Definition

Insurance is a contract between the insurer and insured under which the insurer undertakes to compensate the insured for the loss arising from the risk insured. In consideration, the insured agrees to pay the premium regularly.

Characteristics
Cooperative Device Sharing Risk Evaluation of Risk Payment at contingency Amount of Payment Large number of insured persons Is not Gambling Not a charity

Importance
Transfer of Risk- Risk of Loss. Protection to Business men & Public

*Compensation is received. *Position becomes as it was prior to the loss. *Financial Protection to dependents. *Security, Safety & Peace of Mind.
Minimum Guarantee Profit Easy settlement & Protection against creditors.

Raising Credit.

*Security Against Loans. *Emergency Loan.

Mediclaim Support

*Lump sum amount in case of accident resulting permanent disability.

Source of Employment Confidence Tax concessions.(sec 80 C Income Tax) Promotes Employee welfare. Promotion of International Trade. Growth of Business Competition.

Stimulates Business Enterprise.

*Business risk free. *Safeguards capital Invested. *Amount maintained for meeting unexpected losses.
Increases Efficiency. Capital Formation

*Collect small national savings in form of premium. *Invest these funds in shares & Debentures.
Savings Solving Social Problems

*Covers injuries, road accidents, disability, death etc. *Employers- Employees.

Essentials
Offer & Acceptance. Free consent. Agreement must be in writing. Competent Persons. Premium as consideration. Object must be lawful. Element of uncertainty. Subject matter should be risk. Risk must be capable to be calculated.

Principles of Insurance
Principal of Utmost Faith

*Clear & complete & correct info- else void. *Disclose. *Applicable to all types.
Principle of Insurable Interest.

*Interest in the subject matter of insurance. *Physical existence gives-Gain. *No existence-Direct Financial Loss. *Property- Ownership. *Applicable to all types.

Principle of Indemnity.

*Guarantee/Compensation to pay for the loss occurred. *Amount of Insurance. *For Protection & not for Profit-making. *Same financial position as prior to the loss. *Applicable to fire, marine & general.
Principle of Contribution.

*More than one policy. *Claim from any one or in proportionate basis from all. *Applicable to all except Life. *Corollary of the principle of indemnity.
Principle of Loss minimization

*All necessary steps to minimize loss.

Principle of Subrogation.

*Replacing of one person to another. *Right of ownership will pass to the insurer. *Prevents the insured to make profit or loss suffered by him. *Insurer steps in the shoes of the insured. *Corollary of the principle of indemnity.
Principle of Causa Proxima.

*Loss caused by series or chain of causes. *Nearer cause needs to be insured.

Risk must attach

*Subject Matter should be at risk of loss. *Insurer gets premium in a contract of insurance for running, certain risk.

Period Of Insurance

* Insurance contract clearly mentions the term or period of time it covers. *Life Insurance is a continuing contract with the condition the premium is to be paid at regular periods. If the premium is is not paid regularly, the contract becomes invalid and can be started back after fulfilling certain conditions as given in the contract. The insurer is legally responsible to pay the compensation for the loss insured only till the term or period of time of the policy and not alter that.

Forms of Insurance Organisations

SELF-INSURANCE (Private Fund)

INDIVIDUAL INSURER PARTNERSHIP JOINT STOCK COMPANIES MUTUAL COMPANIES CO-OPERATIVE INSURANCE ORGANISATION LLOYDS ASSOCIATION STATE INSURANCE

Types of Insurance
Life Insurance Non-Life

Endowment. Term Whole-Life. Limited Payment whole life policy. Convertible-whole life policy. Joint Life Policy. Annuity Policy. Childrens Endowment Policy. Unit Linked Policies Health Insurance LIC Policies etc.

Marine. Fire. Vehicle . Medical. Crop. Fidelity. Burglary. Cattle Cash In Transit etc.

Life Insurance
Life Insurance is a contract between the assurer and the assured, under which the assurer on the payment of premium, agrees to pay a certain sum of money on the expiry of the certain period, or on death, whichever is earlier.

Needs for Life insurance:Family Children Old Age Special medical reasons.

Features of Life Insurance in India

Elements of Valid Contract Insurable Interest Utmost Good Faith Warranties Assignment & Nomination Premium Certainty of event

Advantages of Life Insurance in India

Encourages & aids thrift Protection Accidental death benefits Tax Benefit Provides Liquidity.

