Banking and Insurance Service

Vocational Higher Secondary
Education (VHSE)
Second Year
BANKING AND INSURANCE

SERVICES
Reference Book
Government of Kerala
Department of Education
State Council of Educational Research and Training (SCERT),

KERALA
2016
Reference Book
List of Contributors
Participants
Viswambharan Nair.P. Latha.P.G.

Vocational Teacher in BIS Vocational Teacher in BIS
St.Ignatius VHSS, Kanjiramattom SNV VHSS Aloor
Ernakulam Thrissur
Sreekumar.S. Kala J.Nair

Vocational Teacher in BIS Vocational Teacher in BIS
GVHSS Ambalamugal GVHSS Paravanna
Ernakulam Malappuram
Santhosh Rajan S.
Vocational Instructor in BIS
GVHSS Malayankeezh
Thiruvanathapuram.
Expert
Dr P.S.Devakumar
Assistant Professor
Government College for women
Thiruvanathapuram
Academic Co-ordinator
Smt. Anjana V.R.Chandran
Research Officer, SCERT
State Council of Educational Research and Training (SCERT)

Poojappura, Thiruvananthapuram 695012, Kerala
Website : www.scertkerala.gov.in, e-mail : [email protected]
Phone : 0471 - 2341883, Fax : 0471 - 2341869
Typesetting and Layout : SCERT
© Department of Education, Government of Kerala
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BANKING AND INSURANCE SERVICES
FOREWORD
Dear Learners,
This book is intended to serve as a ready reference for learners of
vocational higher secondary schools. It offers suggested guidelines
for the transaction of the concepts highlighted in the course content.
It is expected that the learners achieve significant learning outcomes
at the end of the course as envisaged in the curriculum if it is
followed properly.
In the context of the Right- based approach, quality education has
to be ensured for all learners. The learner community of Vocational
Higher Secondary Education in Kerala should be empowered by
providing them with the best education that strengthens their
competences to become innovative entrepreneurs who contribute
to the knowledge society. The change of course names, modular
approach adopted for the organisation of course content, work-
based pedagogy and the outcome focused assessment approach
paved the way for achieving the vision of Vocational Higher
Secondary Education in Kerala. The revised curriculum helps to
equip the learners with multiple skills matching technological
advancements and to produce skilled workforce for meeting the
demands of the emerging industries and service sectors with national
and global orientation. The revised curriculum attempts to enhance
knowledge, skills and attitudes by giving higher priority and space
for the learners to make discussions in small groups, and activities
requiring hands-on experience.
The SCERT appreciates the hard work and sincere co-operation of
the contributors of this book that includes subject experts,
industrialists and the teachers of Vocational Higher Secondary
Schools. The development of this reference book has been a joint
venture of the State Council of Educational Research and Training
(SCERT) and the Directorate of Vocational Higher Secondary
Education.
The SCERT welcomes constructive criticism and creative
suggestions for the improvement of the book.
With regards,
Dr. P. A. Fathima
Director
SCERT Kerala
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Reference Book
CONTENTS
1. About the Course ............................................ 5
2. Major skills ..................................................... 6
3. Syllabus ........................................................... 7
4. Overview of Module-3.................................... 9
5. Unit 3.1. Introduction to insuance................... 10
6. Unit 3.2. Underwriting and Insurance
Documents ...................................................... 38
7. Unit 3.3. Insurance Claims......... ...................... 49
8. Unit 3.4. IRDA Regul tions.. ............................. 57
9. Extended activities ......................................... 67
10. Suggested of Practicals ................................... 68
11. Overview of Module 4... ................................. 73
12. Unit 4.1. Meaning and Importance
of service Marketing ...................................... 74
13. Unit 4.2. Marketing of Banking Products ......... 89
14. Unit 4.3. Marketing of Insurance Products ...... 97
15. Unit 4.4. An Introduction to Financial Market 112
16. Extended activities ......................................... 119
17. Suggested Practicals....................................... 120
18. List of reference ............................................. 125
19. Proposal & Claim forms............................... .... 126
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PART A
About the course
Banking system in India has been functioning under regulations since 1949. Before
Independence, the banking system was largely in the hands of Private Banks. The
SBI Act was passed in 1955 and as a result Imperial Bank of India was taken over
by Reserve Bank of India. Following this, Public Sector participation was increased
by taking over by seven associate/subsidiary Bank of SBI by 1959 and Nationalising
of 14 private banks in 1969, and 6 private banks in 1980. Post Nationalisation, the
banks were asked to open more branches in rural areas, huge number of people
were recruited to these newly opened branches, the business of banking moved
from class banking to mass banking. These developments gave raise to the need for
a large work force of bank employees. The banking and finance sector is one of the
fastest growing sector in the country. This growth brought many opportunities in the
banking sector. The nationalised banks select candidates based on selection test
conducted by IBPS. State Bank of India conducts its own selection test for
recruitment. Private Banks, as a number of considerations, which include
qualifications and past experience whatever may be the selection procedure, are
required to provide training to the candidates selected for employment. In order to
reduce the cost of training and also increase the productivity of employees, the
banks prefer candidates who have acquired training in various aspects of banking
and finance before joining the banks. A suitable qualification and acquisition of the
basic skill in Banking and Finance through an appropriate training enhance the
prospect of getting employment in Banking and Finance Sector.
Insurance in its current term has its history dating until 1818 when Oriental Insurance
Company was started by Anita Vishwas, in Kolkota to cater to the needs of the
European community. In 1829 the Madras equitable had transacting Life Insurance
business in the Madras Residency. In 1870, Bombay Mutual Life Assurance Society
became the first Indian insurer. The government of India nationalised life insurance
sector on 19th January 1956. As a result Life Insurance Corporation came into
existence. The General Insurance Business (Nationalisation) Act was passed in 1972
and as a result General Insurance business was nationalised with effect from 1st
January 1973.
Due to the recommendation of "Malhotra Committee" report 1999, the IRDA was
constituted as an autonomous body to regulate and develop the Insurance industry.
The key objective of the authority is to promote market efficiency and ensure
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Reference Book
consumer protection. Today there are twenty-eight General Insurance Companies

including the ECGC and Agricultural Insurance Corporation of India and 24 life
Insurance Company's operating in the country. The opportunities in the insurance
sector at the level of assistant and officer are comparable with those in the banking
sector. One can become an Agent, Surveyor or Investigator by following the norms.
The insurance sector is a fastest growing one with a growth rate of 15%-20% together
with banking service, the insurance add about 7% to the country's GDP
MAJOR SKILLS
Resilience skill
People skill
Accounting skill
Accuracy skill
Attention skill
Bilingual skill
Customer relations skill
Judgment skill
Goal setting skill
Communication skill
Product presentation skill
Problem solving skill
Negotiation skill
Syllabus
MODULE III : INSURANCE SERVICES
Unit 3.1: INTRODUCTION TO INSURANCE (90 Periods)
Meaning of risk
Classification of risk
Features of Insurable Risk
Meaning and Functions of Insurance
Peril and hazard
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Importance of Insurance
Types of Insurance
Essentials of valid a contract
Meaning and Types of Contracts
Difference between Insurance Contract and Wagering contract
Legal Principles of Insurances
Unit 3.2: UNDERWRITING AND INSURANCE DOCUMENTS
(90 Periods)
Meaning of Underwriting
Underwriting procedure of Life Insurance
Assignment, Nomination, Revival and Surrender
Underwriting of non-life Insurance
Insurance Premium
Insurance documents
Unit 3.3: INSURANCE CLAIMS (80 Periods)
Meaning , Importance and type of claims
Procedure of settlement of Life Insurance claims
Procedure of settlement of Non-life Insurance claim
Unit 3.4: IRDA REGULATIONS (80 Periods)
IRDA Regulations
Insurance operations
Final accounts of insurance companies and usage of accounting software (Tally)
MODULE IV : MARKETING OF BANKING AND

INSURANCE PRODUCTS
UNIT4.1: MEANING AND IMPORTANCE OF SERVICE
MARKETING (90 Periods)
Meaning and features of service
Types of Services
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Meaning and Significance of Service Marketing

Difference between product marketing and service marketing
7 P's of service Marketing (Marketing mix)
Consumer behavior in service market
Role of Service Marketing in India
UNIT4.2: MARKETING OF BANKING PRODUCTS (80 Periods)
Concept of Marketing of Banking Products.
Users of Banking Products
Selling Strategy in Banking Products
Marketing of various Banking Products
UNIT4.3: MARKETING OF INSURANCE PRODUCTS (90 Periods)
Insurance marketing concept
Segments of Insurance Market
Strategies for Insurance Marketing
Qualities of a good salesman
Marketing of various life Insurance products
Marketing of major non-life Insurance products
Unit 4.4: AN INTRODUCTION TO FINANCIAL MARKET
(80 Periods)
Various investment opportunities in financial market
Types of financial securities
Securities Market
Pre requisites of investing in financial securities
Trading procedure on secondary market
Securities Market Regulator(SEBI)
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PART B
An Overview of Module 3
In India insurance claims had a historical background. Manusmruthi of Manu,
Dharmasastra of Yajnavalkya, and Arthasastra of Kautilya mention about existence
of insurance. The writings speak in terms of pooling of resources and redistribution
in times of calamities such as fire, famine, flood etc. The insurance sector is one of
the fastest growing sector in India. The insurance sector is growing at a speedy rate
of 15-20%. 7% of the GDP is contributed by banking and insurance sectors
together. The sector generates long term funds for infrastructure development. The
job opportunities in this sector are immense and lucrative. One can become an
advisor, surveyor or investigator. The opportunities in the insurance sector at the
levels of assistant and officers are comparable with those in the banking sector. A
basic knowledge in insurance is essential to all, if he is a student, a home maker or a
shopkeeper or a professional. This kind of a knowledge required to have a check
on what your advisor tells you, but also to confirm that the insurance taken is the
right one for you.
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Unit 1: Introduction to insurance

Introduction
Insurance is a form of risk management used to primarily transfer risk. It means
transferring risk from one entity to another. Insurance transfers the risk from an
individual to a group. This unit shares the concept of risk, classification of risk,
meaning and importance of insurance, various types of insurance and the major
principles of insurance. Insurance can be used as a tool to shield an individual
against potential risk like travel accidents, death, old age, health, unemployment,
theft, property destruction by natural calamities, fire, mishap, etc.
Learning Outcomes
The Learner:
 Identifies the nature and meaning of risk in insurance
 Categorizes and describe various types of risks
 Decides the feasibility of insuring a risk
 Describes the primary and secondary functions of Insurance
 Describes various perils and hazards
 Differentiates physical and moral hazard
 Analyzes the importance of insurance in different situations
 Identifies different types of Insurances
 Describes and differentiate various types of contracts
 Identifies the essentials of a valid contract
 Describes and Differentiate Insurance contract and
Wagering contract
 Identifies and describe the legal principles of insurance
Meaning of risk
The term risk is a psychological and relative term. It has different
meaning in different circumstances. In general, risk refers to the
possibility or chance of meeting danger, suffering loss or injury
or exposure to adversity or danger. In a broader sense risk is
uncertainty. For our insurance purpose, we define risk with
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reference to uncertainty of loss. Thus, risk means the possibility of loss or damage
on the occurrence of an unpredictable or unfortunate event.
Man always has to encounter with risk. All his inventions and researches were to
avoid pain, miseries, difficulties and hazards. Events of the risk cannot be avoided
but it can be minimized.
Assessment Activity
 List out the risks you face in your life
 List out the risks faced by a motorist
 List out the risks faced by a business man
Classification of risk
Risk may be classified as follows:
1. Pure risk and speculative risk
Financial losses caused by bodily injury, theft, fire, loss of profit, legal liabilities, etc
are the pure risks. Pure risk can produce only one outcome, ie, loss. There is no
possibility of a gain. These risks are measurable and insured against. Pure risk may
be Personal risk, Property risk, Liability risk and Other risk.
Speculative risk or Business risk is bilateral. Where uncertainties means the possibility
of either a gain or a loss. Loss due to changes in fashions, taste, price changes, govt.
policies, loss by competition, etc, will cause speculative risk. It cannot be predictable
or measured. So, such risk is uninsurable.
Pure risk vs. Speculative risk
Pure risk Speculative risk
1. In the case of pure risk, always result 1. In the case of speculative risk
in loss. No possibility of gain. either gain or loss
2. The extent of loss can be measured 2. It is not measurable. The extent
in monetary terms. of loss cannot be predicted or
measured.
3. A policy of insurance can be 3. Insurance is not possible as
taken to cover loss speculative risk is unpredictable.
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2. Fundamental risk and Particular risk

Fundamental risk: Fundamental risk involves losses that are impersonal in origin.
They are group risk. It affects the whole society. They affect large segments or
events. Unemployment, inflation, earthquake, flood are examples of fundamental
risk.
Particular risk: Particular risk involves losses that arises out of individual event
and felt by the individual event rather than group. They may be static or dynamic.
The fire in a house, robbery in an organization are examples of particular risk.
3. Financial risk and Non-financial risk:
Financial risk which results in financial loss. i.e, it can be measured in terms of
money. Non- financial risk is that risk which results in non-economic loss.
Practical
Prepare a chart/ppt classifying different types of risks
Assessment Activity
 Categorise the listed risks into pure, speculative, fundamental and particular,
financial and non-financial risks
Fire, theft, burglary, accident, change in fashion, investment in stock market,
price fluctuation, earthquake, flood, war, inflation, burning of house, bank
robbery, theft, interest payable, debt payable,
Pure Speculative Fundamental Particular Financial &
nonfinancial
Differentiate pure and speculative risk

Pure risk Speculative
 Always produce loss only 
  Not insurable
 measurable 
Features of Insurable Risk
All risks are not insurable. To be insurable, the risk must have the following
characteristics:
1. It must be measurable: The loss caused by the risk must be capable of mea
suring in terms of money.
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2. It must be pure risk not a speculative risk: Pure risk arising from perils like
fire, burglary, riot, theft etc. can be insured.
Speculative risk cannot be insured because
that risk cannot be predicted or estimated.
3. It must not be illegal in nature: The
object of contract must be lawful. Illegal
subject matter are not insurable.
4 . Must be capable of being spread: A
risk must be capable of being spread in
large number of persons.
5 . Must be accidental: The event is one, the happening of which must be acci-
dental in nature.
6. Must not be catastrophic in nature: Risk must not be such as would cause
loss or damage to a large number at the same time. Thus war and similar other
risk is not considered for insurance cover.
7. Premium must be economically feasible: Premium should not only be
affordable but also far less than the value of the policy.
Risk Management
Risk management is the managerial technique of controlling the effects of risks. It
consist of identification, assessment, analysis, and
controlling of risk followed by co-ordinated and economical
application of resources to minimize, monitor and control
the unfortunate events. The steps to control pure risk are-
risk avoidance, loss prevention and loss reduction, risk
retention and risk transfer. Thus, risky situations has to be
avoided is the best and simplest way for managing risk.
But, it is not at all possible everywhere and hence loss
prevention and loss reduction techniques can be chosen. For example, fire losses
can be controlled and reduced by using non-combustible materials on building
construction, installing sprinklers etc. At last, insurance can be opted to handle the
consequences of pure risk.
Speculative or business risk can be controlled by adopting better management
methods, conducting market research, diversification of production and proper
forecasting of future trends in government policies.
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Assessment Activity
 List out the features of insurable risk, and make a chart/ppt.
Complete the following
Risk prevention/reduction Risk avoidance ................ Risk Transfer
Meaning and functions of Insurance

Insurance has developed gradually to cover the risk in life and business. Insurance
is a contract of guarantee, whereby the insurance company undertakes to indemnify
the insured against the loss, which he may suffer on the happening of an uncertain
event.
The mechanism of insurance is very simple. People who are exposed to the same
risk come together and agree, that, if any one of them suffers a loss, the others will
share the loss and make good the person who lost. Pooling or sharing of loss is the
heart of insurance.
In legal sense, insurance is a contract between two parties thereby, one party (insured)
cover the risk by paying a specified amount (premium) to other (insurer) undertaken
to indemnify the loss suffered by them in the event of accident.
Functions of Insurance
The important functions of insurance are as follows.
1 . Insurance provide security and protection: Insurance provide financial
security to an individual who is exposed to the risk of accidental death or
disablement or illness. It also give protection against the risk of loss or dam-
age to the property due to theft, fire, burglary, etc
2. Insurance encourages the habit of savings: Insurance create the saving
habit among the insured. Once the life policy is taken, the insured is bound to
pay premium regularly. So he saves a portion of income for paying the pre-
mium regularly.
3. Provide employment opportunities: Insurance gives employment opportu-
nity to a large number of people as advisors, field officers, accountant, clerks,
etc.
4. Acts as a basis of credit: If the life insurance policy is pledged, insured get
loans from banks and other financial institution.
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5. Insurance distributes risk : Insurance help to spread the risk. The loss sus-
tained by few insured person is distributed among many others, so that the
burden of financial loss is minimized .
6. Insurance provide capital: The funds of insurance company is invested in
shares, debentures, government securities. Insurance provide not only protec-
tion but also capital to the society. Usually accumulated funds are invested in
economic development programmes.
7. Insurance increases efficiency: The insurance eliminates worries and un-
certainties of businessman. Such persons can work better for the maximization
of profit. Insurance, by eliminating uncertainty, stimulates the businessman to
work hard.
8.. Insurance promotes foreign trade: Insurance is essential for development
of foreign trade. It relieves the business from uncertainty in the event of loss.
Insurance provides security to the international traders and financial institutions
and thereby promotes foreign trade.
9 . Insurance solves social problems: At present we have insurance against
industrial injuries, road accidents, old age, disability, or death. Thus, insurance
act as a good instrument for solving many social problems.
10. Insurance check inflation: It reduces the pressure of inflation by extracting
money in supply, by collecting premium.
Assessment Activity
 Prepare a chart exhibiting functions of insurance
Perils, Hazards - physical hazard and moral hazard
Peril : The term perils may be defined as the cause of loss. Loss caused by various
calamities are called perils. Peril means loss producing
cause.
Examples of perils are explosion, flood, fire, death by
accident, sickness, riots, strike etc. Fire is the cause of
loss, while uncertainty about the occurrence of fire is the
risk.
Hazard: The term hazard refers to something that creates
or increases the chance of loss arising from any peril.
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Eg. The negligence of a driver in pressing the accelerator instead of break , may
cause a motor accident.
Hazards are of two types - Physical hazard and
moral hazard.
Physical Hazard: It consists of those physical
conditions that increases the chance of loss from
any perils. Eg. Meterials used for the construction
of building, height of the building, items stored
inside the building etc.
Moral Hazard: Moral hazard depends up on
human beings as physical hazard depends on the property. Eg. Carelessness, willful
act, ignorance of law, economic and social factors.
Practical
List out the various hazards in connection with human life and in the case of motor
accidents. Classify them into physical and moral hazards. Make a power point
presentation on the basis of the above classification.
Steps 1 -
Give an introduction about risk, peril and hazard.
2.Make a brain storming session about the various hazards faced by
human beings and various hazards faced by motor vehicle riders.
3. List out all the hazards raised by the students separately (i.e. hazards
faced by human beings and hazards faced by motor riders).
4. Classify the listed hazards into physical and moral.
5. Prepare a table in Excel format.
6. Make a power point presentation (Minimum 5 slides).
Assessment Activity
 List out some hazards
 Categorise the hazard into physical and moral
Importance of insurance ( Benefits of insurance)
The following are the beneficiaries of insurance
A. Benefits to an individual
B. Benefits to business
C. Benefits to society
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A. Benefit to an individual
1. Security and safety: In case of life insurance claim payment is made when
death occurs or the term of insurance is expired whichever is earlier. In other
words, insurance as security provides against the loss in a given contingency.
2. Peace of mind : A sense of security removes all tensions and fears. It stimu-
lates more and better work. An insured person get rid of himself from mental
worries about uncertainty.
3. Protects mortgaged property: The insurance provide adequate amount to
the dependents in the event of early death of the property owner to pay off
the unpaid loan.
4 . Eliminates dependency: In the event of death of the bread winner of the
family or destruction of property, the family suffers a lot. The insurance assists
the family and provides adequate compensation.
5. Encourages savings: Systematic savings is possible because regular pre-
mium are required to be compulsorily paid and withdrawal of premium is not
allowed.
6. Provides profitable investment: A life insurance contract provides not
only protection but also provides investment opportunity, as it is not a con-
tract of indemnity.
7. Fulfils the need of a person: Insurance helps for meeting requirement and
needs of a person like family needs, old age needs, special needs like edu-
cation, marriage of children etc.
B. Benefits to business
1. Reduces uncertainty of business losses: Uncertainties in business are

eliminated by insurance. The valuable properties of business are protected by
fire insurance, theft and burglary insurance etc.
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2. Increase efficiency: Business men get free from unnecessary botherations

and devotes more care and energy to maximize his profits.
3. Key man indemnification: Persons having expertise, experience, ability to
control the business are more important for the employers. Death of such per-
sons proves a serious loss than by fire .The compensation to the dependents
of such employees require adequate provision which can be met by purchas-
ing life policies.
4. Addition to credit. A business man can obtain loan by pledging the policy as
collateral security for the loan.
5. Business continuation. The partnership business may be discontinued at
the death of a partner. The insurance helps to continue the business.
6. Employees welfare. Provision for welfare of employees can be made by life
cover, sickness benefits and pensions.
C Benefits to Society
1. Protection of wealth of society: Insurance provides against loss of human
wealth. Loss of damage of property can also be indemnified by the insurance
company .
2. Economic growth of the country: As insurance provides protection against
loss of property, if any such damages arise , the assets can be replaced without
loss of production . Thus, Economic development of the country is insured by
having suitable insurance cover.
3. Accelerating the production growth: Adequate capital from Insurance
Companies accelerate production cycle in the country. Economic growth of
the country is assured and the process of growth is accelerated which is essen-
tial in a country like India where the population is increasing very fast.
4. Reducing inflation: In the form of premium Insurance Companies get huge
volume of money supply from the public, which the insurance company put
into productive activities. By promoting savings, insurance companies help in
reducing consumption and thereby reduce the resultant inflation.
Assessment Activity
 Categorise the benefits into benefits to individual, to business and to
society.
 Show a chart exhibiting the benefits of insurance
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3.1.7 Classification of Insurance (Types of Insurances)
Insurance may be broadly classified into two

