CHAPTER 1

INTRODUCTION

1
 INTRODUCTION

Risk management has become a very important facet of industrial and

commercial management.

Basically, risk management means identification of risks to which the

concerned firm is exposed, evaluating the risks, handling the risks, avoiding them to
the extent possible and finally deciding whether any risk can be retained by the firm
itself or whether it would be safer to transfer the risk to an insurance company or
some other agency and to what extent.

The practice in most of the companies to the have the portfolio handled
by the Finance Controller under the immediate supervision of the Managing Director.
But companies have become so large and risks so varied in nature and extent that the
practice must change. Today a lot of interaction is necessary a between the financial
controller, who has to ultimately decide whether the insurance proposed is
budgetable, and the various floor managers who must identify the risks inherent in
their activity and evaluate the possibility of loss.

In some large companies there are risk managers and in some others
insurance departments which function as risk manages but in a majority of Indian
companies it is the practice to take out insurances on the basis of what the financial
institutions insist upon and what the insurers advise. Awareness of serious problems
comes only when a large claim arises and it is found that the insurance policy taken
either does not cover it or covers it only partially.

I would suggest and advise that in large companies, a senior level

committee should be set up consisting of representatives from the finance, production
and marketing divisions. This committee should be responsible for placement of
insurances and processing claims.

It is necessary to set up a small insurance cell to assist the senior level

committee in:
 Deciding what insurance to take.
 What risks must be covered
 What risks can get fully or partly self -insured
 What risk improvement and loss minimization measures can be taken,
and above all
 Exercise the right amount of control on claims preferment and
processing.

In India, today, most claims take at least six months to get settled.
Many claims take over years to be processed. Much of the delay is due to the
lethargic and insufficient response to the demands of surveyors for information and
documentation. Therefore if the delay is cut by even 50% the interest savings alone
will justify the setting up of the insurance committee and its assisting cell.

2
 RESEARCH
METHODOLOGY

3
Objective:

1. The purpose of the study aims at analyzing the risk management

mode through insurance in the claims settlement against the
actual loss incurred and the polices company is following to
cover the loss.
2. To Analyze risk management through Insurance claims
3. To know claim settlements policies
4. To know the Insurance policies to cover risk or loss.

Methodology:

The methodology adopted is to examine the different insurance polices

taken up by the company and their effectiveness with regard to, the possible losses.
An examination of the experience of the company in making claims against the losses
incurred and the claims admitted by the insurance companies is done.

Period of study:

The study covers a period of 3 years (2007-2010)

Sources of data:

The data employed is mainly secondary in natural. The secondary data

consists of loss incurred, claim settlements from internal documents and premium
outflows from internal documents and premium outflows from the profit flows from
the profit and loss account.

Techniques of analysis:

For the analysis of data qualitative techniques used to collect, organize

analyze, summarize and interpret the data for drawing valid conclusions.

4
 LIMITATIONS OF THE STUDY

1. The study is conducted by a student of Osmania University for the purpose of the
conditions stipulated by the University for the Completion of the course.
Therefore the study may not fulfill all the requirements of a detailed investigation.

2. Since the study is confined to effectiveness of insurance as strategy for risk

management other risks factors likely factors likely to impact the company's
performance are not studied.

3. The study conducted is short period so it may not elaborate, full fledged in all
aspects.

5
 CHAPTER 2.
REVIEW OF LITERATURE

6
 RISK MANAGEMENT

The term ‘risk’ has been variously defined in the dictionary as ‘hazard,
chance of bad consequences, exposure to mischance’. But, for the purpose of risk
management, the term may be defined as ‘future uncertainty as regards financial loss’.

Objective:

The risk management goal is to keep the firm viable to moderate, great
swings in cash flows or profitability caused by accidental losses and to be efficient in
putting the firm in same position after the loss as before.

Pre loss objectives of risk management:

 To operate efficiently in a risky environment, which means firm,

must choose the appropriate balance between the loss
prevention , risk assumption, insurance and other risk
management tools.
 To keep the firm in compliance with government regulations and
insurance company contractual warranties and provisions and
fulfill their insurance related obligations.
 Make sure that the risk management procedures that are
implemented operate smoothly. To achieve this objective safety
classes are held, employee are motivated to perform their
assignments safety classes are held, employee are motivated to

7
 perform their assignments safely and proper attitude or

safety pervades in the enterprise.

Post loss objectives of Risk management:

 Make sure that organization can service the losses.

 The risk manager should try to lay a foundation allowing the firm
to grow and prosper in the same manner after loss as it would, if
loss had not occurred.
 The risk manager should try to establish the firm’s ability to
behave responsibly towards the environment, employees,
suppliers. Customers and communities in which it operates.

Risk may be classified into:

 Business risks.
 Pure risks.

Business Risks:

Technical : New technology

Social : Consumer Behavior
Industrial unrest Functional

Economic : inflation management

Tax policy, competition
Political : War, Nationalization.

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 Business risks are not insurable an are to be controlled or managed by
different management disciplines.

Example: Finance, Production, Materials, Research and Development,

Marketing, Personnel etc.

Pure Risks:

Chemical : Fire, Explosion

Natural : Flood, Earthquake
Social : RIOT, Strike, Theft, Risk
Fraud, Negligence Management
Technical : Machinery Breakdown
Personnel : Death, Disablement,
Sickness

Pure risks fall within the scope of risk management whose function is to
control the losses that may be caused by the operation of these risks.

Both business risks and pure risks are the concern of general
management.

Areas of risk exposures:

 Pure risks:

Assets:

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  Buildings, plant, equipment, Machinery, Furniture, fixtures, fittings
etc.
 Raw materials, stock-in-progress, Semi finished goods, finished goods
etc.
 Goods-in-transit by Road, Rail, Sea, Air.
 Motor Vehicles.

 Computer cash.
 Business Risks:

Profits:

 Standing charges .
 Loss of net profit.
 Increased cost of production.

Liabilities:

 Property
 Operations. (Third Parties)
 Produtcs.
 Employment. (Employees)

Personnel:

 Personal accident.
 Sickness.
 Medical and hospital costs.

