Insurance Notes

Examination Planning
Risk Management and

Insurance Planning
Module
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
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Paper Pattern
z Total = 140 marks
z Sections = 3
¾Section 1 = 40 questions x 1 mark = 40 marks
¾Section 2 = 20 questions x 2 marks = 40 marks
¾Section 3 = 15 questions x 4 marks = 60 marks
z Avg. time for each question = 120 / 75 = 1.6 min
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
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Learning Objectives - For
Module 2
z Understand the role of the financial planner in the
personal risk management process.
z Implement insurance into a comprehensive, integrated
financial plan.
z Identify and explain features of private and public
insurance available to meet each identified need.
z Integrate the tax implications into insurance decisions.
z Evaluate client insurance and risk management needs.
Weightage
z Risk Management – 15%
z Insurance Concepts – 15%
z Insurance Policies & Strategies – 50%
z Environment of an Insurance Advisor – 20%
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Chapters
z Fundamental Concepts in Risk Management
z Insurance Fundamentals: Risk Exposures, Needs Analysis &
Premium Pricing
z Legal Principles in insurance
z Role of Insurance in Financial Planning
z Factors affecting Insurance needs
z General Insurance Policy Analysis
z Life Insurance Policy Analysis
z Comparing Life Insurance products
z Annuity Policy Analysis
z Health Insurance Policy Analysis
z Legislation Affecting Insurance Business
z Evaluating Life Insurance Cos.
z Consumer Protection & Life Insurance Code of Practice
Time Management
z Available Time – 21 hrs over 7 sessions
z All sessions to be taken by Jagdish Bhat
z Time Management
Session 1 – Ch 1 to 3
Session 5 – Revision & ques. solving
Session 6 – Revision & ques. Solving
Session 7 – Revision & ques. Solving
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Efforts
z Determination
z Attendance
z Involvement / Participation
z Interaction
z Self-Help
Basic Meaning / Nature of Risk

z ‘In this world nothing can be said to be certain, except death
& taxes’ – Benjamin Franklin
z Uncertainty can lead to positive or negative outcome
z Risk - that in a given situation, there is uncertainty about the
outcome and that the outcome will be unfavorable.
z Uncertainty – ignorance of what may or may not happen in
future
z The examination process represents the uncertainty for u.
z There is risk of failing the exam. On failure there is a loss.
z Risk is defined differently for different professionals –
economists, statisticians, insurance theoreticians, etc.
z Definition from risk management – Uncertainty about
financial loss from an exposure.
z Loss is the end effect of risk
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Some terms
z Peril – defined as cause of loss
• Car with drunk driver meets with accident – peril is car,
driver or alcohol ?
z Hazard – is condition that creates or increases probability
of loss
z 3 main types
• Physical – condition that increases chance of loss
• oil spilled road increases chances of accident
• Moral – Dishonesty or character defects of individual
that increases occurrence or grievousness of loss
• Faking sickness for mediclaim
• Morale – slackness or indifference to a loss because of
insurance cover
• leaving the house unlocked due to burglary insurance
Risk & Chance

z Difference between risk & chance
z Risk
• Possibility of loss
• Risk of accident
z Chance
• outcome is favourable
• chance of winning bet
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Types of Risks –
Fundamental & Particular
z Fundamental risk
• affects the entire economy/society or large nos. / groups
within society – economic, political, natural like -
hyperinflation, war, earthquakes, floods
• Usually uninsurable – act of war, risk of unemployment
• Where insurance is considered, govt assistance is
needed – terrorism, third party pool
z Particular risk
• affects only individuals / corporates
• e.g. Fires, robbery, thefts
• Risks are insurable
Dynamic & Static

z Dynamic risk
• result from changes in economy like changes in price
levels, consumer tastes, technology, etc.
• May cause financial loss to members but benefit society
in longer run
• Result of adjustment to misallocation of resources
• e.g. effects of IT, modernization, globalization (WTO and
the effect on Americans/Europeans)
• for some losses, for some gains
• Affect large no. of individuals and less predictable than
static risks, since they don’t occur with any regularity
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Dynamic & Static
z Static risk
• losses that would occur even if no changes in economy
• Losses arise from causes other than changes in
economy
• People end up with losses even when times are good or
bad.
• e.g. EQ, floods, dishonesty.
• Unlike dynamic risks, static risks cause only losses –
either devastation of wealth or transfer of assets from
victim to dishonest party
• Tend to occur with a degree of regularity resulting in
their predictability, becos of which they are more suited
to treatment by insurance than dynamic risks
Pure & Speculative

z Pure risk
• where only possibilities are loss or no loss
z Speculative
• chance of either loss or gain
z Insurance deals mainly with pure risk
z Though speculative risks are uninsurable, pure
risk consequences of speculative risk are
insurable.
z Loss due to Marketing of product is
uninsurable, but loss due to property damage
is insurable.
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Types of Pure risk
z Personal risks- related to individual - 4 dominant
• Premature death
• Old Age / Retirement
• Deterioration of Health
• Unemployment
z Property risk – Damage / loss to property
• Direct loss – is financial loss from physical
damage, theft etc.
• Indirect or consequential loss – financial loss
resulting from direct loss
z Liability risk
• These are class of pure risks gaining prominence
• Liability arising from Property Damage or Bodily
injury / death
Diff in human attitude towards

