“ONLINE CERTIFICATE COURSE ON PROPERTY INSURANCE”

2ND DAY

a)Insurance Documents
b)Intermediaries
c) Product Filling guideline
D)Insurance Regulatory framework in India
e) Concept of Reinsurance
 INSURANCE DOCUMENTS

Proposal Form
Cover note
Policy
Claim Form
Bond of Indemnity/Letter of Subrogation
 PROPOSAL FORM
Definition of Proposal Form
As per IRDAI (Protection of Policyholders’ Interests) Regulations, 2017-

“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 risk, and
in the event of acceptance of the risk, to determine the rates, advantages,
terms and conditions of the cover to be granted.
 PROPOSAL FORM
Some important regulations about Proposal Form –
1) Except in case of a marine insurance cover, or such other covers approved by the Authority exempting
usage of proposal form, a proposal for grant of insurance cover, either for life insurance business or for
general insurance business or for health insurance business, must be evidenced by a document in written
or electronic or any other format as approved by the Authority. It is the duty of the insurer to furnish to
the insured, free of charge, within 30 days of the acceptance of a proposal, a copy of the proposal
submitted by the Insured.
2) In case of marine insurance cover or other insurance covers where a proposal form is not used, the insurer
shall record the information obtained orally or in writing or electronically, and confirm it within a period of
15 days thereof with the prospect and incorporate the information in its cover note or policy.
3) Insurer shall process the proposals with speed and efficiency and the decision on the proposal thereof,
shall be communicated in writing to the proposer within a reasonable period but not exceeding 15 days
from the date of receipt of proposals or any requirements called for by the insurer
4) Where for any reason, the proposal and other connected papers are not filled in by the prospect, the
insurer or the distribution channel shall explain the contents of the form, and a certificate shall be
incorporated at the end of the proposal form from the prospect that the contents of the proposal form
and connected documents have been fully explained to him and he has fully understood the significance
of the proposed contract.
 PROPOSAL FORM
Proposal is subject to the rules & regulations of
All India Fire Tariff
(The property proposed for insurance is not
covered until the proposal is accepted and
premium paid)
9) Would you like to cover Plinth &
Divisional office address & code Additional expenses of rent for an
Foundation along with your buildings Yes □ / No □
Development Officer's Name & alternate accommodation Yes □ / No □
10)Add-On Covers Required
Code Start-up expenses Yes □ / No □
Architects consulting & Engineers
Agents Name & Code Fees ( in excess of 3% claim amount) Yes □ / No □ 11) Whether you have insured the same property with any other Insurance
Company with the same type of coverage. (Give details)
Debris Removal
DETAILS ABOUT PROPOSER
( in excess of 1% claim amount) Yes □ / No □

1) Name of Proposer Deterioration of Stocks in cold storage

12) Whether Insurance was declined by any other Company or imposed
premises on account of
2) Address of Proposer including any Special Conditions (Give details)
their phone, fax No. and e-mail a) Accidental power failures due to
address damage at power station due to an
insured peril; Yes □ / No □ 13) Premium / Claim details for the past 36 months
excluding the expiring policy period Premium Claims
3) Business of Proposer
b) Deterioration of stocks in cold storage
premises due to change in temperature
4) Paid up capital of the firm arising out of loss or damage to the
cold storage machinery(ies) in the
5) Policy to be Issued in favour of Insured's premises due to operation
(list out all the parties who have of insured peril. Yes □ / No □
insurable interest) including the
financial institutions. Forest Fire Yes □ / No □

Impact damage due to insured's

6) Location of risk to be covered - full DETAILS ABOUT BUSINESS COVERED AT THE INSURED LOCATION
own Rail/Road vehicles etc: Yes □ / No □
postal address with pincode
Spontaneous Combustion Yes □ / No □
7) Period of Insurance From 14) The Insured property is
Residence,Office,Shops,Hotels etc Yes □ / No □
To Omission to Insure additions etc. Yes □ / No □

Earthquake(fire and shock) Yes □ / No □ Industrial/Manufacturing risks Yes □ / No □

8) Would you like to delete any of
Spoilage material cover Yes □ / No □ Storages outside industrial risks Yes □ / No □
following covers from the basic cover?
Leakage and contamination cover Yes □ / No □ Tanks / Gas Holders outside Industrial
a. Flood, Cyclone, group of perils Yes □ / No □
Manufacturing risks Yes □ / No □
Temporary removal of stocks Yes □ / No □
b. Riot, Strike & Malicious damage, Utilities located outside Industrial Manufacturing
Terrorism Yes □ / No □ Loss of rent Yes □ / No □ risks Yes □ / No □
 PROPOSAL FORM
15) If used as Shop please declare whether the goods handled are as per b) Indicate whether Annual Maintenance 22)Building wise values (Please include the kutcha buildings also in this list
the following list. If yes, whether the stock value will exceed 5% of contract for the Appliances is in force : Yes □ / No □ and give individual values against such buildings)
shops value
Descrip- Amount M F&F SSP P r o p - To- AGE HT CON-
Fixed Water Spray System Yes □ / No □ tion of in Rs & and ** erty to tal (YRS) (MTS) STRUC-
1.Celluloid goods, 2.Coir Loose, 3.Crackers & Fire Works,
Block Build- A other be in- TION
4.Explosives of any kind, 5.Hay/Straw, 6.Hemp, 7.Jute Loose,
Foam systems Yes □ / No □ ing in- equip- s u red
8.Matches, 9.Methylated Spirit, 10.Nitro-Cellulose Plastics, 11.Oils clud- i ments s ep a -
/Ether/Industrial Solvents and other inflammable liquids flashing at n g rately
and below 32 Deg.C (Closed Cup test), 12.Paints with inflammable Fire alarm systems Yes □ / No □
plinth
base having flash point below 32 Deg.C (Closed Cup test) - Other than
in sealed tins or drums, 13.Varnishes having a Flash point below 32 Gas flooding systems Yes □ / No □
Deg.C (Closed Cup test) - Other than in sealed tins oR
drums,14.Disinfectant liquids and liquid insecticides - Other than in 20)The basis proposed for insurance
sealed tins or drums,15.Vegetable fibres of any kind including Rayon (Bldg/ machinery/ FFF )
Fibre.
Market Value basis Yes □ / No □
16) If used as warehouse / godown (not located in a manufacturing unit)
please give the list of goods stored
Reinstatement Value Basis Yes □ / No □
17) If used as an Industrial Manufacturing unit give products
manufactured at the location proposed.(detailed block plan showing Whether escalation clause is required Yes □ / No □
various facilities to be enclosed)
21) a) Construction Details Please state material used
18) If used as an Industrial Manufacturing unit, please state whether the
factory is working or silent ? i) Walls