Process of risk management:

Planning:
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  Identification of risk.
 Measurement of risk.
 Selection of techniques of risk control.

Organizing:

 Implementation of selected.

 Techniques.

Controlling:

 Evaluation of results.

Risk identification:

The first step is risk identification, which may be also called as risk
recognition.

The sub-steps in Risk identification are:

 Identification of areas of risk exposures.
 Risk perception.
 Identification of sources of risk.

Identification of areas of risk exposures:

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 A firm is exposed to financial losses by pure risks in different areas in
varying degrees. These areas have to be first identified and, thereafter, the process of
risk management has to be applied to each of these areas separately.

Risk Perception:

This is the ability to perceive all of the risks, which an organization is

exposed. This requires a thorough knowledge of the organization, the nature of its
activities and its products, how these activities are carried on and how these precuts
are manufactured, the areas and markets in which it operates, the final destination of
its products, etc.

Risks may also arise from factors external to the organization. It is

necessary to identify these factors associated with the legal, social, physical and
climatic environment. This study may reveal any exposure to earthquake or storm
risks, to legal liabilities for defective products etc.,

Risk identification of sources of risk:

Identification:

 Study of organization charts.

 Study of accounting records.
 Process of charts.
 Input output analysis.
 safety audit.
 Checklist of perils.

Sources of risk:

Fire, explosion, theft, machinery, breakdown, riots, strikes, storm, flood

etc.,

Risk measurement:

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 It is quantification of how much can be lost and estimation of chances of
losing it. It concerned with number of losses (frequency of loss) and size of losses
(severity of loss).

In order to know the cost effectiveness of loss reduction

expenditure or to decide whether risk is retained or insured, it is
necessary to know the values of risk and estimated number of losses
caused.

1. Frequency of loss can be ascertained by

Number of disabling injuries
Number of employee hour's worked
2. The severity of loss:

Rate:
Total days charged
Number of employee hour's worked

First of all the values of assets, profits, liabilities and

personnel have to be determined.

Assets:
Insurers are concerned with two values:

1) Market value : current value of the asset

2) New Replacement value : Replacement value of new asset of the

same type but not superior to the insured

asset.

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Liabilities:

The ownership or use of property in any form, the employment of

persons and the participation in economic activities inevitability involve the risk of
liability for monetary damages arising under relevant laws, for death or personal
injuries or damage to property.

Personnel:

'People' are also considered to be assets of a firm that cannot function

without their services. Death or sickness of personnel may cause economic loss to the
firm.

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 INTRODUCTION TO INSURANCE

On 13 th may 1971 the General Insurance was taken over by the

Government of India. In terms of General Insurance Business (nationalization) Act of
1992, the General Insurance Corporation of India was set up as the apex body to
control the conduct of general insurance business of the erstwhile one hundred and
odd private insurance companies through four subsidiary companies. Each subsidiary
was allotted more or less one-fourth the business transacted by the private companies.

The four subsidiaries are:

1. National Insurance Company Ltd with its Head Office at Calcutta.

2. New India Insurance Company Ltd with its Head Office at

Bombay.

3. Oriental Insurance Company Ltd with its Head Office at

New Delhi.

4. United India Insurance Company Ltd with its Head office

at Madras.

These four companies have a wide network of offices all over India an they
compete with each other.

Now a days there are many private insurance company are there:
ICICI, Royal Sundaram, Tata AIG, IFFCO Tokyo, HDFC Standard Life.

By insurance management, it mean systematic management of corporate

insurance portfolio to ensure that the risks, which may produce losses, are properly

15
covered by insurance polices so that in the event of a loss the financial position of the
company, is not adversely affected.

The basic management functions i.e. planning, organization, coordination

and control are applicable to corporate insurance management also. To plan anything
one has to define goals in clear terms. Goals can be set in the light of a well-defined
corporate insurance philosophy. The insurance philosophy can guide the insurance
manger in assessing insurance objectives of the organization. The next logical step
would be to provide proper organization to administer insurance portfolio with
adequate staff having necessary expertise. Proper systems and procedure should be
laid down for defining the lines of communication to facilitate coordination between
various user departments and outside agencies. And finally systems will have to be

developed for controlling the managements of portfolio. It would be very essential to

review the whole insurance portfolio at least once in a year preferable three months
before renewals.

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 INSURANCE AND CLAIMS MANAGEMENT

INSURANCE

The effective and efficient management of insurance can realize the

worth of the premium paid. And for this a strong foundation in the knowledge of both
theoretical and practical experience is required. The basic principles of insurance
such as insurable interest ant utmost good faith, because these have a lot of bearing on
the practical aspects of insurance.

1. Insurable interest: The principle of insurable interest helps us to

catalogue our assets for the purposes of insurance. Expect for marine,
insurable interest is required both at the inception of the contract and that the
time of the loss, i.e. throughout the currency of the policy.

2. Utmost good faith: It is a requirement of law that in all commercial

contracts good faith shall be observed. However, contracts of insurance are
fiduciary in nature and therefore the duty placed on the contracting parties is
that of utmost good faith. The duty of utmost good faith implies that a
propose must disclose to the insurer all material facts i.e. not only the material
facts, which he knows, but also those which he ought to know. A breach of
utmost good faith can arise in two ways, non- disclosure or misrepresentation.

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 CLAIMS

When a claim arises, as an insurance officer must determine the

validity of the claim.

1. The date and time of incident.

2. Recovery from the insurance company.

3. The place of incidence of the claim or the location.

4. The cause of loss.

5. Knowledge of terms, conditions warranties.

6. Excluded perils, excluded property, compliance to conditions precedent to

the claim.

7. The complete cover offered by the policy together with the endorsements

etc. for making a complete claim.

8. Payment of premium on time .

9. Gathering all supporting documents for a claim.

10. Negotiating the claim with the surveyors and the insurance company.

11. Exhibiting utmost good faith after a claim in mitigation of loss.

12. If there is a claim under two polices – if so how will the recovery be

apportioned.

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 In all type of claims, a portion of the procedure will be common.

Therefore, before proceeding to the specific procedure let us understand these

common features.

Notification of loss:

An incident-giving rise to a claim must be immediately notified to the insurer

by furnishing the full details as to the policy number, date and time of accident and
estimated amount of loss.

