Professional Documents
Culture Documents
Exam Style
z Duration = 2 hrs
z Total Marks = 140
z Passing Marks = 50% = 70
z Negative marking = 20% of the assigned
marks to question
z Results = graded (A = 75%+, B = 60 to 75%, C
= 50 to 60%)
z Examination = Objective / multiple choice
Planning
z How to attempt the paper – which Section to
start with
z Negative marking – treading carefully
z Double check – specially for numerical
questions
z Elimination – arrive at right choice by
eliminating the wrong ones
z Time Management
z Using calculator or excel
Weightage
z Risk Management – 15%
z Insurance Concepts – 15%
z Insurance Policies & Strategies – 50%
z Environment of an Insurance Advisor – 20%
Time Management
z Available Time – 21 hrs over 7 sessions
z Time Management
Session 1 – Ch 1 to 3
Session 2 – Ch 4 to 6
Session 3 – Ch 7 to 9
Session 4 – Ch 10 to 13
Session 5 – Revision & ques. solving
Session 6 – Revision & ques. Solving
Session 7 – Revision & ques. Solving
Risk Management
z Systematic approach to the problem of
handling pure risks faced by individuals
or business
z Six-step process
z Step 1 - Establish risk mgmt objective
• pre loss objective
• post loss objective
Risk Management
z Step 3- Analyse information to identify,
measure & evaluate risk
z identify thru discussion, physical observation, fact-
finding sheet, current cover
z measuring loss grievousness and chance of event
occurring
z measuring personal risk, property risk (thru actual
cash value = replacement cost-depreciation)
z measuring liability risk
z 3rd is evaluate the risk – worst case possible (total)
loss and worst case probable (likely) loss
Risk Management
z Step 5 - Implement risk mgmt plan
z Risk avoidance by
• elimination (re-deployment of accident prone
employee)
• substitution (harmful food preservative with a
safer version)
• separation (separating potential dangerous
activities) and
• rational planning (have more than one source
of supply)
Risk Management
z Step 6 - Monitor & revise risk
management plan
z continuous monitoring
z periodic reviews
Principles of Insurance
Utmost Good Faith
z Flows from requirement of contractual arrangement
z Contract defined as agreement between 2 or more parties
to do or to abstain from doing an act.
z Agreement designed to have legal consequences.
z Simple contract should have following elements in order to
be enforceable:
• intention to create legal relations
• offer & acceptance
• consideration
• capacity to contract
• certainty of terms
• consensus ad idem (genuine meeting of minds)
• legality of purpose
• possibility of performance
Insurable Interest
z All risks are not insurable
z Certain characteristics for being insurable
• financial measurement
• sufficient no. of similar risks for rating
• pure and particular risk (certain fundamental also
qualify)
• occurrence of insured event should not be against
public policy
• premium has to be reasonable
• insurable interest should be present (fundamental &
important principle)
Insurable Interest
z Features
• There must be some property or potential liability
capable of being insured
• This property or liability must be the subject matter
• Insured should have relationship with subject matter
whereby he benefits from its safety and prejudiced by
its loss
• Relationship between insured and subject matter must
be recognized by law
Indemnity
z Definition
• Protection or security against damage or loss or security
against legal responsibility
• Mechanism by which insurers provide financial
compensation to place the insured in the same pecuniary
position after the loss as enjoyed immediately before it.
• Since the subject matter that is insured is the insured’
interest, the indemnity cannot exceed the extent of his
interest.
• All policies are strictly on the principle of indemnity
• The insured cannot make a profit out of his loss or gain
any benefit / advantage
• The measure of indemnity for loss of or damage to
property is generally the intrinsic market value of the
property at the place and time of loss
• Exceptions are life, accident, agreed value policies
(marine, art, etc.)