19) Fire Protection devices installed ii) Floor

Total
Please Tick the correct answer in the iii) Roof
box below
b) Height of Building Meters ** Indicates those stocks which are covered on normal basis and do not fall
Portable Extinguishers Yes □ / No □ under Serial No.23 A,B, C and D below
c) Age of Building Less than 5 years □ 10-20 years □
Small bore hose reels Yes □ / No □ 23) Special Coverage for Stocks only
Please Tick in the box below and give the amount to be insured against
5-10 years □ above 20 years □
Trailer Pumps/Fire engines Yes □ / No □ each
A) On Floater Basis
a) List out the various blocks and
indicate the type of protection Note: Buildings having walls and/ or roofs of wooden planks/thatched leaves Stocks at various locations (warehouses / godowns and /or open etc.,) can
be covered on floater basis for a single Sum Insured.
provided for each block.
and/or grass/hay of any kind/bamboo/plastic cloth/asphalt cloth/canvas/tarpaulin Tick Amount Rs.
Hydrant System Yes □ / No □

Sprinkler System Yes □ / No □

and the like are treated as "Kutcha" consruction. Floater
Basis
 PROPOSAL FORM
24) Total Sum Insured (as per relevant serial numbers shown against each) Clause/ Risk Rate Ra Sum Pre- Risk Rate 25. Would you like to avail Discount for Voluntary Deductibles: Yes □ / No □
B) On Declaration Basis
Peril code code te In- mium Code code
Clause/ Risk Rate Ra Sum Pre- Risk Rate code sured
Stocks which fluctuate in value can be covered on (monthly) declaration Peril code code te In- mium Code code If the answer is Yes , indicate the choice of Deductible amount:
code sured Rs.------
basis. Omission to Insure
Tick Amount Rs. (Plinth & Foundation) Declaration by Insured
Declaration Basis additions
I/ We hereby declare that the statements made by me / us in this Proposal
alteration Form are true to the best of my / our knowledge and belief and I / We hereby
Note: Architects & Engineers
agree that this declaration shall form the basis of the contract between me /
1. Minimum Sum Insured is Rs.1 Crore, and policy not issued on short Fees extension us and the " .
period basis
2. Stocks in process & stocks stored at Railway sidings are not Earthquake "If any additions or alterations are carried out in the risk proposed after the
Debris Removal
covered submission of this proposal form then the same should be conveyed to the
Deterioration of Stocks Spoilage material cover insurers immediately.
in cold storage
C) On Floater Declaration Basis premises on account of Leakage and Date Place
contamination cover
Stocks which fluctuate in value as well as stored in various locations can be a) Accidental power
failures due to Recommendations of Signature of the Proposer
covered on (monthly) floater declaration basis. Temporary removal of Development
damage at power
stocks Officer / Agent
station due to an
Tick Amount Rs. insured peril;
Additional expenses of
Floater b)Deterioration of rent for an alternate Prohibition of Rebates (Section 4) of the Insurance Act
Declaration Basis stocks in cold accommodation
storage premises
Section 41 of Insurance Act 1938
due tochange in Building wise values
Note:
tempera ture arising
1. Minimum Sum Insured is Rs. out of loss or damage PROHIBITION OF REBATES -
(Stocks Floater Basis)
to the cold storage
2. Crore2.Stocks in process & stocks stored at Railway sidings are not machinery(ies) in the 1. No person shall allow or offer to allow, either directly or indirectly as an
Insured's premises (Stocks Declaration inducement to any person to take out or renew or continue an insurance in
covered due to operation of Basis) respect of any kind of risk relating to lives or property in India, any rebate of
insured peril. the whole or part of the commission payable or any rebate of the premium
D) Stocks stored in open (Stocks Floater shown in the policy; nor shall any person taking out or renewing or continuing
Forest Fire Declaration) a policy accept any rebate, except such rebate as may be allowed in
Locations Amount Rs. Impact damage due to
accordance with the published prospectus or tables of the Insurer.
(Stocks in open - outside
Insured's own vehicle factory compound) Any person making default in complying with the provisions of this section
1.Stocks in open Spontaneous shall be punishable with fine, which may extend to five hundred rupees.
(located outside Combustion Grand Total Ten lakh Rupees
the factory compound)
 Proposal Form
1.Elements of proposal forms Provide information about
a) Insured
b) Details and identity of Property/ies to be insured
c) Good or Bad features associated with the properties and buildings in which it is kept
d) Perils to be covered – with additional covers required or specific perils to be removed
e) Proposed period of insurance
f) Sum insured
g) Past claim experience, if any
h) Denial or imposition of special conditions by other insurer
i) Declaration by insured about veracity of the information provided
j) Signature of the insured
k) Provision of Section 41 of Insurance Act 1938
(1. 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 or 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.
2. ANY PERSON MAKING DEFAULT IN COMPLYING WITH THE PROVISIONS OF THIS SECTION SHALL BE LIABLE FOR A PENALTY WHICH MAY EXTEND TO
RUPEES TEN LAKHS. )
Based on information in the proposal form insurer processes the proposal or decide to ask for more information or may arrange to
inspect the property to get more information. Finally rates and terms of policy is decided.
This entire process of scrutinizing the proposal and deciding about acceptance is known as underwriting. It is duty of the insurer to
inform the proposer about the acceptance/rejection of the proposal.
 Proposal Form
Some Practical Issues with Proposal Form
a) Proposal form filled up with ‘ – ’
It indicates both yes and no. If it is accepted by Insurer the liability will fall on insurer.
For example, if the question “Do you have Fire fighting arrangements?” is answered as ‘-’
and it is accepted as it is, then, subsequently on happening a fire claim insurer can not
deny the same considering that insured do not have Fire fighting arrangement and he has
not disclosed this material fact by answering the question with dash.

