Section - 1
Introduction ○○○○○○○○○○○○○○○○○○○○
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Introduction to Insurance -------------------------------------------------------------------History of insurance in India ---------------------------------------------------------------Milestones in Insurance Industry ---------------------------------------------------------FAQ's on Insurance -------------------------------------------------------------------------Glossary ----------------------------------------------------------------------------------------
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Introduction to Insurance
Need for insurance : From cave age till date, the story of evolution of mankind is in fact a saga of continuous search for security. His problems have remained the same through the centuries though the form has changed with the changes in economic and social circumstances. When men lived in caves, he searched for security against animals, because they could kill him while asleep. He was not sure, he could hunt every day and get his food. He lived in a group or tribe so that other members of the tribe could come to help in times of crisis. The system of family was the product of a similar need and to seek comfort and security against sickness.
unprovided for. A motor vehicle is to last, say 15 years. During this period, the owner makes sufficient saving as to replace it with a new one. But if the vehicle is totally damaged due to an accident, the entire capital is lost and the owner can not replace it. It is so with any other asset. It is the human ingenuinty which has found out a way out of this. As a large number of members of society face this problem - problem which is common to all of them, problem which is beyond the capacity of any individual to bear, it becomes necessary for similarly placed individuals to come together and forge a common strategy to meet this eventuality of loss of a valuable asset.
Insurance as a social security tool : Protecting ones asset has been a continuous search not only of individuals but also of groups of people. Theft, fire, flood etc. have been a scourge against mankind. Man earns investing his time, strength and intelligence. He also needs other instruments like vehicles, factories, ship for transportation, production and trade. Each of these resources are valuable and augment the creation of further wealth. But when such aspects are lost or destroyed much before the expected date, the calamity is suffered. Human being is an income generating asset. He expects to earn during his life time sufficiently so as to provide for his old age. But when he dies at an young age, the family remains
Individual's income is dependent upon the investment of his time. Over a period of time, he saves sufficiently to provide for the time, when he is too old to earn. But no body can guarantee him this time. This uncertainty of time leads him to the invention of insurance. The story goes of a news paper hawker boy who used to go on cycle to distribute news paper's to earn his livelihood. One day, when he left his cycle outside a house and went in to deliver the news paper, his cycle got stolen. He had thereafter no means to run around. Walking would be a slow process and his income would dwindle. The boy was a smart one. He called his other brother hawkers and narrated his story. Many others in the same job had similar stories to tell. They just hit upon an idea. A cycle The Insurance Times
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say would cost Rs. 100/- There were almost 100 hawkers. Almost every year one cycle was getting stolen. Only if they could have a fund of Rs.100/ - such a loss suffered by any of them could be compensated. And the creation of a fund of Rs.100/- merely means a contribution of Rs.1/per person per year. The concept of insurance was born. A cooperative society was created, where each member of the family contributed a small portion to provide for a possible big loss which was too big for any one to bear. This crude beginning could later on be applied to varied circumstances. The traders, who sailed on the uncharted high seas, faced the risk of damage or total loss due to storm on the high seas. House owners found the risk of fire to their house to ruinous to bear. Life being the most precious of the productive assets similarly needed to be protected. Insurance, let it be noted, does not prevent the loss to occur. It cannot prevent, theft fire, sinking of a ship due to storm or even death of the bread winner. Far from it, If they could be prevented, there would be no need for insurance. It is only the damages beyond the control of men, purely accidental, or due to fury of nature, which are subjects for insurance. An intentional damage caused by the insured is an act of sabotage and is therefore a criminal action. In case of human life, even suicide, at least during the short period of one year, is beyond the scope of insurance. We call life insurance a social security tool because without the provision of insurance, this human society would consist of helpless old people, helpless widows, unprotected orphans. The economy would not survive, let alone grow. The factories would not restart after a fire, houses cannot be rebuilt after an earthquake or a cycle or a motorcycle for that matter cannot be replaced after being stolen. Unlike a socialist society or a highly developed capitalist society where the state takes care of individuals who become destitutes 12