I. Life Insurance II. Non-life insurance (General Insurance)
I. Life insurance: Life insurance is a financial coverage on contingency, linked
with human life, like death, disability, accident, retirement etc. Life insurance
or life assurance is a contracts where by the insurer, in consideration of a pre-
mium, undertakes to pay the assured or nominee or his dependent, a specified
sum of money on the expiry of a certain period or on the death of the assured
whichever is earlier.
Human life is the subject matter of life insurance contract. If a person dies the
payment will be made to the dependent of the deceased. To effect life insur-
ance, one must have insurable interest like other contracts of insurance. It is
also based on utmost good faith but the principle of indemnity is not applicable,
since the loss of human life cannot be measured in terms of money.
II. Non- life insurance(General Insurance). These are contracts of indem-
nity. The insured is eligible for compensation in the event of loss. The following
are various types of non-life insurances.
Traditional Classification
Classification of Insurance
Life Insurance Non-life Insurance
Fire
Marine Miscellaneous
eg.Personal Accident, Motor
Insurance, Cattle Insurance,etc
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Modern Classification
Insurance
Life Insurance Non Life Insurance
Insurance of property Insurance of liability Insurance of Insurance of

• Fire • Public liability person Interests
• Burglary • Product liability • Personal • Loss of profit
• Motor • Professional indemnity accident • Fidelity guarantee.
• Marine • Legal liability • Health
• Machinery • Third party
1. Fire Insurance: Fire insurance is designed to provide financial protection against

loss or damage by fire and other specified perils. It is a package insurance
policy. There must be actual ignition which ought to be accidental. The fire
insurance shifts the burden of fire losses from their actual victims to all the
members of the society. It is a co-operative device to share the loss.
2. Marine Insurance: A contract of marine insurance is an agreement whereby
the insurer undertakes to indemnify the assured, in the manner and to the extent
thereby agreed, against losses incidental to marine adventure. It may cover
loss or damage to vessels, cargo or freight. Marine Insurance may be Hull
Insurance, Cargo Insurance and Freight Insurance
3. Motor Insurance: As per the provisions of Motor Vehicles Act 1939 it was
made compulsory for the motorist to insure against the risk of liability to third
parties. In other words, the insurance of third party liability arising out of the
use of motor vehicles in public place is made compulsory. Act policy /Third
party policy and Comprehensive policy(combination of Act policy and TP
policy) are the important kinds of motor insurance policies.
4 . Personal Accident Insurance: A contract of personal accident insurance is a
contract whereby a sum of money is secured to the assured or his legal repre-
sentative in the event of his disablement or death by accident.
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5. Health Insurance: The term 'Health Insurance 'relates to a type of insurance

that essentially covers your medical expenses. A health insurance policy like
other policies is a contract between insurer and an individual /group in which
the insurer agrees to provide specified health insurance cover at a particular
'premium" subject to terms and conditions of the policy. It is popularly known
as mediclaim policy.
6. Burglary Insurance: Burglary insurance enables the business house to re-
coup the losses suffered by them consequent on burglary or house breaking. In
order to give covers, the insurance department has also devised other types
of policies besides burglary policy. It may also be a theft by a person in the
premises who subsequently breaks out by violent and forcible means.
7. Fidelity guarantee Insurance :Fidelity guarantee insurance indemnifies the
employer against the financial loss suffered by him due to the dishonest acts of
the employees. The majority of policies are issued to commercial and manu-
facturing firms in both in public and private sectors. The rate of premium de-
pends up on the type of occupation, status of the employee, the systematic
check and supervision.
8 . Product liability Insurance : The product liability insurance protects against
claims of personal injury or property damage caused by the defects of prod-
ucts manufactured or sold or supplied through business. It is designed to help
protect business by ensuring, indemnity by use of product by general public.
(e.g. Producers or sellers of Canned food stuff, aerated waters, medicines and
injections electrical appliances, mechanical equipments gas cylinders, etc.)
9. Professional Indemnity Insurance: Professional indemnities are designed
to provide insurance protection to professional people against their legal li-
ability to pay damages arising out of negligence in the performance of their
professional duties. Policies are available to Doctors, Engineers, Architects,
Chartered Accountant, lawyers etc.
10. Agriculture Pump set policy: The insurance is granted on Centrifugal Pump
sets (electrical and diesel) up to 25 H P. capacity of approved makes used for
agricultural purpose only. The cover is in respect of unforeseen and sudden
physical damage to pump sets by fire, lightning, riot, strike, malicious damage,
terrorism, mechanical, electrical breakdown, and burglary.
11. Livestock Insurance: It provides cover against death of animals like bulls,
buffalos, cows and heifers arising as a result of accident, disease, partuariasation
as the case may be.
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12. Crop Insurance : Crop insurance is bought by agricultural producers or farm-

ers besides others who want to protect themselves against loss of their crops
due to natural disaster like hail,draught and floods or the loss of revenue due to
decline in the price of agricultural commodities.
13 Public Liability Insurance
This insurance promises to indemnify the loss caused to third party, resulting in
death or injury or loss of third party’s property, due to the negligent act of
employer, his employees or insured property. Legal costs are also payable
under the policy.
The concept of third party includes the public at large and a large variety of
risks involved in daily life. Classification of risks insured under this policy can
be made as under.
a. property owner’s risks
b. Building constructing contractors risks.
c. Theater’s risks
d. Risk of hospitals and nursing homes.
e. Lift risks.
f. Shops, godowns, factories and departmental store risks.
14 Engineering Insurance
This is one of the most technical branches of accident insurance. This insur-
ance provides very broad cover for damage to electrical and mechanical ma-
chinery. It also covers losses or damages suffered by contractors and princi-
pals with respect to civil engineering project like buildings, tunnels etc. It in-
cludes the following types.
1. Boiler explosion insurance
2. Machinery breakdown insurance
3. Machinery erection insurance
4. Marine-cum erection insurance
5. Storage-cum erection insurance
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Difference between Life and Non-life Insurance

Life Insurance Non Life Insurance
a contract of assurance a contract of indemnity
the risk insured is definite and certain the event insured is uncertain
insurable interest cannot be measured insurable interest is measurable
The subject matter is human life Subject matter may be properties,
liabilities or rights etc
Insurable interest must be present at the Insurable interest must be present during
time of effecting the insurance the policy period
Long term contract Short term contract
Premium can be payable in installments Premium paid in lump sum
No surrender facility
Can be surrendered
Indemnity principle is not applicable Indemnity is strictly followed
Assessment Activity
 prepare a chart displaying various types of insurance.
 Identify and explain suitable insurance policy in the following situations
a. Mr.Arun owns a motor car
b. Mr.Soman is a trader of cosmetic items
c. Mr.Biju is an owner of an auditorium
Additional Information
Basic terms used in insurance
1. Insurer: The party who undertakes risk is called insurer or
assurer or underwriter
2. Insured: The party for whose benefit the insurance is initiated
is called insured or the person whose risk is insured is called
insured or assured
3. Premium: The consideration for which the insurer undertakes
to indemnify the insured is called premium. The consideration
paid by the insured to the insurer for the risk undertaken by the
latter.
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4. Policy: The word policy has been derived from the Italian
word "polizza" which means "a receipt" The document which
contains the terms and conditions of the insurance contract is
termed as the insurance policy. It must be stamped, signed,
sealed and dated
5. Subject matter: Things or property insured is called subject
matter of insurance.
6. IRDA - 2000 (IRDA, Act-1999) : The Insurance Regula-
tory and Development Authority is the regulator of the Insur-
ance Sector.
7. LIC : Life Insurance Corporation of India. In 1956, the life
insurance business was nationalized bytaking over 245 com-
panies and by forming one single corporation, named as Life
Insurance Corporation of India .
8. GIC : General Insurance Corporation of India Act 1972.
Essential Elements of a Valid Contract.
 Law of contract.
The law of contract is the most important part of commercial law because every
commercial transaction starts from an agreement between two or more persons. It
deals with agreements which can be enforced through court of law. The object of
the law of contract is to introduce definiteness in commercial and other transactions.
In India the law relating to contract is the Indian Contract Act,1872 .
A valid contract must possess the following elements :-
1. Agreement through offer and acceptance.
2. Free consent of parties.
3. Competency or capacity of parties.
4. Lawful consideration.
5. Lawful object.
Agreement.
All contracts are made by the process of lawful offer by one party and lawful
acceptance of the offer by the other party. The person making the offer or promise
is called the "offerer" and the person to whom the offer is made as the "offeree". The
offer may be made orally or in writing. An offer together with acceptance lead to a
contract which is enforceable by the court. Acceptance is not effective until it is
communicated to the party who made the offer.
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Free consent.
In order to be enforceable, an agreement must be based on the free consent of all
the parties. Consent means that the parties to an agreement must agree on the same
thing in the same sense. This implies the principle of "consensus ad idem", which
means identity of minds. Both the parties should agree to the same thing in the same
sense. All the parties to the contract must express their intention to enter into a
contract, independently without any fear, favour or force. In other words, a consent
is said to be free when it is not caused by coersion, fraud, undue influence,
misrepresentation and mistake.
Capacity of Parties.
According to the Contract Act, "every person is competent to contract ,who is of
the age of majority, who is of sound mind, and is not disqualified by any law to which
he is subject."The Act provides that minors,lunatics, insolvent etc.,are disqualified to
enter into a contracts.
Lawful consideration.
Consideration is an essential element for the validity of a contract. Consideration is
the price of a contract and it is not enforceable unless each party to the agreement
gets something. This "something" is called consideration. Consideration consists of
some benefit or any return to the other party. It may represent past, present or future
but must be real and lawful.
In contracts of insurance the insured's promise to pay premium is the consideration
for insurer's promise of protection. It may either be a single payment or periodical
payments spread over a specified period of policy.
Lawful Object.
In order to make a valid contract, the object of the agreement should be lawful. An
unlawful object of any contract shall make it unenforceable at law. Thus, the object
of the insurance contract must be lawful. For example, stolen or smuggled goods
cannot be insured. Again, the contract must not tend to be immoral or involve injury
to the person or property of another. The object must not be illegal, immoral or not
against public policy. For instance, insurance for payment of fines for motor traffic
offences would be regarded as opposed to public policy.
The elements mentioned above must all be present. If any of them is absent, the
agreement does not become a valid contract. An agreement which fulfils all the
essential elements is enforceable by law is called a contract. From this it is clear
that, every contract is an agreement but all agreements are not contracts.
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Reference Book
Assessment
 Ask the students whether they are eligible to take a life or non life policy, why?
 Prepare a chart showing the elements of a valid contract
Types of Contracts
The elements mentioned above must all be present in a contract. If any of them is
absent, the agreement will not become a valid contract. On the basis of the elements
contained, contracts can be classified as:-
 Valid contract
 Void contract
 Voidable contract
 Illegal contract.
Valid contract
An agreement which fulfils all the essential elements is enforceable by law and is
called a valid contract or legal contract. From this it follows that, a contract that
possesses all these elements are legally valid.
Void contract
A void contract is not a contract at all. If either or both the parties have no
competency to contract, the contract is void. Thus, a contract with a minor is not
valid. Similarly, where the parties are competent to contract, but the consideration
or object is not lawful, the contract is void. For example, where the proposer for
insurance is a minor, the insurer cannot accept the proposal. Similarly, where the
parties are competent to contract, but the consideration or object is not lawful, the
contract becomes void.
Voidable contract
Where the parties are competent to contract and the consideration and object are
lawful, the contract is voidable if the consent is not free but is obtained by coercion,
undue influence, fraud or misrepresentation. The contract is voidable at the option
of the party whose consent was so obtained.
Illegal contract
A contract which is contrary to law and against the interest of the public is an illegal
contract. It has no legal effect. It cannot be enforced in a court of law and hence be
called unenforceable contract. Granting insurance protection to the cargo of an enemy
country when war is declared is an illegal act. Such an insurance contract will be
considered illegal.
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INSURANCE AND WAGER

A wager is a gambling transaction and this is different from an insurance contract in
many ways :-
1. A contract of insurance is legal and enforceable by law. A wagering contract
has no legality or enforceability at all.
2. In insurance contract, the legal principle of utmost good faith should be ob-
served. This principle does not apply to wager.
3. Insurance provides protection. Wagering transaction do not provide any pro-
tection.
4. In a contract of insurance insured is protected from loss, subject to certain
conditions. In a wager, either of party may win or lose.
5. The occurrence of an insured contingency is not certain. In a wager the event
is sure to happen at a future date.
6. In a contract of insurance, neither of the parties desires the happening of the
insured event. But, in a wager both the parties have a desire to win.
Assessment
Complete the following table
Insurance contract Wagering contract
 legal  illegal
 
 
  no consideration
 
Elements of Special Contract
In addition to the above general principles, insurance
contract must also confirm to the elements of special
principles (legal principles) they are
1 Utmost Good Faith
2 Insurable Interest
3 Indemnity
4 Subrogation
5. Contribution
6 Proximate cause
7 Mitigation of Loss.
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1.UTMOST GOOD FAITH

An insurance Contract is a contract of 'Uberrimae fidei ' ie., contracts which require
absolute and utmost good faith on the part of the parties concerned (insurer and
insured). In insurance contract a high degree of good faith is required because of the
special nature of contract. Utmost good faith means that the insurer and the insured
must act in good faith and disclose all material facts concerning the subject matter of
insurance.
A material fact is one which affects the judgement or decision of both the parties in
entering into the contract. Material facts are the factors that would influence the
risks of the subject matter. These facts have a direct bearing on the degree of risk in
relation to the subject of insurance.
All the material facts should be disclosed in true, correct and in full form. There
should be no concealment, misrepresentation, mistake or fraud about the material
facts. The duty to disclose the material facts lies on both the parties, the insured as
well as the insurer. But in practice, the insured has to be more particular about the
observance of this principle, because he is usually in full knowledge of the facts
relating to the subject matter. In case the insured fails to give all the relevant information,
or furnishes false information or conceals any material facts, the insurer can cancel
the contract, when the insurer comes to know about it. The contract becomes void
and has no legal validity.
In this respect an insurance contract differs from an ordinary commercial or business
contract. Business contract is based on the rule of "Caveat emptor" i.e., let the
buyer beware. In an ordinary contract of sale of goods the buyer is expected to
take all reasonable care at the time of buying. In a commercial contract law requires
only good faith to be observed by the parties. Insurance contracts, on the other
hand, are contracts of utmost good faith.
Breach of Utmost Good Faith
The principle of utmost good faith demand that the insured has to disclose all material
facts. A breach of this principle arises under any of the following circumstances:-
a). Non-disclosure.
b). Concealment.
c). Innocent misrepresentation.
d). Fraudulent misrepresentation.
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Non-disclosure of material facts may be either intentional or non-intentional.

