General Insurance
We have seen that the process of insurance has four
elements
Asset
Risk
Risk pooling
Insurance contract
Let us now look at the various elements of the
insurance process in some detail.
The Asset
An asset may be defined as ‘anything that confers some benefit and has an
economic value to its owner’.
An asset must have the following features:
a) Economic value
An asset must have economic value. Value can arise in two ways.
a) Income generation: Asset may be productive and generate income.
b) Serving needs: An asset could also add value by satisfying one or a group of needs.
b) Scarcity and ownership
What about air and sunlight? Are they not assets?
The answer is ‘No’
c) Insurance of assets
In insurance we are interested in economic losses that arise from unexpected
and fortuitous events, not losses arising as a result of natural wear and tear.
Insurance provides protection only against financial losses arising from
unexpected events and not natural wear and tear, of assets due to usage
over time.
Documentation
Proposal forms
Risk assessment by insurer
Nature of questions in a proposal form
Role of intermediary
The intermediary has a responsibility towards both parties
i.e. insured and insurer
An agent or a broker, who acts as the intermediary between
the insurance company and the insured has the responsibility
to ensure all material information about the risk is provided
by the insured to insurer.
Underwriting: As per guidelines, the company has to process
the proposal within 15 days time. The agent is expected to
keep track of these timelines, follow up internally and
communicate with the prospect / insured as and when
required by way of customer service. This entire process of
scrutinizing the proposal and deciding about acceptance is
known as underwriting.
Cover Notes /Certificate of Insurance /
Policy Document
A cover note would incorporate the following:
a) Name and address of insured
b) Sum insured
c) Period of insurance
d) Risk covered
e) Rate and premium: if rate is not known, the provisional premium
f) Description of the risk covered: for example a fire cover note would indicate
identification particulars of the building, its construction and occupancy.
g) Serial number of the cover note
h) Date of issue
i) Validity of cover note is usually for a period of a fortnight and rarely up to 60
days
Cover notes are used predominantly in marine and motor classes of business.
Certificate of Insurance – Motor Insurance
A certificate of insurance provides existence of insurance in cases
where proof may be required. For instance in motor insurance, in
addition to the policy, a certificate of insurance is issued as required
by the Motor Vehicles Act. This certificate provides evidence of
insurance to the Police and Registration Authorities.
Policy Document
The policy is a formal document which provides an evidence of
the contract of insurance. This document has to be stamped in
accordance with the provisions of the Indian Stamp Act, 1899.
Warranties
A warranty is a condition expressly stated in the policy
which has to be literally complied with for validity of
the contract. Warranty is not a separate document. It is
part of both cover notes and policy document. It is a
condition precedent to the contract.
Endorsements
It is the practice of insurers to issue policies in a standard form;
covering certain perils and excluding certain others.
If certain terms and conditions of the policy need to be modified at
the time of issuance, it is done by setting out the amendments /
changes through a document called endorsement.
It is attached to the policy and forms part of it. The policy and the
endorsement together constitute the evidence of the contract.
Endorsements may also be issued during the currency of the policy to
record changes / amendments.
Whenever material information changes, the insured has to
advice the insurance company who will take note of this and
incorporate the same as part of the insurance contract through
the endorsement.
Underwriting basics
The amount of premium to be paid by each depends on a rate,
which is determined by two factors;
The probability of loss due to a loss event (caused by an insured peril)
and
The estimated amount of loss that may arise due to the loss event
The mean or average expected loss would then be given by: L x P
Definition
Underwriting is the process of determining whether a risk offered for
insurance is acceptable, and if so, at what rate, terms and conditions
the insurance cover will be accepted.
Basics…
Underwriting, in a technical sense, comprises the
following steps:
Assessment and evaluation of hazard and risk in terms of
frequency and severity of loss
Formulation of policy coverage and terms and conditions
Fixing of rates of premium
The underwriter firstly decides on whether or not to
accept the risk.
The next step would be to decide the rates, terms and
conditions under which the risk is to be accepted.
Underwriting, equity and business
sustainability
Since all risks are not equal, it would not be equitable to
ask all those who are to be insured, to pay equal
premium. The purpose of underwriting is to classify
risks so that, depending on their characteristics and
degree of risk posed, an appropriate rate of premium
may be levied.
The main features of underwriting are as follows
To identify risk based upon the characteristics
To determine the level of risk presented by the proposer
To ensure that the insurance business is conducted on sound lines
Ratemaking basics
A rate is the price of a given unit of insurance.
Premium = (Sum Insured) x (rate)
Sources of information for
underwriting
Sources of information are:
Proposal form or underwriting presentation
Risk surveys
Historic claims experience data
Hazard
The term hazard in insurance language refers to those
conditions or features or characteristics which create or
increase the chance of loss arising from a given peril. A
thorough knowledge of various hazards to which property
and persons are exposed is most essential for
underwriting.
Hazards can be classified into physical and moral. Physical
hazard refers to the risk arising from material features of
the subject matter of insurance, whereas moral hazard
may arise from human weakness
Methods to deal with physical hazards
Loading of premium
Applying warranties on the policy
Applying certain clauses
Imposition of excess/ deductibles
Restricting the cover granted
Declinature of cover
Sum Insured
It’s the maximum amount that an insurance company will
indemnify as per policy condition. An insured has to be very
careful in choosing the limit of indemnity, for that is the
maximum amount that would be reimbursed at the time of
claim.
The sum insured is always fixed by the insured and is the
limit of liability under the policy. It is an amount on which
rate is applied to arrive at the premium under the policy.
It should be representative of the actual value of the
property. If there is over insurance, no benefit accrues to
the insured and in case of under insurance, the claim gets
proportionately reduced.
PERSONAL AND RETAIL
INSURANCE
PERSONAL AND RETAIL INSURANCE
A. Householder’s Insurance
B. Shopkeeper’s Insurance
C. Motor Insurance
COMMERCIAL INSURANCE
COMMERCIAL INSURANCE
A. Property / Fire Insurance
B. Business Interruption Insurance
C. Burglary Insurance
D. Money Insurance
E. Fidelity Guarantee Insurance
F. Bankers Indemnity Insurance
G. Jewelers’ Block Policy
H. Engineering Insurance
I. Industrial All Risks Insurance
J. Marine Insurance
K. Liability policies
CLAIMS PROCEDURE
Claims settlement process
Importance of settling claims
Promptness, Professionalism
Intimation or Notice of Loss
Investigation and assessment
Surveyors and Loss Assessors
Claim forms
Loss Assessment and Claim settlement
Disputes related to claims
Thank You…!!