b) Questions in Proposal form answered with ‘ ETC ’. The word needs to looked into
properly.
For example, if the question “what are the commodities kept in the godown?” is answered
as “Food grains etc.”, then the word “ETC”may include N number of commodities. It is
better to have clarity about the exact commodities or it is better replace with “and similar
items”.
 Proposal Form
SOME SUPREME COURT CASES INVOLVING PROPOSAL FORM

1) Supreme court in Civil Appeal no 1042 of 2020 has observed that

If the insurance company while accepting the proposal form does not ask the insured to clarify any
ambiguities then the insurance company after accepting the premium cannot urge that there was a wrong
declaration made by the insured. Leaving out the column blank does not mean that there was some
misdeclaration of facts.

2) SC Civil appeal No 562 of 2020: Shree Ambica Medical Stores & Ors …Appellants VS
The Surat People’s Co-operative Bank Limited & Ors …Respondents
Insured was financed by Bank. Bank arranged Fire insurance Rs.25 lakh since 1999 and renewed each year. In 2005 another policy for different
location was insured for Rs.60 lakh by bank by removing STFI cover. Bank paid full amount but Insurer refunded the STFI premium amount and
policy was issued with specific mention that STFI risks are excluded. The policy was sent to Bank who in turn sent the policy to insured and
refund amount was also deposited in Insured’s account. Both the policies have been renewed in 2006 with same terms. There was flood claim in
2006 under both the policies. Insured entertained claim under first policy but denied under second policy. The insured went to court with the
plea that he has not requested Insurer to exclude the STFI. It was proposed by bank who is also the corporate agent of the Insurer. Hence,
Insurer can not deny the liability.
It is decided in favor of Insurer
 Proposal Form
SOME SUPREME COURT CASES INVOLVING PROPOSAL FORM
3) Oriental Insurance Company ... vs Mahendra Construction on 1 April, 2019
The Insured had purchased a hydraulic excavator machine in 2004, which was
insured with New India Assurance Company Limited from 15 November 2004 to 14
November 2005. The excavator caught fire on 12 April 2005, for which a claim was
lodged and settled by this Insurer.
The excavator post repair, was insured with the Oriental from 11 October 2006 to
10 October 2007. The excavator again caught fire on 15 October 2006 and a claim
was lodged with the Insurer who denied the claim for non disclosure of material
facts in proposal form. In proposal form following questions were asked-
(iv)The name and address of the previous insurer;
(v)The previous policy no, and period of insurance;
(vi)The type of cover; and
(vii) Claims lodged during the preceding three years.
SC decided the matter in favor of insurer.
 Cover Note
After acceptance of proposal and getting the premium Insurer is supposed to issue the policy which is the evidence of
insurance contract.
Sometimes it may take some time to prepare the policy by the office in the absence of some information or some other
reasons. In that situation Cover Note is issued as a proof of insurance.
A cover note is a temporary certificate of insurance issued by the Insurer before the issuance of a policy after the Insured has
given a duly filled in proposal form and has paid the premium in full.
• A cover note would incorporate the following:
• Name and address of insured
• Sum insured
• Period of insurance
• Risk covered and Terms : Generally a reference is given about details terms and condition of policy.
• Rate and premium: if rate is not known, the provisional premium
• Description of the risk covered: for example a fire cover note would indicate identification particulars of the building,
its construction and occupancy.
• Serial number of the cover note
• Date of issue
• Validity of cover note is up to 60 days
A cover note is unstamped document and not valid in court.
Now with the computerization cover notes are seldom used as policy can be instantly issued.
 POLICY
• Insurance contract is -
(I)“Adhesion Contracts” – These types of contracts are those which are formed by the
stronger party. It is a sort of, “Opt for it or do not” contract. The stronger party or the
one that has the bargaining power leaves the other party with a choice whether to
accept or reject the contract.
As policy wordings are framed by insurers it is a “Adhesion Contract”.
• Insurance contract is also
(II) Aleatory Contracts –— an agreement concerned with an uncertain event that
provides for unequal transfer of value between the parties.
Insurance policies are aleatory contracts because an insured can pay premiums for
many years without sustaining a covered loss. Conversely, insured sometimes pay
relatively small premiums for a short period and then receive payment for a
substantial loss.
 POLICY
The policy is a formal document which provides an evidence of the contract of insurance. This document has to be
stamped in accordance with the provisions of the Indian Stamp Act, 1899.
A general insurance policy usually contains:
• The name(s) and address(es) of the insured and any other • Action to be taken by the insured upon occurrence of a
person having insurable interest in the subject matter; contingency likely to give rise to a claim under the policy;
• Full description of the property or interest insured; • The obligations of the insured in relation to the subject-
matter of insurance upon occurrence of an event giving rise
• The location/s of the property or interest insured under the
to a claim and the rights of the insurer in the circumstances;
policy and where appropriate, with respective insured
values • Any special conditions ;
• Period of insurance; • Provision for cancellation of the policy on grounds of
misrepresentation, fraud, non-disclosure of material facts
• Sums insured; or non-cooperation of the insured;
• Perils covered and exclusions ; • The address of the insurer to which all communications in
• Any excess / deductible applicable; respect of the policy should be sent;
• The details of the ADD ONS/RIDERs if any;
• Premium payable and where the premium is
provisional subject to adjustment, the basis of • Endorsements
adjustment of premium ; • Details of grievance redressal mechanism and address of
• Policy terms, conditions and warranties ombudsman
 ENDORSEMENT
If certain terms and conditions of the policy need to be modified at the time of issuance, it is done