Intentional or wilful non-disclosure amounts to concealment and this would make
the contract void. The innocent non-disclosure and innocent misrepresentation may
not affect the contract until it is treated as void by the aggrieved party. For example,
if the proposer represented that the building was of first class construction whereas
it was not, the insurer may avoid the contract of fire insurance. Non-disclosure or
concealment of material facts will lead the contract to become voidable at the option
of the insurer.
2. INSURABLE INTEREST
Insurable interest is a fundamental principle of insurance contract. It is the legal right
of a person to insure. It is the interest of the insured in the subject matter of insurance.
A person can enter into a valid contract of insurance only if he has an insurable
interest in the subject matter. A person is said to have insurable interest in the
subject matter of insurance provided he stands to benefit by the safety and stands to
lose financially by loss of or damage to the subject matter. It is held that a person has
insurable interest to an unlimited extent in his own life. But in actual practice , the
insurer in order to avoid over insurance, usually limits the amount of insurance to a
reasonable level in proportion to his need for insurance, financial status and earning
capacity.
Essentials of Insurable Interest
The essentials of valid insurable interest are the following :-
1. There must be a subject matter to be insured.
2. The relationship between insured and subject matter should be recognised by
law.
3. The policy holder should have monetary relationship with the subject matter.
4. The relationship between insured and subject matter should be of a pecuniary
one, where the policy holder is economically benefited by the survival or exist-
ence of the subject matter and will suffer at the loss or damage of the subject
matter.
In case the above legal conditions are not present, the subject matter of insurance
cannot be insured as there is no insurable interest.
Importance of Insurable Interest
The principle of insurable interest is basic to the structure of insurance. It is required
to make the contract of insurance enforceable by law. Absence or lack of insurable
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Reference Book
interest will render the contract void or illegal .The principle of insurable interest
distinguishes insurance from a gambling transaction. Anyone then could insure any
one else's property and be tempted to bring about the loss to collect the claim under
the policy. This is against the public policy.
How Insurable Interest Arises.
An insured obtain insurable interest in the subject matter on account of the following
relationships.
1. Interest in one's own life- A person possesses an insurable interest to an
unlimited extent in his own life. But, in practice,, the sum insured will depend
upon his capacity and willingness to pay the premium.
2. Interest in the Life of another person - Interest in the life of another arises
out of relationship of husband and wife. A husband has insurable interest in the
life of wife and vice versa. Insurable interest cannot be presumed from the
existence of other relationships. Thus a father has no interest in the life of his
son or a sister does not have an interest in the life of her brother and vice versa.
3. Interest from business relationships - Insurable interest may also arises
from certain business relationships. For example:-
(a) A creditor has insurable interest in the life of his debtor to the extend of
the debt.
(b) An employer has an interest in the life of the employee to the extent of
the value of his/her services.
(c) Partners have insurable interest in the life of a co-partner.
(d) A company has an interest in the life of its 'key-men' i.e. valuable em
ployees.
4. Interest arising from absolute ownership - Ownership of a property en-
titles the owner to insure the property. Thus the owner of a house can insure his
house, the owner of a car can insure his car ,etc.
5. Interest arising from law - A bailee is responsible for damage to goods in his
possession due to his negligence. Warehouse keepers, owner of motor garage
etc. are responsible to the goods in this way.
6. Interest arising from contract - A tenant in terms of lease may be respon-
sible for the safety of the property. He can insure the property even though he
is not the owner.
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7. Interest arising from Legal Liability - Employers have legal liability to pay
compensation to employees for employment related accidents, motor vehicle
owners are liable to third parties for the damages caused by accidents involv-
ing their vehicles. These legal liabilities create insurable interest.
8. Interest arising from Mortgage - A mortgagee or one who has advanced
money on the security of property has an insurable interest in the property. But
his interest is only partial,limited to the amount of the loan.
Time when insurable interest must exist
The time when insurable interest must exist depends upon the branch of insurance as
under :
(a) In Life Insurance - insurable interest must be present at the time when
insurance is effected, though interest need not exist at the time of loss. For
example, a creditor can insure the debtor's life to the extent of loan. If the
debtor dies after repayment of the loan, the creditor may recover the amount
of policy because he had an inmsurable intertest in the life of the debtor at
the time of effecting the insurance.
(b) In Fire and Accident Insurance - insurable interest must exist not only at the
time of effecting the policy but also at the time of the loss. For example a
person may have purchased certain property and insured it under a fire
policy. Subsequently he may sell the property to another person. If there is
a loss by fire after the sale, the insured cannot recover under the policy as
he has no insurable interest at the time of loss.
(c) In Marine Insurance - insurable interest must be present at the time of loss
and need not be present at the time of effecting the insurance . For ex-
ample, a person who imports goods on C & F (Cost and Freight) terms
has to arrange for their insurance during transit. At the time of effecting
insurance, the interest in the property may still vesting in the exporter and
may not have passed on to the exporter; nevertheless, the importer has a
bonafide expectation of acquiring interest in the goods when they are shipped.
The importer can therefore effect insurance legitimately and if the goods
arrive damaged at destination, he can recover from the insurer as he has an
insurable interest in the goods at the time of loss.
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3. INDEMNITY
The word indemnity means 'security against loss or damage' or 'compensation for
loss'. Insurance contracts promise to make good the loss or damage. This means
that the assured shall be paid only the actual amount of loss, not exceeding the
amount of the policy. For this the loss should be measured in money value. The
amount paid by the insurance can be equal but never more than the value of subject
matter. For example, if a person insure his house (valued Rs.30,000) for Rs. 30,000
against fire and if the house is completely destroyed by fire, insurance company will
pay compensation of Rs.30,000. But if the house damaged valued Rs.25,000, he
will be paid only Rs.25,000. It means that in no case he will be allowed to make a
profit out of his misfortune.
The principle of indemnity can be applied only on general insurance, where actual
loss determination is possible. i.e, indemnity does not apply in life and personal
accident insurance.
Object of Indemnity
The object of indemnity is two fold. First of all, the insured is indemnified for the
loss he has suffered. In other words, the insured after the loss, is placed in the same
financial position, as far as possible, as he occupied immediately before the loss.
Secondly, the principle of indemnity ensures that the insured does not make any
profit or gain any benefit or advantage out of his loss. If a person allows making a
profit in the event of loss or damage to the property, may encourage him to cause
loss or damage to the property again.
Methods of Indemnity
Mode of Indemnity
Cash Payment Repair Replacement Reinstatement
4. SUBROGATION
The principle of subrogation is an extension and outcome of principle of indemnity.
It is a form of substitution. It means that under certain circumstances, the insurer can
acquire all remedies available to the insured against a third party. Subrogation means
placing the insurer in the place of the insured. To be more precise, subrogation may
32
be defined as the "transfer of rights and remedies of the insured to the insurer who
has indemnified the insured in respect of the loss."In other words, subrogation is the
transfer of rights and remedies of the insured in the subject matter to the insurer after
the indemnification. That is, the right of ownership of the affected property passes
on to the insurer.
Object - The object of subrogation is to impose a duty on the insured to pass over
to the insurer may right of recovery that he may have against a third party. Having
paid the claim, the insurer is allowed to step into the shoes of the insured to have the
benefit of any such recovery. For example a person has insured his property against
fire. Through the negligence of a third party a fire arose and the property is damaged.
Insurers pay the claim for this damage and thus become entitled to recover from the
third party through whose negligence the damage was caused.
Subrogation and Indemnity - The principle of subrogation arises from the principle
of indemnity. The principle of indemnity prescribes that in the event of loss or damage
of subject matter, the insured is compensated to the extend of actual loss, whereas
the principle of subrogation prescribes that the scrap or whatever is left of the damaged
subject matter of insurance is to be automatically passed into the hands of the insurer
after the payment of the claim.
Essential Characteristics of Doctrine of Subrogation
1. The doctrine of subrogation applies only to contracts of indemnity, ie, con-
tracts of fire and marine insurance or in general insurance. It does not apply to
contracts of life and personal accident insurance.
2. The law of subrogation is applied to all contracts of indemnity and it arises only
after the payment of the claim is made to the insured by the insurer.
3. The insured is required to provide all the necessary assistance to the insurer
while enforcing the rights of subrogation against the defaulter.
4. The insurer is granted the right to sue the third party (defaulter) in the insured's
name but the expenses of litigation are to be borne by the insurer.
5. The right of recovery of compensation from the third party(defaulter) by the
insurer is limited to the amount of claim paid to the insured.
6. The principle of subrogation is automatically applied even without any express
condition the contracts.
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5. CONTRIBUTION
Principle of contribution is another outcome of the doctrine of indemnity. It applies
to all contracts of indemnity. If a property is insured by several insurers against the
same risk, the insurers must share the burden of payment in proportion to the amount
assured by each. In this case, the total loss suffered by the insured is contributed by
different insurers in the ratio of the value of policies issued by them for the same
subject matter. If any of the insurers pays the whole loss, he is entitled to a contribution
from the other insurers.
Need - This principle is for sharing loss between co-insurers. It prevents the insured
from making profit out of his misfortune. Eg. a property is insured against fire for
Rs.10, 000 with Insurer A and for Rs.20,000 with Insurer B. If the property is
damaged by fire to the extend of Rs. 9,000, the insured cannot claim the amount
both from insurer A and B. Here insurers A and B will proportionately contribute to
the loss. Their respective share can be found out by the following formula.
Sum insured by the insurer/ Total Sum insured x actual loss
Therefore the compensation given by A =10,000/30,000 x 9,000 = 3,000
Compensation given by B = 20,000/30,000 x 9,000 = 6,000
The insured can recover the entire amount of loss from the insurer A. In that case
insurer B should contribute to insurer A a sum of Rs. 6,000.
Conditions:-
(a) The subject matter of insurance must be common to all the policies.
(b) The insured must be the same person.
(c) The perils covered on all policies are of the same.
(d) All the policies must be in force at the time of loss.
(e) The policies must be legally enforceable.
6. PROXIMATE CAUSE
The phrase proximate cause is derived from the Latin phrase,'causa proxima' which
means the nearest or immediate cause. Proximate cause means the direct, most
dominant, most important, and the most effective cause of which the loss is occurred.
It is the most closely and directly connected with the loss. It is the immediate cause
of the loss and not the remote cause. When there is only one cause for a loss, the
claim can be settled easily. But when there are two or more causes for a loss, then
34
the doctrine of causa proxima applies. Then it become necessary to choose the
most important, the most effective the most powerful cause which has brought about
the loss. This cause is termed as "proximate cause " and all other causes, are considered
as 'remote cause'.
The object of insurance is to provide indemnity against loss caused by certain specified
perils. The perils insured are clearly stated in the policy and the liability of the insurer
arises only if the loss is caused by the insured perils. In life insurance, the doctrine
of 'causa proxima ' is not applied because the insurer is bound to pay the amount of
insurance, whatever may be the reason of death. It may be natural or unnatural. Let
us consider the following case to illustrate the point.
A person insured under a personal accident policy went out for hunting and met with
an accident. Due to shock and weakness, he was unable to walk. While lying on the
wet ground , he contracted cold which developed into pneumonia which caused his
death. The court held that the proximate cause of death was the original accident
and pneumonia is only a remote cause. Hence the claim was payable.
7. MITIGATION OF LOSS
Mitigation of loss means to minimise or decrease the damage of the loss. It is
prescribed that whenever the event insured against occurs, it shall be the duty of the
insured to take all such steps to minimise the loss as would have been taken by any
person who is not insured. It places a duty on the insured to make every effort and
to take active steps to minimise or reduce the loss at a peril, as would have been
taken by a prudent, uninsured person. An insured cannot be a silent spectator to the
loss. He must do his best to minimise the loss and save whatever is left.
Assessment Activity
 Enlist the material facts of motor insurance
 Mr.X avail loan from a bank and purchased a TV set. Now he wishes to
insure it. Find the insurable interest in the case.
 A building is damaged in an earthquake, for releasing claim which mode of
indemnity is suitable.
 Prepare chart showing the major special principles of insurance contract
Practical
Make a short film for giving awareness to general public about the necessity of
reducing road accidents.
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Hint-Explore internet and collect incidents of photographs/videos of road accidents.

Narrate with touching words
Find out innovative and creative steps to reduce road accidents.
Give a good message
TE Questions
1. Identify the type of risk in the following situations.
a. A fire occured to a building and loss amounted to Rs. 1,00,000
b. Serious injury caused by an accident to Mr. Anand
c. Change in fashion create a loss to the churidar shop owned by Mrs .Nitha
d. Fireworks explosion at Kollam.
2. "An agreement enforceable by law is a contract". Suggest and explain the
elements required to a contract to support this statement.
3. Age, occupation, physical fitness, etc are the material facts relating to a per-
sonal insurance. If so, suggest material facts relating to fire insurance taken on
a building.
4. Complete the following
Risk
Financial & Non ................... ...................

financial
5. "Insurance is not wager". State two comments to support this statement.

6. To a common man 'hazard' means danger. But in insurance, it has different
meaning. Explain :-
a. the term hazard
b. the types of hazards with examples
36
c. how the hazards can be assessed or known by the insurer?

7. Mr. Sunil, an IT professional approaches you to know about the importance of
life insurance policies. Help him by suggesting the benefits of insurance to an
individual.
8. In insurance, the loss compensation is determined through the principle of in-
demnity. The payment of it is made through different mode or methods. Name
and explain them.
9. Name the types of insurance policies suitable in the following cases.
a. Damage caused to paddy field by pest infection.
b. Burglary damage caused to properties.
c. Transport of goods from one place to another.
d. Injury caused to an employee during his work.
e. Loss of cash by the misdeeds of an employee.
10 Changes in fashion or demand of a product create losses to the business. Sug-
gest the methods to minimize such risks.
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Unit 2 : Underwriting and Insurance Documents

Introduction
Generally speaking the term underwriting means to undertake a responsibility is
called underwriter. This term was first used in marine insurance market, where in the
risks have been underwritten by the other
merchants. Underwriting is similar to insurance
as the insurer agrees to underwrite the liability
of the insured public. The term underwriting is
thus used to denote the entire insurance
business and the insurance companies came to
be known as underwriters. This unit deals with
the practices concerned with acceptances or
rejection of life and general insurance business.
Learning out comes
The Learner
 Analyzes the possibility of accepting or rejecting of an
Insurance proposal
 Describes the various factors considered for risk analysis
and its implication
 Explains the need and different aspects of assignment and
nomination and surrender of Insurance Policies
 Explains the various factors affecting a risk and identify
the procedure of accepting or decline a non life insurance
proposal (Motor, fire ,cattle)
 Describes the various factors to be considered while calculating
life and non life Insurance premium
 Explains the importance and necessity of various documents
in life and non-life Insurance
Meaning
When a person submits a proposal for insurance, the insurer takes a decision on
whether to accept it or not. The insurer takes the decision after evaluating the probable
risk. Insurance underwriting is a detailed and systematic analysis by an insurance
company to evaluate the risks of a potential candidate for insurance, based on a
variety of actuarial factors. The object of underwriting process is to price the insurance
in accordance with its associated risk.
The persons who underwrite risks or agree to compensate the probable loss are
known as underwriters. The underwriters perform the following functions
38
1. Assess the risk proposed based on a variety of factors

2. Classify the assessed risks into different groups
3. Decide whether the risk should be accepted as proposed or on modified terms
or with restrictive clauses
4. Decide the terms of acceptance
Assessment Activity
 A racing car is proposed for insurance-
a) Assess the risk factors
b) Fix the terms and conditions.
Underwriting in Life Insurance
Life insurance is a contract whereby the insurer promises to pay a certain sum of
money to or to the nominee of insured up on the death of insured or on expiry of a
certain period whichever is earlier. Underwriting in life insurance is a process of
determining which risk class is most appropriate for the proposer based on several
factors such as age, gender, current physical condition, medical history etc.
Underwriting process benefits the consumers and company by classifying the
proposers according to their level of risk.
Underwriting process in life insurance involves the following steps:
1. Receiving Proposal Form
Underwriting process starts with receipt of proposal form from the applicant.
Proposal form is the application form for insurance which is a printed/electronic
form. It contains questions which will assist the underwriter to assess the risk. Proposal
form is to be filled by the proposer in such a manner to reveal all the material fact to
assess the risk.
2. Assessment of Risk
After examining the data contained in the proposal form, the underwriter will make
a decision about the level of risk. For this the underwriter must verify the following
document also:-
a. Agent's confidential report(ACR)
The agent must disclose whatever details he knows about the proposer and confirm
the contents of the proposal and add any other relevant information not mentioned
in the proposal. Therefore the report is confidential and it is the property of the
insurer.
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b. Medical report
Insurance is given only to a person of sound health and mind. Therefore the insurer
insists for a medical examination of proposer before entering into contract.(Subject
to conditions) Medical report is a confidential report prepared by a qualified allopathic
doctor after examining the present and past health conditions of the proposer.
c. Proof of age
It is important because the rate of premium depends on the age of insured, copy of
birth certificate, school certificate, passport, identity card given by employer, driving
license and PAN card are treated as standard age proofs.
d. Proof of income
Proof of income is insisted by the insurer when the proposed policy sum is too large.
Salary slip, employer's certificate, income tax return are generally accepted proof of
income.
e. Moral hazard report (MHR)
Moral hazard means the risk to the insurer due to the dishonesty of the proposer.
MHR is prepared by the officer of the insurer which contains the details of moral
hazard associated with the proposer. It is needed when it is suspected that the
proposer is likely to be dishonest or proposer intends to make profit out of proposed
insurance.
After analyzing the available data, the proposer is placed in the appropriate risk
group and the underwriter takes the decision on the acceptance of the proposal.
The decision may be any one of the following:
a. Accepts as proposed at Ordinary Rates(OR) which means that the risk is
assessed as standard
b. Accept with extra premium
c. Accept with modified terms
d. Accept with specified clause
e. Postpone for a specified period
f. Decline which means that the risk is too heavy to insure
3. Receiving first premium
If the proposal is accepted, the decision must be conveyed to the proposer within
40
15 days. On receiving first premium the insurer will issue First Premium Receipt
(FPR) which is the evidence for the beginning of insurance contract. FPR become
irrelevant up on the issue of policy document.
4. Issue of Policy
Policy is the most important document in life insurance which contains the terms and
conditions of insurance contract. It should be signed by a competent authority and
stamped adequately according to the Indian Stamp Act.
Assessment Activity
 Collect a proposal form and fill it
 Prepare a list of documents required for insuring life.
 Prepare a model of life insurance proposal form.
Assignment and Nomination
A life insurance policy is a property, so it can be sold, mortgaged, charged, and
gifted. One of the methods of transfer is the assignment. An assignment enables
transfer of the rights, title and interest of the assignor to the assignee. Section 38 of
the Insurance Act, 1938 states that
 The assignment can be done by an endorsement on the policy or by a separate
deed.
 It must be signed by the transferor or his duly authorized agent.
 The signature must be attested by a witness
 The assignment is effective as soon as it is executed
 It must be sent to the insurer along with a notice
The person making the assignment should have the right or title to the property.
The assignor must be major and competent to contract.
NOMINATION
Nomination is a simple way to ensure easy payment of policy money in the case of
death claim. The holder of a policy on his own life, may nominate the person or
persons to whom the money secured by the policy shall be paid in the event of his
death. This can be made at the time of proposal or at any time during the currency of
the policy. A person having a policy on the life of another cannot effect a nomination.
A nomination can be changed by the policy holder by making another endorsement
on the policy.
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A nomination gives the nominee only the right to receive the policy money in the
event of death of the life assured. A nominee does not have any right to the whole or
part of the claim.
When a nominee is a minor, an appointee should be appointed by the policy holder.
The appointee loses his status when the nominee becomes a major.
NOMINATION VS. ASSIGNMENT
Nomination Assignment
1. Can be done before the issue of the 1. Can be done only after issue of
policy or after the issue of policy the policy.
2. The holder of a policy on his own life, 2. The absolute owner of the
i.e. the life assured alone policy can make assignment.
can make nomination.
3. Policy holder retains full control and 3. Policy holder loses control over
can deal with the policy the policy. Assignee is the owner
without the consent of the nominee. of the policy and can deal with
it.
4. Need not be supported 4. Must be supported by a
by a consideration. consideration.
5. May be witnessed. 5. Must be witnessed.
6. Nominee has no right to 6. Assignee has the right to sue
sue under the policy. under the policy.
7. It can be altered by the life assured 7. It cannot be cancelled by the
during the currency of the policy. assignor.
8. Where nominee is a minor, an 8. When the assignee is a minor,
appointee should be appointed. guardian is to be appointed.
9. Nominee’s right is only to collect 9. The assignee is entitled to deal
policy money on the death of the with the policy and to receive
assured. the policy moneys.
Lapse, revival and Surrender of Life insurance policy

The policy holder is liable to pay the prescribed premium as long as the policy is in
force. If he fails to pay the premium due within the stipulated date, the policy lapses.
The lapsed policy may be revived within a period of five years from the due date of
first unpaid premium. The revival of lapsed policy is possible within six months from
the due date of first unpaid premium by paying the arrear premium with interest.
42
After six months, revival is possible only by producing satisfactory evidence of

health and habits of insured.
Surrender of Policy
A surrender is a voluntary termination of the contract by the policy holder. A
policy holder can surrender the life insurance policy before it becomes a claim.
Surrenders are not allowed unless the policy has run for a minimum period of
time, which may vary from three to seven years. The amount payable by the
insurer to the policy holder on surrender is called the surrender value or cash value.
The surrender value is usually a percentage of the premium paid or a percentage of
the paid up value. The percentage increases as duration of the policy increases.
Assessment Activity.
Assignment Nomination
 Transfer of ownership of policy  Naming a person by the
holder to receive proceeds policy
 
 
 Prepare a note on the conditions of surrendering a life policy, which has com-
pleted 20 years of premium payment.
Underwriting of Non-life insurance
Non life insurance includes insurance of property, interest, liability, health, machinery
etc. Its underwriting process includes the following steps
1. Receiving of proposal form
Proposal form contains questions designed to get all material information about
the particular risk proposed for insurance. The nature of questions varies
according to the type of insurance concerned. Proposal form provides all
material facts regarding the subject matter of insurance.
2. Inspection of subject matter
Before accepting the proposal, an officer of the insurer must conduct a physi-
cal inspection of property proposed for insurance so as to ensure that the
data contained in proposal form are true and correct.
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Reference Book
3. Premium rating
The most important work in underwriting is the fixing of rate of premium to be
charged for insurance. Value of property, degree of hazard, past experiences
of loss etc. are considered for fixing rate of premium.
4. Issue of cover note
Cover note is issued by insurer on receiving first premium from the proposer.
It is a temporary evidence of insurance protection which will be suspended on
issue of policy.
5. Issue of Policy/ Certificate
Policy is a stamped document which is a permanent evidence of insurance
contract. In motor insurance, a certificate of insurance is required in addition to
policy.
Assessment Activity
 List out the elements of a cover note
 List out the documents required for insuring non life insurance.
Insurance Premium
Meaning
Insurance is a contract between insurer and insured. To be enforceable at law every
contract must have consideration. Premium is the consideration of an insurance
contract. Without the payment of premium, an insurance contract will not become
valid. Insurance premium is the consideration paid by the insured to the insurer for
his promise. Premium should be paid in advance.
Premium in life insurance
In life insurance premium is determined on the basis of life expectancy of proposer
after considering the following factors:
a. Age- As age increases, the
BMI (Body Mass Index) is the
probability of risk increases.
proportion between body weight and
Thus the amount of premium
height. Its range is 18.5-24.9
varies with age of the insured.
b. Physical conditions- Height,
weight, BMI, measurement of chest, pulse rates, blood pressure etc. are
significant.
44
c. Habits- Bad habits like smoking, alcoholism, drugs etc. adversely affect
life expectancy.
d. Family history- Early death of parents, genetic and hereditary illnesses,
diabetes etc. can be determined from family history.
e. Occupational hazard- The nature of job and the place in which the job is
done have effects on health and life span.
f. Moral hazard.
Mode of payment
The premium rate is often calculated annually but for the convenience of the insured,
it can be paid half yearly, quarterly or monthly. Premium must be paid on or before
due date. But an additional period called 'days of grace' is allowed for payment of
premium, 30 days are allowed for yearly, half yearly and quarterly premiums and 15
days for monthly premiums.
Premium in Non- life insurance
Non life insurance is usually for a period of one year. The premium on non life
insurance is ascertained on the basis of value of subject matter, degree of risk involved
etc. Premium is paid once in a year at the commencement of insurance contract. No
notice of renewal of policy is served by general insurance companies.
Practical
Calculate premium payable/month from the following information
Name of Policy Endowment
Period of insurance 25 years
Age of proponent 25 years
Table premium 168.17/Millie
Sum insured 10,00,000
Assessment Activity
 Calculate insurance premium. Sum Insured- 5,00,000, rate of premium 216.23/
1000
 Prepare chart showing mode of payment of premium in life and non life insur-
ance.
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Reference Book
Insurance Documents
Insurance is a contract between two parties. There may be disputes between insurer
and insured or insurer and beneficiaries in the absence of adequate documentary
evidences in the hands of both the parties. Therefore documentation is very important.
The following are the relevant documents in insurance contracts:
1. Proposal form
2. Cover note/ FPR
3. Insurance policy
4. Certificate of Insurance
5. Renewal Premium Receipt
6. Claim form
Proposal form
Proposal form is the application for all insurances. The printed proposal form is
filled in by the proposer in own handwriting and signed in the presence of witness.
The proposer is expected to furnish true and fair details (principle of utmost good
faith) because any misstatement will lead to make the contract voidable. The contents
of proposal form vary according to the class of insurance. Proposal form always
contains general information such as name, address, occupation and annual income
of proposer.
Life insurance proposal form contains special information such as age and date of
birth, sex, physical conditions, family history, details of nomination, details of earlier
policies, preferred mode of payment of premium etc.
General insurance proposal forms must contain the complete details of the property
to be insured and the information regarding physical and moral hazards.
Every proposal form contains a declaration by the proposer. All the statements
therein are true and correct to the best of his knowledge.
Cover note/ FPR
Cover note is a temporary document issued by the insurer on receiving first premium.
It contains the details of insured, insured property and terms and conditions of
insurance contract. It will become irrelevant on the issue of policy document. Instead
of cover note, First Premium Receipt (FPR) is issued by life insurance companies.
46
Insurance Policy
Insurance Policy is the permanent evidence of the contract of insurance. It has to
be stamped according to Indian Stamp Act 1899. Policy document has the following
parts;
1. Heading - Gives the name and address of the insurer.
2. Preamble- introduces the parties to the contract.
3. Operative clause- specifies the perils insured and the circumstances in which
the insurer will become liable to make payment to the insured,
4. Schedule- contains all the typewritten information applicable to the contract
such as date of commencement of risk and maturity, sum assured, amount of
premium, period of insurance, policy number, name and relationship of nomi-
nee, etc.
Insurance Certificate
It is a document issued to motor insurance holders in addition to policy. Driving a
vehicle without an insurance certificate is an offence. The important features are
1. Certificate number
2. Registration mark
3. Date of commencement of insurance cover
4. Date of expiry of insurance
5. Persons entitled to drive the vehicle
6. Limitations as to use.
Renewal Premium Receipt
It is an evidence of payment of subsequent premiums issued by life insurance
companies.
Claim Form
Claim form is a document which elicits full information regarding the circumstances
of loss such as date and time of loss, causes of loss, extent of loss, etc. The contents
of claim form vary with each class of insurance.
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Reference Book
Practical Activity
Prepare a life proposal form to insure the life of Smt. Suja, aged 35 years, working
as teacher, prefers an endowment policy for Rs.2 lakhs.
Hint.: Name , address of insurer, proposer and other personal details..
Assessment Activity
 Draft a claim form of motor insurance
 Prepare a chart showing all insurance documents.
TE Questions
1. Prepare model of a cover note.
2. Mrs.Aruna filled up a proposal form of 'XYZ life' to insure her life for Rs 2
lakhs. Mention the steps to be followed by 'XYZ life' before issuing a policy to
her.
3. Materials used for construction, usage of building, location etc are the factors
affecting premium in fire insurance. Name such features to be considered in
life insurance.
4. Differentiate the mode of premium payment in life insurance and non-life insur-
ance.
5. How an assignment differs from a nomination.
6. A proposal is received from a house owner to your insurance company for
insuring his house. He estimate a cost of Rs. 15 lakhs towards his house.
What procedure you will follow to underwrite this risk ?
7. Following details are given in the proposal form issued by a life insurance com-
pany while insuring a person.
a. Name b. Age and date of birth c. Sex
d. Qualification
The above details are not complete. Prepare a comprehensive proposal form.
8. It should be noted that renewal of policy is not automatic. It depends upon the
consent of the insurer to renew the policy and payment of premium by the
insured. Comment on the above statement and explain the method of renewal
of life and general insurance policies.
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Unit 3: Insurance Claims

