based pricing. In
this method, the product price is based on the customer demand or need for the product. Product
that are unique or innovative, create greater demand. The different factors to be considered in
customer-based pricing are:
o Setting a price that supports the value of the product.
o Setting a price to increase product sales.
o Designing a range of prices that attracts many customer groups.
o Setting a price to increase sales volume.
o Pricing a bundle of products that reduces the catalogues or excite the customers.
Disadvantages of customer-based pricing
The disadvantages of customer-based pricing method are:
It is necessary to set both wholesale and retail prices products.
Tips for Successful Pricing
Below are some tips for the insurer to be successful in pricing insurance.
Be creative – Apply new techniques to sell more to existing customers as well as to attract
new customer groups.
Listen to your customer – Review the consumer comments periodically to gather new ideas.
Do your homework – Record notes on how you arrived at a price so that you can make
related assumptions in the future.
Cover the basics – Merge pricing methods to ensure the three basics of pricing which include
product price, competition and customers.
Be flexible – Regularly review both internal and external issues and calculate how a price
change would affect the new situation.
6.5 PRICING OF INSURANCE PRODUCTS
Basically, there is a difference between insurance products’ pricing and physical products’
pricing. It is difficult to determine the investment costs in insurance products’ pricing than that of
physical products’ pricing. Thus, pricing of insurance products means the determination of the
investment costs on insurance products. It is still complicated when compared with the other
services, where we can estimate the cost of providing the service with sound accuracy.
Furthermore, in insurance transactions, the premium is collected before providing predetermined
services, that is, the payment of claims. Insurance can be considered as the business of buying
risk. Insurers have to face difficult situation while selling a policy, as they have to decide the
appreciable cost of the policy because it depends upon whether or not the losses occur and if they

do, how many and how large they will be. Thus, they charge different prices (premiums) for
different people for the policies that provide same kinds and amounts of insurance.
The methods used to determine the pricing of insurance products are:
Insurance rating methods
Insurance rating methods are used to determine the pricing of the insurance products. That is, an
insurance price is the price per unit of insurance and is a function of the price of insurance. The
three basic insurance pricing (rating) methods are:
Judgment rating – This method is applicable where we find very less or no quantitative data
of the risk similar to that of proposed risk. The rate is mostly based on the sponsor’s own
judgment after evaluation of all
coverage’s. This method is commonly used in ocean marine insurance and in some lines of
inland marine insurance.
Class rating – Generally, this method is practically applied rating method in insurance
business. In this method, the risks are classified based on some important characteristics. Insurer
will charge the same price per unit of coverage for the insured risks that belong to the same class.
In this method, the classifications and the respective rates are in the form of printed manuals.
Thus, this rating method is also known as manual rating. In this method, prices are based on age,
gender, physical fitness, lifestyle, and so on. This method is used in life insurance, proprietary
insurance, automobile insurance, workers compensation and health insurance and so on.
Merit rating – The modification of class rating is referred to as merit rating. It alters the class
rate of a particular class insured based on individual loss experience. In this method, insurer
assumes that the loss experience of a particular insured will differ considerably from the loss
experience of the other insured. There are three different types of merit-rating plans. These plans
are:
o Schedule rating – In this plan, all insurance coverage is rated separately. For calculating the
schedule rates, firstly, the risk (the person or object insured) must be examined, to make out the
features that are about to cause losses or to prevent them. Then, the risk is compared with the
average or standard risk of its type. Finally, the risk’s desirable features are deducted from the
standard rate and its undesirable features are added, thus, the resultant rate is the modified rate
that reflects the characteristics of risk for which it is used.
o Experience rating – This plan modifies the class rate based on the claim experience of a
particular coverage where the actual losses for a time (normally two or three years) are compared
with the average risks in the same class. If the risk has a better value than the average, you have
to reduce the rate; else if the risk has a worst value than average, you have to increase the rate.
This plan is used only for larger risks that are having many losses each year that reflect on trend.
Thus, this plan is generally restricted to larger firms that generate a sufficiently high volume of
premiums and more probable experience.
o Retrospective rating – This plan modifies the insurance price on the basis of current
experience. This is usually done by determining the final prices retrospectively in the policy
contract. Normally, in this plan, insurers specify the maximum and minimum range and
determine the final premium after the policy expires and depends on the Life Insurance and/or
Non-life insurance Pricing.