This can be notified by telephone/telefax/telex requesting for the appointment of a

surveyor as well as your intention of preferring a claim, which should be followed by
a detailed letter.

Insurance = cover granted – specified exclusions.

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 THE FLOW CHART APPROACH

CAUSE

INSURED NOT INSURED

Self-Insured

INSURED LIABLE INSURED NOT LIABLE

Excluded perils
Excluded property
Outside geographical limits
Brach of warranty/Terms
Outside policy period

ISNURERE RECOVERABLE INSURER NOT LIABLE

Below deductibles/Excess
Under insurance
Salvage value
Overtime wages
Consequential losses

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COST OF COST OF THIRD PARTY
REPAIRS REPLACMENT LIABLITY AWARDS

INSURANCE AS TOOL OF RISK MANAGEMENT

Insurance accomplishes risk reduction by combining under one management a

group of objects situated so that the aggregate losses to which the insured are subject
become predictable within narrow limits. Thus, overall risk for the group is reduced,
and losses that result are pooled, usually through the payment of an insurance
premium. Thus, through the insurance mechanism, insures transfer various risks to
the group and exchange a potentially large, uncertain loss for a relatively smaller
payment (the premium).

Insurance is usually implemented through legal contracts, or polices, in which

the insurer promises to reimburse the insured for losses suffered during the term of the
agreement.

It must be stressed the insurance should never be treated/assumed to be the only

way to deal with a given risk. Rather, it should be considered as one of the many
potential techniques available through the risk management process.

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 TYPES OF POLICES

1. FIRE POLICY

1.1 Fixed assets.

1.2 Current assets.
1.3 Loss of profits.

2. MARINE POLICY

2.1 Marine open cover policy (import/export of goods).

2.2 Marine open policy (inland transit ).

3. SPECIFIC POLICIES

3.1 Boiler explosion policy .

3.2 Marine cum erection policy.
3.3 Public liability policy.

4. MISCELLANEOUS POLICIES

4.1 Cash insurance policy.

4.2 Fidelity guarantee policy.
4.3 Special contingency policy .

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 4.4 Baggage insurance policy.
4.5 Vehicle insurance policy.
4.6 All risks policy - cell phones, lap tops, audio and video tapes.
4.7 Group accident insurance policy.
4.8 Machinery breakdown policy.

FIRE POLICY

Introduction:

The fire policy is taken for coverage of equipment /building/plant and

machinery/furniture and fixtures/storage of stocks. The insurance companies fix the
rates as per the new fire tariff announced by the tariff advisory committee that the fire
policy covers the perils for fire, STFI (storm, tempest, flood and inundation group of
perils) and /or riot, strike, malicious damage perils (RSMD). It is permissible to
exclude the STFI/and/or RSMD cover and reduction in premium rate may be allowed
for such deletion as per the tariff.
The fire policy covers the following risk on payment of additional
premium:
 Earthquake (fire and shock).

 Terrorism damage.

 Spontaneous combustion.

 Forest fire.

 Surveyors and consultants fee (in excess of 3% of claim

amount).

 Debris removal (in excess of 1%of claim amount).

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  Impact damage due to insurer's own rail/road vehicles

and the like and articles dropped therefrom.

 Omission to insure additions, alterations or extensions.

Few of the exclusions to the policy are:

 Loss of damage due to act by order of public authority.

 Loss due to nuclear risks and nuclear weapon.

 Loss of property due to spontaneous combustion or by undergoing

any heating or drying process.

 Loss of theft.

 5% of each and every claim resulting from the operation of

lighting/STFI/subsidence and landslide/earthquake etc.,

 Loss due to flood or overflow of the seas, lakes, reservoirs or river

caused by earthquake shall not be covered if STFI perils are

deleted from the scope of the policy.

Checklist for the taking a fire policy:

Sum insured:

We have to state the sum insured of the asset to the insurance company
i.e. the value of the asset to be considered for insurance. Separate amounts are
required to be given in respect of building, plant and machinery, furniture and
fixtures, stock-in-progress. The value of the asset can be at market value or at

24
replacement value. In case of stock policy the maximum value of stock, which is like
to be stored in the godown (market value).
Claim settlement:

 In case of fire accident immediate intimation has to be given to the

fire extinguishing authorities, the nearest police station and to the

insurance company and take photographs of all affected areas.

 Utilise every possible means to extinguish fire.

 Separate all damage stock from undamaged stock to protect from

further loss.

 The details with regard to the extent of loss should be assessed and

intimated to the insurance company.

 Incase of an accident plant and machinery/building/furniture and

fixtures the details to the extent of loss, their market value in

comparing with the sum insured to the policy has to be verified.

 Relevant documents such, as quotations for the item lost need to

procure to assess the loss.

 To keep accurate records of labour involved in drawing up also

handling or reprocessing damaged goods.

 In case the sum insured to the policy is less than the present market

price of the item, then average clause shall be applied.

 In case the sum insured is more that the present market price of the

item, then the claim shall be limited to the market price of the item.

 However the insurance company on receiving our intimation

appoints a surveyor to assess the loss.

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  In case of stock policies, the current value of stock at the godown

needs to declare as on date of fire.

 Preparation of accurate inventory of loss before submission of

claim.

1.3 Loss of profit (fire) policy:

Introduction :

In case of a major fire loss, the business operations get interrupted

resulting in reduced turnover and eventually, in loss of profits; fire or standing
charges is incurred even when there is stoppage of production. In addition, extra
expenditure will be incurred in the for of increased cost of working. All these are not
covered by the normal fire policy. It is here that the consequential loss policy or the
loss of profit policy comes into force. Thus for overall protection to the business and
its profitability, loss of profits policy is necessary in addition to the fire insurance
policy.

Generally the policy indemnifies:

1. Loss of net profit:

Loss of net profit, which would otherwise have been made.

2. Insured standing charges:

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 The insured has to meet the fixed expenses like salaries, rent, interest,
administrative expenses etc even when the production is stopped.

3. Increased cost of working:

The insured may be forced to spend more to maintain the level of

production.