risk
z Perceived v/s objective risk
• Risk has objective and subjective (perceived)
dimensions
• Pure risk has 2 parts – amount that could be lost, 2nd
is chance of loss happening
• Risk is accepted or rejected after obj or sub evaluation
• Motor car may be insured for comprehensive loss
depending on owner’s perception
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Behaviour towards risk
z Risk seeking –
• aggressive persons who perceive risk as opportunity
rather than danger
• preference for uncertainty over certainty
• Entrepreneur
z Risk averting –
• conservative persons
• preference for certainty over uncertainty
z Risk indifferent –
• persons are neutral
• neither attracted nor repelled by risk
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
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Risk Management
z Step 2- Gather info for risk
identification & evaluation
z allow loss exposure identification
z 3 classes of losses –
• property
• liability and
• Personal / personnel
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
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Risk Management
z Step 4 - Develop risk management
plan
• Risk avoidance
• Risk (loss) control
• Risk retention (is a loss financing technique)
• Risk transfer (is a loss financing technique)
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)
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Risk Management
z Step 5 (contd.)
z Risk (loss) control by
• loss prevention (do not use a mobile during driving)
• loss reduction (install sprinkler, hydrant system)
z Risk Retention
• also called self-insurance
• set aside a contingency fund
z Risk Transfer by
• non-insurance transfer (outsource hazardous activity to
specialists, through contract conditions like indemnity,
hold harmless clauses)
• Insurance
Risk Management
z Step 6 - Monitor & revise risk
management plan
z continuous monitoring
z periodic reviews
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What is Insurance
z Insurance is
• pooling of fortuitous (unintentional) losses by transfer
of such risk to
• insurers, who agree to indemnify insured for such
losses, to provide other pecuniary benefits on their
occurrence, or to render services connected with the
risk.
z The business of transferring pure risks by means of a 2

party contract.
z Law of large nos. – greater the no. of exposures, more

closely will the actual results approach the probable
results expected from an infinite no. of (homogeneous)
exposures.
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
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Utmost Good Faith…
Caveat Emptor – Let the Buyer Beware
z most contracts allow subject matter (whether
item or service) to be examined by each party
z so far as there is no misleading or answers are
answered truthfully, neither party can avoid the
contract
z Equally, there is no need to disclose
information, which is not asked for

z Insurance contracts
z Nature is intangible (promise)
z Circumstances surrounding the subject
matter are known by proposer only
z Even if survey / examination is done
before u/w, all facts cannot get
disclosed.
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Uberrima Fides – Utmost Good Faith
z Law imposes greater duty on parties to insurance
contract than commercial contracts
z As underwriter knows nothing & proposer knows
everything, it is duty of insured to make full disclosure
without being asked of all material circumstances.
z Duty of full disclosure rests on both parties
z Definition – A positive duty voluntarily to disclose,
accurately and fully, all facts material to the risk being
proposed, whether requested or not

z Material fact
z Every circumstance is material which would influence the
judgement of a prudent insurer in fixing the premium or
determining whether he will take the risk.
Facts which must be disclosed

z Material facts
• Fact which was immaterial during u/w, but becomes
material later need not be disclosed
• Exception when policy condition requires continuous
disclosure (most GI policies)
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z Categories
• facts showing greater exposure of particular risk due
to nature or class (PA)
• external factors making risk greater (private vehicle
used commercially)
• previous losses & claims
• Special terms / declines by other insurers
• Existence of benefit or non-indemnity policies (Life /
PA)
• Full facts of subject matter (goods description for
marine cover)

z Examples
• Fire – construction, occupancy, fire detection
equipment, etc.
• Theft – nature of contents & storage, security
arrangements, etc.
• Motor – make, cc, geograhical region, driver’s age,
color, etc.
• Marine – terms of sale, mode, packing, FCL / LCL
• PA – age, physical deformities, occupation
• Life – age, medical history, occupation, family history,
other policies (free cover limit)
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z Facts which need not be disclosed
• Facts of Law
• Facts of common knowledge – strife in some location,
normal processes of trade
• Facts which lessen the risk – existence of guards, alarm
system
• Facts which could reasonably be discovered – from
facts given in proposal form or from previous records
with insurer (like claims history)
• Facts which a survey should reveal
• Facts covered by policy conditions – burglar alarms or
extinguishers are maintained properly
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)
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Insurable Interest
z While the subject matter can be property or
financial liability, the pecuniary interest of the
insured in the subject matter which is
important.
z It is the interest of the insured in the subject
matter which is insured.
z Definition -
• The legal right to insure arising out of a financial
relationship recognized under law, between the
insured and the subject matter of insurance.
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
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Insurable Interest
z When insurable interest must exist
• Life – Must at inception, no requirement at
time of claim
• Marine – No need at inception, Must at time of
loss
• Others – Must during both inception as well
as loss
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.)
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Corollaries of Indemnity
Subrogation
z may 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.
z It is implied in all contracts of indemnity
z Arises only after payment of loss
z Fire & some miscellaneous policies (motor)
contain express condition that insurer can
exercise right even before claim payment to
ensure there are no delays.
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
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Proximate cause
z Nature of perils
z Can be classified under 3 headings
• Insured perils (fire, lightening, storm theft, etc.)
• Excepted or excluded perils - either as cause of
insured peril e.g. riot, EQ, war or a result of insured
peril e.g. certain types of explosion
• Uninsured or other perils – not mentioned in policy.
Smoke & water damage may neither be excluded nor
mentioned as insured in fire policy
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
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Proximate cause
z Meaning of Proximate cause
• Based on the principle of cause & effect –
• states that having proved the effect and traced the
cause, it is not necessary to go further.
• To be proximate, a cause should be immediate
• ‘Immediate’ does not mean cause nearest to loss in
point of time
• It is in terms of effectiveness or efficiency or the cause
effectual in producing that result
• Proximate cause means direct, most dominant & most
effective cause of which loss is natural consequence.
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
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Proximate cause
z Direct Chain of events – Unbroken sequence (successive
causes)
z If excepted peril precedes insured peril claim unpayable
z If insured peril is followed by excepted peril, part of the
claim is payable
z Certain consequential loss payable.
• Damage to property by water used to extinguish fire
• Damage caused by fire brigade while fire fighting
• Damage to property during removal to a safe place
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)
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Proximate cause
z Classic
• Insured fell from horse, suffered some injuries forcing
him to lie in cold, contracted pneumonia and
eventually died.
(Illness – excluded peril, remote cause, Accident –
insured peril, proximate cause)
• Insured suffered from accidental injuries taken to
hospital. Contracted infectious disease while
undergoing operation, causing death.
(Held – disease proximate cause, accident – remote
cause)
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
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Essential characteristics of
Insurance
z Principle of Risk Transfer