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or deprived, in a developing society like ours, the state is too poor to take up such responsibilities. In the Directive Principles of State Policy, the constitution of India makes certain mission statements. In article 41, it states that the state, within the limits of its economic capacity and development, shall make effective provision for securing the right to work, to education and to provide public assistance in case of unemployment, old age, sickness and disablement and in other cases of undeserved want. What it has been able to do, is for anybody to see. The declaration of Human Rights by United Nations similarly declares from the house top that every one has a right to a standard of living, adequate health, well being of himself and his family including food clothing, housing, medical care and necessary social services and the right to security in the event of unemployment, sickness, disability, widowhood and other loss of livelihood in circumstances beyond his control. If wishes were horses, beggars would ride. Even in highly developed countries like Britain and United States where some medium of social security is available, insurance, both life and general is a thriving business. Insurance is based upon the universal axiom, "God helps him, who helps himself". There are only three sources of income when calamity has befallen - savings, charity and insurance. Savings needs time to accumulate. Normally in case of human beings, 90% of the income comes from investment of time and 10% of the income comes from savings. As one grows old, the ratio is reversed and 90% of his income comes from his savings and 10% from investment of his time. That is the ideal situation. But who can guarantee him from time -
time to save adequately so as to reverse this ratio. The second alternative - charity is too demeaning to be even considered as a proper alternative. The only viable alternative therefore is insurance. It is a product of individual's farsightedness, his present sacrifice for a future gain. It is commensurate with his self-respect and dignity. In case of a house burnt due to an accidental fire, he does not have to go to other members of the society begging help. Insurance thus creates a society of proud people who know how to take care of themselves even during difficult times. Insurance is thus a tool of social security par excellence.
Fundamental Principles of General Insurance The Contract of Insurance A contract of Insurance is a legal agreement between two or more parties and has to comply with the provisions of the Indian Contract Act, 1872. Insurance contract also is governed by the general law of Contract as embodied in the Indian Contract Act. An Insurance Contract be defined as an agreement between the Insurers, in consideration of having received the premium from the insured to undertake to make good the financial loss of the insured, subject to limit of a specified amount, suffered by the insured as a result of a loss or damage of the insured property by specified perils insured against during the stated period. All insurance Contracts must have the following five essential elements in order that they may be enforceable at law:
note or policy is issued by the company it signifies the acceptance of the proposal. 2. Consideration The premium paid is the consideration and on receipt of the premium by the Insurance Company the contract comes into force. 3. Mutual Consensus Ad Idem There should be a complete and unbiased agreement between the Insurer and insured regarding the terms of the contract. The intention of the insured should have been clearly understood by the Insurance Company and vice versa. 4. Capacity to Contract of the parties Both the parties must be legally competent to enter into an agreement. An agreement with a mentally unsound person is not a valid contract. So also an agreement with a minor, insolvent and foreigner is not a valid contract. 5. Legality of object of the Contract The purpose for which the agreement is entered into should be legal. It should not be against Public Policy e.g. Insuring contraband goods.
Basic legal principles of Insurance The three basic legal principles on which all the classes of General Insurance except Personal Accident Insurance are based are principles of Insurable Interest, Utmost good faith and Indemnity together with two corollaries to the last principle viz. subrogation and contribution. Let us enumerate the legal principles one by one in seriatim.
Insurable Interest 1. Offer and Acceptance: The person who wants to take up cover against particular perils offers his risk through a proposal form to the Insurance Company. When the premium is received by the company and cover
Insurable interest is the legal right to insure and means that the Insured must bear some relationship, recognized by law whereby he is benefited by its safety and is prejudiced by its loss. The Insurance Times
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The definition given by the famous writer, Macgillivray on insurance is given below : "Where the Assured is so situated that the happening of the event on which the insurance money is to become payable would, as approximate result, involve the assured in the loss or diminution of any right, recognized by law or in any legal liability, there is an insurable interest in the happening of that event to the extent of the possible loss or liability".
accident insurances. As far as marine (cargo) insurance is concerned, insurable interest must exist at the time of occurrence of the loss and not necessary at the time of inception of the contract.
How insurable interest arises? Insurable interest arises out of the following : a) Ownership of property b) Mortgagor and mortgagee c) Under law
It follows therefore that mere effecting a policy of insurance carries with it no right to recover thereunder simply because of happening of the insured event; the insured must have an insurable interest to be able to recover under the policy. It is difficult to make good a loss by the insurer when no loss has occurred.
