InsuranceDekho Bharosa Kar Ke Dekho. STH US UH ao Training Material » Se eo J 4InsuranceDekho ‘Bhoresa Karke Deut Index [Link]. | Particulars Page MODULE 1- INTRODUCTION OF INSURANCE 1. | Concept of insurance 4 2. | Types of Risk 6 3. _ | Method of Handling Risk 6 4, | Objective of Risk Management 7 5. | Whatis Insurance 7 6. _ | Purpose and need of Insurance 8 7. _ | Risk Management Techniques 8 8. _| Considerations before opting for Insurance 10 9. | Role of insurance in society 10 MODULE-2- INDIAN INSURANCE MARKET 1 History of Insurance in India 12 2. __ | Insurance Regulatory and Development Authority of India 15 3. | Types of Insurance Organisations 16 4, | Insurance Intermediaries 7 5. __ | Point of Sales Person 19a InsuranceDekho ‘Bhorota Kar Ke Dekho MODULE - 3 - LEGAL PRINCIPLES OF AN INSURANCE CONTRACT 1. | Legal aspects of an insurance contract 21 2. | Elements of a valid contract 21 3. _| Principles of Insurance 23 4. | Sales Literature 29 5. | Payment of Premium 30 6. _| Premium Receipts 31 7. | Endorsement 31 8 | Warranties 32 9. | Rebate 32 10. | Claim 33 MODULE 4 - INSURANCE PRODUCTS 1. | General Insurance Products 38 2. | Eligible Products for POSP 38 3. | Motor Insurance 39 4. | Coverages 40 5. | Third party claims 45 6. Health Insurance 46 a Householder's Insurance 50} A InsuranceDekho Bharose Kat Ke Dekho 8. Travel Insurance 52 9. Cancellation 53 10. | Personal Accidental Insurance Coverage 54 MODULE- 5 -MISCELLENOUS 11. _ | Grievance Redressal Mechanism 56 12. | Procedure to deal with Complaints 59 13. | Know Your Customer Norms 59 14 | Anti-Money Laundering Procedures 60 15 | Do's and Don'ts for a POSP. 61 16 | Code of Conduct - POSP 62 3a InsuranceDekho BBhorosa Kar Ke Dekho BY CX t Coe Concept of Insurance Asset An ASSET is something of value. It may be physical [like a car or a home] or it may be non: physical [ike reputation and goodwill] or it may be personal [like body parts like a hand, eyes or legs} Risk Risk is the chance that there could be damage or loss to Asset by which it will lose its financial value, It is doubt that outcome of a situation could be not favorable, Peril Peril is cause of loss eg, fire, hail or theft. A specific event which might cause @ loss. Bxamples of Perils Natural Perils- Fire, wind, hail, lood. Human Perils-Thefi, riot, vandalism, negligence. Economic Perils - Stock market declines, inflation, technological advances. Hazard A hazard, on the other hand, is a condition that either increases the chance that a peril will happen. or may cause its effect to be worse if it does, For eg, If lung cancer is a peril then smoking can be a hazard that may increase the chance that the peril (lung cancer) will occur. Examples of Hazards 4InsuranceDekho ‘Bhoresa Kar Ke Bache. Physical hazards - Example: a family history of heart disease, high blood pressure etc. is a physical hazard, Moral hazards - Refer to the habits and activities of the individual that increase risks. They may also arise from a state of mind, i. the attitude and behaviour of the individual. Example: consumption of alcohol, smoking ete. Case Study * On 26 January 2001 one of the worst earthquakes in India’s history hit Gujarat. Thousands of people lost their lives in this tragic event. Lakhs of people were injured, and property worth, thousands of crores of rupees was destroyed. The epicentre of the earthquake was located northeast of Bhuj Town in Western Gujarat. In this case the earthquake was the peril and the poorly constructed houses and schools which were not carthquake resistant and casily collapsed were a hazard, Similarly in the event of a tsunami (Such as the one that happened on 26 December 2004) leading to widespread loss of life and property, the tsunami will be the peril and flimsy houses and buildings constructed near the seashore which are washed away causing their occupants to drown will be a hazard. Remember that while insurance cannot prevent the peril from happening, the resulting loss from the occurrence of the peril can be insured against. ‘Asset Peril Hazard Life Cancer Excessive Smoking Factory Fire Explosive material left Unattended Car ‘Car Necident — | Careless driving by driver Cargo ‘Storm Water seeping in cargo and spoiling; Cargo not packaged in waterproof containers ‘What is important about here? * Firstly, events causing loss must be predictable; if we can anticipate and predict an event, we can prepare for it A vehicle carrying explosives can yield far greater loss from fire than tanker carrying water. Similarly, the probability of a person having a respiratory problem is high in a polluted city or the individual engaged in horse racing has a higher risk of accidental injury than one who sits in ashop Secondly, such unpredictable and untoward events are often a cause of financial loss and grief. ‘What about natural wear and tear?InsuranceDekho Bhorosa Kar Ke Dskho * Tris true that nothing lasts forever. Every asset has finite lifetime during which itis functional, and yields benefits. * At some future date its value becomes nil ‘This is a natural process and we discard or change our mobiles, our washing machines and our clothes when they are worn out. Therefore, losses arising out of normal wear and tear are not covered in insurance. Types of Risks Dynamic risk - It arises from changes in economy like changes in prices, consumer tastes, income and technology. May benefit society in long run. Static risk — It will arise without any change in economy like dishonesty. Pure risks - ‘There is no probability of gain, only the possibilities of loss or no loss, Example fire. If it happens there is loss Speculative risks — It offers the possibility of gain or of loss. fon horses or stock marker speculation. hese are not insurable. gambling Fundamental risks — It affect large populations. Their impact is widespread and tends. to be catastrophic. Examples of fundamental or systemic risks are wars, droughts, floods and earthquakes and terrorist attacks. Particular risks — Its felt by individual rather than entire group. Most insurable risks are particular risks, like robbery or burning of house. Financial Risks — It involves financial loss. In insurance we are concerned with risks involving financial loss. Methods of Handling Risks * Avoiding Risk- Avoiding risk altogether. e.g. avoid the risk of financial loss in the stock market by not investing in it * Controlling Risk- Take steps to prevent or reduce losses. eg, @ cloth merchant can reduce likelihood of a fire in his godown by banning smoking in the godown. * Accepting Risk - To accept or retain, risk and assume all financial responsibility for loss arising due to that risk, * ‘Transferring Risk: Transfer risk to another party, shifting the financial responsibility for that risk to the other party, generally in exchange for a fee. eg insurance.InsuranceDekho Objectives of Risk Management “The objective of risk management is to loss prevention or to reduce the extent of loss. This requires taking steps before any event has occurred like wearing, helmet or seat belt to prevent injury in case of an accident, What does risk management leads to - a) Por industry and economy ~ a organisation facing risk secks to prepare for possible happening in financial terms so that it continues on projected growth path even after loss. b) Reduction in Anxiety ~ Risk management reduce fear created because of uncertainty and. costs. ©) For meeting externally imposed obligations - Risk management satisfies responsibilities, imposed by others like bankers where there is requirement of insured property as collateral 4) Social Responsibility - Measures taken prior to loss contributes prevention and reduction of fear of loss. What is Insurance? Insurance is nothing but a tisk transfer mechanism wherein the person taking out i transfers their tisk to the insurance company in return for a payment. surance Insurance relates to the protection of the economic value of assets. An assetis valuable to its owner because they expect some benefits from it. ‘The benefit can be in the form of income generated from the asset (giving a car on rent) or convenience (using the car for their own travel). Insurance cannot prevent the event insured for from happening, It can only provide compensation for the loss that comes as a result of the happening of insured event. Insurance companies collect premiums from people from all those who are exposed to the same risks — and put the money into a tisk pool Not everyone will experience the happening of an insured event at the same time, but those who do are compensated from this risk pool Law of large numbers - Larger the pool, more predictable the amount of losses in a given period. Since not all members of the pool are the same age or in the same health condition, we can assume notall of them will be making a claim at the same time, For eg, out of the 1,000 individuals insured by an insurance company, if the probability of death is 1% then the company will have to pay claims for 10 people. For example ‘There are 10,000 people in the group. The everyone in the group has Life Insurance of Rs, 50,000/- each. It is assumed that out of these, 10 persons will die in a year. Since everyone in the group has sum insured of Rs 50,000, the total amount of Rs 5,00,000 will have to be paid to survivors of these persons. If each person in the group contributes Rs.100/-, the common fund would be Rs.10,00,000/-. This would be enough to pay Rs.50,000 to each of the 10 suffered lives. ‘Thus 10,000 persons share the tisk of 10 lives.InsuranceDekho Purpose and need for Insurance Insurance reduces burdens Burden of risk refers to the costs, losses and disabilities one has to bear as a result of being exposed to-a given loss situation/event. “There are two types of risk burdens that one carries ~ primary and secondary. a) Primary burden of risk ‘The primary burden of risk con! 