z Principle of Indemnity
z Principle of Pooling (spreading) Losses
(law of large nos.)
z Principle of Payment of Fortuitous
(unintentional) Losses
Concepts of Insurable Risks

z Financial value should be present & determinable
z Loss should not exceed catastrophic size
z Loss should be fortuitous
z Possibility, magnitude and wavering of future losses must
be mathematically predictable
z Premium charged should make economic sense
z Insurable interest
z Should not be against public policy
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Common Mistakes
z to avoid while buying insurance
z Buying too little
z Buying too much
z Missing out on essential covers
Risk Exposures of individual

z The needs analysis of an individual for
insurance is based for 3 broad
categories of risks –
¾Personal Risk exposures
¾Property Risk exposures
¾Liability Risk exposures
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Need Analysis - I
Personal Risk Exposures
z Identifying the risks : Expenses & Income

loss of dependents / self
z Measuring the Personal Risks
• Human Life Value method
(earning ability of person, amount that would be lost in case of
premature death)
• Need Analysis method
(cash & income needs of dependents after deducting available
assets of deceased at time of death)
Human Life Value method

z based on income earning ability
z is the PV of income lost by the
dependents as a result of death
z Cons
• income keeps changing over the years
• assumptions of interest rates can be
erroneous
• if deprivation of income does not effect, there
is no need for insurance
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Needs Analysis Method
z based on the needs of dependents when

breadwinner dies
z First part is to determine the cash & income
needs of dependants
z 2nd part to identify resources that the proposer
may posses
z 3rd is compute the deficiency – diff between
needs and available resources
Some common Risks

z risks associated with superannuation
z risks associated with disability
z risks associated with medical ailments
Jagdish Bhat (98673 28353) 29

Need Analysis-II
Property Risks Exposure
z 2 types of losses associated with property –

• direct &
• indirect (consequential)
z Measuring the Risks – For Real Estate
• Owner’s residence
• Other Property ownership (identical)
• Consequence of under-insurance
z Measuring the Risks – For Motor vehicles
• Type of cover
• Sum Insured
• Rating (de-tariffed w.e.f. 01-01-07)
Need Analysis-III
Liability Risks Exposure
z covers negligence & legal liability

z concerned with Tort (violation of
another’s rights) and Tort Feasor
(wrongdoer)
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Insurance Contracts
z Requirements of insurance contracts
• Offer & Acceptance
• Consideration
• Legal Capacity to contract
• Legality of purpose
• Consensus Ad idem (Meeting of minds)
z Modification of Utmost Good faith principle – Sec. 45
(indisputability after 2 yrs)
z Agent filling form – Proposer is responsible for non-
disclosure of information by agent
z Void & voidable contract
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.
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Principle of Estoppel
z is a doctrine which protects a party who would suffer
detrimentally if the other party has done or said
something to induce an expectation and if the sufferer
has relied (reasonably) on the expectation and would
suffer loss if that expectation were false.
z e.g. a landlord might inform a tenant that rent has been
reduced, for example, if there is construction or a lapse in
utility services. If the tenant relies on this advice, the
landlord could be estopped from collecting rent
retroactively.
z If insurer provides a person with some vestiges of
authority like signboards, receipt books, etc. that will lead
a third-party to conclude that the agency relationship
exits, the insurer will be estopeed from denying that the
person is not its agent.
Crime & Tort