Corollaries of Indemnity
Contribution
z right of insurers who have paid a loss under a
policy to recover proportionate amount from
other insurers who are liable for same loss
z common law principle allows the insured to
recover his full loss within SI from any insurer
he likes
z however, in some policies like fire, accident
(for medical, weekly expenses) contain
condition that the insurer is liable only for
proportionate loss
Proximate cause
z Need for Doctrine
• If loss is due to 2 or more causes, operating
simultaneously or one after the other,
• Necessary to ascertain the proximate cause which
brought about the loss
• e.g. During war, an army officer visiting sentries
posted along the railway line was killed by a passing
train. Policy excluded death / injury ‘directly or
indirectly caused by war, etc.’
• Proximate cause – Passing of train, Indirect cause -
War
• Claim – Payable / Unpayable
Proximate cause
z Practical Application of Doctrine
z Single Cause
z Concurrent Causes
• where no excepted peril involved – liability under
policy
• when an insured & excepted peril operate together –
claim outside policy scope
• if operation of insured peril can be separated from
effects of excluded peril, there is liability
Proximate cause
z Some examples
• An incendiary bomb dropped by enemy aircraft set fire
to a warehouse. The loss was caused by fire, but the
proximate cause was enemy action. (Held - War is
excluded peril).
• Thieves took advantage of a blackout during air raid
(Held – War was not proximate cause)
• Captain lost course and took ship inshore to pick out a
lighthouse. Due to hostilities, light was out & ship ran
aground. (Held – Hostilities was too remote, proximate
cause – bad seamanship)
Business of insurance
z is to bring together persons of common
interest (sharing the same risks)
z collecting the share or contribution from
all of them (called premium)
z and paying out compensation to those to
suffer (called claims)
z Insurer is a Trustee
Need Analysis-III
Liability Risks Exposure
Authority of Agent
z by express authority or stipulated authority is that which is
specifically granted to the agent either orally or in writing
z implied authority is incidental to make express authority
meaningful
z Apparent authority or ostensible authority is a perceived
authority and based on the principle of estoppel. Arises
when a third party believes that the agent is vested with
some authority because of circumstances created by the
principal. Action of agent is binding on the principal.
Negligence
z Contributory negligence
• based on the idea that every person has a duty to look
after his own safety and hence cannot blame others
for the damages resulting from his or her personal
negligence.
z Professional negligence
• law imposes an implied duty of care on a professional
because his public claim to have a special skill is a
representation to everyone that they can rely on that
ability and skill to get a certain job done satisfactorily
and within reason.
Premium Pricing
z For Life Insurance, 3 components
• Expenses / costs
• Mortality
• Interest / Benefits / Investment
z Mortality - the proportion of deaths to
population
z Mortality Table - an actuarial table based on
mortality statistics over a number of years
z Morbidity - the relative incidence of disease
z Actuary - a person who calculates insurance
and annuity premiums, reserves, and dividends
Non-Life products
z Tariff / Non-Tariff
z TAC – Tariff Advisory Committee
z Chairman (IRDA chairman), Vice-
Chairman (Sr. IRDA member), 10 Indian
& 4 Non-Indian insurer representatives
z www.tac.org.in
Some Terms
z Cover Note – issued in advance of policy – not stamped
z Certificate of Insurance – issued in addition to policy – Motor,
Marine
z Endorsements – sets out modifications in terms & conditions
of policy which is issued in standard form
z Renewal Notice – no legal obligation on part of insurers to
advise.
z Claim Form – to elicit full information about the loss
z Survey Report – information / details about claim submitted
by surveyors / loss assessors
z Policy cancellation – Short period / Pro-rata
Terms…
z Co-insurance -
• In India, it is sharing of a risk by agreeing to share the premium and
also partake in the loss at a fixed proportion. Lead insurer is
appointed.
• abroad – sharing agreement between insured & insurer whereby both
share covered costs after deductible in a pre-determined percentage.
z Co-pay - insured pays a specified amount while the remaining is borne
by insurer
z Retroactive date - A date stipulated in a claims-made liability policy
as the first date from which incidents covered by the policy. Is
designed to provide coverage for claims resulting from incidents that
take place prior to the current but continuous policy term. Renewal
claims-made policies usually have the retroactive date of the first
policy issued to the insured. When this is not done, there is a gap in
coverage.
z Claims-made policy - provides coverage for a claim if first reported or
filed during the policy period.
z Occurrence based policy – liability policy for claims arising out of
incidents that occur during the policy period, regardless of whether the
policy is still in effect at the time the claim is made. Losses to be
reported during ‘discovery period’.