Types

ENDOWMENT POLICY *Popular Form of life insurance. *Sum Assured is payable only after expiry of the period of the policy or on death. *Premium needs to be paid till the maturity. *Regular savings. *Self & Family members. *Types (i) Pure(survival) (ii) Ordinary (iii)Joint Life (iv)Double Endowment (v) Triple Benefit.

WHOLE LIFE POLICY *Cheapest form of policy. *Insurance cover against death irrespective of when it happens. *Premium is paid throughout the lifetime of the assured. *Policy if kept current, covers over entire life as compared to term insurance which covers only for a certain term of yeatrs. *Sum assured is paid only on the death to family members. LIMITED PAYMENT WHOLE LIFE POLICY. *Term is fixed. *Premium is payable for selected period or until death if it occurs within this period. * Assured knows how much amount he will be required to pay no matter how long he lives. * Sum Assured is paid only on the death of the assured.

SINGLE PREMIUM WHOLE LIFE POLICY *Premium is paid at the start of the policy. *It is available with or without profits *With Profit, these policies continue to share in the periodical bonus contribution until the death of the life assured. *(Do not stop participating in the profits after completion of the period for which the premium has been paid)

CONVERTIBLE-WHOLE LIFE POLICY *For Young persons. *Whole life policy is taken first with low premium. *During the tenure, policy can be converted to endowment with increase in the premium. *Else continues as Whole Life with premiums reducing every stage.

JOINT LIFE POLICY *Policy covering two or more lives. *Sum Assured is paid at the end of a fixed term or on first death of any lives assured whichever is earlier. *Popular with Partnership firms. GROUP LIFE INSURANCE *Provides insurance coverage to a group of people under one contract. *These schemes are provided for employees, association societies etc.

ANNUITY PLAN *Reverse of Life Insurance.(Starts where Life Insurance ends) *Premium is payable either monthly, quarterly, half yearly, yearly. * form of Pension in which insurance company makes a series of periodic payments to a person or his/her dependents over a number of years, in return for the money paid to the insurance company either in a lump sum or in installments. *Useful for those who would wish for a regular income for themselves & their dependents after the expiry of certain number of years.

CHILDRENS ENDOWMENT POLICY. *Policy for childrens marriage, education. *Premium is payable not at once but on monthly, quarterly, half-yearly or yearly installments. TERM INSURANCE *Pure Risk cover for a specified time period. *Pays death benefit to the legal heirs of insured dies during the term of the policy. *Temporary & inexpensive Insurance. *Convertible, Level, Decreasing(constant Premium but the benefits are reduced over a period of time), Increasing (Premium as well as the benefits increases), Renewable.

UNIT LINK POLICIES *Benefits depend upon the performance of a portfolio of shares. *The Allocated premiums will be applied to purchase units as per the fund type chosen. *The investment is denoted as units and is represented by the value that it has attained called Net Asset Value. *Premium by the insured is spilt (a)Life insurance cover (b)units of Mutual fund after deduction of costs, expenses.

HEALTH INSURANCE Covers 4 major diseases cancer, kidney transplantation, heart problems needing by-pass surgery or paralysis. Under this plan , money is provided at a lump sum and thereafter in regular intervals in case of a major disease for meeting the expenses of hospitalization or operation. If the policyholder gets affected with any of the health problems within one year of policy, he will not get any benefit, however policy continues as an endowment policy.

JEEVAN SATHI POLICY *For married couple. *If both Lives survive, Sum assured + Bonus declared from time to time is paid. *Maturity is twice: -if one dies before the due date of the policy, the sum assured is payable to the survivor. -policy continues even after that date till the date of maturity. -Same amount is payable to the survivor or nominee. OTHER LIC POLICIES *Jeevan Akshay *Jeevan Dhara *Jeevan Kishor *Jeevan Chaya *Jeevan Mitra etc

PROCEDURE TO TAKE LIFE INSURANCE POLICY

Submission of proposal form. Submission of agents report. Doctors Report. Certificate of Age. Scrutiny of Documents. Acceptance of Proposal. Payment of First Premium.

NOMINATION

Is the right given to the life insurance policyholder to appoint a person or persons to receive the benefit under the policy in case it becomes a death claim

The act of naming a person by the policy holder to whom the policy money will be paid in the event of the death of the policy holder. Nominee- person in whose favour the nomination is effected Above 18 years Nominee details as full name , age , relationship. Multiple persons are allowed as nominees , share needs to be specified under S/39 insurance act 1938. Can change/ cancel the nomination. In Absence of nomination, payments of the claims may be delayed due to involvement of legal proceeding. The claimant will have to present (i) succession certificate or (ii)letter of administration from the court of law.