z A person can commit 2 classes of wrongs, one
is public wrong, the other is private wrong
z Public wrong is a crime where the government
will make prosecution
z Private wrong (tort) is the violation of the rights
of another person and may cause action
against the wrongdoer (tort feasor) for
damages.
z Action taken against tort is called civil action.
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Crime & Tort…
z Insurance does not deal with criminal behavior
or intentional torts because it is against public
policy to provide such protection.
z Unintentional torts dealt by insurance are those
actions that are result of negligence or
carelessness.
z e.g. resident of a flat accidentally dropping a
flowerpot from his eight floor and damaging a
car parked below.
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.
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Legal characteristics of
insurance contracts
z Aleatory contract (value exchanged is not equal).
Different from commutative contract (value exchanged is
equal)
z Unilateral contract (one party – insurer - makes promise).
Different from commercial contract (bilateral) contract
z Conditional contract (insurer’s obligation to pay depends
on conditions fulfilled by insured)
z Personal contract (even if property is insured, it is actually
the insured’s interest which is protected)
z Contract of adhesion (no negotiation between the parties,
insured has to accept the contract in toto from the
insurer)
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
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Premium Pricing
z Rate Making – process of valuing the
benefits contained in policy
z Single Premium – PV of future benefits
to be paid to insured
z Level Premium – actuarial equivalent of
single premium spread over periodic
payments during the policy term
Life insurance products

z Term
z Endowment
z Pension
z Market Linked / Traditional (Non-linked)
Jagdish Bhat (98673 28353) 35

Non-Life insurance
z Premium pricing takes into a/c
• Expenses
• Risk exposure
• Reserves
z Rate Making depends on
• Degree of hazard (wooden v/s concrete building)
• Classification of hazards (4 wheelers, 2 wheelers)
• Past loss experience
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
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IRDA (Insurance Brokers)
Regulations, 2002
z Meaning within the regulations
z Insurance broker can be a direct broker, a reinsurance broker or
a composite broker
z Direct Broker – for a remuneration, carries out the functions
either in life insurance or general insurance or both on behalf of
his clients
z Reinsurance Broker- for a remuneration, arranges reinsurance
for direct insurers with insurance & reinsurance companies.
z Composite Broker - for a remuneration, carries out the functions
of both a Direct Broker as well as a reinsurance broker
z Principal Officer - means Proprietor or a Partner or a Director or
CEO
z Persons who can become an insurance broker – Individual, Firm,
Company, a Co-operative Society or any other person recognized
by the Authority to act as an insurance broker;
z An insurance broker cannot do any other business than what is
stated as its main object.
IRDA Brokers Regulations

z Functions of a direct broker - shall include any one or more of the following-
z obtaining detailed information of the client's business and risk management
philosophy;
z familiarising himself with the client's business and underwriting information
so that this can be explained to an insurer and others;
z rendering advice on appropriate insurance cover and terms;
z maintaining detailed knowledge of available insurance markets, as may be
applicable;
z submitting quotation received from insurer/s for consideration of a client;
z providing requisite underwriting information as required by an insurer in
assessing the risk to decide pricing terms and conditions for cover;
z acting promptly on instructions from a client and providing him written
acknowledgements and progress reports;
z assisting clients in paying premium under section 64VB of Insurance Act, 1938
(4 of 1938);
z providing services related to insurance consultancy and risk management;
z assisting in the negotiation of the claims; and
z maintaining proper records of claims;
Jagdish Bhat (98673 28353) 37

z Functions of a re-insurance broker - shall include any one or more of the following-
z familiarising himself with the client’s business and risk retention philosophy;
z maintaining clear records of the insurer's business to assist the reinsurer(s) or others;
z rendering advice based on technical data on the reinsurance covers available in the
international insurance and the reinsurance markets;
z maintaining a database of available reinsurance markets, including solvency ratings of
individual reinsurers;
z rendering consultancy and risk management services for reinsurance;
z selecting and recommending a reinsurer or a group of reinsurers;
z negotiating with a reinsurer on the client’s behalf;
z assisting in case of commutation of reinsurance contracts placed with them;
z acting promptly on instructions from a client and providing it written acknowledgements
and progress reports;
z collecting and remitting premiums and claims within such time as agreed upon;
z assisting in the negotiation and settlement of claims;
z maintaining proper records of claims; and
z exercising due care and diligence at the time of selection of reinsurers and international
insurance brokers having regard to their respective security rating and establishing
respective responsibilities at the time of engaging their services.

z Functions of composite broker - shall
carry out any one or more of the
functions mentioned in regulations
covering functions of Direct and Re-
insurance broker.
Jagdish Bhat (98673 28353) 38

z Application for grant of licence – can be made by a person for any
of the 3 categories alongwith the requisite licence fees
z The applicant or its principal officer shall, if so required, appear
before the Authority for a personal representation in connection
with an application.
z Principal Officer should possess certain minimum qualifications
and passed the IRDA exam conducted by NIA, Pune
z Broker should have at least 2 persons who have passed the exam
z Any employee responsible for soliciting and procuring insurance
business on behalf on an insurance broker shall also have to
pass the exam
z Application for change from one category to another can be made
only after 1 year
z Licence will be valid for 3 years, after which it can be renewed for
further period of 3 years.
z For renewal the broker has to undergo at least 25 hours of
theoretical and practical training. No exams.