Essentials of insurable interest The essentials of insurable interest are as follows : a) there must be property, rights, interest, life, or potential liability devolving upon the insured capable of being covered. b) Such property, rights, interest, life, or liability must be the subject-matter of the insurance. c) The insured must bear some relationship, recognized by law, to the subject-matter whereby he benefits by the safety of the property, rights, interest, life, or freedom from liability and is prejudiced by any loss, damage or injury, or creation of liability.
When insurable interest must exist? In case of fire and misc. accident insurances, the insurable interest must exist at the time of effecting the contracts of insurance as well as at the time of occurrence of loss. The insurable interest, in case of marine (hull) insurance, must exist at the inception of the contract and at the time of occurrence of the loss. In other words, it follows the same way as in case of fire and misc. 14
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d) Under contract e) In respect of life f)
Creditor and debtor
Assignment Assignment may be defined as the transfer of rights and liabilities of an insured to a third party who, has acquired insurable interest in the subject - matter of insurance so that the assignee becomes the new insured with a right to deal with the insurer in his own name and can recover directly from the insurer any claim payable under the policy. The distinction between assignment of a policy and an assignment of the proceeds of a policy is to be noted. The assignment of a policy means transfer of rights and liabilities of an insured to the new owner who becomes the new insured. The only thing the new owner is to do is that he will have to complete and sign a new proposal form to be placed before an insurer who is free to accept or reject the risk. But if it is accepted, it will be a new contract of insurance between the insurer and the new owner. This process of transfer of insurance is known as "Novation". Assignment of proceeds under a policy is nothing but a mere directive by the insured to the insurer to pay the amount of the loss to any other person
not involved in the contract just like a cheque issued by the holder of a bank account in the name of another person indicating an order to pay the sum mentioned in the cheque to the person named by the account holder. While Fire and Misc. Accident insurances are personal contracts, they cannot be freely assignable. The same principle is equally applicable to marine (hull) policies. But marine (cargo) policies are freely assignable as goods in transit may change hands during the course of transit and insurable interest in the goods will change accordingly from one to the other. A personal contract is one which involves the personal ability, integrity, capacity to manage the subject matter of insurance.
namely the proposer knows or ought to know all about the risk proposed for insurance and the other party, that is the insurer has to rely largely on the representations made by the proposer. In other words, the information supplied by the proposer in the proposal form as well as the correspondence between the proposer and the insurer will have a bearing on the proposed contract of insurance to be effected. This principle is all the more important for the purpose of assessment of the risk by the insurer. It will be appreciated that without the information supplied by the proposer the insurer will be in complete darkness about the risk proposed for insurance. For this reason, insurance contracts are known as contracts of uberrimae fidei (of utmost good faith).
Indemnity Principle of utmost good faith Good faith must be observed in all legal contracts, that is to say, that the parties must not act fraudulently with the intention to deceive the other. While, however, the parties to an ordinary commercial contract must not be dishonest in their dealings, this does not mean that they are bound to reveal all they know or ought to know about the transaction. In a contract for a sale of goods, the seller may place the goods before the prospective buyer for his inspection and if the goods are found to be suitable to the buyer, he may purchase the goods. But after purchasing the goods, if the purchaser finds subsequently some defects in the goods, he cannot come back to return the goods and he has no right of action at common law against the seller, unless the latter made representations or gave a warranty as to the non-existence of those defects. This rule is known as caveat emptor i.e. "let the buyer beware". Insurance contracts are based on a different rule. They are based on the principle of utmost good faith because one party to the contract alone,
By indemnity we mean that the insured should be placed in the same financial position as far as possible after a loss as he occupied immediately before its occurrence. The insured will neither gain nor lose. In other words, the insured will not be allowed to make profit out of the contract of insurance effected between him and the insurer. All general insurance contracts except personal accident contracts in respect of individuals are contracts of indemnity. In other words, the insured will not be permitted to recover more than the loss sustained by him. Had this principle not been observed in most of the insurance contracts, there would have been a tendency on the part of the insured to destroy the property insured and to make money out of such destruction. This would have been against public policy.