ASSIGNMENT

Transfer of Rights , Title & Interest of the Life Insurance Policy to a person or persons.

Assignor(policyholder who transfer the title) & Assignee(person who derives the title from the assignor) Two Types- Absolute and Conditional Cannot be cancelled and Changed The Third Parties may be creditor, bank, the assured himself or any other person. AS per Section 38, of the Insurance Act 1938, Assignment can be effected:Either by Endorsement upon the policy document OR By Endorsement upon a separate document Should be signed by the assignor or his duly authorized agent. Attestation by at least one witness. It is compulsory for the assured to give notice of assignment to the assurer for making the assignment effective.

SURRENDER VALUE & PAID UP VALUE OF POLICY

Surrender means giving up of an insurance policy before the date of maturity. Surrender value means the amount of money which the insurer agrees to pay in case the assured decides to surrender his policy before its due date. The Amount of Surrender value is calculated on the basis of actual premium paid and number of years the policy has been active. Minimum 3 years premiums need to be paid so that the policy can acquire a surrender value. Surrender value is paid at the time of discontinuation of the policy.

PAID UP VALUE
Paid Up Value= Original Sum assured * No of Premiums paid Total no of premiums that were required to be paid. Paid up value is the amount at which your sum assured would be reduced if you discontinue paying the premiums. Policy continues with a reduced sum assured and premiums need not be paid. 3 Years minimum premiums need to be paid. Paid up value is paid only on maturity or death of the policyholder which ever is earlier. In case of with profit or participating policy, the bonus or profits are added to the paid up value but future gains or profits are not added to such policy.

CLAIM SETTLEMENT UNDER LIFE INSURANCE POLICY

(A)

Procedure to be following in case of claims by MATURITY.

Obtain a copy of maturity intimation. (If not received within 2 months then the policy holder needs to contact the concerned Divisional Office & obtain a copy of the maturity intimation Submit the Policy Document Submit the Age Proof Submit the Discharge Form no 3825.(duly stamped and signed attested by witness)

Assignment/Re-assignment Deed, if any If policy or Any deed of assignment/ re-assignment is lost by the policy holder, he has to submit an indemnity bond (in a particular format)along with a reliable surety of sound financial standing. Existing certificates in case of Childrens Deferred Assurance & Pure endowment policies. Insurance co will send a cheque to the policyholder for the money due to him as per the terms of the policy.

(B)Procedure to be following in case of claims by MATURITY.

Intimation of DeathTo be sent by the person who is entitled to get the proceeds of the policy Letter of information of Death should contain:Name of Life Assured, Statement that life assured is dead, date of death, cause of death, place of death, policy number/s, claimants relationship with the assure or his status (Nominee/ Assignee) Submission of Death Proof Submission of Age Proof Certificate of Ownership Payment and Discharge

General Insurance

FIRE INSURANCE *Protection to the property against fire, lightning/explosion. *Covers damage caused due to perils like storm, earthquake aircraft, riot etc. *Types:(a)Specific covers the loss of the assured upto a certain amount which is less than the real value of the property. Insurers liability arises only when when the losses reaches to the extent of certain specified sum. (b)Comprehensive risk of fire, burglary, riot,theft pest, damage, lightning etc- All in policies

(c)Valued Property is valued by experts at the time of affecting the policy. Amount can be either less or more than the actual loss. Fixed amount is payable irrespective of the actual amount of loss. (d)Floating can be issued for stocks to take care of frequent changes in sum assured at various locations Goods kept at different places, a floating fire insurance policy can be obtained by such a trader to cover the risk of goods lying at different places under one policy. (e)Average Policy- contains the average clause. Insurance company needs to pay only that portion of the loss which is borne by the insured amount to the actual value of the subject matter of the insurance.

(f) Stock Declaration Policy- Covering the stock where great fluctuations in the value can happen throughout the contract period. 75% of the premium has to be deposited in advance. At the end of year, the average stock & final premium is calculated. (g) Loss of profit policy- covers the loss of profit which sustains as a result of fire. Consequential loss policy. (h)Standard fire policy- compensation of all the direct loss or damage caused by lightning & burning. It also covers damages by earthquake, hair flood, explosion, cyclone & riot.