's that are suffered by households (and business units), as a result of pure risk events. ‘These losses are often direct and measurable and can be easi compensated for by insurance. For example, when a factory gets destroyed by fire, the actual value of goods damaged or destroyed can be estimated and the compensation can be paid to the one who suffers such loss. If an individual undergoes a heart surgery, the medical cost of the same is known and compensated. In addition, there may be some indirect losses. For example, a fire may interrupt business operations and lead to loss of profits which also can be estimated, and the compensation can be paid to the one who suffers such a loss. ») Secondary burden of risk Suppose no such event occurs and there is no loss. Does it mean that those who are exposed to the peril carry no burden? ‘The answer is that apart from the primary burden, one also carries a secondary burden of risk, ‘The secondary burden of risk consists of costs and strains that one has to bear merely from the fact that one is exposed to a loss event. Even if the said event does not occur, these burdens have still to be borne, Let us understand some of these burdens: arand anxiet there is physical and mental strain caused by "The anxiety may vary from son to person, but itis present and stress and affect a person’s wellbeing. fi. Secondly when one is uncertiin about whether a loss would occur or not, the prudent thing to do would be to set aside a reserve fund to meet such an eventuality. There is a cost involved in keeping such a fund. For instance, such fands may be held in a liquid form and yield low returns, ca By transferring the risk to an insurer, it becomes possible to enjoy peace of mind, invest funds that would otherwise have been set aside as a reserve, and plan one’s business more effectively. It is precisely for these reasons that insurance is needed. Risk Management TechniquesInsuranceDekho: Another question one may ask is whether insurance is the right solution to all kinds of risk situations, The answer is, ‘No’. Insurance is only one of the methods by which individuals may seck to manage their risks. Here they transfer the risks they face to an insurance company. However, there are some other methods, of dealing with risks, which are explained below: 1. Risk avoidance Controlling risk by avoiding a loss situation is known as risk avoidance. Thus, one may try to avoid any property, person or activity with which an exposure may be associated. For example i. One may refuse to bear certain manufacturing risks by not getting into manufacturing, activity and contracting out the manufacturing to someone else. ii, One may not venture outside the house for fear of meeting with an accident or may not travel atall for fear of falling ill when abroad. 2. Risk retention One tries to manage the impact of risk and decides to bear the risk and its effects by oneself. This, is known as self-insurance, For example, a business house may decide, based on experience about its capacity to bear small, losses up to a certain limit, to retain the risk with itself 3, Risk reduction and control ‘This is a more practical and relevant approach than risk avoidance. It means taking steps to lower the chance of occurrence of a loss and/or to reduce severity of its impact if such loss should occur. Important ‘The measures to reduce chance of occurrence are known as, ‘Loss Prevention”. The measures to reduce degree of loss are called, Loss Reduction”. Risk reduction involves reducing the frequency and/or sizes of losses through one or more of: 2) Education and training, such as holding regulas “ire drills” for employees, or ensuring adequate training of drivers, forklift operators, wearing of helmets and seat belts and so on. One example of this can be educating schoo! going children to avoid junk food, so that they do not fall sick. b) Making Environmental changes, such as improving “physical” conditions, eg. better locks on. doors, bars or shutters on windows, installing burglar or fire alarms or extinguishers. The State can take measures to curb pollution and noise levels to improve the health status of its people. Regular spraying of Malaria medicine helps in prevention of outbreak of the disease. ©) Changes made in dangerous or hazardous operations, while using machinery and equipment or in the performance of other tasks. For example, leading a healthy lifestyle and eating properly at the right time helps in reducing the incidence of falling ill. 9InsuranceDekho Bharosa Kar Ke Detho 4) Separation, spreading out various items of property into varied locations rather than concentrating them at one location, is a method to control risks. The idea is, if a mishap were to occur in one location, its impact could be reduced by not keeping everything at that one place. For instance, one could reduce the loss of inventory by storing it in different warehouses, Even if one of these were to be destroyed, the impact would be reduced considerably. 4, Risk financing ‘This refers to the provision of funds to meet losses that may occur a) Risk retention through self-financing involves self-payment for any losses as they occur. In this process the firm assumes and finances its own risk, either through its own or borrowed funds, this is known as self-insurance. The firm may also engage in various tisk reduction methods to make the loss impact small enough to be retained by the firm. b) Risk transfer is an alternat responsibility For losses to another party. Here the losses that may arise as a result ofa fortuitous event (or peril) are transferred to another entity ©) Insurance is one of the major forms of risk transfer, and it permits uncertainty to be replaced by certainty through insurance indemnity. to risk retention, Risk transfer involves transferring the Considerations before opting for Insurance When deciding whether to insure or not, one needs to weigh the cost of transferring the risk against the cost of bearing the loss, that may arise, oneself. The cost of transferring the risk is the insurance premium, The best situations for insurance would be where the probability is very low, but the loss, impact could be very high. In such instances, the cost of transfersing the risk through its insurance {the premium) would be much lower while the cost of bearing it on oneself would be very high. a) Don ‘t tisk a lor for a little: A reasonable relationship must be there between the cost of transferring the risk and the value derived. b) Don't risk more than you can afford to lose: If the loss that can arise as a result of an event is so large that it can lead to a situation that is near bankruptcy, retention of the risk would not appear to be realistic and appropriate. For example, what would happen if a large oil refinery were to be destroyed or damaged? Could a company afford to bear the loss? Role of insurance in society Insurance companies play an important role in a country’s economic development. They are contributing in a significant sense to ensuring that the wealth of the country is protected and preserved. Some of their contributions are given below. 10InsuranceDekho Bhoroea Kar Ke Dako a) Their investments benefit the society at large. An insurance company’s strength lies in the fact that huge amounts are collected and pooled together in the form of premiums. b) These funds are collected and held for the benefit of the policyholders. Insurance companies are required to keep this aspect in mind and make all their decisions in dealing. with these funds in ways that benefit the community. This applies also to its investments. That is why successful insurance companies would not be found investing in speculative ventures ie. stocks and shares. ©) The system of insurance provides numerous direct and indirect benefits to the individual, his family, to industry and commerce and to the community and the nation as a whole. The insured - both individuals and enterprises - are directly benefitted because they are protected from the consequences of the loss that may be caused by an accident of fortuitous event. Insurance, thus, in a sense protects the capital in industry and releases the capital for further expansion and development of business and industry. 