by setting out the amendments / changes through a document called endorsement.
• It is attached to the policy and forms part of it. The policy and the endorsement together constitute
the evidence of the contract.
• Endorsements may also be issued during the currency of the policy to record changes /
amendments.
• Whenever material information changes, the insured has to advice the insurance company who will
take note of this and incorporate the same as part of the insurance contract through the
endorsement.
• Endorsements normally required under a policy related to:
• Variations /changes in sum insured
• Change of insurable interest by way of sale, mortgage, etc.
• Extension of insurance to cover additional perils / extension of policy period
• Change in risk, e.g. change of construction, or occupancy of the building in fire insurance
• Transfer of property to another location
• Cancellation of insurance
• Change in name or address etc.
 WARRANTIES
A warranty is a condition expressly stated in the policy which has to be literally complied with for validity of the contract.
Warranty is not a separate document. It is part of both cover notes and policy document. It is a condition precedent to the
contract. It must be observed and complied strictly and literally, irrespective of the fact whether it is material to the risk or not. If a
warranty is breached, the policy becomes voidable at the option of the insurers even when it is clearly established that the breach
has not caused or contributed to a particular loss. However, in practice, if the breach of warranty is of a purely technical nature and
does not, in any way, contribute to or aggravate the loss, insurers at their discretion may process the claims according to laid down
norms and guidelines of the company policy (losses can be treated as non-standard claims and settled).
Few Examples of Fire / Burglary Insurances warranties -
• Warranted, that no hazardous goods shall be stored in the insured premises during the currency of policy.
• Silent Risk: Warranted that no manufacturing activity is carried out in the insured premises for consecutive period of 30 days or
more.
• Cigarette Filter Manufacturing: Warranted that no solvents having flash point below 300C are used/stored in the premises
• In Burglary Insurance : It is warranted that the property is guarded by a watchman for twenty four hours. The rates, terms and
conditions of the policy continue to be the same only if the warranties attached to the policy are complied with.
• Warranties may be expressed which is mentioned in the policy or may be implied warranty which is by default applicable as
per law. For example, Marine Insurance Act 1963 provides that in a voyage policy there is an implied warranty that at the
commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured.
 RULES OF INTERPRETATIONS
Contracts of insurance are expressed in writing and the insurance policy wordings are drafted by insurers. These policies have to be
interpreted according to certain well-defined rules of construction or interpretation which have been established by various courts.
The most important rule of construction is that the intention of the parties must prevail and this intention is to be looked for in
the policy itself.
Policy wordings are understood and interpreted as per the following rules:
• An express condition overrides an implied condition except where there is inconsistency in doing so.
• In the event of a contradiction in terms between the standard printed policy form and the typed or handwritten parts,
the typed or handwritten part is deemed to express the intention of the parties in the particular contract, and their
meaning will overrule those of the original printed words.
• If an endorsement contradicts other parts of the contract the meaning of the endorsement will prevail.
• Clauses in italics over-ride the ordinary printed wording where they are inconsistent.
• Clauses printed or typed in the margin of the policy are to be given more importance than the wording within the body of
the policy.
• Clauses attached or pasted to the policy override both marginal clauses and the clauses in the body of the policy.
• Printed wording is over-ridden by typewritten wording or wording impressed by an inked rubber stamp.
• Handwriting takes precedence over typed or impressed wording.
• Finally, the ordinary rules of grammar and punctuation are applied if there is any ambiguity or lack of clarity.
• Words which have a common business or trade meaning will be construed with that meaning unless the context of the
sentence indicates otherwise. Where words are defined by statute, the meaning of that definition will be used, such as
“theft” as in the Indian Penal Code.
• Technical terms must always be given their technical meaning, unless there is an indication to the contrary.
Claim Form
Claim Form
 Claim Form
1. Name and address of the insured and the policy number
2. Date, time, cause and circumstances of the incidence
3. Details of damaged property
4. Sound value of the property at the time of incidence
5. Amount claimed after deduction of salvage value
6. Situation and occupancy of the premises in which the incidence is occurred
7. Capacity in which the insured claims, as owner, mortgagee etc.
8. If any other person is interested in the property damaged
9. If any other insurance is in force upon such property, if so details thereof.
10. Whether reported to Fire Brigade and if so, their report. For all fire claims, where
actual fire has taken place, fire brigade report is to be collected.
11. Declaration duly signed.
 Bond of Indemnity
Bond of Indemnity is required to satisfy the principle of Indemnity. As
explained earlier, this principle stipulates that the insured should not be
benefitted out of claim.
Hence, on payment of claim by insurer if property/ money is recovered the
same becomes the property of Insurer. It should be returned to Insurer.
Through “Bond of Indemnity” the insured binds himself/herself to return the
property if it is recovered by police or any other person subsequently.
However if the value of the recovered property is more than the claim
amount paid, the extra amount is to be returned to the claimant.
Bond of Indemnity is also taken from the claimant to bind the claimant to
return the claim amount if police report found adverse.
For example if police found that burglary was staged by the Insured or with
Insured’s connivance.
Bond of Indemnity- Sample Wordings
 Letter of Subrogation cum Special Power of Attorney

