B.Com (General, C.A.

, and Vocational) E/M, II year – III semester

Principles of Insurance
‘Zaker Ul Oman’, Lecturer in Commerce, Govt. Degree College (Khairatabad).
UNIT – 1
Risk Management and Insurance
Part – A (Risk)

**Introduction of Risk: The concept risk starts with a risk-oriented approach to social security
by defining its basic objective as the provision of people with the resources to cope with specified
common risks in life. Furthermore social security schemes protect society against collective risks
associated with poverty, epidemics, marginalization, crime, etc.
All investments carry some degree of risk. The rule of thumb is the higher the risk, the
higher the potential return, but the need to consider an addition to the rule so that it states the
relationship more clearly, the higher the risk, the higher the potential return and the less likely it
will achieve the higher return. A fundamental idea in finance is the relationship between risk and
return. The reason for this is that investors need to be compensated for taking on additional risk.
**Meaning & Definition
The word ‘risk’ can be used in several different contexts. In insurance, risk is applied to
certain assets that can be insured, such as a human life, a house, a car, etc. risk is the potential that
chosen action or activity including the choice of effective which will lead to a loss an undesirable
outcome. The idea implies that a choice having an influence on the outcome exists. Potential losses
themselves may also be called risks. Almost any human Endeavour carries some risk but some are
much more risky than others.
According to Hansson and Sven Ova, “Risk is the potential of losing something of value,
weighed against the potential to gain something of value. Values such as physical health, social
status, emotional well being or financial wealth can be gained or lost when taking risk resulting
from a given action, activity and/or inaction, foreseen or unforeseen”.
**Principles of Risk
Insurance 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.
1. Managerial Context: An organization may be immune to change in import duty whereas a
different organization operating in the same industry and environment may be at a severe risk.
There are also marked differences in communication channels, internal culture and risk
management procedures. The risk management should therefore be able to add value and be
an integral part of the organizational process.
2. Participation of Stakeholders: The risk management process should involve the
stakeholders at each and every step of decision making. They should remain aware of even
the smallest decision made. It is further in the interest of the organization to understand the
role the stakeholders can play at each step.
3. Organizational Goals: When dealing with a risk it is important to keep the organizational
objectives in mind. The risk management process should explicitly address the uncertainty.
This calls for being systematic and structured and keeping the big picture in mind.
4. Reporting: In risk management communication is the key. The authenticity of the
information has to be ascertained. Decisions should be made on best available information
and there should be transparency and visibility regarding the same.
5. Roles and Responsibilities: Risk Management has to be transparent and inclusive. It should
take into account the human factors and ensure that each one knows it roles at each stage of
the risk management process.
6. Maintain Structure: Structure underlines the importance of the risk management team. The
team members have to be dynamic, diligent and responsive to change. Each and every member
should understand his intervention at each stage of the project management lifecycle.
7. Caution Indicators: Keep track of early signs of a risk translating into an active problem.
This is achieved through continual communication by one and all at each level. It is also
important to enable and empower each to deal with the threat at his/her level.
8. Reconsider sequence: Keep evaluating inputs at each step of the risk management process –
Identify, assess, respond and review. The observations are markedly different in each cycle.
Identify reasonable interventions and remove unnecessary ones.
**Types of Risks
1. Financial Risk: It is the risk borne by equity holders due to a firm’s use of debt. If the
company raises capital by borrowing money, it must pay back this money at some future date
plus the financing charges. This increases the degree of uncertainty about the company
because it must have enough income to pay back this amount at some time in the future.
2. Static and Dynamic Risk: Dynamic risks are those resulting from changes in the economy.
Changes in the economy. Changes in the price level, consumer tastes, income and output and
technology may cause financial loss to members of the tastes, income and output and
technology may cause financial loss to members of the economy. These dynamic risks
normally benefit society over the long run, since they are the result of adjustments to
misallocation of resources.
Static risks involve those losses that would occur even if there were no change in the
economy. If we could hold consumer tastes, output and income and the level of technology
constant, some individuals would still suffer financial loss. These losses arise from causes
other than the changes in the economy, such as the perils of nature and the dishonesty of other
individuals.
3. Fundamental and Particular Risk: The distinction between fundamental and particular
risks is based on the difference in the origin and consequences of the losses. Fundamental
risks involve losses that are impersonal in origin and consequence. They are group risks,
caused for the most part by economic, social and political phenomena, although they mey also
result from physical occurrences. They affect large segments or even all of the population.
Particular risks involve losses that arise out of individual events and are felt by individuals
rather than by the entire group. The may be static or dynamic. Unemployment, war inflation,
earthquakes and floods are all fundamental risks. The burning of a house and the robbery of
a bank are particular risks.
Particular risks are considered to be the individual’s own responsibility, inappropriate
subjects for action by society as a whole. They are dealt with by the individual through the
use of insurance, loss prevention or some other technique.
4. Pure and Speculative Risk: Speculative risk describes a situation in which there is a
possibility of loss, but also a possibility of gain. Gambling is a good example of a speculative
risk. In a gambling situation, risk is deliberately created in the hope of gain. The student
wagering Rs.10 on the outcome of Saturday’s game faces the possibility of loss, but this is
accompanied by the possibility of gain. The entrepreneur or capitalist faces speculative risk
in the quest for profit.
The term pure risk, in contrast, is used to designate those situations that involve only
the chance of loss or no loss. One of the best examples of pure risk is the possibility of loss
surrounding the ownership of property.
 The distinction between pure and speculative risks is an important one, because
normally only pure risks are insurable. Insurance is not concerned with the protection of
individuals against those losses arising out of speculative risks. Speculative risk is voluntarily
accepted because of its two-dimensional nature, which includes the possibility of gain. Not
all pure risks are insurable and a further distinction between insurable and uninsurable pure
risks may also be made.
5. Exchange Rate Risk: This is particularly important for investors that have alarge amount of
over-seas investment and wish to sell and convert their profit to their home currency. If
exchange rate risk is high – even though a substantial profit may have been made overseas,
the value of the home currency may be less than the overseas currency and may erode a
significant amount of investments earnings. That is, the more volatile and exchange rate
between the home and investment currency, the greater the risk of differing currency value
eroding the investments value.
6. Business Risk: The uncertainty of income is caused by the nature of a company’s business
measured by a ratio of operating earnings. This means that the less certain you are aout the
income flows of a firm, the less certain the income will flow back to you as an investor. The
sources of business risk mainly arises from a company’s products/services, ownership
support, industry environment, market position, management quality etc.
7. Liquidity Risk: The uncertainty introduced by the secondary market for a company to meet
its future short term financial obligations. When an investor purchases a security, they expect
that at some future period they will be able to sell this security at a profit and redeem this
value as cash for consumption this is the liquidity of an investment, its ability to be redeemable
for cash at a future date. Liquidity risk arises from situations in which a party interested in
trading an asset cannot do it because nobody in the market wants to trade that asset.
8. Country Risk: This is also termed political risk, because it is the risk of investing funds in
another country whereby a major change in the political or economic environment could
occur. This could devalue you investment and reduce its overall return. This type of risk is
usually restricted to emerging or developing countries that do not have stable economic or
political arenas.
9. Market Risk: The price fluctuations or volatility increases and decreases in the daily market.
This type of risk mainly applies to both stocks and options and tends to perform well in a bull
(increasing) market and poorly in a bear (decreasing) market. Generally with stock market
risks, the more volatility within the market, the more probability there is that your investment
will increase or decrease.
10. Credit Risk: Credit risk is the risk of loss due to a debtor’s non-payment of a loan or other
line of credit either the principal or interest coupon or both.
11. Operational Risk: Operational risk is defined as the risk of loss resulting from inadequate or
failed internal processes, people and systems or from external events.
**Types of Risk in Insurance
1. Vehicle Insurance Risk: The most common of the types of risk insurance is vehicle
insurance. This insurance is more common because anyone who owns a vehicle with the
motive to drive that vehicle on the road needs to carry vehicle insurance. There are three major
types of risk insurance a vehicle owner can purchase. These are liability insurance, full
coverage insurance and gap insurance.
2. Life Insurance Risk: Life insurance is the longest term of the types of risk insurance. Many
people purchase life insurance to support their family in the case of an untimely death. When
purchasing life insurance it is important to research all types of risk insurance. For instance,
term life insurance covers a person for a specific period of time. If this type of policy is
purchased early in life, the term may expire before the insurance is used.
 3. Property Insurance Risk: A vague term at best, property insurance can include home
owner’s insurance or renter’s insurance. Home owner’s insurance covers the physical home
and all of the belongings in the home as long as the property is not being used as a rental
property. Renter’s insurance, on the other hand, does not cover the physical home. The
belongings of the renter are covered.
4. Health Insurance Risk: Of all the types of risk insurance, health insurance is the most
diverse. There are an infinite number of policies and coverage depending on the level of
coverage purchased, whether or not the policy is company based and the age and health
condition of the person being covered. The health insurance is also one of the most important
types of risk insurance as it covers illness as well as accident.
**Actual and Consequential Losses
❖ Actual Loss
Actual loss in insurance refers to the total costs directly or indirectly resulting from a claim.
It represents the actual costs or expenses incurred due to the claim and make up the total payout.
The insurance company will make for the entire loss, per the policy wording.
Actual loss is a term that your insurance representative or claims adjuster may use when
they refer to how much money has been paid out by the insurance company on behalf of the
damage caused to your property by insured perils in a claim, it does not necessarily represent the
amount the insured him or herself received directly.
The actual loss is often only known once the claim has been fully assessed and is closing.
It will include all amounts related to the claim including costs of repairs, additional living
expenses, debris removal, storage of items (if applicable), costs for contractors or other specialists.
This is where people sometimes become confused with the actual loss amount.
Example of Actual loss in Insurance Claim:
In a major claim, certain reserves may be set to cover costs of reconstruction, for example,
however the amount that will be paid in claim will not exceed the actual loss value. If the
projections were higher, it’s the actual cost that is paid and not the projections. Once the claim is
complete, the actual loss is calculated and finalized in order to have the final claim payments.
The difference between portions of the expense that is directly resulting from the claim and
therefore covered, vs. the total expenses or value being claimed by an individual in a loss is termed
as Actual loss. It will only cover what was actually lost and not an entire cost if there is a difference.
❖ Consequential losses
Consequential losses are damages that can be proven to have occurred because of the
failure of one party to meet a contractual obligation. They go beyond the contract itself and into
the actions garnished from the failure to fulfill. The type of claim giving rise to the damages can
affect the rules or calculations associated with a given type of damages, including consequential
damages (Example: breach of contract vs. a tort claim). Consequential damages are a potential
type of expectation damages which arise in contract law.
When a contract is breached, the recognized remedy for a owner is recovery of damages
that result directly from the breach (Direct Damages), such as the cost to repair or complete the
work in accordance with the contract documents, the loss of value of lost or damaged work.
Consequential damages (also sometimes referred to as indirect or “special” damages), include loss
of product and loss of profit or revenue and may be recovered if it is determined such damages
were reasonably foreseeable or “within the contemplation of the parties” at the time of contract
formation. This is a factual determination that could lead to the contractor’s liability for an
enormous loss.
**Risk Management
Risk Management is the identification, assessment and prioritization of risks followed by
coordinated and economical application of resources to minimize, monitor and control the
probability and/or impact of unfortunate events or to maximize the realization of opportunities.
Risk management’s objective is to assure uncertainty does not deflect the endeavor from the
business goals.
Risk can come from uncertainty in financial markets, project failure, legal liabilities, credit
risk, accidents, natural cause and disasters as well as deliberate attack from an adversary or events
of uncertain root- cause.
The Risk Management is required for any organization to review their risk management
strategies and to choose for risk transfer measures like availing insurance cover etc. many a times
the coordination between the technical or operational departments and finance department is
difficult and an unbiased study on technical risk management measures adopted and insurance
practices followed will help the management of the organization to manage the risk effectively
and profitably.
The task of the risk manager is to predict and enact measures to control or prevent losses
within a company. The risk-management process involves identifying exposures to potential
losses, measuring these exposures and deciding how to protect the company from harm given the
nature of the risks and the company’s goals and resources. While companies face a host of different
risks, some are more important than others. Risk managers determine their importance and ability
to be affected while identifying and measuring exposures. For example, the risks of flooding in
Arizona would have low priority relative to other risks a company located there might face. Risk
managers consider different methods for controlling or preventing risks and then select the best
method given the company’s goals and resources. After the method is selected and implemented,
the method must be monitored to ensure that it produces the intended results.
**Objectives of Risk Management
A primary objective of risk management is to identify and to manage individual and
management risk. Other important objectives are:
1. To concentrate on initial investment and underwriting: Investment decisions are
supported by appropriately documented research and analysis and made in accordance with
company and client guidelines and objectives. Appropriate recommendations and approvals
are obtained to authorize investment decisions.
2. To focus on credit monitoring: Investment agreement terms and covenants are monitored
for adherence and reported on an ongoing basis credit risk and investment quality is timely
monitored, appropriately categorized and rated. Periodic reviews, including collateral security
reviews, are performed timely, appropriately documented and results are reported.
3. To manage the investment portfolio monitoring: Investment positions and transactions are
monitored against company policies and limits and client investment guidelines and
objectives. Exceptions of noncompliance are properly reported, escalated to senior
management and the resolution is properly authorized. Third-party investments acquired are
allocated to investment accounts on a reasonable and fair basis.
4. To ensure trading transactions: Trading transactions for publics are accurate, complete and
properly authorized.
5. Valuation and pricing: Publics – portfolios are accurately valued using indipendet sources
on a timely basis and reported to senior management. Discrepancies are researched and
resolved timely. Privates – Valuation of private investments is appropriate and documented.
6. Performance monitoring: Performance measurement, ranking and attribution analysis is
regularly performed, reviewed, reported and approved.
7. Policies, procedures, authorities and responsibilities: policies, procedures, authorities and
responsibilities are clearly defined and communicated. Employees have the necessary
knowledge, information and tools to manage relevant risks and support the achievement of
the business units’ objectives.
8. Management information: Management information is sufficient and timely. Performance
is monitored against targets and indicators. Follow-up procedures are established and
performed.
**Process of Risk Management
A risk management plan increasingly includes companies’ processes for identifying and
controlling threats to its digital assets, including proprietary corporate data, a customer’s
personally identifiable information and intellectual property. All risk management plans follow
the same steps that combine to make up the overall risk management process:
➢ Risk Identification: The Company identifies and defines potential risks that may
negatively influence a specific company process or project.
➢ Risk Analysis: Once specific types of risk are identified, the company then determines the
odds of it occurring, as well as its consequences. The goal of the analysis is to further
understand each specific instance of risk and how it could influence the company’s projects
and objectives.
➢ Risk Assessment and Evaluation: The risk is then further evaluated after determining the
risk’s overall likelihood of occurrence combined with its overall consequence. The
company can then make decisions on whether the risk is acceptable and whether the
company is willing to take it on based on its risk appetite.
➢ Risk Mitigation: during this step, companies assess their highest-ranked risks and develop
a plan to alleviate them using specific risk controls. These plans include risk mitigation
processes, risk prevention tactics and contingency plans in the event the risk comes to
fruition.
➢ Risk Monitoring: Part of the mitigation plan includes following up on both the risks and
the overall plan to continuously monitor and track new and existing risks. The overall risk
management process should also be reviewed and updated accordingly.
➢ Add Other Controls: Generally speaking, any risk that is rated as High or Extreme should
have additional controls applied to it in order to reduce it to an acceptable level. What the
appropriate additional controls might be, whether they can be afforded, what priority might
be placed on them etc is something for the group to determine in consultation with the head
of the work unit who, ideally, should be a member of the group doing the analysis in the
first place.
➢ Make a Decision: Once the above process is complete, if there are still some risks that are
rated as High or Extreme, a decision has to be made as to whether the activity will go
ahead. There will be occasions when the risks are higher than preferred but there may be
nothing more that can be done to mitigate that risk i.e. they are out of the control of the
work unit but the activity must still be carried out. In such situations, monitoring the
circumstances and regular review is essential.
**Loss Minimization Techniques
Since it is not possible to completely eliminate all risks, it becomes necessary to devise
means of minimizing or reducing the effects of those risks that cannot be eliminated. Loss
minimization or reduction can be effected in two ways:
1. Pre-Loss Minimization: This involves taking the necessary steps before the occurrence of
adverse event to reduce their impacts on the enterprise. For examples, the wearing of crash
helmet by motor-cyclist or the wearing of seat belts in private cars. Another example is the
deliberate policy of a motorist to drive within the speed limit permitted by law. The effects of
these would be seen in reduction of the frequency of occurrence of accidents and their services
whenever they occur. It is customary for employers to guard dangerous machinery that could
injure employees. This is to ensure that employees are not injured.
2. Post-Loss Minimization: This entails minimizing losses after an accident has occurred. This
takes the form of salvage operation. For examples, if a fire breaks out in a house, effort would
be made to remove some of the center of the house that have not been torched by fire out into
safety. This operation would help to minimize the extent of the fire loss. Also, the use of fire
sprinkler is a good example of a device that can help minimize loss once fire has broken out.
**Methods of Handling Risks or Loss Minimization
Because risk is the possibility of a loss, people organizations and society usually try to
avoid risk or, if not avoidable, then to manage it somehow. There are 5 major methods of handling
risk:
1. Avoidance: Avoidance is the elimination of risk. You can avoid the risk of a loss in the stock
market by not buying or shorting stocks; the risk of a venereal disease can be avoided by not
having sex or the risk of divorce, by not marrying; the risk of having car trouble, by not having
a car. Many manufacturers avoid legal risk by not manufacturing particular products.
Of course, not all risks can be avoided. By avoiding risk, you may be avoiding many
pleasures of life or the potential profits that result from taking risks. Those who minimize
risks by avoiding activities are usually bored with their life and don’t make much money.
2. Loss Control: Loss control can either be affected through loss prevention, which is reducing
the probability of risk or loss reduction, which minimizes the loss. Loss prevention requires
identifying the factors that increase the likelihood or a loss, then either eliminating the factors
or minimizing their effect. For instance, speeding and driving drunk greatly increase auto
accidents. Not driving after drinking alcohol is a method of loss prevention that reduces the
probability of an accident.
Most businesses actively control losses because it is a cost-effective way to prevent
losses from accidents and damage to property and generally becomes more effective the
longer the business has been operating, since it can learn from its mistakes.
3. Retention: Risk retention,(risk assumption) is handling the unavoidable or unavoided risk
internally, either because insurance cannot be purchased or it is too expensive for the risk or
because it is much more cost-effective to have a lower severity.
Passive risk retention is retaining risk because the risk is unknown or because the risk taker
either does not know the risk or considers it a lesser risk than it actually is. For instance,
smoking cigarettes can be considered a form of passive risk retention, since many people
smoke without knowing the many risks of diseases and, of the risks they do know, they don’t
think it will happen to them.
4. Non-insurance Transfer: Risk can also be managed by noninsurance transfers of risk. The
3 major forms of noninsurance risk transfer are by contract, hedging and, for business risks,
by incorporating. A common way to transfer risk by contract is by purchasing the warranty
extension that many retailers sell for the items that they sell. The warranty itself transfers the
risk of manufacturing defects from the buyer to the manufacturer.
Hedging is a method of reducing portfolio risk or some business risks involving future
transactions. Investors can reduce their liability risk in a business by forming a corporation,
 or a limited liability company. This prevents the extension of the company’s liabilities to its
investors.
5. Insurance: Insurance is another major method that most people, businesses and other
organizations can use to transfer pure risks, by paying a premium to an insurance company in
exchange for a payment of a possible large loss. By using the law of large numbers, an
insurance company can estimate fairly reliably the amount of loss for a given number of
customers within a specific time. An insurance company can pay for losses because it pools
and invests the premiums of many subscribers to pay the few who will have significant losses.

Part – B (Insurance)
**Meaning & Definition
Insurance refers to a contract or policy in which an individual or entity receives financial
protection or reimbursement against losses from an insurance company. The company pools
clients’ risks to make payments more affordable for the insured.

According to J. B. Maclean, “Insurance I a method of spreading over a large number of

persons a possible financial loss too serious to be conveniently borne by an individual”.
According to Oxford Dictionary, “Insurance is an arrangement by which a company or the
state undertakes to provide a guarantee of compensation for specified loss, damage, illness or death
in return for payment of a specified premium”.

**Basics of Insurance
Insurance is a contract between the insurer and the insured wherein against receipt of
certain amount, called premium, the insurer agrees to make good any financial loss that may be
suffered by the insured, due to the operation of an insured peril on the subject matter of insurance.
Insurance provides financial protection against a loss arising out of happening of an
uncertain event. A person can avail this protection by paying premium to an insurance company.
A pool is created through contributions made by persons seeking to protect themselves from
common risk. Premium is collected by insurance companies which also act as trustee to the pool.
Any loss to the insured in case of happening of an uncertain event is paid out of this pool.
The concept behind insurance is that a group of people exposed to similar risk come
together and make contributions towards formation of a pool of funds. In case a person actually
suffers a loss on account of such risk, he is compensated out of the same pool of funds.
Contribution to the pool is made by a group of people sharing common risks and collected by the
insurance companies in the form of premiums.
**Evolution of Life Insurance
The Term Plan: The first form is one of pure protection – the Term Plan. This pays only
on the death of the policy holder. It is pure insurance and has the lowest premium for the highest
payout. If you survive the term of the policy, you do not receive any payment. Your premiums
paid go fully toward insuring your life. There is no investment made out of your premiums in a
Term Plan, hence it is called a pure insurance policy. The term plan is available in two forms, the
online and the offline term plan – each has its own pros and cons.