4) Insurance removes the fear, worry and anxiety associated with one’s Future and thus encourages free investment of capital in business enterprises and promotes efficient use of existing resources. Thus, insurance encourages commercial and industrial development along, with generation of employment opportunities, thereby contributing to a healthy economy and increased national productivity. ©) A bank or financial institution may not advance loans on property unless itis insured against loss or damage by insurable perils. Most of them insist on assigning the policy as collateral security. ) Before acceptance of a tisk, insurers arrange survey and inspection of the property to be insured, by qualified engineers and other experts. They not only assess the risk for rating purposes but also suggest and recommend to the insured, various improvements in the risk, which will attract lower rates of premium. 2) Insurance ranks with export trade, shipping and banking services as an earner of foreign exchange to the country. Indian insurers operate in more than 30 countries. These operations eam foreign exchange and represent invisible exports. h) Insurers are closely associated with several agencies and institutions engaged in fire loss prevention, cargo loss prevention, industrial safety and road safety. uwInsuranceDekho Module 2 SRR ict el cad History of Insurance in India 1818-1829 | First insurance company: in 1818 the Oriental Life Insurance Company in Kolkata alcutta) was the first company to start a life insurance business in India However, the company failed in 1834 1870 Following the enactment of the British Insurance Act 1870, the last three decades, of the nineteenth century saw the creation of the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) in the Bombay Residency 1912 The Indian Life Assurance Companies Act 1912 was the first statutory measure to regulate life business. 1938 To protect the interest of the insuring public, the cartier legislation was consolidated and amended by the Insurance Act 1938 which gave the Government effective control over the activities of insurers sed, 1972 ‘The General Insurance Business ( ization) Act 1972 (GIBNA) was 1993 Malhotra committee recommended, among other things, that the private sector and foreign companies (but only through a joint venture with an Indian partnet) be permitted to enter the insurance industry. 1999 1999 Formation of the IRDA 12InsuranceDekho ‘Bhorera Karke Dekh Indian Insurance Market fers LL pares Cee Eh ree Bocagecac Prony Pte ears 10 ni === Ls mses Ls 13InsuranceDekho ‘Bhorora Karke Dekh * Post-liberalisation, the insurance industry in India has recorded significant growth. The Indian insurance industry is expected to grow to Rs 19,56,920 crore in Financial Year 2020, This is backed by the solid economic growth and higher personal disposable incomes in the country. © Overall insurance penetsation in India reached 3.69 per cent in 2017 from 2.71 per cent in 2001. Gross premiums written in India reached Rs 5,78,000 crore in Financial Year 2018-19, with Rs 4,08,000 crore from life insurance and Rs 1,69,000 crore from non-life insurance. The market share of private sector companies in the non-life insurance market rose from 13.12 pet cent in Financial Year 2003 to 55.7 per cent in Financial Year 2019-20 (up to April 2019). In life insurance segment, private players had a market share of 25.29 per cent in new business in FY19. © Government has increased Foreign Direct Investment (FDI) limit in Insurance sector from 26 per cent t0 49 per cent. This is targeted to attract investments in the sector. As per Union Budget 2019-20, 100 per cent foreign direct investment (FDI) has been permitted for insurance intermediaries. * The insurance industry of India consists of 53 insurance companies of which 24 are in life insurance business and 29 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. © Out of 29 non-life insurance companies, there are six public sector insurers, which include two specialised insurers namely Agriculture Insurance Company Ltd for Crop Insurance and Export Credit Guarantee Corporation of India for Credit Insurance. * Moreover, there are 5 private sector insurers are registered to underwrite policies exclusively in Health, Personal Accident and Travel insurance segments. ‘They are Star Health and Allied Insurance Company Ltd, Apollo Munich Health Insurance Company Ltd, Max Bupa Health Insurance Company Ltd, Religire Health Insurance Company Ltd and Cigna TTK Health Insurance Company Ltd. # The reinsurance programmes of Indian direct insurance companies transacting direct insurance business are supported by Indian Reinsurer/s, Foreign Reinsurer Branches( FRBs), Llyod's India(including its syndicates and service companies) and the Cross Border Reinsurers * Other stakeholders in Indian Insurance market include approved insurance agents, licensed Corporate Agents, POSPs, Common Service Centres, Web-Aggregators, Surveyors and Third- Party Administrators Servicing Health Insurance claims. In 2017, insurance sector in India saw 10 merger and acquisition (McA) deals worth US$ 903 million. Enrolments under the Pradhan Mantri Suraksha Bimas Yojana (PMSBY) reached 130.41 million in 2017-18. National Health Protection Scheme was announced under Budget 2018-19 as a part of Ayushman Bharat. The scheme will provide insurance cover of up to Rs 500,000 (USS 7,723) to more than 100 million vulnerable families in India. * Going forward, increasing life expectancy, favourable savings and greater employment in the private sector is expected to fuel demand for pension plans. Likewise, strong growth in the automotive industry over the next decade would be a key driver for the motor insurance market. 14| InsuranceDekho ‘herosa Kar Ke Dekho A =] IRDA Insurance Regulatory and Development Authority of India ‘The Insurance Regulatory and Development Authority of India (IRDAD) is an autonomous, statutory body tasked with regulating and promoting the insurance and re-insurance industries in India, It was constituted by the Insurance Regulatory and Development Authority Act, 1999, an Act of Parliament passed by the Government of India. ‘The agency's headquarters are in Hyderabad, Telangana, where it moved from Delhi in 2001 IRDAL is a 10-member body including the chairman, five full-time and four part-time members appointed by the government of India Functions of IRDAI ‘The functions of the IRDAT are defined in Section 14 of the IRDAT Act, 1999, and include: suing, renewing, modifying, withdrawing, suspending of cancelling registrations Protecting policyholder interests ecifying qualifications, the code of conduct and training for intermediaries and agents ing the code of conduct for surveyors and loss as * Sp # Promoting efficiency in the conduct of insurance businesses * Promoting and regulating professional organisations connected with the insurance and re- insurance industry ‘© Levying fees and other charges Inspecting and investigating insurers, intermediaries and other relevant organisations * Regulating sates, advantages, terms and conditions which may be offered by insurers not covered by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938) Specifying how books should be kept ‘Regulating company investment of funds Regulating a margin of solvency # Adjudicating disputes berween insurers and intermediaries or insurance intermediaries ‘Supervising the Tariff Advisory Committee * Specifying the percentage of premium income to finance s professional organisations hemes for promoting and regulating Specifying the percentage of life- and general-insurance business undertaken in the rural or social sector ‘Specifying the form and the manner in which books of accounts shall be maintained, and statement of accounts shall be rendered by insurers and other insurer intermediaries, 15InsuranceDekho ‘horosa Kor Ke Dako Insurer A company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. ‘Types of Insurance Organisations Insurance | Life insurance Nondlife insurance Reinsurance Life Insurance Life insurance companies cover risks that relate to human lives. They offer different benefits under different types of products and cover the risk of early death, as well as the risk of living into old age. Under traditional plans, like term insurance plans, insurance companies provide death cover. ‘Non-Life insurance companies Non-life insurance companies generally cover risks other than those relating to human lives. The ‘exceptions to this are personal accident and health insurance, which are provided by non-life insurance companies. ll assets are exposed to various risks: they can be damaged or destroyed by fire, earthquake, riot, theft, flooding, cyclones etc. IF the asset is damaged by any of these risks, the owner will be at a disadvantage and they will lose the income or the convenience the asset provided. Non-lfe insurance companies offer products that cover these risks and compensate the ‘owner should the asset be damaged by one of them. For example, Home Insurance policy, Private Car Policy, Health Insurance Policy, Fire and allied Peril policy et. Reinsurance companies Insurance companies can only take on so much tisk. Once that limit is reached, the insurer itself is exposed to the risk of loss. When this happens, insurers look to transfer some of their risks to someone else to shield themselves from overexposure. This is where reinsurance companies come into use. A reinsurance company is an insurer for the insurance company. 