(i)Reinstatement policy- Insurance company pays more than the actual value of the property destroyed by fire in order to cover the cost of replacement of the said property. (j) Schedule Policy- insures many properties under collective terms & conditions. (k) Sprinkler Leakage policy- covers the loss of building as a result of the damage by the leakage of liquid or water. (l) Excess policy- Stock of merchandise whose value is constantly fluctuating. Insured takes an ordinary policy for minimum value of the stock & excess policy for excess value of the stock. The actual value of the stock will be reported periodically. (m) Maximum value with discount policy

CLAIM SETTLEMENT UNDER FIRE INSURANCE POLICY

Informing the insurance co. about the loss(correct and true information, details of policy number, place of fire, time and cause of fire if known) Assessment of Loss by the insured Should not throw away the damaged goods or assets but he must keep them till the time the surveyor arrives at the place where fore took place Appointment of Surveyor by the Insurance company once it receives the information. Duty of the surveyor to find the exact cause of the fire and to assess the exact amount of loss. Investigation- He asks the insured to provide the necessary details about the loss by producing some proof such as purchase vouchers, & other records.

He may visit once or couple of times Preparation of detailed report Reporting of all the details to the insurance company Verifying the claim proposal by the claims sanctioning department Appeal- means to make a request an authority to change the decision made by it. Insurance co. settles the claim at a lower value than expected by the insured then the insured can make an appeal to the insurance co to consider again the amount or claim sanctioned by it. The insured may also enter into negotiations with the insurance co. After agreement, insurance company issues the cheque

MARINE INSURANCE *Oldest type of insurance. *To indemnify the assured against losses due to marine adventure/ sea voyage. *Types:(a)Voyage- Journey by sea- AT & FROM. (b)Time Tenure is fixed, (one year on the vessel). (c) Mixed Time & Voyage both included.- Issued for ships & steamers. (d)Valued Fixed value is paid whether loss suffered is total or partial. (e)Unvalued- Loss is examined & compensation is paid acc. to amount of loss. (f)Floating/ Declaration/Open/Unnamed Covers ships of a policy holder carrying goods from one part to another.

CLAIM SETTLEMENT UNDER MARINE INSURANCE (From Text Book)

MOTOR INSURANCE Motor Vehicle insurance covers claims against the driver & also in respect of damage to the insureds vehicle. Provides safety to the motor by damage due to thefts or accidents. Insures the policy holder against any loss and harm caused to his motor & its accessories due to natural mishaps or accidents May cover both legal liability claims against the driver & damage to the insured vehicle. CLASSIFICATION OF VEHICLES- FOUR WHEELERS, 2 WHEELERS, COMERCIAL, MISCELLANEOUS. TYPES OF MOTOR INSURANCE POLICIES Act/Liability policy Package/Comprehensive policy

Car Insurance Two Wheeler Insurance Commercial Vehicle Insurance INSURANCE CLAIMS:VOLUNTARY EXCESS NCB DAMAGE CAUSED HEALTH /MEDICAL INSURANCE Covers medical insurance for themselves or their family members. Renewed every year. Medical claims relating to sickness & hospitalization are covered in this scheme. The claim amount depends on the amount of medical expenses & type of sickness.

INDIVIDUAL MEDICLAIM POLICY GROUP MEDICLAIM POLICY. OVERSEAS MEDICLAIM POLICY MEDICAL INSURANCE CRITICAL ILLNESS HEALTH INSURANCE CLAIM Planned Hospitalization Unplanned RIDERS

CROP INSURANCE Contract of crop insurance is a contract which provides financial help to farmers if the crop fails due to drought or flood, irregular rainfall, temperature. National Agricultural Insurance(NAIS) for crops has been specially introduced since 2000 to provide insurance cover to small & marginal farmers. Insurance cover if provided if any crops fails due to natural calamities such as floods, droughts, cyclones etc, pests & crop diseases.

Fidelity Guarantee Insurance Guarantees the employer for any damages or loss happening due to employees dishonesty. Guarantees to pay if the employer suffers any loss due to employees dishonesty. The insurer pays the loss to the employer as per the agreed terms in the contract. Burglary Insurance Loss or damage of household goods & properties due to theft, burglary, house breaking & similar kinds of acts are covered Actual Loss is compensated. Cattle Insurance Covers the death of animals like bulls, buffaloes, cows Cause of death may be accident, disease etc. It helps the farmers as they buy cattle from their savings.

Cash In TransistCovers any loss in the event of money or cash being stolen from the business premised of the insured or while it is being carried from or/to the bank.