Introduction
Claim means the amount payable by the insurance company to the insured in the
event of occurrences of loss. The purpose of seeking insurance is to claim for any
financial loss that may be sustained. If loss does not occur, no payment would be
made to the insured in term insurance and general insurance. In life insurance, when
the insured dies the legal heirs claim the insured sum from the insurers. This unit
deals with the procedure of claim settlement of life and general insurance polices.
Learning Out comes

The Learner:
 Explains what is a claim and how claims occurs and
its importance in Insurance
 Explains the procedure of claim settlement and the
need for quick settlement of claims
 Describes different types of claim in Non-life
Insuranceurance.
Meaning of Insurance Claims

Insurance claim is a formal request by the policy
holder to an insurance company asking for payment
based on the terms of insurance policy. It is the
amount payable by the insurance company to the
insured in the event of occurrence of loss.
Types of claims
Generally speaking, in life insurance there is death claims and maturity claims. If the
insured dies before the expiry of the term of policy, it is known as death claim. The
legal heirs of the insured are eligible for death claim. Maturity claims are payable as
per the terms of the policy. If the assured survives to the full term, then the basic sum
insured including bonus is payable to the policy holder.
In non-life insurance, as it is an indemnity contract, the claim arises only when the
insured event happens. The claim will be released only when the insurer is satisfied
that the insured peril is the cause of loss.
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Standard Claim
These claims are settled strictly in accordance with the terms and conditions of the
policy.
Non-Standard Claims
Under this claim, the insured has committed a breach of condition or warranty. The
settlement of non standard claim is made in accordance with the rules and regulations
formed at particular levels by the insurance company.
Ex-Gratia Claim
These claims are related with doubtful losses. The insurer is not liable to indemnify
the loss. as it is not covered under the policy. But to safeguard the interest of the
insurer and insured a certain percentage of loss is indemnified. In other words an
ex-gratia payment is paid by accepting such claims, and no subrogation right is
applicable.
The settlement of claim is considered as an important function of an insurance company.
Fair and prompt settlement of claim should be made by the company. Delay in
settlement of claim may affect the reputation of the insurer and create doubt in the
minds of the claimant. The insurer should negotiate with clients with courtesy and
patience. If claim is rejected it should be communicated to the insured with convincing
evidence.
Procedure of Settlement of Life Insurance Claims.
There are two situations where Life Insurance claim arises
a) Maturity Claims
b) Death Claims
Procedure of settlement of Maturity Claims
The procedure for settlement of maturity claim is very simple. Immediately after
receiving the signed, stamped, discharge form and original policy certificate from the
insured, the Capital Sum Insured including bonus will be released by account payee
cheque.
The following documents are needed
1. Original policy
2. Age proof
3. Assignement deed, if any
4. Discharge form duly completed and executed.
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Procedure of settlement of Death Claims

Death claim arises when the assured dies before the date of maturity of the policy.
The procedure of settlement of death claim is not simple as in the case of maturity
claim. The following documents are required.
1. Policy document
2 Death certificate
3. Legal evidence of title
4. Claim form
5. Discharge form duly signed
6. Assignment, if any
Intimation of Death
The intimation must be given by the person who is entitled to receive the proceeds
of the policy. Intimation of death should be served to the branch office from where
the insurance policy was issued. It must contain the following.
a. A declaration that the life assured is died.
b. Date of death
c. Cause of death
d. Place of death
e. Policy certificate No.
Persons authorized to inform death
a) the nominee
b) the assignee
c) the legal heirs or relatives of the deceased.
Proof of death
The certificate of death issued by local self government should be submitted to the
branch office of the insurance company.
Discharge form
After completion of the above formalities, the insurance company will issue a discharge
form, and it should be completed and returned to the insurer. The person eligible to
receive the claim should sign in the discharge form.
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Reference Book
Assessment Activity
 List out the documents required for settlement of death claim
 List out the documents required for settlement of maturity claim.
Documents required under Death claims Documents required for

a) Policy document Maturity Claims
b) Death certificate a) Original policy document
c) Assignment, if any b) Age proof
d) Legal evidence of title c) Assignment, if any
Procedure of settlement of Non-life insurance claim

Here are some important points, which would help you in the claims procedure.
The loss or damage should be reported to the insurer immediately.
 On receipt of claim intimation, the insurer will forward a claim form.
 Submit the completed claim form along with an estimate of the loss to the
insurer. It is preferable to submit an itemized estimate with separate values.
 The insurer will arrange for inspection of the damaged items to assess the loss.
In case of major losses, a specialist-licensed surveyor is deputed.
 The insured has to provide the required documents to substantiate the extent of
loss.
 In case the cause of loss is not established, it is for the insured to prove that the
loss or damage has occurred due to an insured peril.
 On agreement of claim amount between the insured and the insurer, the claim is
settled.
Factors to be considered for claim settlement.
1. Utmost good faith
Utmost good faith must be observed by the insured at the time of entering the contract,
and continues till the end of insurance contract. It must be noted as to whether or
not the insured has taken all steps to minimize the loss.
2. Loss is within the scope of the policy
The insurance company has to ascertain whether or not the loss caused to the insured
is within the scope of the insurance policy issued. If there is more than one cause for
the loss, the proximate cause and not the remote cause is considered.
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3. Warranties
These are certain conditions or promises in the contract which are to be fulfilled by
the insured. If warranties are not followed, the insurer may be discharged of the
liability from the date of breach of warranty. Therefore, before settlement of any
claim, the surveyor's report must disclose whether the warranties have been duly
complied with or not.
4. Conditions of policy
Indemnification of loss is to be in accordance with the terms and conditions of the
policy.
5. Subrogation
The insured must provide all possible assistance to the insurer in recovering any
amount from third parties.
6. Disagreement
If there is any dispute or disagreement regarding the fixation of the amount of loss, it
is to be decided through arbitration. In case the insurer denies the liability for the
claim, the same is to be settled in a court of law.
Settlement of Claim under Fire Insurance
Following procedure is adopted for the settlement of fire insurance claims
1. Notice of Fire
The insured should intimate the loss as soon as it occurs.
On receipt of the intimation of claim insurer verify the following.
a. The policy is in force
b. The loss is occurred due to perils insured
c. Insurable interest exists during the policy period
d. The property mentioned in the policy and location is the same
Claims Register-: This contains the details of the claim number, the date of fire,
policy number, name of insured, sum insured, estimated loss, etc.
2. Claim Form
A claim form will be issued by the company after the claim is registered in the Register
of claims. The claim form contains the following information.
a. name, policy number, and address of the insured.
b. description of loss
c. cause of loss
d. particulars of property lost
e. details of other insurances, if any
f. estimated loss.
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3. Investigation and Assessment of Claims

If the amount of loss is small, the claim is investigated by an officer of the company
and thereafter claim will be settled on the basis of claim form. If the claim amount is
large, independent surveyors are will investigate the loss and claim will be settled on
the basis of survey report.
Settlement of Motor Insturance Claim
Motor insurance claims are settled in the following stages.
1. Preliminary scrutiny
2. Assessment of loss
3. Settlement
1. Preliminary scrutiny
a. First a notice of loss is served on insurer by the insured
b. Insurer checks records to find out whether policy is in force or discontin-
ued.
c. The loss is entered in the claims register.
d. A claim form is issued to insured for completion and return.
(The insured has to submit a detailed estimate of repairs from any repairer
of his choice.)
2. Assessment
Independent surveyors are employed for assessing the cause and extent of loss.
They are supplied a copy of the policy. The assessors inspect the damaged vehicle,
discuss the cost of repair and submit their survey report. In case of minor damage
claims, independent surveyor is not appointed. The officials of insurer inspect and
finalise the claims.
3. Settlement.
The survey report is the basis of claim settlement. The report is examined and
settlement is done according to the recommendations in the report.
Motor Accident Claims Tribunal.
This is a court constituted by the state government for expeditious disposal of motor
claims. Section 110 of the Motor Vehicles Act 1939 give powers to state government
to constitute such Tribunals. Section 166 of the Motor Vehicles Act, 1988 provides
that an application for compensation arising out of an accident may be made;
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a. by the person who has sustained the injury

b. by the owner of the property
c. by any agent authorized by the person injured
d. by the legal heirs of the deceased.
In the case of suicide of a person
1.Within one year of commencement of policy-no claim
2.After one year- claim may be paid as the case may be
MACT ( Motor Accident Claims Tribunal)
This is court for settling motor accident claim
Insurance Ombudsman
Official Agency responsible for impartially investigating
complaints from consumers against a public authority,
institution or company.
Practical Activities
Explain the procedure of claim settlement and suggest the required claim documents
in the following cases.
a. An accidental damage has occurred to the car owned by Mr. Aji. He esti-
mates a loss of Rs.40,000. The insured value of car is Rs.5 lacs.
b. Mr. Anu died in a motor accident. He had a life insurance policy of Rs.2 lacs.
His wife is alive.
TE Questions
1. Complete the following chart and explain the terms
Type of claims
? Standard claim ?
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Reference Book
2. Mr.Iyer, a life policy holder died in a car accident, write the claim settlement
procedure and also mention the claim documents.
3. MACT stands for ------------
4. A maruti car owned by Mr. Tom hit a compound wall and cause d damage to
the car and compound wall. State the factors to be considered by the insurer
for settling the claim.
5. Draft a model of fire claim form.
6. Saji had a life insurance policy for Rs. 15 lakhs. The name of the nominee
mentioned in the policy is Usha , his wife. To whom the claim will be paid by
the insurer in the following situations (their daughter is studying in 5th standard)
a. Insured is alive at the time of maturity.
b. Insured died before maturity.
c. Both Saji and Usha is not alive at the time of maturity.
d. The policy is assigned to a bank.
7. A building was insured under a fire policy with three insurers namely A Com-
pany, B Company and C Company for Rs. 5 lakhs, 3 lakhs and 2 lakhs re-
spectively. The loss on account of fire reported to Rs. 75,000/- .
a. Work out the claim payable by each insurer.
b. Also write the claim settlement procedure used here.
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UNIT IV
Unit 4: IRDA Regulations and Final Accounts of
Insurance Companies
Introduction
Insurance Regulatory and Development Authority(IRDA) is an autonomous body
set up under the IRDA Act, 1999.
IRDA's Mission is to protect the interests of policyholders and to regulate and
develop the insurance industry. It regulate the Indian insurance industry to protect
the interests of the policyholders and work for the orderly growth of the industry.
This unit deals with the insurance operations, such as investment of insurance funds
in different securities and the preparation of final accounts of insurance companies.
Learning outcomes
The Learner:
 Explains different regulations
implemented by IRDA in this sector
 Explains the insurance operations
 Identifies and Understant the schedule format of
Revenue account, profit and loss account and
balance sheet
IRDA Regulations
The Government of India set up a regulatory body known as Insurance Regulatory
and Development Authority in 1999 as per the recommendations of Committee of
Reforms in insurance sector under the chairmanship Shri. R.N Malhotra, former
Governor of RBI.The IRDA Act was passed in Dec.1999, provided for the
establishment of an authority to protect the interest of insurance policy holders, to
regulate, promote and ensure orderly growth of the insurance industry. The Act
was also intended to amend the insurance Act 1938, LIC Act 1956, and the General
Insurance Business Nationalosation Act 1972.
The functions of IRDA include registrations, licensing and laying down regulations
for the proper conduct of the business and protection of the interest of policy holders.
It is an authority to protect the policy holders interest, to regulate, promote and
ensure the growth of insurance industry.
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The duties and powers of the IRDA are:

1. To regulate, promote and ensure orderly growth of the insurance business.
2. To issue license as per the procedure prescribed in the Insurance Agent's Regu-
lations, 2000.
3. To exercise all powers and functions of the Controller of Insurance.
4. To protect the interest of policy holders in settlement of claims and terms and
conditions of policies
5. To call for information from, undertake inspection and conduct investigations
including audit of insurer, intermediaries and other connected organizations.
6 To prescribe the manner and form in which accounts will be maintained by
insurers and intermediaries.
7 To regulate investment of funds and margin of solvency.
8 To adjudicate disputes between insurers and intermediaries.
9 To issue license as per the procedure prescribed in the insurance agent's regu-
lation 2000.
10 Issue to the applicant a certificate of registration, renew, modify, withdraw,
suspend or cancel such registration.
11 Specifying requisite qualifications, code of conduct and practical training for
insurance intermediaries and agents.
12 Specifying the code of conduct for surveyors and loss assessors.
13 Supervising the functioning of the Tariff Advisory committee.
14. Promoting efficiency in the conduct of insurance business.
Insurance operations
What is all about insurance?
Insurance business, both life insurance and general insurance, covers the following
functional operations.
1. Product Development- Design of various insurance products, like marine,
fire, life etc. within each such broad category specific products like Jeevan
Anand, Jeevan Akshay, Asa Kiran etc. will be developed to meet specific
requirements of policy holders. The premium of the individual products will be
finalized by assessing the related risk with regard to the respective policy.
2. Risk Management- Insurance companies are supposed to monitor continu-
ously and assess the risk factors surroundings individual policies. Suitable bal-
ancing efforts needs to be taken by the insurance companies to keep the risk -
premium equations for ensuring viability of the policies.
58
3. Investment of insurance fund- Under this function premium on unexpired

risk associated with policies will be invested in various financial instruments so
that sufficient return can be generated for meeting claims as and when they
arise and for meeting maturity commitments. In this regard the regulatory au-
thority also provide broad guidelines.
4. Claim management- Another major function, insurance companies need to
focus on claim management. Terms and conditions for admitting claims under
different policies needs to be framed in advance. As and when a claim arises
as specifically defined in the policy document, claim initiation shall be made by
the company. Claim admissible will be passed by the company and will be
released to the policy holder/legal heirs as the case may be.
Insurance companies are allowed to invest in four broad categories as given below
and IRDA has prescribed prudential limits for each category
1. Government Securities
2. Other Approved Securities
3. Infrastructure and Social Sector
4. All other investments as per exposure and Prudential Norms specified.
Investment Limits for a Life Insurance Companies were provided for the
categories above under Life Business, Pension and General Annuity
Business
Investment Life Insurance Pension and Pension and
Category Assets Annuity Assets Annuity Assets
(A)Govt.Securities Not Less than Not Less than At least 30%
25% 25%
(B) Govt. or Not less than Not less than
approved 50% including(a) 50% including(a)
securities above above
(C) Approved Not exceeding
securities 60%
I. Housing Not less than
infrastructure 15% 5%
bonds(approved
investment
II. Other Not exceeding
approved
investments 20%
(D) Investment
in other than Not exceeding Nil Not exceeding
approved 15% 25%
investments
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(The above guidelines are subject to change from time to time)

Final Accounts of Insurance companies
Financial statements
Life insurance and General insurance companies shall prepare the financial statements
in the prescribed form given in IRDA Regulations. Life insurance companies should
comply with the requirements of schedule A and general insurance companies should
comply with the requirements of schedule B
Schedule A gives the following forms for life insurance companies.
1. Revenue Account-Form A (RA)
2. Profit and loss account. Form A (PL)
3. Balance sheet Form A (BS)
Schedule B gives the following forms for General Insurance Companies :
1. Revenue Account Form B (RA)
2. Profit and Loss Account Form B (PL)
3. Balance Sheet Form B (BS)
Terms used in Final accounts
1. Life Insurance fund
It represents the excess of revenue receipt of company over revenue expenditure in
connection with life insurance business. The fund is available to meet the aggregate
liability outstanding on all the policies.
2. Reserve for unexpired risk
It is a provision for claims that may arise in respect of policies in force of general
insurance companies on the date of balance sheet. Every marine insurance company
is required to make a provision equal to 100% of net premium for unexpired risk.
Every other general insurance companies make a provision equal to 50% of net
premium for unexpired risk.
Form of financial statements of insurance companies
60
FORM A (RA)
REVENUE ACCOUNT
For the year ended 31st March 20…
Policy holders' account (Technical Account)
Particulars Schedule Current Previous
No year(Rs) year(Rs)
Premiums earned -Net
Income from investment
a) Interest, Dividends and Rent
b) Profit on sale of investments
c) Loss on sale of investments
d) Transfer/gain on revaluation
Other Income (to be specified)
TOTAL(A)
Commission
Operating expenses related to insurance
Other Expenses(to be specified)
Provisions(other than taxation)
a) For devaluation of investments
b) Others(to be specified)
TOTAL(B)
Benefits paid(Net)
Interim Bonuses paid
Change in valuation liability against
policies
a) Gross
b) Amount ceded in reinsurance
c) Amount accepted in reinsurance
TOTAL©
Surplus/deficit(D)=(A)-(B)-(C)
Appropriations
Transfer to shareholders' account
Transfer to other reserves
Transfer for future appropriations
TOTAL(D)
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FORM A (PL)
PROFIT AND LOSS ACCOUNT
For the year ended 31 March 20...

