L & T Project Rep

TABLE OF CONTENTS
SR.NO PARTICULARS PAGE.NO
1 Introduction 3
2 Fundamentals & Principles of Insurance 4
3 Insurance Documents 7
4 Insurance Legislations 8
5 Marine Insurance 13
6 Fire Insurance 16
7 Engineering Insurance 19
8 CAR Insurance 19
9 EAR Insurance 22
10 Miscellaneous 25
1 L&T General Insurance

SR.NO. PARTICULARS PAGE NO.
11 Introduction to Underwriting 23
12 Underwriting Policy 30
13 Filing of Products 32
14 Underwriting Practice 38
15 Underwriting of Physical Hazard 42
16 Underwriting of Moral Hazard 45
Reinsurance
17 49
18 Risk Management 53
19 Customer service 59
IRDA regulations 2002 (protection of policy holders interests)

20 63

INTRODUCTION
What is General Insurance?
Insurance other than ‘Life Insurance’ falls under the category of General Insurance. General
Insurance comprises of insurance of property against fire, burglary etc, personal insurance such
as Accident and Health Insurance, and liability insurance which covers legal liabilities. There are
also other covers such as Errors and Omissions insurance for professionals, credit insurance etc.
Non-life insurance companies have products that cover property against Fire and allied perils,
flood storm and inundation, earthquake and so on. There are products that cover property against
burglary, theft etc. The non-life companies also offer policies covering machinery against
breakdown, there are policies that cover the hull of ships and so on. A Marine Cargo policy
covers goods in transit including by sea, air and road. Further, insurance of motor vehicles
against damages and theft forms a major chunk of non-life insurance business.
In respect of insurance of property, it is important that the cover is taken for the actual value of
the property to avoid being imposed a penalty should there be a claim. Where a property is
undervalued for the purposes of insurance, the insured will have to bear a ratable proportion of
the loss. For instance if the value of a property is Rs.100 and it is insured for Rs.50/-, in the event
of a loss to the extent of say Rs.50/-, the maximum claim amount payable would be Rs.25/- (50%
of the loss being borne by the insured for underinsuring the property by 50%). This concept is
quite often not understood by most insured.
Personal insurance covers include policies for Accident, Health etc. Products offering Personal
Accident cover are benefit policies. Health insurance covers offered by non-life insurers are
mainly hospitalization covers either on reimbursement or cashless basis. The cashless service is
offered through Third Party Administrators who have arrangements with various service
providers, i.e., hospitals. The Third Party Administrators also provide service for reimbursement
claims. Sometimes the insurers themselves process reimbursement claims.
Accident and health insurance policies are available for individuals as well as groups. A group
could be a group of employees of an organization or holders of credit cards or deposit holders in
a bank etc. Normally when a group is covered, insurers offer group discounts.
Liability insurance covers such as Motor Third Party Liability Insurance, Workmen’s
Compensation Policy etc offer cover against legal liabilities that may arise under the respective
statutes— Motor Vehicles Act, The Workmen’s Compensation Act etc. Some of the covers such
as the foregoing (Motor Third Party and Workmen’s Compensation policy ) are compulsory by
statute. Liability Insurance not compulsory by statute is also gaining popularity these days. Many
industries insure against Public liability. There are liability covers available for Products as well.
There are general insurance products that are in the nature of package policies offering a
combination of the covers mentioned above. For instance, there are package policies available

for householders, shop keepers and also for professionals such as doctors, chartered accountants
etc. Apart from offering standard covers, insurers also offer customized or tailor-made ones.
Suitable general Insurance covers are necessary for every family. It is important to protect one’s
property, which one might have acquired from one’s hard earned income. A loss or damage to
one’s property can leave one shattered. Losses created by catastrophes such as the tsunami,
earthquakes, cyclones etc have left many homeless and penniless. Such losses can be devastating
but insurance could help mitigate them. Property can be covered, so also the people against
Personal Accident. A Health Insurance policy can provide financial relief to a person undergoing
medical treatment whether due to a disease or an injury.
Industries also need to protect themselves by obtaining insurance covers to protect their building,
machinery, stocks etc. They need to cover their liabilities as well. Financiers insist on insurance.
So, most industries or businesses that are financed by banks and other institutions do obtain
covers. But are they obtaining the right covers? And are they insuring adequately are questions
that need to be given some thought. Also organizations or industries that are self-financed should
ensure that they are protected by insurance.
Most general insurance covers are annual contracts. However, there are few products that are
long-term.
It is important for proposers to read and understand the terms and conditions of a policy before
they enter into an insurance contract. The proposal form needs to be filled in completely and
correctly by a proposer to ensure that the cover is adequate and the right one.
FUNDAMENTALS/ PRINCIPLES OF GENERAL INSURANCE

Contract of insurance
1. When the insured pays the premium and the insurer accepts the risk, the contract of
insurance is contract is concluded. The policy issued by the insurer is the evidence of the
contract.
2. Like any other contracts of insurance is completed when one party accepts the offer made
by the other party. The offer usually comes from the proposer and the offer is known as
the proposal. Insurers indicate acceptance by the issue of a cover note or a policy.
3. No contract is valid unless there is due consideration. In the case of insurance contracts
‘premium’ is the consideration from the insured and the promise to indemnify’ is the
consideration from the insurer.
4. Both the parties should be of the same mind with a common intention. For example, if the
proposer desired fire insurance, and the insurers issue a burglary policy, there is no
consent arising out of common intention

5. The persons to the contract should be competent to contact. Minors and persons of
unsound mind cannot enter into insurance contracts.
6. The object of the contract must be legal and not against public policy. For example/
stolen goods cannot be insured.
7. Insurance contracts are subject to certain special principles evolved under common law in
the U.K. which are generally followed by Indian courts. The five principles are known as
fundamentals or basic principles of law of insurance.
Insurable interest
The owner of property has a right under law to effect insurance on the property if he is
likely to suffer financially when the property is lost or damaged. This legal right to insure
is called insurable interest. Without insurable interest, the contract of insurance will be
void. Because of legal requirements of insurable interest, insurance contracts are not
gambling transactions.
Examples of insurable interest
Ownership of property
A bank as insurable interest in the property on the mortgage of which loans have
been given. The interest is limited to the amount of the loan. Usually, under such
circumstances, the policies are issued in the joint names of the insured and the bank.
A ship owner has insurable interest in the ship owned by him. Cargo owners, both sellers
and buyers, have insurable interest in the goods owned by them.
Time when insurable interest should be present
In fire and miscellaneous insurances, insurable interest must be both at the time of taking
the policy and at the time of loss. For example, if the property insured under a fire
insurance policy is sold and there is a loss after the sale, the insured cannot recover the loss
as he has no insurable interest at the time of loss.
In marine cargo insurance, insurable interest is required at the time of loss. It may not be
present at the time of effecting insurance. An importer of goods may insure the goods
under a marine policy, although at that time, he may not be the owner of the goods.
Ownership of the goods passes from the exporter to the importer when the payment is
made. If goods arrive damaged at destination, and if the importer had paid for the goods,
he can recover the loss and has a policy. In marine hull insurance, insurable interest must
be present both at the time of taking the policy and the time of loss.

Indemnity
The object of the principle of the indemnity is to place the insured after a loss in the same
financial position, as far as possible, as he occupied immediately before the loss. The
effect of this principle is to prevent the insured from making a profit out of his loss.
Subrogation
Subrogation may be defined as the transfer of rights and remedies of the insured to the insurer
who has indemnified the insured in the respect of loss. If the insured has any rights of action to
recover loss from third party, who is primary responsible for the loss, the insurer, having paid the
loss, is entitled to avoid him self of these rights to recover the loss from the third party. The
effect is that the insured does not receive more than the actual amount of his loss and any
recovery from the third party goes to benefit of the insurer to reduce the amount of his loss. The
principal of subrogation arises from principle of indemnity.
Contribution
An insured may have several insurances on the same subject matter. If he recovers his loss under
all these insurances, he will obviously make a profit out of the loss. Common law has, there fore,
evolved the principle of contribution which may be defined as the right of insurers who have
paid a loss under a policy to recover appropriate amount from other insurers who are liable for
the same loss.
Proximate cause
The object of insurance is to provide indemnity for such loses as or caused by insured perils. If
stocks are burnt, then the cause of loss is fire which is covered under a fire policy enhance the
claim is payable. If stocks are stolen, the loss is not payable under the fire policy, as burglary is
not a peril cover. Stocks are covered by bomb dropped by enemy country then the loss is caused
by war which is an excluded peril and not payable under the fire policy. Thus, it is important to
determine the cause of loss to decide whether the loss is payable or not.

INSURANCE DOCUMENTS
Proposal forms
The proposal form contains questions designed to elect all material information about the
particular risk proposed insurance. The number and nature of questions vary according to the
particular class of insurance concerned.
In marine cargo insurance, it is not the practice to use a proposal form, although sometimes it is
usual to obtain a questionnaire duly completed. Proposal forms are required to be used in all
classes as per IRDA regulations. Proposals are used in marine hull insurance.
Questionnaire on the following items may be considered as common to all proposal forms:
a) Proposer’s name in full:

b) Proposer’s address:
c) Proposer’s occupation, profession or business:
d) Sum insured:
e) Previous and present insurances and full details of all losses suffered by him whether or
not they were insured.
f) Other sections common to all proposal forms relate to signature, date and in some cases
agent’s recommendations.
In addition to these general questions which are common to all proposal forms, there are special
questions depending upon the class of insurance concerned. For example, in motor insurance the
special questions relate to the vehicle.
The purposes of the proposal form are to provide all material information to the insurers.
Secondly, the form includes a declaration by the insured that the answers are true and accurate
and that he agrees that the form shall be the basis of the insurance contract. Any wrong answer
will give the right to insurers to avoid the contract.