PERSONAL ACCIDENT INSURANCE Covers loss due to accident To protect against risk to life or disability arising directly from accident. The amount of compensation depends on the amount insured with the insurance company
LIVESTOCK INSURANCE PEDAL CYCLE INSURANCE AVIATION INSURANCE RURAL INSURANCE MICRO INSURANCE

RISK & INSURANCE

RISK & INSURANCE

CLASSIFICATION Financial & Non-Financial Risk Static & Dynamic Risk Fundamental & Particular Risk Pure & Speculative Risk
FACTORS AFFECTING RISK OF INSURANCE BUSINESS Age Physique or Body Physical Condition Personal & Family History Occupation Residence

Present Habits Gender Economic Status Defense Services Race & Nationality Plan of Insurance Morals

SOURCES OF INFORMATION Proposal Form Agents report Medical Examiners report Inspection report Medical Information Bureau Family Physician

Definitions
Risk - A measure of likelihood to achieve objectives - Two components (probability and consequences)

Risk Management - Act or practice of controlling risk + Identifying and tracking risk drivers + Defining risk mitigation plans + Performing periodic risk assessments

PROCESS Determination of objectives Risk Identification Risk Evaluation Selection of Risk Management Techniques Implementation of Decision Evaluation & Review

Determination of objectives

Identifying the objectives of risk management functions. The objective may be classified into two broad categories i.e pre loss or post loss.

Risk Identification

Process of specifying, describing and documenting program risks and their sensitivities to other risks Internal External

Risk Analysis/Evaluation

Process of evaluating program risks for their impacts to performance, cost, and schedule objectives Process includes assessing each risks: Probability of occurrence, and Consequences of failure to mitigate the risk

SELECTION OF RISK MANAGEMENT TECHNIQUES

Risk Control Either through avoiding the risk or reducing the risk. Risk Financing Risk Retention(Funded or unfunded retention) or transfer

Implementation of the Decision

Identification and Grouping of risk categories. Organization Prepares itself for Administration & Financial resources

Risk Monitoring, Review

Process that systematically tracks and evaluates the performance of risk mitigation actions - against established metrics throughout the acquisition* process, and - develops further risk handling options as appropriate
* Acquisition includes any procurement from government or contractor sources within all phases from early research through logistics, operations, support, and disposal

Reinsurrance and Double Insurance

What Reinsurance Does Not Do!

IT IS NOT A MAGIC POTION

What Reinsurance Does Not Do!

Convert an uninsurable risk into an insurable one. Make loss either more or less likely to happen Make loss either greater or lesser in magnitude Convert bad business into good business

REINSURANCE
Reinsurance is a contract of insurance whereby one insurer (called the reinsurer or assuming company) agrees, for a portion of the premium, to indemnify another insurer (called the reinsured or ceding company) for losses paid by the latter under insurance policies issued to its policyholders. Is an arrangement whereby an original insurer who has insured a risk insures a part of that risk again with another insurer, that is to say, reinsures a part of the risk in order to diminish his own liability.

ELEMENTS OF REINSURANCE

Reinsurance is a form of Insurance. There are only two parties to the reinsurance contract the Reinsurer and the Reinsured - both of whom are empowered to insure. The subject matter of a reinsurance contract is the insurance liability the Reinsured has assumed under insurance policies issued to its own policyholders. A reinsurance contract is an indemnity contract even in life and personal accident insurance, caused by insurance policy obligations.

CHARACTERISTICS OF REINSURANCE
Spreading of loss Principles of insurance applicable to Reinsurance Terminated when original Insurance lapses for any reason All types of insurance Original Insurer cannot do reinsurance more than his insured sum. Reinsurer is not liable to original insured in event of loss.

NEED FOR REINSURANCE An Insurance Company would therefore buy Reinsurance : To protect its Capital and its Shareholders To Stabilise its results from year to year by leveling claims fluctuations To increase its Capacity to handle larger and more complex risks of various classes To maintain any statutory minimum Solvency requirements and provide Security To Spread risks throughout world markets, not just locally, to lessen financial impact on any single economy Limit concentration of risk Take advantage of risk expertise of reinsurers who have grater experience of business (territory class)

NEED FOR REINSURANCE Most risks, both natural and man-made, are insured and yet the likely losses are often beyond the capacity of any single insurance company or even insurance market.

Reinsurance is therefore the means by which Insurance Companies obtain the necessary protection.