Balance brought forward from
Policy holders account(technical account)
Income from investments
a) Interest, dividends and rent-gross
b) Profit on sale/redemption of
investments
c) Loss on sale/ redemption of
investments
Other income(to be specified)
TOTAL(A)
Expenses(other than directly related to
the insurance business)
Provisions(other than taxation)
a) For diminution in the value of
investments (net)
b) Others(to be specified)
TOTAL(B)
Profit/loss before tax
Provision for taxation
Profit/loss after tax
Appropriations
a) Brought forward reserve/surplus
from the balance sheet
b) Interim dividends paid during the year
c) Proposed final dividend
d) Dividend distribution tax
e) Transfer to reserve/other accounts
Profit carried to balance sheet
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FORM A (BS)
BALANCE SHEET AS ON 31 MARCH 20…

Sources of funds
Shareholders' funds
Share capital
Reserves and surplus
Credit/debit fair value change account
Sub-total
Borrowings
Policyholders 'funds
Credit/debit fair value change account for
Policy liabilities
Insurance reserves
Provision for linked liabilities
Sub-total
Funds for future appropriations
Total
Application of funds
Investments: Shareholders'
Policyholders'
Assets held to cover linked liabilities
Loans
Fixed assets
Current assets
Cash and bank balances
Advance and other assets
Sub-Total-(A)
Current liabilities
Provisions
Sub-Total-(B)
Net current assets ©=(A-B)
Miscellaneous expenditure
Debit balance in profit and loss account
Total
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FINAL ACCOUNTS OF GENERAL

INSURANCE COMPANY
FORM B-RA
REVENUE ACCOUNT
For the year ended 31st March...........
(to be prepared separately for Fire, Marine and Miscellaneous
insurances)
Balance brought forward from

1. Premium earned- net
2. Others
3. Change in provisions for unexpired
risk
4. Interest, Dividend and Rent
Total (A)
1. Claims incurred (net)
2. Commission
3. Operating expenses
4. Others (to be specified)
Total(B)
Operating Profit/Loss from Fire/Marine/
Miscellaneous business
(A-B)
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FORM B-PL
PROFIT AND LOSS ACCOUNT For the year ended 31st March.............
1. Operating Profit/Loss
a) Fire insurance
b) Marine insurance
c) Miscellaneous insurance
2. Income from Investments
a) Interest, Dividend and Rent
b) Profit from sale or redemption of
investments
c) Loss on sale or redemption of
investments
3. Other Income (to be specified)
TOTAL (A)
4. Provisions (other than taxation)
a) For diminution in the value of
investments
b) Others (to be specified)
5. Other expenses
a) Other than directly related to the
insurance business
b) Others
TOTAL(B)
Profit/(Loss) before tax
Provision for Taxation
Profit/(Loss) after tax
Less: Catastrophic Reserve
Profit available for appropriation
Appropriations:
a) Interim dividend paid during the
year
b) Proposed final dividend
c) Dividend distribution on tax
d) Transfer to Reserve/other
`accounts
Balance carried to Balance Sheet
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FORM B- BS
BALANCE SHEET AS ON 31 MARCH 20..
Sources Of Funds
Share Capitals 5
Reserves and surplus 6
Fair value change account 7
Borrowings 8
Total 9
Investments:
Loans
10
Fixed Assets
Current Assets
Cash and Bank Balances 11
Advance and Other Assets 12
Sub-Total (A)
Current Liabilities 13
Provisions 14
Sub-Total (B)
Net Current assets (C)=(A-B)
Miscellaneous Expenditure (not written
Off)
Debit Balance in Profit & Loss Account
15
Total
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Additional information
Re-insurance
When the risk is considered to be too high, that is difficult for the
insurer to bear the liability, in such case, the insurance company
may arrange with another insurer to insure a portion of the insured
risk. This arrangement is known as reinsurance. It is the insurance
of insurance.
TE QUESTIONS
1. IRDA means----------
2. State and explain the important powers and duties of IRDA
3. Write a short note on
a) Life assurance fund
b) Reserve for unexpired risk
4. Name the securities where the insurance funds are invested
5. Prepare a revenue account of ABC Fire Insurance Company for the year ended
31.3.2015 from the following details
(Rs in 1000)
Premium earned(net) 20000
Net claim incurred 5000
Commission 3000
Interest, dividend and rent 6000
Operating expenses 6500
Reserve for unexpired risk on 1.4.2014 was Rs.8000
Assessment activity
 List out the major items in the financial statements of insurance companies
Extended Activity
1. In certain cases there may be chances of liquidation of insurance companies or
the insolvency of insurance companies, the interest of the policy holders will
not be protected. In this circumstance study the role and powers of IRDA in
protecting the interest of the policy holders.
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2. Collect the names of insurance companies functioning in India and then classify
them in to Life, Non-life, government , departmental undertaking and private
companies, including their date of incorporation in India.
3. Make a short film for giving awareness to general public about the necessity of
minimizing road accidents based on the data collected from various sources,
for the last two weeks
Hint- (a) Explore internet and collect incidents of photographs/videos of road
accidents.
(b) Narrate with touching words
(c) Find out innovative and creative steps to reduce road accidents.
(d) Give a good message
Exhibit the above short film in the neighboring Arts and Science/ Engineering
college and prepare a report including the recommendations of the viewers.
4. Write the Underwriting procedure to be adopted in the proposals given
below.
Particulars Case 1 Case 2 Case3 Case 4
Age in years 10 25 32 26
Sex M F M F
Build 30kg/130cm 45/160 70/170 55/160
Status Student pilot Asst. Manager Teacher
Annual income Nil Rs.15 Lacks Rs.6 Lacks Rs.5 Lacks
Health status Good Normal Handicapped 6Months
pregnant
Suggested practicals
In banking and insurance sector, various reports/letters/tables and other documents
are to be prepared in English/Malayalam languages, as a part of their business. For
this, a person who prepare these documents in computer should need a minimum
speed of 30 words per minute in English/Malayalam computing. Hence, the learner
of this course should be trained to acquire this specific speed.
1. List out the various risks in our surroundings and classify them into pure,
speculative, fundamental, particular, financial and non-financial and present them
in a table (IT enabled)
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2. Prepare a chart showing examples of material facts and non-material facts to

be disclosed in life Insurance.
4. Prepare proposal form of life insurance with the help of excel spread sheet
(IT enabled).
5. Prepare certificate of Insurance with excel spread sheet (IT enabled).
6. Draft a model of cover note.
7. Design a model of Life Insurance policy.
8. Write a letter to the branch manager of life insurance company to change the
nomination already given.
9. Write a request letter to the Branch manager demanding the surrender of a life
Insurance policy.
10. Prepare a premium renewal advice/ notice.
11. Prepare a letter to the policy holder informing the maturity of his policy and
request him to produce necessary documents for settling the claim.
12. Prepare an acceptance/rejection letter to a proposer on the basis of under-
writing.
13. Ask the students to collect policy details of their family members/relatives and
prepare a statement about policy types, amount, period, age, mode of pay-
ment etc.
14. Conduct a role play to draw the attention of the public about the necessity of
insurance in human life.
15. Conduct a role play to analyse the need assessment of a prospective buyer
on a specific insurance product.
16. Study and analyse a few life insurance plans (minimum 10 numbers) of differ-
ent companies, design a new one suitable to a common man.
Hint. (a) An approximate amount of premium is only required
(b) Highlight the features of the plan
(c) Minimum and maximum sum assured should be specified
(d) Period of insurance, need of medical examination should be included
17. Draft a notice or brochure exhibiting the necessity of Life Insurance in the
mind of people.
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18. Calculate monthly,Yearly,and Half Yearly premium

Name of Insured Sageer
Table of Premium Rs. 60.50/1000
Age 35 years
Sum Insured Rs. 500000/-
Name of policy Endowment
Rebate Re.1/1000 for sum insured above Rs.200000
Additional Premium (optional) Critical illness benefit Re.1/1000
Double accident benefit Rs.2/1000
19. Mr Sujan is a partner of a firm. As a business man and also as a human being,
list the persons whom he has insurable interes and prepare a chart.
20. Mr Sunil is the owner of a building worth Rs 50 lakhs. He insured the building
against fire for Rs 25 lakhs. During the policy period , a fire occurred and loss
estimated is Rs. 40 lakhs. Calculate the amount of claim payable, by the
company.
21. Make a short film for giving awareness to general public about the necessity of
minimizing road accidents based on the data collected from various sources,
for the last two weeks
Hint-
(a) Explore internet and collect incidents of photographs/videos of road
accidents.
(b) Find out innovative and creative steps to reduce road accidents.
(d) Give a message
22. List out the various hazards in human life, and motor accidents, and then
classify them in to physical and moral hazards. Make a power point presenta-
tion on the basis of above classification.
23. Prepare a speech to be presented in your residents association about the pos-
sibility of gas leakage and its consequences, and precaution to be taken to
prevent incidents in future.
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Hint- speech in English or in Malayalam.

24. According to the principles of indemnity, the selection of mode of indemnity is
vested with the insurer .However, all modes of indemnity are not suitable in all
cases. Draw a chart showing mode of indemnity suitable to different losses.
25. Prepare a chart/PPT showing different type of Insurance-Life and Non Life.
26. Using a suitable Insurance software prepare a policy certificate of insuring an
individual, a motor vehicle and health policy.
27. Mr.Anil aged 30 years insured his life with Standard Insurance Company for
a sum Rs25 lakhs on 25/02/2015.He committed suicide on 04.03.2015. His
legal heirs lodged a claim. But the insurer rejected claim request. Analyze the
case and a note showing the procedure of claim settlement and important claim
documents (IT enabled)
28. Mr. Sunil met with an accident while driving his car and the vehicle is com-
pletely damaged. The owner of the car lodged a claim with the insurer. They
refused the claim request on the ground that the driver has no driving license
.Analyze the situation and decide the type of claim. Also prepare a chart/PPT/
Note on different type of non life insurance claim (IT enabled)
29. The use of motorbikes/drugs are increasing among students, and the accidents
are also increasing day by day. Prepare a slide show suggesting suitable mea-
sures to control and manage these evils among students.
30. Start an underwriting department in your class
Hint:- (1) Form an underwriting team consisting of one clerk, one officer
and a manager
(2) Fix the terms and conditions of underwriting Eg. Documents
required, etc.
(3) Each student brings a mock insurance proposal
(4) Underwrite the proposal
31. Record the following transaction in suitable vouchers. (using tally software)
2016 Jan.1 Mr. Arun commenced business with cash Rs.100000
3. Opened a bank account with SBI Rs.50000
4. Purchased goods for Rs.10000
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5. Purchased furniture for Rs. 15,000, paid by cheque.

6. Bought goods from Raj traders Rs.25,000
7. Sold goods for cash Rs. 10,000
8. Returned goods to Raj traders Rs.1,000
9. Sold goods to Varun Rs.15,000
10. Issued cheque to Raj.traders. Rs.10,000
11. Received goods returned by Varun Rs.500
12. Sold goods to Ravi Rs.10,000
13. Sold goods for cash Rs.20,000
14. Cheque for Rs.7,000 received from Varun
15. Cash sales Rs.10,000
16. Paid rent by cheque Rs.5,000
17. Paid salary by cheque Rs.8,000
18. Withdrew Rs. 10,000 by Arun for personal use
Extract Trial balance Trading, profit and loss account and balance sheet.
32. Compute taxable income from the following data
Name Maya
Occupation Teacher
Monthly salary Rs. 35,000
Income from house property Rs. 75,000
She has one life insurance policy in her name and one in the name of her husband.
She remits Rs.50,000 as annual premium for her policy and Rs.4,000 as monthly
premium for her husband's policy.
Guidelines for Role play
1. Number of learners in a group- 4-6
2. All the learners should discuss the topic
3. The script should be in writing
4. Time for presentation should not exceed 5-10 minutes
Judgement
The following points should be considered
Content, presentation, life skills(self awareness,
empathy, critical thinking, problem solving,
communication, interpersonal relationship, decision
making)
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An overview of Module 4
Marketing of Banking and Insurance Products
The service sector dominates the Indian economy today, contributing more than
half of our national income. It is also the fastest growing sector, with an annual
growth rate of 8% per year. With best job, best income and best talent, service
sector is now the show case of the Indian economy.
The role of financial service in stimulating and sustaining economic growth is well
known. Banking and insurance service sector has major share in the service market.
The significance of bank marketing in Indian banking system is undeniable. Bank
marketing is not just advertising and promotion campaign, but a managerial process
by which services are matched with markets.
The term insurance marketing refers to the marketing of insurance services with the
motto of customer orientation and profit generation. Insurance plays a vital role in
the economic development of our nation. It act as a mobiliser of savings, financial
intermediary, promoter of investment activities, stabilizer of financial market and as
risk managers. India is still an under insured country in the world. It is at the 18th
position among the life insurance market and 28th in non-life insurance market in
the world. This indicate that there is a huge potential, yet to be explored. This
module discuss how marketing relates to banking and insurance and what are the
marketing techniques being used by banks and insurance.
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Unit 1: Introduction to Service Marketing

Introduction
Today, the service sector contributes more than 50 percent to India's GDP. This is a
far cry from the situation a few decades back, when India was basically an agricultural
economy. This shift from manufacturing and agriculture to services is being witnessed
in countries all over the world. With the increasing prominence of services in the
global economy, Services Marketing has become a subject that needs to be studied
separately. Marketing services is different from marketing goods because of the
unique characteristics of services, namely intangibility, heterogeneity, perishability
and inseparability. This unit covers meaning, features, types of service, meaning of
service marketing, difference between service marketing and product marketing
and importance of service marketing.
Learning out comes
The Learner
 Identifes and describe the meaning and features of services
 Describes the role of service in an economy
 Describes and differentiate different types of services
 Describes the meaning and significance of service
marketing
 Differentiates between product marketing and service
marketing.
 Identifies and Describe the Service marketing mix
 Describes consumer behavior in service market
 Describes the role of service Marketing in India
Meaning and features of service
Service denotes the action of doing something for someone or something. It is largely
intangible (ie. not material). A product is tangible (ie. material) since you can touch it
or own it. A Service tends to be an experience that is consumed at the point where
it is purchased and cannot be owned since it quickly perishes.
Definition
The American Marketing association defines services as 'activities, benefits and
satisfaction which are offered for sale or are provided in connection with sale of
goods.
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A service is an intangible product involving a deed performance or an effort that

cannot be physically possessed and the dominant component is intangible. Service
must satisfy consumers wants and needs and includes rental of goods, alteration and
repair of goods owned by customers, personal services etc. Major difference between
goods and services are-
Intangibility
Inventory /Perishability
Inseparability
Inconsistency/ Variability
Characteristics of Services
1. Intangibility
They cannot be seen, handled, smelt etc. There is no scope for storage. From the
customers point of view, this attribute makes it difficult to evaluate or compare
services prior to experiencing the same.
2. Perishability
Unsold service time is "lost" that is it cannot be regained. It is a lost economic
opportunity. (For eg. a doctor who is booked for only two hours a day cannot later
work those hours-Doctor has lost her economic opportunity.)
Eg: airplane seats (once the plane departs the empty seats cannot be sold)
3. Inventory
Services cannot be stockpiled. Need to avoid excess unsatisfied demand and excess
capacity leading to unproductive use of resources.
4. Lack of transportability.
Services tend to be consumed at the point of production (although this does not
apply to outsourced business services.)
5 Inconsistency
Each service is unique and can never be exactly repeated in the same form and
content at another point of time. The performance of services of the same employee
can be different at different points of time. The variation can also result from different
expectations of different customers. Service providers can standardize the service
offered by increased use of technology or they can device variability as a part of
service delivery strategy. Eg. in a gymnasium, some customers may come to reduce
weight, some may come to get their body shaped and others may want to add
muscles.
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6.Inseperability
Services delivery requires direct (short) channels of distribution. In some case it is
not possible to use intermediaries, e.g. travel agents, ATM etc.
7. Involvement
One of the most important characteristic of service is the participation of the
customers in the service delivery process. Service should be produced and
consumed simultaneously. This means that consumers must be present in the service
process.
Role of services in an economy
Services lie at the very centre of economic activity in any society. Service activities
are absolutely necessary for the economy to function and to enhance the quality of
life. The role of service sector in shaping the global economy can be presented in
the following chart.
Trade
Social/pers
Business services
onal
services
services
consumer Infrastructu
re services
Public
administrat Extractive
Manufactur
ionon sector
ing sector
The model of economy shows the three principal sectors of economy, extractive,
manufacturing and services, which is divided into the following subgroups
Business services-consulting, finance, banking
Trade services-Retailing, maintenance and repair
Infrastructure service-Communications, transportations
Social/personal services-Restaurant, Health care
Public Administration-Education, government
76
In a complex economy infrastructure services and trade services function as

intermediaries between the extractive and manufacturing sectors and the channels
of distribution to the final consumer. In an industrialized economy, specialized firms
can supply the services for themselves. Thus more often advertising, financing,
consulting and other business functions being provided for the manufacturing sector
by service firms. Service activities are absolutely necessary for the economy to
function and enhance the quality of life. For example, the importance of banking
industry to transfer funds and transportation industry to move food to areas that
cannot produce them.
Public administration plays a critical role in providing a stable environment for
investment and economic growth. The service sector not only facilitates but also
makes possible the goods producing activities of the extractive and manufacturing
sectors. Services are the crucial force for change towards a global economy
Assessment Activity
Collect data regarding contribution of service sector towards GDP of the
following nations
Name of Nation GDP for 2013-14 GDP for 2014-15
India
USA
England
Types of Services
Sky is the limit for marketing services. Today we market a number of services
and this has engineered a sound foundation for the development of innovative
marketing strategies. The service generating organization also realize the importance
of quality in managing the development process This makes it essential that
almost all the service generating organizations make sincere efforts to make the
services internationally competitive.
There are a number of services likely to be productive if the policies and strategies
are innovated. The main types of services are-
Banking services
Insurance Services
Transportation Services
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Tourism Services
Hotel Services
Consultancy Services
Information Technology services
Education services
Personal care services
Hospital services
Electricity Services etc.
Banking Services
Among the Service generating industries banking services occupies a place of
outstanding significance, with the increasing level of customer's expectations. It is
essential that the public sector commercial banks innovate strategies and promote
technology driven, user friendly services to increase the market share to project a
positive image. This makes a strong advocacy in favour of bank marketing since its
application in a right fashion would answer to a number of unsolved questions. Different
types of banking services includes, business loan, checking accounts, savings
accounts, debit and credit card, merchant services, credit card processing,
reconciliation and reporting cheque collection.
Insurance services
Wherever there is uncertainty there is risk, wherever there is business, there is risk.
This risk cannot be averted. We do not have any command on uncertainties since
there are a number of uncontrollable factors. Insurance is a cooperative device to
accumulate funds to meet uncertain losses. Among the available insurance services
are contracts to protect properties such as houses, vehicles reimbursement of health
care costs, maturity or death benefit to life insurance policy holders.
Transportation services
Transportation services occupy a place of outstanding significance in national economy.
It solves the problem of place difficulty in business, there is a place gap from the
place of production to the place of consumption. Goods produced in one part of the
country may be required for consumption in other part of the country. Thus transport
services are utilized for bridging the place gap. There are several models of transport
such as road, rail, water and air.
78
Tourism services
Tourism sector attributes to the economic growth of India. It provides employment,
contributes to GDP and earns valuable foreign exchange
In tourism marketing we are marketing a destination. Once a destination is sold to a
customer or a customer group, everyone who is providing some service in relation
to tourism gets benefited. The hotels or the carriers or the travel agents, all benefit if
tourist traffic is genernated for a destination from domestic or foreign or both sources.
A destination may be visited because of its natural landscape, or resources, historical
monuments, religious significance, shopping or it may be a man made tourist attraction.
Hotel Services
India is a famous holiday destination in the world and provides ample facilities for
launching and boarding. It has state of art hotels to cater to its ever booming travel
and tourism industry. Many hotels and resorts have copped up in India over the last
few years to cater the accommodation needs of everybody.
Assessment Activity
Collect pictures of the following services
mentioned below and make an album
 Health service
 IT service
 Insurance service
 Banking service
 Transportation
 Communication
Meaning and significance of Service Marketing.

Service marketing is marketing based on relationship and value. It may be used to
market a service or a product.
Marketing in a service based business is different from marketing a product based
business.. Marketing management covers not only the marketing of goods but also
the marketing of services. Services are to be marketed in accordance with the
interests of buyers. Marketing of services involves the interaction between the
provider and the customer.
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Service Marketing can be defined as the process of identifying, pricing, promoting

and providing the right services in the right time to the customers with a view to
satisfy their requirements and the objectives of the service provider.
Significance of service marketing
Proper marketing of services contributes substantially to the process of development.
In future, the service sector would operate in a conducive environment offering
great potential for growth. If the opportunities are properly utilized by the service
sector, it will lead to an all round development of the economy. The significance of
service marketing may be discussed under the following headings
1. Generation of employment opportunity
2. Optimum utilization of resourses
3. Capital formation
4. Increased standard of living
5. Use of environment friendly technology
1. Generation of employment opportunities: The components of service sec-
tor are wide and varied. It includes Banking services, Insurance services, Trans-
portation services etc. The organized and systematic development of the ser-
vice sector would create enormous employment opportunities. Application of
marketing principles in the service sector is instrumental to the development of
the economy.
2. Optimum utilization of resources: The labour content of most manufactur-
ing activities is dropping steadily with the use of technology, while the labour
content in service sector is comparatively high. An important agenda of the
world trade organizations is the opening up of marketing for services. Service
industries such as tourism services , hotel services, entertainment services
etc. contribute to the growth of economy by consuming various natural re-
sources. Thus services marketing helps to conserve the valuable resources for
future generations .
3. Capital formation: Investment encourages capital formation. If investment is
made in service sector, it will contribute to the nation building process. Perfor-
mance of profitable services can absorb higher investments there by accelerat-
ing the rate of capital formation .
80
4. Increasing the standard of living. The standard of living of the people in

any country would be decided on the basis of quality and standard of products
or services availed. The standard of living cannot be improved by offering
more opportunities for earnings. On the other hand, the standard of living is
determined by the availability of goods and services and a wise spending on
them.
5. Use of environment friendly technology: Developed countries are making
full use of latest technology while rendering services. Technologies used by
service organization such as banks, insurance companies, tourism, communi-
cation services, etc: are not detrimental in any way to the environment .
Assessment Activity
Make a study about the percentage increase in employment opportunities provided
by the following sectors
Tourism Communication Insurance
Difference between product marketing and Service Marketing.