INSURANCE LEGISLATION
The Insurance Act, 1938
This act was passed in 1938 and was brought into force from 1st July, 1939. The act has been
amended a number of times, the most important amendments being made in 1950, 1968 and
especially by IRDA Act, 1999.
The Act applies to all insurers transacting insurance business subject to exceptions, restrictions
and limitations, as specified by the Central Government.
The important provisions of the Act relate, among other things, to:
a) Registration
b) Accounts and returns
c) Investments
d) Limitations in expenses of management
e) Solvency margin
f) Prohibition of rebates
g) Powers of investigation
h) Licensing of agents/corporate agents
i) Licensing of brokers/reinsurance brokers
j) Licensing of surveyors/loss assessors
k) Advance payment of premium
Registration
Every insurer is required to obtain a certificate of registration from the IRDA. Application form
for registration and payment of fees etc. are prescribed in the act. This registration is required to
be renewed annually.
Accounts and Returns
An insurer is required to keep a separate account of all receipts and payments in respect of each
class of insurance viz. Fire, marine and Miscellaneous insurance, also, separate schedule have to
be maintained for special classes of insurance i.e. motor, workmen’s compensation/employer’s
liability, public liability, products liability, engineering, aviation, personal accident, health
insurance and others. As regards marine, separate accounts for cargo and marine hull have to be
maintained.
Every insurer is required to prepare, at the expiration of each financial year, in the prescribed
form.

a) A balance sheet
b) A profit and loss account
c) A revenue account for each class of insurance
i. These accounts are required to be audited annually by an auditor and printed and four
copies have to be furnished as returns to the authority within six months from the close of
the financial year. Every insurer is required to furnish to the authority a certified copy of
the minutes of the proceedings of every general meeting, within 30 days from the holding
of the meeting
ii. The insurance rules framed under the act provide that the following items of information
shall be maintained in respect of each class of business.
iii. A record of cover notes specifying the identification number, name of party, dates of
commencement and expiry, type of cover granted, the amount of premium and cross-
reference to the policy.
iv. A record of policies, which should be serially numbered, listing all policies issued,
entered in chronological order, stating the number of the policy, dates of commencement
and expiry of risk, name of the insured, premium received, cross reference to the relevant
bank guarantee or deposit and the nature of risk granted, cross reference to any cover note
issued prior to the issue of the policy and cross reference to any endorsement passed
subsequent to the issue of the policy.
v. A record of premium showing, according to chronological order of receipt, the amount
and name of party from whom received and with cross reference to policy number.
vi. A record of endorsements mentioning the policy number to which it is attached, dates of
commencement and expiry of the endorsement, the type of endorsement and the
additional premium charged or refund due and cross reference to the premium register.
vii. A record of bank guarantees and deposits giving particulars of the party , amount and
conditions of guarantee or deposit and cross reference to the relevant policy or policies.
viii. A record of claims intimated mentioning name of claimant, giving reference to policy
number, date of intimation of claim, interest covered, nature and cause of the loss or
damage, provisional estimate of loss, amount at which settled, date of settlement of claim
recoveries from salvage or otherwise and whether surveyed. Two separate records, one
relating to claims intimated and the other relating to claims paid, may be maintained if
there is adequate cross referencing of information between them and if the information
required under this clause is readily available from them taken together.
The rules framed under the insurance act 1938 also provide that the following items of
information shall be maintained for the business of the insurer as a whole.

i. A register of agents
ii. A record of business procured by each agent and the amount of commission paid
thereon.
iii. Record of employees including field workers
iv. Cash book and disbursement book
v. A record of investments and assets
vi. Record of insurance companies with which reinsurance treaties are entered into and
facultative arrangements made.
vii. Record of facultative reinsurance ceded and accepted.
Further, the rules provide that receipts for payments received shall be maintained in a systematic
manner and documents used for assuming risk are serially numbered and filed accordingly.
The documents relating to claims settled, including copies of any survey or loss assessment
reports, shall be maintained as follows in respect of every loss and damage.
a) On which claim of less than rs.5000/- has been made, for a period of three years.
b) On which a claim of rs.5000/- or more but less than rs.20000/- has been made, for a
period of seven years.
c) On which a claim of rupees one lakh or more has been made for a period of twelve years;
such period being counted from the date on which the claim is settled.
Investments
Every insurer is required to invest his assets only in those investments approved under the
provisions of the acts(from time to time guidelines are issued prescribing the approved
investments).
Returns in the prescribed form are to be submitted showing position as at 31st march of the
preceding year, for the investments made out of assets..
Limitation on expenses of management
The act prescribes maximum limits of expenses of management including commission that may
be incurred by an insurer. The percentages are prescribed in relation to the total gross direct
business written by the insurer in India.
Prohibition of Rebates
No persons shall allow or offer to allow as an inducement to any persons to take out insurance,
any rebate of the whole or part of commission payable or any rebate of the premium shown in
the policy. Any person making default in complying with these provisions shall be punishable
with fine which may extend to five hundred rupees.

Powers of Investigation
The central government may at any time, by order in writing, direct authority to investigate the
affairs of any insurer and report to the central government.
Other Provisions
The other important provisions of the act relate to licensing of agents, brokers and surveyors and
advance payment of premium. These are dealt with in the appropriate chapters.
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA)
After the nationalization of the insurance industry, the responsibilities of supervision had
reduced considerably. With the opening up the industry, following the policy of liberalization
and globalization and private companies being permitted to transact insurance business in India,
it became necessary to establish an authority to regulate insurance operations.
In the anticipation of formal decisions to this effect, the government constituted the IRA.
( insurance regulatory act), on an interim basis, with a chairman and two members representing
the life and general insurance businesses.
Subsequently, the insurance regulatory and development authority act, 1999(IRDA) was enacted
with effect from 19/04/2000.
The preamble of IRDA act states as follows:
‘An act to provide for the establishment of an authority to protect the interest of holders of
insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and
for matters connected therewith or incidental there to and further to amend the insurance act,
1938, the life insurance corporation act, 1956 and the general insurance business
(Nationalisation) act, 1972’.
The IRDA consists of a chairperson, not more than five whole time members and not more than
four part time members. The whole time members shall hold office for 5 years or until the age of
62 (65 in case of the chairperson) whichever is earlier. Part time members will hold office for not
more than 5 years.
The powers and functions of the authority are stated in the act as follows;
 To regulate, promote and ensure orderly growth of the insurance and reinsurance
business.
 Issue a certificate of registration, renew, modify, withdraw, suspend or cancel such
registration to the applicant i.e., insurance company.

 Prepare a code of conduct for the agents, surveyors and loss assessors or the
intermediaries who take part in the development of insurance business and in the
settlement of the claims.
 To exercise all powers and perform all functions of the controller of insurance under the
insurance act 1938 and other related acts as mentioned above.
 To protect the interest of the policy holders in matters concerning inter alia assigning of
policy. Settlement of insurance claims, terms and conditions of contract of insurance etc
 To promote efficiency in the conduct of insurance business.
 To promote and regulate professional organizations connected with the insurance
business.
 To levy fees and other charges for carrying out the purposes of the proposed act
 To call for information from, undertake inspection and conduct enquires and
investigations including audit of the insurers, insurance intermediaries and other
organizations connected with the insurance business.
 To connect and regulate the rates, advantages terms and conditions that may be offered
by insurers in respect of general insurance business not so controlled by the tariff
advisory committee under section 64 UC of the insurance act 1938.
 To prescribe the form and the manner in which books of accounts will be maintained and
statement of accounts will be rendered by insurers and other insurance intermediaries.
 To regulate investment of funds by insurance companies.
 To regulate maintenance of margin of solvency.
 To adjudicate disputes between insurers and intermediaries.
 To exercise such other powers as may be prescribed by the central government.
The authority has the power, under section 25 of the act, to appoint a committee to
provide guidance to the authority and the committee is called as insurance advisory
committee. This committee is established by a notification by the authority and the
committee contains not more than 25 members excluding ex-officio members to represent the
interest of commerce, industry transport, agriculture, consumer for a, surveyors, agents,
intermediaries, organizations engaged in safety and loss prevention, research bodies and
employees associations in the insurance sector. The chairperson and the members of the
authority are the ex-officio members of the insurance advisory committee.
The objects of the insurance advisory committee, inter alia, shall be the authority on matters
relating to the making of the regulations consistent with the act and rules to carry out the
purposes of the act.

MARINE INSURANCE
Definition
Marine insurance is a type of insurance that covers boats and ships, as well as their cargo and in
some instances the places where the boat or ship is docked. It has a colorful history, beginning
informally in England during the 17th century. In 1906, the Marine Insurance Act was passed
under British law, creating a standard operating procedure for policies that dictates the world's
policies to this day. The standards set forth by the act are considered reasonable, but due to
changes in technology and social standards, the act is generally seen as obsolete and is being
replaced by more modern legislature.
Types of marine insurance:-
 Hull Insurance:- covers the insurance of the vessel and its equipment i.e. furniture and
fittings, machinery, tools, fuel, etc. It is effected generally by the owner of the ship.
 Cargo Insurance:- includes the cargo or goods contained in the ship and the personal
belongings of the crew and passengers.
In a contract of marine insurance, the insured must have insurable interest in the subject matter
insured at the time of the loss. Insurable interest is not required to be present at the time of taking
the policy. Under marine insurance, the following persons are deemed to have insurable interest:-
 The owner of the ship has an insurable interest in the ship.

 The owner of the cargo has insurable interest in the cargo.
 A creditor who has advanced money on the security of the ship or cargo has insurable
interest to the extent of his loan.
 The master and crew of the ship have insurable interest in respect of their wages.
 If the subject matter of insurance is mortgaged, the mortgagor has insurable interest in the
full value thereof, and the mortgagee has insurable interest in respect of any sum due to
him.
 A trustee holding any property in trust has insurable interest in such property.
 In case of advance freight the person advancing the freight has an insurable interest in so
far as such freight is repayable in case of loss.

Types of Marine Insurance Policies:-
 Major types of marine insurance policies are
 1. Time policy
 A time policy is taken for definite period of time, usually not exceeding 12 months say
from January 1, 1981 to December 31, 1981. This policy is most suitable for hull
insurance.
 2. Voyage policy
 Where the subject matter is insured for a specific voyage, say from Karachi to Port Saeed
it is named as voyage policy.
 3. Mixed policy
 This policy is the combination of time and voyage policy. It, therefore, covers the risks
for both particular voyage and for a stated period of time.
 4. Floating policy
 Floating policy is taken for a relatively large sum by the regular suppliers of goods. It
covers several shipments which are declared afterwards along with other particulars. This
policy is most situated to exporter in order to avoid trouble of taking out a separate policy
for every shipment.
 5. Valued policy
 Under its terms the agreed value of the subject matter of insurance is mentioned in the
policy itself. In case of cargo this value means the cost of goods plus freight and shipping
charges plus 10% to 15% margin for anticipated profit. The said value may be more than
the actual value of goods.
 6. Unvalued policy (Open Policy)
 Where the value of the subject matter of insurance is not declared but left to be
ascertained and proved later it is called unvalued policy.
 7. Builder's risk policy
 This policy is issued for more than one year. This covers the risk of damage to vessels
from the time its construction commences until its trail is completed.

 8. Blanket policy
 Under the condition of the blanket policy the maximum limit of the required amount of
protection is estimated which is purchased in lump sum. The amount of premium is
usually paid in advance. This policy describes the nature of goods insured, specific route,
ports and places of the voyages and covers all the risk accordingly.
 9. Port risk policy
 This policy covers all the risk of a vessel while it is standing at a port for particular period
of time.
 11. Special hazards policy
 This policy covers special risks incident to piracy and war. It provides protection to
insured under agreement against seizure, capture, detention and other war risks.
 12. Composite policy
 This type of policy is purchased from more than one under writers. If there is no any
motive of fraud then insured will be indemnified by each under writer separately in case
of loss.
 13. Block policy
 This policy is particularly purchased to gold diggers. It covers all the risks of damage to
gold from the time of its recovery to its distinction. This types of policy has been
introduced in Africa and is very popular in the mine fields of gold.