It is also to satisfy the principle of Indemnity.

Through this “Letter of Subrogation cum Special Power of
Attorney” the right and remedy of the insured is transferred
to Insurer who can then take necessary action to recover to
that extent of compensation for the loss, but it must do so in
the name of assured.
Letter of Subrogation cum Special Power of Attorney
Letter of Subrogation cum Special Power of Attorney
 Other Documents
1. Money Receipt – It is issued against receipt of premium or other
payments
2. Discharge Voucher- On settlement of Claims it is being issued by
Insurers..
Regulator has issued the following guideline in 2016 regarding
Advance Discharge Voucher-
• (i) Wherever there are no disputes by the insured/s or claimant/s to the
amount offered by the insurer towards settlement of a claim, the present
system of obtaining the discharge voucher may be continued. However, the
insurers must ensure that the vouchers collected must be dated and complete
in all respects while obtaining the signature/s of the insured/s or claimant/s.
• (ii) If the amount offered is disputed by the insured/s or claimant/s, insurers
would take steps to pay the amount assessed without waiting for the voucher
discharged by the insured/s or claimant/s.
• (iii)Under no circumstances the Discharge vouchers shall be collected under
duress, by coercion, by force or compulsion
 INTERMEDIARIES
An Insurance Intermediary means individual agents, corporate agents including banks and
brokers –they intermediate between the customer and the insurance company.
Insurance Intermediary also includes Surveyors and Third Party Administrators but these
intermediaries are not involved in procurement of business.
Surveyors assess losses on behalf of the insurance companies.
Third Party Administrators(TPA) provide services related to health insurance for insurance
companies.
AGENTS:- a) Individual Agent and b) Composite Agent c) Corporate Agent
a) Individual Agents- i) Should be at least of 18 years of age. ii) Have passed at least 12th
standard or equivalent examination if he/she resides in a place having a population of five
thousand or more as per the last census, or 10th standard otherwise. iii) Has to undergo
minimum 25 hours training iv) Has to pass examinations conducted by Insurance Institute of
India.
b) Composite Insurance Agent – It means an individual who is appointed as an insurance agent
by two or more insurers subject to the condition that he/she shall not act as insurance agent for
more than one life insurer, one general insurer, one health insurer and one each of the mono-line
insurers.
 INTERMEDIARIES
c) Corporate Agent:
(i) A company formed under the Companies Act, 2013 (18 of 2013) or any
enactment thereof or under any previous company law which was in force; or
(ii) A limited liability partnership formed and registered under the Limited Liability
Partnership Act, 2008; or
(iii) A Co-operative Society registered under Co-operative Societies Act, l9l2 or
under any law for registration of co-operative societies or
(iv) a banking company as defined in clause (4A) of section 2 of the Act; or
(v) a corresponding new bank as defined under clause (da) of sub-section (l ) of
section 5 of the Banking Companies Act, 1949 ( l0 of 1949); or
(vi) a regional rural bank established under section 3 of the Regional Rural Banks Act,
1976 (21 of 1976): or
(vii) a Non-Governmental organisation or a micro lending finance organization covered
under the Co-operative Societies Act, 1912 or a Non-Banking Financial Company
 INTERMEDIARIES
a) A Corporate Agent (Life), may have arrangements with a maximum of three life insurers to solicit,
procure and service their insurance Products
b) A Corporate Agent (General), may have arrangements with a maximum of three general insurers to
solicit, procure and service their insurance products. Further, the Corporate Agent (General) shall
solicit, procure and service retail lines of general insurance products and commercial lines of such
insurers having a total sum insured not exceeding rupees five crores per risk for all insurances
combined.
c) A Corporate Agent (Health), may have arrangements with a maximum of three health insurers to
solicit, procure and service their insurance products.
"Corporate Agent (Composite)" means a corporate agent who holds a valid certificate of registration to
act as such, issued by the Authority under these regulations, for solicitation and procurement of insurance
business for life insurers, general insurers and health insurers or combination of any two or all three. In
the case of Corporate Agent (Composite), the conditions as specified in clauses (a) to (c) shall apply.
 INTERMEDIARIES
Broker : (i) A company (ii) A co-operative society (iii) A limited liability partnership Firm
Category of Brokers-
• (a) direct broker (life)
• (b) direct broker (general)
• (c) direct broker (life & general)
• (d) reinsurance broker
• (e) composite broker (“Composite Broker” means an Insurance Broker, registered by the
Authority who for a remuneration and/or a fee, solicits and arranges insurance and/or re-
insurance for its clients with insurers and/or reinsurers located in India and/or abroad; and/or
provides claims.