z Minimum capital requirement-
Direct Broker – Rs.50 lacs
Reinsurance Broker – Rs.200 lacs
Composite Broker – Rs.250 lacs
z Non-Indian interest can hold only upto
26%.
z Deposit requirement – 20% of initial
capital as fixed deposit
Jagdish Bhat (98673 28353) 39

z Licence fees
Direct Broker – Rs.25,000
Reinsurance Broker – Rs.75,000
Composite Broker – Rs.1,25,000
z Brokerage
z Non-Life – 6¼% to 17.5%
z Life – Individual - upto 30% for fresh, 5% for renewal
z Group Life – 0.5% to 7½%
z Ceiling on business from single client
• 1st year – 50%
• 2nd year – 40%
• 3rd year onwards – 30%
z Captive Broker

z Professional Indemnity insurance limits
• Direct Broker – min. of 3 times annual
remuneration or Rs.50 lacs
• Reinsurance Broker - min. of 3 times annual
• Composite Broker - min. of 3 times annual
z Submission of Results –
• Audited Annual Report – within 90 days
• ½ yearly unaudited results – before 31st Oct & 30
Apr each year
z All books of accounts should be preserved for 10 yrs
z Read Code of Conduct – to be mailed separately
Jagdish Bhat (98673 28353) 40

Policy Components
z Heading – insurer’s details
z Preamble – recites parties to contract, reference to proposal form
z Signature – validates policy document
z Operative/Insuring Clause – essence of contract, specifies insuring perils
z Exceptions or Exclusions – circumstance in which insurer is not liable
z Policy Schedule – information/details of the risk covered
z Definitions
z Conditions
• Express & Implied Conditions
• Conditions Precedent to the Contract
• Conditions Subsequent to the Contract
• Conditions Precedent to Liability
z Cover Notes
z Certificates
z Renewals – No legal obligation on insurer to advise
z Non-Payment of Premiums - Grace Period
z Long-Term Agreements
z Declarations
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
Jagdish Bhat (98673 28353) 41

Terms…
z All Risks / Named Perils
z Salvage
z Excess / Deductible
z Bonus (CB, NCB) - Discount
z Malus – Loading
z Built-in covers / Add-on covers (Rider)
z Longevity - long duration of individual life or length of life
z Corollary - something that naturally follows
z Congenital - existing at or dating from birth
z Pro-rata, Short Period
z MACT – Motor Accident Claims Tribunal
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’.
Jagdish Bhat (98673 28353) 42

Terms
z Under Evidence Act, person who has disappeared is
pronounced dead only if he has not been heard of for 7
yrs. Decree of presumption of death needed from court
of law.
z Claim is time barred if intimation of claim is received
after 3 yrs from date of death.
z Agency maxim – Qui facit per alium, facit per se
• one who acts through other, acts through himself.
• Contracts entered into by an agent will have same
legal consequences on the principal.
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
Jagdish Bhat (98673 28353) 43

Life Table factors
Function Description
age x exact age of person in years
lx number of persons alive at exact age x
note: the value for age 0 is called the radix
dx number of persons dying between age x and age x+1
qx probability of dying between age x and age x+1
px probability of surviving between age x and age x+1
Lx number of person-years lived between ages x and x+1
Tx total number of person-years lived at and after age x
ex life expectancy at exact age x
Jagdish Bhat (98673 28353) 44

Life Terms
z DOP – Date of Proposal
z DOB – Date of Birth
z IP – Installment Premium
z SA – Sum Assured
z TP – Tabular Premium
z DAB – Accidental Death Benefit Rider (can also be Disability Benefit Rider)
z SSS – Salary Savings Scheme
z LBD – Last Birth Date
z NBD – Near Birth Date or Next Birth Date
z DOC – Date of Commencement
z LUP – Last Unpaid Premium
z DOM – Date of Maturity
z PV – Paid-up Value
z SV – Surrender Value
z LPP – Last Paid Premium
z DOS – Date of Surrender
z VB – Variable Bonus
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)
Jagdish Bhat (98673 28353) 45

Reinsurance Terms
z Treaties basically Proportional & Non-Proportional
z Proportional
• Quota Share - Premium & losses shared in equal
proportion
• Surplus – shared in excess of retention and arranged in
lines
z Non-Proportional
• Excess of Loss (layered)
• Risk basis
• Occurrence basis (Catastrophic)
• Stop Loss (a/c based)
z Lloyds Market
Types of Insurance
z Engineering
z Property & Casualty
z Accident & Health
z Liability
z Specialised
z Individual & Group
Jagdish Bhat (98673 28353) 46

Fire Insurance
z Standard Fire & Special Perils Policy
1. Fire
2. Lightning
3. Explosion / Implosion
4. Aircraft Damage
5. Impact Damage from vehicle or animal
6. Riot, Strike, Malicious Damage (RSMD)
7. Storm, Tempest, Floods, Inundation (STFI)
8. Subsidence and Landslide including Rock slide
9. Bursting and / or overflowing of Water Tanks, Apparatus
& Pipes
10. Missile Testing operations
11. Leakage from Automatic Sprinkler installations
12. Bush Fire (xcludes Forest Fire)
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
Jagdish Bhat (98673 28353) 47

Loss of Profit (LOP) insurance
z also called Consequential Loss (Fire) or Business
Interruption insurance
z covers loss of profit following losses to physical assets
from perils covered under fire policy
z compensation may include
• Loss of Gross Profit (Net Profit + Standing Charges) from
reduction in turnover
• Increase in cost of working
z Variable charges are not payable
z payment of loss under LOP policy is made only if there
is liability under material damage insurance (fire policy)
z Insured has to choose indemnity period (time taken for
reinstatement and start of business)
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
Jagdish Bhat (98673 28353) 48