Life Terms
z Mortality Table or Actuarial Table
z Morbidity Table
z Life Expectancy - statistical measure of the average
length of survival of a living thing
z Longevity - is the length of a person's life (Life
Expectancy)
z Premium Construction (mortality, interest, expense)
z Net Premium (age, gender, benefits, mortality, interest
rate)
z Gross Premium (add expenses – which change with
premium rate, amount of insurance and constant for all
contracts)
z For GI premium, net is without commission, gross is with
commission
Reinsurance Terms
z Re-insurance – transfer of risk from insurer to re-insurer
z Re-insurer – risk assuming insurer
z Cedent – ceding insurer
z Cession – insurance coverage transferred to re-insurer by
cedent
z Retrocession – transfer of re-insurance to another re-
insurer
z Retention – amount of risk kept of cedent’s own account
z Methods of Reinsurance – Facultative (transfer of
individual risks), Treaty (transfer of all risks in a class of
business)
Types of Insurance
z Engineering
z Property & Casualty
z Accident & Health
z Liability
z Specialised
z Individual & Group
Fire Insurance
z Fire Peril excludes damage caused by own fermentation,
heating process, burning of property by public authority
z Add-ons – EQ, Terrorism
z Condition of Average-
Property Value – Rs.2,00,000
Sum Insured – Rs.1,50,000
Under insurance – Rs.50,000 (SI-Value)
= UI / Value = 25%
IAR – for risks with SI (MD) > 100 crores in 1 or more
locations
Mega Risk – PML > 1054 cr or SI > 10,000 cr at one
location
Marine Insurance
z Oldest branch – covers hull & cargo
z Insurable interest – only at time of loss
z ICC – Institute Cargo Clauses by ILU
z ICC ‘C’ – jettison, general avg sacrifice, port of distress
discharge, collision / sinking of vessel, fire or explosion
z ICC ‘B’ – ICC ‘C’ + EQ, LOB / WOB, entry of water, while
loading / unloading
z ICC ‘A’ – All Risks (War, SRCC at extra)
z ICC (Air) – All Risks
z Inland Transit (Rail/Road) Clause ‘C’, ‘B’, ‘A’
z Open Policy / Open Cover
Motor Insurance
z Loss or damage to your vehicle: The policy covers you against any loss or
damage caused to the vehicle or it’s accessories due to the following natural and
man made calamities.
• Natural Calamities – Fire, explosion, self-ignition or lightning, earthquake,
flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost,
landslide, rockslide.
• Man made Calamities – Burglary, theft, riot, strike, malicious act, accident by
external means, terrorist activity, any damage in transit by road, rail, inland
waterway, lift, elevator or air.
z IDV – Insured’s Declared Value. The rates of the vehicle and its parts are subject
to depreciation as per the schedule provided by the Indian Motor Tariff.
z Personal accident cover: The motor insurance provides compulsory personal
accident cover for individual owners of the vehicle while driving. You can also opt for
a personal accident cover for passengers.
z Third party legal liability: This protects you against legal liability arising due to
accidental damages
• Any permanent injury/ death of a person (Unlimited)
• Any damage caused to the property (Rs.7.5lacs-4 wheeler, Rs.1lac-2 wheeler)
Motor Insurance
z Sum Insured
z The vehicles are insured at a fixed value called the Insured’s Declared Value (IDV).