The Endowment Policy: Because to some people the term plan seemed like a waste of
premiums paid over the years in case of surviving the policy period, life insurance companies
modified their product to come up with the Endowment Policy. Here, the premium is significantly
higher than a Term Plan. Part of the premium goes towards insuring your life and the rest is
invested in fixed income products that yield a very low rate of return (approximately 5% p.a.).
The Money Back Policy: While the term plan addressed the needs of those who wanted
pure life insurance and the endowment policy addressed the needs of those who wanted a payout
even on survival of the policy period, there remained a gap – the people who wanted interim
payouts on surviving part of the term and didn’t want to wait until the end of the policy period to
receive their sum assured.
So the money back policy was born – giving interim payouts (or money back) depending
on survival of a certain defined period. Ex:- on survival of 5 years, 10 years and 15 years of the
term, the policy holder receives a certain sum of money back from the insurance company. These
policies pay out the same rate of return as endowment policies i.e. roughly 5% p.a.
ULIPs & ULPPs: While endowments and money back plans invest in safe fixed income
instruments yielding very low rates of return, diversification prompted the creation of a life
insurance product that invested into equity and so the ULIP and ULPP were born. Unit Linked
Insurance Plans (ULIP) and Unit Linked Pension Plans (ULPP) invest a chunk of the very high
annual premium into equity and a very small component goes towards paying for actual life
insurance. Thus these products are savings based and market liked investment plans.
The common factor: Regardless of what policy type you go for we recommend only pure
term plans, you do need to read your policy document very, very carefully to ensure that the policy
is the right one for you. Don’t depend on your insurance agent to tell you everything you need to
know, for two reasons.

→ Firstly, they work on a commission basis. If you buy a policy, they get a 25% (at least)
commission on the sale. So it’s good for them to make you buy. They won’t be pointing
out flaws in policies any time soon.
→ Secondly, based on extensive discussion with a number of insurance agents, it is seen that
often the intricate details of the policy are not known by the agents. This is not as much a
result of the agent’s lack of time to study the policy as it is of the insurance company’s
training and development teams’ lethargy.
So, we’re in a situation of ‘caveat emptor’. The onus of understanding the product lies on you
– the buyer. In today’s world which is full of uncertainties, buying life insurance has become
inevitable for almost every individual; but while buying it you should also always make sure that
you understand each and every term contained in the policy document.
**Evolution of General Insurance
The first general insurance company in India, Triton Insurance company Ltd., was
established in 1850. It was owned and operated by the British. The first indigenous general
insurance company was the Indian Mercantile Insurance Company Limited set up in Bombay in
1907.
In 1956 it was decided by the Government of India to nationalize the Life Insurance
business while general insurance was spared. The Insurance Act of 1938 was amended in 1950 to
set up a Tariff Committee under the control of the General Insurance Council of the Insurance
Association of India. In 1968, the Insurance Act of 1938 was amended further. A Tariff Advisory
Committee replaced the Tariff Committee. The Tariff Advisory Committee was seen as an
independent, impartial, scientifically driven body for ratemaking in general insurance.
 General insurance was finally nationalized in 1972 (with effect from January 1, 1973).
There were 107 general insurance companies operating at the time. They were assigned to four
different subsidiaries (roughly of equal size) of the General Insurance Corporation. The General
Insurance Corporation was incorporated as a holding company in November 1972 and it
commenced business on January 1, 1973. It had four main subsidiaries:
1. The National Insurance Company (HO: Calcutta),
2. The New India Assurance Company (HO: Bombay),
3. The Oriental Insurance Company (HO: New Delhi) and
4. The United India Insurance Company (HO: Madras)
**Nature of Insurance

→ Insurance provides financial protection against a loss arising out of happening of an

uncertain event.
→ A person can avail insurance protection by paying premium to an insurance company.
→ A pool is created through contributions made by persons seeking to protect themselves
from common risk. Premium is collected by insurance companies which also act as trustee
to the pool. Any loss to the insured in case of happening of an uncertain event is paid out
of this pool.
→ Insurance works on the basic principle of risk-sharing. Agreat advantage of insurance is
that it spreads the risk of a few people over a large group of people exposed to risk of
similar type.
→ 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 policy
holder, 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 risk, which can be insured against include fire, the peril of sea, death, incident and
burglary. Any risk contingent upon these may be insured against at a premium
commensurate with the risk involved.
→ Insurance is a contract whereby, in return for the payment of premium by the insured, the
insurers pay the financial losses suffered by the insured as a result of the occurrence of
unforeseen events.
→ An insurer is a company selling the insurance; an insured or policyholder is the person or
entity buying the insurance. The insurance rate is a factor used to determine the amount to
be charged for a certain amount of insurance coverage, called the premium.
**Concept of Pooling in Insurance
In insurance, the term “risk pooling” refers to the spreading of financial risks evenly among
a large number of contributors to the program. Insurance is the transference of risks from
individuals or corporation who cannot bear a possible unplanned financial catastrophe to the
capital markets, which can bear them easily at least in theory. The capital markets, meanwhile, are
generally happy to take on risk from individuals and corporations in exchange for a premium they
believe are sufficient to cover the risk.
 Risk pooling is essential to the concept of insurance. The earliest known insurance policies
were written some 5,000 years ago, to protect shippers against the loss of their cargo and crews at
sea. Any one of them would be devastated by the loss of a ship. But by pooling their resources,
these ancient businessmen were able to spread the risks more evenly among their numbers, so each
paid a relatively small amount. Under the Babylonians, those receiving a loan to fund a shipment
would pay an additional amount in exchange for a rider cancelling the loan if a shipment should
be lost at sea.
The insurance industry grew enormously, as individuals and businesses sought to protect
themselves from economic catastrophe by transferring their risks to an insurance pool. We still
have commercial shipping insurance just as we did in the ancient world and we also insure against
such diverse risks as fires, floods, theft, auto accidents, kidnap and ransom schemes, defaults on
the part of our debtors, lawsuits and judgments, dying too early and even against the risk of living
too long.

**Different Classes of Insurance

Different classes of insurance are used to cover different properties and assets such as
vehicles, home health care etc. basically, an insurance policy can also be known as a protection
net which secures from any financial losses in future. The insurance can be broadly classified into
two categories:

1. Life Insurance: Life Insurance refers to the insurance which gives a protection against the
loss of income that would result if the insured passed away. The named beneficiary receives
the proceeds and is thereby safeguarded from the financial impact of the death of the insured.
Types of Life Insurance: Life insurance protection comes in many forms and not all policies are
created equal. While the death benefit amounts may be the same, the costs, structure, durations,
etc. vary tremendously across the types of policies.

a) Whole Life Insurance: Whole life insurance provides guaranteed insurance protection for
the entire life of the insured, otherwise known as permanent coverage. These poliies carry
a “cash value” component that grows tax deferred at a contractually guaranteed amount
usually a low interest rate until the contract is surrendered. The premiums are usually level
for the life of the insured and the death benefit is guaranteed for the insured’s lifetime.
With whole life payments, part of your premium is applied toward the insurance
portion of your policy, another part of your premium goes toward administrative expenses
and the balance of your premium goes toward the investment or cash, portion of your
policy.
b) Universal Life: Universal life insurance is another type of permanent life insurance. It is
similar to whole life in many ways, but offers greater flexibility. You can increase or
decrease the death benefit and the cash value after you take the policy out if your needs
change. The premiums will go up or down accordingly. Increasing the death benefit
requires you to pass medical underwriting; decreasing the death benefit may result in
surrender charges. The cash value earns interest based on the performance of investments
chosen by the insurance company. This type of insurance also offers flexibility in the
timing of premium payments.
c) Variable Life: Variable life insurance is regulated by the Securities and Exchange
Commission because of its investment component. Variable life insurance is a type of
permanent life insurance with a cash value component, which means that like whole life
and universal life, it is significantly more expensive than term life.
 It has fixed premiums and a guaranteed minimum death benefit, but beyond that,
the death benefit can change and the rate of return on the cash value, which varies based
on the investments the policyholder chooses within the life insurance account (called
subaccounts). Part of your premium goes toward the policy’s cash value/investment
component, and the cash value changes with the value of the investments you select, such
as stocks, bonds and mutual funds. If the investments increase enough in value, the
policyholder can use the increase in value to buy more coverage or pay policy premiums.
The policy holder can also borrow against the policy’s cash value. If the
investments decrease in value, the policy’s cash value declines, reducing borrowing ability
and requiring you to pay premiums out of pocket. Any policy loans outstanding at death
reduce the death benefit.
d) Variable Universal Life: Variable universal life insurance makes up a small percentage
of all life insurance policies sold. It is a combination of variable life insurance and universal
life insurance. As with variable life insurance, it lets policyholders invest their cash value
and easily change the amount of insurance coverage they carry. These policies, like
variable life insurance, are regulated by the SEC because of their investment component.
As with universal life insurance, you can adjust a variable universal life policy’s premiums
or use some of the policy’s cash value to pay premiums or take out a loan. Most of your
premiums go toward the investment component, though a percentage goes to management
and administration fees.
e) Term Life: Term life insurance provides a death benefit for a fixed number of years –
usually, 5, 10, 15, 20, 25 or 30 – that you choose when you buy the policy. You pay
premiums for each year of the term. If you purchase level-premium insurance, which is
common, you’ll pay the same rate each year. When the term is up, you stop paying
premiums and you no longer have coverage. If you die at any point during the term, your
beneficiaries receive a death benefit. If you die after the terms ends, your beneficiaries get
nothing.

2. General Insurance: General insurance or non-life insurance policies, including automobile

and homeowners policies, provide payments depending on the loss form a particular financial
event. General insurance typically comprises any insurance that is not determined to be life
insurance.

Types of General Insurance

a) Motor Insurance: Motor insurance covers all damages and liability to a vehicle
against various on-road and off-road emergencies. A comprehensive policy even
secures against damage caused by natural and man-made calamities, including acts
of terrorism.
Motor insurance offers protection to the vehicle owner against:
• Damage to the vehicle
• It also pays for any third party liability determined by law against the owner of the
vehicle
Motor insurance is mandatory in India as per the Motor Vehicles Act, 1988 and
needs to be renewed every year. Driving a motor vehicle without insurance in a public
place is a punishable offence.
Common motor insurance categories include:
 • Car Insurance
• Two Wheeler Insurance
• Commercial Vehicle Insurance

b) Health Insurance: Health care costs are increasing every year. Sedentary lifestyle and
stress at work negatively affect the health and can result in a critical illness or medical
emergency. Such a scenario is sure to adversely affect one financially, due to the
massive outlay of money on medical expenditure. A health insurance policy is the only
way to mitigate the financial risks, apart from leading a healthy lifestyle. Health
insurance guarantees peace of mind in times of crisis, and helps secure own health and
that of one’s family.
Health insurance covers the medical and surgical expenses of the insured individual
due to hospitalization from an illness. Additional riders enhance the benefits and scope of
the cover.
Common types of health insurance policies include:
• Individual Policy
• Family Floater Policy
• Surgery Cover
• Comprehensive Health Insurance
International travel, whether on vacation or business, can turn into a nightmare if
one experiences contingencies like loss of baggage, loss of passport, delay in flight,
medical emergency etc. Such eventualities will surely take the fun away from travelling.
c) Travel Insurance: Travel insurance, also referred to as visitor insurance, covers one
against unseen medical and non-medical emergencies during overseas travel, ensuring
a worry-free travel experience. It protects the insured against misfortunes while
travelling. Backed up by travel insurance, the whole experience is like no other.
Different types of travel insurance policies include:
• Individual Travel Policy
• Family Travel Policy
• Student Travel Insurance
• Senior Citizens Travel Policy
In addition to the above, some insurance companies offer special plans like a
corporate travel policy or comprehensive policy for travel to special destinations like Asia
and/or Europe.
d) Home Insurance: Home is often the most treasured possession of an individual and
also the largest financial investments one makes in life. Safeguarding the physical
structure and contents of home seems like a logical thing to do.
Home insurance protects the house and/or the contents in it, depending on the
scope of insurance policy opted for. It secures the home against natural calamities and
man-made disasters and threats. Home insurance provides protection against risks and
damages from fire, burglary, theft, flood, earthquakes etc. covering the physical asset
(building structure) and valuables (contents) in it.
e) Marine (Cargo) Insurance: Business involves the import and export of goods, within
national borders and across international borders. Movement of goods is fraught with
 risk of mishaps which can result in damage and/or destruction of shipments. This leads
to substantial financial losses for both the importers as well as the exporters.
Marine cargo insurance covers goods, freight, cargo and other interests against loss
or damage during transit by rail, road, sea and/or air. Shipments ar e protected from the
time the goods leave the seller’s warehouse till they reach the buyer’s warehouse. Marine
cargo insurance offers complete financial protection during transit of goods and
compensates in the event of any loss suffered.
Common types of policies:
• Open Cover
• Open Policy
• Specific Voyage Policy
• Annual Policy
The hull of a ship or boat can be insured under marine hull insurance.
f) Rural Insurance: Insurance solutions to meet the needs of agriculture and rural
businesses form part of rural insurance. IRDA has stipulated annual targets for insurers
to provide insurance to the rural and social sector.
As per these regulations, insurers are required to meet year-wise targets:
• In percentage terms of policies underwritten and percentage of total gross premium
income by general insurers under rural obligation
• In terms of the number of lives under social obligation

g) Commercial Insurance: Commercial insurance encompasses solutions for all sectors

of the industry arising out of business operations. Insurance solutions for automotive,
aviation, construction, chemicals, foods and beverages, manufacturing, oil and gas,
pharmaceuticals, power, technology, telecom, textiles, transport and logistics sectors.
It covers small and medium scale enterprises, large corporations as well as
multinational companies.
Common types of commercial insurance:
• Property Insurance
• Marine Insurance
• Liability Insurance
• Financial Lines Insurance
• Engineering Insurance
• Energy Insurance
• Employee Benefits Insurance
• International Insurance Solutions

h) Crime Insurance: Crime insurance is insurance to manage the loss exposures resulting
from criminal acts such as robbery, burglary and other forms of theft. It is also called
as “fidelity Insurance”. Many businesses purchase crime insurance that allows them to
file claims for employee theft or other offenses with the potential to cause financial
ruin.
If you briefly described, commercial crime insurance covers money, securities and
other property against a variety of criminal acts, such as employee theft, robbery, forgery,
and extortion and computer fraud. Many insurers use Insurance Service Office’s (ISOs)
commercial crime forms.
**Importance of Life Insurance
1. Risk Cover: Life today is full of uncertainties; in this scenario Life Insurance ensures
that your loved ones continue to enjoy a good quality of life against any unforeseen
event.
2. Planning for Life Stage Needs: Life Insurance not only provides for financial support
in the event of untimely death but also acts as a long term investement. You can meet
your goals, be it your children’s education, their marriage, building your dream home
or planning a relaxed retired life, according to your life stage and risk appetite.
3. Protection Against Rising Health Expenses: life Insurers through riders or stand alone
health insurance plans offer the benefits of protection against critical diseases and
hospitalization expenses. This benefit has assumed critical importance given the increasing
incidence of lifestyle diseases and escalating medical costs.
4. Builds the habit of thrift: Life Insurance is a long-term contract where as
policyholder; you have to pay fixed amount at a defined periodicity. This builds the
habit of long-term savings. Regular savings over a long period ensures that a decent
corpus is built to meet financial needs at various life stages.
5. Safe and Profitable Long-term Investment: Life Insurance is highly regulated
sector, IRDA, the regulatory body, through various rules and regulations ensures that
the safety of the policyholder’s money is the primary responsibility of all stakeholders.
Life insurance being a long-term savings instrument, also ensures that the life insurers
focus on returns over a long-term and do not take risky investment decisions for short
term gains.
6. Assured Income Through Annuities: Life insurance is one of the best instruments
for retirement planning. The money saved during the earning life span is utilized to
provide a steady source of income during the ritired phase of life.
7. Protection with Savings Over a Long Term: Since traditional policies are viewed
both by the distributors as well as the customers as a long term commitment; these
policies help the policyholders meet the dual need of protection and long term walth
creation efficiently.
8. Growth through Dividends: Traditional policies offer an opportunity to participate in the
economic growth without taking the investment risk. The investment income is distributed
among the policyholders through annual announcement of dividends/bonus.
9. Tax benefits: Insurance plans provide attractive tax-benefits for both at the time of
entry and exit under most of the plans.
10. Mortgage Redemption: Insurance acts as an effective tool to cover mortgages and loans
taken by the policyholders so that, in case of any unforeseen event, the burden of repayment
does not fall on the bereaved family.
**Importance of General Insurance
The importance of General Insurance can be summarized as follows:
a) General insurance is a practical option for every person who would like to live a
risk-free life. Risk is associated with everything and so, it is important to secure all
the things that we own and that security is provided by insurance.
b) General insurance covers insurance policies like burglary, theft, etc. personal
insurance like health and accident insurance are also covered up by general
insurance.
c) The fact that the importance of general insurance has increased is because of the
reasoning that it covers almost everything including your home, car and health.
 d) The foremost reason that comes is the peace of mind provided by insurance against
any risk or mishap.
e) Paying premiums of insurance is like depositing in a savings account as the same
comes useful later on at the time of a mishap.
f) Hospital bills in case of any health deterioration and medical checkup are partially
covered by general insurance.
g) Car repair expenses can be claimed to a great extent in case of a car accident under
car insurance.
h) Any unforeseen liability is also taken care by the general insurance policy. With
insurance policy contract taken by 2 or 3 parties, in case of a loss occurrence, the
same is paid by both the parties and not any one of them.
**Unexpected Eventuality
Eventuality is something unpleasant or unexpected that might happen or exist in the
future. In case of insurance, the insured people expect the basic support from the insurance
company to tackle the unpleasant or unexpected situation that may happen or exist in the
future. The Unexpected Eventuality Risk describes a situation in which there is a
possibility of loss, but also a possibility of gain. Gambling is a good example of a risk.
Insurance is not concerned with the protection of individuals against those losses
arising out of those risks. Unexpected eventuality risk is voluntarily accepted because of
its two-dimensional nature, which includes the possibility of gain. Not all pure risks are
insurable and a further distinction between insurable and uninsurable pure risks may also
be made.
This is particularly important for investors that have a large amount of over-seas
investment and wish to sell and convert their profit to their home currency. If exchange
rate risk is high – even though a substantial profit may have been made overseas, the value
of the home currency may be less than the overseas currency and may erode a significant
amount of the investments earnings.
The uncertainty of income is caused by the nature of a company’s business measured
by a ratio of operating earnings. The uncertainty introduced by the secondary market for a
company to meet its future short term financial obligations. When an investor purchases a
security, they expect that at some future period they will be able to sell this security at a
profit and redeem this value as cash for consumption this is the liquidity of an investment,
its ability to be redeemable for cash at a future date. Liquidity risk arises from situations
in which a party interested in trading an asset cannot do it because nobody in the market
wants to trade that asset. Liquidity risk becomes particularly important to parties who are
about to hold or currently hold on asset, it affects their ability to trade.
Unit – 2
Insurance Business and Market
**Management of Risk by Individuals
Management of risk is the process of identification, analysis and acceptance or
mitigation of uncertainty in investment decisions. Essentially, risk management occurs
any time an investor or fund manager analyzes and attempts to quantify the potential for
losses in an investment and then takes the appropriate action or inaction given his
investment objectives and risk tolerance.
 Individual risk occurs to an individual person in the vicinity of a hazard. This
includes the nature of the injury to the individual, the likelihood of t he injury occurring,
and the time period over which the injury might occur.
The International Standards Organization has even attempted to standardize the
process of organizational risk management, defining it as “the effect of uncertainty on
objectives.” It defines risk management as “the identification, assessment and
prioritization of risks followed by co-ordinate and economical application of resources to
minimize, monitor and control the probability and/or impact of unfortunate events.
Most individuals, too, and their advisors are already managing risk in the
investment process, even if they don’t know it. Specifically, they try to curb the risk of
surrfering shortfalls when it comes time to cover future liabilities. The insurance they buy
protects them against certain rare but costly events. But saving and investing is a type of
insurance as well-essentially it’s self-insuring against all other future liabilities, trying to
prevent catastrophes in the future that you can’t predict and whose magnitude is
uncertain.
The goal of diversification is to manage liquidity and uncertainty in the asset class
returns of a client’s portfolio to cover future expenditures. There are two ways we can
tweak a portfolio to meet liabilities. First, after identifying and segregating uncertain
future liabilities, we can match them to assets that are highly correlated with them.
Second, we can imagine different scenarios that help us manage those risks better by
ensuring sufficient liquidity.
The interesting thing about this approach is that, besides helping us prepare for
catastrophe, it also gives us a higher overall portfolio return -because the risk profile is
now better defined.
There is one other advantage of this approach: Investors who don’t use it might
otherwise be sacrificing return by keeping the overall risk level of their portfolios too
low. They aren’t taking the proper time horizon into account and they could be
mistakenly misallocating assets in excess of their future non-dicretionary needs. They are
more likely to assail their overall risk if they tackle the individual components of risk
separately, allocating portions of their portfolio to retirement income, education savings,
living expenses and estate planning. Not only will they be managing their risk bet ter, but
they will also be better able to use what assets remain, maximizing their long-term non-
essential discretionary spending for things such as philanthropy, bequests, collecting or
lifestyle. If a client separates these assets from particular savings goals, he will e more
likely to invest them in more illiquid long-term investments with a higher expected
return.
In the institutional world, risk management is an integral part of money
management. But individual investors mostly manage their risk implicitly, using
insurance and some portfolio diversification. Instead, they could be segregating their non -
insurable future liabilities and mitigating their risks separately by matching their assets to
highly correlated obligations.
**Management of Risk by Insurer
An insurer should have a sound strategy to manage risks arising from its core
activities. The insurer should first determine its risk tolerance, i.e. the level of risk that it
is able and prepared to bear, taking into account its business object ives and available
resources. In formulating its risk management strategy, the insurer should consider the
following:
• The prevailing and projected economic and market conditions and their impact on the
risks inherent in its core activities;
• The available expertise to achieve its business targets in specific market segments and
its ability to identify, monitor and control the risks in those market segments;
• Its mix of business/type of risks written and the resultant concentration risks which
may lead to volatility in profitability.
• The insurer should periodically review its risk management strategy taking into
account its own financial performance and market developments.
• The strategy should be properly documented and effectively communicated to all
relevant staff. There should be a process to approve proposed deviations from the
approved strategy, and systems and controls to detect unauthorized deviations.
• An insurer should adopt a risk management structure that is commensurate with its
size and nature of its activities. The organizational structure should facilitate
effective management oversight and execution of risk management and control
processes.
• The Board of Directors is ultimately responsible for the sound and prudent
management of an insurer. The Board should approve the risk management strategy
and risk policies pertaining to core insurance activities.
• It should also be the approving authority for changes to such policies, and ensure that
any exceptions, which can include circumstances where delegation may be proposed,
should be escalated and approved by it, where necessary.
• The reasons for these changes and exceptions should be documented. Such
documentation should also be available upon request to the internal auditor, external
auditor and the regulator.
• There should be adequate measures to address potential conflicts of interest. For
examples, the member of senior management approving the base premium rate of a
life insurance product should not have marketing responsibilities and there should be
proper segregation of underwriting responsibilities from claims handling and
settlement responsibilities.
**Fixing of Insurance Premium
An insurance premium is the money charged by insurance companies for coverage.
Insurance premiums for services differ from company to company, so it is advisable that
individuals shop around for insurance premiums. The amount of insurance premiums charged by
the insurance companies is determined by statistical and mathematical calculations done by the
underwriting department of the insurance company.
The level of insurance premium charged to a customer depends on statustical data that
exists about life history, age and health. The underwriting process involves investigation into
familial diseases, analysis of reports like medical information bureau and motor vehicle reports.
After analyzing the data, the actuary tries to predict how likelly the insurance applicant will make
a claim on their policy.