Methods of providing indemnity Indemnity may be provided by the following four methods : a) Cash payment : This is the simplest method which is adopted by the insurer in most cases. The Insurance Times
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b) Repair : It may be more convenient to both parties to a contract of insurance to settle loss or damage claims by repair as is done in case of motor insurance claims. c) Replacement : The insurer sometimes arranges for replacement of valuable items like jewellery, and other special items. d) Reinstatement : Occasionally, an insurer may undertake to reinstate buildings destroyed or damaged by fire or other insured perils when it is found that the amount claimed by the insured is exorbitant. This option of reinstatement lies only to the insurer under a specific condition of a policy but it is rarely exercised by the insurer in practice.
Subrogation and Contribution There are two corollaries to the principle of indemnity.
express policy condition the subrogation rights can be exercised by the insurer even before settlement of the claim. b) At common law, the right of contribution will only accrue to an insurer only after he has settled the claim under a policy and thereafter he will have to recover the proportionate share of the loss from other insurers involved. At the same time, the insured may select one of the insurers involved according to his own will and prefer a claim on him. That insurer, after settlement of the claims, will have to recover proportionate share of loss from other insurers. However, by virtue of an express policy condition, it will be a bounden duty on the part of the insured to approach all the insurers concerned for their respective share of loss.
How does subrogation arise? Definition - Subrogation is the right which one person has of standing in the place of another and availing himself of all rights and remedies of that order whether already enforced or not. Similarly, contribution may be defined as the right of an insurer who has paid the loss under a policy, to call upon other insurers equally or otherwise liable for the same loss to contribute to the payment. These are the definitions of the subrogation and contribution arising at common law. However, the common law rights have been modified by virtue of express policy conditions in all contracts of indemnity.
Modification under express policy conditions a) At common law subrogation rights will accrue to the insurer only after settlement of the claim by him. But under the provisions of an 16
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Subrogation rights arise out of the following : i) Tort - Tort is some wrong doing i.e. a breach of duty to a third party. The injured person has a right of compensation from the wrongdoer. The tort must be connected with the loss and the insurer then succeeds to the insured's right of action. For example, the insurer may recover damages from the railway in respect of fire caused by its negligence, or (in motor insurance) against a negligent third party who caused damage to the insured's car. ii) Contract - If a contract imposes on a third person the obligation of making compensation to the insured in respect of the loss, the benefit of the obligation passes to the insurer. Illustrations of these rights are : a) where goods, insured by the owner, are destroyed by fire whilst in the possession of a carrier b) where a house is leased to a tenant under a covenant to repair or rebuild it.
iii) Statute - The Riot (Damages) Act, 1986, provides that where a person who has sustained damage is insured and has been paid compensation by his insurer, the insurer shall have the right to proceed against the police authority in his own name to the extent of the indemnification made. iv) By Negligence - Due to negligence of the third party the property belonging to insured may be destroyed or damaged causing loss to him. Obviously, the insured will have a right to recover compensation from the third party under civil law. But as his property was insured under a policy of insurance and the insured's right of recovery under civil law will be transferred to the insurer as the insured is not supposed to recover more than the amount of his loss from both the sources.
Application of contribution In order to apply the principle of contribution the following points must be observed : a) all the policies concerned must cover the same peril, which caused the loss; b) they must protect the same interest of the same insured; c) they must relate to the same subject matter; d) they must have been in force at the time of the loss.
Ex-gratia settlement When there is no liability strictly under a policy, the insurer may at occasions pay the loss without admission of liability under the policy just to satisfy the client because of settled on ex-gratia basis, principles of subrogation and contribution will not apply.
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History of Insurance in India
n India, insurance has a deep-rooted history. It finds mention in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings talk in terms of pooling of resources that could be redistributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers' contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular.