Types of Reinsurance

SHOPPING / STREET INSURANCE

NO STANDING AGREEMENT REGARDING REMAINING OF RISK OF ONE COMPANY BY THE OTHER. EACH POLICY IS TREATED AS INDIVIDUAL BASIS. Reinsurer is sought only when the need of reinsurance on a policy arises. Each case is scrutinized on merits & may or may not be accepted. Ceding company not sure for reinsurance , hence it exercises a greater care in selecting the risk.

Facultative Reinsurance
Primary insurer and reinsurer negotiate a specific

agreement for a particular risk/exposure. Best suited for unique, large exposures. High transaction costs.

Facultative Obligatory Treaty (Facultative +Treaty)

The insurer cede risks of any agreed class which

Reinsurer must accept if ceded

Treaty Reinsurance/Automatic
Reinsurer is obligated to accept all business that falls

within the terms of the treaty. Lower transactions costs but greater potential for adverse selection. Best suited for numerous, smaller exposures that are more similar. 1. Quota Share Treaty 2. Surplus Treaty 3. Excess of Loss Treaty

1. Quota Share Treaty

Primary insurer cedes a fixed, predetermined % of premium & losses on every risk it insurers within class(es) subject to treaty.

Simple to rate & administer. Does not stabilize underwriting results.

Can help reduce reported expenses. Can cede profitable business.
$100,000 Policy

$150,000 Policy

$50,000 Policy

25% 25%
75%

75%

25%

75%

Every risk or policy is shared in the percentage agreed in terms of sum insured subject to a maximum limit and also the premium Profitable to reinsurer as he participate in every risk or policy It is costly to ceding insurer and so a short term arrangement or for new class of business Good for new Insurer with less capital in relation to underwriting of insurance business

2. Surplus Treaty

Minimum limit of retention stated in $ or INR; % of premiums & losses ceded varies by policy. Avoids cessions on small policies. Better at providing large-line capacity. More costly to administer. Used on property risks, rarely liability.

Example: $25,000 retention

$150,000 Policy

$100,000 Policy

17% 25%
75%

83%

3.Excess of Loss Treaty Provides against Catastrophic Losses. If the total net loss exceeds the maximum limit provided in the treaty the excess amount is paid by the insurer. The premium depends upon the nature and extent of reinsurance.

4. Pool or Syndicate Method A number of insurer agrees to pool together all their business to a leading office & the payment is made by this leading office. Profit of this association is distributed amongst the insurers according to their shares to the business.

DOUBLE INSURANCE
Subject matter of insurance is insured with two or more insurers and the total sum insured exceeds the actual value of the subject matter. In life insurance, double insurance is allowed as nobody can place a value of human life. In case of non-life insurance, a property can always be valued & it cannot be insured at a higher sum whether with one insurer or more. If total sum assured with all the insurers is less than the value of property it does not amount to double insurance. Assured can not demand more than the actual loss.

UNDERWRITING

Underwriting refers to the process of selecting, classifying, and pricing applicants for insurance A statement of underwriting policy establishes policies that are consistent with the companys objectives, such as Acceptable classes of business Amounts of insurance that can be written A line underwriter makes daily decisions concerning the acceptance or rejection of business

UNDERWRITING PROCESS
The process of determining the level or risk presented by the applicant, and deciding whether to accept the policy, and if so, at what terms and at what price. Collect the information Classify and analyse the information

Premium is decided.
Acceptance or Rejection of the proposal. First Premium receipt is issued on the payment of the first premium by the proposer.

Top 3 Challenges

Processing Hurdles

Impact Increase in cost Asymmetrical portfolio Claims Repudiation Extreme customer discomfort

Impact Inappropriate, inconsistent decisions Loss of credibility Increased medical evidence Higher declinature rate Loss of business

Impact Delay in issuance Customer cools off Dissatisfied customer, agent Reduced business volumes

UW Skills ??

Disclosures

79

Objectives of Underwriting
Access the risk Fix the premium Carry Inspection of various factors Assist in the activities in calculation of pricing of the product To be more Financially feasible Minimise the effects of adverse selection Attain underwriting profit Select prospective insureds according to the companys underwriting standards

Adverse selection is the tendency of people with a higher-than-average chance of loss to seek insurance at standard rates. If not controlled by underwriting, this will result in higher-than-expected loss levels.