**Calculation of Life Insurance Premium

Single premium is paid in one lump sum while the level premium is paid periodically in
installments. The level premium may be yearly, half-yearly, quarterly and monthly. Firstly, net
single premium is calculated and other premiums are based on this calculation.
1. Net Single Premium: Net single premium is that premium which is received by the insurer
in a lumpsum and is exactly adequate, along with the return earned thereon, to pay the amount
 of claim wherever it arises whether at death or at maturity or even at surrender. It does not
provide for expenses of management and for contingencies.
Steps for Calculation
– Determine what constitutes a claim – death, survival or both.
– Determine when claims are paid (a) at the beginning, (b) at the end, or (c) during the year.
– Determine the number of insured.
– Determine the duration of the policy.
– Determine the probable number of claims per year.
– Determine the value of claims per year.
– Determine the number of years of interest involved and find the present value of a rupee.
– Determine the present value of the claim for each year.
– Determine the present value of all future claims.
– Determine the net single premium, (i.e., present value of future claims) divided by number
assumed for buying policy.
The step of premium calculation varies according to the nature of the policy which will be
clear later on. When premium is caculated several questions emerged simultaneously.

**Reinsurance
Reinsurance is a means by which an insurance company can protect itself against the risk
of losses with other insurance companies. Individuals and corporations obtain insurance policies
to provide protection for various risks (hurricanes, earthquakes, lawsuits, collisions, sickness and
death, etc.). Reinsurers provide insurance to insurances companies.

Objectives of Reinsurance
The various objectives of Reinsurance are as follows:

• To limit liabilities on specific risks.

• To stabilize loss expanses
• To protect against catastrophes; and
• To increase capacity.

**Purposes of Reinsurance
An insurance company opts for reinsurance as a part of its responsibility to cover various
risks for the benefit of its policy-holders and investors. The major purposes of reinsurance are:

• To protect against catastrophic events

• To allow ceding company to assume individual risks greater than its size, and to protect the
big losses.
• To help in making an insurance company’s results more predictable by absorbing larger losses
and hence insuring a smooth income.
• To reduce amount of net liability, and increase surplus for the insurance company.

**Factors affecting Reinsurance Business

For underwriting to be effective in the long run, a clear understanding of the reinsurance
contract is absolutely essential for both the parties. The cadent company needs this understanding
to plan its risk-retention, types of reinsurance required etc. for the reinsurer, it is necessary to plan
for his portfolio, with an eye on the possible accumulations of losses, underwriting a single large
risk etc. after identifying the type of contracts that a reinsurance company has to underwrite during
a period, it has to identify the various sources of business that it wants to get involved in. the
different sources of reinsurance business are:

• Domestic direct underwriting companies

• Foreign direct underwriting companies
• Other reinsurance companies
• Reinsurance brokers

**Methods of Reinsurance
1. Shopping or 'Street' Reinsurance: Under this method, there is no standing agreement
regarding reinsuring of risk of one company by the other. Each policy is treated on an
individual basis. The reinsurer is sought only when the need of reinsurance on a policy arises.
The reinsurer scrutinizes each case on its merits and may accept the risk on any terms and
conditions or may decline it. Since the ceding company is not certain about the availability of
reinsurance and a term, it will exercise a greater care in selecting the risk.

2. Facultative Reinsurance: The essential feature of this method is that each individual risk is
submitted by the ceding office to the reinsurer who can accept or decline whatever sum they
consider appropriate subject to the amount of their acceptance being approved by the ceding
office. The reinsurer is offered the particulars of original contract.
This method differs from the 'Shopping' in the sense that the two companies are agreed in
advance as to the form in which risks, premium, terms and other details are to be submitted.
Thus, many expenses connected with 'shopping' are reduced. Under this method also, the
ceding office may have to wait before accepting the original risk till it is accepted for insurance.

3. Automatic or Treaty Reinsurance: Under this method, there is an agreement between the
ceding office and reinsurer office that the amount of insurance on a policy above the retention of
the ceding office shall be submitted by it for reinsurance and the same shall be accepted by the
reinsuring company.
As soon as the original contract is completed the excess above retention amount becomes
automatically reinsured under the agreement.
The ceding office need not even inform the reinsuring office immediately that a risk has
been accepted by it. The terms and conditions of the reinsurance contract are the same as of the
original insurance contract.
The maximum reinsurance amount acceptable to the reinsurer bears a definite relationship
with the retention limit of a ceding company.

**Reinsurance and its Importance for Insurers

Reinsurance is an extension of the concept of insurance, in that it passes on part of the risk
for which the original insurer is liable. Due to the size and complexity of some risks, some insurers
take out their own, additional insurance as added protection for themselves. When insurers insure
a risk again, it’s called reinsurance.

Reinsurance is important for the following reasons:

➢ To protect an insurer against very large claims: Insurers spread the costs of paying out on
large risks by reinsuring part of what they have agreed to insure with other reinsurers. This
‘spread’ means that the loss incurred by each individual insurer is not as severe.
➢ To reduce exposure to ‘peaks and troughs’: Insurers want a balanced set of underwriting
results each year, without peaks and troughs. Because reinsurance covers them against
unusually large losses, this keeps a cap on the claims the insurer has to pay.
➢ To obtain an international spread of risk: This is important when a country is vulnerable
to natural disasters and an insurer is heavily committed in that country. Insurance may be
reinsured to spread the risk outside the country.
➢ To increase the capacity of the direct insurer: Sometimes, insurers want to insure a very
large risk but are unable to do this on their own. By using reinsurance, the insurer can accept
the whole risk and then reinsure the parts it cannot keep with other insurers.
➢ Risk minimization by spreading: The fundamental concept of insurance is to spread the
risk over as wider an area as possible as so to reduce the burden of loss at each stage.
Reinsurance enables a risk to be scattered over a much wider area and the principle of
insurance is taken good care of. This really helps in the ultimate viability of insurance
operation.
➢ Risk transfer: To an insurer, the need for reinsurance protection arises in the same way as
the insured needs insurance protection. But for reinsurance, the business of insurance would
not have developed to the extent of the present day growth.
➢ Flexibility: In the absence of reinsurance, insurers would have been bound to limit their
acceptance of risk only up to such an amount which they could possibly digest. In other words,
the insurers would have been unable to accept a risk beyond their financial strength or
resources for that class of business. Consequently, insurers’ service to the public would also
have been limited.
➢ Accumulation: Reinsurance reduces the possibility of getting involved in undesirable
additional risk-load, which is otherwise eminent from the accumulation of risks coming from
different sources.
➢ Development: The growth of an insurance company is particularly dependent on sound
financial standing, which is primarily based on the stability of profit and loss. Profit cannot
be expected if there is an untoward charge on the fund by way of claim which it cannot sustain
or for which there is no provision. Reinsurance tends to stabilize profits and losses and permits
more rapid growth of an insurance company.
➢ Prediction for rating: An insurer needs to have a large number of similar cases in his book
for the purpose of predicting an accurate rating structure.
But assuming a large number of similar risks is in itself undesirable unless some precautionary
measure is taken.
➢ New insurer: A new insurer who has recently started transacting insurance business cannot
certainly develop and possibly cannot survive in the absence of reinsurance protection.

**Role of Insurance in Economic Development And Social Security

1. Saving and Insurance: Saving involves refraining from present consumption. The
investment can take place only when there are savings. The relationship between saving,
investment and growth of GDP can be explained as:
G = S / K. Where G = Rate of GDP growth, S = Saving Ratio and K = Capital output ratio.
Insurance companies lead to economic development by mobilizing savings and
investing them into productive activities. Indian insurance companies are able to mobilize
long-term savings to support economic growth and also facilitate economic development by
providing insurance cover to a large segment of our people as well as to business enterprise
throughout India.
2. Capital Formation and Insurance: Capital formation maybe defined as increase in capital
stock of the country consisting of plant, equipment, machinery, tools, building, means of
transport, communication, etc. The process of capital formation envisages three essential
steps. These are:
a) Real saving: Mobilization of saving through financial and non-financial intermediaries to
be placed at the disposal of investor.

b) Act of investment: The contribution of insurance companies in the process of capital

formation appears at all these stages. Insurance services act as a tool to mobilize saving,
function as financial intermediary and at times also indulge in direct investment. Also govt.
has made regulations under which every insurer carrying on business of life insurance shall
invest 25% of funds in Govt. securities and not less than 15% in infrastructure and social
sector.
The importance of Indian insurance industry is gauged by the fact that annual amount
of investible funds of LIC and GIC and its subsidiaries amounted to over Rs. 20,000 crore
and Rs. 10,000 crore are invested in nation building activities, housing and other
infrastructural areas.

3. Increased Employment: Prior to the liberalization of insurance sector in India, the

opportunities for employment were limited with the LIC of India as sole employer. While
some of the professionals left the country looking for opportunities elsewhere, those who
remained worked within the confines and constraints of public sector monopoly. This has
further constrained the opportunities for exposure to the development in rest of the world.
Liberalization and the opening up of sector to private players has now created a vast
opportunity for employment.
4. Obligation to Rural and Social Sector: In India, the insurance companies are required to fulfill
their obligation towards rural and social sector. For this, Life insurers are required to have
5%, 7%, 10%, 12%, 15% of total policies in first five years respectively in rural sector.
Likewise General Insurers are required to have 2% 3% and 5% thereafter of total gross
premium income written in first five financial years respectively in rural sector.
5. Insurance as financial intermediary: Financial intermediaries perform the function of
channelizing saving into domestic investment. They facilitate efficient allocation of capital
resources, which in turn improve productivity and economic efficiency which results in
reduced capital output ratio. The insurance companies perform extremely useful function in
economy as financial intermediaries. These are as follows:
a. Reduction in transaction cost: Insurers help in reducing transaction cost in economy by
collecting funds from policyholders and investing the same in different projects scattered over
different regions. It is a specialized and time consuming job.
b. Creating liability: The policyholders, in case of loss, are not required to wait for a long
period for the amount of claim. It improves their liquidity.
c. Facilitates Economies of scale in Investment: Insurers are in the position of financing
large projects, railways power projects, etc. These large projects create economies of scale,
facilitate technological innovation and specialization and thus promote economic efficiency
and productivity.
6. Promote Trade and Commerce: The increase in GDP is positively correlated to growth of
trade and commerce in economy. Whether it is production of goods and services, domestic or
 international trade or venture capital projects, insurance dominates everywhere. Even banks
demands insurance cover of assets while granting loans for purchase of assets. Thus insurance
covers, promotes specialization and flexibility in the economic system that play contributory
role in healthy and smooth growth of trade and commerce.
7. Facilitate efficient capital allocation: Insurance provides cover to large number of firms,
enterprises and businesses and also deploys their funds in number of investment projects. The
vast pool of knowledge and expertise so gained enable them to distinguish between productive
and high return projects. Therefore, they promote efficient and productive allocation of capital
resources, which in turn lead to increased productivity and efficiency in the system.
8. Encourage Financial Stability and Reducing Anxiety: Insurer promotes financial stability
in economy by insuring the risks and losses of individuals, firm and organizations. Because
of uninsured large losses, firm may not be able to compensate for it leading to its insolvency
which may cause loss of employment, revenue to supplier & Govt., loss of products to
customer, etc. Moreover, it relieves the tensions and anxiety of individuals by securing the
loss of their lives and assets.
9. Reduce Burden on Govt. Exchequer: Insurance companies, particularly life insurers
provide a variety of insurance products covering needs of children, women and aged etc under
social security network and thereby reduce the burden on Govt. exchequer in providing these
services. This Govt. saves expenditure on these items and amount can be utilized for more
productive projects. To conclude, we can say that insurance companies play an important role
in economic development of country.
**Contribution of insurance to the society
1) Provide safety and security: insurance provide financial support and reduce uncertainties
in business and human life. It provides safety and security against particular event. There is
always a fear of sudden loss. Insurance provides a cover against any sudden loss.
2) Generates financial resources: Insurance generates funds by collecting premium. These
funds are invested in government securities and stock. These funds gainful employed in
industrial development of a country for generating more funds and utilized for the economic
development of the country. Employment opportunities are increased by big investments
leading to capital formation.
3) Life insurance encourages savings: insurance does not only protect against risks and
uncertainties, but also provides an investment channel too. Life insurance enables systematic
savings due to payment of regular premium. Life insurance provides a mode of investment.
It develops a habit of saving money by paying premium. The insured get the lump sum
amount at the maturity of the contract. Thus life insurance encourages savings.
4) Promotes economic growth: Insurance generates significant impact on the economy y
mobilizing domestic savings. Insurance turn accumulated capital into productive
investments. Insurance enables to mitigate loss financial stability and promotes trade and
commerce activities those results into economic growth and development.
5) Medical support: A medical insurance considered essential in managing this in health.
Anyone can be a victim of critical illness unexpectedly. And rising medical expense is of
great concern. Medical Insurance is one of the insurance policies that cater for different type
of health risks. The insured gets a medical support in case of medical insurance policy.
6) Spreading of Risk: Insurance facilitates spreading of this from the insured to the insurer.
The basic principle of insurance is to spread this among a large number of people a large
 number of persons get insurance policies and pay premium to the insurer. Whenever a loss
occurs, it is compensated out of funds of the insurer.

**Constituents of Insurance Market

Constituents of insurance are the practice of law surrounding insurance, including

insurance policies and claims. It can be broadly broken into three categories – regulation of the
business of insurance; regulation of the content of insurance policies, especially with regard to
consumer policies; and regulation of claim handling. The insurance sector went through a full
circle of phases from being unregulated to completely regulate and then currently being partly
deregulated. It is governed by a number of acts. The first statute in India to regulate the life
insurance business was the Indian Life Assurance Companies Act, 1912. The Insurance Act of
1938 was the first legislation governing all forms of insurance to provide strict state control over
insurance business. Life insurance in India was completely nationalized on January 19, 1956,
through the Life Insurance Corporation Act. All 245 insurance companies operating then in the
country were merged into one entity, the Life Insurance Corporation of India.
Insurance Act had resulted in the formation of controller of Insurance, a regulatory. But
following the nationalization of major insurance companies in India, under Life Insurance of India
Corporation Act, 1956 and general Insurance Business (Nationalization) Act, 1972, its importance
diminished. However, as India began allowing private companies again in the insurance sector,
Insurance Regulatory and Development Authority of India were formed in 1999.
The Insurance Act has 120 sections and 8 schedules. Under it, only an Indian company, as
defined and registered under companies Act, 1956, is allowed to operate in India. Its foreign entity-
owned equity should not exceed 49% as of 2015. It must have a license from Insurance Regulatory
and Development Authority of India.

Constitution of the Insurance Corporation:

➢ The Corporation shall consist of such number of persons not exceeding fifteen as the Central
Government may think fit to appoint thereto and one of them shall be appointed by the Central
Government to be the Chairman thereof.
➢ Before appointing a person to be a member, the Central Government shall satisfy itself that
the person will have no such financial or other interest as is likely to affect prejudicially the
exercise or performance by him of his functions as a member, and the Central Government
shall also satisfy itself from time to time with respect to every member that he has no such
interest; and any person who is, or whom the Central Government proposes to appoint and
who has consented to be, a member shall, whenever required by the Central Government so
to do furnish to it such information as the Central Government considers necessary for the
performance of its duties under this sub-section.
➢ A member who is in any way directly or indirectly interested in a contract made or proposed
to be made by the corporation shall as soon as possible after the relevant circumstances have
come to his knowledge, disclose the nature of his interest to the corporation and the member
shall not take part in any deliberation or discussions of the corporation with respect to that
contact.
**Operations of Insurance Companies
There are several operations of insurance companies from which some of heads are listed below:
• Rate making
• Underwriting
• Production
 • Claim settlement
• Reinsurance
• Investments
1. Rate Making: Rate making refers to the pricing of insurance
– Total premiums charged must be adequate for paying all claims and expenses during the
policy period
– Rates and premiums are determined by an actuary, using the company’s past loss
experience and industry statistics
2. Underwriting: refers to the process of selecting, classifying, and pricing applicants for
insurance
– The objective is to produce a profitable book of business
– A statement of underwriting policy establishes policies that are consistent with the
company’s objectives, such as
– Acceptable classes of business
– Amounts of insurance that can be written
– A line underwriter makes daily decisions concerning the acceptance or rejection of
business
There are three important principles of underwriting:

–The underwriter must select prospective insureds according to the company’s

underwriting standards
– Underwriting should achieve a proper balance within each rate classification
– In class underwriting, exposure units with similar loss-producing characteristics are
grouped together and charged the same rate
– Underwriting should maintain equity among the policyholders
3. Production: It refers to the sales and marketing activities of insurers
– Agents are often referred to as producers
– Life insurers have an agency or sales department
– Property and liability insurers have marketing departments
– An agent should be a competent professional with a high degree of technical knowledge
in a particular area of insurance and who also places the needs of his or her clients first
4. Claim Settlement: The objectives of claims settlement include:
– Verification of a covered loss
– Fair and prompt payment of claims
– Personal assistance to the insured
Some laws prohibit unfair claims practices, such as:
– Refusing to pay claims without conducting a reasonable investigation
– Not attempting to provide prompt, fair, and equitable settlements
– Offering lower settlements to compel insureds to institute lawsuits to recover amounts
due
5. Reinsurance: Reinsurance is an arrangement by which the primary insurer that initially
writes the insurance transfers to another insurer part or all of the potential losses associated
with such insurance
– The primary insurer is the ceding company
– The insurer that accepts the insurance from the ceding company is the reinsurer
– The retention limit is the amount of insurance retained by the ceding company
– The amount of insurance ceded to the reinsurer is known as a cession
6. Investment: Because premiums are paid in advance, they can be invested until needed to pay
claims and expenses
 – Investment income is extremely important in reducing the cost of insurance to policy
owners and offsetting unfavorable underwriting experience
– Life insurance contracts are long-term; thus, safety of principal is a primary consideration
– In contrast to life insurance, property insurance contracts are short-term in nature, and
claim payments can vary widely depending on catastrophic losses, inflation, medical
costs, etc

**Operations of Intermediaries
1) Insurance Intermediaries: Insurance intermediaries assist in the placement and purchase of
insurance, as well as provide services to insurance companies and consumers that complement
an insurance transaction.
Traditionally, insurance intermediaries have been categorized as either insurance agents
or insurance brokers. The distinction between the two relates to the manner in which they function
in the marketplace.
2) Insurance Agents: Insurance agents are, in general, licensed to conduct business on behalf
of an insurance company. Agents represent the insurance company and operate under the
terms of an agency agreement with the insurer.
Depending on the terms of the agency agreement, an insurance agent may be authorized
to solicit insurance business, collect premiums and issue cover notes on behalf of the insurance
company. Some insurance agents also do provide an after sales service in assisting their clients in
the event there is a claim to be made with their insurance company.
3) Insurance Brokers: Insurance brokers are full-time professional intermediaries who act on
behalf of potential policyholders. All Insurance Brokers are licensed by Bank Negara
Malaysia and are registered with The Malaysian Insurance and Takaful Brokers Association
(MITBA).
They represent their clients who want to buy insurance coverage and provide advice on
the best insurance cover to meet their clients’ insurance needs and negotiate for the best possible
terms for their clients with insurance companies. As an after sales services, brokers also help their
clients in presenting claims to the insurance companies and in getting their claims settled. The
brokers are paid a brokerage by the insurance companies.
Dealing with Insurance Intermediaries
Dealing with an insurance intermediary is something that we all have to do at some
point. Therefore, learning how to deal with your insurance intermediary is essential. Here are a
few tips to keep in mind.