Example: getting the products manufactured in outside factories on job

work basis, making rush purchases, etc.

MARINE POLICY

Introduction:

Marine insurance occupies a vitally important position in the fabric of

overseas and internal trade of the country. Trade, internal and international, involves
the transportation of goods from one place to the other by sea, by air or on land.
Goods, whilst in transit are liable to be lost or damaged through various perils. A
marine insurance policy is intended to protect the insured against the risk of loss or
damage to the goods in transit.

2.1 Marine open cover:

Fire regular transits of goods for exports and imports, open cover are
issued. It is a contract of insurance specifying the type of products in transit, places of
despatch and destination, made of transit, type of packing etc. deposit premium has to
be paid based on the estimated despatch/receipts and the same can be enhanced during
the currency of the open cover. Intimation of dispatches/arrival of goods are to be
given whenever shipment takes place then a marine open cover certificate is issued
covering the said consignments and premium is reduced from deposit premium

27
already paid. On expiry of the open cover, any leftover amount in the deposit
premium is refundable.

In the more common forms of international sale such as F.O.B, C & F

and C.I.F, the risk in the goods [asses to the buyer once the goods have passed the
ship's rail at the port of shipment. But the property of the goods will not pass until the
buyer has taken the documents.

In F.O.B (free on board contract), the buyer is responsible for the

insurance from the time the goods pass the ships rail. The seller, in his own interest
must insure from his own premises to the ship's rail.

In C & F (cost and freight) follows the same pattern as above, the
difference being that in this case the seller is responsible also for the ocean freight.

In C.I.F (cost, insurance and freight) the seller is responsible for

insurance from his own premises to that of the purchaser subject to any qualification
in the sale contract.

2.2 Marine open policy:

For regular transit of goods with in the country, marine open policy is
issued indicating type of cover viz. inland transit (rail/road) like nature of cargo,
nature of packing, period of the policy, place of despatch and destination. Premium is
payable on the estimated turnover for a minimum of three months. The sum insured
can be enhanced by paying additional premium during the currency of the policy
based upon the actual turnover.

The policy can be adjusted on its expiry and the premium is refundable.
On the unexhausted sum insured consolidated monthly declaration are to be submitted
to the insurance company giving details of transits that have taken place during a
particular month.

Claim settlements and procedures:

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For overseas consignments

Procedure in case of loss/damage to consignment

 Erification of declaration to the insurance company.

 Address letter (claim notice) to the steamer agent by registered

acknowledge due immediately after notice of loss within one year

from the date of discharge of cargo from the vessel.

 Apply to customs for refund of proportionate duty, if paid already

under prior entry system-within six months from the date of

payment of duty.

 Apply to the port authorities for short landing certificate (incase of

short landing).

 Apply for and obtain Customs Examinations on the damage

packages.

 Arrangement of preliminary survey at the harbour/port.

 Immediate intimation to insurance company.

 Arranging for survey appointed by the insurance company as the

case may be.

 Intimation of claim to port trusts within seven days from the date of

landing.

 Notice of loss to port trust within six months from the date of

discharge.

Documents required for claim:

 Insurance policy/certificate in original endorsed on the reverse.

 Printed copy of the supplier's invoice.

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  Printed copy of the packing list.

 Printed copy of the bill of lading.

 Quadruplicate copy of the bill of entry.

 Carbon copy of claim notice to the suppliers/carriers/port trusts

authorities/customs department.

 Postal acknowledgement card for the claim notices.

 Survey report.

 Claim bill.

For Inland Transit:

Procedure in case of loss/damage to consignment

 Verification of declaration to the insurance company.

 Verification of declaration to the insurance company.

 Address letter (claim notice) to the carrier by registered

acknowledges after notice of loss within six months from the date

of loss.

 Apply for damage certificate from the carriers.

 Intimation to the insurance company.

 Arranging for survey of the damaged goods.

 In case lost in transit, first information reports to the police.

 Apply for non-delivery certificate to the carriers in case of non-

delivery.

Documents required for claim:

 Copy of the invoice.

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  Copy of packing list.

 Carbon copy of lorry receipts.

 Carbon copy of the letter (monetaryclaim) on the carriers.

 Original postal Acknowledgement Card on the claim notice.

 Damage Certificate received in original from the carriers.

 Original Survey Report.

 Original Survey Bill.

 Claim Bill.

 Copy of the first information report to the police in case of lost in

transit.

 Original final investigation report from the policy in case of lost in

transit.

Claim amount procedure:

Valuing the claim amount for marine insurance from insurance company:

1. To know the amount of damage value in the transit

2. Calculate amount of assessable value

Assessable value =
1. Invoice value

2. Freight per ton

3. Total freight = invoice qty * freight per/t

4. Incidentals 10% on invoice values and total freight

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 Assessable value = 1+3+4

Damage value:

Firstly, we have to find the damage qty in the transit.

Damage qty * assessable value = damage value

Total claim =Damage value + survey fees – salvage value (If any)

SPECIFIC POLICIES

3.1 Boiler Explosion Policy:

The industrial fire policy does provide cover against explosion/implosion.

But explosion/implosion occurring in boilers is an excluded peril. Therefore it is
necessary to insure boilers separately under a boiler explosion policy. There can be a
heavy liability for third party person and property damages.
Boiler shall mean any fired closed vessel or a combined container piping
system in which steam is generating under pressure. Pressure plant shall mean any un
fried closed container under steam gas or fluid pressure. The perils covered are
Explosion, Collapse-Implosion, and Fluid Gas Explosion. The insurer can be owner
of the boiler or must be a party holding the boiler or must be a party holding the boiler
under trust or having financial interest in the boiler of the insured (leased).

Explosion:

It mean the sudden and violent rending or tearing apart of the permanent
structure of a boiler or pressure plant or any part or parts thereof by force of internal
steam gas or fluid pressure causing bodily displacement of the said structure and
accompanies by the forcible ejectment of its contents.
Warranties:

Inspectors appointed by the appropriate government should annually

inspect the boilers and pressure plants described in the schedule. Attendants holding a

32
valid certificate of competency issued under the appropriate boiler act shall only
operate the boiler and pressure plant described in the schedule.