Marine Insurance
z ILU – Institute of London Underwriters
z FOB – Free on Board
z FOR – Free on Rail
z C & F – Cost & Freight
z CIF – Cost, Insurance & Freight
z Ex-works or WW – Warehouse to Warehouse
z B / L – Bill of Lading
z L / R, R / R – Lorry Receipt, Rail Receipt
z CTL – Constructive Total Loss
z DWT – Dead Weight Tonnage
z War risk is covered only at sea & not on land
z Particular Average – Partial Losses
z General Average – shared proportionately
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)
Jagdish Bhat (98673 28353) 49

Motor Insurance
z No Claim Bonus: If you do not make a claim during the policy period, a No Claim
Bonus (NCB) is offered on renewals (only on Own Damage Section). This discount
can go as high as 50%. (NCB will only be allowed provided the policy is renewed
within 90 days of the expiry date of the previous policy.)
z Transfer your NCB: You can transfer full benefits of No Claim Bonus when you shift
your motor insurance policy to another company.
z Voluntary Excess discount: A further discount on the premium is available if you
opt for a Voluntary Excess in addition to the Compulsory Excess. (Compulsory
Excess is the amount of loss which the insured has to bear in each and every claim.)
z Additional discounts: You can also avail of additional discounts if you are a
member of a recognized Automobile Association in India.
z ARAI (Automotive Research Association of India) devices: In case you have
installed ARAI approved anti theft device in your vehicle, you get a discount of 2.5 %
on the OD Premium to a maximum of Rs. 500.
z CTL – Constructive Total Loss – when aggregate cost of repairs exceeds 75% of
IDV
z Homologation – approve or confirm officially
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
Jagdish Bhat (98673 28353) 50

Claims
z Onus of proof that loss is within scope of policy is on
insured
z If loss is caused by excepted peril, onus of proof is on
insurer
z Standard Claim – within terms & conditions of policy
z Non-Standard Claim – insured has committed breach of
condition / warranty
z Ex-gratia payments – losses outside scope of cover
hence un-payable. However, consideration shown for
genuine oversight
z Survey Report – right of insured to get copy
z Average Adjusters – for general average losses
z In-house Surveyor – limit upto Rs.20,000
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
Jagdish Bhat (98673 28353) 51

Condition of average
z If indemnity is on Market Value basis, claim settlement is
as follows-
z sum insured = Rs.1.50 lacs
z property value = Rs.2 lacs
z depreciation = 10%
z after depreciation property value = Rs.1.80 lacs
• Loss = 50,000, claim payable = 37,500
• Loss = 1 lac, claim payable = 75,000
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
Jagdish Bhat (98673 28353) 52

Group Schemes
z Minimum members – 25 persons
z Should be an already existing group
z Types of Schemes
z Group Term Life Insurance (GTLI) Scheme
• Covers only death (pure risk cover) and there is no maturity value
at the end of the term
z Employee’s Deposit Linked Insurance (EDLI) Scheme, 1976
• Insurance benefit is equal to the average balance to the credit of
the deceased employee in EPF a/c during last 12 months,
provided that where such balance exceeds Rs.35,000, insurance
cover would be equal to Rs.35,000 plus 25% of the amount in
excess of Rs.35,000 subject to a maximum of Rs.60,000.
• Insurance schemes offered by Life Cos. in lieu of the EDLI
scheme offer higher benefits which is excepted by the CPFC.
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.)
Jagdish Bhat (98673 28353) 53

Group Schemes
z Group Savings Linked Insurance Scheme
• Similar to Endowment product for a Group.
• Premium comprises of risk premium + savings component
(which is accumulated in member’s a/c)
z Group Leave Encashment Scheme
• Funding of Leave Encashment benefit (including Medical
Leave Encashment) liability of the corporate.
• The amount depends upon the leave to the credit of the
employee and his / her salary at the time of exit.
z Group Mortgage Redemption Assurance Scheme
• for borrowers of Housing/Vehicle Loans from Financial
Institutions where Loan is recovered under EMI.
• Insurance cover every year will be almost equal to the loan
outstanding at the anniversary date of each borrower.
Personal Accident Ins.