• Ask for and check whether the person holds a valid authorization to carry out the business.
For example the Intermediary should be licensed to sell general insurance by PIAM (for
general insurance agents) and MITBA (for brokers).
• You can check if an insurance agent is an authorized agent via our Agents Search Portal.
• Check whether he or she has a good knowledge of various insurance
products/policies through recommendations from your family or friends, if possible.
• He or she should understand your needs and what you are seeking. Always ensure that you
consider only products that you can afford and will meet your needs. Beware of
tall promises and over-selling tactics.
 • Ask questions and understand the policy terms and conditions of the policy
the Intermediary is trying to explain to you. If you are unsure, you may contact PIAM
at [email protected] or the insurance company at their customer care hotline
for clarifications.
• You must be satisfied that you understand what your commitments are. What are
the payments or amounts that you have to bear not only when you take the policy but
when you surrender it or when you make a claim.
• Ask for brochures and sales literature pertaining to the product you are considering or
the intermediary is trying to sell. Get the intermediary to explain the full facts of the
products, scope of cover and exclusions, as applicable.
• Insist on quality delivery and timely service. You can judge this by the turnaround time
of the intermediary during the period of pre-sale when he or she is dealing with you.
• Fill up the proposal form yourself. Never ever sign on a blank proposal form. If you
find terms in the proposal form that you do not understand, ask the intermediary to explain
it to you.
• When you make premium payments through an Intermediary, check whether he
is authorized to do so by the insurance company and insist on a duly signed
receipt immediately.
• After receipt of your policy, go through it thoroughly and if you do not understand
certain terms contact your intermediary and get them explained or contact your
insurance company.
• Ask the intermediary questions about documents and procedures involved in making
a claim and understand them completely. In the event of a claim, there may be
other agencies you may have to intimate apart from the insurance company. Get
complete details about what you are expected to do.

**Specialist Insurance Companies in India

A quiet revolution has swept through India’s health care sector in the past five years -
best evidenced in the fact that now nearly 27% of the nation’s population is insured. The
Indian healthcare sector is projected to continue its rapid expansion, with a market value of
$280 billion by 2020. There are lots of options as far as insurance companies are concerned
as both public as well as private health insurance private operators are offering health
insurance coverage.
1) Apollo Munich Health Insurance Company Limited: It is a joint venture between
Asia’s largest integrated healthcare provider Apollo hospitals Group and Germany
based Munich Health. The company works upon the thought of “Let’s Uncomplicated’
and offers tailor-made medi-claim policies to individuals, family, senior citizen and
corporate.
2) Star Health and Allied insurance Co Ltd: It is India’s first stand-alone health
insurance company, dealing in personal accident, medi-claim and travel insurance Due
to its hassle-free and customer-friendly direct claim settlement, the company was
bestowed with "Claims Service Company of the year 2014” award among 28 General
Insurance Companies who were also competing for the same title.
3) Future General India Insurance Company Ltd: Future General is a joint venture
between India’s leading retailer Future Group and Italy-based General Group. Catering
to divergent needs of life and non-life insurance customers, the company works towards
 imparting superior customer service through innovative insurance products and
services.
4) Bajaj Allianz General Insurance Co Ltd: Bajaj Allianz General Insurance Company
Limited is a joint venture between Bajaj Finserv Limited (recently demerged from Bajaj
Auto Limited) and Allianz SE. Bajaj Finserv Limited holds 74% and the remaining 26%
is held by Allianz, SE.
5) ICICI Lombard General Insurance Co. Ltd: ICICI Lombard General Insurance Co.
Ltd. is a joint venture between ICICI Bank Limited, India‘s second largest bank and
Fairfax Financial Holdings Limited, a Canada based diversified financial services
company engaged in general insurance, reinsurance, insurance claims management and
investment management. Since its inception, the company has been working towards
providing utmost satisfaction to its customers by offering customized insurance
solutions.
In 2013, ICICI Lombard received the highest rating in terms of overall customer
satisfaction and was conferred with the title “The Most Recommended Company” in 2013
survey, which was organized by Dept. of Consumer Affairs, Ministry of Consumer Affairs
to assess customer satisfaction and quality of health insurance in India
6) Cigna TTK: Cigna TTK is established as a joint venture between Cigna, a global
insurance company and TTK Group, an Indian conglomerate. Incepted in 2012, Cigna
TTK offers health insurance plans to meet both individual and family health insurance
needs.
7) National Insurance Co Ltd: It is a government controlled undertaking and provides a
wide gamut of insurance products, including motor, health, personal and fire insurance.
8) Iffco Tokyo General Insurance Co Ltd: It is a joint venture between Indian Farmers
Fertilizer Co-operative (IFFCO) and its associates and Tokyo Marine and Nichido Fire
Group, the largest listed insurance group in Japan. Incorporated in 2000, Iffco Tokyo
General Insurance Co Ltd offers a wide array of non-life insurance products that give
complete coverage in those times when you need it most.
9) The New India Assurance Co Ltd: Headquartered in Mumbai, The New India
Assurance Co. Ltd. is a nationalized general insurance company operating in 22 nations.
Founded in 1919, Indian operations of the country today span across all Indian
territories through 2097 offices.
10) The Oriental Insurance Co. Ltd: Incorporated in 1947, Oriental Insurance Co. Ltd. is
a pioneer in laying down systems for smooth functioning of the insurance sector.
Headquartered in New Delhi, Oriental Insurance Co. Ltd. has formulated various
insurance products to cater needs of both urban and rural India. It is a central
government undertaking providing general insurance and has operations in Nepal,
Kuwait and Dubai.
11) Reliance General Insurance Co Ltd: It is one of the leading private insurance
companies in India, with a market share of over 8%. The company is offering insurance
products for motor, health, travel and commercial.
12) United India Insurance Co Ltd: After the nationalization of the business of United
India Insurance Co. Ltd., the company has grown by leaps and bounds and currently
 providing insurance coverage to over 1 crore policyholders. The company has extensive
insurance cover to offer from bullock carts to satellites.
13) Royal Sundaram Alliance Insurance Co Ltd: It is a joint venture between Sundaram
Finance, one of the most respected non-banking financial institutions in India, and RSA,
one of the oldest and the second largest general insurer in UK. Royal Sundaram Alliance
Insurance takes pride to be the first insurer to introduce cashless mode of settlement for
health claims in India. It is a preferred insurer of renowned automobile manufactu ring
companies.
14) Tata AIG General Insurance Co. Ltd.: Tata AIG General Insurance Company
Limited is a joint venture between Tata Group and renowned American International
Group, Inc. Incepted in 2001, Tata AIG General Insurance blends the Tata Group’s
leadership position in India and AIG’s global presence as the world’s eminent insurance
and financial service organization. At present, Tata AIG General Insurance Company
is offering a wide range of general insurance products including health insurance, motor
insurance, travel insurance, lifestyle insurance as well as different specialized financial
lines.
15) Cholamandalam MS General Insurance Co Ltd: Cholamandalam MS General
Insurance Company Ltd. is a joint venture between Murugappa Group and Mitsui
Sumitomo Insurance Group of Japan. Cholamandalam MS is a private company offering
a wide range of insurance products including accident, engineering, health, liability,
marine, motor, property, travel and rural insurance for both individuals and corporate.
The company has over 105 branches and 9000 agents pan India.
16) HDFC ERGO General Insurance Co Ltd: HDFC ERGO General Insurance Company
Limited is a 74:26 joint venture between HDFC Limited, India‘s leading Housing
Finance Institution and ERGO International AG, the primary insurance entity of
Munich Re Group. The company is offering a complete range of general insurance
products varying from health, travel, motor, home and personal accident in retail
segment and customized products like liability insurance, marine and property in
corporate segment.
17) Universal Sompo General Insurance Co Ltd: It is a joint venture of four Indian
companies (with three banks and a FMCG company) and Japanese general insurance
provider, ‘Sompo Japan Nipponkoa Insurance Inc.’ it is the largest property and
casualty insurance company in Japan and holding 26% stake in Universal Sompo
General Insurance Co. Ltd. The product range of the company is quite extensive which
offers insurance coverage for health, motor and commercial purpose.
18) Bharti AXA General Insurance Co Ltd: It is a joint venture between Bharti
Enterprises of India, a pivotal Indian business group and AXA group of Europe, a world
leader in financial protection. Started its operations in 2008, the company currently has
59 branch offices throughout the country. Moreover, it is the first general insurance
company to get dual certifications of ISO 9001:2008 and ISO 27001:2005 within first
year of its operations in 2009.
19) SBI General Insurance Company Ltd: SBI General Insurance Company Limited is a
joint venture between State Bank of India and Insurance Australia Group (IAG). SBI
owns 74% of the total capital and IAG the remaining 26%. SBI General follows a viable
multi-distribution model, encompassing broking & retail direct channels, agency and
banc assurance. Currently, SBI General’s distribution family includes more than 10,000
 IRDA certified SBI & associate bank employees and over 4800 agents. At present, SBI
General Insurance Company covers travel, health, motor, personal accident and ho me
insurance for individuals and group personal accident, group health, marine package,
construction & engineering for businesses.
20) Raheja QBE General Insurance Co Ltd: Raheja QBE General Insurance Company
Limited is a joint venture general insurance company promoted by Prism Cement
Limited, India and QBE Holdings (AAP) Pty Limited, a wholly owned subsidiary of
QBE Insurance Group Limited, Australia. Raheja QBE General Insurance Company
offers a complete array of personal line products which are specifically designed to
meet bourgeoning needs of families and individuals. The company’s divergent
corporate insurance solutions safeguard a business from unforeseen circumstances.
21) MAX Bupa Health Insurance Company Ltd: MAX Bupa Health Insurance Company
is formed after a joint venture between Max India Limited and UK based Bupa Finance
PLC, UK. The perfect combination of both global expertise and local knowledge in
healthcare and insurance makes MAX Bupa the right choice when it comes to
safeguarding the health of your family.
22) L & T General Insurance Co Ltd: L & T General Insurance Company Limited (L &
T Insurance) is a wholly owned subsidiary of Larsen & Toubro Limited. The product
range of L & T Insurance is quite wide which includes motor insurance, health
insurance, home insurance, SME insurance and corporate insurance.
23) Religare Health Insurance Co Ltd: It is a specialist health insurance provider engaged
in distribution of health insurance products. The Religare enterprises, Corporation Bank
and Union Bank of India are strong shareholders of the company. Promoted by founders
of Fortis Hospitals, Religare Health Insurance Co. Ltd. is excelling in a business
environment that is driven by serviceability.
24) Liberty Videocon General Insurance: The Company comes in existence after the joint
venture between Videocon Group and the US-based Liberty Mutual Insurance Group.
The personal insurance segment includes two wheeler, private car and health insurance,
while corporate policies liabilities insurance, engineering, property and fleet insurance.
25) Export Credit Guarantee Corporation of India Ltd. (ECGC): Export Credit
Guarantee Corporation of India Ltd. (ECGC) is an enterprise managed and owned by
the Indian Government. It is a provider credit risk insurance cov ers to exporters against
the losses they incur in export of goods and services. It also offers Export Credit
Insurance covers to banks and financial institutions or India and Overseas Investment
Insurance to Indian companies investing in joint ventures abroad.
26) Agriculture Insurance Company of India Ltd.: Incorporated on 20th December, 2002
under the Indian Companies Act 1956, Agriculture Insurance Co. of India Ltd. was set
up with a vision to accelerate economic momentum of the nation by bringing financial
stability in the rural areas and launch farmer-friendly insurance plans to cover all the
agricultural and related risks. Improve delivery and service of agricultural insurance to
bring the poorest farmers of remote areas under the umbrella of insurance in an
economic manner.
27) Shriram General Insurance Company: Established in 1974, Shriram General
Insurance Company is a joint venture between Shriram Group and South Africa based
Sanlam Limited. Shriram Groups holds a 74% stake in the company while the remaining
 26% shares are held by Sanlam Limited. With over 9.5 million customers and more than
45,000 employees across 2400 branches in India, the company earns a net profit of over
Rs. 15 billion and worth Rs. 60,000 crores of assets under management.
28) Magma HDI General Insurance Company Limited: Magma HDI General Insurance
Co Ltd. is a joint venture between Magma Fincorp Ltd, Kolkata and HDI-Gerling
Industries Versicherung AG Germany. Magma HDI General Insurance offers various
kinds of insurance such as Fire Insurance, Motor Insurance, Liability Insurance, Marine
Insurance, Engineering insurance, and a lot more.
**Role of Insurance Regulators and Other Bodies Connected With Insurance
Insurance Regulatory Law (IRL)
It is the body of statutory law, administrative regulations and jurisprudence that governs
and regulates the insurance industry and those engaged in the business of insurance. Insurance
regulatory law is primarily enforced through regulations, rules and directives by state insurance
departments as authorized and directed by statutory law enacted by the state legislatures. However,
federal law, court decisions and administrative adjudications also play an important role.
Insurance is characterized as a business vested or affected with the public interest. Thus,
the business of insurance, although primarily a matter of private contract, is nevertheless of such
concern to the public as a whole that it is subject to governmental regulation to protect the public’s
interests.
Therefore, the fundamental purpose of insurance regulatory law is to protect the public as
insurance consumers and policyholders. Functionally, this involves:

• Licensing and regulating insurance companies and others involved in the insurance industry;
• Monitoring and preserving the financial solvency of insurance companies;
• Regulating and standardizing insurance policies and products;
• Controlling market conduct and preventing unfair trade practices; and
• Regulating other aspects of the insurance industry.

Insurance Regulatory and Development Authority (IRDA)

IRDA Act was passed by parliament in December’1999 and it received president
approval in January’2000. The main aim of the authority is “to protect the interest of holders
of Insurance policies to regulate, promote and ensure orderly growth of Insurance
industry & for matters connected therewith or incidental thereto.” Under this Act,
Controller of Insurance under Insurance Act 1398 was replaced by newly established authority
called Insurance Regulatory and Development Authority (IRDA).

Features of Authority:
• The authority will consists of chairman, whole time members & part time members and
they will act as a group of members and will work jointly not individually like Controller
of Insurance.
• In case if any member resign or die, the authority will still continue to work.
• A common seal with power to enter into a contract by affixing a stamp on the documents.
• Sue or be sued means the Authority can file a case against any person or organization and
vice versa.
Duties, Powers & Functions of Authority (Section 14):
Duties: – The duty of the authority is to control, promote and safeguard orderly growth of the
insurance industry and reinsurance business subject to the provisions of any other provisions
of the act.

Powers & Functions to:-

➢ To protect the interest of the policy holders related to surrender value of policy, settlement
of insurance claims, insurable interest, nomination by policy holders, other terms &
conditions of insurance contract
➢ In case of General Insurance, who assess the loss of policy holder should be stated the
code of conduct.
➢ Promoting proficiency in the conduct of insurance business;
➢ Promoting and regulating professional organizations connected with the insurance and re-
insurance business;
➢ Calling for information from, undertaking inspection of, conducting inquiries including
audit of the insurers, intermediaries, insurance intermediaries and other organizations
connected with the Insurance business;
➢ Stating the form and manner in which books of account shall be kept and statement of
accounts shall be rendered by insurers and other insurance intermediaries;
➢ Regulating investment of funds by insurance companies;
➢ Regulating maintenance of margin of solvency i.e., having sufficient funds to pay
insurance claim amount.
➢ To settle the disputes between insurers and intermediaries or insurance intermediaries
➢ Stating the percentage of life insurance business and general insurance business to be
accepted by the insurer in the rural or social sector; and
➢ Exercising such other powers as may be prescribed.

Role of Insurance Regulatory and Development Authority (IRDA)

1. To safeguard the interest of and secure fair treatment to insurance policy holders
2. To bring quick and systematic growth of the insurance industry or sector in order to
provide benefits to the common man and also to provide long term funds for accelerating
growth of the economy.
3. To set, promote, monitor and apply high standards of integrity, fair dealing, financial
viability and capability of those it regulates.
4. To make sure that insurance policy holder receives precise, accurate, clear & correct
information about the products & services provided by insurance companies & also make
customers aware about their duties & responsibilities in this regard.
5. To ensure quick settlement of genuine claims, to prevent insurance frauds, scams & other
malpractices and put in place operative grievance redressal machinery.
6. To boost transparency, fairness, and orderly conduct in financial markets dealing with
insurance & build a trustworthy management information system in order to enforce high
standards of financial soundness amongst market players.
7. To take appropriate actions where such standards do not prevail or are inadequate &
ineffectively enforced.
8. To bring about optimal amount of self-regulation in day-to-day activities of the industry
reliable with the requirements of prudential regulation.
 Unit – 3
Insurance Terminology and Insurance Customers