6.6 MARKETING OF INSURANCE PRODUCTS
Marketing of insurance products is an important tool in the insurance business. The marketing of
insurance is possible in both the life insurance and the non-life insurance departments.
The type of advertisement and marketing suitable for insurance business must be decided. The
insurers must consider their budget, and plan their marketing strategy according to their budget.
They must also consider their target market. For example, Vendors who want to develop their
insurance market need to determine the types and nature of insurance offered. They also need to
research the market segment they are targeting.
The marketing tools that help in advertising the company’s insurance policies are:
Online advertisement – It is one of the insurance marketing tools. Since, internet plays a very
important role nowadays, online advertisement help the insurance marketers to get noticed.
Through studies it is found that 75 percent of households have access to computers and internet
resources. Thus, online advertisements plays very important role in advertising the company’s
insurance policy.
Block line advertisement – It is another marketing tool used in trade journals, industry
publications and periodicals. This insurance marketing tool is useful with the perspective of
industry professionals who read these publications.
Television advertisements and print advertisements – These are the other types of
insurance marketing tools. These advertisements are the excellent forms of insurance marketing
as they have a greater impact and reach. However, the only drawback is that both are very
expensive. These may affect the insurance company’s advertising budget.
6.6.1 Issues in insurance marketing
Just like the other business’ marketing, there are some issues in insurance marketing also.
Marketing issues for young growth-oriented insurance companies as well as other insurance
companies are as follows:
Initial marketing focus issues – A potential initiator of an insurance marketing business is
needed, because, without support, the insurance company cannot succeed. Thus, if the insurer or
the insurance company does not have potential to do marketing may have to face lot of
difficulties in insurance marketing.
Marketing the company vs. sponsoring products issues – A new or young unknown
insurance company has to be accepted within the market place before marketing effectively to
the end-users (consumers). These companies must be what they are. Every prospect will not
value innovation and dexterity; instead the correct ones will value it. Thus, young insurance
companies might face issues while finding out the correct prospect of policies.

Marketing programs issues – Once after a young insurance company is positioned in the
market, if its marketing program is not designed specifically to accomplish their current
insurance program’s objectives, then the whole effort is almost worthless. Thus, it should re-
evaluate its marketing program to acquire good marketing.
Exit strategy issues – It is also one of the marketing issues. Right at the beginning, an insurer
or a founder must understand, and be able to explain how they can exit. Even though they had
given their expectation about company’s growth and prosperity, if they fail to describe which
type of customers would ultimately want to purchase into it, they are said to be facing a
marketing issue. Thus, they must plan for organising the company, provisioning of funds, and
positioning of company in the market for the ultimate exit opportunity.
Pricing issues – The desired price or premium at which an insurer seeks to sell their policy
can impact on the distribution of the same. Since all the insurers wants to make profit for their
contributions, their distribution schemes may affect the insurance products’ pricing. If too many
competitors are involved, then ultimate selling price may become barrier to meet sales targets, in
such cases an insurer may go for alternative distribution options.
Target market issues – An insurance marketing is said to be effective, only if customers
obtain the policies. The insurers must determine the level of distribution coverage needed that
effectively meet customer’s requirements to reach their target market.

CHAPTER-7
FINANCIAL MANAGEMENT
IN
INSURANCE COMPANIES

7.1 MANAGEMENT AND INVESTMENT OF FUNDS
An insurance company should manage and invest its funds wisely in order to maximise the
profits of its investments, and reimburse the money for an insured person in case of a loss.
Financial management is the responsibility of the financial managers. The basic functions of
financial managers are:
7.1.1 Financial objectives of an insurance company
Insurance is a vital element of any sound financial plan. Insurance companies are financial
institutions with financial goals. Insurance prevents the risk of a financial loss. The major
financial objectives of an insurance company are:
Profitability – This is a financial objective that increases the returns of the stakeholders of the
company. It determines the insurer’s ability to manage the business. The insurer must perform
the following tasks in order to ensure long-term profits :
o Attain high quality ratings from insurance rating agencies.
o Offer funds for savings/investment.
o Ensure payment of dividends to stake holders.
o Provide funds to broaden products and supply channels.
o Provide funds for growth and achievement.
Solvency – This is defined as the capability to meet the financial requirements arising out of
obligations. Insurance companies should frame their policies according to the obligations to be
paid to certain benefits in future. They must preserve the minimum standard of capital and
surplus as per the law. The risks related to the insurer‟s investments, and the definite businesses
the insurer sells, determines the legal minimum standard of capital.
The risks that an insurance company faces while performing and managing the business that
affects its solvency are:
Pricing risk - Pricing risk is a risk that arises when regulations affect the premium rates of the
insurance companies or the possibility of the insurer‟s claims and expenses being different from
what was anticipated.
Asset risk - Asset risk is the risk of loss of an investment because of various reasons, other
than a change in market interest rates.