Sum insured:

The sum insured of each item of the boiler pressure vessel must be the
present day replacement value of a similar new item including there in all incidental
expenses like duties, freight, taxes, handling etc. If the sum, insured is not a defined
above then on the event of claim the condition of average will be applied for the
settlement of the claims.

Basis of settlement:

Partial loss basis:

If the damaged boiler/pressure vessel can be repaired then expenses

incurred of repairs/replacement of spare parts without deducting depreciation plus
incidental expenses like cost dismantling re-erection freight duty taxes insurance etc
top the extent included in the sum insured shall be payable.

Total loss basis:

If the damaged boiler/pressure vessel cannot be repaired or is completely

destroyed then the insured will be paid the actual value of the boiler/pressure vessel
insured immediately before the occurrence of the accident.
If the repair charges are more than the actual value of the boiler/pressure
vessel before occurrence of the loss then the claim will be settled on total loss.

Claim procedure and documentation

 First aid for the person injured.

 Inform police.

 Inform factory inspectorate authorities.

 Inform insurance company.

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  Collect details of person and property.

 Take photographs.

 Completed claims form.

 Claim bill.

 Repairs/replacement bills.

 Details of third party liability.

3.2 Marine cum erection policy:

Introduction:

The insurance comprises tow parts-the marine and the storage cum
erection. The first coverage for transit risks to take care of the interest during the
transit form the various suppliers warehouses to the site of erection. The second id
the storage cum erection coverage to take care of the interest during storage, erection,
testing and commissioning. The transits cover risks plus war, strike, riot, civil
commotion for imports and inland transits. For erection portion, the risks covered are
any accident, fire, riot, strike, lightning, malicious damage, storm, tempest, flood,
earthquake, act of God of perils, tearing apart due to centrifugal forces, short-
circuiting, faultless in erection, lack of skill and carelessness, theft and burglary of the
property stored at the site of erection. It also covers the damages to the equipment
during the commissioning and testing, till handed over to the principals.

Sum insured:

On landed cost of imported machinery at factory site, which includes

invoice cost, freight, insurance, handling charges, clearing, and transportation charges
up to site, customs duty.

In case of indigenous machinery- invoice cost, freight, insurance,

handling charges, clearing and transportation charges up to site
Cost of erection, including salaries to technicians, consultations etc,
Civil works, building in which the plant ar to be erected.

34
Rates:

The insurance company prescribes the marine rates, which are not
governed by the tariff.

Period of insurance:

1.No separate period need to be indicated for the marine portion. The marine risk
commences form the date o despatch of the first consignment.
2.The storage cum erection period has to commence form the date of arrival of the
first consignment at the site of erection.
The storage cum erection insurance is covered by a tariff where a basic premium is
charged for the first one-month erection plus one-month testing. Addition is making
by a rate fixed for one month or part thereof for the succeeding months.
1. If there is delay in completion of the project, the additional premium for extension
of policy is disproportionately high for the extended period.
2. In case where the sum insured is required to be increased during the policy period,
the premium to be collocated on the additional sum insured will be at the
applicable storage cum erection rate and has to be collected form the inception of
the policy.

Documentation:

 Occurrence report.
 Photographs.
 Copy of the report to the police.
 Repair bills.
 Claim bill.
 Claim form.

3.3 Public liability act policy:

35
 It is a statutory requirement to take the public liability insurance policy
for every manufacturing concern as per the Public Liability Insurance Act, 1991.
Insurance policies issued in terms of the Act also provide for a payment of equal to
the calculated premium to be made to the environment relief fund.

The premium rates, terms and conditions are governed by a market

agreement, which is common to and binding all the four insurance companies.

Sum insured and premium:

It will depend upon the nature of the industry, indemnity limit chosen for
any one accident/any one year, turnover, extension of cover for act of God perils,
pollution, transportation etc.,

Conditions after occurrence of an event:

 All summons to be submitted in writing.

 Insured shall give immediate notice of any material change in the
risk.
 On payment of any claim under the policy, the insurer relinquishes
liability under the policy due to the same event.
 Insured shall maintain all and proper records os that the insurer
shall have an access to inspect the same.

MISCELLANEOUS POLICIES

4.1 Cash insurance policy:

1. Cash in transit policy.

2. Cash in safe.

Cash in transit policy:

36
 The cash-in-transit policy specifies two limits. The first is the limit to the
amount of money carried in a single transit. This is an important limit for the insured,
as the insurance company wills not pay for any money lost in excess of this limit.
Therefore care must e taken to estimate the maximum amount of money limit may be
carried at a single it right at the time the policy is taken. This limit should be
reviewed periodically and get the limit enhanced if necessary. The second is the limit
specified for the sum insured, which is an estimate of the total amount of money that
may be carried during the policy period. The sum insured under the policy will
represent the total estimated actual carriage during the policy period after taking into
account the previous transits. The rate of premium is arrived at based on the two
limits and the premium is first charges in the estimated annual turnover as a deposit
The area of transit needs to be declared to the insurance company.
Cash in safe:

The cash in safe covers the money kept in sage in excess of 48 hours.
The highest amount being kept in custody ar any point of time has to be declared to
the insurance company.
Claim procedure for cash insurance policy:

 Report to the policy immediately.

 Get reports firm first hand witnesses, if any.

 Inform the insurance company immediately.

Completed claim form:

 First information report form policy.

 Final investigation report.

 Statements of witnesses.

 Departmental proceedings, if required/applicable.

 Vouchers, account books, as quantum of money required.

 Claim bill.

37
4.2 Fidelity guarantee policy:

Coverage:

The insurance provides indemnity to the employer for financial loss

sustained as a result of dishonesty, default, negligence, misappropriation forgery,
embezzlement, fraudulent conversion of money or goods of the employer committed
by salaried employees in the course of performance of their duties.

Description:

This is a policy issued to cover a number of employees, the sum insured

being an estimate by the insured of the maximum probable loss through acts of
infidelity of one or all persons/employees so covered. One single sum insured is
floated for the whole of the named employees. The sum insured will be the limit
payable in respect of loss resulting form the act of one or more of the insured
employees, insurance can be taken even without specifying the name of the
employees ut only indicating the positions in the management structure, which are to
be covered. If this is done, all employees coming under the specified category should
insured without selection/exception. It is necessary that any additions/deletions are
informed to the company to avoid non coverage of new entrants.