16} A InsuranceDekho ‘Bhoroso Kor Ke Dako Insurance Intermediaries Insurance Intermediary isan entity oF a person, other than Insurer and Tasured, and takes active participation in the process of sale of insurance and/or post sales-servicing. Insurance Intermediaries, play an important role in fallilment of the insurance and also provides required support to the Insurers in key areas. Individual agents -These are engaged by insurance companies and given the required training, Brokers ~The Brokers are representative of clients Its there job to select best insurance product available for client. For this they have to understand risk philosophy of the client and research into all products available fom insurers and to provide comparison to the client. The Brokers can ‘engage all insurance companies. Insurance POSPs - These can sell the products of a number of life insurance companies. They hhave the advantage of being able to compare the insurance products of various insurance ‘companies and then offer a plan that best suits the requirements of the customer. The POSP represents the client: they keep in mind the customer's requirements rather than favouring any specific products of any specific insurance company. Web- aggregator /ISNP websites “These use the internet to collect together and provide quotes from various life insurance companies. An individual can input their details and compare quotes from different companies. They can then choose the one that best suits their needs. ‘Underwriters- These decide whether to accept or reject the insurance proposal. If the proposal is to be accepted, then the underwriter decides at what price it should be accepted. Actuaries - These calculate the standard price of products. They take into account statistical data and the past claims experience of the company. Apart from pricing individual products, they also do an overall financial assessment of the insurance company from time to time to make sure that the company has sufficient reserves to pay for future liabilities. 7InsuranceDekho ‘arose Kar Ke Dato Third party Administrators (TPAs) - These do the work of building hospital networks. They also help with approvals at the time of cashless admission to a hospital and with settling the bill with the insurer on discharge. Loss adjusters/surveyors - ‘These do the work of assessing and certifying a loss when a claim is made on the insurance company. They have @ major role to play in non-life insurance business. ‘Training institutes “These have the responsibility of supplying trained manpower to meet the ever-growing need for skilled labour in the insurance industry. The Insurance Institute of India (HID, Insurance Institute of Risk Management (IIRM) and the National Insurance Academy (NIA) are premier training institutes in the field of insurance Insurance Ombudsman — In case of grievance against any insurer the institution of Insurance Ombudsman set up under the Redressal of Public Grievance Rules, 1998. Subject matter of ‘complaints that can be taken up before Insurance Ombudsmen are partial or complete repudiation of claims and delay in settlement, non-issuance of policy, dispute relating to premium and interpretation of clauses in relation to claim. If not satisfied, the policyholder or claimant may ignore the award and go to the court, consumer forum etc., and if the customer consents, the insurer is has to implement the award unless it chooses to approach Court. Self-Regulatory institutions - Self-regulation in insurance is through the Life insurance council and the General insurance council. These Councils include all registered life and general insurance ss their members respectively and are statutory bodies constituted under the Insurance Agents Agents are engaged by insurance companies and they act as the main link between the insurance ‘company and the insured. After passing the prescribed examination and getting their licence, these agents seck and gain insurance business for the insurer. Agents are not on the payroll of the insurance company but are paid commission based on the sales they make ‘Their role is to recommend to clients the right products that address the clients’ needs. At the same time, they must act in the interests of the insurance company by using their unique position of knowing their clients well enough to protect the insurance company from any undue adverse product selection. Agents facilitate the smooth sale of insurance products by assisting their clients with completing the paperwork involved, and after the policy is sold the agent should ensure itis serviced properly until maturity or in the event of a claim. At the time of a claim, the agent should also assist the client to complete the required formalities to ensure quick settlement. Every licensed agent must adhere to the Code of Conduct specified by the IRDA in the Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations 2000 as per Regulation 8, In the Code of Conduct the IRDA gives details as to what an agent shall and shall not do. For instance, the agent should disclose all information relating to the insurance company that they represent and the products they are recommending, They should act in the best interests of the client while at the same time making sure that there is no adverse election against the insurance company 183 A lnsuranceDekho ‘Bhorera kor Ke Dauho Point of Sales Person (POSP) To increase insurance penetration in the country, the industry needs more distributors to travel the last mile. To achieve that goal, what's needed is a simple certification process for these distributors. So, to get such distributors on board quickly, the Insurance Regulatory and Development Authority of India (IRDAI, in 2015, allowed for a new type of distributor, called the point of sale (POSP) person. ‘compared to other insurance distributors such as agents, POSPs and corporate agents, IRDA has allowed these individuals to sell only basic insurance products, which don’t require a lot of underwriting. iven that these individuals have a lower qualification and training threshold, AAs per the regulator, certain class of motor, travel, health and life insurance policies which require very little underwriting as they are based on information provided by the prospect, can be solicited by a POSP. ‘Therefore, the intervention required for such products is minimal and the training and exams for such persons could be of a lesser degree than those for a full-fledged distributor. Further, to ensure faster certification of point of sale persons, the IRDAT has relaxed the certification programme by allowing the insurers or intermediaries hiring POSP to train and ‘examine these individuals in-house based on the recommended model syllabus. A person seeking to become a POSP, must: # be 18 years of age have passed 10th class examination have PAN card # have Aadhar Card ‘© nor be engaged with any other insurance company in any capacity Accordingly, IRDAT has allowed: * in-house training by the insurer or intermediary engaging the POSPP * to conduct an in-house training of 15 hours followed by an in-house examination the POSPP will then issue a certificate and maintain the records for at least 5 years. * No fees to be paid by POSP for training and examination * POSP to enter an written agreement with POSP which specifies terms and conditions Each POSP must follow a Code of Conduct devised by the IRDAT under POSPP regulations, to censure that the interest of the policyholders and prospective policyholders is safeguarded against any malpractices. A POSP can sell following insurance policies 1. Motor Comprehensive Insurance Policy for 2-wheelers, private cars and commercial vehicles 2. Third Party cover for 2-wheelers, private cars and commercial vehicles 19avee Personal Accident policy Home Insurance policy ‘Travel Insurance policy Health Insurance Policy InsuranceDekho ‘Bhorosa Kar Ke DetInsuranceDekho Module -3 SRB ase eRe Cw One ne On tee tas Insurance involves a contractual agreement in which the insurer agrees to provide financial protection against certain specified risks for a price or consideration known as the premium. The contractual agreement takes the form of an insurance policy. Legal aspects of an insurance contract We will now look at some features of an insurance contract and then consider the legal principles that govern insurance contracts in general. ‘The insurance contracts A contract is an agreement between parties, enforceable at law. ‘The provisions of the Indian Contract Act, 1872 govern all contracts in India, including insurance contracts. An insurance policy is a contract entered into between two parties, viz. the company, called the insurer, and the policy holder, called the