**Common Terms in Insurance: Life and Non-Life

Insurance terminology is the time period when term of the insurance gets over or the
customer voluntarily discontinue from the insurance policy. Insurance Terminology consider the
term cash surrender value which is the sum of money an insurance company pays to the policy
holder or annuity holder in the event his policy is voluntarily terminated before its aturity or the
insured event occurs. This cash value is the savings component of most permanent life insurance
policies, particularly whole life insurance policies it is also known as “cash Value”, “Surrender
Value” and “policyholder’s equity”.
✓ Abandonment Clause: A Clause often contained in property insurance policies stating that
the insured cannot abandon damaged property to the insurer and demands to be reimbursed
for its full value.
✓ Accident: An unforeseen, unintended event
✓ Accommodation Line: Business accepted by a company which normally would be rejected
according to strict underwriting standard, but which is accepted because of the relationship of
the agent to the company or the client to the company and agent.
✓ Account current: The report of premium transactions, usually on a monthly basis, either
provided by the agency to the company or by the company to the agency.
✓ Accredited Advisor in Insurance (AAI): Designation offered by the Insurance Institute of
America (CPCU/IIAA) that stresses the production side of insurance, with study in personal
and commercial property and liability contracts, sales and agency management.
✓ Accredited Customer Service Representation (ACSR): Designation offered by the
Independent Insurance Agents of America (IIAA) that stresses the service side of insurance,
with study in commercial and/or personal lines insurance contracts, account development,
errors and omissions and quality customer service.
✓ Actual Cash Value (ACV): The cost to replace an item of property at the time of loss, less
an allowance for depreciation. Often used to determine amount of reimbursement for a loss
✓ Advertising Injury: Coverage provided under liability policies which provides coverage
against liability for libel, slander, violation of privacy, misappropriation of advertising ideas
infringement of copyright, title or slogan.
✓ Agent: Usually an insurance company appointed representative which is licensed by the state
in which they do business. They can solicit market, negotiate, bind, and administer insurance
policies for the insurer.
✓ Aggregate Limit: a type of policy limit found in liability policies which limits coverage to a
specified total amount for all losses occurring within the policy period.
✓ Agreed Value: Written with property insurance policies. It waives the Coinsurance clause
and requires the insured to carry insurance equal to at least 80% of a signed statement of
values filed with the company.
✓ Aircraft Liability Insurance: Coverage written to cover public and passenger liability and
property damage liability.
✓ Air port and Air Meet Liability: Coverage that provides protection to airports for bodily
injury and property damage liability.
✓ Aviation insurance: Insurance which provides both liability and physical damage (also called
Aircraft Hull insurance) coverage for aircraft. Liability coverage available separately for
hangrarkeepers and airport owners or operators.
✓ Bailee: One who has temporary custody of property belonging to another is a bailee. (ex: dry
cleaner)
✓ Blue Sky Bond: Surety bond required of investment companies, guaranteeing against
misrepresentation of securities and defrauding the public.
✓ Broker: the person who represents an insured in the solicitation, negotiation, or placement
of insurance.
✓ Builders Risk Coverage Form: Insurance that provides coverage for buildings under
construction as well as materials, equipment, supplies and temporary structures used in
construction. Part of the Commercial Property portion of the Commercial Package Policy.
✓ Cancellation: Termination of an insurance policy in force by a voluntary act of the insured
or lby insurer for lack of payment, fraud, misrepresentation etc.
✓ Captive Agent: Representative of a single insurer or fleet of insurers who is obliged to submit
business only to that company, or at the very minimum, give that company first refusal rights
on a sale. In exchange, that insurer usually provides its captive agents with an allowance for
office expenses as well as an extensive list of employee benefits such as pensions, life
insurance, health insurance, and credit unions
✓ Casualty Insurance: That type of insurance that is primarily concerned with losses caused
by injuries to persons and legal liability imposed upon the insured for such injury or for
damage to property of others. It also includes such diverse forms as plate glass, insurance
against crime, such as robbery, burglary and forgery, boiler and machinery insurance and
Aviation insurance. Many casualty companies also write surety business.
✓ Claim: A demand made by the insured, or the insured's beneficiary, for payment of
the benefits as provided by the policy.
✓ Coinsurance: In property insurance, requires the policyholder to carry insurance equal to a
specified percentage of the value of property to receive full payment on a loss. For health
insurance, it is a percentage of each claim above the deductible paid by the policyholder. For
a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20%
of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts
paying 100% of losses.
✓ Chartered Life Underwriter (CLU): A professional designation by The American College
for those who pass business examinations on insurance, investments, and taxation, and have
life insurance planning experience.
✓ Chartered Property/Casualty Underwriter (CPCU): A professional designation given by
the American Institute for Property and Liability Underwriters. National examinations and
three years of work experience are required.
✓ Comprehensive coverage (physical damage other than collision): Pays for damage to or
loss of your automobile from causes other than accidents. These include hail, vandalism,
flood, fire, and theft.
✓ Conditional receipt: A premium receipt given to an applicant that makes a life and health
insurance policy effective only if or when a specified condition is met.
✓ Declaration: Part of a property or liability insurance policy that states the name and address
of policyholder, property insured, its location and description, the policy period, premiums,
and supplemental information. Referred to as the Idec page’s
✓ Deductible: The amount of loss paid by the policyholder. Either a specified dollar amount as
percentage of the claim amount, or a specified amount of time that must elapse before benefits
are paid. The bigger the deductible, the lower the premium charged for the same coverage.
✓ Directors and Officers Liability Insurance/D&O: Covers directors and officers of a
company for negligent acts or omissions, and for misleading statements that result in suits
against the company, often by shareholders. Directors and officers insurance policies usually
 contain two coverages: personal coverage for individual directors and officers who are not
indemnified by the corporation for their legal expenses or judgments against them ñ some
corporations are not required by their corporate or state charters to provide indemnification;
and corporate reimbursement coverage for indemnifying directors and officers.
✓ Depreciation: A decrease in the value of property due to wear, age or other cause.
Compare actual cash value.
✓ Employers Liability Insurance: Coverage against common law liability of an employer for
accidents to employees, as distinguished from liability imposed by a workers' compensation
law.
✓ Economic Loss: Total financial loss resulting from the death or disability of a wage earner,
or from the destruction of property. Includes the loss on earnings, medical expenses, funeral
expenses, the cost of restoring or replacing property, and legal expenses. It does not include
noneconomic losses, such as pain caused by an injury.
✓ Employee Dishonesty Coverage: Covers direct losses and damage to businesses resulting
from the dishonest acts of employees.
✓ Endorsement: A written form attached to an insurance policy that alters the policyís
coverage, terms, or conditions. Sometimes called a rider.
✓ Exclusive Agent: A captive agent, or a person who represents only one insurance company
and is restricted by agreement from submitting business to any other company unless it is first
rejected by the agent’s company.
✓ Extended Coverage: An endorsement added to an insurance policy, or clause within a policy,
that provides additional coverage for risks other than those in a basic policy.
✓ Financial Responsibility Law: A state law requiring that all automobile drivers show proof
that they can pay damages up to a minimum amount if involved in an auto accident. Varies
from state to state but can be met by carrying a minimum amount of auto liability insurance.
✓ General Liability Insurance: Insurance designed to protect business owners and operators
from a wide variety of liability exposures. Exposures could include liability arising from
accidents resulting from the insured's premises or operations, products sold by the insured,
operations completed by the insured, and contractual liability.
✓ Group Insurance: A single policy covering a group of individuals, usually employees of the
same company or members of the same association and their dependents. Coverage occurs
under a master policy issued to the employer or association.
✓ Guaranteed renewable: Policies that may not be non-renewed or canceled, except in certain
cases. An insurer may cancel a guaranteed renewable policy for failure to pay premiums,
fraud, or intentional material misrepresentation. It also may cancel your policy if the company
formally leaves the individual or group health market
✓ Health Maintenance Organization (HMO): Prepaid group health insurance plan that
entitles members to services of participating physicians, hospitals and clinics. Emphasis is on
preventative medicine, and members must use contracted health-care providers.
✓ Indemnity plan: A health plan that allows you to go to any physician or provider you choose,
but require that you pay for the services yourself and file claims for reimbursement. (Also
known as fee-for-service)
✓ Insurable interest: Any financial interest a person has in the property or person insured. In
life insurance, a person´s or party´s interest - financial or emotional - in the continuing life of
the insured.
✓ Insurance: A system to make large financial losses more affordable by pooling the risks of
many individuals and business entities and transferring them to an insurance company or other
large group in return for a premium.
✓ Insured: The person or organization covered by an insurance policy.
✓ Insurer: The insurance company.
✓ Jewelers block: A policy that covers the property of jewelers and the property of others in
their care or custody against the most probable types of losses.
✓ Lapsed policy: A policy that has been cancelled due to lack of payment of the premiums.
✓ Leasehold interest coverage form: A form of commercial property coverage. If a lease is
broken due to property damage stemming from a peril specified in the contract, the difference
between the amount of rent paid and the total rental value is paid for the term of the lease.
✓ Legal liability: Obligations under law arising from civil actions (torts) or under contract.
Legal liability can only be decided by courts even if the settlement is made out of the court
by mutual agreement. Liability insurance normally covers only the liability arising from torts
and not from the contractual obligations.
✓ Liability Insurance: Policy that covers civil liabilities to third parties, arising from bodily
injury, property damage, or other wrongs due to the action or inaction of the insured. It covers
only civil liabilities and not criminal liabilities.
✓ Liberalization clause: A clause stipulating that the policy will be changed to accommodate
the changes mandated by legislation or rating authorities. In order for this clause to apply, no
extra premium must be required.
✓ License and Permit Bonds: A bond mandated by the state or other ruling jurisdiction to be
acquired by people working in certain occupations, for example, plumbers. The bond
guarantees the bearer will comply with the governing laws. Should the bearer fail to comply,
the bond identifies him or her.
✓ Marine Insurance: Coverage against loss of or damage to a ship; and in-transit cargo loss or
damage over waterways, land, and air.
✓ Medicare Supplement Insurance: Insurance that supplements the coverage provided by
Medicare. These supplements sometimes pay the insured's deductibles or co-payments, but
cannot duplicate the benefits provided to the insured by Medicare.
✓ Misrepresentation: Fraudulent, negligent, or innocent misstatement, or an incomplete
statement, of a material fact. If a specific misrepresentation induces the other party to enter
into a contract, that party may have the legal right to rescind the contract or seek compensation
for damages. The guilty party avail of the defense that the wronged party could have checked
the facts and have discovered what was wrong. A misstatement of an intention or opinion is
generally not considered a misrepresentation.
✓ Negligence: Breach of duty of care which results in loss or injury to the person or entity the
duty is owed. Negligence usually includes doing something that an ordinary, reasonable, and
prudent person would not do, or not doing something such a person would do considering the
circumstances, situation, and the knowledge of parties involved. In civil liability (see tort), an
aggrieved person or entity is entitled to claim damages in a court. In criminal liability, it is
usually an unacceptable defense to claim that one was doing one's best to avoid injury or loss
if his or her conduct or performance falls below the expected or required level.
✓ Non-cancelable: A policy contract that specifies that the insured may continue coverage by
paying the premiums for a specific time frame. During the same time frame, the insurer is
prohibited from making changes. The premiums on this type of policy cannot be changed
during the term.
✓ Obligee: Obliging party (bond holder, creditor, lender, insurance policy holder, etc.) in whose
favor a promise is made or an obligation is entered into by an obligor, under the terms of an
agreement. Also called promisee.
✓ Occurrence: Event that results in a loss to a third party due to bodily injury, or property
damage or destruction. Most liability insurance policies stipulate that all losses resulting from
 the same general causes are considered as resulting from one occurrence, and are limited to
the number of occurrences allowed in the insurance policy.
✓ Performance Bonds: A written guaranty from a third party guarantor (usually a bank or an
insurance company) submitted to a principal (client or customer) by a contractor on winning
the bid. A performance bond ensures payment of a sum (not exceeding a stated maximum) of
money in case the contractor fails in the full performance of the contract.
✓ Primary Property: Property or liability insurance policy that covers up to the policy's limit
(usually after deductibles) whether or not other policies cover the same risk. In contrast,
excess insurance is triggered only when the primary insurance is exhausted.
✓ Reporting Form: A form used by the insured to send the insurer updates on the value of
stocks, furniture, and home improvements. This is most often used by an insured with varying
inventory.
✓ Retroactive Date: A date that may exist in claims made policy. If this date does exist, it
represents the beginning of coverage. No claims made after this date will be honored.
✓ Risk management: The identification, analysis, assessment, control, and avoidance,
minimization, or elimination of unacceptable risks. An organization may use risk assumption,
risk avoidance, risk retention, risk transfer, or any other strategy (or combination of strategies)
in proper management of future events
✓ Risk management: this approach in which an entity sets aside a sum as a protection against
a probable loss, instead of transferring the risk by purchasing an insurance policy. This term
is a misnomer because no insurance is involved. Properly called risk retention.
✓ Salvage: Damaged property an insurer takes over to reduce its loss after paying a claim.
Insurers receive salvage rights over property on which they have paid claims, such as badly-
damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover
sunken treasures. Salvage charges are the costs associated with recovering that property.
✓ Self-Insurance: The concept of assuming a financial risk oneself, instead of paying an
insurance company to take it on. Every policyholder is a self-insurer in terms of paying a
deductible and co-payments. Large firms often self-insure frequent, small losses such as
damage to their fleet of vehicles or minor workplace injuries. However, to protect injured
employees state laws set out requirements for the assumption of workers compensation
programs.
✓ Third-Party Administrator (TPA): An organization that performs managerial and clerical
functions related to an employee benefit insurance plan by an individual or committee that is
not an original party to the benefit plan.
✓ Term Insurance: A form of life insurance that covers the insured person for a certain period
of time, the term that is specified in the policy. It pays a benefit to a designated beneficiary
only when the insured dies within that specified period which can be one, five, 10 or even 20
years. Term life policies are renewable but premiums increase with age.
✓ Umbrella Policy: Coverage for losses above the limit of an underlying policy or policies such
as homeowners and auto insurance. While it applies to losses over the dollar amount in the
underlying policies, terms of coverage are sometimes broader than those of underlying
policies.
✓ Underwriting: The process an insurance company uses to decide whether to accept or reject
an application for a policy.
✓ Unearned premium: The amount of a pre-paid premium that has not yet been used to buy
coverage. For instance, if a policyholder paid in advance for a six-month premium, but then
cancel the policy after two months, the company must refund the remaining four months of
"unearned" premium.
✓ Valued Policy: A policy under which the insurer pays a specified amount of money to or on
behalf of the insured upon the occurrence of a defined loss. The money amount is not related
to the extent of the loss. Life insurance policies are an example.
✓ Waiver of Premium: A provision in some insurance contracts which enables an insurance
company to waive the collection of premiums while keeping the policy in force if the
policyholder becomes unable to work because of an accident or injury. The waiver of
premium for disability remains in effect as long as the insured is disabled.
✓ Whole Life Insurance: Life insurance which might be kept in force for a person's whole life
and which pays a benefit upon the person's death, whenever that might be
✓ Workers Compensation: Insurance that pays for medical care and physical rehabilitation of
injured workers and helps to replace lost wages while they are unable to work. State laws,
which vary significantly, govern the amount of benefits paid and other compensation
provisions.

**Usage of Insurance terms

Usage of insurance terms depends upon the requirements and situations. Because term life
insurance is a pure death benefit, its primary use is to provide coverage of financial responsibilities
for the insured or his or her beneficiaries. Such responsibilities may include, but are not limited to,
consumer debt, dependent care, and university education for dependetns, funeral costs, and
mortgages. Term life insurance may be chosen in favour of permanent life insurance because term
insurance is usually much less expensive (depending on the length of the term), even if the
applicant is an everyday smoker.
A Unit Link Insurance Plan is basically a combination of insurance as well as investment.
A part of the premium paid is utilized to provide insurance cover to the policy holder while the
remaining portion is invested in various equity and debt schemes. The money collected by the
insurance provider is utilized to form a pool of fund that is used to invest in various markets
instruments in varying portions just the way it is done for mutual funds. Just the way it is for
mutual funds, ULIP policy holders are also allotted units and each unit has a net asset value (NAV)
that is declared on a daily basis. The NAV is the value based on which the net rate of returns on
ULIPs are determined. The NAV varies from one ULIP to another based on market conditions and
the fund’s performance.

**Understanding Insurance Customers

This is important to understand the expectations of the customers while selling insurance
product especially in India. Indian insurance customers expect best risk coverage by spending
fewer amounts. The higher the deductions, cheaper the plans. But top-up health plans are meant to
bridge the gap between existing policies and actual costs. The idea is not to duplicate but buy extra
cover at a reasonable cost.
Customers are looking for an understanding of their personal situation when they’re having
an event and they’re looking for people to help them cope with it. They expect all of those people
they have relationships with to be able to respond in the same way.

Characteristics of Indian Insurance Customers

➢ They are in control – with the price transparency created by aggregators, lots of new entrants
to the market and the ease of swapping providers, the insurer is now at the consumer’s beck
and call.
➢ They are well educated – with the ease of online pre-purchase research and the plethora of
alternative information sources such as blogs and social media about insurance products
available, there is not the same level of need for brokers and financial advisers as previously
➢ High experience expectations – they are used to the personalized, consistent, easy and often
fun experience offered by the data giants of the day (online and retail industries in particular)
and these expectations transfer to their insurance provider.
➢ They expect authenticity – any communication must be relevant, personalized and engaging,
for example Aviva’s Drive App encourages good driving and delivers personalized scores for
premium discounts, rather than communicating for the sake of it.

**Different customer needs in insurance

1) Better Tools to Monitor Client Behavior: the contributors to this blog series have
highlighted several strategies to successfully conduct good market research, which is a must
for all organizations.
There is also a compelling case for making better use of what clients have already told us
through their take-up, claims, and renewal actions. Mining existing data to better understand client
needs is an under-used practice in micro insurance and one that made companies such as Apple
and Amazon so successful.
2) Holistic Approach to Institutionalize Client Feedback: At the ILO’s Micro insurance
Innovation Facility we believe that the ultimate objective behind understanding clients is to
incorporate a client-focused perspective into an organization’s entire decision-making
process, so that practitioners can improve the client value of their products and processes. But
we lacked a simple, yet holistic approach to understanding client value in real time. Based on
field tests with 15 micro insurance providers, the Facility developed a client value assessment
tool called PACE (Product, Access, Cost and Experience).
The PACE approach is simple. Practitioners can start by analyzing existing data, but they
need to analyze each dimension from a client’s perspective. For instance, under the cost dimension
we measure both affordability and value for money, while also looking at additional costs for
clients as well as at providers cost structure and controls to keep down overall costs of delivery.
3) Looking For A Better Fit With Clients’ Behaviors: Our belief is that adapting a client-
oriented lens will help providers identify how micro insurance fits into the overall risk-
management portfolio of low-income clients. For micro insurance products to add value, they
need to mimic informal risk-management practices to provide easy access and complement
the benefits of social security schemes, while offering superior service.
Current demand challenges are forcing the micro insurance industry to pay attention to
client value early in the industry development cycle. These efforts should yield a positive dividend
in the long run; ultimately business viability is dependent on providing client value.

**Importance of Customers’ in Insurance

Customer satisfaction and experience are important for every industry, and certainly
insurance is no exception. For insurers customer satisfaction means not just the use of a policy
product that was purchased from an insurance company for a cost, but also the satisfaction that is
obtained when the claim is settled in full. Some of the importance is listed below:
➢ Customer satisfaction does not happen simply by purchasing a policy product, but it occurs
when customers get the expected benefits such as peace of mind during the product cycle and
speedy payment when a claim is filed.
➢ Customer experience is the positive feeling that customer has when he or she goes through
the entire cycle, right from purchasing a product to getting paid when claim is made.
➢ Some of the negative impact on customer experience are takes place if insurer ignore to
respond quicker at the time of claims settlement, so that the customer have to wait too long to
get their claims settled.
➢ When customers’ are not fully satisfied, they turn to competitors’ products, and this proves to
detrimental for insurance companies. To prevent such situations, it is important for insurance
companies to hasten their claims processing and more importantly, educate employees on the
need for good customer experience.
➢ It is important for customer representatives of insurance companies to focus on customer
experience and other aspects of the policy’s life-cycle. A holistic approach to improving the
entire customer experience and having proper management of the process is the means to
gaining satisfied customers and a competitive adage.

**Customer Mindsets
Providing the perfect customer experience (CX) is no easy task and yet studies suggest that
there’s a strong link between CX and customer loyalty. Of course, CX is a sum of its parts, of
which there are many, and probably the most important of these is the way that your customers are
treated by service staff. For those on the front line, it can be difficult to discover and maintain a
positive mindset at all times – customers can be rude, even abusive if they become frustrated.
This can be easily overcome though; it’s just a case of having the right mindset, so let’s have a
look today at how this can be achieved.
Providing the perfect customer experience (CX) is no easy task and yet studies suggest that there’s
a strong link between CX and customer loyalty. Of course, CX is a sum of its parts, of which there
are many, and probably the most important of these is the way that your customers are treated by
service staff. For those on the front line, it can be difficult to discover and maintain a positive
mindset at all times – customers can be rude, even abusive if they become frustrated.
This can be easily overcome though; it’s just a case of having the right mindset, so let’s have a
look today at how this can be achieved.

1. Customers are more important Than Company: Customers are just people like any other
and for a customer service rep to be effective; they should have a certain amount of empathy.
This means that you should train staff firstly how to listen effectively and how to pick up
signals from the customer to inform the response. This isn’t as difficult as it sounds. As human
beings we’re all accustomed to picking up signals from others on a daily basis. Granted, it’s
a little more difficult when using platforms such as live chat, email and social media, but it’s
still doable.
Anger and frustration are of course the easiest to pick up. You should train staff to listen
carefully to what the customer has to say, without interrupting, to gain a full understanding of their
issue.
2. Build Relationships: A good customer service rep doesn’t approach conversation with a
customer as a problem, but as an opportunity. With this in mind, encourage staff to think about
customers as they would be somebody they know. As a training exercise, ask them to imagine
that one of these people has just contacted the customer service desk and that they will have
to deal with them.
It’s likely that the rep will immediately be more relaxed and friendly and this will be
apparent in their tone and body language. This can then be used to cement the understanding that
customers should be communicated with in the same manner. From the very first time a customer
gets in touch, the aim of the rep should be to wow them.
 This from a global concern too. Train staff to think about customers as a person that they
would interact within everyday life to enable them to get into a mindset that allows them to be
friendly.

3. Be Generous: Good customer service springs from a place where the business is secure and
its employees can afford to be generous in terms of the time they give, the approachability of
their staff and that there’s plenty to share. Businesses that are struggling tend to offer a poor
level of customer service because they don’t feel that they have enough to give without it
affecting profits – this is a dangerous mindset and one that means that the business will almost
certainly fail.
Think about the times when you’ve contacted a business and they’ve refused to budge an
inch when it comes to giving you some redress when things have gone wrong. Perhaps the business
has insisted that you pay for returns, or maybe they’ve only given you a part-refund on a product
that arrived and proved to be unsuitable. Would you ever do business with them again? No. So
don’t be one of those companies – train your staff to know exactly what they can give when a
complaint/return/refund request comes their way. If the staff have the authority to give refunds,
etc., then not only will they feel much more positive about their job (and this will come across in
the communication) but it will also serve to ensure that your customers go away happy and ready
to recommend your products to a friend
4. Be a Winner: According to Adam Torporek, author of “Be Your Customer’s Hero: Real-
World Tips & Techniques for the Service Front Lines” there’s one question that can help
customer service professionals to get into the perfect customer-facing mindset. He maintains
that this one question “immediately helps to shift a CSP’s perspective from reactions to
solutions.”
So the rep should always be looking to resolve any problems or issues that a customer
might have, even if they’ve contacted you about something trivial. This way of thinking also
ensures that a customer service rep remains positive in even the most challenging of circumstances,
such as when a customer has a complaint. Customers that are frustrated and angry almost always
take it out on the service rep – so rather than them thinking negatively when this happens – ‘this
customer is so unreasonable’ ‘what do they want from me’ etc. – the rep will be focused on how
they can come out of it like a winner. Simple, yet so effective.
5. Foster Good Company Culture: The culture in which we work has an effect on the job we
do no matter who we are, skilled or unskilled, management or front line staff. If you want
your customer service staff to have the right mindset for dealing with your customers, then
it’s necessary to create it. A positive working environment, where everyone is happy, will go
much further to getting your reps into the right frame of mind than any training will.