FIRE INSURANCE
A fire insurance is a contract under which the insurer in return for a consideration (premium)
agrees to indemnify the insured for the financial loss which the latter may suffer due to
destruction of or damage to property or goods, caused by fire, during a specified period. The
contract specifies the maximum amount, agreed to by the parties at the time of the contract,
which the insured can claim in case of loss. This amount is not , however , the measure of the
loss. The loss can be ascertained only after the fire has occurred. The insurer is liable to make
good the actual amount of loss not exceeding the maximum amount fixed under the policy.
A fire insurance policy cannot be assigned without the permission of the insurer because the
insured must have insurable interest in the property at the time of contract as well as at the time
of loss. The insurable interest in goods may arise out on account of (i) ownership, (ii) possession,
or (iii) contract. A person with a limited interest in a property or goods may insure them to cover
not only his own interest but also the interest of others in them. Under fire insurance, the
following persons have insurable interest in the subject matter:-
 Owner
 Mortgagee
 Pawnee
 Pawn broker
 Official receiver or assignee in insolvency proceedings
 Warehouse keeper in the goods of customer
 A person in lawful possession e.g. common carrier, commission agent.
The term 'fire' is used in its popular and literal sense and means a fire which has 'broken bounds'.
'Fire' which is used for domestic or manufacturing purposes is not fire as long as it is confined
within usual limits. In the fire insurance policy, 'Fire' means the production of light and heat by
combustion or burning. Thus, fire, must result from actual ignition and the resulting loss must be
proximately caused by such ignition. The phrase 'loss or damage by fire' also includes the loss or
damage caused by efforts to extinguish fire.
The types of losses covered by fire insurance are:-
 Goods spoiled or property damaged by water used to extinguish the fire.
 Pulling down of adjacent premises by the fire brigade in order to prevent the progress of
flame.
 Breakage of goods in the process of their removal from the building where fire is raging
e.g. damage caused by throwing furniture out of window.
 Wages paid to persons employed for extinguishing fire.
The types of losses not covered by a fire insurance policy are:-
 Loss due to fire caused by earthquake, invasion, act of foreign enemy, hostilities or war,
civil strife, riots, mutiny, martial law, military rising or rebellion or insurrection.
 Loss caused by subterranean (underground) fire.
 Loss caused by burning of property by order of any public authority.
 Loss by theft during or after the occurrence of fire.
 Loss or damage to property caused by its own fermentation or spontaneous combustion

e.g. exploding of a bomb due to an inherent defect in it.
 Loss or damage by lightening or explosion is not covered unless these cause actual
ignition which spread into fire.
A claim for loss by fire must satisfy the following conditions:-
 The loss must be caused by actual fire or ignition and not just by high temperature.
 The proximate cause of loss should be fire.
 The loss or damage must relate to subject matter of policy.
 The ignition must be either of the goods or of the premises where goods are kept.
 The fire must be accidental, not intentional. If the fire is caused through a malicious or
deliberate act of the insured or his agents, the insurer will not be liable for the loss.
Types of Fire Insurance Policies:-
 Specific policy:- is a policy which covers the loss up to a specific amount which is less
than the real value of the property. The actual value of the property is not taken into
consideration while determining the amount of indemnity. Such a policy is not subject to
'average clause'. 'Average clause' is a clause by which the insured is called upon to bear a
portion of the loss himself. The main object of the clause is to check under-insurance, to
encourage full insurance and to impress upon the property owners to get their property
accurately valued before insurance. If the insurer has inserted an average clause, the
policy is known as "Average Policy".

 Comprehensive policy:- is also known as 'all in one' policy and covers risks like fire,
theft, burglary, third party risks, etc. It may also cover loss of profits during the period the
business remains closed due to fire.
 Valued policy:- is a departure from the contract of indemnity. Under it the insured can
recover a fixed amount agreed to at the time the policy is taken. In the event of loss, only
the fixed amount is payable, irrespective of the actual amount of loss.
 Floating policy:- is a policy which covers loss by fire caused to property belonging to the
same person but located at different places under a single sum and for one premium. Such
a policy might cover goods lying in two warehouses at two different locations. This
policy is always subject to 'average clause'.
Replacement or Re-instatement policy:- is a policy in which the insurer inserts a re-

instatement clause, whereby he undertakes to pay the cost of replacement of the property
damaged or destroyed by fire. Thus, he may re-instate or replace the property instead of paying
cash. In such a policy, the insurer has to select one of the two alternatives, i.e. either to pay cash
or to replace the property, and afterwards he cannot change to the other option

ENGINEERING INSURANCE
Contractors All Risk Policy

 Highlights
 Scope
 Add on covers
 Who can take the policy
 How to select the sum insured
 How to claim
 Period of Insurance
This policy is specially designed to give financial protection to the Civil Engineering Contractors
in the event of an accident to the civil engineering works under construction.
Highlights
This policy is specially designed to give financial protection to the Civil Engineering Contractors
in the event of an accident to the civil engineering works under construction.
In case the policy period exceeds 12 months, the premium can be paid in quarterly installments
with the first installment being more by 5% and the last installment being paid 6 months before
expiry of the policy.
Scope
The policy comprises of 2 Sections:
 Section I-Material Damage-covering physical loss, damage or destruction of the property

insured by any cause, other than those specifically excluded in the policy.
 Section II-Third Party Liability-covering the legal liability falling on the insured
contractor as a result of bodily injury or property damage belonging to a third party.

The main exclusions under Section I for which no claim is payable, are loss or damage due
to:
 faulty design
 rectification of aesthetic defects of structure not relating to any physical loss or damage to
the structure due to any accident, or of material defector of workmanship defect.
 The exclusion of defective material / workmanship is limited to the parts of the structure
immediately affected and does not apply to any consequential loss to correctly executed
items, arising out of the accident due to defective material or workmanship.
 loss or damage due to gradual deterioration, atmospheric condition, rusting etc.
 loss discovered only at the time of taking inventory.
 loss arising out of penalty for delay, non-fulfillment of terms of contract.
Add on covers
a) The policy can be extended to cover the following items :-

b) construction equipment like scaffolding, shuttering materials
c) construction equipment like scaffolding, shuttering materials
d) damage to surrounding property not forming part of the contract work.
e) maintenance visit / extended maintenance cover to cover accidental loss or damage whilst
carrying out any rectification during maintenance period and / or any amount incurred for
rectification of such original defects or faults during construction.
Who can take the policy
The policy can be taken by the principal, contractor or sub contractor, jointly or separately.
How to select the sum insured
The sum insured selected under section I should represent total contract value including the
estimated cost of labour charges and cost of materials but excluding profit. The cost of materials
supplied by the principal is to be declared separately.
In case of long term contracts, there is bound to be escalation in prices. The basic policy will pay
only as per the original cost and prices. However escalation clause can be opted for, under which
escalation upto 50%, can be selected to take care of such increase in prices.
The sum insured under section II should represent the per accident limit (the maximum legal
liability that may fall on the insured as a result of an accident in the insured's site). The limit per
policy period should be fixed taking into account the maximum number of such accidents which
can reasonably be expected to occur.
How to claim
In the event of any loss or damage giving rise to a claim under the policy, the following steps
should be taken:-
 Take necessary steps to minimize the loss.

 Inform insurance company immediately.
 Extend full cooperation to the surveyor deputed by the company.
 Submit duly filled in claim form along with necessary documents to substantiate the
financial loss suffered as a result of the accident.
Period of Insurance
Unlike other policies where the period of insurance is one year, in this policy the period of
insurance should be equivalent to the period of contract, commencing from the date of unloading
of the first batch of material at the site of construction and expiring on the date of handing over
of the contract work to the principal.
Although it is possible to extend the policy period in case of delay in completion of contract, it is
always advisable to choose a slightly longer period of insurance initially, to avoid paying the
higher extension premium.

ERECTION ALL RISK POLICY
This policy is suitable for the principal or contractors of a project being erected. This is vital as
the project is exposed to various external risks such as earthquakes or floods during the
construction / erection period. Moreover, damage to plant and machinery and the supporting
structures due to accidents, causes financial loss apart from delay in implementation of the
project.
Loss, damage or destruction of property insured by any cause, other than those specifically
excluded here under.
Plan coverage
This policy is typical “all risk” insurance for storage, assembly/erection, testing and
commissioning of the following types of activities. Unless specifically excluded, it provides
comprehensive cover for:
 Setting up a new project/individual machines

 Expansion of an existing project
 Dismantling and re-erection of an existing facility
 The interests of suppliers, manufacturers, contractors as well as subcontractors can be
included in the policy.
 Cover begins from the time of unloading of the first consignment at the project site and
terminates on completion of testing or handing over of the project to the principal, or the
period chosen, whichever is earlier.
Extension
The policy can be extended on payment of an additional premium to cover:
 Earthquake
 Act of terrorism
 Escalation
 Limited maintenance cover
 Extended maintenance cover
 Clearance and removal of debris
 Damage to owner’s surrounding property
 Third party liability
 Cross liability
 Additional customs duty
 Express freight, holiday and overtime rates of wages
 Contractor’s plant and machinery
Sum insured
The Sum Insured is the completely erected value of the plant and machinery, inclusive of freight,
customs duty and cost of erection.
Premium
The premium under this policy depends on the type of activity, Sum Insured, duration of the
project, period of testing and voluntary excess opted for by the Insured. The premium can be
paid in installments, when the policy period is more than 12 months.
Excess
 The policy has the following types of excess:

 Excess due to normal perils
 Excess during testing activity
 Excess for Act of God perils like earthquake, flood, storm, etc.
 Excess due to fire and explosion perils
 Excess due for terrorist acts, if terrorism cover is opted for
Exclusions
 Loss or damage due to faulty design, defective material or casting, and/or bad
workmanship
 Manufacturing defects
 Loss or damage due to willful act or willful negligence of the insured or of his
representative
 Consequential loss
 War and allied perils
 Nuclear perils
 Normal wear and tear, gradual deterioration due to atmospheric condition, rust,
scratching of polished surfaces, breakage of glass
 Industrial Insurance

 Business Insurance Services
 Industrial All Risks Policy

 Wide and comprehensive cover for the large sized business where the assets at all
locations of the insured exceeds Rs.100 Crores.
It is an All Risks Policy covering a wide range of perils such as fire and allied perils, burglary,
accidental damage, breakdown as well as business interruption.
It also has an optional Machinery Breakdown Loss of Profits Cover.
 Standard Cover
 Section I: Material Damage - It covers accidental physical loss or damage (including
machinery breakdown) to the property insured due to any cause other than those excluded.
Section II: Business Interruption- It covers loss due to business interruption following a Physical
loss or damage to the property covered and the same is admissible, under material damage
section of the policy Loss of Profits arising out of machinery breakdown is optional.
 Salient features
 - Quick and expert risk inspections where required.
- Expert Risk Control Programmed by our Risk Engineers on all aspects of safety and
Loss Prevention/ Minimization
- Availability of various optional covers
- Rating based on individual risk features including claims experience and fire protection
systems availability
- Superior claim service
MISCELLANEOUS INSURANCE