IDV is calculated on the basis of the manufacturer’s listed selling price of the vehicle
(plus the listed price of any accessories) after deducting the depreciation for every
year as per the schedule provided by the Indian Motor Tariff.
z If the price of any electrical and / or electronic item installed in the vehicle is not
included in the manufacturer’s listed selling price, then the actual value (after
depreciation) of this item can be added to the sum insured over and above the IDV.
z Policy Exclusions - Under this policy, you are not covered against -
z Normal wear, tear and general aging of the vehicle
z Depreciation or any consequential loss
z Mechanical/ electrical breakdown
z Wear and tear of consumables like tyres and tubes
z Vehicle being used otherwise than in accordance with limitations as to use
z Damage to/ by a person driving the vehicle without a valid license
z Damage to/ by a person driving the vehicle under the influence of drugs or liquor
z Loss/ damage due to war, mutiny or nuclear risk
z Solatium Scheme – scheme for compensation to ‘hit & run’ motor accident victims.
RS.25,000 for death and Rs.12,500 for grievous hurt
Condition of average
z Comes into effect in case of claims settlement when there is
under-insurance
z Insured has to bear portion of loss (to the extent of under-
insurance) on his own a/c
z In case of Total Loss, claim amount payable is SI or RV / MV
whichever is less
z Formula:
• Sum Insured / Value x loss
z Claims Settlement if Indemnity is on Reinstatement Value basis
property value = Rs.2 lacs
sum insured = Rs.1.50 lacs
• Loss = 50,000, claim payable = 37,500
• Loss = 1 lac, claim payable = 75,000
• Loss = 1.50 lac, claim payable = 1,12,500
• Loss = 1.75 lac, claim payable = 1,31,250
• Loss = 2.00 lac, claim payable = 1,50,000
Rural Insurance
z LALGI - Landless Agricultural Labourers Group Insurance Scheme
• Premium borne by GOI.
• SA – Rs.2,000 for both ND & AD
z IRDP – Integrated Rural Development Programme
• Premium borne by GOI
• SA – Rs.5,000 (ND), Rs.10,000 (AD)
z Jan Shree Bima Yojana
• Premium paid thru Nodal Agency (State Govt. Dept.) & Social Security Fund of LIC
• Minimum group size - 25
• SA – Rs.20,000 (ND), Rs.50,000 (AD)
z Krishi Shramik Samajik Suraksha Yojana
• Object of scheme is to provide life insurance protection, periodical lump sum survival
benefit and pension to the agricultural workers
• Premium paid thru Nodal Agency (Gram Panchayat) & Social Security Fund of LIC
• Minimum group size - 20
• SA – Rs.20,000 (ND), Rs.50,000 (AD)
z PASS – Personal Accident Social Security Scheme
• RS.3,000 paid on earning member’s accidental death
Group Schemes
z Group Gratuity Scheme
• Under the Payment of Gratuity Act, 1972, it is employer’s statutory
liability to pay 15 days salary (15/26 of a month's wages) for every
completed year’s service to each of his employees on their exit, for
any reason after five years of continuous service, subject to maximum
limit of 3.5 lacs.
• Higher benefits can be paid if the employer so desires.
• Employers can fund this liability through a scheme managed by Life
Cos.
z Group Superannuation Scheme
• Can also be called a Pension scheme and seeks to provide pension
benefits to employees (not obligatory on the part of employer to
provide for pension).
• Mostly the employer contributes, but both employer and employees
can also contribute, in which case the scheme is called a Contributory
Pension Fund Scheme.
• The maximum annual contribution that an employer can make to the
Pension Fund and Provident Fund is restricted by the Income Tax
Provisions to 27% of the annual salary (basic plus D.A.)
Overseas Travel
Features ) Policy covers persons undertaking overseas travel and provides for
emergency medical expenses, compensation for personal accident,
repatriation / evacuation, travel related losses like checked baggage
loss, loss of passport, personal liabilities, etc.
) For individuals, policies typically cover per trip duration or multi trips
during annual period (with restriction on no. of days per trip & per year)
) For corporates, group policies can cover group travel or frequent
travelers for actual no. of days traveled.
Scope of Cover Some available sections-
9 Medical Expenses
9 Dental Treatment
9 Loss of Passport
9 Total / Partial loss of checked in Baggage
9 Personal Accident
9 Personal Liability
9 Daily Allowance in case of Hospitalization
9 Financial Emergency Assistance
9 Hijack Distress Allowance
9 Trip Delay
9 Trip Cancellation & Interruption
9 Missed Connections
9 Compassionate Visit
9 Home Burglary Insurance
Min / Max Age 0.5 to 70 yrs. Beyond 70yrs on case-to-case basis with medicals.