Adverse selection
Applicant A Adverse selection Applicant B

35 year old Goes to gym everyday Yearly routine health check ups No ailments Healthy and fit

35 year old No physical activity Back pain on and off Diagnosed with hypertension a month back Recommended blood test for sugar

No adverse disclosure
Premium Rs 1000

No adverse disclosure Premium Rs 1000

INSURANCE LEGISLATION IN INDIA

insurance in its current form has its history dating back until 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer. At the dawn of the twentieth century, many insurance companies were founded. In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance businessin 1906. It is in business.

. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of companies should be certified by an actuary. However, the disparity still existed as discrimination between Indian and foreign companies. The oldest existing insurance company in India is the National Insurance Company Ltd., which was founded

INSURANCE ACT 1938

The insurance sector went through a full circle of phases from being unregulated to completely regulated and then currently being partly deregulated. It is governed by a number of acts. The Insurance Act of 1938[1] was the first legislation governing all forms of insurance to provide strict state control over insurance business. Agents- Chief Agent and Special Agent

LIFE INSURANCE ACT 1956

GENERAL INSURANCE ACT 1972

IRDA ACT 1999

(From TB- Structure, Objectives, Duties, Power & Functions, Initiatives)

IMPACT OF PRIVATISATION & LIBERALIZATION

CORPORATE GOVERNANCE

Refers to the processes, structures & information used for directing & overseeing the management of an institution.

Is about promoting corporate fairness, transparency& accountability

Is a system by which the businesses are directed & controlled

Is the system by which the companies are directed & controlled by the management in the best interest of the stakeholders & others, ensuring greater transparency & better & timely financial reporting

Is holding the balance between economic & social goals & between individual & community goals

Clear Cut distinction between the owners & stakeholders(Ownership & Professional Management) Establishes the mechanisms for achieving accountability between the Board, Senior Management & shareholders, while protecting the interests of relevant stakeholders. Sets out the structure through which the division of power is determined. Includes the relationships among the many stakeholders involved & the goals for which the corporation is governed. Internal & External Stakeholders Aims at maximum welfare of the maximum number. To Generate accurate & reliable information.

CORPORATE GOVERNANCE MODELS AROUND THE WORLD There are many different models of corporate governance around the world. These differ according to the variety of capitalism in which they are embedded. India's SEBI Committee on Corporate Governance defines corporate governance as the "acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company It has been suggested that the Indian approach is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution

In the United States, corporations are directly governed by state laws, while the exchange (offering and trading) of securities in corporations (including shares) is governed by federal legislation The "Anglo-American model" of corporate governance emphasizes the interests of shareholders. It relies on a single-tiered Board of Directors that is normally dominated by non-executive directors elected by shareholders. Because of this, it is also known as "the unitary system. Policies are framed by the BOD and implemented by the management. German Model- Shareholders own the co. , they do not entirely dictate the governance. Shareholders elect 50% members of the supervisory board & the other half is appointed by labour unions.

Some continental European countries, including Germany and the Netherlands, require a two-tiered Board of Directors as a means of improving corporate governance In the two-tiered board, the Executive Board, made up of company executives, generally runs day-to-day operations while the supervisory board, made up entirely of non-executive directors who represent shareholders and employees, hires and fires the members of the executive board, determines their compensation, and reviews major business decisions

IMPORTANCE
Improves economic efficiency Increases market confidence Protects welfare & interests of a wide range of constituencies & communities nearby Prepares a small enterprise for growth & helps to secure new business opportunities when they rise Attracts long capital- foreign as well as domestic Ensures Purity & quality or product after the product leaves the factory Provides the structure through which the objectives of the company are set Enhances the long term value of the company for its shareholders.

Integrates all the participants involved in a process which is economic , at the same social. Helps to achieve its outcomes & obligations through sound planning & risk management. Provides stability & growth to the companies Goodwill Protects interest of the investors of all categories

PRINCIPLES

RIGHTS & EQUITABLE TREATMENT OF SHAREHOLDERS Freedom to exercise their rights by openly & effectively communicating information Encouraging shareholders to participate in general meetings. INTERESTS OF OTHER STAKEHOLDERS(Employees, Creditors, Suppliers, Local Communities, Customers, Policy Makers etc) ROLE & RESPONSIBILITIES OF THE BOARD Adequate level of independence & Commitment Sufficient Relevant skills & Understanding to review & challenge management performance

INTEGRITY & ETHICAL BEHAVIOR(Code of Conduct) In choosing corporate officers & board members Ethical Decision-Making DISCLOSURE & TRANSPARENCY Publicly Know the responsibilities of Board & Management