insured and fulfils the requirements enshrined in the Indian Contract Act, 1872. Elements of a valid contract ‘The elements of a valid contract are: i. Offer and acceptance ii. When one person signifies to another his willingness to do oF to abstain from doing anything with a view to obtaining the assent of the other to such act, he is said to make an offer or proposal. Usu ly, the offer is made by the proposer, and acceptance made by the insurer, 2InsuranceDekho Bhoroea Ker Ke Dako When a person to whom the offer is made signifies his assent thereto, this is deemed to be an acceptance. Hence, when a proposal is accepted, it becomes a promise. ‘The acceptance needs to be communicated to the proposer which results in the formation of a contract. Offer is the initial step where the Proposer submits the Proposal form to the insurer along with the answers to the predefined questions, When a proposer accepts the terms of the insurance plan and signifies his assent by paying the deposit amount, which, on acceptance of the proposal, gets converted to the first premium, the proposal becomes a policy. If any condition is put, it becomes a counteroffer. The policy bond becomes the evidence of the contract. ‘The Acceptance by the insurer of the details contained in the Proposal form, is limited acceptance and is only based on disclosed facts. Any mistepresentations gives the insurer an option to cancel the contract or dishonor claims of insured. Thereby, acceptance is a conditional and limited acceptance only. Issuance of insurance policy by the insurer to the insured is a testament of acceptance by the insurer. Consideration ‘This means that the contract must contain some mutual benefit for both the parties. The premium is the consideration from the insured, and the promise to indemnify, isthe consideration from the iv. Agreement between the parties Both the parties should agree to the same thing in the same sense. In other words, there should be “consensus ad-idem” between both parties, Both the insurance company and the policyholder must agree on the same thing in the same sense. v. Free consent ‘There should be free consent while entering into a contract. Consent is not said to be free when it is caused by © Coercion © Undue influence © Fraud © Misrepresentation © Mistake When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is voidable, ie. the agreement is valid unless declared invalid by any party to contract i, Coercion - Involves pressure applied through criminal means. ii, Undue influence - When a person who is able to dominate the will of another, uses her position to obtain an undue advantage over the other. 22InsuranceDekho ‘Bhorosa Kor Ke Dako iii, Fraud - When a person induces another to act on a false belief that is caused by a representation, he or she does not believe to be true. It can arise either from deliberate concealment of facts or through misrepresenting them. iv. Mistake - Error in one" s knowledge or belief or interpretation of a thing or event. This can lead to an error in understanding and agreement about the subject matter of contract. v. Capacity of the parties Both the parties to the contract must be legally competent to enter into the contract. The policyholder must have attained the age of majority at the time of signing the proposal and. should be of sound mind and not disqualified under law. For example, minors cannot enter into insurance contracts. vi. Legality ‘The object of the contract must be legal, for example, no insurance can be had for illegal acts. Every agreement of which the object oF consideration is unlawfal is void. ‘The object of an insurance contract isa lawful object. Principles of Insurance a) Uberrima Fides or Utmost Good Faith This is one of the fandamental principles of an insurance contract. Also called ubesrima fides, it means that every party to the contract must disclose all material facts relating to the subject matter of insurance. A distinction may be made between Good Faith and Utmost Good Paith. All commercial contracts in general require that good faith shall be observed in their transaction and there shall be no fraud ‘or deceit when giving information. Apart from this legal duty to observe good faith, the seller is not bound to disclose any information about the subject matter of the contract to the buyer. Insurance contracts stand on a different footing. Firstly, the subject matter of the contract is intangible and cannot be easily known through direct observation or experience by the insurer. Again, there are many facts, which by their very nature, may be known only to the proposer. The insurer has to often rely entirely on the latter for information. Hence the proposer has a legal duty to disclos of insurance to the insurers who do not have this information. all material information about the subject matter Rajesh made a proposal for an insurance policy. At the time of applying for the poli suffering from and under treatment for Diabetes. But Rajesh did not disclose this fact to the insurance company. Rajesh was in his thirties, so the insurance company issued the policy without ;, David was asking David to undergo a medical test. Few years down the line, Rajesh “s health deteriorated, and he had to be hospitalized. Rajesh could not recover and died in the next few days. A claim was raised on the insurance company. To the suprise of Rajesh s nominee, the insurance company rejected the claim. In its investigation, the insurance company found out that Rajesh was already suffering from diabetes at the time of applying for the policy and this fact was deliberately hidden by Rajesh. Hence the insurance contract was declared null and void and the claim was rejected. 23' InsuranceDekho ‘Bharosa Kat Ke Dakine Following are some examples of material information that the proposer should disclose while making a proposal: i, Life Insurance: own medical history, family history of hereditary illnesses, habits like smoking, and drinking, absence from work, age, hobbies, financial information like income details of proposer, pre-cxisting life insurance policies, occupation etc. ii, Fire Insurance: construction and usage of building, age of the building, nature of goods in premises etc iii, Marine Insurance: description of goods, method of packing ete. iv. Motor Insuran¢ : description of vehicle, date of purchase, details of driver etc. If utmost good faith is not observed by either party, the contract may be avoided by the other. “This essentially means that no one should be allowed to take advantage of his own wrong especially while entering into a contract of insurance, ‘Material fact has been defined as a fact that would affect the judgment of an insurance underwriter in deciding whether to accept the risk and if so, the rate of premium and the terms and conditions. Section 45 of Insurance Act ~ within 2 years of policy Insurer can cancel the policy if it is of pinion material facts were not disclosed by insured i, Misleading of facts by the insured An executive is suffering from Hypertension and has had a mild heart attack recently, following. which he decides to take a medical policy but does not reveal his true condition. The insurer is thus duped into accepting the proposal due to misepresentation of facts by insured. ii, Misleading of facts by the insurer {An individual has @ congenital hole in the heart and reveals the same in the proposal form. The same is accepted by the insurer and proposer is not informed that pre-existing diseases are not covered for at least 4 years. a) Insurable Interest 24InsuranceDekho Shores Karke Beko Insurable interest is said to exist when an individual stands to gain or benefit from the continued jother individual(s) or property, and at the same time the individual existence or well-being of would suffer a financial lo Property or incon nce if there is damage to the other individual(s) or ‘Three essential elements of insurable interest: 1) ‘There must be property, right, interest, life or potential liability capable of being insured. 2). Such property, right, interest, life or potential liability must he the subject matter of insurance. 