Cover Extensions y Cover extension for treatment upon return to India on service provider’s
advice is built-in.
y Cover extension for specified period on account of uncontrollable
reasons of insured is built-in.
y Policies extensions beyond normal period can be made on paying extra
premium & Co. permission.
Exclusions , Pre-existing health conditions.
, Other sectional exclusions / deductible / excess will be in terms of
amount or time.
Sum Insured Only Standard SI available – typically USD50,000; USD1,00,000;
USD2,50,000; USD5,00,000
Bonus The sum payable is increased by 5% for each claim free year up to a
maximum of 50%.
Discount / Discounts available for Groups, Corporate policies-depending on no. of
Loading travel dates.
Premium Depends on -
- Age
- No. of travel days
- Geographical region (like Asia, World excluding & including North
America)
- Sum Insured / package opted
Group Policy Can be taken for Groups, Corporates with frequent fliers.
Also individuals with frequent overseas travel can take an Annual policy
covering multiple trips instead of per trip cover.
Who can take Individuals, families, groups / corporates
Shopkeepers Package
Features Package policy of various sections which covers property / contents /
liability of the Shop-owner against various perils.
Scope of Cover Commonly available covers
Section I: Fire and Allied Perils
Section II: Burglary and Housebreaking
Section III: Electrical and Mechanical Appliances Breakdown
Section IV: Electronic Equipments
Section V: Money Insurance
Section VI: Fixed Plate Glass / Sanitary fittings
Section VII: Baggage
Section VIII: Signboard
Section IX: Personal Accident
Section X: Fidelity insurance
Section XI: Legal Liability
Insurance Ombudsman
z created w.e.f. 11-11-1998
z Purpose - quick disposal / mitigation of grievances of the
insured
z Appointed by governing body of insurance council - on
recommendations of the committee comprising of IRDA
Chairman, LIC Chairman, GIC Chairman and Central Govt.
representative.
z Ombudsman are drawn from Insurance Industry, Civil
Services and Judicial Services.
z Appointed for a term of three years or till the incumbent
attains the age of sixty five years, whichever is earlier.
Reappointment is not permitted.
z Territorial jurisdiction – 12 Ombudsman across the country
allotting them different geographical areas as their areas of
jurisdiction.
Insurance Ombudsman
z Manner of lodging complaint
z The complaint by an aggrieved person has to be in writing, and
addressed to the insurance Ombudsman of the jurisdiction under
which the office of the insurer falls. The complaint can also be
lodged by the legal heirs of the insured. Before lodging a complaint:
• i) the complainant should have made a representation to
the insurer named in the complaint and the insurer either
should have rejected the complaint or the complainant
have not received any reply within a period of one month
after the concerned insurer has received his complaint or
he is not satisfied with the reply of the insurer.
• ii) The complaint is not made later than one year after the
insurer had replied.
• iii) The same complaint on the subject should not be
pending with before any court, consumer forum or
arbitrator.
At a Glance
Risk Situation in which outcome is uncertain and unfavourable.
Peril defined as cause of loss
Hazard condition that creates or increases probability of loss.
3 types – Physical, Moral, Morale
Principles of 1. Utmost Good Faith
Insurance 2. Insurable Interest
3. Indemnity
Subrogation (Corollary)
Contribution (Corollary)
4. Proximate Cause
Principle of Protects a party from suffering detrimentally if the other party
Estoppel does or says something to induce an expectation. e.g. insurer
providing receipt books is liable for agent’s actions.
Crime Public wrong – State is Prosecutor
Tort Private wrong – Civil action taken by aggrieved party
Aleatory contract Value exchanged is not equal. Premium v/s Sum Assured
Contract of No negotiation between the parties - insured has to accept the
adhesion contract in toto from the insurer
Thumb Rules