Broker is the representative of the insured.

 INTERMEDIARIES
• Functions of a direct broker — The functions of a direct broker shall include the following:
• (a) Obtaining detailed information of the client's business and risk management philosophy;
• (b) Familiarizing himself with the client's business and underwriting information so that this
can be explained to an insurer and others;
• (c) Rendering advice on appropriate insurance cover and terms;
• (d) Maintaining detailed knowledge of available insurance markets, as may be applicable;
• (e) Submitting quotation received from insurer/s for consideration of a client;
• (f) Providing requisite underwriting information as required by an insurer in assessing the risk
to decide pricing terms and conditions for cover;
• (g) Acting promptly on instructions from a client and providing him written acknowledgements
and progress reports;
• (h) Assisting clients in paying premium under section 64VB of Insurance Act, 1938 (4 of 1938);
• (i) Assisting in the negotiation of the claims;
• (j) Maintaining proper records of claims;
 INTERMEDIARIES
Web Aggregator : a. A company b. A limited liability partnership recognized by the
Authority to act as an Insurance Web Aggregator. Activities undertaken and functions performed by
Insurance Web Aggregators -
 Display of product comparisons on Insurance Web Aggregator web-site –
 Transmission of leads by Insurance Web Aggregator to the Insurers
 Sale of Insurance Online by Insurance Web Aggregators
 Sale of Insurance by tele-marketing mode and other distance marketing

Remuneration :
1)Leads which are converted into sale of insurance policies will entitle the Insurance Web Aggregator to earn
remuneration as applicable to insurance intermediaries.
2) A flat fee of not exceeding Fifty thousand per year towards each product displayed by the Insurance Web
Aggregator in the comparison charts of its web site subject to an overall ceiling as specified under the rewards
portion specified in the Insurance Regulatory and Development Authority of India (Payment of Commission or
Remuneration or reward to insurance agents and insurance intermediaries) Regulations, 2017 issued by the
Authority.
 INTERMEDIARIES
Insurance Marketing Firm:
It is an entity registered by the Authority to solicit or procure insurance products by employing individuals licensed to
market, distribute and service such other financial products. IMFs are required to have a net worth of 0.5 million rupees,
if the IMF is operating out of only one district (aspirational district), and a net worth of 1 million rupees in all other cases.
Function : The Insurance Marketing Firms (IMF) shall engage Insurance Sales Persons (ISP) for the purpose of soliciting
and procuring insurance products of maximum of two Life insurers, two General insurers and two Health insurers. IMF
shall have option to engage with Agriculture Insurance Company of India Ltd. (AIC) and Export Credit Guarantee
Corporation Ltd.(ECGC). IMFs are also permitted to undertake survey functions through licensed surveyors employed on
its rolls, policy servicing activities and other activities that are permissible to be outsourced by insurers under the
applicable regulatory framework.

Products allowed for Insurance Marketing Firms: The Insurance Marketing Firm shall be allowed to solicit or procure: 1.
all kinds of products sold on individual and / or retail basis, including crop insurance for non-loanee farmers and combi
products. 2. property, group personal accident, group health, GSLI and term insurance policies for Micro, Small and
Medium Enterprises (MSME). The IMF shall not be allowed to solicit and procure commercial lines of business for any
segment except for MSMEs. ( “Combi products” mean any combination of products of life, general and health insurance
as approved by IRDA.)
The payment of remuneration and/ or reward to an Insurance Marketing Firm by an insurer shall be as per Insurance
Regulatory and Development Authority of India (Payment of commission or remuneration or reward to insurance agents
and insurance intermediaries)
 Product Filing Norms with Indian Regulator
For the purpose of these guidelines, the general insurance products shall be
classified into two broad classifications, namely Retail products and
Commercial products. Both of these classifications are made on the basis of
“who buys the product”.
Retail Products : Retail products are those products that are sold to individual
customers including their families. However, there is no bar on selling a retail
product to commercial customers if the insurer feels that the product meets the
insurance needs of a segment of commercial customers. Wherever there is a joint
insurable interest in a subject matter of insurance and one of them is individual,
they will also be treated as Individual customer for the purpose of this product
classification.
Commercial products are those that are sold to entities other than
individuals and will include firms, companies, trusts etc. A product filed
for commercial customers shall not be sold to individual customers.
 Product Filing Norms with Indian Regulator
The insurer shall set up a Product Management Committee(PMC) to review and recommend (i) all the products
that are in existence either continues to be offered/withdraw/modify and (ii) new products proposed to be filed
with the Regulatory Authority.
There are two methods of Filing procedures-
a) File and use method : All retail products and (commercial products offered to commercial customers such as
Micro Small & Medium Enterprises, small shops and establishments, trustees, cooperative societies etc.,)
with a policy Sum Insured up to 5 Crs (for package policies fire section Sum Insured) should follow this
method.
Under this method Product details are to be filed with the regulator and has to obtain their clearance before
they can be sold to public.
a) Use and File method : All Commercial products should follow this method. Under this method product as
approved by PMC may be sold to the customer just after filing with regulator in the prescribed format without
waiting for approval.
PMC(Product Management Committee) should ensure that products are developed as per Company’s Board
approved Policy and pricing are just to support by itself without any cross subsidy from other product/s.
Important features of Insurance Act 1938 and IRDA Act 1999