This is advantageous for two reasons:

1. The blanket or floating sum insured would be more adequate and realistic because
it is at times difficult to fix the responsibility on a particular employee for the act
of infidelity.
2. This type of policy will give a larger umbrella cover for all the employees listed
and the cost will be lower because a basic premium will be charged on the total
premium and a nominal floater extra will be charged for the number of employees
covered.

Claim procedure and documentation:

38
  Upon discovery of losses inform the police.

 Intimation to insurance company.

 Investigator to be appointed an initiate domestic inquiry.

 Complete claim form.

 FIR from police.

 Proof of quantum of losses.

 Claim bill.

 Records relating to domestic inquiry.

 Written statement form the employee's concerned.

4.3 Special contingency policy:

Courier:

The special contingency policy fire courier is a tailor made policy for
coverage of our items being sent through courier form head office. The policy covers
perils like burglary cover, theft cover, fire and allied perils cover, accidental damage
cover, robbery cover, baggage insurance as per baggage clause.

Claim procedure and documentation:

 Upon discovery of loss inform the police.

 Intimation to company.

 Complete claim form.

 FIR from police.

 Proof of quantum of loss.

 Claim bill.

 Proof of despatch of the items.

4.4 Baggage insurance:

39
 Baggage is necessary for officers traveling on company business. The
policy covers loss/damage happening to accompany baggage during specified
journeys by fires, riot and strike theft or accident. The details of extent of coverage
for cash, jewelry and valuables have to be declared at the time of taking the insurance
coverage. Normally, the list of names of persons or their levels is mentioned against
which the sum insured are fixed. The limit for extent of coverage is determined at the
time of taking the policy as per the level of the officer. The limit will be fixed for
each event and the number of events during the tenure of the policy.
Claim procedure and documentation:

 Upon discovery of loss inform the police.

 Intimation to insurance company.

 Investigator to be appointed and initiate domestic enquiry.

 Complete claim form.

 FIR form police.

 Proof of quantum of loss.

 Claim bill.

 Tickets of the journey to be submitted for proof of travel.

 Records relating to domestic enquiry.

 A written statement from the employee's concerned.

Worldwide cover:

Level Description of cash

Property
Md,A2,A3,A4 cash, valuables viz., Rs.20000/-
Jeweler, gold etc per head
A,A1,B,B1 -do- Rs.10000/-
Per head
C,C1 -do- Rs.5000/-

40
 Per head
Others -do- Rs.2000/-
Per head

4.5 Vehicle policies:

Steps to be followed for insurance claim for damage of vehicles by

Following actions need to be taken immediately:

 FIR has to be filed with Police Station.

 Immediately inform to the Insurance Company through Mill.

 Do not repair /dismantle the vehicle before consent of final

surveyor/insurance.

 For parts replaced, old parts may have to be handed over to

insurance co.,

 In case of third party injury/ deaths/ property damage.

1. If driver is charge sheeted, criminal case to be properly defended

by a lawyer.

2. Any notice of claims from third party, MACT or court of law and

all summons received, concerning the accident to be forwarded to

the Insurance Company.

3. Obtain and forward postmortem reports/ certificate in case of

Death of driver/ Cleaner/ workmen.

41
 Documents are to be submitted for insurance claim:

 Driving license of the person driving the vehicle at the time of the

accident.

 Registration certificate - Original will be required for theft or for

total loss claims.

 Original documents along with a copy.

 FIR filed with police station.

 Original bills and duly stamped cash memos.

 Final Police Investigation Report (for Theft claims).

Coverage under comprehensive insurance policy:

1. By fire explosion self ignition or

2. By burglary house braking or theft.

3. By riot and strike.

4. By earthquake –(fire and shock Damage).

5. By flood, typhoon, hurricane, storm, inundation cyclone hails

storm frost.

6. By accidental external means.

7. By malicious act.

8. By terrorism activity.

9. By whilst in transit by road rail inland waterway lift elevator or

10. By land slide rock slide.

4.6 Risks all policies:

This insurance is intended to provide cover against loss or damage to

laptops, audio and videotapes, watches, cameras, cell phones etc., all the valuable

42
proposed for insurance will have to individually described in the proposal form to
permit identification and the sum insured against each item must be indicated. The all
risks policy covers loss or damage to the insured items due to fire and theft, riot and
strike, terrorist activities or accident for misfortune due to any fortuitous causes.
Claim procedure and documentation:

 Upon discovery of loss inform the police.

 Intimation to insurance company.

 Complete claim form.

 FIR from police.

 Proof of quantum of loss.

 Claim bill.

 Written statement from the employee's.

4.7 Accident insurance policy-all managers:

All managers of the company are covered under a Group Accident

insurance policy. The policy covers compensation for accidental death or injury
including disablement.
The amount of cover for the managers as per their grade is currently as
follows:
Level Rs. Lakhs
MD 45.00
DIRECTOR 35.00
A1 25.00
A 17.50
B1 14.00
B 13.50
C1 11.00
C 10.00
ALL OTHERS 5.00

43
4.8 Machinery breakdown policy:

The machinery breakdown insurance policy provides indemnity against

any unforeseen and sudden physical loss or damage to the insured machinery whilst
running or at rest as a result of an ‘accident’ due to

a) Internal causes:
Faulty material, defects in casting, faulty construction, faulty design, cracking
or overheating or parts, short circuits an electrical burn-outs, faults erection,
explosion, tearing apart on account of centrifugal forces, failure of operation
of safety devices.

b) External causes:
Lack of skill, carelessness, sabotage, falling bodies, electrical over-pressure,
failure of other machinery connected with it, entry of foreign objects.
Claims procedure:

 When damage occurs to an insured machine the same should be

entered in a log book with a brief description of the accident.
 Inform insurance company immediately and ask for surveyor to be
sent.
 Prepare statement giving causes of damage and nature of repairs to
be effected and probable cost.
 Furnish surveyor with information he requires, in particular.
 Photographs of damages.
 Probable cause of failure.
 Estimate of repairs and how repairs are proposed to be carried out.
 Ascertain present day replacement value of a new machine of the
same type and capacity to determine whether there is under-
insurance.
 Claim documentation:
a) Occurrence report.