Ideally, your employees should:

• Have access to further training and development
• Have the opportunity to further their career by working with you
• Be set goals and allowed to enter into healthy competition
• Have the authority to deal with customer complaints on the spot
• Have the tools they need to carry out their job effectively and efficiently
• Feel valued by management and coworkers

No matter what the size of your business, ongoing training and development should always
is a central part of it if it’s to grow and flourish. It’s not necessarily the case that you should always
be able to offer promotion either. Your staff should have the opportunity to further their career
even if it isn’t with you in the long term (although it’s desirable, obviously). Creating a healthy
company culture where staff learn and flourish will also help you to attract and retain top talent.
Customer service is a tough job and it’s not particularly easy to get everything right.
However, promoting and fostering a positive mindset is vital and to do this, it’s necessary to put
the right training in place and to ensure that the workforce is happy overall. A happy worker is one
that’s much more inclined to show the empathy that good customer service needs so it’s up to you,
the business owner, to ensure that you create the right environment for your staff to carry out their
job effectively.

**Customer Satisfaction
Customer satisfaction measures how well the expectations of a customer concerning a
product or service provided by your company have been met.
Customer satisfaction is an abstract concept and involves such factors as the quality of the
product, the quality of the service provided, the atmosphere of the location where the product or
service is purchased, and the price of the product or service. Businesses often use customer
satisfaction surveys to gauge customer satisfaction. These surveys are used to gather information
about customer satisfaction.
Typical areas addressed in the surveys include:
• Quality of product
• Value of product relative to price - a function of quality and price
• Time issues, such as product availability, availability of sales assistance, time waiting at
checkout, and delivery time
• Atmosphere of store, such as cleanliness, organization, and enjoyable shopping environment

Ways to Enhance Customer Satisfaction

1. Communicate: Communication with the customer is the key to enhancing customer
satisfaction. Follow Up and Follow Through to assure and confirm expectations have been
satisfied.
2. Be Confident: Customers like to deal with people who know what they are doing. We don’t
want to hear, “This is my first time doing this so …”
3. Be Professional: The customer is always right – even when they are wrong.
4. Build Customer Confidence: Your performance and ability to meet the customers’ needs
will re-assure them that they have made the right decision.
5. Build Value (Reputation): Be effective and perform efficiently: Everyone wants the best
lawyer or the best doctor. “We have the best person on it.”
6. Ask the customer: Is there anything else we can do for you today? This suggests that you
are able to do more if necessary. The customer may just say, “Not today, but may be next
time.” At least you know they’ll may be back versus NEVER.
7. Don’t send out surveys: There are many ways to measure customer satisfaction without
sending surveys. “Paying” someone to provide an opinion may even change it. “Will I still
get a free lunch if I tell you what I’m really thinking?” Remember the Vending Machine
example from above? The vending machine knows exactly how poor performance looks
and feels.
8. Be THE Solution: We coined a phrase some time ago – “Thinking so you don’t have
to.” Take away the problem and be the solution.
9. Thank You: Show your customers that you appreciate their business. It may be as easy as
saying “Thank You for Your Business.”
10. Smile: Whether the customer can see you or not – SMILE. Studies have suggested that
people know or can sense when other people are smiling. We can’t quote a source for this
statement; however, smiling is also good for you.

**Customer Behavior at Purchase Point of Insurance

Consumer behavior can be broadly classified as the decisions and actions that influence the
purchasing behavior of a consumer. What drives consumers to choose a particular product with
respect to others is a question which is often analyzed and studied by marketers. Most of the
selection process involved in purchasing is based on emotions and reasoning.
The study of consumer behavior not only helps to understand the past but even predict the
future. The below underlined factors pertaining to the tendencies, attitude and priorities of people
must be given due importance to have a fairly good understanding of the purchasing patterns of
consumers

1. Marketing Campaigns: Advertisement plays a greater role in influencing the purchasing

decisions made by consumers. They are even known to bring about a great shift in market shares
of competitive industries by influencing the purchasing decisions of consumers. The Marketing
campaigns done on regular basis can influence the consumer purchasing decision to such an extent
that they may opt for one brand over another or indulge in indulgent or frivolous shopping.
Marketing campaigns if undertaken at regular intervals even help to remind consumers to shop for
not so exciting products such as health products or insurance policies.

2. Economic Conditions: Consumer spending decisions are known to be greatly influenced by

the economic situation prevailing in the market. This holds true especially for purchases made of
vehicles, houses and other household appliances. A positive economic environment is known to
make consumers more confident and willing to indulge in purchases irrespective of their personal
financial liabilities.

3. Personal Preferences: At the personal level, consumer behavior is influenced by various shades
of likes, dislikes, priorities, morals and values. In certain dynamic industries such as fashion, food
and personal care, the personal view and opinion of the consumer pertaining to style and fun can
become the dominant influencing factor. Though advertisement can help in influencing these
factors to some extent, the personal consumer likes and dislikes exert greater influence on the end
purchase made by a consumer.

4. Group Influence: Group influence is also seen to affect the decisions made by a consumer. The
primary influential group consisting of family members, classmates, immediate relatives and the
secondary influential group consisting of neighbors and acquaintances are seen have greater
influence on the purchasing decisions of a consumer. Say for instance, the mass liking for fast food
over home cooked food or the craze for the SUV’s against small utility vehicle are glaring
examples of the same.

5. Purchasing Power: Purchasing power of a consumer plays an important role in influencing the
consumer behavior. The consumers generally analyze their purchasing capacity before making a
decision to buy and products or services. The product may be excellent, but if it fails to meet the
buyers purchasing ability, it will have high impact on it its sales. Segmenting consumers based on
their buying capacity would help in determining eligible consumers to achieve better results.
 Understanding, analyzing and keeping track of consumer behavior is very critical for a
marketing department to retain their position successfully in the market place. There are various
other factors too that influence consumer behavior apart from the four listed above.

**Customer Behavior When Insurance Claim Occurs

An insurance claim is a formal request to an insurance company asking for a payment based
on the terms of the insurance policy. The insurance company reviews the claim for its validity and
then pays out to the insured or requesting party (on behalf of the insured) once approved.
A paid insurance claim serves to indemnify a policyholder against financial loss. An
individual or group pays premiums as consideration for completion of an insurance contract
between the insured party and an insurance carrier. The most common insurance contracts revolve
around costs for medical goods and services, physical damage or liability resulting from the
operation of automobiles, property damage or liability from home ownership, and the loss of life.
❖ Health Insurance Claims: Costs for a surgical procedures or inpatient hospital stays remain
prohibitively expensive. Policy holder must file paper claims where medical providers do not
participate in electronic transmittals but charges result from covered services rendered by
professionals or facilities. Ultimately, an insurance claim protects an individual from the
prospect of large financial burdens resulting from an accident or illness.
❖ Property and Casualty Claims: A home is typically one of the largest assets an individual
owns. A claim filed against damage from covered perils is initially routed via phone or the
internet to a representative of an insurer, typically an agent or claims adjuster. Unlike health
insurance claims, the once is on the policyholder to report damage to a deeded property he
owns. An adjuster depending on the insured. Upon verification of the damage, the adjuster
initiates the process of reimbursing the insured.
❖ Life Insurance Claims: Life Insurance Claims require the submission of a claim form
accompanied by a death certificate. The process, especially when claims involve high face
amounts, may require in-depth examination by a carrier to ensure that the death of the covered
individual did not fall under any exclusion contained in contract, such as suicide or death
resulting from a criminal act. Generally, the process takes about 30 to 60 days without
extenuating circumstances, affording beneficiaries the fiancial wherewithal to replace the
income of the deceased or simply cover the burden of final expenses.

**Importance of Ethical Behavior in Insurance

Ethics are a critical component underlying the conduct of the insurance agent. Ethics are a
form of self-regulation, based on personal standards and principles, informed by ideals and
stndards drawn from outside one’s own knowledge and experience. The licensee as a
representative of the insurer and awarded a special status by the state, is required to meet level of
conduct commensurate with the responsibilities and duties of the position.
Some of the importance of Ethical Behavior in Insurance is discussed below:
➢ Meeting a high ethical standard is important on several levels for the insurance agent.
➢ Meeting our personal beliefs and standards in our conduct brings us satisfaction in our
profession.
➢ Meeting the ethical standards will also enhance our reputation in the industry. Conversely, if
we are sanctioned by regulatory authorities or clients and co-workers discuss our
unsatisfactory service or work habits, our reputations will be harmed.
➢ By adhering to a high standard of ethical conduct, we reduce the risk of many adverse
consequences, including lawsuits, loss of customers, low retention rates, loss of license and
levying of fines.
➢ Much of the ethical issues in insurance are a case of utilitarianism and deontology. The
insurance businesses are arguably utilitarian, as they look at the larger picture.
➢ An individual customer considers their needs first and foremost, with no relevant interest
outside their insurance policy. Many problems occur when insurance providers fail to
understand these concerns, conducting practices that simply ignore personal objections.
➢ Ethical behavior is crucial to preserving not only the trust on which insurance transactions are
based, but also the public’s trust in our industry as a whole. The ethical guidelines for
Insurance Professionals learning module were designed specifically for insurance
practitioners and uses insurance-based case studies to outline an ethical framework. This
unique learning module can be completed in just a matter of hours.
 Unit – 4
Insurance Contract
**Insurance Contract

An insurance contract is a document representing the agreement between an insurance

company and the insured. Central to any insurance contract is the insuring agreement, which
specifies the risk s that is covered, the limits of the policy and the term of the policy. Obviously,
the contents of an insurance contract depends on the type of policy, what the insurance applicant
wants, and how much he is willing to pay. The details of insurance policies are covered in Standard
Insurance Policies. Additionally, all insurance contracts specify:
a) Conditions, which are requirements of the insured, such as paying the premium or reporting
a loss;
b) Limitations, which specify the limits of the policy, such as the maximum amount that the
insurance company will pay;
c) Exclusions, which specify what is not covered by the contract.
Obviously, the contents of an insurance contract depends on the type of policy, what the
insurance applicant wants, and how much he is willing to pay. The details of insurance
policies are covered in Standard Insurance Policies.

**Insurance Accounting Terms

The contract of insurance is very useful to indemnify any loss. In this light, contract of
insurance is also called as contract of indemnity in which insurer indemnifies the loss incurred due
to the happening or non-happening of any event depending upon contingency. To make contract
of insurance valid in the eye of law, some essential elements must be considered in its process of
validity. The insurance contract, like any other contracts must satisfy the usual conditions of a
contract. The essentials of insurance contracts are as follows:

1. Agreement: A negotiated and usually legally enforceable understanding between two or more
legally competent parties.
Although a binding contract can (and often does) result from an agreement, an
agreement typically documents the give-and-take of a negotiated settlement and a contract
specifies the minimum acceptable standard of performance.
2. Free Consent: It is one of the essential elements of valid contract. Parties to a contract may
agree upon the same thing in the same sense, and along with the same; consent received must
be free from any compulsion or pressure. Lack of free consent would render the contract
voidable at the option of the party not at fault.
3. Components to Contract: The parties in an agreement must be legally competent to enter
into the contract. It means both parties in the insurance contract must be age of majority,
posse’s sound mind and not disqualified by any; law of the country.
For a contract to be legally binding it must contain four essential elements:
• An Offer.
• An Acceptance.
• An Intention to Create a Legal Relationship.
• A Consideration (Usually Money).
4. Lawful object: In insurance contract, the object of the contract must be lawful as in other
types of contracts. The agreement must not relate to a thing which is contrary to the provision
of any law or has expressly been forbidden by any law. It must not be of such nature that if
 permitted, it implies injury to the person or property of other or immoral or opposed to public
policy.
5. Lawful Consideration: Something with monetary value, voluntarily exchanged for an act,
benefit, forbearance, interest, promise, right, or goods or services. In banking, the loan-
amount is a consideration, in exchange for the borrower's promise to repay the principal and
to pay interest and other charges. In insurance, the insurance company's offer to make a loss
good is a consideration in exchange for payment of premium. Essential element of all
enforceable commercial-contracts, it does not have to be 'adequate' or equal in value to the
exchanged item but must be legal (not in violation of any law). Any commercial contract
without a valid (valuable and legal) consideration is invalid and is called 'nudum pactum'
(Latin for, naked contract) governed by the legal maxim 'ex nudo pacto non oritur actio' (Latin
for, a right of action does not arise from a naked contract).
6. Compliance with legal formalities: to make an agreement valid, prescribed legal formalities
of writing, registration, etc. must have been observed. In the contract of insurance, the
agreement between parties must be in written form and dully signed by both parties, properly
attested by witness and registered otherwise; it may not be enforced by the court.

**Principles of Insurance
An insurer must always investigate any doubtable insurance claims. It is also a duty of the
insurer to accept and approve all genuine insurance claims made, as early as possible without any
further delays and annoying hindrances.
Seven Principles of Insurance with examples. The seven principles of insurance are:-
1. Principle of Uberrimae fidei (Utmost Good Faith),
2. Principle of Insurable Interest,
3. Principle of Indemnity,
4. Principle of Contribution,
5. Principle of Subrogation,
6. Principle of Loss Minimization, and
7. Principle of Causa Proxima (Nearest Cause).
❖ Principal of Utmost Good Faith
Principle of utmost good faith is a contract. In this insurance contract, the risk loss of is
transferred from insured to the insurer. Consequently, there should be a good trust between the
insurer and the insured. The insured must disclose every material fact about the subject matter of
the insurance contract in the proposal form of insurance. The full, correct and reliable information
must be submitted by the insured. In case of any concealment of fact or false statement, the insurer
can declare the contract void, and he will not be liable for paying any compensation.
– Both Parties, insurer and insured should enter into contract in good faith
– Insured should provide all the information that impacts the subject matter
– Insurer should provide all the details regarding insurance contract
For example - John took a health insurance policy. At the time of taking policy, he was a
smoker and he didn't disclose this fact. He got cancer. Insurance company won't pay anything as
John didn't reveal the important facts.
❖ Principle of Insurable Interest
The subject matter of the insurance is the correlation between the insured and insurable
interest. In the subject of insurance the insured must have insurable interest. The insured must own
a part or whole property. He should be in a such condition that whatever harm happened to his
property; he should be held responsible for that. The contract of insurance gets void and termed as
invalid in the absence of such interest.
– Insured must have the insurable interest on the subject matter
– In case of life insurance spouse and dependents have insurable interest in the life of a
person. Corporations also have insurable interests in the life of it's employees
– In case of life or marine insurance, insured must be the owner both at the time of entering
of entering into the insurance contract and at the time of accident.
❖ Principle of Indemnity
Principle of indemnity (security) is not valid to life insurance contract. It is based on other
forms of insurance such as marine, accidental and fire. The main objective of the general insurance
is to bring the person to the same condition to the subject matter as he was before the damage.
The insurer pays compensation only against the actual loss. Assured is not allowed to make
a profit out of the contract of insurance. The compensation cannot be more than the actual loss.
Hence double insurance is impossible in general insurance.
– Insured can't make any profit from the insurance contract. Insurance contract is meant for
coverage of losses only.
– Indemnity means a guarantee to put the insured in the position as he was before accident.
This principle doesn't apply to life insurance contracts

❖ Principle of Contribution
A principle of contribution is the fundamental principle. The principle of indemnity is
conclusive to the principle of contribution. Under this principle, the insured has the liberty to claim
only on the actual damages from any one insurer or all the other insurers.
In case the insured took more than one insurance policy for same subject matter, he/she
can't make profit by making claim for same loss more than once
For example - Raj has a property worth Rs.5,00,000. He took insurance from Company A
worth Rs.3,00,000 and from Company B - Rs.1,00,000.
In case of accident, he incurred a loss of Rs.3,00,000 to the property. Raj can claim Rs. Rs.3,00,000
from A but after that he can't make profit by making a claim from Company B. Now Company A
can make a claim from Company B to for proportional loss claim value.
❖ Principle of Subrogation
A principle of subrogation is the fundamental principle. Principle of indemnity is the
outcome from this principle. Therefore, life insurance is not applicable in this principle. This
principle applies in fire and marine insurance. This principle is established to compensate to the
loss against the damages of the insured. If the claim is settled by the insurer, then the ownership
of that entire property would be of the insurer company. This principle helps the insurer company
from to prevent double insurance.
After the insured gets the claim amount, the insurer steps into the shoes of insured. After
making the payment insurance claim, the insurer becomes the owner of subject matter.
For example: - Ram took a insurance policy for his Car. In an accident his car totally
damaged. Insurer paid the full policy value to insured. Now Ram can't sell the scrap remained after
the scrap.
❖ Principle of Loss Minimization
A principle of mitigation of loss is the fundamental principle. Under this principle, the
insured must give his 100% to save his property and not just sit and watch destruction of his
property. All tough his property is insured his effort should be there to minimize the losses.
This principle states that the insured must take all the necessary steps to minimize the losses to
inured assets.
For example - Ram took insurance policy fo his house. In an cylinder blast, his house burnt.
He should have called nearest fire station so that the loss could be minimised.
❖ Principle of Causa Proxima
A principle of Principle of causa proxima is the fundamental principle. This principle
consists of, to find one or more reasons for the cause, and the nearest cause should be taken into
account to decide the liability of the insurer.

– Word "Cause Proxima" means "Nearest Cause"

– An accident may be caused by more than one cause. In case property insured for only one
cause. In such case nearest cause of the accident is found out.
– Insurer pays the claim money only if the nearest cause is insured
Example: A trawler vessel was insured against losses resulting from collision. Co-
incidentally a trawler vessel gets to collide, which result in further delay for few days. Because of
this delay, the banana on the trawler vessel got putrid and was unsuitable for consumption. Hence
there are two reasons for the losses one is of collision and other is delay, the closest cause of putrid
banana was delay. As the trawler vessel was insured only for collision and not for the delay, so for
putrid bananas the insured will not get any compensation from the insurance company. But trawler
vessel will get compensation for collision.
 Unit – 5
Insurance Products
Part – A
**Life Insurance
Life insurance is a contractual agreement between a policyholder and a life insurance
company. Policyholders agree to make premium payments to the company and the company agrees
to pay the beneficiaries a sum of money if he/she dies. A life insurance policy provides a stated
benefit upon the holder’s death, provided that the death occurs within a certain specified time
period.
Purpose of Life Insurance Policy: The purpose of life insurance is to maintain the financial
security and well-being of one’s family or dependents in case of a wage-earners death. However,
life insurance can also be used for the following reasons:
– Mortgage Protection: to cover your mortgage loan or payments
– Retirement: The savings, cash value build-up or investment opportunity help build a
family’s net worth or nest egg.
– Childcare: To replace a home-maker’s contribution.
– Estate Protection: To help cover estate taxes
– Protect Business: To protect a business against the loss of a key employee, known as key
man life insurance.
– Employee Benefits: Typically offered as group life insurance through your employer.

**Importance of Life Insurance:

The importance of Life Insurance can be summarized as follows:
➢ An essential part of financial planning is creating provisions for your family and loved ones
following your death.
➢ Life insurance can ensure financial security to those who mean the most to you, such as
your spouse, children and dependent parents.
➢ Life insurance pays for immediate expenses. Bills can start accumulating fast in the event
of a death.
➢ It’s cash resource. Life insurance gives access to cash to pay for grocery bills and other
daily expenses. It helps to secure your estate by providing tax-free cash to pay estate and
other obligations.
➢ With the right coverage, your family’s lifestyle and standard of living can be sustained,
adding much needed normalcy during a difficult time.
➢ Term life policies offer death benefits, so if you die, you will get money back. but if you
live past the pre-determined length of the policy, you get no benefits.
➢ Whole life or permanent insurance is more expensive, but these policies are open-ended
and also accumulate a cash value that the policyholder can earn dividends and borrow
against or cash-in upon surrendering the policy.
➢ You might consider a policy to cover childcare, carpooling and household chore expenses
in the event of a stay-at-home spouse’s death. On the flip side, as you get older and children
or parents are no longer dependent on you for income, you can reduce your coverage or
drop it entirely.
➢ You can improve your credit rating. A life insurance policy is considered a financial asset
and may increase your credit score, which could be beneficial when trying to obtain
medical insurance or a home or business loan.
 ➢ Life insurance is not a simple product. It’s wise to talk to an expert who can walk you
through the pros and cons of available plans and help choose coverage that works best for
your individual situation, now and in the future.