The primary legislations regulating the Indian insurance sector

comprises the Insurance Act 1938 (the Insurance Act) and the
Insurance Regulatory and Development Authority Act 1999 (the IRDA
Act).
Insurance and reinsurance companies, and insurance intermediaries in
India are governed by the Insurance Regulatory and Development
Authority of India (IRDAI) which has been formed under IRDA Act 1999.
Important features of Insurance Act 1938 and IRDA Act 1999
IRDAI- The powers and functions of the Authority shall include
(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;
(b) protection of the interests of the policy-holders in matters concerning assigning of policy, nomination by policy-holders, insurable interest, settlement of
insurance claim, surrender value of policy and other terms and conditions of contracts of insurance;
(c) specifying requisite qualifications, code of conduct and practical training for Intermediary or insurance intermediaries and agents;
(d) specifying the code of conduct for surveyors and loss assessors;
(e) promoting efficiency in the conduct of insurance business;
(f) promoting and regulating professional organisations connected with the insurance and re-insurance business;
(g) levying fees and other charges for carrying out the purposes of this Act;
(h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, insurance intermediaries and
other organisations connected with the insurance business;
(i) control and regulation of the rates, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and
regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938;
(j) specifying the form and manner in which books of account shall be maintained and statement of accounts, shall be rendered by insurers and other insurance
intermediaries;

(k) regulating investment of funds by insurance companies;

(l) regulating maintenance of margin of solvency;

(m) adjudication of disputes between insurers and intermediaries or insurance intermediaries;

(p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; etc.
Important features of Insurance Act 1938 and IRDA Act 1999
Section 64VB of Insurance Act 1999:
No risk to be assumed unless premium is received in advance.—(1) No insurer shall assume any risk in
India in respect of any insurance business on which premium is not ordinarily payable outside India
unless and until the premium payable is received by him or is guaranteed to be paid by such person in
such manner and within such time as may be prescribed or unless and until deposit of such amount as
may be prescribed, is made in advance in the prescribed manner.

(2) For the purposes of this section, in the case of risks for which premium can be ascertained in
advance, the risk may be assumed not earlier than the date on which the premium has been paid in cash
or by cheque to the insurer. Explanation. —Where the premium is tendered by postal 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.
(3) Any refund of premium which may become due to an insured on account of the cancellation of a
policy or 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.

(4) 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 full without deduction
of his commission within twenty-four hours of the collection excluding bank and postal holidays.
Important features of Insurance Act 1938 and IRDA Act 1999

Solvency Margin :
All Indian Insurers have to maintain prescribed solvency
margin. The solvency margin is the amount of asset over
the liability. It is to be maintained as of now at 150%.
Important features of Insurance Act 1938 and IRDA Act 1999
On and off site Supervision:
Onsite Inspections:
The Authority has the power to call for any information from entities related to
insurance business – Insurance companies and the intermediaries, as may be required
from time to time.
On site inspection is normally carried out on an annual basis which includes inspection
of corporate offices and branch offices of the companies. These inspections are
conducted with view to check compliance with the provisions of Insurance Act, Rules
and regulations framed thereunder.
The inspection may be comprehensive to cover all areas, or may be targeted on one, or
a combination of, key areas. When a market-wide event having an impact on the
insurers occurs, the Supervisor obtains relevant information from the insurers, monitors
developments and issues directions as it may consider necessary. Though there is no
specific requirement, events of importance trigger such action. The supervisor reviews
the “internal controls and checks” at the offices of Insurance companies, as part of on-
site inspection.
Important features of Insurance Act 1938 and IRDA Act 1999
Off-site Inspection:
The primary objective of off-site surveillance is to monitor the financial health of Insurance companies, identifying
companies which show financial deterioration and would be a source for supervisory concerns. This acts as a
trigger for timely remedial action.
The off-site inspection conducted by analyzing periodic statements, returns, reports, policies and compliance
certificates mandated under the directions issued by the Authority from time to time. The periodicity of these
filings is generally annual, half-yearly, quarterly and monthly and are related to business performance, investment
of funds, remuneration details, expenses of management, business statistics, auditor certificates related to various
compliance requirements.
The statutory and the internal auditors are required to audit all the areas of functioning of the Insurance
companies. The particular area of focus is the preparation of accounts of the company to reflect the true and fair
position of the company as at the Balance Sheet date. The auditors also examine compliance or otherwise with all
statutory and regulatory requirements, and in particular whether the Insurance company has been compliant with
the various directions issued by the supervisor. In addition, the Authority relies upon the certifications which form
part of the Management Report. The Board is required to certify that the management has put in place an internal
audit system commensurate with the size and nature of its business and that it is operating effectively.
All Insurance companies are required to publish financial results and other information in the prescribed formats
in newspapers and on their websites at periodic intervals.
 CONCEPT OF REINSURANCE
Reinsurance is the Insurance taken by Insurers.
Reinsurance is a contract under which one party, the reinsurer, undertakes to support
the other party, the cedant, in respect of the latter’s involvement in original risks.
The standard definition of reinsurance in English law was made by Lord Mansfield in
Delver v. Barnes (1807) is:
“A new insurance, affected by a new policy, on the same risk which was before
insured in order to indemnify the underwriters from their previous subscriptions;
and both policies are in existence at the same time”.