General business risk - This is the risk, in which the losses arise as a result of ineffective
business practices or because of the environmental factors that are purely beyond the control of
the insurer.
Interest rate risk - This type of risk occurs due to variations in the market interest rates. For
example, loss on sale of a bond when market rates increase, is an interest rate risk.
Planning financial goals and strategy
The financial goals of insurers are to maximise profits and maintain solvency. The insurer is
forced to maintain the tradeoff between the two since profit involves risk taking and maintaining
solvency involves risk avoidance. Therefore the correct balance between the two is vital for the
financial success of an insurance company. Financial strategy is related to the investment
strategy as well, since the investment strategy helps in taking decisions concerning the
investments to be made. To identify investment strategies the following factors must be
considered:
If the financial goals are established and the risk relationship is known, then the strategy is
formed in the following two ways:
1) Aggressive strategy emphasizes profitability and can threaten the company’s solvency.
2) Conservative strategy is a way wherein strategies which affect solvency are avoided and the
rate of return is enhanced.
7.1.2 Types of investments
To achieve profitability, an insurer has to continue to invest funds in different areas efficiently.
The insurer invests most of the funds in accordance to the policy chosen by the applicant. While
investing, the insurer has to check if there are liquid funds for settling claims, and then invest the
rest in a long term investment plan to get higher returns. The investor (insurer) should consider
the quality, security and marketability of the investments to attain the highest rate of interest.
Different types of claims have different types of investments. As a policy can be life or non-life,
long term or short term; similarly, the investments are classified into the following:
Government bonds - Government bonds are debt securities given by the Government of India
and are issued in Indian rupees. Government bonds have a period of maturity from one year to 30
years. The investor can buy these bonds at face value with discount or at the premium. The
investor avails a fixed rate interest for the bond period. When the bond reaches the maturity date,
the investor receives the full amount (face value). The investor can also sell these bonds in a
secondary market, even if the bond maturity date is not reached.

Some benefits of government bonds are:
o Regulation of nationwide cash circulation.
o Safer than stock market investments.
o Insignificant credit risk, as the government has the highest credit ratings.
The risks associated with government bonds are:
o The political issues in the country affect them.
o If the government bond is purchased from any foreign country, then the return depends on
fluctuations in foreign currency market.
o Inflation may affect the return of these bonds.
o Government bonds have lower returns than corporate bonds.
Other types of bonds – The other types of bonds include the following:
o Public sector undertaking bonds - These bonds are meant for long term or medium term
investments. Public sector undertaking bonds are also government bonds, but these are sold in a
private basis. Here, the government finds out and offers the bonds to investors at fixed rates.
o Corporate bonds - Corporate bonds are private sector bonds offered by different private sector
corporations of India. These can be long term bonds, which may have term up to 15 years. These
bonds can be purchased by any investor, but with a higher degree of risk than the government
bonds. The risk depends upon the marketing conditions and investment rates. When the investor
expects a higher return, then the degree of risk is also more.
o Financial institutions and banks - In India, more than 80 percent of the total bonds in the
market are sold by financial institutions and banks. These bonds are well regulated, and offer
higher returns to the investors. Such bonds are suitable for investors aiming at large scale
investment.
o Emerging markets bonds - The Government of India issues bonds abroad, to raise capital for
economic development in India. Unlike other bonds in India, these bonds are issued in U.S
dollars or in Euro. The insurer itself pays the higher interest rates charges on these bonds. The
risk involved in this bond is that, it is subjected to the economic conditions of the country.
o Tax-saving bonds- the Government of India, to help the citizens to save taxes fully or
partially, issues Tax-saving bonds. These five-year bonds are usually issued by the Reserve Bank
of India. These bonds have an interest rate of 6.5 percent, and are paid in every six months. The
investor does not have to pay the tax for the interest income until the bond maturity.
7.2 REGULATION RELATING TO INVESTMENT
As per the insurance act, every insurer has to keep investing a certain amount of capital in India.
The income from the policyholder’s premium cannot be invested outside India.
In life insurance business, an insurer has to constantly invest funds. The value of the funds
invested should not be less than the total amount to be paid to the life insurance policyholders, in
case of a loss or maturity of the policy. The insurers in life insurance business can keep on