44
 b) Photographs.
c) Claim bill.
d) Bills to support repair cost.
Note:

1.If the repairs were done through an outside agency, the claim bill will be
for the amount paid to the repairer plus cost of dismantling, transport to the repairer
and back, re-erection and testing charges. If repairs are carried out in the factory, the
claim bill will be for the cost of spares utilized, the cost of dismantling, re-erection
and testing.

2.If the damages are of a major nature and when the repairs cannot be effected
immediately, a provisional claim bill can be raised on the insurance company
requesting an on- account payment. However, in such cases, the affected machinery
should not be put to use till final repairs are carried out.

Exclusions:

 Loss of or damage to belts, ropes, chains, rubbers tires, dies or

exchangeable tools and non-metallic parts.

 Loss or damage arising out of the willful act.

 Loss or damage for which the manufacturer or delivering firm of

the property is responsible either by law or under contract
.
 Loss due to overloading or tests requiring the imposition of
abnormal conditions.

45
Risk of terrorism loss:

As per the directions received from tariff advisory committee of India,

insurance for risk of terrorism will stand cancelled with effect from 31.03.2002.
However, cover for Riot, Strike, Malicious Damage will continue unaltered.

And in order to cover to terrorism risk, there will be additional premium

should be bear by the insured for the coverage of the terrorism.

CHAPTER3.
COMPANY PROFILE

46
 ITC PROFILE

ITC Ltd - Paperboards & Specialty Papers Division

Leader in the Indian Paperboard Industry.

ITC was incorporated on August 24, 1910 under the name of `Imperial
Tobacco Company of India Limited'. Its beginnings were humble. A leased office on
Radha Bazar Lane, Kolkata, was the center of the Company's existence. The
Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of
land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the
sum of Rs 310,000. Now the Company's multi-business portfolio encompassing a
wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology,
Packaging, Specialty Papers, Paperboards, Agri-Exports and Lifestyle Retailing.

In 1979, ITC entered the Paperboards business by promoting ITC

Bhadrachalam Paperboards Limited, which today has become the market leader in
India. Bhadrachalam Paperboards amalgamated with the Company effective March
47
13, 2002 and became a Division of the Company, Bhadrachalam Paperboards
Division. In November, 2002, this division merged with the Company's Tribeni
Tissues Division to form the Paperboards & Specialty Papers Division.

The Division Today

The Division is head quartered at 106, Sardar Patel Road, Secunderabad

with three production units:
Bhadrachalam Pulp Mill, Paperboards and Paper manufacture – 4 paper

Unit machines.

Bollarum Unit Web conversion and sheeting – Cast Coating, Poly extrusion,
Super calendaring and Sheeting.
Tribeni Unit Specialty Paper manufacture – 4 machines

The Vision for the Division

To be a valued player in the global Paperboards & Specialty Papers Industry by:

1. Leadership in quality – products, processes, service and people;

2. Continuous enhancement of value for all stakeholders; and

48
 3. Upholding societal values and expectations.

The Company's paperboard products include:

Packaging boards - coated folding boxboards, solid bleached sulphate boards,

white lined chipboards, liquid packaging boards,

1. Cast coated papers and boards.

2. Printing & writing papers.

3. Eco-friendly papers.

4. Photocopier papers.

Main key inputs of the ITC-PSPD company are

 Wood.

 Waste paper

 Pulp.

 Chemicals.
 Process consumables.
 Packing material.

 Engineering inputs.

ITC’s paperboards and specialty papers business has won numerous

awards for quality, environmental management systems and product
excellence.

 ‘National Energy Management Award 2001.’

 ISO 14001 Environment Management Systems certification in

2001.

 Capexil’s special Export Award for 1999-2000.

49
  Indira Priyadarshini Vrikshamitra Award for the outstanding
contribution to the cause of afforestation and the development of
wastelands.

 ISO 9002 certification for Bhadrachalam factory.

 The Vantech Industry Rolling Trophy for R&D.

 The Rajiv Gandhi Parti Bhoomi Mitra Award for developing non-
forest wastelands in the country.

 National Award fro Energy Conservation from the Department of

Power, Ministry of Power & Non-Conventional Energy Sources,
Govt. of India.

CHAPTER 4
DATA ANALYSIS AND INTER
PRETATION

50
 PREMIUM OUTFLOWS

Particulars 2010-2009 2009-2008 2008-2007

Fixed assets 35,959,662.00 21,185,323.00 9,581,664.30

Loss of profits 8,499,603.00 5,892,741.16 -
Boiler explosion 1,410,624.00 772,841.00 693,110.00
Vehicles 140,783.00 165,586.00 170,502.00
Personal accident insurance 47,983.50 852,248.00 463,685.00
Insurance forest stock 2,569,332.00 468,968.52 517,824.00
Insurance on med claim employees 1,894,271.00 2,064,003.00 1,096,882.00
Others 1,940,126.93 1,332,689.09 2,070,778.95
Current assets
Waste paper and pulp 252,984.00 406,111.00 -
Insurance on stock - 33,103.00 -
Insurance on stock coal fluid oil 36,147.00 103,782.00 -
Insurance on stock stores and spares 861,376.00 738,780.00 -
Finished and semi finished goods(BCM) 221,148.00 626,242.00 151,983.00
Insurance- other raw material and finished 1,045,738.00 609,428.27 621,405.67
goods
Marine in transit

51
Insurance chemicals - 14,019.00 -
Inland stores and spares transit insurance 32,664.00 51,794.00 -
Import waste paper and pulp- transit insurance - 113,499.01 -
Import stores and spares- transit insurance 146,829.00 139,066.00 -
Sales in transit
Transit -sales paid 2,484,830.00 2,050,366.07 3,343,497.29
Insurance plantation 167,312.00 158,825.00 119,879.00
Transit in export-sales paid 933 19,000.00 -
Premium on ECGC 3,979,430.79 4,055,040.53 4,700,616.41
Projects 3,378,258.00 - -
TOTAL: 65,070,035.22 41,853,455.65 23,531,827.62