• Miscellaneous Insurance exists to help people gain a good understanding of the various
kinds of insurance coverage's that are available to people today. Insurance has become a very
important part of many people's lives as they realize the need to provide protection for different
areas of their everyday life. There is a wide variety of types of insurance coverage available
today.
The dictionary defines insurance as "coverage by contract whereby one party undertakes to
indemnify or guarantee another against loss by a specified contingency or peril". This means that
an individual enters into an agreement with an insurance company that will pay a set amount of
money in case of a loss in a specified area. There are a number of inclusions and exclusions
involved in each insurance policy with all kinds of variables that must be taken into
consideration before purchasing the policy.
One of the most important things to remember is that an insurance policy is a contract between
the insurance company and their customer. The insurance company agrees to pay certain
amounts of money in case of loss and the customer agrees to pay the insurance premiums that are
required to keep the policy in place. If the customer fails to pay the premiums due, the insurance
may be revoked, leaving the customer vulnerable.
The contract specifically makes the insurance company liable to pay for any loss that is
specifically stated in the insurance policy. Most policies will accurately describe the types of
losses covered and the amount of money that the company will pay for those losses.
With the increase in public awareness and the consequent thrust of the Insurance Industry in the
areas of Health Insurance, Liability Insurance and other personal lines of insurances, the
miscellaneous portfolio of Insurance is poised to be a sunrise portfolio of General Insurance.
• Glass Insurance • Personal Accident Insurance
• Money Insurance • Golfer Insurance
• Burglary Insurance • General Public Legal Liability Insurance
• Electronic Equipment Insurance • Contract Works Insurance
• Workmen Compensation Insurance • Fidelity Guarantee Insurance
• Machinery Insurance • Aviation Insurance
• Travel Accident Insurance • All Risks Insurance
• Boat Insurance

General insurance : QUESTIONS and ANSWERS
What is insurance?
We face a lot of risks in our daily lives. Some of these lead to financial losses. Insurance is a way
of protecting against these financial losses. For a payment (premium), an insurance company will
take the responsibility of compensating your financial losses.
What is general insurance?
Insuring anything other than human life is called general insurance. Examples are insuring
property like house and belongings against fire and theft or vehicles against accidental damage or
theft. Injury due to accident or hospitalization for illness and surgery can also be insured. Your
liabilities to others arising out of the law can also be insured and is compulsory in some cases
like motor third party insurance.
Why should one insure?
One of the main reasons one should insure is to protect one’s belongings and assets against
financial loss. When one has earned and accumulated property, protecting it is prudent. The law
also requires us to be insured against some liabilities. That is, in case we should cause a loss to
another person, that person is entitled to compensation. To ensure that we can afford to pay that
compensation, the law requires us to buy liability insurance so that the responsibility of paying
the compensation is transferred to an insurance company.
Who should buy general insurance?
Anyone who owns an asset can buy insurance to protect it against losses due to fire or theft and
so on. Each one of us can insure our and our dependents’ health and well being through
hospitalization and personal accident policies. To buy a policy the person should be the one who
will bear financial losses if they occur. This is called insurable interest.
What kinds of policies are there?
Most general insurance policies are annual – that is, they last for one year. Some policies are
given for longer periods – like fire insurance for residences – and some for shorter periods – like
insurance for goods transportation or for emergency medical treatment during foreign travel.
How much should I insure for?

The amount you insure for is called the sum assured. Normally a policy should cover the value of
the asset – either the market value while insuring, or the cost of replacing the asset should it be
lost or destroyed. The premium will depend on the sum assured.
Can I take two policies and get claims under both of them?
In case of an indemnity cover (one that seeks to compensate the actual loss )--for instance, a
policy that covers property, if there are two policies in vogue, the loss shall be shared by both
the policies. In no case can an insured get more than the actual pecuniary loss he or she has
incurred. On the other hand, in respect of benefit policies like the Personal Accident policy,
where a fixed compensation is paid, no matter what the actual loss is , one may obtain more than
one policy.
On what basis is claim paid?
In indemnity policies, the upper limit of a claim is the sum assured and this usually applies for
the period of the policy. Certain policies, however, allow for reinstatement of the Sum Insured by
payment of proportionate premium for the remaining period of the policy. The actual claim will
be the actual extent of financial loss as validated by documents like bills. If the property is
underinsured, the insured shall bear a ratable proportion of the loss. There can be more than one
claim in the policy period but the sum assured is usually the limit for the policy period unless
reinstated.
Nowadays health insurance policies – which cover hospitalization costs – have also a cashless
settlement of claims. That is, you don’t have to pay for the treatment at the hospital and then
make a claim for reimbursement of the expenses. The insurance company has a service provider
called the third party administrator (TPA) health services, who liaises with the hospitals and
directly makes the payment for your treatment as per the terms of your policy and coverage.
What is the periodicity of premium payments?
Most general insurance policies are annual and the premium payment is in advance. No risk
commences unless you have paid the premium. In some long term policies companies have the
facility of collecting premiums periodically.
Why do different people have different premiums?
The premium is calculated on the extent and nature of the cover you want. A higher sum insured
means a higher rate of premium. Similarly a higher risk will be charged a higher premium. An
example of this is that an older person will have to pay a higher premium for health insurance for
the same sum insured. Sometimes the risk is higher depending on the location of risks – for
example in motor insurance in areas where accidents are higher. So the premium will vary
according to the nature and severity of the risk.
If I buy a policy and don’t make a claim, it is a loss. So, why should I buy insurance?

General insurance is not meant to be for savings or investment returns. It is meant for protection.
What you pay for is the protection against a risk. To approach it as something from which returns
should be obtained is not the correct approach as there is a price to pay for protecting a property
worth lakhs for a few hundred rupees.
If there are problems with claims what can I do?
First you should write to the company and give them sufficient time to respond suitably. If they
don’t respond, or it is not a response satisfactory to you, then you can approach the appropriate
judicial channel. For complaints relating to personal insurance covers upto a value of Rs.20 lakh,
you may approach the Insurance Ombudsman in your area.

1. Introduction to Underwriting
Underwriting, in board sense, means transaction of insurance. Hence, insurers are commonly
referred to as underwriters. However, underwriting, in a technical sense, comprises the following
 Assessment of hazard and evaluation of risk.

 Formulation of policy coverage’s and terms and conditions.
 Fixing of rates of premium.
 Determination of limits of retention for insurer’s own account and arranging reinsurance
for the balance amount.ing
The ultimate objectives of underwriting are to earn a reasonable profit on insurance operations.
This is sought to be achieved through a large volume of premium, spread over different classes
of insurance e.g., fire, marine, miscellaneous etc. and different geographical areas. In insurance
languages this is called balanced portfolio .This facilities the application of the law of average or
the theory of large numbers.
Profit is also ensured through proper selection of business through risk assessment including risk
inspection, wherever necessary. This traditional approach to underwriting has acquired new
dimensions through IRDA intervention. These dimensions are reflected in the file and use
guidelines for insurance products issued under section 14(2) (i) of IRDA Act, 1999.No general
insurance product may be sold to any person unless the requirements of the guidelines are
complied with respect of that product.

2. Underwriting Policy
Filing of products will be accepted by IRDA only after the insurer has filed the underwriting
policy as approved by the Board of Directors of the insurer.
The underwriting policy placed before the board shall cover important aspects such as:
A) The underwriting approach of the company in the matter of expectation of

underwriting profit.
B) The margins that will be built into the rates of premium to cover acquisition costs,
promotional expenses, expenses of management, catastrophe reserve and profit
margin and the credit that will be taken for investment income in the design of rates,
terms and conditions of cover, and how they will be modified based on the actual
operating ratios of the insurer.
C) The list of products that will fall into each of the sub-categories, as provided in the
guidelines.
For this purpose, the Products are classified into two broad classifications, namely
class rated products and individually rated products. These are further classified into
the following 5 sub categories.
A) Class Rated Products
i. Internal Tariff Rated Products: These are standard products that can be sold by any of the
officers of the insurer with the rates, terms and conditions of cover, including choice of
deductible where applicable, as set out in an internal guide tariff of the insurers.
Examples are: Fire insurance with certain sum insured or category of risk limitations,
motor insurance (other than fleets), Personal Accident Insurance (other than groups),
health insurance (other than groups), burglary insurance, fidelity insurance and so on.
ii. Packaged or Customized Products: these are products specially designed for an individual
client or class of clients, in terms of scope of cover, basis of insurance, deductibles, rates
and terms
and conditions of cover etc.

B. Individually rated products
iii. Individual experience rated products: These are products where the rates, terms and
conditions of cover are determined by reference to the requirements of and the actual
claims experience of the insured concerned. These will typically be insurances with a
high frequency but low intensity of loss occurrence.
Examples are: Cargo insurance, Group P.A or health, Motor fleets, Hull insurance and so
on.
iv. Exposure rated products: These are products where the rates, terms and conditions of
cover are determined by an evaluation of the exposure to loss in respect of the risk
concerned, independent of the actual claims experience of that risk.
Examples are: Earthquake risk, public liability insurance for high hazard occupancies and
so on.
v. Insurance of large risks: For the purpose of these guidelines, large risks are:
 Insurances for total sum insured of Rs.2500 crores or more at one location for
property insurance, material damage and business interruption combined;
 RS 100 Crores or more per event for liability insurances.
These are typically insurances that are designed for individual large clients and where the
rates, terms, terms and conditions of cover may be determined by reference to the
international markets
The delegation of authority to various levels of management for quoting rates and terms and for
underwriting. In particular, the board should appoint the Appointed Actuary or Financial Adviser
or the Chief Financial Officer or any other top management executive who does not have any
responsibility for business development to act as the moderator of rates and terms that are quoted
on individually rated risk.
The role and extent of involvement of the appointed actuary in review of statistics to determine
rates, terms and conditions of cover in respect of internal tariff rated risks and products designed
for a class of clients. The internal audit machinery that will be put in place for ensuring quality in
underwriting and compliance with the corporate underwriting policy. The procedure for
reporting to the board on the performance of the management in underwriting the business
including the forms and frequency of such report

3. Filing of products
IRDA’s file and use guidelines stipulate the following requirements for filing products
for approval.
a. Design and rating of products must always be on sound and prudent underwriting
basis. The e contingencies insured under the product should clear and provide
transparent cover which is of value to the insured.
b. All literature relating to the product should be in simple language and easily
understandable to the public at large. As far as possible, a similar sequence of
presentation may be followed .all technical terms should be clarified in simple
language for the benefit of insured.
c. The insurance product should comply with all the requirements of the protection
of policy holders; interest’s regulations, 2002.
d. The pricing of products should be based on data and with technical justification
(e.g. adequate statistical information on the claims experience).
e. The terms and conditions of cover shall be fair between the insurer and the
insured .for example, the conditions and warrantees should be reasonable and
capable of compliance. exclusions should not limit cover to an extent that the
value of insurance is lost. The cover provided should be of value to the policy
holder and should offer needed protection. The policy holder should e does not be
forced to buy covers that he does not need as a pre –condition of being granted
cover that he needs.
f. The time allowed for reporting of claims should be reasonable. The policy bearer
should not be required to do things that are onerous after a claim to maintain his
eligibility for protection nor should the policy hold be prevented from resuming
his business expeditiously by the claims process
Role of Actuary:

The appointed actuary, in consultation with the underwriters of the insurer, shall determine the
requirements for compilation and analysis of data of sums insured premiums and claims at the
stage of product design itself and ensures that such data is captured at the stage of effecting
insurance, on claims intimation and on all claims payments.
Analysis of data referred to in previous Para above should enable reviews of rates, loadings and
discounts for every rating factor used in the determination of premium rates. While filing the
product a certificate by the Approval Actuary should accompany every product stating the rating
factors for which data will be captured and that adequate capacities and capabilities have been
put in place for collection and analysis of such data.
Documents to Be Filed
The documents to be filed in respect of every nee product or revision of an existing product
in respect of products classified as ‘class rated’ products above shall be among others
1. Statement filing particulars of the product in form A;

2. Copies of prospectus and other sales literature relating to the product;
3. Copy of proposal form;
4. Copy of policy form and copies of the standard endorsements to be used with the
policy; one should look for simple easy to understand language. The conditions
applicable to the policy holder should be clearly set out and he should be told of the
claims registration and qualification procedures. There should also be information on
the disputes resolution procedures. And
5. Copy of the underwriter’s manual in respect of the product along with the list of
declined risks, if any.
Particulars in form A relate to, among other things, the following
 Full details of the product

 Coverage, exclusions, special features, if any
 Delegated authority for underwriting and claims
 Rates and terms basis of rating, etc.
 Certificate by principal officer or designated officer
 Certificate by appointed actuary
 Certificate by Lawyer

Certificate by Principal Officer or Designated Officer
This is to confirm that;
1. The rates terms and conditions of the above mentioned product filed with this certificate
have been determined in compliance with the IRDA Act, 1999. Insurance Act, 1938, and
the regulations and guidelines issued there under, including the file and use guidelines.
2. The prospectus, sales literature, policy and endorsement documents, and the rates, terms
and conditions of the product have been prepared on a technically sound basis and on
terms that are fair between the insurer and the client and are set out in language that is
clear and unambiguous.
3. These documents are also fully in compliance with the underwriting and rating policy
approved by the board of directors of the insurer.
4. The statement made in the filing form A are true and correct.
5. The requirements of the revised file and use guidelines have been fully complied with in
respect of this product.
Date:
Place:
Signature of Principal Officer or Designated

Officer:
Name and Designation:

Certificate by Appointed Actuary
This is to confirm that:
1. I have carefully studied the requirements of the file and use guidelines in relation to the
design and rating of insurance products.
2. The rates, terms and conditions of the above mentioned product are determined on a
technically sound basis and are sustainable on the basis of information and claims
experience available in the records of the insurer.
3. An adequate system has been put in place for collection of data on premiums and claims
based on every rating factor that will enable review of the rates and terms of cover from
time to time. It is planned o review the rates, terms and conditions of cover based on
emerging experience (enter periodicity of review).
4. The requirement of the revised file and use guidelines have been fully complied with in
respect of this product.
Date:
Place:
Signature of Appointed Actuary:
Name and Designation:

Certificate by the Lawyer of the Insurer
This is to confirm that:
(a) I have carefully studied the prospectus, sales literature, policy wordings and endorsement
wordings relating to the above mentioned product in the light of the IRDA (protection of
policyholder’s interests) Regulations 2002, and the file and use guidelines.
(b) The above mentioned documents are written in clear unambiguous language, and
properly explain the nature and scope of cover, the expectations and limitations, the
duties and obligations of the insured and the effect of non-disclosure of material facts.
(c) These documents are in compliance with the policy holders’ protection Regulations and
Insurance Advertisements and disclosure Regulations.
Date:
Place:
Signature of Lawyer:
Name and address:
Every insurer shall constitute a technical audit department that will be charged with the responsibility to
ensure that all underwriting is done in compliance with these guidelines. Such audit should be done at
least once every quarter during the year 2007. The reports of the technical Audit shall be placed before
the board of directors.

Compliance Officer
Each insurer shall appoint a senior official as “compliance officer” to ensure compliance with the
requirements of the guidelines by the insurer. The compliance officer shall not be an officer who is also
holding responsibility for underwriting.
The compliance officer shall be responsible, inter alia, to monitor the business activities of the
insurer and ensure that all products being sold by insurer are in compliance with the underwriting
policy as approved by the board and also with these guidelines;
Where a risk is co-insured, the primary responsibility to comply with these guidelines will rest
with the leading co-insurer. However, all other co-insurers will remain responsible to satisfy
themselves by enquiry that the guidelines have been complied with.

4. Underwriting practice
At the operating level, underwriting process involves assessment of physical and moral hazards.
The term hazard in insurance language refers to those conditions or features or characteristics
which create or increase the chance off loss arising from a given peril. A thorough knowledge of
various hazards to which property and persons are exposed is most essential for successful
underwriting.
Hazards can be classified into physical and moral .physical hazards refers to the risk arising
from material features of the subject matter of insurance, whereas moral hazard may arise from
human weakness ( e.g. Dishonesty, carelessness, etc.) or from general economic and social
conditions .
Physical Hazard
Physical hazard can be assessed from their information given in a proposal form. It can be better
ascertained by a survey or inspection of the risk. The following are some examples of physical hazard in
various classes of insurance.
Fire
Construction: Construction refers to the building materials used in walls and roof. A concrete
building is superior to a timber building.
The height: The greater the number of storey’s,
Nature of flooring: wooden floors add fuel to fire. Besides, wooden floors collapse easily in the
event of fire, causing damage to property on lower floors through falling machinery of goods
from upper floors.
Occupancy:

The occupancy of a building is the purpose for which it is used. Three types of hazards arise
from occupancy. Buildings in which chemicals are produced or used in large quantity involve a
considerable ignition hazard .A timber yard presents a high combustibility hazard because once
a fire starts, timber burns quickly .The contents may be highly susceptible to damage in the event
of fire. For , example, paper, clothing etc. are the event of fire. For, example, paper, clothing etc.
are susceptible not only to fire damage but also to damage by water, heat etc.
The process of manufacture:
The process of manufacture involving the use of electricity increase in the risk of fire. If work is
carried during the night; the hazard is increased due to the use of artificial lights, continuous use
of machinery leading to friction and the likely carelessness of workers due to fatigue.
Situation:
The location in a congested area, exposure to more hazardous adjacent premises, and distance
from the fire brigade is examples of location physical hazard.
Marine
a) The age and condition of vessel: Older vessels are inferior risks
b) The voyage to be undertaken,i.e.the route of the voyage, loading and unloading
conditions and warehousing facilities at the ports are factors affecting physical hazard
c) The nature of the stocks. Articles of high value are exposed to theft: machinery is liable
to breakage in transit.
d) The method of packing. Cargo packed in bales is considered to be better than cargo in
bags.
e) Again, double bags are safer than single bags. Liquid cargo in secondhand drums
constitute bad physical hazard.
Miscellaneous
a) Motor
i) The age and condition of the vehicle: Older vehicles are more prone to accidents
ii) The type of vehicle: sports cars involve greater physical hazard etc.
b) Burglary
i) The nature of the stocks: Articles of high value in small bulk(e.g.Jewellery )and
easily disposable are considered to be bad risks.
ii) Situation: Ground floor risks are inferior to upper floor risks: private dwellings
situated in isolated areas are hazardous.
iii) Constructional Hazard: Too many doors and windows constitute bad physical hazard.

c) Personal Accident
i) The age of the person: Very old persons are accident prone; besides they will take
longer to recover in the event of an accident.
ii) Nature of occupation: Jockeys, mining engineers, manual workers are examples of bad
physical hazard.
iii) Health and physical condition: A person suffering from diabetes may not respond to
surgical treatment in the event of accidental bodily injury,
c) Fidelity Guarantee
i) Accounting and control systems

ii)
iii) The methods of check and supervision
The above examples indicate the variety of physical hazards involved in insurance
underwriting as well as that each class of business has its own special hazards.
Moral Hazard
Moral Hazard arises from individual moral weakness or from general social and economic
conditions. It is intangible unlike physical hazard and therefore, more difficult to ascertain.
Neverthless, insurers Endeavour, on the basis of their experience, to estimate moral hazard from
the details given in the proposal form, inspection report or other enquiries made by them from
their general knowledge of the prevailing conditions.
Moral hazard could arise in the following ways:
a) Dishonesty: An extreme example of bad moral hazard is that arising from an insured taking
insurance with the deliberate intention of creating or making a loss to collect a claim. Even, an
honest insured may be tempted to stage a loss, if he happens to be in financial difficulties.
b) Carelessness: Indifference towards loss is an example. Because of the existence of insurance,

the insured may tend to adopt a careless attitude towards the insured property. If the insured does
not tame the same care of the property as a prudent and reasonable man would if he were
uninsured the moral hazard is unsatisfactory.
c) Poor maintenance of motor vehicles: Poor housekeeping in manufacturing risks, laxity in

control and supervision in fidelity risks are examples of bad moral hazard.

d) Difficult Insured: This kind of moral hazard arises when claims occur. An insured may boot
deliberately bring about a loss but once a loss occurs, he would attempt to demand unreasonable
high amount of compensation, in total disregard of the principle of indemnity. Examples of such
moral hazard arise in personal accident insurance, where the claimant would tent to prolong his
period of disablement in order to obtain more benefits of insurance than is justified by the nature
of injury.
e) In motor claims: such a hazard would arise when the insured unreasonably insists on
replacement of new parts whereas the damage could be satisfactorily repaired or attempts to
carry out certain repairs or replacements which not related to accidental damage.
f) Industrial relations: Employer-employee relationship may an element of bad moral hazard.

Labor unrest, which leads to carelessness, malicious damage and even to acts of arson and
sabotage.
g) Generic economic conditions: During times of economic depression, insured owners of

property would be tempted to cause deliberate losses in order to realize the cash value of their
property. Conditions of unemployment would result in an increase of burglaries. Similarly,
during times of war , scarcity of certain types of goods would lead to increased number of thefts.

