INSURANCE SERVICES

INSURANCE SERVICES Insurance is a contract in which the insurer (insurance co.) agrees / undertakes, in considerations of a sum of money (premium), to make good the loss suffered by the insured against a specified risk such as fire and any other similar contingency or compensate the insured / beneficiaries on the specified risk such as fire and other similar contingency or compensate the insured / beneficiaries on the happening of a specified event such as accident or death.

exam impor Principles of Insurance

Principle Of Utmost Good Faith Principle Of Insurable Interest Principle Of Indemnity Principle Of Causa Proxima Principle Of Subrogation Principle of Mitigation of Loss

INSURANCE ACT ,1938 Any type of insurance business in India can be carried out only by : A public company A cooperative society An insurance cooperative society , having paid up capital of Rs 1000 crores, whose sole purpose is to carry on insurance business in India. After the enactment of IRDA Act 1999 ,only Indian insurance companies are permitted to carry on business. Promoters Holding [ Sec 6 - AA , IRDA 1999 ] Promoters cannot hold more than 26%,or such other % as may be prescribed, of the paid-up equity capital in an Indian insurance company They should divest in a phased manner, the excess capital within such period as prescribed by the government. In case of foreign companies as promoters , not more than 26% paid up equity capital and whose sole purpose is to carry on life / general / reinsurance business.

Registration [ Sec 3 , IRDA 1999 ] Registration with IRDA is mandatory. The application should be accompanied by the following: A certified copy of MOA and AOA Name , address and occupation of directors A statement of class (es) - of insurance business done / to be done Statement of deposit with RBI The certificate showing the amount deposited A declaration verified by an affidavit by the principal officer of the insurer that the requirement of paid-up capital : Rs 100 cr : for life / general and Rs 200 cr : for reinsurance business A certified copy of (i) published prospectus , if any (ii) standard policy form of the insurer and (iii) statement of assured rates, advantages, terms and conditions to be offered in connection with insurance policies. The receipt showing payment of fee as determined by IRDA regulations for each class of business Any other document as specified by IRDA

Renewal of Registration [ Sec 3- A , IRDA 1999 ] Certificate of registration should be renewed every year Application for which should be made to IRDA before Dec.31 of the preceding year

Deposits [ Sec 7 , IRDA 1999 ] The deposit can be in cash / approved securities. Life business : 1% of total gross premium not exceeding Rs 10 cr within India in any financial year . General business : 3% of total gross premium not exceeding Rs 10 cr within India in any f. yr . Reinsurance business : Rs 20 cr. Marine insurance (exclusively to country craft or its cargo or both) : Rs1 lakh Cooperative Life Insurance Companies : Rs 2 lakhs The deposits would be deemed to be part of the assets of the insurer , but not be susceptible to any assignment / charge. If any part of the deposit is used in the discharge of any liability of the insurer , the deficiency should be supplied within 2 months to make up the amount so used. If an insurer ceases to carry on in India all classes of insurance business and all his liabilities have been satisfied / provided for , the court may order the return of the deposit.

Approved Securities mean (i) government / government guaranteed securities (ii) debentures / other securities issued under central / state action by port trust, municipal corporations, city improvement trust and (iii) shares of a corporation fully guaranteed by central / state government

Investment of Assets [ Sec 27, 27- A (1), 27- B , IRDA 1999 ] 25 % in govt securities Not less than 25 % in other govt. approved securities The balance in approved investments as specified in Sec 27-A (1) Approved Investments [ Sec 27- A (1) ; 27- B ; 27- D ] Securities of, or guaranteed by the Govt of UK Debentures or other securities issued with the permission of central govt., state govt., Act of State Legislature Immovable property situated in India Preference share of any company which has paid dividends on its ordinary shares for the 5 years immediately preceding to the current year. Fixed deposits with banks or cooperative societies Debentures of or shares in cooperative societies The funds of the policy-holders are prohibited from being directly / indirectly invested outside India.

Insurance Business in Rural / Social Sector [ Sec. 32 B ] Rural Sector A place with population not more than 5,000 Density of population not more than 400 per sq. km. Atleast 75% of male working population is engaged in agricultural pursuits as : **Cultivators **Agricultural laborers **Workers in live stock , forestry ,plantation , orchards etc Life Insurer : Of the total policies written in that year : I st financial year : 7% 2 nd financial year : 9% 3 rd financial year : 12 % 4 rth financial year : 14 % 5 th financial year : 16 % General Insurer : First 2 years should be 2 % and 3 % respectively and thereafter 3% of total gross premium income in that year.

Social Sector Unorganized sector Informal sector ; Economically vulnerable sector / backward classes Other categories of workers Guardians who need insurance to protect persons with disability Bidi workers , carpenters , cobblers , artisans , physically disabled self employed persons , washer men , person running a repairs outlet , rickshaw puller , vegetable vendors etc. All insurers are obliged to insure 5,7,10,15, and 20 thousand lives in the first 5 fin.al years respectively.

Insurance Agents An insurance agent is a licensed agent with the IRDA who receives / agrees to receive payment by way of commission / other remuneration in consideration of his soliciting / procuring insurance business, including continuance, renewal or revival of policies .