investing their controlled funds (i.e. funds other than pension, unit liked life insurance and
general annuity business) in a manner, as given in the table:
Regulations on Investments in Life Insurance Business
Areas of investment Percentage of funds invested
Government securities 25%
Government securities or other approved securities: Not less than 50 %
Approved investments:
(a) Infrastructure and social sector:
Not less than 15%
(b)Other to be governed by exposure/prudential
norms :
Not exceeding 35%
Other than in Approved Investments to be
governed by Exposure/Prudential Norms :
Not exceeding 15%
While calculating investments, the amount of funds the insurer gives the RBI with respect to the
life insurance business will be taken as an investment to the government securities. If the insurer
makes any investment other than in Indian rupee or purchases any immovable property outside
India, then it will be considered as a personal investment. Any investor should not invest funds
out of the given budget in shares of private companies.
Insurance companies (inside or outside of India) that have one-third of their share capital outside
India or that have one-third of their governing members residing outside India need to maintain
the required assets in India in the form of a trust in order to discharge their liabilities.
Every insurer shall keep on investing the funds of unit linked life insurance business with respect
to the model of investment approved by policy holders. The insurer can invest unit linked
policies only in categories, where the assets are easily marketed. The total investment in other
approved investment categories should not exceed twenty five percent of the total funds. In
general insurance business, the insurer shall keep on investing the assets all the time in a manner,
as given in the table
Regulations on Investment In General Insurance Business
Central government securities: Not less than 20%
State government securities and other guaranteed
securities including the aforesaid:
Not less than 30%
Housing and Loans to State Government for
Housing and Fire Fighting Equipment
Not less than 5%

Investments in Approved Investments
(a) Infrastructure and Social Sector:
Not less than 10%
(b) Others to be governed by exposure/prudential
Norms:
Not exceeding 30%
Other than in Approved Investments to be
governed by Exposure/Prudential Norms:
Not exceeding 25%
In pension and annuity business, an insurer needs to invest the funds as per given the table :
Regulations on Investments in Pension and Annuity Insurance Business
Government Securities: Not less than 20%
Government securities or other approved securities,
including the above:
Not less than 40%
Balance to be invested in Approved Investments
and to be governed by Exposure/Prudential Norms:
Not less than 60%
In Indian reinsurance business, every re-insurer has to constantly invest funds as per the rules of general
insurance business.
7.2.1 Investment criteria and prudential norms
IRDA has laid down the following criteria to govern all insurers:
Depending on the total policies written in a particular year, for general insurance companies the criteria
for investment in the rural sector is the following percentage:
For non-life insurer
o 2% in the 1st financial year.
o 3% in the 2nd financial year.
o 5% in the 3rd financial year.
For life insurer
o 5% in the 1st financial year.
o 7% in the 2nd financial year.
o 10% in the 3rd financial year.
o 12% in the 4th financial year.
o 15% in the 5th financial year.

The positive side of these IRDA norms is that it prevents risky and false investments, and fuels the
priority sectors. But,investing in high returns funds is also prevented since the returns on gifts and
government securities is lower.
Prudential norms
The prudential norms include:
both life and non life insurers.
norms.
with 5 years tenure, to ensure
that there is no lack of audit in the insurance company.
7.2.2 AssetLiability Management (ALM)
ALM is a cash flow management program in which the financial effects of the insurer’s product liability
are co-ordinate with the financial effects of the business investment. The financial managers of the
insurance company are responsible for asset liability management as it is important for the cash flows
arising out of assets and liabilities to match and support the insurer’s strategic objective of solvency and
profitability. They identify the patterns of company’s cash out flows and construct a portfolio of assets
that increase cash inflows which are sufficient to meet the company’s obligations on time.
The risk arising due to growth in a company is because the growth is not matched with the sufficient
resources or wrong selection/pricing of products is done. To maintain good asset liability ratio, insurers
follow the following asset-liability management methods:
Cash flow testing – In this method, the cash flow of the insurance company is tested under various
interest rate conditions.
Cash flow matching – In this method, a block of liabilities with certain cash flows is matched with a
block of assets with identical cash flow.
Immunization – Here the liability portfolio duration is calculated and matched with asset portfolio of
identical duration.