5. Underwriting of physical hazard
A proposal involving bad physical hazard is dealt with in a Varity of ways. There are degrees
and types of physical hazard and the existence of bad physical hazard does not render the risk
uninsurable.
Insurers recommend measures to improve the risk i.e. to reduce the possibility of loss or damage
occurring or liability arising from the hazard. In fire insurance, installation of sprinklers and fire
measures suggested include segregation of hazardous processes and construction of perfect party
walls to provide effective fire breaks. In burglary insurance, improvements are affected by the
fitting of additional locks and bolts. In fidelity guarantee insurance, insurers would suggest a
better method of supervision of accounts or a system of audit which would render defalcations
more difficult.
Imposition of Warranties
Insurers incorporate appropriate warranties to reduce the physical hazard. In marine cargo
insurance a warranty is inserted to the effect that goods are packed in tin-lined cases. In burglary
insurance, it is warranted that the property is guarded by a watchman for twenty four hours.
Incorporation of Clauses
Machinery is especially susceptible to breakage. Even a small breakage may lead the insured to
claim a constructive total loss on the grounds that the machine is useless. Therefore, marine
cargo policies on machinery are issued with the Replacement Clause. This clause limits
underwriter’s liability only to the cost of replacing, forwarding and refitting any broken part.
Marine policies on cast pipes, hardboard etc. are subject to the clause, attainting that the
damaged portion should be cut off and the balance utilized and on tinned and bottled goods have
the clause which excludes damage to labels unless the goods are themselves damaged at the
same time.
Many a time marine insurance for inland transit is demanded on goods imported from abroad. It
is quite possible that loss or damage on such goods may have already occurred during the ocean
voyage but may not be apparent on external examination. In such cases, risk is accepted subject
to an inspection of the goods.
Loading of Premium
Normal rate of premium is charged if the cargo is shipped by liners other vessels which comply
with the prescribed standards. If the cargo is shipped by an over sagged or under-tonnage vessel
then extra premium is charged. In personal accident insurance if the insured is engaged in
hazardous pursuits like mountaineering, racing on wheels, big game hunting etc. extra premium
is charged.
Restriction of Cover
A proposal for an old motor vehicle may be accepted on comprehensive terms but insurers may
offer a restricted cover e.e.against third party risks. A personal accident proposer who has
crossed the maximum acceptable age limit may be covered for death risk only instead of on
comprehensive terms i/e/including disablement benefits.
Imposition of Excess /Franchise Limits
The meaning of and difference between excess (or deductible) and franchise limits may be
illustrated as follows:-
Excess limit Rs.500 Franchise limit Rs.500
Amount of loss Rs.490 Claim payable Nil Nil
Amount of loss of Rs.550 Claim payable Rs.50 Rs.550

When the loss amount exceeds the limit, the full amount is paid under ’franchise’ clause and
only the balance is paid under ‘excess’ clause. Loss below the limit is not payable in either case.
In practice, franchise is rarely used.
The object of these clauses is to eliminate small claims. As the insured is made to pay part of a
loss, he is encouraged to exercise more care and to practice loss prevention, Proposals for
imported motor vehicles are accepted subject to an excess. If goods in the open are covered
under a burglary policy then an excess is imposed to eliminate small unexplained losses.
(Note: Some polices may have a compulsory excess. Voluntary excess is also provided under
different policies. A discount in the premium is granted)
If the physical hazard involved is considerably bad, the risk becomes uninsurable and is declined.
Based on their past loss experience, knowledge of hazards and overall underwriting policy,
insurers have formulated a list of risks to be declined in each class of insurance. After all, the
insurance business has to be conducted along business principles and insurers cannot accept
risks where the loss potential is predominantly high.
Nevertheless, the number of risks actually declined is very small. Insurers Endeavour to accept
these risks by treating the proposals in any of the ways described above either singly or in
combination. Such acceptances are called accommodation acceptances.
6. Underwriting of Moral Hazard

Moral Hazard cannot be assessed in the same way as physical hazard and the underwriting
techniques described above cannot really take care of moral hazard. Usually nothing can be done
to improve a bad moral hazard and the risk simply becomes insurable. However, moral hazard
arising out of carelessness can be dealt with, for example, by imposition of excess (motor
insurance), restrictive warranties (
watchman for burglary risks), etc.
Acceptance of Risks Subject to Underwriting Safeguards
Certain risks are allowed to be accepted by the operating offices provided certain underwriting
measures are taken. The underwriting instructions specify the types of risks which may be
accepted by the operating offices if they are satisfied about the moral of the proposer, previous
loss experience etc.
In motor insurance, acceptance of comprehensive risks is subject to the specified year of

manufacture of the vehicle. This specification varies s from once class of vehicle to another.
Older vehicles may be accepted subject to inspection of the vehicle and imposition of excess.
Certain types of vehicles may be covered under ‘liability only’ policy. If a burglary proposal
involves large sum insured, the acceptance is subject to a satisfactory survey report.
. In marine insurance, certain acceptances are subject to imposition of exclusions.
Examples are:
- Asbestos cement pipes and sheets (breakage is excluded).

- Refrigerators and air conditions (risk of denting and scratching are excluded).
- Cargo in papers bags(tearing and bursting of bags is excluded).
- Glass (breakage, scratching and chipping and denting is excluded).
- Machinery (second hand)(breakage is excluded).
- Oil in second hand drums (leakage and contamination is excluded).
- Motor spare parts, ball bearing (theft, pilferage and non-delivery is excluded).
- Watches (TPND and breakage is excluded).

In marine insurance, the cargo carrying vessel is an important underwriting factor. Whereas normal rates
are charged for cargo carried on vessels which conform to prescribed standards(e.g. liner vessels not over
certain years old), extra rates are charged if the vessel is over certain years of age (overage) or the
tonnage is below the prescribed limit (under-tonnage).
Declined Risks
Certain risks are regarded as extra-hazardous and are normally, to be declined. Hence, it is
common to refer to these risks as Declined Risks. Nevertheless, some of these risks are accepted
subject to fixing of appropriate rate of premium and imposing restrictive conditions, clauses and
warranties in the policies. Acceptance of such risk is called accommodation. (insurers’ practice
varies)
Some examples of such risks in different classes of business are:
Fire:
- Camphor boiling works

- Explosive factories
- Fire wood/bamboos in the open
- Fireworks factories
- Match factories and matches in transit
Marine
- Bullion , Gold currency notes over specified limits

- Salt, Bulk cargo on terms wider than I.C.C(C).
- Second – hand machinery against breakage
- Oil in second hand drums against leakage and contamination
Miscellaneous
i) Burglary-jeweler, dealers in precious stones, curios and antique, gold and silver
smiths
ii) Cash in-transit-proposals involving large carrying of cash without adequate escort
arrangement
RISK INSPECTION

Although the proposal form and other related correspondence is sufficient for acceptance is
sufficient for acceptance and rating of risk in a majority of cases, pre acceptance risk inspection
is considered necessary for various underwriting purposes. Risk inspection is common in fire,
burglary, public and products liability, engineering and sometimes in marine insurance also.
Risk inspection is conducted where the sum insured is large or complicated features of physical
hazard are involved. Risk inspection is conducted by engineers or of the companies depending
upon circumstances.
Risk Inspection provides:
A complete picture of the risk of deciding the rates of premium for drafting the policy and
incorporating warranties. It is also useful for fixing retentions for reinsurances purposes and for
suggesting measures for risk improvement so that premium rates may be reduced and loss
prevention promoted.
Some examples of risk inspection are mentioned below:
-Inspection of fire extinguishing appliances systems and electrical installation in Industrial risks
for approval of discounts in premium.
- Industrial risk where sum insured is large
-Petrochemical risk.
-Risks eligible for Industrial All Risks Policy.
Engineering Insurance
-Projects insurance; erection all risks, marine cum erection and contractors all risks
-Machinery breakdown and contractor’s plant and equipment insurance.
-Electronic equipment insurances.
(Note: Inspection is not always a onetime exercise. It is also conducted periodically during the
course of the project (e.g. marine) sum erection policy) or at renewal).

Public and Products Liability
A) Public liability insurance for industrial and storage risks where limits of indemnity
exceed the prescribed figure.
B) Products liability insurance for
a) Exports to U.S.A. and Canada irrespective o f limit of indemnity
b) Exports to other countries where the limit of indemnity exceeds a prescribed figure.
c) Domestic sales where the limit of indemnity exceeds a prescribed figure.
Burglary Insurance (Business Premises)
- Inspection of extra hazardous risks such as Jewelers premises, god owns storing high
value property e.g. copper etc.
Marine Cargo Insurance
Where inland transit insurance is required on cargo which is insured by the supplier up to the
port in India, this inspection is required to determine whether the cargo has already suffered
damage during the Ocean Voyage.

7. Re-Insurance
Fixing retention of risk for own account and arranging reinsurance for the balance of risk is an
integral part of underwriting process.
Reinsurance is insurance of insured risk. The original insurance company, known as the ceding
company or the reinsured, retains a portion of the risk and cedes balance to re-insurers.
Reinsurance (i) creates a better spread of the risk,(ii)increases the capacity of the insurance
company to write the business and (iii)protects the insurance company from the impact of a very
heavy loss.
Re-Insurer could be a company which is involved exclusively in reinsurance business only or it

could be the insurance companies who do direct business also. In India G.I.C. (General Insurance
Corporation) is the entity involved only in reinsurance. Whereas the insurance companies which
operate in India either in public sector or private sector, conduct bother direct business as well as
reinsurance. Reinsurance placements are generally through the reinsurance brokers, especially
when the placement is abroad.
There are two main methods of reinsurance placement; facultative and treaty.
a) Facultative
Under this method the risk, a portion thereof is offered to the prospective re insurers, on case to
case basis. The re insurers use their faculties to decide about the acceptance or otherwise. There
is no obligation on the part of the either side, to offer or to accept.
The Insurer may have to approach various re insurers to off-load the load. Some may accept and
some may not. The acceptance could sometimes be with modified terms being introduced. Like
increase in premium rate, higher deductible, exclusion of cover, say, terrorism. Thus the whole
process of placement becomes time consuming, laborious, cumbersome and also expensive.
b) Treaty
This is a standing arrangement/agreement valid generally for one year, to be renewed with or
without modifications. Here, usually there is an obligation to cede and accept those risks which
come under the treaty provisions. These are often called as blind treaties, because there is no

need to give details of ach risk that is reinsured. The settlement is usually done on quarterly basis
through the accounting settlement.
Treaties can be classified into following types
a) Proportional treaty
i) Quota Share
ii) Surplus
iii) Pool
b) Non proportional treaty
i) Excess of loss(X/L treaty)
ii) Stop loss.
Proportional Treaty: Under this type claims are shared in proportion to the share of premium.
Quota Share
In this case a specific predetermined percentage of each risk is placed in treaty, irrespective of
the sum insured. E.g. the insurer may retain 20% and place 80% with quota share treaty. The
sharing of the premium and the claims will also be in the same predetermined proportion.
In such arrangement the insurers lose substantial amount of premiums, perhaps unnecessarily.
Accordingly, such arrangement are less and done normally only by small or new companies.
Incidentally, in India each insurance company has o cede 10% of the risk to G.I.C. as it is
obligatory. This could be deemed as one example of quota share arrangement.
Surplus Treaty
The Insurer decides to retain up to a specific amount depending upon type of risk. E.g.Rs.25 lacs
under Personal Accident Insurance. The reinsurances would be needed only when Sum Insured,
exceeds these figures.