INTERNAL CORPORATE GOVERNANCE CONTROLS

MONITOR ACTIVITIES & THEN TAKE CORRECTIVE ACTION TO ACCOMPLISH ORGANISATIONAL GOALS

MONITORING BY THE BOARD OF DIRECTORS Hire, Fire & Compensate the top Management Safeguard the invested Capital INTERNAL CONTROL PROCEDURES & INTERNAL AUDITORS BALANCE OF POWER President be a different person from the Treasurer Separation of Power Separate divisions check and balance each others actions

REMUNERATION Performance Based Remuneration Cash or Non-Cash Payments such as shares, superannuation etc MONITORING BY LARGE SHAREHOLDERS &/OR MONITORING BY BANKS & OTHER LARGE CREDITORS Given their large investment in the firm, these stakeholders have the incentives, combined with the right degree of control and power, to monitor the management

EXTERNAL CORPORATE GOVERNANCE CONTROLS

Encompass the controls external stakeholders exercise over the organization Competition Debt Covenants Demand for & Assessment of performance information Government Regulations Managerial Labour Market Media Pressure Takeovers

CORPORATE GOVERNANCE & INSURANCE SECTOR

CG is mainly concerned with how ownership influence, promoting corporate fairness, transparency & accountability. CG in insurance companies makes corporate entities, institutional investment & business opportunity. Insurance Companies are important constituent of Corporate Governance. Keeping an open mind, listening, learning from others, ready to share ideas & thoughts recognizing & rewarding co-operation & franchise development skill of employees. Insurers should develop transparency of financial resources.

Board of Directors consists of 1Chairman, 2 Executive Directors, 3 Nominee Directors, 4 Independent Directors. BOD has set up Audit Committees, Investment Committees, IT Committees & Personnel & Administration Committees apart from Policyholders Council at Divisional level & Zonal Advisory Board at Zonal Office. Management is accountable to BOD which oversees whether management is effective & satisfying the consumers policyholders & employees interests. CEO is the main functioning body His decisions should not invite conflicts.

Most Important ascepts of CG are Supervision of Management through proper discharge of its statutory responsibility, enforcement of effective internal control system censuring operation & monitoring of adequate & proper risk management & handling consumers grievances. Marketing systems have been self regulatory to monitor the activities of insurance companies apart from the IRDA regulations, SEBI guidelines & Insurance Acts. Insurers should fairly deal with the employees, insured people & others avoiding manipulation, concealment, abuse of privileged information, misrepresentation odf material facts & unfair dealings

NEED OF CG IN INSURANCE INDUSTRY

Long term performances Honesty & Integrity of insurers CONFIDENCE CHANGE MANAGEMENT Insurance industry is growing faster than GDP Specialized Insurance cos are entering Manage between safety & solvency INVESTMENT Safety Solvency Risk Management & protection of policyholders interest. Live up with the securities market & governing rules

VIABILITY Operate in a safe & sound manner in accordance with the applicable rules and regulations Prove their viability

CORPORATE GOVERNANCE & BANKING SECTOR

RBI has taken various steps furthering corporate governance in the Indian Banking SystemTRANSPARENCY & accounting standards in India have been enhanced to align with international best practices. However there are many gaps in disclosures in India vis--vis the international standards in the area of Risk Management strategies & risk parameters, performance measures. OFF-SITE SURVEILLANCE mechanism is also active in monitoring the movement of assets, its impact on capital adequacy & overall efficiency & adequacy of managerial practices in banks.

PROMPT CORRECTIVE ACTION has been adopted by RBI as a part of core principles for effective Banking supervision. RBI in keeping with Indian conditions have set 2 tigger points namely NPA and Return on Asset In future, Banking sector is not only going to grow in size but also in complexity as the forces of competition gain further momentum & financial markets acquire greater depth. Real success of the financial sector reforms depend primarily on the organizational effectiveness of the banks

CG is important for :Bank have a dominant position in developing economy financial systems & are extremely important engines of economic growth. Banks are important source of finance for the majority of firms Banks are the main depository for the economys savings. Many developing countries have liberalized their banking systems thru privatization/disinvestments & reducing the role of economic regulation. Managers have obtained greater freedom in how they run their banks.

Bank undertakes periodic inspections of a licensees corporate governance practices. Inspections include a review:The minutes of meetings of the Board,, its committees, & senior management. All policies & procedures on risk management practices. Level of reporting to the Board & to the Parent Board where relevant Compliance with Statutory & regulatory rules & internal policies.