Features Policy offers compensation in case of death or bodily injury to the insured
person, directly and solely as a result of an accident, by external, visible
and violent means.
The policy operates worldwide and is a 24 hours cover
Scope of Cover Available in following combinations-
) AD cover only (Table A)
) AD + PTD (Table B)
) AD + PTD + PPD (Table C)
) AD + PTD + PPD + TTD (Table D)
(AD=Accidental Death, PTD=Permanent Total Disablement,
PPD=Permanent Partial Disablement, TTD=Temporary Total Disablement;
details of definitions as per insurers)
Add-ons Medical Extension
On payment of additional premium, this benefit provides for reimbursement
of actual medical expenses incurred following an accident limited to 20% of
the Sum Insured or 40% of valid claim under main PA policy whichever is
earlier.
Min / Max Age 5 to 100 yrs. However, premium is loaded above certain age (70 yrs)
Cover Extensions Following extensions are built-in with the main policy
Education Grant
In case of AD or PTD, a specified percentage of SI subject to a maximum
limit is paid as education allowance to dependent children.
Carriage of Body
Payment for transportation of dead body in case of unfortunate AD, is paid
as a percentage of SI subject to maximum limit.
Exclusions Some common exclusions-
, Compensation under more than one clause for same period of disability
, Any payment after admission of claim for 50% / 100% of Capital Sum
Insured
, Any claim in the same period of insurance exceeding the Capital Sum
Insured
, Suicide, attempted suicide, self injuries, VD, breach of law, influence of
liquor/drugs
, Pregnancy related claim
, War and nuclear perils
Sum Insured The maximum sum insured is limited to around 60 to 75 times of the
monthly earnings / salary of proposer.
Bonus The sum payable is increased by 5% for each claim free year up to a
maximum of 50%.
Discount / Family discount of 10% is available
Loading
Premium Depends on the risk class (I to III) of the proposer.
Indicative premium per Rs.1 lac Sum Insured for risk class I is –
Rs.45, Rs.70, Rs.100, Rs.150 for Table A to D resp. (serv.tax extra)
Group Policy Attractive discounts on premium are available for group policies. Some
features of group policies will differ from individual policies.
Who can take Individuals, families, groups / corporates
Jagdish Bhat (98673 28353) 54

Domestic Mediclaim
Features Policy provides for Financial Assistance against Hospitalisation Expenses
towards disease / illness / injury in India requiring at least 24 hours of
hospitalisation. Includes Domiciliary Hospitalisation and Day Care treatment
(certain types only) expenses.
Scope of Cover ) Cashless services through TPA (Third Party Administrator).
) Hospitalisation expenses like Room/Boarding, Nursing,
Doctor’s/Anesthetist/others fees, Investigation, Medical Consumables,
etc. in any registered nursing home/hospital in India.
) Pre & Post hospitalization expenses – upto 30 days and 90 days resp.
) Pre & post hospitalization expenses includes Doctor’s Fees,
Prescription Medicines, Diagnostic tests-Lab, ultrasound, MRI, CT Scan
etc. as prescribed by Doctor.
Add-ons Available only with Group policies on paying extra premium
y 30 day exclusion waiver
y Pre-existing illness / diseases cover
y Maternity Benefit cover
y Family Floater cover (available with some individual policies)
y Corporate Float
Min / Max Age 30 days to 80 yrs. However, restrictions on entry age vary across insurers
Exclusions Some common exclusions-
, Any claim during first 30 days (exception accident claims)
, Waiting period of 1 / 2 year for certain diseases like Cataract, Hernia,
Piles, Sinusitis, etc.
, Pre-existing diseases / Congenital diseases
, Cosmetic / aesthetic treatment or plastic surgery, other than
necessitated due to an accident or as a part of any illness.
, Naturopathy
, Medical treatment for intentional self-injury, suicide attempt,
alcohol/drug abuse.
, Sexually transmitted diseases, AIDS
, Diagnosis and treatment of infertility / sub fertility
, Rest cure i.e. treatment for convalescence, general debility etc.
, Dental treatment or surgery of any kind unless requiring hospitalisation.
, Treatment arising from childbirth including caesarean section
, Voluntary medical termination of pregnancy during the first 12 weeks
from the date of conception.
, Charges incurred at Hospital primarily for diagnostic studies not
consistent with the positive existence or presence of any ailment,
sickness or injury for which confinement is required at a Hospital
Sum Insured Rs.50,000 to Rs.10 lacs (from one Co.)
For multiple policies ‘contribution clause’ will apply
maximum of 50%.
Inversely, 10% gets reduced from the Bonus amount for claim(s) made
year. However, basic sum insured remains intact if bonus is unavailable.
Discount / For Individuals - Family discount of 10% is available
Loading For Groups – various like group discount
Premium Depends on the age and sum insured opted
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
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.
Jagdish Bhat (98673 28353) 55

Householders Package
Features Package policy of various sections which covers household / domestic
property of the Insured against various perils.
Scope of Cover Commonly available covers
Section I: Fire and Allied Perils
Section II: Burglary and Housebreaking
Section III: All Risk (for valuables)
Section IV: Electrical and Mechanical Appliances Breakdown
Section V: Electronic Equipments
Section VI: Fixed Plate Glass
Section VII: Baggage
Section VIII: Pedal Cycle
Section IX: Personal Accident
Section X: Legal Liability
Add-ons Regular add-ons which are available with stand-alone policies

Min Sections 1 to 2
Exclusions Regular exclusions as per the Sections
Sum Insured Different as per Sections
Bonus Only for PA Section, as per stand-alone policy terms.
Discount / 9 Sectional Discount (only on non-tariff sections)
Loading 9 Renewal Discount
9 Favourable Claims Ratio discount
9 High Claim Ratio loading
Premium Depends on the Section and sum insured opted
Who can take Individuals
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
Add-ons Regular add-ons which are available with stand-alone policies

Min Sections 2 to 4
Exclusions Regular exclusions as per the Sections
Sum Insured Different as per Sections
Bonus Only for PA Section, as per stand-alone policy terms.
Discount / 9 Sectional Discount (only on non-tariff sections)
Loading 9 Renewal Discount
9 Special Discount
9 Favourable Claims Ratio discount
9 High Claim Ratio loading
Premium Depends on the Section and sum insured opted
Who can take Shop-owners
Jagdish Bhat (98673 28353) 56

