Amity School of Insurance, Banking and Actuarial Science
INTRODUCTION TO MOTOR
INSURANCE
MODULE 6
Amity School of Insurance, Banking and Actuarial Science
UNDERWRITING
LEARNING OBJECTIVES / OUTCOME
Amity School of Insurance, Banking and Actuarial Science
At the end of this session, you will be able to know and understand:
• Underwriting;
• Functions of Underwriter;
• Underwriting Documents;
• Prudent Underwriting.
UNDERWRITING
Amity School of Insurance, Banking and Actuarial Science
• Insurance underwriting is the process of classification, rating, and selection of
risks. In simpler terms, it's a risk selection process.
• This process consists of evaluating information and resources to determine how an
individual will be classified (whether a standard or substandard risk).
• After this procedure is completed, the policy is rated in terms of the premium that
the applicant will be charged
• The underwriter's job is to use all the information gathered from numerous sources
to determine whether or not to accept a particular applicant.
FUNCTIONS OF UNDERWRITER
Amity School of Insurance, Banking and Actuarial Science
The underwriter's primary function is
1) study insurance proposals;
2) gather and assess background information, including reports and medical records
from specialists where appropriate, in order to effectively assess the risk involved;
3) to protect the insurance company insofar as is possible against adverse selection
(very poor risks) and those parties who may have fraudulent intent.
4) calculate possible risk and decide how much individuals or organisations should
pay for insurance (the premium);
5) decide whether the risk should be shared with a reinsurer;
6) negotiate terms with policyholders or their brokers and draw up contracts;
FUNCTIONS OF UNDERWRITER
Amity School of Insurance, Banking and Actuarial Science
7) ensure that premiums are competitive and that accounts remain profitable;
8) specify conditions to be imposed on different types of policies, for example, asking
that a property owner install a security alarm;
9) write policies and help with policy wording;
10) keep detailed and accurate records of policies underwritten and decisions made.
DOCUMENTS
Amity School of Insurance, Banking and Actuarial Science
1. Proposal Form : PF is the most important and basic document required for
insurance contract between the insured and insurance company. A proposal form
seeks basic information about the proposer and the vehicle to be insured.
a) Particulars about the proposer;
b) Details of vehicle to be insured;
c) Details of other vehicles owned;
d) Details of insurance history;
e) Previous claims;
f) Extra benefits;
g) Declaration.
h) Signatures
DOCUMENTS
Amity School of Insurance, Banking and Actuarial Science
2. Cover note: A note written by an agent notifying the insured that his or
her coverage has taken effect. The policy normally takes few days, as it has to
be processed by the company. It is a summary document issued by an insurer as
an interim cover for the period before a formal insurance policy is issued.
3. Certificate of Insurance: Certificate of insurance is a document issued by the
insurance company as an evidence of the insurance. The certificate is not a
substitute for the actual policy, and is normally a non-negotiable document which
cannot be assigned to a third party. It is also unacceptable under the terms of a
letter of credit and in making claims.
Contents of the Certificate of Insurance are us under:
a) certificate number;
b) description of the vehicle
DOCUMENTS
Amity School of Insurance, Banking and Actuarial Science
a) commencement & expiry dates of insurance;
b) classes of persons entitled to drive;
c) limitations as to use;
d) authenticity by from an authorized representative of Insurer that this doc.
has been issued in accordance with [Link]-1988
e) signature.
*In case of lost or destroyed certificate, a duplicate certificate to be issued by
charges of Rs.50
DOCUMENTS
Amity School of Insurance, Banking and Actuarial Science
4. Policy: is the legal document issued by an insurance company to a policyholder,
which outlines the conditions and terms of the insurance. Policy is the written
contract effecting insurance including all clause, endorsements, and papers
attached thereto.
POLICY - SCHEDULE
Amity School of Insurance, Banking and Actuarial Science
Some of the salient information contained in the Schedule of the policy are :
a. Policy Number, name and address of the insured, his business or profession.
b. Geographical Area.
c. Details of the insured car, viz ; Registration mark & number, make of vehicle,
type of body, cubic capacity, year of manufacture, seating capacity including
driver, insured estimate of value (i.e. IEV) Chassis and Engine numbers.
d. IDV
e. Limitation as to use
POLICY – SCHEDULE ( PREMIUM DISPLAY)
Own Damage Rs. Liability Rs.
Basic Premium on Veh.& Acce. --- Basic prem. ---
Elec.& Electronic @ 4% --- For TPPD ---
CNG, LPG --- Trailers ---
CNG/LPG ---
Total --- Total ---
Add Add
Geographical area Extn --- PA benefits for… ---
30% for Impd Veh without cus duty --- Legal Liability to paid driver ---
Fiber Glass Tank ---
60% on OD for driving tuition ---
Total -----
Total ----
Less Less
For anti theft devices --- For opting limited Liability ---
50% disc. for blind/handicapped
vehicles ---
5% for Automobile Association Total ---
Any other discount
… % for NCB ---
Total . ---
PRIVATE CAR: POLICY SCHEDULE
Case Study
Make of car : Hyundai Santro
Year of make : 2008
IDV : Rs. 40,000 (as agreed between insurer and insured)
Engine capacity : 1086cc
Location : Delhi
NCB : 35%
Draft policy schedule on the basis of proposal form (or reasonable assumptions).