1. In product marketing, the marketer markets a tangible product. But in service
marketing an intangible product is marketed.
2. In product marketing, the customer evaluates the product before it is pur-
chased. But in service marketing it is difficult to evaluate it before buying.
3. The price of product is determined on the basis of its cost of production. The
pricing of service is very difficult.
4. Service cannot be pictured in an advertisement or displayed in a store. So it is
very difficult to explain a service. There is no such problem in product market-
ing.
5. The unused product can be stored and sold at some other time, but the unused
services cannot be stored for future.
6. Standardization is possible in product marketing, while it is not possible in
service marketing.
7. The marketing mix elements of product marketing include only 4 elements (prod-
uct, price, place and promotion) .While service marketing , apart from these
elements , there are 3 more elements namely people, process and physical
evidence.
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Assessment Activity
Product marketing Service marketing
 It market tangible product 
  Difficult to explain the product
 
P's of Service Marketing Mix
The marketing mix is the consideration of element that make up the entire market
process. The strategies for the marketing require some modification when approved
to services due to the special features of services.
The service marketing mix includes 7 elements namely Product, Price, Place,
Promotion, People, Process and Physical evidence.
1. Product (Service Package)
Product is the key element in the marketing mix. It refers to anything that can be
offered to a market to satisfy a want or need. Even though intangible, they are
things. A product decision is concerned with what service will be provided, when
they will be produced, how they will be provided and who will provided them.
2. Price
Pricing refers to the process of setting price for the product. Pricing strategy includes
the price charged and terms associated with the sale, such as list price, discounts,
82
allowances, credit terms, payment period, coupons etc. Price is directly associated
with sales and revenue. The main considerations in pricing strategy are competition,
sensitivity of the customers, etc.
3. Promotion
Promotion includes communicating with key markets and facilitating the exchange
process. It is a vital element in the service marketing mix as it forms a bridge between
the seller and customer. Various elements on promotion mix are advertising, personal
selling, public relation, sales promotion, telemarketing, word of mouth etc.
4. Place
Place element of the marketing mix refers to different channels of distribution and
effective management of these channels. It includes physical location, distribution
points and management of an array of process needed to provide products or services
to customers. So place covers two items namely geographical coverage (location)
and how it will be distributed (channels). Service marketer just like the product
marketers are bound to face distribution and channel problems.
5. People
People here symbolize and refer to the employees, customers and stakeholders
who take part in the service delivery. People play an important role in the service
marketing mix. It is only the skills of the people that can alter the behaviour and
perception of potential customers.
People mix in an organization constitute all the human actors who are concerned
with the process such as employees serving the organization, customers/users who
are directly concerned with the services of organization and other customers in the
service environment, who sooner or later may affect the process.
6. Process
The Process refers to the actual procedures, mechanism and flow of activities by
which the service is delivered; the service delivery and operating systems. The process
elements of marketing mix involves developing objectives and policies for the
processes, procedures, mechanisms and routines used to create and deliver services.
It also involves the behavior of people providing the services and how customers
are experiencing the service offer as each stage of service marketing gives some
value to customers.
The effectiveness of the process is determined by whether the marketing objectives
are met or not. Banks have altered the process of banking by introducing ATMs and
now experiencing efficiency in operation.
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7. Physical evidence.
Services are the act, performances and efforts of service providers.
There is absence of physical attribute in the service performance. Customers seek
some physical element in the services so as to evaluate it against the quality and
satisfaction. For this they analyze the physical surroundings of the services like
building, stationary, furnishing, brochures etc.
Assessment Activity
List out the P's of product and service marketing
Product marketing Service marketing
Consumer behaviour in Service market

All marketing activities are directed towards the consumers, as they initiate services.
The ultimate success of all economic activities depends on producing what the buyer
considers suitable. The buyers purchase services based on their mental and economic
forces.
There are many factors that influence consumer behavior..The service sector must
understand how the consumer would respond to different services, features, prices,
appeals ,etc. along with the major forces on the marketing environment ie. economic,
social, and cultural factors.
Human behavior has 2 components
1. Buyer's characteristics and
2. Buyer's decision making process
1. Buyers characteristics
The consumer's purchases are strongly influenced by cultural, social, personal and
psychological determinants. Marketers must understand the complex buyer behavior,
to activate the purchase decision.
a) Cultural factors: Cultural factors include culture, sub -culture and the social
class. The marketing firms should consider the cultural force which are domi-
nant in the marketing environment for making decision relating to the banking
product, its promotion and its distribution.
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b) Social Factor
The consumer behavior is also influenced by social factors such as consumer
reference groups, family etc, Family is an influencing component in the deci-
sion making of the customer. Research shows that husbands dominate in deci-
sion regarding financial investment where as wives dominate in decision re-
garding packaged holidays.
c) Personal factors
Personal characteristics like buyer's age,life cycle,occupation, economic cir-
cumstances, life style, etc. influence the buyer's decision.
d) Psychological factors
The psychological determinants-motivation, perception, learning, beliefs and
attitude have significant influence in understanding consumers buying behavior.
2. Buyer's decision making process
The buyer behavior is a process involving a series of related and sequential stages or
activities. The intangible nature of service and the general inability of the consumer
to check the quality of the service until it is used/consumed, adds to the importance
of understanding the decision and evaluation process.
Chart showing Buyer decision making process
Need recognition and problem

awareness
Information search
Evaluation of alternatives
Purchase of services
Post purchase evaluation
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A. Need Recognition and problem awareness

The intensity of consumer need will indicate the speed with which the buyer will try
to fulfill the want. The marketer must identify the stimuli, which induces interest in the
service and develop marketing programmes based on the stimuli.
B. Information search
Aroused need can be satisfied promptly only when the desired service is not only
known but also easily available. When the consumers are not aware of the types of
service that can best satisfy the need, how and where it can be secured, they will
have to search for the relevant information. They may obtain the information from
the sources likes' family, friends, reference groups and also from marketers through
advertising, sales promotion, etc in order to provide guidance to the consumer.
E. Evaluation of Alternatives
With the available information, the consumer evaluates the alternative services that
satisfy his needs. In case of services , the alternatives available are relatively smaller
than the goods because brand choice in service is limited and the quality of services
can only be experienced and is difficult to compare with the other business firms.
The major challenge for the service providers is to research customer expectation
and demands and offer more personalized service to the customers in order to
encourage to choose the service provider.
D. Purchase of service
After evaluating the alternatives, the customer chooses that service provider who
will be able to satisfy his needs. The purchase of service leads to the satisfaction of
customer needs. The success of service delivery depends upon the service encounter;
attempts should be made to influence the moods and emotions of the customers in a
positive way. Service delivery, limited waiting time in lines, training and motivation of
staff etc. can be used to influence the moods of customers
E .Post purchase evaluation
Although service is progressively evaluated, a greater portion of the evaluation of
service succeeds purchase and consumption than in case of goods only after
experiencing the service, the customer will be able to judge the service quality in
relation to his expectation and the actual service received. It is right to mention that
customer expectation embrace several elements such as desired level, adequate
service, predicted service and zone of tolerance that falls between the desired and
adequate service level.
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Assessment Activity
Prepare a chart showing buyer decision making process
Role of Service marketing in India
The service sector plays an important role in Indian economy. It contributes to GDP,
provides employment, generates foreign exchange by exports etc.
1. Contribution to GDP- The service sector contributes significantly to the GDP
of India. In 2013-14, contribution of the service sector to Indias' GDP was
60%. The increase in the share of GDP of service due to the following rea-
sons.
a. Professionalism in the service sector
b. Increase in urbanization, which gives boost to services
c. Liberalization of the service sector since 1991
2. Employment - The service sector provides employment to large segment of
the upcoming youth. The over all employment in the service sector is about
30% of the total work force in India in 2013-14.
3. Contribution to export- India ranks among the top service exporting nations.
Currently India is the sixth largest exporter of services in the world. The service
sector has contributed significantly to the foreign exchange earnings in India.
The top service export item is software services, which accounts for about
46% of the total service export of India.
4. Capital formation- Service sector contributes towards capital formation in
the country. This is because, the service sector facilitate savings on the part of
employees and service providers. The savings facilitate investment.
5. Support the primary and secondary sector- The proper functioning of the
economy depends upon to a good extent on the service sector. Without the
support of the service sector, the primary and secondary sector would find it
very difficult to function
6. Revenue to government- The service sector provides revenue to the
government by way of service tax. In 2013-14 the service tax revenue of
central government exceeds Rs. 1.5 lakhs crore, ie, 13.6% of total gross tax
revenue.
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7. Improve efficiency- The service sector facilitate improvement in efficiency of

the organization. Efficiency is the ratio of return to cost. The following are the
service sub sectors that help to improve efficiency
 Research and development
 Education
 Training and development
 Consultancy services
8. Improves standard of living- The service sector helps to improve standard
of living of the people due to the availability of various types of services such as
education, health, recreation and entertainment and so on.
Practical
Exploring the internet, collect data of market share of the following sectors and
prepare a Bar diagram (using spread sheet)
1. Insurance Sector
2. Banking Sector
3. Hospitality
4. Information technology
5. Health service
Assessment Activity
Make a study on the role of Service Sector in the following Area
Revenue to government Employment
TE Questions
1. Define services and state few service sectors.
2. Product, place are the first 2 P's of service marketing.State and explain the
other P's of service marketing
3. " Product marketing is easier than service marketing" State your opinion.
4. Briefly explain the impact of service marketing in the development of an
economy.
5. "Services lie the very centre of economic activity in any society" Explain its role
in economy.
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UNIT 2
Marketing of Banking Products
Introduction
Marketing is emerging as an important element in banks activities. Indian banking
sector historically passed through five stages-pre independence, post independence,
pre nationalization, nationalization, and post liberalization stages. Today marketing
is considered to be an integral management function in the banking sector. This unit
discusses how marketing techniques are being used by Indian banks. This unit covers
the concept of bank product marketing, selling strategies of banking products and
marketing of important banking products.
Learning out comes
The Learner:
 Describes the concept of marketing of banking products
 Describes and categorize different users of banking
products
 Describes the different selling strategies of banking
products.
 Describes the strategies required for marketing various
banking products
Concept of marketing of banking products

Bank marketing deals with providing services to satisfy customer's financial needs
and wants. Banks have to find out the financial needs of the customers and offer the
services that can satisfy the needs of the customers.
Marketing helps in achieving the organizational objectives of the banks. This means
that marketing is equally applicable to achieve commercial and social objectives of
the banks. Indian banks have dual organizational objectives, commercial objectives
to make profit and social objective of developing banking services.
Bank marketing is " the aggregate of functions, directed at providing services to
satisfy customer's financial needs and wants, more effectively and efficiently than the
competitors, keeping in view the organizational objectives of the banks." From this
definition, we can see that bank marketing provides services:
aimed to satisfy customer needs and wants
needs and wants may be non-financial in nature
competitive element, efficiency and effectiveness
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organizational objectives are still the driving force

commercial objective to make profit
social objectives.
Thus, the marketing concepts that contribute towards bank's success are-:
a. The bank cannot exist without the customers.
b . The purpose of the bank is to create, win and keep a customer
c. The bank should ensure services performed and delivered to the customers in
the most effective way.
d. Ultimate aim of a bank is to deliver total satisfaction to the customer.
e. Customer satisfaction is affected by the performance of all the personnel of the
bank.
The growth of branches and credit disbursement on the one hand and some loss-
making branches, lack of transportation and communication network as well as
rising dissatisfaction of customers with the banking service on the other hand caused
the banks to be aware of the marketing concept. The significance of bank marketing
in Indian banking system is undeniable if they have to service in the competitive
environment.
Bank marketing states that the banks should:
a. identify the most profitable market now and in future
b. assess the present and future needs of the customers .
c. set business development goals and making plans to meet them .
d. manage the various services and promoting them to achieve the goals.
e. adapt to the changing environment in the market place.
Each individual working in the bank is a marketing person who contributes to the
total customer satisfaction. The marketing person exercises tact, skill and knowledge
to influence the buyer of the services. The process of personnel communication is
effective as immediate feedback is possible. For example, a customer seeking a
housing loan does not just require finance. He also needs ancillary services like loan
counseling or legal advice to ensure the title of the property is clear. He also needs
technical advice to ensure that the structural aspects of the property are in order.
Users of banking products
The users/customers constitute a place of outstanding significance. The line of services,
the planning and development of services, the offering of services, the pricing strategies
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or the interest charged for the service made available and the promotional strategies
depends substantially upon the nature and type of users utilizing the services of an
organization. Today, the users of banking services expect fast and efficient
services.The types of customers using the services of banks are general users and
industrial users.
General users
Persons having an account in the bank and using the banking facilities at the terms
and conditions fixed by a bank are known as general users of the banking services.
Generally they are small sized customers.
Industrial users
The industrialists or entrepreneurs having an account in the bank and using the credit
facilities and other services for the establishment and expansion of their business are
known as industrial users. Generally they are large-sized customers having huge
volume of transanctions.
Marketing strategies for Banking Products
Strategy is a major comprehensive plan of action. In banks, managers need to think
creatively and the key to creative thinking lies in strategic planning. Strategic planning
is the managerial process of developing and maintaining a viable fit between the
organization objectives and resources and its changing market opportunities.While
planning strategies the following points are to be considered:-
a. Strength and weaknesses of the organization.
b. Banks with clientele from various segments could think of market penetration
by offering the existing range of services to existing customers.
c. Banks which are not facing acute competition could think of market develop-
ment by offering the existing services to new customers.
d. Design new product range for their customers of various segments .
The evolution of bank marketing in India can be classified in three phases.
A.Traditional external B. Internal C. Interactive
marketing marketing marketing .
A. Traditional External Marketing
Consists of 4 Ps viz; of Product, Price, Place and Promotion.
a. Product - The products offered are the services which includes various
types of bank accounts, different types of loans, investment services, credit
cards, online banking , mobile banking and many more.
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b. Pricing - It includes interest, fees or commission charged by the bank and

also the interest paid by the bank.Typical for banking sector since RBI
regulates the ratesof interests, organizations are supposed to sub-serve
weaker sections and the rural regions of the country.
c. Place - It refers to the establishment and functioning of a network of
branches and other offices through which banking services are delivered.
Proximity may play determining role in selecting the bank.With the advent
of technology other points of contacts have come up such as- ATM ,
Telephone banking, Online banking, Mobile banking, Video banking , etc.
d. Promotion - Bank professional blend different components of promotions
such as - advertising, publicity, sales promotion, word of mouth promo-
tion, personnel selling and telemarketing.
B. Internal Marketing - It includes the People (5th P) of the bank i.e.,the em-
ployees.
e. Employees should also be treated as internal customers and sort of market-
ing mix should be followed. Quality Human Resource can be a point of
differentiation.
C Interactive Marketing - It involves Process (6th P ) and Physical evidence
(7th P).
f. Process - It refers to the systems need to assist the organization in deliv-
ering service. It aids to the promotion of customer satisfaction. It involves
speedy delivery of services, reducing the paper work , standardization of
procedures,customization as per individual demand , etc.
g Physical Evidence - It includes the signature, reports, employees dress
code, other tangibles, attractive brand names, logos, symbols, etc. These
evidences add to the customers perception of service quality.
Selling Strategies for Banking Products
Strategy is a major comprehensive plan of action. In banks, managers need to think
creatively and the key to creative thinking lies in strategic planning. Strategic planning
is the managerial process of developing and maintaining a viable fit between the
organization objectives and resources and its changing market opportunities. Before
exploring selling strategies, it is worthwhile reviewing the common attributes shared
by all services such as –
1. Intangibility – Services are usually processes not physical things.
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2. Heterogeneity – Service quality varies from provider to provider over time.

3. Simultaneity – Services are produced and consumed simultaneously, they can-
not be held in stock.
These attributes require a bank to develop a sale strategy that is unique to the
banking products. The following strategies are worth noting.
1. The offering – The service must meet the need of target customers.
2. The funding mechanism – The bank must identify how the cost of delivering
an excellent service must be covered.
3. The employee management system –High quality service require a high
quality work force for their delivery. Effective management of employee
motivation is required.
4 The customer management system – The customer is the part of the value
creation process in service engagements.
Extended Activity
Prepare 25 questions each from marketing of banking products and marketing of
insurance products and conduct a quiz competition in the class.
Sample Questions:
a. In India bank deposits are insured up to a certain extent, which provides pro
tection in case of failure of banks.-True/False.
b. A cheque issued remain valid for ever - True/False.
c. 14 Major banks nationalised in the year 1972- True/False
d. Banking Regulation Act passed in the year 1939 - True/ False
Marketing of Various Banking Products
Deposits:
Loans and Advances
Other Services
Housing Loan
 You can avail a loan for constructing a house or buying ready house or a flat
 Legal clearance of the documents of the properties
 Necessary approval of the local authority
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 Disbursement of loan in stages, if construction is in stages

 Fixed interest rate or floating interest rate
 Spouse's salary can be reckoned to arrive at the amount of eligible loan
 Tax relief on instalments as well as interest on housing loan
Vehicle Loan
 You can get a bank loan for purchase of a new vehicle
 Security being hypothecation of the vehicle
 Loan up to 80% of the road price of the vehicle
 Term up to 5 years
 Interest is generally low
 Hypothecation charges to be noted in the RC book
 Cancellation Hypothecation charge entered in the RC book, once the loan is
closed
Gold loan
 Security being pledge of gold/gold ornaments
 Interest rate is generally low
 Loan eligibility up to certain percentage of the market value of the gold orna-
ments
 Duration of the loan generally, one year.
 Failure to repay the loan and interest would result in auctioning the gold orna-
ments by the bank/ Financial institution
Education Loan
 To meet education expenses
 Up to Rs 7 lacks, no collateral security(amount varies from banks to bank)
 Necessary proof of securing education at specified educational institution to be
provided
 Loan disbursement against reimbursement of fees remitted, other expenses
incurred etc
 Guardian to join as co-obliging
 Repayment to start after six months of getting the job or within such period as
specified in the loan sanction note.
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Consumer Loan
 If you want a loan for buying consumer durables, such as refrigerator, televi-
sion, washing machine, etc. the loan is called consumer loan.
 The maximum repayment period is usually three to five years.
 The margin requirement is around 10 to 25 percent of the article purchased.
Personal Loan
 Based solely on the credit rating and ability to repay the loan
 Loan for short duration
 Interest rate is generally high
 Repayment through EMI
 Post dated cheques (PDCs) to be remitted
Credit card
 Free use of credit for a specific period
 Credit limit
 Monthly bill is to be settled before the due date
 Minimum balance to be remitted, the balance can be carried forward.
 Interest rate is generally high.
Overdraft against House property
 The OD limit up to 50% of the market value of the property
 Security being mortgage of the HP
 Interest on loan amount to be remitted then and there
 Client can operate the loan account like a current account, withdrawals sub
ject to the maximum OD limit
 Loan documents to be signed by the party.
Practical
Divide the students into groups and assign the targets of deposit mobilsation from
the following categories of society.
Group I-Visit a few agriculturists
Group II-Visit NRI 's
Group III Visit businessmen
Group IV Visit a few housewives
Group V-Visit government employees.
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Conduct a role play showing the strategies adopted for deposit canvassing from the
above categories.
Assessment Activity
1. Prepare a notice for marketing an agricultural loan of ABC Bank Ltd.
2. Categorise the major banking products in the following heads
3 Prepare a questionnaire for collecting information regarding financial needs of
the following class of people
 Agriculturist
 Businessman
 House wife
 Guardian of a student
 Unemployed youth
Deposits Loans and Advances
TE Questions
1. State the meaning of bank marketing concept.
2. Explain the role of marketing in banking products.
3. Prepare a brochure to canvass vehicle loan as a part of 'Loan Mela"
4. Briefly explain the strategies used for selling banking products.
5. Explain the three phases of bank marketing.
6. Explain the bank marketing mix of 'Place' .
7. Complete the flow chart
Traditional
External
Marketing
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Unit 3
MARKETING OF INSURANCE PRODUCTS
Introduction
India has about three hundred million people who can afford to buy life, health and
pension plan products. Out of this only 20% have insurance and that too covers
only 25% of their needs and financial security. The remaining 80% have no
insurance cover. The life and non-life insurance market of India, therefore, has
tremendous growth potential. The IRDA bill cleared the way for private entry into
insurance as government is keen to invite private sector participation into insurance.
This unit covers the concept of insurance marketing, segments of insurance market,
strategies for insurance marketing and marketing of various life and non-life insurance
products.
Learning out comes
The Learner:
 Describes the meaning of marketing of Insurance
products
 Explains various segments of insurance market
 Identifies and Describe strategies for Insurance
Marketing.
 Recognizes the qualities of an Insurance Salesman
 Explain the marketing process of various Life
insurance products
 Describes the marketing of Major non-life products.
Insurance marketing concept

The term insurance marketing refers to the marketing of insurance services with
the aim of enhanced customer orientation and profit generation. Insurance marketing
focuses on the formulation of an ideal mix for insurance business. The marketing
concept enables the insurance business to expand business in the best interest of
society as well as the insurance organization. The conceptualization of marketing
in insurance business is for the following benefits :
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1. Identify the most profitable market now and in future.