CHAPTER-8
ANNUAL REPORT OF 2011-2012

ANALYSIS OF INVESTMENT IN INSURANCE

NEW BUSSINESS INDIVIDUAL

NEW BUSSINESS GROUP INSURANCE

BUSINESS IN FORCE (GROUP)

LIFE FUND, TOTAL SURPLUS, SHARE OF SURPLUS TO CENTRAL
GOVERNMENT AND TAXES PAID

EQUITY, LOANS AND DEBENTURES ADVANCED TO
VARIOUS ENTITIES FOR INFRASTRUCTURE & SOCIAL PURPOSE

CHAPTER-9
ADVANTAGES
AND
DISADVANTAGES

Insurance is bought to hedge the risks of the future, which may or may not take place. It is used
to hedge against the risk of an uncertain loss. An insurance company, which sells the insurance
to insured or policyholder, is called as insurer. The amount charged by insurance company for a
certain amount of insurance coverage is called as premium.
9.1 Advantages of insurance:
Risk Cover: life is full of uncertainties, so insurance helps your family members to continue to
enjoy a good quality of life from unforeseen events and to cover the risk of loss.
Protection from rising health expenses: The cost of health insurance is increasing day by day so
at this time, insurance protects the people from diseases and hospital expenses.
Planning for future needs: It also helps as long-term investments. It helps people to meet their
future goals like children’s education, marriage, and building home planning and plan for relaxed
retired life.
Assured income through annuities: Insurance is one of the instruments for retirement planning.
Money saved at the time of earning life and that money will be utilized after retirement.
9.2 Disadvantages of insurance:
Disadvantages of insurance may be due to agents, when you work with an agent you have to pay
commission to him, this may lead extra cost. If you cut the middlemen then you can save money
then it can be paid as premium for insurance.

CHAPTER-10
RECOMMENDATIONS
AND
CONCLUSION

10.1 RECOMMENDATIONS
In the modernized well advanced hi-tech approach to the customer every possible facilities and
effort to build up the confidence of the rising policy holders towards . Insurance companies, to
complete one another nothing is left to recommend. But some recommendations that are
intensely felt and highly required for insures to sustain in the market. These are as follows:
a)More and more transparency should be ascertained between insurers
and policy holders.
b)Particularly, in the emerging boom in the insurance company, every insurance
company should be customer centered, and well versed in the handling of problem and
grievances of the policy holders.
c)Each and Every product launched by the Insurance company should be
in favor of increasing need of policy holders. IRDA should be more and more responsible to the
insurance sector by determining some standard.
It should be mandatory to every insurers to make more and more responsible and responsive to
the policy holders so that comprehensive understanding may be developed among policy holders.
It may be beneficial on both sides.

10.2 CONCLUSION
After overhauling the all situation that boosted a number of Pvt. Companies associated with
multinational in the Insurance Sector to give befitting competition to the established behemoth
LIC in public sector, we come at the conclusion that :
1 ) There is very tough competition among the private insurance companies on the level of new
trend of advertising to lull a major part of Customers.
2) LIC is not left behind in the present race of advertisement.
3) The entry of the Pvt. Players in the Insurance Sector has expanded the product segment to
meet the different level of the requirement of the customers. It has brought about greater choice
to the customers.
4) Private insurers have restricted reach to the customers.
5) LIC has vast market and very firm grip on its traditional customers and monopoly of life
insurance products.
6) Bank assurance - that allows life insurers to leverage on the risk product through bank
network, was adopted by private players. But LIC was also not left behind as picking up majority stake
in the corporation Bank and arge equity stake in the Oriental Bank of Commerce.
IRDA is also playing very comprehensive role by regulating norms mandating to private players
in this sector, that increases the confidence level of the customers to the private players.

Project report on Insurance

Project report on Insurance

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