From above, a number of important legal considerations arise:

a)reinsurance arrangements are types of insurance contracts:
b) for reinsurance ,there needs to be an original policy of insurance
c) reinsurance may cover all or part of a cedant's liability under an original policy:
d) reinsurance is a separate contract between the cedant and reinsurer to which the
original insured is not a party.
 What is the need of Reinsurance
• INCREASES INSURER’S CAPACITY
• SPREAD OF RISK
• BRINGS FINANCIAL STABILITY
• STABILISATION OF CLAIM RATIO
• MITIGATION OF RISKS OF ACCUMULATION OF CLAIMS UNDER DIFFERENT
CLASSES
• PROTECTION OF SOLVENCY MARGIN
• STABILISE PROFITABILITY
• OTHER-TECHNICAL SUPPORT
• SUPPORT NEW LINE
 HOW RETENTION IS DETERMINED
• NO STANDARD FORMULA
• MANAGEMENT SETS LIMIT AT A LEVEL THEY CAN AFFORD TO RISK THEIR SOLVENCY.

FACTORS INFLUENCING RETENTION

1. ASSET, CAPITAL AND FREE RESERVE 4. Other factors-

2. THE PORTFOLIO OF RISK- a) Competition and rating in the market
A) Larger portfolio – Smaller fluctuation b) Inflation
B) Smaller portfolio- Larger fluctuation c) Reinsurance market
C) Retention is not proportionate to portfolio growth
d) Legal imposition like solvency margin
3. CORPORATE LIQUIDITY
e) Other regulation like currency outgo
A) Long term investment
B) Stock market investment
c) Investment in liquid market
 REINSURANCE-TYPE
Reinsurance

Facultative Treaty

FACULTATIVE REINSURANCE- Negotiated case to case basis . Not obligatory for any party

TREATY REINSURANCE- Obligatory contract, formal wordings are drawn, automatic cover, no
review of individual proposal needed.
 REINSURANCE-TYPE
A) FACULTATIVE

PROPORTIONAL RTEXCESS OF LOSS (Non-proportional)

FACULTATIVE REINSURANCE- Negotiated case to case basis . Not obligatory for any party

TYPE-

A) PROPORTIONATE – say 25% of the sum insured- Claim will also be reimbursed at same proportion
by reinsurer.

B) EXCESS OF LOSS BASIS – Reinsurer reimburses the loss in excess of pre determined amount.
 REINSURANCE-TYPE
B) TREATY

PROPORTIONAL EXCESS OF LOSS

QUOTA SHARE SURPLUS

PER RISK AGGREGATE EXCESS
NAL
C) PER OCCURRENCE

TREATY REINSURANCE- Obligatory contract, formal wordings are drawn, automatic cover, no review of individual proposal needed.
TYPE –
A) PROPORTIONAL - i) QUOTA SHARE- Fixed percentage (say 5%) of all business are ceded to reinsurer who pays the claim in the same
proportion to Insurer.
ii) SURPLUS – Insurer cedes the premium if Sum Insured is beyond retention limit.
 REINSURANCE-TYPE
B) TREATY

EXCESS OF LOSS (Non-proportional)

PER RISK AGGREGATE EXCESS

NA LPER OCCURRENCE
C)
NON- PROPORTIONAL(EXCESS OF LOSS) –
PER RISK - A method by which an insurer may recover losses on an individual risk in excess of a specific per risk retention. If
Loss exceeds the predetermined limit Reinsurer pays the claim to Insurance Company
ii) PER OCCURRENCE - If one event say, in case of flood if total loss out of that single even exceeds the predetermined
limit Reinsurer pays the claim to Insurance Company.
iii) AGGREGATE EXCESS – In whole year if the loss amount or loss percentage exceeds the predetermined amount or percentage
the Reinsurer will pay to Insurance Companies up to their limit of liability.
OBLIGATORY REINSURANCE WITH GIC RE- It is notified every year by IRDA before March. At present is 5%. All Indian Insurer
has to cede 5% of their premium to GIC RE and in turn GIC RE will pay 5% of all claims to respective Insurer.
 REINSURANCE

Reinsurance Commission- Reinsurer pays commission to ceding Insurer for placing business
with them.

Profit Commission :- It is paid to the cedants’ if the reinsurance Treaty generates profit to the
Reinsurers.

Retrocession :- a transaction in which a reinsurer transfers risks it has reinsured to

another insurer/reinsurer
 Recapping for Second Session

• What is the time limit for an Insurer within which proposal is to be processed and the decision of acceptance or rejection is to be
conveyed to the Proposer?
• What are the provisions under Section 41 of Insurance Act 1938
• Why endorsement is issued?
• Which is called Silent Risk?
• Corporate Agent can solicit, procure for how many Insurance Companies?
• Broker represents whom?
• With whom the product is filed?
• What is Retail Products?
• What is the difference between File and Use Method and Use and File Method?
• What is Solvency Margin?
• What is the difference between Onsite Inspection and Offsite Inspection?
• What is Reinsurance?
• What is the difference between Facultative and Treaty Reinsurance?
• What is Retrocession?
• What is the difference between Reinsurance Commission and Profit Commission?