3) The insured must bear a legal relationship to the subject matter such that he stands to benefit by the safety of the property, right, interest life or freedom of liability. By the same token, he must stand to lose financially by any loss, damage, injury or creation of ibility Example ‘© Owner of property can insure. © Banks/Financiers/Mortgagee and Mortgagor have insurable interest in vehicle or property for which they have given loan. ‘© Buyers, Sellers, Shipper all have insurable interest in cargo. Self, wife & children. ‘© Owner of the vehicle has insurable interest in, third party, and occupants of car as well as in the vehicle nsurable interest © Everyone h ‘# Executors and Trustees have insurable interest in the property under their charge. Insurance contracts are not gambling transaction and insurable interest must be there. Subject matter of insurance contract is related to financial interest one has in the property to be insured. WHEN INSURABLE INTEREST SHOULD BE PRESENT ‘* In case of Fire & Miscellaneous Insurance: At all the time ie. at the time of effecting insurance as well as at the time of Loss/Claim. ‘* Incase of Marine Insurance: The insurable interests need not to exist at the time of effecting insurance, but it must exist at the time of loss. Exporter, Importer, Shipper and Carrier can affect insurance. ‘© In case of Life insurance: The insurable interest is required to exist at the time of entering a contract.InsuranceDekho Bhorosa Kat Ke Dekho ‘+ Laveful possession of property will normally support insurable interest if possession also, includes responsibilities ie. Future challans, any accident future liabilities while vehicle in use oF not. b) Indemnity Tasurance contract gives financial compensation sufficient to place the insured in same financial position after the loss as he enjoyed immediately before it occurred. ‘Suresh has taken out an individual health insurance policy with a sum insured of Rs. 2,00,000. Suresh falls ill and had to be hospitalised, resulting in a hospital bill of Rs. 40,000. So, in this ‘case the insurance company will compensate (indemnify) Suresh with Rs. 40,000 ‘The insured cannot gain by over-insuring his property. But he will lose by underinsurance. One ‘would then be entitled to indemnity for loss only in the same proportion as one’s insurance. Example, the house, worth Rs. 10 lakhs has only been insured for a sum of Rs. 5 lakhs. If the loss on account of fire is Rs. 60,000, one cannot claim this entire amount. It is deemed that the house owner has insured only to the tune of half its value and he is thus entitled to claim just 50% [Rs. 30,000] of the amount of loss. This is also known as underinsurance. In most types of non-life insurance policies, which deal with insurance of property and liability, the insured is compensated to the extent of actual amount of loss ie. the amount of money needed to replace lost or damaged property at current market prices less depreciation. Indemnity might take one or more of the following modes of settlement: # Cash payment © Repair of a damaged item © Replacement of the lost or damaged item * Restoration, (Reinstatement) for example, rebuilding a house destroyed by fire ) Subrogation Its the process an insurance company uses to recover claim amounts paid to a policy holder from a negligent third pasty. Subrogation can also be defined as surrender of rights by the insured to an insurance company that has paid a claim against the thied party. Mr. Kishore’s household goods were being cattied in Happy Transport service. They got damaged due to driver’s negligence, to the extent of Rs 45,000 and the insurer paid an amount ‘oF Rs 30,000 to Mr. Kishore. The insurer stands subrogated to the extent of only Rs 30,000 and ‘can collect that amount from Happy Transport. How subrogation Arises? 26InsuranceDekho Bhorosa Kar Ke Dekho * Tort: Where insured has sustained some damages, lost tights or incurred liability due to tortuous acts of some other person then the insurer, having indemnified for the loss is entitled to take action to recover the outlay from the wrongdocr. * Contract: Subrogation relates to the rights, which arise out of certain contracts. This may arise custom of the trade to which the contract applies. ‘The other situation where subrogation may arise from contract is where a person has a contractual right to compensation regardless to fault. Insurer will assume the benefits of these rights Statute: In U.K. the insurance company has the right to recover from police for loss to the property for which claim has been paid for the damage sustained due to riot where there i Subject Matter of Insurance: After payment of claim of lost property the insurance company procures the right of taking over the property if recovered. ‘When Subrogation right arises: The right of common law ati admitted the claim and paid it. s when insurance company has Modification of subrogation: The Company can exercise the right before payment of even may not ¢ the right under Knock for Knock agreement. The right may also be waived in case the injury or damage to employee is due to negligence of other employee. 4) Proximate Cause How did the loss occur? Under this rule, insurer looks for the main cause which sets into motion the chain of events producing the loss, which may not necessarily be the last event that immediately preceded the loss ie. itis an event which is closest to, or immediately responsible for causing the loss. Unfortunately, when a loss occurs there will often be a series of events leading up to the incident and so it is sometimes difficult to determine the nearest or proximate cause. For example, a fire might cause a water pipe to burst. Despite the resultant loss being water damage, the fire would siil be considered the proximate cause of the incident. Example 1 - Ajay has car insurance policy which covers damage to car but does not cover theft. Ajay’s car was stolen. Two days later, the police found the car in a damaged condition. Investigation revealed that the thief had banged the car into a tree. Ajay filed a claim with insurance company for the damages to the car. Example 2 - Mr. Pinto, while riding a horse, fell on the ground and had his leg broken, he was lying ‘on the wet ground for a long time before he was taken to hospital. Because of lying on the wet ground, he had fever that developed into pneumonia, finally dying of this cause. Mr Pinto has a Personal Accident policy but no life or health insurance. In example 1 the claim is not admissible as the incident of damage to car was as result of theft which was not covered. In example 2 the claim is admissible as the death was result of accident which was covered. Contribution 27WJ insuranceDekho Sharosa Kar Ke Dekh ‘The principle of “Contribution” implies that if the same property is insured with more than one insurance company, the compensation paid by all the insurers together cannot exceed the actual loss suffered. If insured were to collect the amount of the loss from each insurer fully, insured would make a profit from the loss. This would violate the principle of indemnity. Essentials of Contribution- * Two or more policies must exist © Policies must have common interest * Policies must cover a common peril which gives rise to loss, * Policies must have common subject matter ‘Each policy must be liable for loss ‘Each insurer pay in proportion to the sums insured on the policies. For example, a stock is insured for Rs 6,00,000 with 3 insurance companies in following order Policy A sum Insured Rs. 100,000 Policy B sum Insured Rs. 200,000 Policy C sum Insured Rs, 500,000 Total Rs. 600,000 In case of the loss of Rs 60,000 which works out to 10% of the total sum insured, the share of loss for the three insurers will be Rs.10,000 for insurer A, Rs.20,000 for insurer B and Rs.30,000 for insurer C. Proposal Form Proposal Form is the basis of each insurance contract. It contains disclosure of material facts relating to proposer, upon which the insurer performs underwriting and the premium amount is quoted. 28WJ insuranceDekho ‘Brosa Kare Dako [As per aw: “Proposal form” means a form to be filled in by the prospect in written or electronic or any other format as approved by the Authority, for furnishing all material information as required by the insurer in respect of a risk, in order to enable the insurer to take informed decision in the context of underwriting the tisk ‘The principle of utmost good faith and the duty of disclosure of material information begin with the proposal form for insurance. Salient Features of Proposal Form * Proposal form is a set of pre-defined questions or a questionnaire, seeking responses from the proposer. Proposal form may rary from insurer to insurer and from subject matter to subject matter. * Proposal forms are signed by the proposer, signifying the authenticity of the information provided therein, © Proposal forms are retained by the insurer, as it serves as the basic document of the issued insurance policy. * No policy can be issued without the proposer submitting a proposal form, filled with disclosures relating to the subject-matter. © Depending upon the mode of purchase, proposal form can be digital and in paper form. Declaration - Insurance companies usually add a declaration at the end of the proposal form to be signed by the insurer. This ensures that the insured has filled up the form accurately and understood the facts given therein, so that at the time of a claim there is no scope for disagreements, on account of misrepresentation of facts. This serves the main principle of utmost {good faith on the part of the insured. Sales Literature Sales literature contains information relating to an insurance policy, © Explai ing/Portraying the features of the insurance policy; and Solicitation of the policy Depending upon the volume of the information provided in the sale literature and the medium of publishing, sale literature can be brief like Pamphlets, fliers or can be detailed like Prospectus. Prospectus is the main document of a sales literature as it is the complete set of information that is associated with an insurance policy. Prospectus contains all the information about the respective insurance product Prospectus is the main document and all sales literature is developed by adopting extracts from the prospectus. Since sales literature is used to promote the product, it is to be ensured that the literature is completed correct and is not confusing to the prospects. 