PREMIUM OUTFLOWS AND CLAIMS EXPERIENCE

fire policy claims - fixed assets

year sum premium Expected loss claims

insured settlement
(In cores) (in lakhs)
2007-2008 669 0.95 5.45 1.75

2008-2009 1005 2.11 8.63 4

2009-2010 1270 3.59 - -

The premium paid on fire polices are found to be approximately 0.2% of the
value of sum insured during the years. It was about 14% in 2007-2008, this shows an
increase in the value of sum insured and correspondingly the premium paid in
between the three years

transit policy

52
year sum premium Claims
insured Experience
(in crores) (in lakhs)
2007-2008 824.5 22.56 10

2008-2009 933 24.81 15

2009-2010 1080 26 15

The amount of premium paid in respect of transit policies in relatively higher

than the premium paid on other policies. The amount of premium paid during the
year as a percentage of the sum-insured workout to approximately 2.6%.

vehicles policy

year premium Claims claims

Settled not settled
(in lakhs)
2007-2008 1.7 1.36 0.34

2008-2009 1.65 1.32 0.68

2009-2010 1.4 1.12 0.88

The company will not get the complete amount of claim form the insurance
company because the insurance company will deduct the depreciation amount from
the date of purchase and deduct the amount of depreciation and settle the amount. If
the company want to claim the entire amount it has to pay premium amount as
specified by the insurance company

insurance on medi claim on employees

year premium Claims

53
 Settled

2007-2008 10.96 100%

2008-2009 20.64 100%

2009-2010 18.94 100%

The company getting the complete amount from the insurance company on the
medi claim amount for the premium amount paid.

Statement showing the premium outflows

For the 2007-2010

Statement showing the fire policy experience

With ITC Ltd

54
Statement showing the transit policy experience

With ITC Ltd

55
 Satement showing the vechicles policy experience
With ITC Ltd

30
25
20
15
10
5
0
2008 2009 2010

premium Claims Experience

BHADRACHALAM INSURED WITH

DIFFERENT
KINDS OF INSURANCE COMPANIES FOR
THE
FOLLOWING POLICIES

TYPE OF POLICY 2007-2008 2008-2009 2009-2010

MARINE POLICY NIC OIC NIIC

FIRE POLICY NIIC NIIC NIIC

FIDELITY GURANTEE UI UI UI

CASH IN SAFE UI UI UI

LOSS OF PROFIT - NI NI

PERSONAL ACCIDENT NW NIC NIC

56
 NOTE:
1. NIC = National India Insurance Company

2. OIC = Oriental Insurance Company

3. NIIC = New India Insurance Company

4. UI = United India Insurance Company

5. NIC= National Insurance Company

Insurance polices can be taken from any insurance company depending upon
the premium quotes.
Insurance policy premiums will depend upon
 Tariff
 Non Tariff
Tariff = It premium quotes will levied by the TAC

Non Traiff = It premium quotes will decide will by the insurance

company based upon the insured amount

1. At 2008-2009 the company insured the marine policy with the oriental
insurance company but in 2009-2010 the company changed to New India
Insurance Company because the OIC is not accepting the Marine policy
until it has insured with the Fire Policy (as Marine policy is loss making
policy).

2. As the company already having the fire policy with the New India Insurance
Company the company has decided to have the claims on marine with NIIC.

3. The company will decide the insurance company according to the premium
quote the insurance companies has quoted for the policies recommended by
the company

57
 TYPES OF POLICIES AND THEIR COVERAGE AREAS

FIXED ASSETS:

COVERED NOT COVERED

Riot,Strike,Fire,Theft Flood,Earthquake
Burglary,Terrorism

Note:

1. From Year 2010 company decided not to cover the terrorism as

they can save more amount (1.10 crores app.,)
58
 2. Company failing to give intimation to the insurance companies
on the additions of fixed assets of the company on the year
2006-2007 and the company started to give reinsatement values
from the year 2007-2008 on each type of fixed assets based
upon the RBI Index values.

CURRENT ASSETS:

COVERED NOTCOVERED
At BCM&DCM terrorism, Theft,burglary held by
Theft&burglary 25% coverage others on behalf of co.,

Electronic Equipment Policy

Computer hardware comprehensive Mechanical breakdown,
Cover like fire and allied Perils Burglary

59
Loss of profit policy
Breakdown Terrorism and flood

CHAPTER 5.

FINDINGS

60
 FINDINGS

1. It is observed that most of the claims made are in respect of transit polices, which
are admitted by the insurance companies and duly settled. Some of the claims are
overdue because of inappropriate documentation or some other specific reasons.

2. In respect of vehicle polices the claims made are settled by the insurance
company, after duly deducting the depreciation applicable on the vehicles. As a
result of this the company does not get the whole amount of claim from the
insurance company. There claim settlement ratio is 80% only.

61
3. All the medi-claim polices on employees, the insurance companies have duly
settled the claims.
This is also one of the major risk mitigating factors on human
resources.

4. On the whole the insurance scenario in ITC Ltd is in agreement with the general
rules.

5. The company saved on the considerable amount of insurance premiums by

removing insurance cover on terrorism from

RECOMMENDATIONS

1. It is advisable for the company to operate all its insurance transactions

through insurance agencies. This will help the company in the
following benefits:

 Reduction of work.

 Will have an idea to which area they can have

insurance and can reduce the premium.

 They give an idea about the discounted areas in the

premium payment.

62
2. The company should pay attention to the pending claims on the
polices, as such they are lagging from three years due to various
reasons like improper documentation.(marine policy).
3. The company should reduce the premium amount on the terrorism
where ever necessary as it could avoid paying the more premium
4. The company should concentrate on fire policies as they are not
claiming the amount regularly so, they have to take the decision to
what extent they should insure with the insurance company.

63
 BIBLIOGRAPHY

BIBLIOGRAPHY

1. Kothari’s guide to general insurance

By Dr.D.C.kothari
2. Marine insurance claims
By Insurance Institute of India

64
Web sites:
 www.itcbpl.com
 www.itcportal.com

65