2. Assessing the present and future needs of the users.
3. Setting business development goals.
4. Formulating time honoured plans and manage various customer services.
5. It is a social process that paves avenues for social transformation.
Market Segment in the Insurance Organizations.
Insurance markets are segmented into different customer groups. Each product or
service is tailored to match the needs of the customer group. The segmentation
helps the insurance organization in dividing the market in to small segments, where
the customer needs are more or less identical. The following are the major segments:-
1. Household sector
2. Industrial sector
3. Trade sector
4. Institutional sector
5. Region-wise sector
6. Rural sector
The household sector is again subdivided into -
a. Salaried class
b. Self employed
c. Retired employees.
Significance of segmentation to the insurance Business
1. Market segmentation enables the insurance marketer to identify the level of
expectation of policy holders.
2. Market segmentation makes it possible to spread the insurance business even
to the agricultural sector of the economy, which is predominantly rural based.
3. The pricing design can also be rationalized and the weaker sections of the
society would get substantial benefit.
Strategies for Insurance marketing
The selling of an insurance product is a complex process, which is based on the skill
and excellence of an individual. The agents and rural career agents play very important
role in promoting insurance business. Selling strategy consists of the following steps-
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1. Pre-sale preparation
The sales persons must be properly selected, trained and motivated for the
job. They must be well acquainted with the product, the market and the tech-
nique of selling.
2. Locating the potential buyers
Sales persons must locate the potential buyers and collect information regard-
ing their character, health, income, need and approachability. The sales per-
sons should have the knowledge about the behavior of the people to whom
they are going to sell their products. Sales person can examine the records of
the past and the present customers to
determine the characteristics of prospective buyers. He must make a need
analysis whenever it is possible from the prospects.
3. Approaching stage
Before approaching the prospective buyer, the sales person should prepare a
powerful script which consists of open ended questions. He should be very
polite while approaching the prospects and approach the customer properly to
gain his attention. He should ensure the customer that he will get undivided
attention from the sales person.
4. Presentation
The presentation should be such that the prospect takes continuous interest in
the product during presentation. The sales person should describe the features
and price of the product briefly and also suggest the producer's benefits and
need of customer which will be fulfilled by the particular product. The success
of a sales person will depend upon the degree to which he is able to match his
approach with the attitude of the customer.
5. Handling objections
After explaining the product, the salesmen should entertain objections from the
prospect. A good salesmen should realize that it is a golden opportunity to
convince and persuade the prospect and to give additional information about
the product over the competitive products in the market.
6. Closing stage
A salesman has to act with patience and intelligence to close the sales. He may
periodically venture a trial close in order to sense the prospect's willingness to
buy. He may ask some 'either-or' questions from the prospect. The trial closes
at various stages of the presentations will give the salesman an indication of
how near the prospect is to a decision. After he is convinced that the customer
has made up his mind to buy the product, he should close the sale in a cordial
manner and the customer should be made to feel that he has made the right
choice.
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7. After sales service

After sales service is an important component in insurance indudstry. The marketing
personnel should keep in touch with the policy holder, inspire the policy holder to
pay the premium regularly, render assistance to the policy holder in securing the
loan against policies, revival of the policies at default if any and also in claim settlement.
Qualities of a good Insurance salesman
Insurance is a profession of servicing. Insurance salesman is the connecting link of
the seller and the prospective buyers of insurance market. The insurance agent
(salesman) bring the seller(insurer) and the buyer(insured) together.
The intermediaries are the full time and part -time agents duly licensed by IRDA.
Their function is to solicit, procure and service the insurance business. These
intermediaries search out the prospective people to be insured and sell them insurance
policies.
The services performed by the insurance agents are -
Selling the right type of policies for the right amount, suitable to the needs of the
buyer.
Proper completion of all requirements at the underwriting stage.
Keeping in touch with the policy holder
Rendering assistance to the policy holder in securing policy loan , revival of default
policy and in claim settlement.
Qualifications of the Insurance salesman
 Should attain the age of majority (18years).
 Have passed at least the 12th standard or equivalent examination, in urban
area and 10th standard examination in rural area.
 Have undergone practical training for at least 50 hours in life or general insur-
ance business, as the case may be , from an institution, approved and notified
by the IRDA. In the case of a person wanting to become a composite insur-
ance agent, the applicant should have completed at least 75 hours practical
training in life and general insurance business.
 Have passed the pre-recruitment examination conducted by the Insurance In-
stitute of India or an other examination body authorized by IRDA.
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The fee for a license is Rs250 for individual as well as corporate agents. A license is
granted for 3 years. It may be renewed after 3 years..
Qualities of a Good salesman
Basically a good salesman is one who likes to sell. He makes sales, brings in business,
and builds satisfied customers. He is an ambassador of goodwill for the insurance
company. Some of the common qualities which are often found among the effective
salesmen are described below.
1. Charming personality: A good appearance is an asset for a salesman as it
creates good impression on the customers. It also gives self-confidence to the
salesman. Besides physical appearance, other physical attributes which matter
a lot are: voice, way of speaking, posture health, habits, etc.
2. Cheerfulness: A cheerful salesman will win more customers.
3. Enthusiasm: Enthusiasm is a combination of interest and belief, of energy and
activity. He should have enthusiasm. Otherwise, he will not be able to do his
duties efficiently.
4. Initiative: He should have posses the quality of taking initiative. Then only he
will be able to think and act for himself and will be busy in his work.
5. Good memory: He should be able to remember faces and facts. Remember-
ing the likes and dislikes of a customer will aid in better serving the customer.
6. Communication ability: communication skill is an asset for the salesman. He
should be able to speak freely, clearly and in a well-pitched voice. He must be
a person who has a natural ability for conversation.
7. Patience: The salesman should not get provoked even under worst circum-
stances. He should have sufficient patience to listen to customers and clear
their doubts.
8. Self confidence : He must have abundant self confidene, i.e, his ability to
convince the customers and win them over.
9. Foresightedness : He should have keen imagination and foresightedness, so
that he can develop new methods of approach to the sales problems.
10. Shrewdness: He should be able to read the minds of the customers quickly.
In otherwords, he should be able to understand their needs, without asking too
many questions.
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11. Loyalty: He must be loyal to his firm. He must not damage the reputation of
his firm.
12. Knowledge about the product : He should have a thorough knowledge of
the products in which he deals.
MARKETING OF VARIOUS LIFE INSURANCE PRODUCTS.
In India the life insurance business was started by private companies in the early
19th century and the government took many steps to regulate the business of life
insurance. In 1956, the life insurance business was nationalized and the LIC of
India was formed on 1st September, 1956. The IRDA Act was passed in 1999 , to
ensure proper regulation and administration of insurance affairs in the country. By
the Act, foreign companies were also allowed to enter the Indian Insurance Business
and now many multinational companies have insurance business in India. The
following are some of the prominent companies presently doing life insurance business,
other than LIC of India .
a. SBI Life
b. ING Vysya c. Bajaj Alliance d. Met Life e. Birla Sun Life
f. Reliance Life, etc.
The following are the important insurance products in the life insurance sector :
1. Whole Life and Endowment policy : Under Whole life policy, the insured is
required to pay premium up to death and claim will be paid on the death of the
insured. In the case of Endowment policies, the claim will be payable at the
time of death or maturity whichever is earlier.
The whole life policy is suitable for a class of persons who think about the financial
security of the family after his death. The specialty of the policy is -
 Protection of the family
 Less premium than other life policies.
 High bonus rate.
 Suitable to both the high and lower income groups.
The features of Endowment policy -
 Financial protection and investment.
 Maturity benefit along with risk cover.
 Loan facility.
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 Surrender can be possible.

2. Money-back policy : This is a popular type of policy. Under this type of
policy, after the payment of a specified number of installments of premium, 20-
40 % of the assured is payable at certain intervals and the balance will be paid
at the time of maturity. The features of this policy are -
 Periodical return.
 Suitable to business class.
 No relevance to the return already given, if death occurs before maturity.
3. Annuity : Annuity schemes are those wherein policy holders regular contribu-
tions over a period of time and accumulate to form a corpus with the insurer.
This is used to yield a regular income that is paid to policy holders until death ,
starting from the desired retirement age.
Feature of this policy are -
 Pension scheme provide old age benefit .
 Preferable to persons who have no other pension benefit.
 Provide pension to surviving spouse subject to conditions.
4. Children's Plan : These plans are suitable for passing on a financial asset to
a child. Children's plan not only cover the life of the parent, but also ensure
that in case of their death, the child gets the sum assured and the insurance
company may find future premiums and the child gets the value accumulated at
the end of the term. This happens usually when the child needs funds for higher
education. As the plan is in the child's life, the premium is very low. In this
case, wealth is created in the name of child.
5. ULIPs - Unit Linked Insurance Plans : ULIPS are suited to people pre-
pared to undertake some investment risk to obtain the benefits of flexibility.
Market linked plan or ULIP is a financial product that offers one life insurance
cover as well as investment in the financial market.
The major advantage of ULIP is that, they leave the asset allocation decision
in the hands of investors themselves. There are charges like premium allocation
charges, fund management charges, policy administration charges, marketing
charges, etc.
Extended Activity
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Motor vehicle owners took term insurance for their vehicles. If there is no claim, the
remitted premium will be lost and if claim arises, compensation will be paid. (Generally
people refuse to take a term assurance to cover his own life, though his life is more
valuable than a motor vehicle. Interact about this case with experts and various
groups of the community, and make a conclusion to overcome this negative attitude
of people towards their own life.)
Marketing of major non - life insurance product
All types of insurances other than life insurance come under the category of general/
non-life insurance. The General Insurance Corporation of India was formed with
effect from 1st January 1973 under the GIC of India Act, 1972 and all the general
insurance companies were amalgamated and grouped into 4 companies under GIC
ie.
1. The National Insurance Company Ltd.
2. The New India Assurance Company Ltd.
3. The Oriental Insurance Company Ltd.
4. The United India Insurance Company Ltd.
As in the case of life insurance private companies are now permitted to do general
insurance business. Some of such companies are :-
1. Reliance General Insurance Company Ltd.
2. IFFCO Tokyo General Insurance Company Ltd.
3. Bajaj Allianz
4. ICICI Lombard
5. Royal Sundaram Allianz Insurance Co. Ltd.
Motor Insurance
In India MVA1939 was enacted with the objective of safeguarding the financial
interest of the persons who were injured or suffered
damage due to the negligence of the motorists and such
other risks associated with the use of motor vehicles.
The Act was amended in 1988, making it mandatory for
the motorist to insure against the risk of liability to third
parties. It must clearly be understood that it is the
insurance of third party liability arising out of the use of
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motor vehicles in public places, which is compulsory and not the insurance of motor
vehicles against risk.
The Motor Vehicles Act contain the following provisions in this connection
1. Mandatory Insurance against third party risk
Sec. 146 provides that no person shall use a motor vehicle in a public place
unless effecting a third party policy .
2. Consequences of driving uninsured vehicle
Any person, who drives a motor vehicle or causes or allows a motor vehicle to
be driven in violation of the provisions, shall be punishable with imprisonment
or with fine or with both.
3. Provisions for vehicles carrying hazardous goods.
A motor vehicle carrying dangerous or hazardous goods shall have adequate and
appropriate insurance cover as per the provision of public liability Act, 1991.
Kinds of motor policies
Act only (Third party policy ) (Form A)
The motor vehicles Act provides for compulsory insurance of motor vehicles in
relation to liabilities arising out of the use of motor vehicles in a public place. No
vehicle can be used without the minimum insurance cover which provides insurance
against the liabilities towards third parties. Insurance of motor vehicle for third party
liability is made compulsory, to cover the liabilities for-
a. Bodily injury or death of any person and of any passenger of a public service
vehicle (without limit).
b. Damage to property of third party (Rs.6,000).
c. Liabilities under Workmens' Compensation Act to cover paid drivers/conduc-
tors/ticket checkers(public service vehicles) and workers carried in a goods
vehicle.
Package/Comprehensive policy (Form B)
Package policies are comprehensive, optional and provide insurance protection
against own damages losses and also against Act liabilities. It covers almost all the
risks in connection with the vehicles.
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A comprehensive policy contains the following important sections.

1. Unlimited liability towards bodily injury of passengers of the vehicle
a) Covers damage to the vehicles against the risk like fire, explosion, self
ignition, burglary, theft, etc.
b) Liability to third parties
Thus the policy covers all the risks of the Act liability as well as the loss or damage
to the insured vehicle.
Features
1. Third party insurance is mandatory to the provisions of Motor Vehicles Act.
2. Comprehensive policy protects the change of the vehicle along with third party
cover.
3. No claim Bonus (NCB) is an inspiration for safe driving.
For the purpose of insurance motor vehicles can be classified into
three as- private cars, motor cycles and scooters and commercial
vehicles.
1 Private cars are the vehicles used for own pleasure pur-
poses and not for public use.
2 Motor cycles/scooters are the vehicles of two wheelers
with or without side cars.
3 Commercial vehicles can further be classified into three
1. Goods carrying vehicles.
2. Passengers carrying vehicles.
3. Miscellaneous vehicles. Example ambulance, filim record
ing and publicity van, tractor, road roller etc.
"Hit and Run" Accident
Section 161 defines "hit and run motor accident" as accident arising
out of the use of a motor vehicle or motor vehicles the identity where
of cannot be ascertained in spite of reasonable efforts for the purpose.
This Section provides for payment of compensation (solatium) as
follows:
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a. In respect of the death of any person resulting from a hit and run
motor accident, a fixed sum of Rs.25,000/-
b. In respect of grievous hurt to any person resulting from a hit and
run motor accident, a fixed sum of Rs.12,500/-
Compensation known as Solatium is payable out of a "Solatium
Fund" established by the Central Government.
No Claim Bonus
With a view to encourage safe driving and improve claims experience,
it is the universal practice to grant 'No claim Bonus' at the time of
renewal of the policy. A discount in 'Own Damage Premium' is granted
which may range from 20% after one year of claim free insurance to
50% after five years of claim free insurance .
The entitlement of NCB shall follow the fortune of the original insured
and not the vehicle under the policy.
Health Insurance
The term 'Health Insurance is commonly used to describe an insurance that pays for
medical expenses. A health insurance policy is a contract between an insurer and an
individual or a group, in which the insurer undertakes to provide specified health
insurance benefit to the insured in consideration of a fixed price called premium.
Proposal form is the basis of the contract
 Proposal forms are duly filled and signed by the proposer
 Correct postal address and contract number of the proposer.
 Individual photograph of each person to be obtained.
 Collection of age proof documents wherever necessary(new applicants after a
specified age)
 Sign/symbols like -, " / should not be entertained.
 Answer should be clear "Yes" or "No" inform.
 Proper assessment of PED risk (Pre existing disease)
 All PED mentioned in the proposal form to be referred to the concerned medi-
cal officer.
 Obtain a self declaration letter/medical report.
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 Premium is the consideration paid

 Under no circumstances, cover can be granted without the receipt of full pre-
mium.
 Declined risks
Renal (Kidney disease)
Cancer
Stroke
Alzheimer's and Parkinson's etc.
 Medical check-up will be required for persons above a stipulated age
 The medical report is viewed by the medical officer's for acceptance/rejection
or inclusion of PEDs
 Policy is accepted with or without exclusion
 When the proposal is accepted, it means underwrite the risk
 Policy is generated and document along with a photo copy of the proposal
form is sent to the customer.
 Individual ID card is issued to the policy holders
Classes of Risk
 Preferred
 Standard
 Rated (loaded/excluded)
 Postponed (for additional information)
 Declined
Key Underwriting factors
 Age
 Gender
 Health and Health history
 Occupation and occupational history
 Financial conditions
 Personal habits (smoking/drinking/adventure sports)
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 Size of the policy

 Current insurance in force.
Important health insurance plans -
a. Individual health plan
 Reimburses the actual expenses incurred up to the amount of cover.
 Cover expenses, if he is hospitalized for at least 24 Hrs
 Medicine expenses for pre hospitalization period of 30 days and post hospital-
ization period of 60 days.
b. Family floater Plan
 The sum insured can be availed by one or all members of a family.
 Enjoys all the benefits of an individual plan
c. Senior Citizen's Plan
 Enables senior citizens to pay for health checkups, emergency medical costs
and long term treatment.
d. Critical illness plan
 Insure against the risk of serious illness.
 The guaranteed sum will be paid if the unexpected happen
e. Daily hospital cash
 Expense/ benefit is paid on per day basis after hospitalization
 Pre decided daily benefit is paid in full irrespective of the actual expenses.
F. Unit linked health plan
 Long term health insurance plan for entire family.
 Investment in the form of units
g. Medi claim policy
 Reimburses the hospitalization expenses owing to illness or injury
h. Universal health Insurance Scheme.
 Government run scheme
 Financial risk protection to below poverty line families.
 Sum insured Rs 30,000/-
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Reference Book
Personal Accident Insurance

Personal Accident policy provides for specific
benefits to the insured for loss caused by accidents
 Capital sum insured is given on death, loss of
two limbs, loss of sight of both eyes, loss of
one limb and loss of sight in one eye.
 50% of sum insured is given on loss of one limb or one eye
 1% of capital sum insured subject to conditions for temperary total disable-
ment
Practical
1. Conduct a tele-calling show between a prospective customer and an insurance
salesman.
Step 1:Select 2 students to conduct the show.
Step 2: Give them roles and ideas on the discussion between the two.
Step 3: The players enact their assigned role.
Step 4: Students record the activities in activity log.
Assessment Activity
1. List the important segments in insurance market.
2. "The selling of an insurance product is a complex process." Suggest a suitable
selling strategy to make easy.
3. Enlist the services provided by an insurance salesman after selling an insurance
product.
2. Mr. Syam, 38 years, his wife Sreeja,34 years ,elder son Sourav, 10years ,
daughter Sarayu,3 years. Suggest suitable insurance policies for each one.
3. Complete the following table.
Money Back policy Endowment Policy
No loan Facility 
 
 
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1. Collect and record the NCB rates on private car for the different claim free
years.
2. Complete the following benefit chart of personal accident policy.
Contingencies % of benefits
On death 100 % of CSI.
Loss of two limbs 
 
 
TE Questions
1. Give proper awareness on the qualities of a successful insurance salesman to
Mr.Ajay, your friend, who is proposed to join in ABC life as a insurance
advisor.
2. Mr.Sunny is working as an accountant in a private firm. He wants to get a
regular income after his retirement from service. As an Insurance advisor sug-
gest and explain a suitable plan.
3. State various health insurance plans offered by general insurance company.
4. On 01.04.2013, Tom insured his car for Rs.4,50,000/- and paid 15,000/- as
premium. On renewing the policy in 2014, he was asked to pay only
Rs10, 000/- as premium. State the reason for decrease in premium.(He has
not claimed any amount from the insurer during the last year.)
5. State the selling strategies followed for marketing life insurance products.
6. "Insurance selling is mainly through agents". Explain the qualifications required
to become an agent.
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Unit 4
An introduction to financial market
Introduction
Both banks and insurance companies balances their risk return equations by making
timely investments in capital market. Capital market provides different products
which can absorb varying risk appetites of these industries. Surplus funds available
from these entities will be parked with various investment alternatives provided by
capital market. This help these businesses to generate the required return to service
the respective customers/stakeholders of both banking and insurance industries.
Hence, one is expected to know in detail about how the capital market is functioning
in this country.
The available fund of banking or insurance companies are preferably invested in
different securities such as shares, debentures, government securities and bonds.
The liquidity of the investments are considered before investment.This unit covers
investment opportunities of banking and insurance companies , financial securities,
procedure of trading in secondary market and role of SEBI in securities market.
Learning outcomes
The Learner:
 Describes the investment opportunities in financial market.
 Describes and categorise different types of financial securities.
 Describes the securities market and classify them as primary and
secondary.
 Describes the requisite for investing in financial securities.
 Describes the trading procedure on secondary market.
 Identifies and describe the security market regulations.
Various Investment opportunities in financial market
Financial market is the market where financial securities are exchanged at efficient
market prices. Financial market in India are divided into capital market and money
market. Capital market is one which supports long term capital and money market
is one which supports short term debt instrument.
Financial investment means those assets and securities dealt in by capital market
and money market. Financial securities are financial investments and include investment
such as shares, bonds, debentures of companies or body corporates or a govern-
ments, mutual fund units, etc. A security defines the right of the investor and obligation
of the issuer.
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Types of Financial Securities.