The net retention of the insurer is called a line. The treaty is usually arranged for a contain
number of lines, say 4 lines. In such situation the capacity [gross] of the insurer to write the
business without facultative reinsurance, automatically increases as under:-
P.A. -1line 25 lacs
+4 line treaty -100 lacs=Total 125 lacs
Burglary – line 3 crores
+4 line treaty 12 croces= Total 15 croces
Situation (a)
Suppose a proposal for Personal Accident is received for Rs. 1 croce. The reinsurance
underwriting would be as under.
G.I.C.- 10 lacs
Insurer -25 lacs
Treaty – 65 lacs
Situation (b)
Suppose the S.I. is only Rs. 20 lacs, then no reinsurance is necessary except to G.I.C. which is
compulsory under the laws.
Situation(c)
i) If a proposal is for say Rs. 2 croces, then

G.I.C. 20 lacs
Insurer 25 lacs
Treaty 100 lacs
Balance 55 lacs to be placed facultatively…..
Once the reinsurance underwriting is done , the premium and claims will aslo be shared in the
same proportion. Hence, this is also termed as a type of proportional treaty. Unlike quota share
however, the % of reinsurance could vary from risk to risk.
iii) Pool
This type of arrangement is made when the risks may be few and/ or involving heavy liabilities
e.g. nuclear risks, Motor third party risks. Each member cedes to the pool the full risk accepted
by him or some portion thereof, as per the arrangement. The cessions thus received by the pool

are retro ceded to the members sometimes non-members also, in a certain proportion. The
proportion is determined based on cessions to the pool or sometimes based on the market share
in the business in the country.The pool makes it possible for greater spread of the risk and
retention of more business with in the country itself.
Non-Proportional Treaty:
In such treaties the distribution of the liability between Insurer and the re insurer is based on
loss amount and not on sum insured.
Excess of loss treaty:-
Such an arrangement could be ‘per risk ’ or ‘per event/accident ’.An insurer may like retain say
Rs. 50 lacs as their loss retention, this is called the underlying limit. They may arrange X/L
protection, up to say, Rs. 3 crores. Overlying limit, this means a loss up to Rs.50 lacs would be
fully borne by the insurer himself. The amount above that ‘per loss’ will be recovered from the
re-insurer up to the overlying limit. However, if the loss amount exceeds the overlying limit, the
balance amount will revert to the insurer to be borne by him.
In case, of ‘per event’ protecting, the cumulative effect on the insurer due to losses under various
policies will be ascertained and not under one policy /risk alone.e.g. a flood, storm or earthquake
may cause losses under a large number of risks. Even where sum insured may not be large the
effect cumulatively could be enormous.
Stop loss treaty:-
The cover here is neither based on the size of the loss nor the extent of sum insured but on the
incurred claims ratio of a class of business during an accounting year. Such arrangements are
useful when each claim is not large, the sum insured is also not large, but the overall experience
is adverse.
The arrangement could be something like the following , Re insurers agree to pay 90% of the
loss amount, if the loss ratio exceeds 70% .The top limit of the treaty could be 120%.In India
each Insurer devise their reinsurance programme every year under information to the IRDA. The
Reinsurance philosophy to be followed would include arrangement by which most of the
business is retained within the country.

8. Risk Management
Definition of Risk
The term ‘risk’ has various meanings. The dictionary defines it as hazard, chance of bad
consequences, and exposure to mischance. In the insurance context, risk may mean a peril which
may cause loss or damage e.g. fire, flood, burglary etc. Sometimes, it is used to refer to the
subject matter of insurance e.g. house, factory, motor vehicle, ship etc. But, for the purpose of
risk management, the term may be defined as ‘future certainty as regards financial loss’.
Types of Risks
A business firm is exposed to two types of risk:
a) Speculative or business risks (also known as trade risks).
b) Pure or fortuitous risks
Business risks may arise out of fall in demand due to change in customer tastes, actions of
competitors, recession in the economy, industrial unrest, inflation and a host of other factors.
Business risks are not insurable and are controlled or managed by firms through functional
management e.g. finance, production, marketing, research and development etc.
Pure risks arise out of accidental happenings. Examples are fire, explosion, flood earthquake,
riot, strike, burglary etc.
The following are examples of some of the financial losses that result from pure risks
Assets:
Loss or damage to buildings, machinery, stocks etc by fire and other perils; goods in transit may
be damaged by transportation hazards such as accidents to conveyance, sea water damage etc.
Profits:
The damage to machinery, stocks etc. or machinery break down may result in business
interruption causing loss of profits.
Legal Liabilities:

The firm may have to pay damages, under law, to third parties arising out of motor vehicle
accidents, manufacturing activities, defective products etc. and to workmen for employment
accidents.
Personal:
Employees may sustain accidents or suffer from illness. These risks also result in financial losses
to the firm.
Pure risks fall within the scope of risk management whose function is to control the losses which
may be caused by the operation of pure risks.
Risk management may be defined as a function of corporate management which is concerned

with the protection of firm’s assets, earnings, legal liabilities and personnel financial losses that
may be brought about by the operation of fortuitous events. The ultimate objective of risk
management is to protect the earning capacity of a business enterprise and maximize its
operating efficiency, so that corporate goals of profits, growth etc, are achieved.
Risk management as part of business management had its origin in the U.S. more the five
decades ago. Major companies in developed countries now practice risk management with a
senior executive in charge. In recent years corporate firms in India have introduced risk
management.
Process of Risk Management
Risks management follows a logical orderly process which involves the following steps:
- Risk identification
- Risk evaluation
-Selection of appropriate techniques to control risks
-Implementation of selected techniques
-Periodic review and evaluation of risk management program
Risk Identification
The first step is risk identification, also known as risk recognition. This requires a thorough
knowledge of the firm, its activities, its products, the areas and markets in which it operates as
also knowledge of the legal, social and economic environment. In this phase, the sources of risk,

i.e. Loss producing events e.g. fire, flood etc. are identified. A detailed checklist of various
perils may be used for the purpose. A physical inspection of premises, processes and products
also helps in identification of risks.
Risk Evaluation
Risk evaluation means risk measurement or risk quantification. This step involves determination
of ‘loss frequency’ i.e. whether losses occur regularly and ‘loss severity ’i.e. the size of the losses
that may occur, for example, minor losses in goods in transit by rail/road occur frequently,. Loss
caused by explosion, flood, earthquake.
This exercise serves two purposes: to select the appropriate techniques of risk control and to fix
the sum insured under insurance policies.
Risk Control or Risk Treatment
In this phase of the process, various techniques available to control and manage risk exposures
are examined and decisions taken on the measures to be adopted. These techniques are now
briefly explained.
Risk Avoidance The simplest way to handle a risk is to avoid it altogether. A risk of damage by
flooding may be avoided by moving the factory to another safer site. Adoption if this technique
may not be possible or practical in all situations,.
Loss Prevention and Reduction
Loss prevention and loss reduction (or loss minimization) techniques aim to eliminate, or at least,
reduce a firm’s losses. Some examples of measures that may be taken to prevent or reduce fire
losses are:
- Segregation of hazardous processes
- Proper maintenance of electrical installation
-Good housekeeping
-Installation of fire extinguishing appliance etc,
Measure for cargo loss prevention includes adequate packing of goods, selection of reliable truck
operator s for transportation of goods etc.

Appointment of watchmen and installation of burglar alarm system are measures for prevention
of burglary losses.
Risk Retention
This technique may take different forms. Small losses which occur frequently may be absorbed
by the firm as normal operating expenses of business. For example, minor damage/losses of
goods in transit may be treated this way and not insured.
A large and financially strong firm may create a ‘self insurance’ fund to which periodic
payments are credited and from which loss as and when they occur paid. For example,
domiciliary medical expenses of large group of employees may be dealt with by this method and
hospitalization expenses may be insured under a group medical policy.
The third method of risk retention is by way of voluntary ‘excess or deductible’ available under
insurance schemes. This technique is also suitable to large and financially strong firms able to
absorb losses up to a certain level. Besides, the firms earn discounts in the premium granted by
insurers. Voluntary deductibles are provided for in fire insurance, loss of profits (fire) insurance,
marine cargo insurance, motor insurance, public liability and products liability insurance etc.
Risk trainer occurs when the activity that creates the risk is transferred. If a particular process of
manufacture is too hazardous the firm may send the materials to a specialist sub-contractor for
processing, thereby transferring the risk associated with that work to the sub contractor. Risk
may also be transferred by contract. For example when a contractor hires plant and equipment
the owner may insert a condition in the contract that damage to the plant and third party liability
must be insured by the contractor.
Finally, the risk may be transferred to insurers. This is the insurance method of risk transfer.
Implementation
The selected techniques have to be implemented by the firm through the different functional
managers. For example, the production manager may be concerned with the fire loss prevention
and materials manager with packing of goods, their safe transportation, etc. self-insurance fund
may be managed by the finance manage. Purchase of insurance and recovery of claims would be

the function of separate insurance department, if there is one , or may handled by the finance
manager.
Review
The last step in the process is monitoring the results produced by implementing the various
techniques, selected. Loss prevention measures have to be evaluated. The pattern of loss
experience has to be analyzed to decide whether losses have to be absorbed or insured or whether
the amount of ‘deductible reduced or increased’ etc. Insurance programme has also to be
reviewed.
The evaluation exercise may be done at annual intervals. The results of evaluation may suggest a
revised approach and the process of risk management starts all over again.
Insurer’s Role In Risk Management
Insurers play an active role in risk management practiced by business firms. The main function of
insurance is to provide financial protection to firms against the consequences of pure risks. It is said that
without insurance an industrial economy cannot function at all.
There are also ‘value added benefits’ in insurance. Insurers play a vital role in the reduction of losses.
The very basis of premium rating methods adopted by insurers is designed to prevent or reduce losses.
For example, in fire insurance discounts in premium are offered for installation of fire extinguishing
appliances and extra rates charged for undesirable risk feature e.g. inferior construction. In marine
insurance lower rates are charged if better methods of packing are adopted by shippers. Voluntary
deductibles also attract discounts in premium
Documentation Procedure
The information obtained from proposal form, risk inspection, etc,. is fed into the computers. The
companies have various software systems, due to which the underwriting decision is straight away
available including the premium amount and the excess.
If the full details of the risk are not available or the premium rate is not determined lending inspection
report, a temporary cover note is issued to be followed by the regular policy document.

For certain types of covers certificate of insurance is also necessary e.g. under Motor Insurance, as per
the Motor Vehicles Act 1988 or under Marine open cover or Marine open policy.
Registers are to be duly maintained for cover notes, policies, endorsements etc, for proper control.
Renewal Procedure;
Fire and miscellaneous insurances are granted on an annual basis. The period of insurance ((i.e. date of
commencement of insurance and the date of expiry is clearly stated in the policy). The insurance expires
at mid night of the date of expiry.
The preamble of a policy usually states that the indemnity there under applies during the period of
insurance named in the schedule or of any subsequent period in respect of which the insured shall have
paid and the insurers shall have accepted the premium required for renewal of this policy.
Renewal is not automatic.
It depends upon the consent of the insurers to renew the policy and the payment of premium. It
is important to note that there is no legal obligation on the part of insurers to renew the policy or
even to invite renewal nor are they obligated to advise the insured that have decided not to invite
renewal.
As a matter of courtesy and good business policy, insurers issue a renewal notice to the
insured, usually a month in advance of the date of expiry. If for any reason, they are not
interested in the renewal of the policy, they give previous notice to the insured to that effect.
Renewal constitutes a fresh contract and the duty of utmost good faith is revived, Renewal, of
course, is effected subject to payment of premium. A fresh policyis issued roa document
renewal receipt may be issued acknowledging receipt of the renewal premium and specifying
the term of the further period insurance.
Under certain types of insurance, adjustment of premium has to be made at renewal. For
example, under money in-transit insurance, the premium is calculated on basis of the actual
amount of money in transit during the period of insurance and if premium so calculated differs
from the provisional premium, extra premium is collected or refund made, as the case may be.