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1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies. In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 18
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1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers. The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business. An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 nonIndian insurers as also 75 provident societies-245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as
a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Association of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices. In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then. In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd and The United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commenced business on January 1st 1973. This millennium has seen insurance complete a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector. The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein, among other things, it recommended that the
private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners. Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders' interests. In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002. Today there are 23 general insurance companies including the ECGC, Agriculture Insurance Corporation of India and 3 standalone health insurance companies operating in the country. (Reference: IRDA/GEN/06/2007 Date:02-01-2007)
First fire reinsurance treaties seem to have had their origin in Germany shortly after 1820 The Insurance Times
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Milestones in Insurance Industry
1818 Oriental Life Insurance First Life insurance Co.
1850 Triton Insurance Company first general Insurance Co., set up in Calcutta
1871 Bombay Mutual, India's first life insurance company set up
1874 1907 Oriental set up
Indian Mercantile Insurance Ltd, the first company to transact all classes of general insurance business set up
1912 1914 1934 1936 1938 Insurance Act, 1938 enacted
Committee under N N Sircar set up to examine Sen's report
SC Sen appointed as a special officer to work out a report on insurance law
Govt started publishing returns of life insurance companies
Life Assurance Act (Act VI) of 1912 enacted
1945 Committee headed by Cowasji Jehangir set up to review malpractices and take corrective steps
1950
1956 1957 LIC set up
Reinsurance Corporation of India, first Indian reinsure set up
1968 Insurance Amendment Act, 1950 put in place. Among other things the Act provided for a Controller of Insurance (Col), constitution of the Life Insurance Corporation and the General Insurance Council.
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Insurance Act amended to provide effective control over general insurance companies requiring increased deposits from them; also provided for setting up of TAC
1971 Ordinance promulgated to replace the General Insurance Emergency Provisions Act, 1971
1972 1973 General insurance business nationalised
1993 GIC set up Malhotra committee constituted
1994 Malhotra committee submits report
1997
Aug, 2000 IRDA invites applications
Oct, 2000 First three licences issued to private companies
July, 2000 IRDA issues first set of guidelines
April, 2000 IRDA made statutory body
1999 IRDA Act cleared by Parliament
Insurance Regulatory Authority comes into existence
Dec, 2000 ICICI Prudential and HDFC Standard life launch insurance policies
2003 Four public sector general insurance made independent companies, GIC is national reinsurer
2006 IRDA Starts regulating Ulips
2007 General insurance tariffs freed
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FAQ on Insurance 1. What is Insurance? A. Insurance is a legal contract between two parties whereby one party called insurer / underwriter undertakes a fixed amount of liability on the happening of a certain event. The other party called insured pays in exchange a fixed sum called premium. 2. What is a contract of insurance ? A insurance contract may be defined as an agreement between the insurers, in consideration of having received the premium from the insured to undertake to make good the financial loss of the insured, subject to limit of a specialized amount, suffered by the insured as a result of a loss or damage of the insured property by specified perils insured against during the stated period. 3. What is Reinsurance? A. Where insurance companies spreads their risk by an arrangement with other underwriters or reinsurance companies, it is called reinsurance. 4. What is Premium? A. Premium is the fixed amount of sum paid over the period by insured to insurer in order to secure an insurance policy and to complete the contract of insurance. 5. What is unearned Premium? A. Unearned premium is that portion of the original premium for which protection has not 22
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yet been provided because the policy still has some time to run before expiration. A property and liability insurer must carry unearned premium as a liability on its financial statement. 6. What is Deductible ? A. In a policy , the amount which must first be subtracted from the total damage incurred before determining insurance company's liability. Deductible are the portion which insured has to bear in all cases, having a deductible clause in the policy 7. What are the basic legal principles on which all classes of general insurance are based ? A. w Insurable interest w Utmost good faith w Principle of indemnity w Proximate cause w Subrogation & contribution 8. What are the various documents which insurance offices use in transacting their business of entering into contract and discharging their obligations ? A. w Proposal form w Policy Document w Schedule w Cover Note w Certificate of Insurance w Endorsement w Renewal Notice
w w w
Claim Form Survey Report Discharge Voucher
9. The rate of premium is fixed on what basis ? A. w Degree of Hazard w Classification of Risk w Past Loss Experience. 10. Which Legislation covers the business of Insurance in India ? A. The Insurance Act 1938 as amended by IRDA Act 1999, is the first comprehensive legislation governing both life and non-life companies. 11. Which body regulates the practice of Insurance in India ? A. Insurance Regulatory and Development Authority (IRDA) regulates the function and performance of insurance in India with the help of IRDA Act,1999. 12. What is Insurance Ombudsman ? A. The Insurance Ombudsman has been constituted to redress the grievances of the consumers against the insurance companies. 13. What is Fire Insurance ? A. The act or system of insuring against fire; also, a contract by which an insurance company undertakes, in consideration of the payment of a premium or small percentage -- usually made periodically -- to indemnify an owner of property from loss by fire during a specified period is termed as Fire Insurance. 14. What is Marine Insurance ? A. Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin
and final destination. 15. What are the types of Marine Insurance ? A. It is of 2 types ,which are as follows - : w Marine Cargo Insurance w Marine Hull Insurance 16. What is Motor Insurance and what kind of motor vehicles are covered in it ? A. Motor Insurance is a form of insurance covering loss or damage to motor vehicles and any legal liabilities for bodily injury or damage to other people's property. There are 3 types of Motor Vehicles covered in it . They are -: w Private Car w Motorcycles/Scooter (Two Wheelers) and three wheelers not exceeding 350 cc Engine capacity. w Commercial vehicle. 17. What is Personal Accident Insurance ? A. Personal accident insurance covers your expenses from an accident with a lump sum payment, a daily or monthly amount or a payment for loss of life from an accident. Several types of policies supplement an insurance program. Often, accidental death and dismemberment is an inexpensive form of personal accident insurance. Other forms are similar to disability income, but they pay a cash sum when you have an injury due to an accident. There are several ways to buy personal accident insurance. Some policies only pay for specific types of accident. 18. What is Health Insurance ? A. Insurance against loss by illness or bodily injury. Health insurance provides coverage for medicine, visits to the doctor or emergency room, hospital stays and other The Insurance Times
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medical expenses. Policies differ in what they cover, the size of the deductible and/or co-payment, limits of coverage and the options for treatment available to the policyholder. 19. What is Liability Insurance? What are the types of Liability Insurance ? A. Liability insurance is a part of the general insurance system of risk financing to protect the purchaser (the "insured") from the risks of liabilities imposed by lawsuits and similar claims. It protects the insured in the event he or she is sued for claims that come within the coverage of the insurance policy. Liability insurance is designed to offer specific protection against third party claims, i.e., payment is not typically made to the insured, but rather to someone suffering loss who is not a party to the insurance contract. The types of Liability Insurance are -: w Public Liability Insurance (Act Liability only) w Public Liability Insurance (Industrial & non-Industrial risks ) w Products Liability Insurance w Employer`s Liability Insurance 20. What is engineering Insurance and classify them? A. Engineering Insurance is intended to provide compensation to the insured in the event of the machinery and plant insured against being damaged by some extraneous cause or its own breakdown. It can be classified as follows -: w Project policies w Installed machinery policies w All Risk Policies 24
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w w
Named Peril Policies Dependent Policies
21. What is Miscellaneous Insurance ? A. Whenever there is a demand for a particular cover and the criteria for insurable risks have been met, the insurance company provide the necessary cover, this kind of insurance is called miscellaneous insurance. 22. What is Claim ? A. A claim arises on the occurrence of a contingency insured against and , in a way, is the proof of the existence and the validity of the insurance cover. The insurance policy stipulates the procedure to be followed by the insured, starting with the intimation of the claim. Claims may be dealt , according to the merit in the following manner :w Standard Claim w Non-standard Claim 23. What is Rural Insurance ? A. Rural Insurance refers to policies catering to rural sector. 24. What is risk management ? What are the steps of Risk Management ? A. Risk Management is a scientific approach to the problem of dealing with the pure risks faced by the individuals and business. The management of an organization has ultimate responsibility for dealing with all risks facing the organization, including both pure and speculative risks. The various steps of risk management process are -: w Risk Identification w Risk Evaluation w Risk Avoidance w Risk Retention w Risk Transfer
25. What is Solatium Fund Scheme ? A. It is the Scheme formed by the Central Govt. to provide compensation to the victims of "Hit and Run " motor accident. The amount of compensation is Rs. 25,000/- in the event of death and Rs. 12,500/- for grievous hurt. 26. What are the insurance policies that cover property ? A. Insurance policies like Standard Fire & Special Perils Policy, Marine (Cargo), Marine (Hull), Engineering and Burglary Insurance policies cover various types of properties. 27. What does Burglary Insurance cover ? A. It covers theft of property after actual forcible and violent entry or exit. 28. Which policy best suits to household ? A. Householder's Insurance Policy comprising of 10 sections that covers most of the risks faced by a household. 29. Is there any comprehensive available for a shopkeeper ? A. Shopkeeper's Insurance Policy
policy
30. Is there any policy available to cover the accompanied baggage during travel ? A. Baggage Insurance 31. What does Mediclaim Policy cover ? A. The policy provides for reimbursement of
hospitalization/ domiciliary hospitalization expenses for illness/diseases suffered or accidental injuries sustained during the policy period. 32. What are the options of buying a policy? A. A customer can buy a policy directly from a Insurance Company or through any intermediary such as w Insurance Broker w Insurance Agent w Online portals 33. Can a Insurance policy returned if the customer is not satisfied? A. Yes, if the customer is not satisfied with the conditions of policy or if there is any misselling from insurance company or agent it can return the policy within 15 days free look period from the date he receives the policy document. 34. Can a Insurance cover start if the cheque is dishonoured? A. Insurance is governed by the concept of 64 VB. Unless the premium is received by the insurance company in advance cover does not commence. 35. Can a consumer who is not satisfied with surveyors report approach IRDA for appointing a different surveyor?. A. Yes, IRDA has the power to appoint a surveyor in case of dispute.