A wide variety of securities are available in the securities market. An issuer raises
money in two ways :by either borrowing(debt instruments) or by issuing ownership
rights. (Equity shares). The important type of financial securities are:
Equity Shares:
Equity shares refer to the ownership interest in a company. Equity shares are also
called ordinary shares. Equity share holders have voting rights. Equity shares provide
permanent finance as equity capital is not repayable except on winding up of the
company. Equity investors obtain returns on their investments in two ways - dividend
and capital gains. The shares can be sold for capital gains. Shares which are actively
traded on the exchange are liquid investments. Equity shares are regarded as the
corner stone of the capital structure of a company.
Preference shares
It is a " hybrid" instrument as it has features of both equity and bonds. Preference
shares receive a fixed dividend out of profit of the company. They get preference
over the equity share holders in payment of dividend. Preference shares have priority
in repayment of capital at the time of winding up of the company.
Bonds
A bond is a loan given by the buyer to the issuer of the instrument , in return for
interest. Bonds can be issued by companies, financial institutions or even by the
government. The buyer receives interest income from the seller and the par value of
the bond is received by the buyer on the maturity date which is specified.
Debentures
Debenture is an instrument under the common seal, evidencing debt. The essence
of debenture is admission of indebtedness. It is a debt instrument issued by a
company with a promise to pay a fixed percentage of interest and repay the principal
on maturity. Debenture holders are creditors of the company.
Mutual Funds
Mutual funds pools money from many investors and invest the money in stocks,
bond, short term money market instrument, other securities or assets or some
combination of these investments. The combined holdings of the mutual funds are
known as its portfolio. Professional management, diversification, economy of scale,
liquidity and simplicity are the features of mutual funds.
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Reference Book
Government Securities (Gilt-Edged securities) : Securities issued by the central

government or state government are referred to as government securities. Government
security means a security created and issued by government for the purpose of
issuing a public loan or for any other purpose. It can be issued in the form of a
promissory note, bearer bond, stock certificate, etc.
Treasury bills : These are securities issued by government with a maturity period
of 91 days to 364 days.
Commercial paper: A short term promise to repay a fixed amount that is placed
on the market either directly or through a specified intermediary. It is usually issued
by companies with high credit standing in the form of promissory note redeemable
at par to the holder on maturity and therefore, does not require any guarantee.
Commercial paper is a money market instrument issued normally for a tenure of 90
days.
Call Money: Money which can be called back within a short time period, say one
day, is known as call money. The market deals in one day loans (call money) is
called call money market. The day to day surplus funds, mostly of banks, are usually
traded as call money.
Securities market
Securities market is a market which deals in financial
securities. Securities market can be classified into
primary market and secondary market
1. Primary market: It deals with the new is-
sues that a company offers to public. The is-
suers in any market are the corporations, gov-
ernments, banks, financial institutions and mutual fund. Securities issued could
be shares, bonds, debentures other debt instruments, units of mutual funds etc.
The intermediaries of primary markets are merchant bankers, registrars, bank-
ers, underwriters etc. In the primary market, capital is raised through
a. Public Issue : Under this method, company wishes to raise capital, issues a
prospectus. It is an invitation for subscription of its shares or debentures.
Through this method , the company reaches out to the public at large. This
involves a large number of intermediaries such as brokers, bankers and under-
writers.
b. Offer for sale: In this method an intermediary comes into the scene. Here new
securities are offered to the investing public, not by companies issuing them
114
but an intermediary. The intermediary at first buys over the entire lot of secu-
rities at a fixed price. Then it resells to public at a higher price.
c. Private placement : Private placement of shares implies the sale of an entire
issue of securities by a company directly to a selected group of investors. They
include financial institutions, investment trust companies, insurance companies,
pension and provident fund, etc.
d. Right issue: Right issue is an offer with pre-emptive rights to the existing share-
holders of the company to further contribute towards its share capital. The
rights are offered in a particular ratio to the number of securities held on the
record date.
e. Preferential issue: Preferential issue is one that is made at a predetermined
price to the pre-identified people like promoters, venture capitalists, financial
institutions, buyers of company's products or its suppliers. The issue price is
unrelated to the prevailing market price.
2. Secondary market : It is the market where the existing securities of compa-
nies are traded. It is the stock market where the shares, bonds and other
securities are bought and sold. Stock exchange is the nick name of the second-
ary market. The securities are traded, cleared, and settled through intermedi-
aries. It provides liquidity and marketability to the securities which are issued
in the primary market. In the secondary market, the main intermediaries are
the brokers and sub-brokers. The stock exchange facilitate the trading of
securities.
A ‘stock exchange’ is an organization constituted for the purpose of assisting
and carrying out buying, selling or otherwise dealing in securities. The oldest
stock market in Asia, BSE stands for Bombay Stock Exchange and the largest
stock exchange in India and the third largest in the world in terms of volume of
transaction, NSE stands for National stock Exchange which is largest in India
by daily turnover and number of traders. All of them are Mumbai-based stock
exchanges. A number of other regional exchanges also exist. Thus, a stock
exchange provides trading platform, where buyers and sellers can meet to trans-
act in securities.
Pre-requisites of investing in financial securities.
An investor must have the fol lowing before investing in securities market. :-
Bank Account
PAN
Demat Account
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Reference Book
Trading Account
KYC requirements
PAN card : PAN is the abbreviation for Permanent Account Number. PAN is
issued by Income Tax Department. Without a PAN, an investor cannot open a
Demat Account. A PAN application form should be obtained, filled up and
submitted along with necessary supporting documents at the designated PAN
centre. The Income Tax Department send the PAN card within a few days, which
has the PAN Number.
Demat Account : In order to invest in shares, it is necessary to understand the
term dematerialisation of share, as almost all shares are now in Demat form.
Earlier there used to be physical share certificate issued, which are now converted
in to electronic form. The next step is to open a Demat Account with a Depository
Participants. As we open a Bank Account with a branch of a bank, a Demat
Account with a Depository is opened with the Depository Participant. A Demat
Account is an account of securities maintained by an investor with a depository
participant. It is also called Depository Account or Beneficial Owner Account. It
is now compulsory to open a Demat Account to trade in the stock exchange or to
apply for public issue.
Trading Account
In order to transact with a Broker, the investor must open a Broking or Trading
account with the broker. Once this is done, the transactions can be made through
the broker. Nowadays, brokers offer online account, where orders can be placed
online through the internet. These are subject to verification of password and other
details.
KYC
The broker must ensure that the clients fill up the KYC form and submit it to them.
This entails verification of identity and address, financial status, occupation and
such other personal information as may be prescribed by the guidelines, rules and
regulations.
Trading procedure in secondary market.
The investor should identify and deal with SEBI registered Broker or sub-broker
with due diligence. The list of registered brokers can be obtained from the website
of the exchanges. After this, a broker-client agreement should be entered into and
a client registration form should be filled with the broker /sub-broker. This agreement
116
is mandatory for all investors for registering as a client of broker registered with any
exchange. The agreement is executed on a valid stamp paper of the requisite value.
The agreement is to be signed on all pages by the client and the broker. Once this
formality is completed, the trading process can begin.
Once the investor communicates his order to the broker,( must indicate script name,
whether order is for buy or sell, the quantity, rate, etc.) the broker enters the order
on his terminal. The broker’s computer terminal is connected to the main computer
of the stock exchange. The orders are electronically matched by the exchange’s
main computer, using “price- time” priority protocol. The best priced order is matched
based on time priority. Time priority means ‘first come first served’. The system tries
first to match with the passive orders and if such orders are not present, then it wait
for the active order. The matched order is then electronically communicated to the
respective broker’s terminal. When an order is not matched, it is displayed on the
system till a fresh order comes in or it is modified, or cancelled. Once the order
execution is communicated, the broker gives a confirmation to his client. The settlement
takes place on’T+2’ basis, ie. the second day after the trade take place. Within 24
hours of trade execution, a contract note is issued.
The Contract Note or the purchase/sale note is an important document. The broker/
sub-broker is obliged to give a statement of all transactions every quarter to his
clients. Once the contract note is issued, the investor should verify the Bank account
and Depository Participant account for pay-in and pay-out of funds and securities
respectively.
Role of SEBI
Securitises and Exchange Board of India (SEBI) is a statutory authority to deal with
all matters relating to the securities market. It is the only regulatory authority to
regulate the securities market. SEBI was set up in 1988 and given a statutory status
in 1992 by an Act of Parliament. SEBI was set up to protect the interest of investors,
promote the development of stock market and regulate it. Its headquarters is at
Mumbai, the regional offices at Delhi, Kolkata, Chennai and Ahammedabad.
Objectives of SEBI
The SEBI Act 1992, provides for the establishment of SEBI for the following
purposes:
 To protect the interest of investors in securities.
 To promote the development of the securities market.
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Reference Book
 To regulate the securities market .

 To provide for the matters connected with or incidental to the aforesaid pur-
pose.
1, PFRDA- Pension Fund Regulatory and Development Author
ity was first constituted by the government of India in October
2003 with the following responsibilities-
a. To promote old age income security by establishing, develop
ing and regulating pension funds.
b. To protect the interest of subscribers to schemes of pension
fund and related matters.
2. Bull – Bull is a person who buys shares expecting a rise in
their prices. His intention of buying is to sell them at profit at a
future date.
3. Bear – Bear is a person who sells the shares with the expec
tation of buying them in future at a reduced price.
4. Stag – Stag is the type of bull speculator. He is a person, who
applies for shares in the new issue market with the intention of
selling them at a profit when allotment is due.
5. Bid- An offer of a price to buy in an auction. Business on the
stock exchange is done through bid.
6. Day Order- An order that is placed for execution only for one
trading session, if the order cannot be executed on that day, it
is automatically cancelled.
7. Blue chips – Blue chips are the shares of large, well estab
lished and financially sound companies with impressive record
of earnings and dividends.
8. SENSEX – Sensitivity Index - Stock price index of BSE of
30 active scrips with base year 1978-79.
9. NIFTY – Stock index of NSE consist of shares of 50 compa
nies having a market capitalization of Rs.500 cores
10. ISIN- International Securities Identification Number is the
number given for demat shares. It is a 12 digit alpha numeric
string. The first two characters represent country code(IN
for India)
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Practical
Find the price variation of 10 shares of BSE and make a chart. Make a comparative
study on the basis of safety, liquidity and profitability of investing money in shares
and in bank deposit.
Assessment Activity
1. In which category would you put the following services. Give reason also.
a. Chartered bus service
b. Tele-shopping
c. Treatment of a doctor
2. Find the odd one out and state the reason
A. Share B. Debenture C. Bond D. Unit of a Mutual fund
3. List out the requirements for investing in financial market
4. Collect and list the major powers of SEBI
TE Questions
1. SEBI stands for——
2. Give a short note on
a. Scrip b. Bid c. Bull d .Contract note
e. SENSEX & NIFTY
3. Explain pre -requisites of investing in financial securities
4 . Write the powers of SEBI in securities market.
5. Distinguish between primary market and secondary market.
6. List out the different types of financial securities
7. Mr. Vijay approaches you to invest his savings in securities market. As a bro-
ker, help him by explaining the procedure for investment.
Extended Activity
1. Conduct a study among fifty families about the usage of internet facility and
group them on the basis of demographic factors like age, sex, occupation,
education, etc.
2. Collect the details of different types of health plans available in the market and
show them in a table explaining the features of each.
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Reference Book
3. List out 10 important provisions of Motor Vehicles Act 1939

4. A share Trading Game can be arranged in the class with the use of share prices
of companies traded in the stock exchange as published in daily news papers.
The following steps can be used –
a. Bring Saturday's daily on Monday, to check the prices of listed shares of
a selected stock market.
b. Assume each student hold Rs. 1 lakh , to invest in securities.
c. Watch and study variations in prices of the securities bought and sold by
them on a daily basis and take decision to retain or sell or to buy more
securities.
d. At the end of the week, the gain earned or loss suffered by every one is
worked out.
(We can plan more games like Prediction game, Intra-day game, etc. in this
area).
Suggested practical
1. Make a survey, finding reasons for the decline in demand of life insurance/
banking products and suggest suitable measures to improve its demand.
Hint 1.Introduction by teacher.
Hint 2.Preparation of a questionnaire.
Hint 3.Distributing questionnaires to sufficient respondents
Hint 4.Get the response filled in by the respondents.
Hint 5.Analyse the responses and make recommendations.
2 Draft an advertisement (brochure) for launching a new product (banking/In-
surance) using Photoshop/Word/PageMaker.
3. As the manager of bank/insurance Company make an advertisement for pub-
lishing in a leading news paper, for the selection of Insurance advisors/sales
officers.
Hint 1. Name of firm, address
Hint2. Age
Hint3. Qulaification
Hint4. Experience, if any
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Hint 5. Last date of receiving application

Hint6. Any other details.
4. Prepare your resume in order to apply for a job in a bank/Insurance company.
5. ABC Bank/Insurance company received 30 applications for the post of insur-
ance advisors. The company requires only 5 advisors. The company decided
to conduct an interview on a particular date. Constitute an interview board and
complete the selection procedure.
Hint1- Interview board consist of chairman, subject expert and 3 committee
members
Hint 2-Questions relating to current affairs, GK, Insurance marketing,
Personal questions, intelligence, honesty, etc.
6. Make a power point presentation of 7 P’s of service marketing (Seven slides
with explanation)
7. Identify various service sectors and make an album collecting pictures from
different media (newspapers, magazines, internet etc)
8. Analyse the role of product marketing and service marketing in Indian economy
on the basis of data of the following areas in 2014 and make a conclusion.
Area Product marketing Service marketing
Employment
Export
Import
GDP
9. Identify the service sectors most suitable to kudumbasree units/residence as-

sociation and features and importance of those sectors and then conduct an
awareness class with power point presentation to the members of kudumbasree
units/residence association.
10. Make a comparative study of interest rate of deposits and loans provided by
scheduled banks and cooperative society, new generation banks and make a
power point presentation.
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11. Divide the students into groups and assign the targets of deposit mobilsation
from the following categories of society.
Group I-Visit a few agriculturists
Group II-Visit a few NRIs
Group III Visit some selected businessmen
Group IV Visit a few households
Group V-Visit some government employees.
Conduct a role play showing the strategies adopted for deposit canvasing from
the above categories.
12. You are the sales manager of XYZ bank. The zonal office gave you a target of
100 car loans for the coming year. Enlist the strategies or techniques to be
adopted for achieving the target.
Hint1 Select target group (may be active depositors, financially sound persons,
members of general public etc.)
Hint 2 Draft a notice specifying the features of the product.
Hint 3 Intimating the target group by sms, email or direct contact.
Hint 4 Analyze their responses
Hint 5 Direct contact with interested parties and to turn their desire into sales.
Hint 6 Making follow up.
13. Make a video album/photo album about various products of banks(deposits
and loans)to be presented in VHSE regional expo(15 Minutes)
14. Make a presentation for marketing of life/non-life insurance products
Hints- Use any of the presentation techniques such as videos/PPT’s etc.
Targets groups, features, product details etc.
15. Find the price variation of 10 shares of BSE and make a chart for 20 trading
days. Make a comparative study on the basis of safety, liquidity and profit-
ability of investing money in share market and in bank deposit.
16. Visit the nearby share broking firm and find the trading activities, and also
analyse and find out the ratio of savings and investment by individuals in share
market.
17. Prepare a chart showing the prerequisites of investing in financial securities.
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18. Draft a questionnaire (with open ended questions) before approaching a pro-
spective buyer for a life insurance product as part of need analysis
19 . Draft a telephonic script to fix an appointment with a businessman, as part of
marketing an insurance product.
20. Exploring the internet, collect data of market share of the following sectors and
prepare a bar diagram (using spread sheet)
1. Insurance Sector
2. Banking Sector
3. Hospitality
4. Information technology
5. Health care service
21. Exploring the internet, show sectorial distribution of GDP for 2015 of 10
developing countries as in the given format and prepare a note on importance
of Service Sector in GDP of our country
Sectorial Distribution of GDP for 2015
Nation Service sector Industry Agriculture
India
Pakistan
Srilanka
Malasia
22. Prepare pie diagrams by exploring data from internet about India’s GDP with
the share of Agriculture sector, Industry sector and Service sector in 2013,
2014 and 2015 and make a comparative study.
23. Conduct a survey and collect data on the topic on the prices of some products
and services in your locality and prepare a table. Make a study of pricing of
product and services. Example, price of soap and price of IT service provided
by local firm and a reputed international firm.
24. Conduct a survey and collect data of different products and services in your
locality and caegorise them on the basis of common features and prepare a
table.
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Reference Book
25. Make a collection of popular types of life policies marketed by LIC of India
and prepare an album.
Step 1.Collect the details from Insurance advisors/office/leaflets/news
paper/internet.
Step 2.Set an album containing the types of life policies.
Step 3.Present it in the class room.
26. Conduct a tele-calling show between a prospective customer and an insurance
salesman
Step 1:Select 2 students to conduct the show.
Step 2: Give them roles and ideas on the discussion between the two.
Step 3: The players enact their assigned roles.
Step 4: Students record the activities in the activity log.
27. Design and prepare an advertisement copy for a new life policy issued by
XYZ Co.
Steps- create advertisement copy including name and address of the
company, Logo, features of the product, etc.
29. Write a story board for a television advertisement for a new product issued by
LIC and present it in the class.
Step 1: Divide the students into four different group
Step 2. The groups makes a story board on the product.
Step 3. Present the advertisement in the class room
Step 4: Record the story board in the record book
30. Interview with a sales manager or sales executive/salesman to collect informa-
tion on various skills and qualities needed by an insurance marketing salesman.
Step1. Teacher helps the students to prepare a questionnaire/interview
sched ule.
Step2. The programme start with a welcome note by a student. The student
introduces the sales manager.
Step3. The sales manager talks about the skills and qualities required by a
salesman.
Step 4.Interaction between students and the sales manager.
124
Step 5.Students should present and note down the points.

Step 6. Students should present the skills and qualities.
31. Prepare model of a certificate of insurance, issued by ABC Ltd to Mr.Babu,
on insuring his motor car. (IT enabled)
32. Draft a renewal notice/letter issued by an insurance company remembering the
date of renewal.
33. Prepare a questionnaire for analyzing the attitude of public about the need of
insurance.
34. Conduct a survey on 25 neighbouring families of your school, to record their
attitude on the need of insurance by using the questionnaire prepared earlier.
REFERENCES
1. Services Marketing-Ravishankar-published by Excel books.
2. Service Marketing, Test and Cases-Ranjendra Nargundkar-Tata Mac Grawhill
publishing company, New Delhi.
3. Elements of Banking and Insurance-Jyotsana Sethi&Nishwan Bhatia-PHI
Learning.
4. Services Marketing- Vasanti Venugopal & Raghu V.N, Himalaya publishers.
5. Principles of Insurance- Dr. A.P Philip & Dr. M.D.Baby.
6. Life Insurance IC33-Insurance Institute of India.
7. General Insurance IC34-Insurance Institute of India.
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Vocational Higher Secondary

BANKING AND INSURANCE

State Council of Educational Research and Training (SCERT),

Viswambharan Nair.P. Latha.P.G.

Sreekumar.S. Kala J.Nair

State Council of Educational Research and Training (SCERT)

consumer protection. Today there are twenty-eight General Insurance Companies

MODULE IV : MARKETING OF BANKING AND

Meaning and Significance of Service Marketing

Unit 1: Introduction to insurance

2. Fundamental risk and Particular risk

Differentiate pure and speculative risk

Meaning and functions of Insurance

1. Reduces uncertainty of business losses: Uncertainties in business are

2. Increase efficiency: Business men get free from unnecessary botherations

3.1.7 Classification of Insurance (Types of Insurances)

Insurance may be broadly classified into two

Life Insurance Non-life Insurance

Life Insurance Non Life Insurance

Insurance of property Insurance of liability Insurance of Insurance of

1. Fire Insurance: Fire insurance is designed to provide financial protection against

5. Health Insurance: The term 'Health Insurance 'relates to a type of insurance

12. Crop Insurance : Crop insurance is bought by agricultural producers or farm-

Difference between Life and Non-life Insurance

INSURANCE AND WAGER

1.UTMOST GOOD FAITH

Non-disclosure of material facts may be either intentional or non-intentional.

Cash Payment Repair Replacement Reinstatement

Hint-Explore internet and collect incidents of photographs/videos of road accidents.

Financial & Non ................... ...................

5. "Insurance is not wager". State two comments to support this statement.

c. how the hazards can be assessed or known by the insurer?

Unit 2 : Underwriting and Insurance Documents

1. Assess the risk proposed based on a variety of factors

Lapse, revival and Surrender of Life insurance policy

After six months, revival is possible only by producing satisfactory evidence of

Unit 3: Insurance Claims

Learning Out comes

Meaning of Insurance Claims

Procedure of settlement of Death Claims

Documents required under Death claims Documents required for

Procedure of settlement of Non-life insurance claim

3. Investigation and Assessment of Claims

a. by the person who has sustained the injury

The duties and powers of the IRDA are:

3. Investment of insurance fund- Under this function premium on unexpired

(The above guidelines are subject to change from time to time)

Particulars Schedule Current Previous

Particulars Schedule Current Previous

FINAL ACCOUNTS OF GENERAL

Particulars Schedule Current Previous

Balance brought forward from

Particulars Schedule Current Previous

Particulars Schedule Current Previous

2. Prepare a chart showing examples of material facts and non-material facts to

18. Calculate monthly,Yearly,and Half Yearly premium

Hint- speech in English or in Malayalam.

5. Purchased furniture for Rs. 15,000, paid by cheque.

Unit 1: Introduction to Service Marketing

A service is an intangible product involving a deed performance or an effort that