9. Customer Service
Customer service is the ultimate objective of every business enterprise whether engaged in
manufacturing or provision of services as in hotels, airlines, banking, insurances etc.
In insurance, customer service assumes, special meaning and significance because insurance
provides a service in the nature of financial protection for the future in the event of loss which
may or may not occur. This service, unlike goods, is intangible.
Therefore a totally different approach towards customer Service has to be adopted at various
stages of insurance operations-processing and settlement of claims, issue of policies and
endorsements during the currency of the policy and even before insurance is sold that is the
phase when insurance schemes are formulated. Generally speaking, customer service is
associated with prompt issue of policies and prompts settlement of claims. But according to
modern concepts customer service has a wider meaning and broader scope.
Customer satisfaction is usually defined as the difference between expectations of service and
the perception of actual services received. The objective of customer service according to current
thinking is not customer satisfaction but customer delight which may occur when the service
exceeds the expectations of customers. Similarly, the scope of customer service embraces many
activities in addition to prompt issue of polices and settlement of claims.
The first phase of this new approach to customer service involves identification of customers in
different segments- individuals, firms, corporate bodies, etc,- followed by identification of their
needs, wants and expectations and formulation of appropriate insurance schemes at economic
costs to the consumer. Therefore market research, feedback from agents and marketing staff,
consultation with consumer groups etc. plays an important role. Policy forms, proposal forms,
and other forms have to be designed to make them customer-friendly For example proposal
forms may contain brief details of the coverage, and also guidelines on filling the form.

Attractive brochures on various policies currently designed by companies are examples of good
customer service.
The second phase is that of pre-sales service which the agents and marketing staff have to play a
major role. They have to make a risk analysis of the customers—householders, traders,
manufacturers etc,--to be able to suggest appropriate policies.
The third phase commences at the point at the point of sale that is the actual contact with the
customer the important ingredients of service at this stage are:
-Arrangement of adequate cover including additional perils and extensions if necessary.
- Advice on the exclusions in the policy.
- Guidance on how to fix the sum insured, the basis of claim settlement; insured’s
obligations under the policy in regard to notification of material alteration etc.
Guidance on claims procedure including documents to be submitted;
Agents and marketing staff are trained to provide service at these stages.
The next phase involves actual preparation of the policy and other documents,. Important
aspects are in addition to promptness, accuracy in drafting the policies, applying the correct rate
of premium, correct calculation of premium, attachment of correct clauses, endorsements,
warranty forms etc. Many loss survey reports have pointed out mistake sin policy preparation,
leading to disputes and complication in claims settlement. Good customer service should avoid
creating such situation. In this stage of service, administrative staff has a crucial role to play.
The next phase is after sales service which means satisfaction of the clients changing needs one
continuing basis. Agents and marketing staff have to be regular touch with clients to ascertain
alteration in risk, increase or decrease in sum insured, exposure to additional risks etc . so that
endorsements are placed on the policy or additional policies issued.
Again renewal notices have to be issued and both administrative and marketing staff have
ensured that these notices reach the insured well in advance of the date of expiry of the policy.
AT renewal risk analysis has to be carried out once again by the agents and marketing staff so
that changes, if any, are taken care of.

After-sales service becomes most crucial and meaningful when a loss occurs. Prompt and fair
settlement of claims is the ultimate test of good customer service.
Essentials of good service at this stage are;
-Prompt issue of claim form
-Prompt appointment of loss surveyor
- Complete advice to the insured on claims procedure and claims documentation. If

multiple requirements are involved the insured should be notified at the very first instance, as far
as possible and not periodically in installments.
- Control over surveyors to ensure that they submit their reports without undue delay.
-Expeditious processing of relevant documents, survey report etc. decision - making and
payment of the claim.
Agent and marketing staff also have a role to play at this stage. Post-settlement service consists
of advising the client to take remedial steps to avoid recurrence of similar losses, reinstatement
of insured etc. If the loss is not payable or a reduced amount is payable the delicate task of
advising the insured has to be performed with sensitivity. It is good service to give clearly the
reasons why the claim is not payable, accompanied by proper advice for the future. These
situations may arise when a loss is caused by an excluded peril where there is breach of warranty
or there is under – insurance etc. The fact that insurers consider settlement of non-standard
claims and on ‘ex-gratia’ basis are a measure of good customer service.
The above discussion relates to technical and procedural aspects of customer Service. The human
element is equally important. Courtesy, understanding, sympathy and sensitivity towards the
customer should be in evidence in personal interactions, over the telephone and in
correspondence.
Modern concepts of total customer service are applied by insurers in India and some examples of
this are:-
-Risk inspection service and risk improvement advice

-Tailor-made policies wherever required.
-Introduction of new insurance schemes in the urban and rural areas in response to market
needs and market demand.
- Customer education and customer service seminars and workshops by the insurance
companies and Tariff Advisor Committee.
-Active encouragement and implementation of out-of-court settlement of motor third

party claims.
-Formulation of Industrial All Risks Policy after interaction with customer groups such
Chambers of Commerce and Industry.

10. IRDA REGULATIONS 2002 (Protection of Policy holders Interests)
The various aspects of customer service have received statutory recognition in the above
regulations.
Regulation 3 in respect of Point of sale provides as follows:
A prospectus of any insurance product shall clearly state the scope of benefits, the extent of
insurance cover and in an explicit manner explain the warranties, exceptions and conditions of
the insurance cover.
A insurer or its agent or other intermediary shall provide all material information in respect of
proposed cover to the prospect to enable to decide on the best cover that would be in his or her
interest.
Where the prospect depends upon the advice of the insurer or his agent or an insurance
intermediary, such a person must advise the prospect dispassionately.
Where , furor, any reason, the proposal and the other connected papers are not filled by the
prospect , a certificate may be incorporated at the end of proposal from the prospect that the
contents or the form and documents have been fully explained to him and that he has fully
understood the significance of the proposed contract.
In the process of sale, the insurer or its agent or any intermediary shall act according to the code
of conduct prescribed by:-
i) The Authority:
ii) The Councils that have been established under Secion 64c of the Insurance
Act, and
iii) The recognized professional body or association of which the agent or
intermediary or insurance intermediary is a member.
Explanation—“Material” for the purpose of these regulations shall mean and include all
important, essential and relevant information in the context of underwriting the risk to be
covered by the insurer.

Claim procedure in respect of a general insurance policy is prescribed by Regulation 9 as
follows:
An insured or the claimant shall give notice to the insurer of any loss arising under contact of
insurance at the earliest or within such extended time as may be allowed by the insurer.
On receipt of such a communication, a general insurer shall respond immediately and give clear
indication to the insured on the procedures that he should follow. In cases where a surveyor has
to be appointed for assessing a loss /claim, it shall be so done within 72 hours of the receipt of
intimation form the insured.
When the insured in unable to furnish all the particulars required by the surveyor or where the
surveyor does not receive the full cooperation of the insured, the insurer or the surveyor as the
cases may be, shall inform in writing the insured about the delay that may result in the
assessment of the claim.
The Surveyor shall be subjected to the code of conduct laid down by the Authority while
assessing the loss, and shall communicate his findings to the insurer furnished to the insured, if
he so desires.
In special circumstances of the case, either dot to its special or complicated nature, the surveyor
shall intimation to the insured; seek an extension from the insurer for submission of his report. In
no case shall a surveyor take more than six months from the date of his appointment to furnish
his report.
If an insurer, on the receipt of survey report, finds that it is incomplete in any respect, he shall
require the surveyor under intimation to the insured, to finish an additional report on certain
specific issues as may be required by the insures. Such a request may be made by the insurer
within 15 days of the receipt of the original survey report.
Provided that the facility of calling for and additional report by the insurer shall not be resorted
to more than once in the case of a claim. The surveyor on receipt of this communication shall
furnish an additional report within three weeks of the date of receipt of communication from the
insurer.

On receipt of the survey report or the additional survey report, as the case may be, an insurer
shall within a period of 30 days offer a settlement of the claim to the insured.
If the insurer, for any reasons to be recorded in writing and communicated to the insured, decides
to reject a claim under the policy, it shall do so within period of 30 days from the receipt of the
survey or the additional survey report, as the case may be.
Upon acceptance of an offer of settlement stated in Sub-Regulation (5) by the insured, the
payment of the amount due shall be made within 7 days from the date of acceptance of the offer
by the insured. In the cases of delay in the payment, the insurer shall be liable to pay interest at a
rate which is 2% above the bank rate prevalent at the beginning of the financial year in which the
claim is reviewed by it.
The various aspects of policy holder’s Servicing are dealt with by Regulation 10 as follows:
An insurer carrying on life or general business, as the case may be at all times, respond within 10
days of the receipt of any communication from its policy holders in all maters, such as:
Recording change of address:
Issuance of duplicate policy:
Issuance of an endorsement under the policy; nothing a change of interest or sum assured or
perils insured, financial interest of a bank and other interest :and Guidance on the procedure for
registering a claim and early settlement thereof.

L & T Project Rep

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TABLE OF CONTENTS

SR.NO PARTICULARS PAGE.NO

2 Fundamentals & Principles of Insurance 4

1 L&T General Insurance

15 Underwriting of Physical Hazard 42

16 Underwriting of Moral Hazard 45

IRDA regulations 2002 (protection of policy holders interests)

2 L&T General Insurance

What is General Insurance?

3 L&T General Insurance

FUNDAMENTALS/ PRINCIPLES OF GENERAL INSURANCE

4 L&T General Insurance

Examples of insurable interest

Time when insurable interest should be present

5 L&T General Insurance

6 L&T General Insurance

a) Proposer’s name in full:

7 L&T General Insurance

The Insurance Act, 1938

Accounts and Returns

8 L&T General Insurance

9 L&T General Insurance

Limitation on expenses of management

10 L&T General Insurance

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA)

The preamble of IRDA act states as follows:

11 L&T General Insurance

12 L&T General Insurance

Types of marine insurance:-

 The owner of the ship has an insurable interest in the ship.

13 L&T General Insurance

 Major types of marine insurance policies are

 6. Unvalued policy (Open Policy)

 7. Builder's risk policy

14 L&T General Insurance

 9. Port risk policy

 11. Special hazards policy

 12. Composite policy

 13. Block policy

15 L&T General Insurance

 Official receiver or assignee in insolvency proceedings

 Warehouse keeper in the goods of customer

 A person in lawful possession e.g. common carrier, commission agent.

The types of losses covered by fire insurance are:-

 Goods spoiled or property damaged by water used to extinguish the fire.

 Wages paid to persons employed for extinguishing fire.

The types of losses not covered by a fire insurance policy are:-

 Loss caused by subterranean (underground) fire.

 Loss caused by burning of property by order of any public authority.

 Loss by theft during or after the occurrence of fire.

 Loss or damage to property caused by its own fermentation or spontaneous combustion

A claim for loss by fire must satisfy the following conditions:-

 The proximate cause of loss should be fire.

 The loss or damage must relate to subject matter of policy.

Types of Fire Insurance Policies:-

17 L&T General Insurance

Replacement or Re-instatement policy:- is a policy in which the insurer inserts a re-

18 L&T General Insurance

Contractors All Risk Policy

The policy comprises of 2 Sections:

 Section I-Material Damage-covering physical loss, damage or destruction of the property

19 L&T General Insurance