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The Insurance Times
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Glossary Acceptance : The reception of something by another with the intention of retainment as indicated by the action of the receiver. In the case of a contract, acceptance indicates and implies agreement to terms and propositions as well as proposal by which a contract is made and the various parties of the contract bound. Accident, hit and run : Hit and run accident is “an accident arising out of the use of a motor vehicle or motor vehicles the identity whereof cannot be ascertained in spite of reasonable efforts for the purpose”. Section 163 of the Motor Vehicles Act, 1988 provides that the Central Government may establish a fund known as the Solatium Fund to be utilized for paying compensation in respect of death or grievous hurt to persons resulting from Hit and Run Motor Accidents. Act liability only : Insurance to cover only that liability of the insured which is created by some specific provision of any act, statute or law, like Act Liability Insurance only in respect of motor vehicles as per provisions of the Motor Vehicles Act. Actuary: A person trained in mathematics whose job is to apply the theory of probability to the business of insurance and advise in situations involving probability. Adjuster: Person responsible for the evaluation and settlement of an insured claim. An adjuster may be an employee of an insurer, or an individual operating independently and engaged by an insurer or insured to adjust a particular loss or claim.
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The Insurance Times
Advance premium: The payment made at the start or beginning of the period covered by the insurance policy. Agreed Bank Clause A provision in the insurance contract under which the insurer obligates itself to pay the mortgagee even if the owner breaches some contract condition so long as the breach was not within the control or knowledge of the mortgagee. Arbitration : An alternative to litigation by submitting a disputed matter to selected parties for their award or decision. Assessor : A person who determines the amount of a loss, the term describes an individual or firm, in contrast to a claim official or the insurer’s staff. Assignment : The transfer of rights under a contract. Average : (i) Synonym for “loss”, derived, from the French and used primarily in ocean marine insurance. (ii) Arithmetic mean, or the total of a series of values divided by the number of values making up the total. Breach: The art of breaking used in such phrases as breach of conduct, breach of privilege, breach of warranty, etc. Cancellation: The termination of an insurance contract by an insurer or an insured prior to the end of the policy
term. Insurance contracts give insurers and insureds varying cancellation rights. C&F: Cost and freight. The seller assumes the responsibility for carriage of goods to the agreed point of destination but does not undertake the responsibility of insurance which responsibility is that of the buyer. C.I.F.: Cost including insurance charges & freight, a shipment term under which the seller assumes the responsibility for the insurance, and the carriage of goods to the agreed point of destination. These charges are indicated in the invoice along with other charges. Claim: (01) A demand by the insured for payment under his policy. Claim covers loss caused by perils insured against. The insured is entitled to lodge the claim and recover the loss from insurance company. Claim is a demand for payment under an insurance contract or bond. (02) Estimated or actual amount demanded. Coinsurer: One who shares a loss under an insurance policy or policies. An insurer who shares with others in coinsurance. Commission, reinsurance : Profit Commission : An additional commission payable by the reinsurers to the ceding company as a percentage of profits derived from the business. Super profit commission : Overriding profit commission payable in addition to the original profit commission particularly under retrocession and/or reciprocal treaties. Overriding commission : Commission payable in addition to the original commission particularly under retrocession treaties. Consideration : Consideration consists of some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by other. In the case of insurance contracts the consideration moving from the insured to the insurer is the premium and the