29J InsuranceDekho Bharosa Kar Ke Dekh Payment of Premium Premium is the consideration or amount paid by the insured to the insurer for insuring the subject matter of insurance, under a contract of insurance. Section 64 VB of Insurance Act, 1938 a) Section 64 VB of the Insurance Act-1938 provides that no insurer shall assume any risk unless and until the premium is received in advance or is guaranteed to be paid or a deposit is made in advance in the prescribed manner b) Where an insurance agent collects a premium on a policy of insurance on behalf of an insurer, he shall deposit with or dispatch by post to the insurer the premium so collected in fall without deduction of his commission within twenty-four hours of the collection excluding bank and postal holidays ©) Itis also provided that the risk may be assumed only from the date on which the premium has been paid in cash or by cheque. 4) Where the premium is tendered by postal or money order or cheque sent by post, the risk may be assumed on the date on which the money order is booked, or the cheque is posted as the case may be. ©) Any refund of premium which may become due to an insured on account of the cancellation Of policy oF alteration in its terms and conditions or otherwise, shall be paid by the insurer directly to the insured by a crossed or order cheque or by postal / money order and a proper receipt shall be obtained by the insurer from the insured, and such refund shall in no case be credited to the account of the agent In brief 1) All the insurance policies can be only issued once the premium is received by the Insurer. Even if the premium is received by the Agent, then also the policy cannot be issued. 2) All the refunds, in any ll be paid by either directly crediting the account of the applicant/insused or by a cheque in the name of the applicant insured. 3) All the monies collected by the Agents for the policy, shall be forwarded to the insurer without any deduetion, 4) However, the insurer may choose to _pt certain payment methods only 30InsuranceDekho Bharosa Karke Deka Premium Receipts 1) All the payments made to the insurer by the prospects or insured have to be substantiated with premium receipt. 2) A premium receipt is an acknowledgement drawn in the name of the person paying the money by the insurer. 3) For all practical purposes, the premium receipt is an evidence of payment of premium to the insurer by the prospect/insured. Insurance Policy or Insurance Certificate is issued once the premium is realized by the insurer. It is the conclusive document that signifies that the insurance policy has been issued and the risk has been transferred. Insurance Policy documents, basically consists of details like: Name of the insured Address of the insured Subject matter Date of premium receipt Poliey tenure When the renewal is due ‘Terms and conditions related to the policy Address of the Insurer Ombudsman details, ete. Endorsement Endorsement refers to change in the terms and conditions of the insurance policy. Depending upon the type of policy, few changes are allowed that does not result in change of the subject matter or the risk associated thereto. It is attached to the policy and forms part oft. The policy and the endorsement together constitute the evidence of the contract. Endorsements may also be issued during the currency of the policy to record changes / amendments. Endorsements normally required under a policy related tor a) Variations /changes in sum insured b)_ Change of insurable interest by way of sale, mortgage, etc. ©) Extension of insurance to cover additional perils / extension of policy period @)_ Change in risk, eg. change of construction, of occupancy of the building in fire insurance ©) Transfer of property to another location f) Cancellation of insurance 2) Change in name or address etc. 31InsuranceDekho Bharosa Kar Ke Dako Warranties In literal sense, Warranty is an assurance given by one party to the other party, to induce the other party to enter into a transaction, A warranty in an insurance policy is a promise by the is of the ured party that statements affecting the require the insured to make certain valli fontract are true. Most insurance contra ‘warranties. For example, o obtain a health insurance policy, an insured party may have to warrant that he does not suffer from a terminal disea e. Ifa warranty made by an insured party tums out to be untrue, the insurer may cancel the policy and refuse to cover claims. In insurance contracts, the insured must declare that: 1) All the declarations related to the subject matter has been disclosed provided; and 2) All the declarations made are true to the complete knowledge of the insured and nothing is concealed. Itis in the best interest of the insured to give all nd true disclosures, related to the subject-matter. Iallows the insurer to ascertain the actual risk associated with the subject-matter are allows the insurer to arrive at a correct premium quote or if the insurer is willing to accept the risk at all. In the event of complications associated with the authenticity and completeness of the disclosures. ‘Warranties made by the insured in the proposal form can be used against the insured to decline his ‘claim and if the insurer wants, to cancel the policy on grounds of moral turpitude. Rebate Rebate are the incentives provided by either the insurer or the agents to the prospective insured to affect their purchase decision and induce them to purchase insurance policy. Since inducing the prospects with rebates, harms the fair competition in the market the provision of providing rebates is strictly prohibited by the issued regulations. In the Section 41 of The Insurance Act, 1938, itis stated that “Prohibition of Rebates No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to [take out or renew or continue] an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing [or continuing] a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer: [Provided that acceptance by an insurance agent of ‘commission in connection with a policy of life insurance taken out by himself on his own life shall not be deemed to be acceptance of a rebate of premium within the meaning of this sub-section if at the time of such acceptance the insurance agent satisfies the prescribed conditions establishing that he is a bona fide insurance agent employed by the insurer.) 32InsuranceDekho Bhorosa Kar ke Detho Any person making defaule in complying with the provisions of this section shall be punishable with fine which may extend to 3[five hundred rupees)” ‘Therefore, no ins to the prospects wrer oF fors yy agent of the insurer is allowed to offer or promise to offer any rebates ‘tation, retention or brand building purpose. Claim ‘The most important function of an insurance company is to settle claims of policyholders on the happening of a loss event. Insurer fulfils this promise by providing prompt, fair and equitable service in either paying the policyholder or paying claims made agai the insured by a third party 1) Policy conditions provide that the loss be intimated to the insurer immediately. The puspose of an immediate notice is to allow the insurer to investigate a | may result in loss of valuable information relating to the loss. It would also enable the insurer at s early stages. Delays to suggest measures to minimize the loss and to take steps to protect salvage. The notice of loss is to be given as soon as reasonably possible. 2) After this initial check/scratiny, the claim is allotted a number and entered in the claims register, with details ike policy number, name of insured, estimate of amount of loss, date of loss, the claim is now ready to be processed. 