**Risk of Dying Early or Risk of Living Too Long

The Range of Life Insurance products ensure the cover of risk of dyhing early or cover risk
of living too long. Taking out of life insurance policy covers the risk of dying early, by providing
for your family in the event of your death. It also manages the risk of retirment – providng an
income for you in non-earning years. Choosing the right policy type with the coverage that is right
for you therefore becomes critical.
In Life Insurance we offer covers to protect the individual against the risk of “dying too
early or living too long”.

Risk of Dying too Early

• Each individual has got a certain financial value attached to his life in the form of his
earning potential.
• If he dies at a young age or during the time when he had an earning potential his family
suffers a financial loss in the form of loss of his potential earnings.
• A lot of his obligations towards the family remain unfulfilled due to his sudden demise.
• This is called the Risk of Dying too early and it can be protected against by taking life
insurance coverage.

Risk of Living too long

• Every individual plans his life & his sources of income to the best of his ability taking into
account his life expectancy.
• Sometimes, despite the best of planning the individual is not able to provide for
contingencies such as serious / chronic / prolonged illness for himself or his spouse which
results in all the planning going haywire.
• If a person survives beyond his expected age his planned sources of income could diminish
or become inadequate due to a variety of reasons.
• This could result in his not having money at the time when he needs it most and is not in a
position to go and earn the same.
• We call this the risk of living too long and protect against the same by taking whole life
insurance policies where withdrawals are possible as & when required or by taking Pension
policies or annuities.
There are a varity of policies available in the market, ranging from Term Endowment and
Whole Life Insurance, Money Back Policies, ULIPs, and Pension Plans.

**Life Insurance Products

Taking out a life insurance policy covers the risk of dying early, by providing for your
family in the event of your death. It also manages the risk of retirement – providing an income for
you in non-earning years. Choosing the right policy type with the coverage that is right for you
therefore becomes critical.
There are a variety of policies available in the market, ranging from Term Endowment and
Whole Life Insurance, to Money Back Policies, ULIPs, and Pension plans. Let's see what each of
these is about, so that you can consider the one that best suits you.
I. Term Insurance
 Term Insurance, as the name implies, is for a specific period, and has the lowest possible
premium among all insurance plans. You can select the length of the term for which you would
like coverage, up to 35 years.
Payments are fixed and do not increase during your term period. In case of an untimely
death, your dependents will receive the benefit amount specified in the term life insurance
agreement.
You can customise Term life insurance with the addition of riders, such as Child, Waiver
of Premium, or Accidental Death.
II. Endowment Insurance
Endowment Insurance is ideal if you have a short career path, and hope to enjoy the benefits
of the plan (the original sum and the accumulated bonus) in your life time.
Endowment plans are especially useful when you retire; by buying an annuity policy with
the sum received, it generates a monthly pension for the rest of your life.
III. Whole Life Insurance
Whole Life Policies have no fixed end date for the policy; only the death benefit exists and
is paid to the named beneficiary. The policy holder is not entitled to any money during his or her
own lifetime, i.e., there is no survival benefit. This plan is ideal in the case of leaving behind an
estate.
Primary advantages of Whole Life Insurance are guaranteed death benefits, guaranteed
cash values, and fixed and known annual premiums.
IV. Money-Back Plan
In a Money-Back plan, you regularly receive a percentage of the sum assured during the
lifetime of the policy. Money-Back plans are ideal for those who are looking for a product that
provides both - insurance cover and savings.
It creates a long-term savings opportunity with a reasonable rate of return, especially since
the payout is considered exempt from tax except under specified situations.
V. ULIP
Unit-linked Insurance Plans (ULIPs), introduced by the private players, are hugely popular,
because they combine the benefits of life insurance policies with mutual funds. A certain part of
the premium is invested in listed equities/debt funds/bonds, and the balance is used to provide for
life insurance and fund management expenses.
VI. Pension Plan
Insurance companies offer two kinds of pension plans - endowment and unit linked.
Endowment plans invest in fixed income products, so the rates of return are very low.
Unit-linked plans are more flexible. You can stop contributing after 10 years and the fund
will keep compounding your corpus till the vesting date. You can opt for higher exposure in the
stock market for your plan if your risk appetite allows it. Lower risk options like balanced funds
are also offered.
VII. Combination of Plans
Combining products and services is not a new idea anymore as you can see bundling in
different industries, like broadband or credit cards. When it comes to life insurance it can help
simplify your premiums while it ensures that you have the necessary cover you need. Some of the
key benefits are as follows:
• Less Maintenance: Give careful thought how you manage your life insurance coverage. Let’s
say you have life insurance with one provider, health insurance with another, and so on,
 keeping track of your premiums would take a lot of effort on your part. You are also forced
to maintain relationships with each. But having them under one cover and one underwriting
saves you time and effort.
• Less complicated and confusing: Let’s say you have two different kinds of insurance
underwritten by two different insurance companies. Placing a claim would require you to
place a number of phone calls or schedule some meetings with two different insurers.
However, if it is held by only one insurance company, any matter can be resolved with a single
call.
• Huge Discounts: If there is something very appealing when you package different insurance
products, it is the huge discounts you can get. Life insurance providers usually reduce their
rates when you allow them to underwrite multiple coverages. You might enjoy lower
premiums when you consolidate life, health, or business insurance coverage.

**Traditional Insurance Products

Definition: Traditional insurance plans provide multiple benefits like risk cover, fixed income
return, safety and tax benefit. Traditional Insurance plans are the oldest plans and cater to
individuals with a low risk appetite.

Description: Traditional insurance policy plans provide the sum assured and a guaranteed or a
vested bonus at maturity. These plans take a limited exposure in high risk equity and hence the
downside probability is also low. These plans are suitable for the purpose of tax planning.
Unlike ULIPs, premature withdrawal is normally not allowed in the case of traditional plans.
The Indian insurance sector saw a proliferation of customer-centric insurance products
after it was thrown open to the private sector in 2000. With the entry of numerous insurance
companies and increasing competition in the sector, Unit Linked Insurance Plans (ULIPs), which
combined insurance with savings, were introduced as an option to traditional insurance plans,
which focused on protection with steady savings.
However, before making the decision whether to opt for a traditional insurance policy or a
ULIP, an investor has to understand the principles and the way both these financial instruments
operate.
Traditional insurance plan is one of the first life insurance product introduced in the market
to mitigate the financial risk on untimely death of the policyholder. Traditional insurance plans are
good for customers who are looking for insurance product rather than investment. Although
traditional insurance products offers guaranteed returns with safety but returns from this type of
plan are quite low as compare to equity as it involves no risk.

Drawbacks of Traditional Insurance Plans

• Traditional insurance plans are less transparent as compare to other plans like ULIP etc.
• Traditional insurance plans are not flexible which means they invest money in pre decided
parameters. Where policyholder don’t get chance to make choice weather to invest in equity
or debt.
• Traditional insurance plans do not offer good returns in the longer run.
• Insurance covers under traditional insurance plans are quite small as compared to the premium
paid.
• Traditional insurance plans attract many charges which are inherent in the policy premium
and not transparent to the policyholder like insurance cost, office expenses and commission
charges etc.
• Default in payment of premium against traditional insurance plan will take away the risk
cover.
• Traditional insurance plan impose heavy surrender charges if policy is terminated during the
term.
• The traditional insurance plans are neither insurance plans and nor investment plans, as they
offer very limited sum assured and do not offer good returns on investment.

**Linked Policies
A unit linked insurance product (ULIP) is typically a combination of risk cover and an
investment where the policyholder bears the investment risk. In simple words, this means that a
part of the premium you pay is utilized to provide insurance cover and the remaining is invested
in various equity and debt schemes.
The money collected by the insurance provider is utilized to form a pool of fund that is
used to invest in various markets instruments (debt and equity) in varying proportions just the way
it is done for mutual funds. Policy holders have the option of selecting the type of funds (debt or
equity) or a mix of both based on their investment need and appetite.
Just the way it is for mutual funds, ULIP policy holders are also allotted ‘units’ and each
unit has a net asset value (NAV) that is declared on a daily basis. The NAV is the value based on
which the net rate of returns on ULIPs are determined. The NAV varies from one ULIP to another
based on market conditions and the fund’s performance.

It is preferred by people who:

• are finding it increasingly difficult to meet the guaranteed benefits on their traditional
policies
• seek higher real returns
In short,
Conventional Policy = Risk Cover
ULIP = Risk Cover + Investment

Advantages of Lined Policies

To the Policyholder
• Transparency and flexibility
• Direct participation in the asset management
• Expected higher return than a conventional policy apart from life cover insurer

To the Insurer
• Shift of investment risk to the policyholder
• Less capital absorbance (less solvency capital) and hence very capital efficient

Charges
Unlike traditional insurance policies, ULIP schemes have a list of applicable charges that are
deducted from the payable premium. The notable ones include
• policy administration charges,
• premium allocation charges,
• fund switching charges,
 • mortality charges,
• policy surrender or withdrawal charge
Some Insurer also charges "Guarantee Charge" as a percentage of Fund Value for built in
minimum guarantee under the policy.

Tax Benefits (in India)

Investment in ULIPs is eligible for tax benefit up to a maximum of Rs 1.5 lacs under
Section 80C of the Income Tax Act.
Maturity proceeds are also exempt from income tax. However, there is a caveat. The Sum
Assured or the minimum death benefit must be at least 10 times the annual premium. If this
condition is not met, the benefit under Section 80C shall be capped at 10% of Sum Assured while
the maturity proceeds will not be exempt from income tax.

Surrender
All limited premium unit linked insurance products, other than single premium products
have a premium paying term of at least five years.

Even though there is a lock-in period of five years in ULIPs, one may still surrender the
policy. The money, however, will be paid to the policyholder only after the end of 5 years.
Importantly, it's not the fund value as on the date of surrendering that gets paid after 5 years.

Claim
The ULIP provide both death and maturity benefits to the policyholder. If he dies during the
term of the policy, the beneficiary will receive one of these depending on the terms of the policy:

1. Sum Assured OR Value of the Fund, whichever is higher

2. Sum Assured AND Value of the fund

**Features of Annuity

➢ Security - Your interest and capital payments are guaranteed, regardless of share market
movements or interest rate fluctuations.

➢ Flexible terms and payments - With annuities you can choose your investment term. It can
be as short as one year, as long as 50 years or even for your lifetime. You can also select how
often you get paid - monthly, quarterly, half-yearly or annually.

➢ Lifetime income - In the case of a lifetime annuity you can enjoy regular, dependable
payments for the rest of your life.

➢ Inflation protection - With some annuities, you can elect to index your payments so they
keep pace with inflation or at a fixed indexation rate.

➢ No product fees - There are no fees or charges payable to Challenger, but please note that if
you have a financial adviser, you may have agreed to pay them a fee.

➢ Tax effectiveness - When an annuity is bought with money rolled over within the
superannuation system by a person aged 60 or over, the regular payments are tax free.

➢ Seniors benefits - Annuities can help you access or increase your seniors’ benefits like
the Age Pension and the Commonwealth Seniors Health Card.
➢ Access to your money - If you would like to cancel your annuity, in most cases you will
receive a return of your investment but you may receive back less than you invested originally
and less than you would have received had you held the annuity for its agreed term. View the
product disclosure statement for more information.

**Group Insurance Policies

Group insurance is an insurance that covers a defined group of people, for example the
members of a society or professional association, or the employees of a particular employer. Group
coverage can help reduce the problem of adverse selection by creating a pool of people eligible to
purchase insurance who belong to the group for reasons other than the wish to buy insurance,
which might be because they are a worse than average risk. Grouping individuals together allows
insurance companies to give lower rates to companies, "Providing large volume of business to
insurance companies gives us greater bargaining power for clients, resulting to cheaper group
rates."
Group insurance may offer life insurance, health insurance, and/or some other types of
personal insurance.
Group Life Insurance as "Life insurance offered by an employer or large-scale entity (i.e.
association or labor organization) to its workers or members. Group life insurance is typically
offered as a piece of a larger employer or membership benefit package. By purchasing coverage
through a provider on a 'wholesale' basis for its members, the coverage costs each individual
worker/member much less than if they had to purchase an individual policy. People who elect
coverage through the group policy receive a 'certificate of credible coverage' which will be
necessary to provide to a subsequent insurance company in the event that the individual leaves the
company or organization and terminates their coverage." (Source: Investopedia)
Thus we can infer the following characteristics of Group Life Insurance, which also apply to other
group insurances:
a. There must be a group of people to be insured who have something in common other than the
purpose of obtaining insurance
b. To save administrative costs, there is often a Master Policy Holder who will retain the
documentation on behalf of the members, and may deal with the members on behalf of the
insurer
c. Such covers are typically available at a discount to the respective individual rates, as
administration and expected claims costs are lower.
Insurable Groups can broadly be classified as mainly two types - " employer - employee "
groups where all members work for the employer proposing to cover them or "affinity" groups,
whose members have a commonality other than employment - say deposit holders of a bank.
Functions of group life policies
Group life policies are similar to individual life policies and can be classified on the basic
functions that they serve. These are explained below:
➢ Gratuity: On completion of five years in an organization, employees are entitled to gratuity.
A group gratuity insurance policy provides a company with an investment option to build a
pool of funds that can be used to pay off the gratuity amounts.
➢ Superannuation: A group superannuation scheme serves as a retirement plan wherein the
amount that is accumulated over the employment term is released upon retirement.
➢ Term: On death of any of the members of the group, this kind of group plan pays the sum
assured (SA) to the family of that particular member.
➢ Savings: A group savings insurance policy can be used as a savings tool for the members to
accumulate wealth along with life insurance.
➢ Credit protection: This type of insurance policy is usually offered by banks or lenders. The
plan covers any outstanding loan amount that may be due after the death or disability of the
loanee.
Benefits of group life insurance
The various benefits offered by group insurance are as follows:
➢ Default insurance cover: Group insurance plans provide “auto-cover” to the member or
employee simply by virtue of being part of that particular group or organization. This provides
at least a basic cover to those without any other insurance cover. It is essential, however, to
have an individual insurance plan to ensure you are covered even if you leave the group.
➢ Employer benefit: In many cases, employer gets tax benefits and, in certain cases, members
of the group can avail of tax benefits. For instance, Sarva Shakti Suraksha, the micro-
insurance product offered by Bajaj Allianz, covers non employer-employee groups.
➢ Ease in premium payment: The payment of the premium is not missed as it is deducted from
the employee’s salary, thereby leading to continuity of cover as long as you are part of that
group.
➢ Employee welfare: Group life insurance serves as an employee welfare plan, as well as an
employee retention plan, since it provides not only for the employee but his/her family.
➢ Experienced fund management: In case of group gratuity and superannuation plans, it is
possible that in a certain year, the gratuity to be paid could be high, resulting in unplanned
outflow of funds. In order to create a pool efficiently, experienced fund management from
insurance companies is beneficial.
One, however, needs to keep in mind that even though there are numerous benefits to group
insurance, there are some shortcomings one will have to keep in mind.
Benefits of all group life insurance plans such as life cover, savings plan, superannuation, will
be terminated if you leave the group. The benefits are good only while you remain a part of the
group.
➢ In a nutshell: Group insurance is a beneficial, cost-effective and hassle-free insurance
solution that provides at least a minimum cover to the members as a benefit of being part of
that particular group. It is, however, important to consider a group insurance plan only as a
supplementary plan and opt for a separate individual plan too, since the benefits of the group
plan terminate if you exit the group.
Part – B

**General Insurance

General insurance covers insurance of property against fire, burglary, theft; personal
insurance covering health, travel and accidents; and liability insurance covering legal
liabilities. This category of insurance virtually covers all forms of insurance except li fe.
Other covers may include insurance against errors and omissions for professionals, credit
insurance etc. Common forms of general insurance are motor, fire, home, marine, health,
travel, accident and other miscellaneous forms of non-life insurance.
Unlike life insurance policies, the tenure of general insurance policies is normally
not that of a lifetime. The usual term lasts for the duration of a particular economic activity
or for a given period of time. Most general insurance products are annual contr acts. There
are however, a few products which have a long term.
General insurance can be categorized in to following:
➢ Motor Insurance: Motor Insurance can be divided into two groups, one is car Four wheeler
insurance and other is two wheeler insurance.
Motor insurance offers protection to the vehicle owner against:
• Damage to the vehicle
• It also pays for any third party liability determined by law against the owner of the
vehicle
Motor insurance is mandatory in India as per the Motor Vehicles Act, 1988 and needs
to be renewed every year. Driving a motor vehicle without insurance in a public place is a
punishable offence.
In fact, third party insurance is a statutory requirement in our country i.e. the owner
of the vehicle is legally liable for any injury or damage caused to a third party life or
property, by or arising out of the use of the vehicle in a public place.
➢ Health Insurance: Common type of health insurance includes individual health insurance,
family floater health insurance, comprehensive health insurance and critical illness insurance.
Health care costs are increasing every year. Sedentary lifestyle and stress at work
negatively affect the health and can result in a critical illness or medical emergency. Such
a scenario is sure to adversely affect one financially, due to the massive outlay of money
on medical expenditure. A health insurance policy is the only way to mitiga te the financial
risks, apart from leading a healthy lifestyle. Health insurance guarantees peace of mind in
times of crisis, and helps secure own health and that of one’s family.
Common types of health insurance policies include:
• Individual Policy
• Family Floater Policy
• Surgery Cover
• Comprehensive Health Insurance

➢ Travel Insurance: Travel insurance can be broadly grouped into Individual travel policy,
Family Travel policy, student travel insurance and senior citizen health insurance.
International travel, whether on vacation or business, can turn into a nightmare if one
experiences contingency like loss of baggage, loss of passport, delay in flight, medical
emergency etc. Such eventualities will surely take the fun away from travelling.
Travel insurance, also referred to as visitor insurance, and covers one against unseen
medical and non-medical emergencies during overseas travel, ensuring a worry -free travel
experience. It protects the insured against misfortunes while travelling. Backed up by travel
insurance, the whole experience is like no other.
➢ Home Insurance: Home insurance protects house and its contents in bad time. Home
insurance protects the house and/or the contents in it, depending on the scope of
insurance policy opted for. It secures the home against natural calamities and man -
made disasters and threats. Home insurance provides protection against risks and
 damages from fire, burglary, theft, flood, earthquakes etc. covering the physical asset
(building structure) and valuables (contents) in it.
Home insurance ensures that one’s hard-earned savings are utilized to meet
important needs instead of using them for rebuilding the house if some harm was to come
to it.
➢ Marine Insurance: Marine cargo insurance covers goods, freight, cargo and other interests
against loss or damage during transit by rail, road, sea and/or air.
Marine cargo insurance covers goods, freight, cargo and other interests against loss
or damage during transit by rail, road, sea and/or air. Shipments are protected from the time
the goods leave the seller’s warehouse till they reach the buyer’s warehouse. Marine cargo
insurance offers complete financial protection during transit of goods and compensates in
the event of any loss suffered.
The party responsible for insuring the goods is determined by the sales contract.
Marine cargo insurance policy can be taken by buyers, sellers, import/export merchants,
buying agents, contractors, banks etc. The policy usually covers the cargo, but can also be
extended to cover the interest of a third party post transfer of ownership as determined by
terms of sale.
Common types of policies:
• Open Cover
• Open Policy
• Specific Voyage Policy
• Annual Policy
The hull of a ship or boat can be insured under marine hull insurance.
➢ Commercial Insurance: Commercial insurance encompasses solutions for all sectors of the
industry arising out of business operations
Commercial insurance encompasses solutions for all sectors of the industry arising
out of business operations. Insurance solutions for automotive, aviation, construction,
chemicals, foods and beverages, manufacturing, oil and gas, pharmaceuticals, power,
technology, telecom, textiles, transport and logistics sectors. It covers small and medium
scale enterprises, large corporations as well as multinational companies.
Common types of commercial insurance:
• Property Insurance
• Marine Insurance
• Liability Insurance
• Financial Lines Insurance
• Engineering Insurance
• Energy Insurance
• Employee Benefits Insurance
• International Insurance Solutions
Other Types of General Insurance:
• Property Insurance
• Personal Accident
• Householder
• Shopkeeper
• Corporate Insurance
• Commercial Insurance
• Fire Insurance
 • Crop Insurance

Objectives of General Insurance

1. To provide for the acquisition of the share of the exiwsting general insurance companies.
2. To serve the needs of the economy by development of general insurance business.
3. To establish the GIC by the central government under the provisions of the Companies Act
of 1956, with an initial authorized share capital of seventy five crores.
4. To aid, assist, and advise the companies in the matter of setting up of standards in the conduct
of general insurance business.
5. To encourage healthy competition amongst the companies as far as possible.
6. To ensure that the operation of the economic system does not result in the concentration of
wealth to the common detriment.
7. To ensure that no person shall take insurance in respect of any property in India with an insurer
whose principal registered office is outside India.
8. To carry on of any part of the general insurance business if it thinks it desirable to do so.
9. To advice the companies in the matter of controlling their experience and investment of funds.
10. To provide need-based and low cost general insurance covers to rural population.
11. To administer a crop insurance scheme for the benefit of the farmers.
12. To develop and introduce covers with social security benefits.