Code of Conduct Every insurance agent should : Identify himself with an insurance company Disseminate the requisite information in respect of insurance products offered for sale by his insurer and take into account the needs of the prospects while recommending a specific insurance plan Indicate the premium to be charged by the insurer for the insurance product offered for sale Explain to the prospect the nature of information required in the proposal form by the insurer and also the importance of disclosure of material information

 Bring to the notice of the insurer any adverse habit or income inconsistency of the prospect, in the form of a report Inform promptly the prospect about the acceptance or rejection of the proposal by the insurer Obtain the required documents at the time of filing the proposal form Render the necessary assistance to the policyholders or claimants or beneficiaries in complying with the requirements for the settlement of claims by the insurers Advise every individual policyholder to effect nomination
No Insurance agent should : Procure insurance without holding a valid license Induce the prospect to omit any material information in the proposal form Induce the prospect to submit wrong information or documents Behave in a discourteous manner with the prospect Interfere with any proposal introduced by any other agent Offer different rates , advantages , terms and conditions other than those offered by his insurer Demand or receive a share of proceeds from the beneficiary under the contract On cancellation of license , applies for a fresh license before the lapse of 5 year from the date of such cancellation

INSURANCE BROKERS Direct Brokers Carries out the functions specified below in the field of general / life insurance :
Obtain detailed information of the client's business and risk mgt philosophy Rendering advice on appropriate insurance cover and terms Detailed knowledge about the insurance market Submitting quotations to the client for consideration Acting promptly on instruction of clients Assisting client in paying premiums Providing services related to insurance consultancy and risk management Assisting in the settling of claims Maintaining proper record of claims

Re- Insurance Brokers Is one who arranges reinsurance for direct insurers with insurance and reinsurance companies. His function includes the following : Familiarizing himself with the client's business and risk retention philosophy Maintaining record of the insurer's business to assist the re-insurer Rendering advice based on technical data on the re-insurance covers available in the international insurance and re-insurance markets Maintaining data base of available reinsurance markets , including solvency rating of individual re-insurers Rendering consultancy and risk management services for reinsurance Selecting and recommending a re-insurer or a group of re-insurers Negotiating with a re-insurer on the client's behalf Assisting in finalizing the reinsurance contract ,payment of premium and settlement of claims if any

Composite Brokers An insurance broker who arranges insurance for the clients with the insurance companies and / or reinsurance for his clients. He performs the function of both the direct broker as well as the re-insurance broker Grant of License An insurance broker should obtain a license from IRDA. Meet following capital requirement : Direct broker : Rs 50 lakh Reinsurance broker : Rs 200 lakh Composite broker :Rs 250 lakh Fulfills the following deposit requirements; A sum equivalent to 20% of the initial capital in fixed deposit with a bank to be released only with a prior permission of IRDA. IRDA may fix this deposit limit.

Third party Administrator (TPAs)

They are licensed by IRDA for the provision of health cover. Are the middlemen in the health delivery chain, which links physician, hospitals, clinics and diagnostic centres. In USA most insurance companies have their own TPAs, while in India TPAs are separate external entities. These TPAs serve more than one insurer at a time. TPAs get a license for more than 3 years then they have to get it renewed. IRDA has set up the minimum paid up capital of Rs 1 crore for TPAs.

Surveyors and Loss Assessors Claims of loss amounting to Rs 20,000 or more can be admitted by an insurer payment or settled only after obtaining a report from an approved surveyor / loss assessor holding a license from IRDA. In case of a claim of less than Rs 20,000 in value on any policy of insurance , an insurer can employ a surveyor / loss assessor other than an approved one for surveying such loss on payment of remuneration as thought fit.

Licensing of Surveyors / Loss Assessors Must obtain a license from IRDA .The license is valid for 5 years and renewed for 5 years at one time against payment as specified by the IRDA. DUTIES AND RESPONSIBILITIES Estimate , measure and determine the quantum and description of the subject under loss nature of ownership and insurable interest. Conduct spot and final survey , as and when necessary ,and comment upon excess / under insurance and any other related matter Examine , inquire , investigate , verify and check upon the causes and the circumstances of the loss in question also the extent of loss . Advise the insurer and the insured about the loss minimization , loss control , security and safety measures , wherever appropriate , to avoid further losses Comment on the admissibility of the loss as also observance of warranty conditions under the policy contract Assess the loss on behalf of the insurer Give reasons for denial of claim , incase the claim is not covered by policy terms and conditions Comment on its disposal and salvage value A surveyor / loss assessor should submit his report to the insurer as expeditiously as possible , but not later than 30 days of his appointment.

ACTUARY DUTIES AND OBLIGATIONS In the interest of the insurance industry and the policyholders , the duties and obligations of an appointed actuary of an insurer include : Render advice regarding product design , pricing , insurance contract wording , investments and re-insurance Ensure the solvency of the insurer at all times Comply with provisions of Insurance Act regarding maintenance of required solvency margins Comply with provisions of Insurance Act regarding certification of the assets and liabilities Draw attention of the management towards important issues to avoid (i) any contravention of the Insurance Act (ii) prejudice to the interests of the policyholders Comply with IRDA directions from time to time Ensure that all requisite records have been made available to him/ her for the purpose of conducting actuarial valuation of assets and liabilities Ensure that the premium rates of the insurance products are fair To certify that necessary reserves have been determined as per the norms of Actuarial society of India and IRDA Ensure that the policyholders` reasonable expectations have been considered in the matter of valuation of liabilities and distribution of surplus to the participating policyholders , who are entitled to a share of the surplus

Risks Management in Insurance Business Risks Management is a process of planning, organizing, directing and controlling the resources and activities of an organization in order to minimize the adverse effects of potential losses at the least possible cost. Risk in Insurance Business:Portfolio risk Solvency risk Marketing risk Market risk Operational risk