3) On receipt of the claim form, from the insured, the insurers decide about investigation and assessment of the loss. Ifthe claim amount is small, the investigation to determine the cause and extent of loss is done, by an officer of the insurers. Othenvise it is condueted by a professional, licensed Surveyor. Surveyors Surveyors are professionals licensed by IRDAI. They are experts in inspecting and evaluating losses in specific areas. Surveyors and loss assessors are hired by general insurance companies normally, at the time of a claim. ‘They inspect the property in question, examine and verify the causes and circumstances of the 1 reports to the insurance company. and submit ‘They also estimate the quantum of the los 33InsuranceDekho ‘Bhorosa Kar Ke Dekno Claims made outside the country in ease of Travel Policy’ or ‘Marine Open Cover’ for exports, are assessed by the claims settling agents abroad named in the policy. ‘These agents may assess the loss and make payment, which is reimbursed by the insurers along, with their settling fees. Alternatively, all the claims papers are collected by the insurance claim settling agents and submitted to the insurers, along with their assessment. Loss Assessment and Claim settlement Claims assessment isthe process of determining whether the loss suffered by the insured is caused. by the insured peril and there is no breach of warranty Sertlement of elaims has to be based on considerations of fairness and equity. For a non-life Insurance company, expeditious settlement of claim is the benchmark of efficiency for its services. Each company has intemal guidelines about time taken in claims processing, which its employees follow. This is generally known by the term “Turnaround time” (TAT). Some insurers have also putin place, facility for the insured to check claim status online from time to time. Some nos insurance companies have also set up claims hub for speedy processing of claims. Important aspects in an insurance claim i The first aspect to be decided is whether the loss is within the scope of the policy. The legal doctrine of proximate cause provides guidelines to decide whether the loss is caused by an. insured peril or an excluded peri. The burden of proof that the loss is within the scope of the policy is upon the insured. However, if the loss is caused by an excluded peril the onus of proof is on the insurer. ii, The second aspect to be decided is whether the insured has complied with policy conditions, especially conditions which are precedent to “liability”. iii, ‘The third aspect is in respect of compliance with warranties. The survey report would indicate whether or not warranties have been complied with. to the observance of utmost good faith by the proposer, during the iv. The fourth aspect rel currency of the policy. ‘vy. On the occurrence of a loss, the insured is expected to actas if he is uninsured. In other words, he has a duty to take measures to minimise the loss. vi. The sixth aspect concerns the determination of the amount payable. The amount of loss payable is subject to the sum insured. However, the amount payable will also depend upon. the following: ‘© The extent of the insured" s insurable interest in the property affected. © The value of salvage ‘© Application of underinsurance ‘* Application of contribution and subrogation conditions 34InsuranceDekho ‘Bharosa Kar Ke Dokno Categories of claim “The claims which are dealt with in insurance policies fall into the following categories: Standard claims ‘These are claims which are clearly within the terms and conditions of the policy. The assessment of claim is done keeping in view scope and the sum insured opted for and other methods of indemnity laid down for various classes of insurance. ‘The claim amount payable by the insurer takes into account various factors like valuation at time of oss, insurable interest, salvage prospects, loss of earnings, loss of use, depreciation, replacement value depending on the policy taken. ii, Non-Standard claims “These are claims where the insured may have committed a breach of condition or warranty. The settlement of these claims is considered subject to rales and regulations framed by the non-life insurance companies. iii, Condition of average or average clause ‘This is a condition in some policies which penalizes the insured for insuring his property at a sum insured less than its actual value known as underinsurance. In the event of a claim the insured gets an amount that is proportionately reduced from his actual loss in accordance to the amount underinsured. iv. Act of God perils - Catastrophic losses Natural perils like storm, cyclone, flood, inundation, and earthquake are termed as “Act of God” perils. These perils may result in losses to many policies of insurer in the affected region. In such major and catastrophic losses, the surveyor is asked to proceed to the loss site immediately for an early assessment and loss minimization efforts. Simultaneously, insurers" officials also visit the scene of loss particularly when the amount involved is large. The purpose of the visit is to obtain an immediate, on the spot idea of the nature and extent of loss. Preliminary reports are also submitted if the surveyors fice some problems regarding the assessment and may desire guidance and instructions from insurers who are thus given an opportunity to discuss the issues with the insured, if necessary In such major and catastrophic losses, the surveyor is asked to proceed to the loss site immediately for an early the scene of loss particularly when the amount involved is large. The puspose of the visit is to ‘obtain an immediate, on the spot idea of the nature and extent of loss. wssessment and loss minimization efforts. Simultaneously, insurers’ officials also visit Preliminary reports are also submitted if the surveyors face some problems in regard to the assessment and may desire guidance and instructions from insurers who are thus given an to discuss the issues with the insured, if neces 35InsuranceDekho Bharosa Kar Ke Doeho v. On account payment Apart from preliminary reports, interim reports are submitted from time to time where repairs and/or replacements are made over a long period. Interim reports also give the insurer an idea of the development of assessment of loss. It also helps in recommendation of "On account payment” of the claim if desired by the insured. This usually happens if the loss is large and the completion of assessment may take some time. If the claim is found to be in order, payment is made to the claimant and entries made in the ‘company records. Appropriate recoveries are made from the co-insurers and reinsurers, if any. In some cases, the insured may not be the person to whom the money is to be paid. Motor Claim Motor third party claims involving death and personal injuries are assessed based on doctors report. ‘These claims are dealt by Motor Accident Claims Tribunal and the amount to be paid is decided by factors like the age and income of the claimant. Chaims involving third party property damage are assessed based on a survey report. # Motor own damage claim is assessed on the basis of surveyor's report. * Te may require police report if third party damage is involved. Health Claims Health insurance claims are assessed cither in house or by third party administrators (PAs) on behalf of the non-life insurance companies. ‘The assessment is based on the medical reports and expert opinion, Discharge vouchers Settlement of the claim is made only after obtaining a discharge under the policy. A sample of discharge receipt for claims (under personal accident insurance) for injusies is worded along the following lines: (may vary from company to company) Name of the Insured Chaim No. Policy No. Received from the Company Ltd. ‘The sum of Rs in full and final settlement of compensation due to me/us on account of injuries sustained by me/us due to accident which occurred on or about the, I/we give this discharge receipt to the Company in fall and final settlement of all my/our claim present or future arising directly or indirectly in respect of the said claim. Date (Signature) 36InsuranceDekho Bharosa Kar Ke Dekno Salvage Salvage generally refers to damaged property. On payment of loss, the salvage belongs to insurers. a7} A InsuranceDekho ‘Bharose Kar Ke Datho Module 4 URANCE PRODUCTS General Insurance Products “The POSP can sell only products, which are: i, Pre-underwritten. ii, Simple to understand. iii, Have standard benefits, iv. Notified by authority v. Filed by insurer under F&U for POSP. - The insurance company shall file the product with the Authority under the file use guidelines for information. Every proposal form, in paper or in paperless form, insurance policy and other related documents shall carry provision to record the Aadhaar card number of the PAN card number in order to tag the policy to the POSP who is selling the said policy - Th POSP in the proposal form and insurance policy. uurance company will record the Aadhaar card number or the PAN card number of the Eligible Products for POSP As notified by IRDA, only the following type of products can be solicited by the POSP in General Insurance including Stand-Alone Health Insurance category i. Motor Comprehensive insurance package policy for two-wheeler, private car and commercial vehicles, ii, Third party liability (Act only) poliey for two-wheeler, private car and commercial vehicle iii, Personal accident policy iv. Travel insurance policy vy. Home insurance policy vi. Fire & allied peril dwelling insurance vii, Hospital cash policy where a fixed benefit in the form of cash for every day of hospitalization with a limit of Rs. 1 lakh per individual viii, Critical illness policy which covers 8-9 critical illness with the ma Rs 3 lakhs per individual ix. ‘The indemnity-based health insurance products may be offered to only individual imum sum insured limit of policyholders excluding groups and government scheme. Upto Rs lacs per life/individual will be the maximum sum insured. 38