consideration moving from the insurer to the insured is the promise to indemnify. In insurance the consideration may be statements made on the application and payment of premium. Cover note : A cover not is a document issued in advance pending the issue of the policy, and is normally required if the policy cannot for some reason or other be issued straightaway. Cover notes can also be issued during the course of negotiations to provide cover on a provisional basis. A cover note is not a stamped document but is honoured, all the same, by all parties concerned., Damages : Monetary compensation or indemnity, which may be recovered in the courts, by any entity who has suffered loss through the unlawful act or commission or negligence of another. Declaration policy : A form of policy where the details of the insurance cover are declared by policyholders at regular intervals. Deductible : Portion of an otherwise insured loss borne by the insured. Endorsement : Document attached to a policy which modifies the policy’s original terms. Endorsement overrides the more general provisions in the policy itself. In a way Endorsement as a memorandum added to a policy embodying some alteration to the terms of the policy. Escalation : Increase in the value of the property insured during the period of insurance. Expiry : Termination of a term policy at the end of the term period. Extra premium : An additional amount added to the basic premium which may be required because the risk covered is unusually hazardous. Fraud : Obtaining an advantage by unfair or wrongful
The Insurance Times
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means. Deception or artifice used to deceive or cheat. Gross premium : (i) The original premium before any original discounts have been applied. Gross premium is a raw premium before subtracting cost for reinsurance or at times before any return premium (ii) Premium income without deduction for reinsurance premiums. Hazard : (i) A condition which may create the probability of loss. (ii) A condition or activity which increases the probable frequency or severity of loss. Salvage : Property which escapes destruction or damage, or the residual value of property which is partially damaged. This may have to be sold to determine the amount of loss. Standing charges : Constant charges prevailing throughout whether the turnover is reduced or not. Subrogation : Legal right of one who has paid an obligation owed by another to collect from the party originally allowing the obligation. Thus, an insurer may endeavour to recover from a third party the amount it paid to its insured for a loss. Sue and labour charges : Property insurance provision permitting and requiring an insured to protect any salvage resulting from an insured loss, without prejudicing any right of claim against the insurer. This clause prohibits the insured from failing to use proper care to preserve the property and obligates the insurer to pay the cost of salvage activities. Sum insured : The limit of liability of the insurer to pay under a policy. Uberrimae fidei : “Utmost good faith.” The basic principle of insurance law is that there must be utmost good faith between an insurer and an insured, especially with regard to the nature of the exposure insured.
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The Insurance Times
Underinsurance : (i) A condition in which not enough insurance is carried to cover the value of an exposure, (ii) Condition in which the amount of property insurance is less than the applicable coinsurance requirement. Unexpired risk reserves : Funds set aside by insurers to cover potential liability on policies still in force at the end of the accounting year. Void : An Insurance contract that is prohibited by law and thus cannot be held to be a valid contract. Voidable contract : (i) A contract which one party can choose not to enforce. (ii) contract of insurance or reinsurance in respect of which the underwriter has the right to repudiate liability on the grounds of a breach of good faith by the insured or reinsured, or in the case of a voyage policy, where the voyage has not commenced within a reasonable time after the risk was written. Warranty : Statement made on an application for insurance that the applicant warrants to be true. If untrue in any respect, without the applicant’s knowledge, the warranty has been breached and any insurance relating to that warranty is void, without regard to the materiality of the breach. A statement may be construed as a warranty even though it is not so labelled. Without prejudice : (i) An ex-gratia settlement made by an underwriter on condition that such action shall not be used as a basis for settling a similar loss in the future. (ii) In all correspondence with the insured relating to a claim, the insurers incorporates the word “without prejudice” on the top. The effect of these words is that whatever action the insurers may take in the processing of the claim, they reserve their right to deny liability ultimately if they are legally entitled to do so. In 1846, the first independent reinsurance company was founded in Germany, - the Cologne Reinsurance Company.