Postal Life Insurance
z Started in 1884 – 122 yrs old
z Is open for employees of all Central and State
Government Departments, Nationalized Banks,
Public Sector Undertakings, Financial
Institutions, Local Bodies like Municipalities
and Zila Parishads, Educational Institutions
aided by the Government etc.
z On 24th March, 1995, the benefits of Postal
Life Insurance were extended to rural populace
of the country under the banner of Rural Postal
Life Insurance.
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.
Jagdish Bhat (98673 28353) 57

Insurance Ombudsman
z Power – 2 types of functions to perform
z Conciliation and Award making.
z Is empowered to receive and consider complaints in respect of
personal lines of insurance from any person who has any grievance
against an insurer.
z Complaint may relate to any grievance against the insurer i.e.
• any partial or total repudiation of claims by the insurance companies,
• dispute with regard to premium paid or payable in terms of the policy,
• dispute on the legal construction of the policy wordings in case such dispute
relates to claims;
• delay in settlement of claims and
• non-issuance of any insurance document to customers after receipt of premium.
z Ombudsman's powers are restricted to insurance contracts of value
not exceeding Rs. 20 lakhs.
z The insurance companies are required to honour the awards passed
by an Insurance Ombudsman within three months.
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.
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Insurance Ombudsman
z Recommendations of the Ombudsman
• When a complaint is settled through the mediation of the Ombudsman, he
shall make the recommendations which he thinks fair in the circumstances of
the case.
• Such a recommendation shall be made not later than one month and copies
of the same sent to complainant and the insurance company concerned.
• If the complainant accepts recommendations, he will send a communication
in writing within 15 days of the date of receipt accepting the settlement.
z Award
• The ombudsman shall pass an award within a period of three months from
the receipt of the complaint.
• The awards are binding upon the insurance companies.
• If the policy holder is not satisfied with the award of the Ombudsman he can
approach other venues like Consumer Forums and Courts of law for
redressal of his grievances.
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
Jagdish Bhat (98673 28353) 59

Fundamental Risks Particular Risks
affects the entire economy or large nos. affects only individuals / corporates
/ groups within economy
Usually uninsurable insurable
Hyperinflation, war Fire, theft
Dynamic Risks Static Risks

result from changes in economy causing losses that would occur even if no
financial loss to people changes in economy
for some losses, for some gains Cause only losses
Less predictable so uninsurable More predictable so insurable

Effects of IT, modernization Dishonesty, cheating
Pure Risks Speculative Risks
where only possibilities are loss or no chance of either loss or gain
loss
Insurable Uninsurable (consequence of speculative
risk is insurable)
Personal Risks – Death, Old Age, Business Loss
Health Default Risk (insurable)
Property Risks – Home, Car
Liability Risks – claim from TP
Thumb Rules
z Income Rule – 6 to 8 times of gross annual income

z Income plus expenses – 5 times gross income + total
expenses (like loans, debt, etc.)
z Premium as % of income –
z Premium = 6 % of breadwinner’s gross annual income +
additional 1% for each dependent
z Multiples of Salary
z If 1 breadwinner, family can live adequately on 75% of
breadwinners salary
Jagdish Bhat (98673 28353) 60

Needs Approach
z Step 1 - Asses Cash Needs (funds required for major expenses) and
Net Income Needs (funds required for living expenses)
z Net Income needs
z Readjustment Period – 1 to 2 years after insured’s death
z Dependency Period – years needed to support children till their
majority
z Blackout Period – children grow up but surviving spouse hasn’t retired
z Retirement Period – surviving spouse’s retirement years
z Step 2 - Subtract available assets
z Life Insurance = Cash needs + PV of Net Income needs – Expected

available assets
z Capital Retention Method

z Capital Liquidation Method
Human Life Value

z Step 1 - Determine the insured person’s after tax earnings
z Step 2 - Deduct the personal expenses of the insured
z Step 3 - Consider no. of years for which income stream is
required
z Step 4 - Consider anticipated salary growth and inflation
z Step 5 - Determine the total anticipated future income for
supporting the family
z Step 6 - Determine a discount rate for the insurance proceeds
and calculate PV
z Step 7 - Determine the PV of expected income stream, using
the discount rate
z Step 8 - Making adjustments to HLV
z Step 9 - Add in large lump-sum expenses
z Step 10 - Considering differences in income replacement
needs during different future periods
Jagdish Bhat (98673 28353) 61

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Examination Planning

Risk Management and

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z All sessions to be taken by Jagdish Bhat

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Basic Meaning / Nature of Risk

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Risk & Chance

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Dynamic & Static

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Pure & Speculative

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Diff in human attitude towards

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z The business of transferring pure risks by means of a 2

z Law of large nos. – greater the no. of exposures, more

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Utmost Good Faith…

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Utmost Good Faith…

Facts which must be disclosed

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Utmost Good Faith…

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z Principle of Risk Transfer

Concepts of Insurable Risks

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Risk Exposures of individual

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z Identifying the risks : Expenses & Income

Human Life Value method

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z based on the needs of dependents when

Some common Risks

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z 2 types of losses associated with property –

z covers negligence & legal liability

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Crime & Tort

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Life insurance products

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IRDA Brokers Regulations

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