Policy schedule Issuing Office:Division No. XI
Motor – Private Car Package 6/90 Padam Singh Road
Karol Bagh, New Delhi - 110005
Policy No. 360500/31/15/6100001360
Name of Insured : A K Garg
Address of the Insured : A 301, Sai Baba Apartments, Sec- 9, Rohini Delhi - 85
Business / profession : not mentioned
Policy effective from 00.00 hours, on 24/06/2020 to midnight of 23/06/2021
Premium Rs. 3,453 Cover Note No. and date NA
GST 622 Proposal No. and date 15062236050001000063 Dt 12/05/16
Swachh Bharat cess 17 Receipt No. and Date 360500311 Dt 21/06/16
Krishi Kalyan cess 17
Recoverable Stp. Duty 0
Total Amount 4,109
Vehicle Details
Vehicle IDV 40,000 Regn No. DL 8C L 9910
IDV (Trailer/ side car) - Engine or M/c No. 61957
Electrical Accessories - Chasis No. 482154
Non Electrical Accessories - Regn. Authority Delhi, North
Fibre Glass Tank - Regn No. DL 8C L 9910
CNG/LPG Unit 12,500 Engine or M/c No. 61957
Total IDV 52,500 Chasis No. 482154
Addl. Towing charges - Regn. Authority Delhi, North
CC/GVW 1086 Geographical Area India
Licensed Seating /Carrying capacity 4 Body Type Sedan
Year of Mfg 2008 Regn Date 23/06/2008
Vehicle Own Damage Insurance Details
No Claim Bonus 35% Regn No. DL 8C L 9910
Compulsory Excess 1,000 Engine or M/c No. 61957
Imposed Excess 0 Chasis No. 482154
Third Party Insurance Details
Limit of Liability under sec II-I (i) As per motor vehicle Act 1988 (Rs. 6,000)
Limit of Liability under sec II-I (ii) 7,50,000
Legal Liability cover Personal Accident Cover Details: CSI per head
No. of Driver/cleaner 1 person
Owner Driver of the vehicle Rs.15,00,000
PRUDENT UNDERWRITING
Amity School of Insurance, Banking and Actuarial Science
Prudent (Sound) underwriting means:
a) careful selection of risk,
b) imposing certain terms and conditions ,
c) continuous monitoring of risk,
Why Prudent Motor Underwriting ?
• Increase in the number of vehicles, motor accidents and traffic density calls for
prudent (sound) underwriting.
• High Incurred claim ratio is another reason for sound underwriting.
STEPS FOR PRUDENT UNDERWRITING
Amity School of Insurance, Banking and Actuarial Science
1. Screening of complete proposal form for consideration of:-
a) Type of vehicle
b) Use of the vehicle
c) Geographical area of operations
d) The driver
e) No claim discount
f) Past claims experience
g) Moral hazard
2. To maintain statistical records,
3. To strictly follow some important guidelines as under:
i. proper fixing of IDV;
ii. Private cars better risks than taxis
STEPS FOR PRUDENT UNDERWRITING
Amity School of Insurance, Banking and Actuarial Science
iii. sports cars at greater risk (high speed).
iv. owner driven taxis better than hirer driven;
v. for old vehicles, only restricted or TPL cover or pre acceptance inspection be
carried out before insurance;
vi. inspection necessary in case of break in insurance or change from TPL cover
to package policy;
vii. limited area of operation or wider area
viii. age of the driver (young more prone to rash driving);
ix. any serious vision defect;
x. driving habits / offences;
xi. NCB is indicative of careful driving;
xii. number & types of claims
xiii. loss experience of a particular agent / make model / claim ratio etc.
HOME ASSIGNMENT
Amity School of Insurance, Banking and Actuarial Science
Prepare a policy for a two-wheeler / Pvt car/ Commercial vehicle from filled in
proposal form. Your assignment should include:
1) Filled in proposal form,
2) Policy form
3) Policy Schedule
4) Premium sheet
5) One endorsement
PRESENT SCENARIO
Amity School of Insurance, Banking and Actuarial Science
• Motor portfolio continues to be the biggest portfolio with………% market share in
the General Insurance industry in India.
• After detariffication of Motor Insurance, the motor insurance market has become
very competitive in terms of pricing and quality of service provided by the
insurance companies and the insurance intermediaries.
• In the post detariffication scenario, motor premium rates have come down by 40
to 50% to the benefit of consumers.
• Motor Third Party premium rates for all types of vehicles are controlled by IRDAI
directly.
Amity School of Insurance, Banking and Actuarial Science
Thank you