Features of General Insurance:

1. Sharing of Risk: Insurance is a device to share the financial losses which might befall on an
individual or his family on the happening of a specified event. The event may be death of a
bread-winner to the family in the case of life insurance, marine-perils in marine insurance,
fire in fire insurance and other certain events in general insurance.
2. Co-operative Device: An insurer would be unable to compnesate all the losses from his own
capital. So, by insuring or underwriting a large number of persons, he is able to pay the amount
of loss. Like all co-operative devices, there is no compulsion here on anybody to purchase the
insurance policy.
3. Value of Risk: The risk is evaluated before insuring to charge the amount of share of an
insured, herein called, consideration or premium. There are several methods of evaluation of
risks. If there is expectation of more loss, higher premium may be charged. So, the probability
of loss is calculated at the time of insurance.
4. Payment at Contingency: The payment is made at a certain contingency insured. If the
contingency occurs, payment is made. Since the life insurance contract is a contract of
certainty, because the contingency, the death or the expiry of term, will certainly occur, the
payment is certain.
5. Amount of Payment: The amount of payment depends upon the value of loss occurred due
to the particular insured risk provided insurance is there upto that amount. In life insurance, a
fixed sum on the happening of an event.
6. Large Number of Insured Persons: To spread the loss immediately, smoothly and cheaply,
large number of persons should be insured. The co-operation of a small number of persons
may also be insurance but it will be limited to smaller area. The cost of insurance to each
member may be higher. So, it may be unmarketable.
7. Insurance is Not a Gambling: The insurance serves indirectly to increase the productivity
of the community by eliminating worry and increasing initiative. The uncertainty is changed
into certainty by insuring property and life because the insurer promises to pay a definite sum
at damage or death.
8. Insurance is Not Charity: Charity is given without consideration but insurance is not
possible without premium. It provides security and safety to an individual and to the society
although it is a kind of business because in consideration of premium it guarantees the
payment of loss.

**Risk Faced by Owner of Assets

As a business owner, you probably realize that operating and owning a business can be
faught with pitfalls and risks. Turning a profit isn’t enough; you must also protect your business
from claims and lawsuits. Debts and mortgage obligations to third parties and vendors, claims for
damages caused by your employees, product or professional liability aned consumer-protection
issues are just some of the risks you must deal with. if handled improperly, these risks could result
in the disastrous loss of both business and personal assets. Knowing what risks you face and how
to minimize or avoid the loss they can cause can give you the chance to run your business
successfully.
The goal of a comprehensive asset-protection plan is to prevent or significantly reduce risks
by insulting your business and personal assets from the claims of creditors. Unfortunately, if you’re
like most small-business owners, you are unaware of all the potential risks that can harm your
business and the options available to protect your business and personal assets. An asset-protection
plan employs legal strategies, put into place before a lawsuit or claim arises, that can deter a
potential claimant or help prevent the seizure of your assets after a judgment. If you haven’t already
put your asset-protection plan in place, don’t wait – the longer the plan has been in existence, and
the stronger it likely will be.

**Exposure to Perils:

Risk models for natural catastrophes (flood, wind, wildfire, earthquake, etc.) generally
model the chances of something happening, but also the financial ramifications of that something.
That fincancial component makes them “risk” models because risk is measured in costs. These
risk models are called cat models.

Modeling the perils themselves is a way to understand the likelihood of that peril affecting
a specific location. Peril models are the first aspect of a cat model, but certain tools focus on the
perils specifically. Some perils, especially flood, can be modeled with reliability if the right
information is used for the model. By limiting the modeling to a peril, far fewer assumptions are
needed – much of the input into a peril model is derived from direct measurements, historical
records and science. There remains some work to be done with assumptions (as in any model), but
the results of peril models are much less prone to errors caused by surprises (i.e. bad assumptions)
than risk models.

**Features of Products Covering Fire and Allied Perils

1. Fire Policy: This covers insurers against the risk of losses or damages due to fire and lightning
only.

2. Fire and Allied perils: Adding to the above mentioned cover, this type of policy covers a
number of additional perils which may differ from one policy to another but most usually include
the following perils:

• Explosions
• Storms, tempests and floods
 • Earthquakes, volcanic eruptions
• Aircraft or any other aerial devices or articles dropped from impact damage by your own or
any third party road vehicles, horses or cattle
• Bursting or overflowing of water tanks, apparatus or pipes
• Loss of profits or the interruption of business
• Loss of Rent
• Third party legal liability including the liability of landlords towards their tenants
• Tenants liability towards their landlords
• Strikes, riots & civil commotions
• Malicious damage
• Theft/Burglary following a forcible entry/exit from the insured premises
• Accidental damage to plate glass fixed to the buildings
• Removal of debris expenses following losses or damages to the insured property
• Fire brigade charges and extinguishing expenses
• Architects, surveyors and legal and consulting engineeing fees

Features of Allied Perils

Businesses are prone to unforeseen losses. These losses can lead a flourishing business into
disaster due to the loss of property, stocks, machinery, tools and facilities, ultimately wiping out
the capital and causing consequential losses. Monetary relief is essential in re-building / restoring
the damaged property. Fire insurance cover plays a vital role in safeguarding the financial interests
of an enterprise.

Covers: The fire insurance policy covers immovable and movable property; buildings, plant and
machinery, furniture, fixtures, fittings, contents, stocks / stock in process, raw material, goods held
in trust or in commission, including stocks at suppliers / customer’s premises, machinery
temporarily removed from the premises for repairs due to loss or damage by fire or due to any of
the perils mentioned hereunder:

➢ Lightning.
➢ Explosion / implosion.
➢ Aircraft and articles dropped there from.
➢ Impact damage due to rail/road or animal.
➢ Riot strike, malicious damage.
➢ Subsidence and land slide.

➢ Storm, cyclone, flood and inundation.

➢ Sprinkler leakage.
➢ Overflow, leakage of water tanks, pipes, etc.

In the case of a partial loss, payments for repairs or replacement are made. In case of a
policy with a reinstatement value clause, the cost of reinstatement will be paid on completion of
reinstatement, subject to an overall limit of the sum insured. The insurance company, at its
discretion, may repair or replace the affected property instead of paying for the cost of restoration.
Premiums are based on the type of occupancy, physical features, value at risk, requirement
of additional covers & information provided on a completed proposal form. there are a number of
exceptions and exclusions, which are part of the policy terms & conditions. Our technical staff will
always be ready to assist you should you require additional information or further clarification.
**Marine insurance
It covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which
property is transferred, acquired, or held between the points of origin and final destination. Cargo
insurance is a sub-branch of marine insurance, though Marine also includes Onshore and Offshore
exposed property, (container terminals, ports, oil platforms, pipelines), Hull, Marine Casualty, and
Marine Liability. When goods are transported by mail or courier, shipping insurance is used
instead.

Types of Marine Insurance: The types of marine insurance available for the benefit of a client
are many and all of them are feasible in their own way. Depending on the nature and scope of a
client’s business, he can opt for the best marine insurance plan and enjoy the advantage of having
marine insurance.

• Cargo Insurance: Cargo insurance caters specifically to the cargo of the ship and also
pertains to the belongings of a ship’s voyagers.
• Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessel along with
all the articles and pieces of furniture in the ship. This type of marine insurance is mainly
taken out by the owner of the ship in order to avoid any loss to the ship in case of any
mishaps occurring.
• Liability Insurance: Liability insurance is that type of marine insurance where
compensation is sought to be provided to any liability occurring on account of a ship
crashing or colliding and on account of any other induced attacks.
• Freight Insurance: Freight insurance offers and provides protection to merchant vessels’
corporations which stand a chance of losing money in the form of freight in case the cargo
is lost due to the ship meeting with an accident. This type of marine insurance solves the
problem of companies losing money because of a few unprecedented events and accidents
occurring.

**Products Covering Marine and Transit Risks

There are also various types of marine insurance policies which are offered to the clients
by insurance companies so as to provide the clients with flexibility while choosing a marine
insurance policy. The availability of a wide array of marine insurance policies gives a client a wide
arena to choose from, thus enabling him to get the best deal for his ship and cargo. The different
types of marine insurance policies are detailed below:

• Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid for
a particular voyage.
• Time Policy: A marine insurance policy which is valid for a specified time period –
generally valid for a year – is classified as a time policy.
• Mixed Policy: A marine insurance policy which offers a client the benefit of both time and
voyage policy is recognized as a mixed policy.
• Open (or) unvalued Policy: In this type of marine insurance policy, the value of the cargo
and consignment is not put down in the policy beforehand. Therefore reimbursement is
done only after the loss to the cargo and consignment is inspected and valued.
• Valued Policy: A valued marine insurance policy is the opposite of an open marine
insurance policy. In this type of policy, the value of the cargo and consignment is
ascertained and is mentioned in the policy document beforehand thus making clear about
the value of the reimbursements in case of any loss to the cargo and consignment.
 • Port Risk Policy: This kind of marine insurance policy is taken out in order to ensure the
safety of the ship while it is stationed in a port.
• Wager Policy: A wager policy is one where there are no fixed terms of reimbursements
mentioned. If the insurance company finds the damages worth the claim then the
reimbursements are provided, else there is no compensation offered. Also, it has to be
noted that a wager policy is not a written insurance policy and as such is not valid in a
court of law.
• Floating Policy: A marine insurance policy where only the amount of claim is specified
and all other details are omitted till the time the ship embarks on its journey, is known as
floating policy. For clients who undertake frequent trips of cargo transportation through
waters, this is the most ideal and feasible marine insurance policy.

Marine Insurance is an area which involves a lot of thought, straightforward and complex
dealings in order to achieve the common ground of payment and receiving. But as much as
complex the field is, it is nonetheless interesting and intriguing because it caters to a lot of people
and offers a wide range of services and policies to facilitate easy and uncomplicated business
transactions. Therefore, in the interest of the clients and the insurance providers, it is beneficial
and relevant to have the right kind of marine insurance. It resolves problems not just in the short
run, but also in the long run as well.

**Financial Losses due to Accidents:

Direct Costs of an Accident

When an employee suffers a job-related injury or illness, the accompanying pain and
discomfort are compounded by the immediate cost of treatment for the condition. Then may come
the additional medical costs: physician and hospital bills, prescription medicine, occupational
therapy, and medical equipment, such as crutches and wheelchairs. Most of these direct costs are
covered by the workers’ compensation insurance policy that FNF must provide under law.

Indirect Costs of an Accident

An accident that causes a worker’s injury will often have costs that are absorbed with the
operations. Examples of hidden costs can include:
– Damage to the vehicle or equipment the worker was using at the time. This could require
expensive repair or replacement.
– Loss of the worker’s time. There may be loss of time by fellow employees and supervisors
responding to the injury-causing incident, or transporting the injured employee to the medical
facility.
– Temporarily lowered morale, efficiency, and productivity by co-workers and supervisors.
– Cost of hiring and training a temporary or permanent replacement for the injured employee,
with lower productivity during the hiring and training process. Also the other fellow
employees that have to pick up the injured employees duties while he is absent from work (3
employees doing what takes 4 to do normally).
– The cost of Loss Control to investigate the accident, and communicate with the insurance
company.
– The time it takes your supervisor to complete the accident report and communicate with Loss
Control.
Other indirect costs include such factors as a surcharge on the company’s insurance premium
if the accident throws FNF into a higher risk category. Other costs may include civil or criminal
penalties imposed by state or federal officials if the accident is found to have resulted from flagrant
violation of workplace safety requirements.
Studies have shown that such indirect costs usually total three to four times the direct costs of
the accident and could amount to as much as 20 times the direct costs. Not many businesses could
withstand such a hit to their bottom line, including FNF.

**Products covering Financial Losses Due to Accidents:

Insurance is a means of protection from financial loss. It is a form of risk management
primarily used to edge against the risk of a contingent, uncertain loss.
Accidents happen every day. From the danger of vehicle accidents during commutes to and
from work, to the danger of being hurt by the tools used at work, to the dangers faced because of
improper infrastructure, the list is endless. Personal accident insurance gives you the satisfaction
of knowing that whatever accident may come to pass, you and your dependants will be financially
protected by accidental insurance cover. It covers burns, cuts, broken bones, the cost for
ambulances and medical series, hospitalization due to any kind of accidents, loss of limbs/eyesight,
etc.
Life insurance and health insurance are insurance products that cover specific eventualities
and offer insurance coverage to mitigate the negative financial implications these eventualities
have on the policyholder or his/her dependents.
Life insurance as a product provides a financial benefit to the dependants or nominees of a
person who has lost his/her life.
Health insurance as a product acts as a cushion and mitigates the expenses incurred due to
hospitalization for whatever reason.
Personal accident insurance as a product provides additional coverage for a wider range of
possible accidents or disasters that could occur in our day to day lives. Most insurers offer the
basic personal accident insurance policy package which pays out a benefit on death/disability due
to personal accidents (wider than the coverage provided by health and life insurance policies).

**Products Covering Financial Losses Due to Hospitalization

Health insurance is a type of insurance coverage that pays for medical and surgical
expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred
from illness or injury, or pay the care provider directly. It is often included in employer benefit
packages as a means of enticing quality employees. The cost of health insurance premiums is
deductible to the payer, and benefits received are tax-free.
When life takes an unexpected turn, it's good to know People First FCU is there. A variety
of insurance programs are available to you so you won't have to worry when unforeseen situations
arise.

Accidental Death & Dismemberment (AD&D) Insurance

Covers insured in the event of loss of life, limb, sight, speech or hearing due to a covered
accident.
Benefits
▪ Guaranteed coverage; no medical exams or health questions.
▪ People First FCU provides a complimentary $1,000 of AD&D insurance.
▪ Additional insurance plans are available to purchase.
Eligibility
▪ Insured and spouse: 18 and older.
 ▪ Immediate Family Member: spouse, unmarried children under age 26, children whose
support is required by court decree.
▪ Coverage reduces to 50% at age 70.
As with all insurance programs, some exclusion apply which are detailed in the Insurance
Coverage document provided by Affinion Group. For more information about this product please
see our Accidental Death and Dismemberment FAQs.

Hospital Accident Protection (HAP) Insurance

Provide cash benefits to the insured in the event of hospitalization due to a covered accident.
Benefits
▪ Guaranteed coverage; no medical exams required.
▪ Benefits are paid in cash.
▪ The first 2 months of coverage are FREE.
▪ Coverage is for covered accidents only - hospitalization due to sickness or disease is not
covered.
▪ Underwritten by Federal Insurance Company, a member of the Chubb Group of Insurance
Companies.
Eligibility
▪ Insured and spouse: 18 and older.
▪ Dependent children; under 19, or between the ages of 19 and 25 if enrolled in accredited
institution of higher learning.
▪ No termination age, however, hospital benefits (in-hospital only) reduce to 50% at age 65
and reduce to 25% at age 75; emergency room benefits stay the same.
▪ Coverage limited to one Insurance Coverage Document (for identical benefits) per insured.
As with all insurance programs, some exclusion apply which are detailed in the Certificate
of Insurance provided by Affinion Group? For more information about this product please see
our Hospital Accident Protection Insurance FAQs.

Recuperative Care Plan (RCP)

Provides cash benefits to the insured upon release from hospital, in the event the insured is
hospitalized due to a covered accident or sickness.
Benefits
▪ Guaranteed coverage; no medical exams or health questions.
▪ Benefits are paid in cash for up to 365 days.
▪ The first 60 days of coverage are FREE.
▪ Coverage is for recuperative care for accidents and sickness, some exclusions apply.
▪ Affordable group rates apply.
▪ Underwritten by Minnesota Life Insurance Company.
Eligibility
▪ Insured and spouse: 18 and older.
▪ Immediate Family Member: spouse, domestic partner, parent, grandparent, sibling or child;
and your spouse's or domestic partner's parent, sibling or child.
▪ No termination age, however, Recuperative Accident and Recuperative Sickness benefits
reduce to 50% at age 70.

**Products Covering Miscellaneous Risks

Liability Insurance: Liability insurance covers specific needs in cases where individuals or
companies need protection against risks that involve being legally held or sued for negligence,
malpractice or injury. Some business operations involve a great deal of risk, and employers might
find the need to insure themselves or the business against such risks.
Commercial Vehicle Insurance: Commercial Vehicles are valuable assets of a company and it
can be an expensive affair in case of accidents, damages, theft and other risks. Commercial Vehicle
Insurance is designed specifically to safeguard you against such risks so that your business does
not have to incur losses in the event something bad happens.
Annuities Insurance: A dignified retirement is what many of us hope for and for this insurance
companies offer schemes to ensure you are financially secure once you are not working. Annuity
is an investment product that guarantees you income for a certain number of years or till your
demise.
Laptop Insurance: Laptops have become an important asset as they not only cost a lot, but they
also store important and sometimes confidential information. Damages and theft of the laptop
can result in major financial losses. Though laptop insurance is not opted for by many, it can
come in handy in times or losses. Explore the different laptop insurances available in the market
to find a policy suitable to you.
Commercial Insurance: Just about anything related to your business can be insured. Be
protected financially against unforeseen risks to your property, workers, assets and any liabilities
that may arise. Find out the best insurance policies on offer from top providers before settling on
your ideal policy.
Credit Insurance: Businesses sometimes have to take credit from traders and give credit to
customers. Both aspects of credit can be insured. This type of insurance provides stability and
peace of mind while purchasing necessary items on credit. Giving customers credit also becomes
an easier task.
Home Owner Insurance: Our home is a prized possession that is susceptible to a number of
risks. Protecting our homes in case of unfortunate calamities, thefts, fires and other such disasters
can help in the process of rebuilding. These policies cover the property as well as the belongings
to ensure your standard of living is protected.
Pet Insurance: Pets can become our beloved family members. Taking out a pet insurance policy
will help in covering veterinary expenses in case of any medical problems and injuries. These
policies will also pay out if the pet is stolen or in case of its demise to cover funeral expenses.
Product Liability Insurance: In case of claims of personal injury or damages to property
caused by products sold or supplied by your business, this insurance policy can protect you from
lawsuits and legal costs. The insurance policy will cover the cost of compensation.
Mortgage Insurance: Mortgage insurance is important for two reasons, one, the policy will
cover your mortgage in the event that you cannot pay it back. Two, the insurance policy can
make you eligible for a loan when you don’t meet the criteria otherwise. Get a policy to cover
your mortgage to ensure your credit score doesn’t take a hit in the event you fall behind on your
payments.
Disability Insurance: An injury, be it a short-term disability or a permanent one, could hamper
your ability to earn an income. Disability insurance replaces a part of your regular income to
ensure you have a stable source of money to survive. This insurance is extremely important for
those who are living or working in a risky environment.
Rural Insurance: Individuals in the rural sector have different requirements compared to the
urban sector. These insurance policies are designed to meet the individual and customised needs
of rural areas. Rural insurance policies span across personal health, critical illnesses, loss due to
weather, cattle cover and much more.
Professional Liability Insurance: Professional Liability Insurance is a type of liability
insurance that is specific to companies that deal with giving advice and services that are complex
that can result in legal problems. The insurance will cover legal costs of defending the company
or the individual. This insurance is also known as Errors and Omissions Insurance.
Child Insurance: Raising a child entails so much financially that insurance plans have become
imperative to securing a better future for them. These plans are usually accommodating to
individual requirements and customized according to the child’s needs. Delve into all that these
insurance plans have to offer and get the policy that your child deserves.
Building Insurance: Building insurance covers the framework of your house and its permanent
fixtures. This type of cover is applicable to the structure of your home that includes walls, floors,
roofs and windows. It also includes the fittings for the bath, bedroom and kitchen. This insurance
doesn’t cover the contents of the house but is suitable to those who need to insure the building
only.
Business Insurance: Business insurance applies to those enterprises that have their own
premises wherein contents or stock are held. This insurance policy will cover public liability as
well as fires and other defined events that could disrupt the functioning of the business. Any
business is a means of livelihood and profit and it’s important to insure it with a good insurance
policy.
Workers’ Compensation Insurance: Workers’ Compensation Insurance can help employers to
avoid being sued and going through legal course of action in case an employee is injured during
the course of employment. The insurance will provide wage replacement and medical benefits to
employee. This policy is important for employers who run businesses where the chances of
injuries are high.
Personal Insurance: Personal Insurance spans across everything related to your personal life
including your life itself, any injuries, illness and expenses arising thereof. Personal insurance is
everything related to insuring yourself and your family. To get the best policy, explore your
options and find the one that suits your needs and your family’s needs the most.
Casualty insurance: Casualty insurance plans have wide scope but are not directly concerned
with health insurance, life insurance, or property insurance. This type of insurance covers the
liability of an individual or even an organization in the event of negligent acts and omissions.
Renters Insurance: Renter’s Insurance is important to those who live in rented houses as it
protects them when bad situations arise. The insurance can cover all your belongings, any
damages to the owner’s property, injury of guests in your home and even increased living
expenses. You can also be insured in case you have to temporarily live elsewhere while your
house undergoes repairs and maintenance.
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