8/3/2019 7Insurance-1-10

1/20

INSURANCE SERVICES

8/3/2019 7Insurance-1-10

2/20

INSURANCE SERVICES

Insurance is a contract in which the insurer (insurance co.)

agrees / undertakes,

in considerations of a sum of money (premium), to make good the loss suffered by the insured

against a specified risk such as fire and any other similar

contingency or compensate the insured / beneficiaries on thespecified risk such as fire and other similar contingency or

compensate the insured / beneficiaries on the happening of a

specified event such as accident or death.

8/3/2019 7Insurance-1-10

3/20

exam imporexam impor

Principles of InsurancePrinciples of Insurance

Principle OfPrinciple Of Utmost Good Faith

Principle OfPrinciple Of Insurable Interest

Principle OfPrinciple Of Indemnity Principle OfPrinciple Of Causa Proxima

Principle OfPrinciple Of Subrogation

Principle of Mitigation of Loss

8/3/2019 7Insurance-1-10

4/20

INSURANCE ACT ,1938

Any type of insurance business in India can be carried out only by :

A public company

A cooperative society

An insurance cooperative society , having paid up capital of Rs 1000 crores,

whose sole purpose is to carry on insurance business in India.

After the enactment of IRDA Act 1999 ,only Indian insurance companies are

permitted to carry on business.

Promoters Holding

[ Sec 6 - AA , IRDA 1999 ]

Promoters cannot hold more than 26%,or such other % as may be prescribed, of

the paid-up equity capital in an Indian insurance company They should divest in a phased manner, the excess capitalwithin such period asprescribed by the government.

In case of foreign companies as promoters ,not more than 26% paid up equitycapital and whose sole purpose is to carry on life / general / reinsurance business.

8/3/2019 7Insurance-1-10

5/20

Registration [ Sec 3 , IRDA 1999 ]

Registration with IRDA is mandatory.

The application should be accompanied by the following:

A certified copy ofMOA and AOA

Name , address and occupation of directors

A statement ofclass (es) - of insurance business done / to be done

Statement of deposit with RBI

The certificate showing the amount deposited

Adeclaration verified by an affidavit by the principal officer of the insurer that therequirement ofpaid-up capital :

Rs 100 cr : forlife / general and

Rs 200 cr : for reinsurance business A certified copy of

(i) published prospectus , if any

(ii) standard policy form of the insurer and

(iii) statement of assured rates, advantages, terms and conditions to be offered inconnection with insurance policies.

The receipt showing payment of fee as determined by IRDA regulations for eachclass of business

Any other document as specified by IRDA

Renewal of Registration [ Sec 3- A , IRDA 1999 ]

Certificate of registration should be renewed every year

Application for which should be made to IRDAbefore Dec.31 of thepreceding year

8/3/2019 7Insurance-1-10

6/20

Deposits [ Sec 7 , IRDA 1999 ]

The deposit can be in cash / approved securities.

Life business : 1% of total gross premium not exceedingRs 10 crwithin India in any financial year .

General business : 3% of total gross premium not exceeding

Rs 10 crwithin India in any f. yr .

Reinsurance business : Rs 20 cr.

Marine insurance (exclusively to country craft or its cargo orboth) : Rs1 lakh

Cooperative Life Insurance Companies : Rs 2 lakhs

The deposits would be deemed to be part of the assets of the insurer ,

but not be susceptible to any assignment / charge.

If any part of the deposit is used in the discharge of any liability of the

insurer,the deficiency should be supplied within 2 months to make up

the amount so used.

If an insurer ceases to carry on in India all classes of insurance

business and all his liabilities have been satisfied / provided for,the court

may order the return of the deposit.

8/3/2019 7Insurance-1-10

7/20

Approved Securities mean

(i) government / government guaranteed securities

(ii) debentures / other securities issued under central / state

action by port trust, municipal corporations, city

improvement trust and

(iii) shares of a corporation fully guaranteed by central /

state government

8/3/2019 7Insurance-1-10

8/20

Investment of Assets [ Sec 27, 27- A (1), 27- B , IRDA 1999 ]

25 % in govt securities

Not less than 25 % in other govt. approved securities

The balance in approved investments as specified in Sec 27-A (1)

Approved Investments [ Sec 27- A (1) ; 27- B ; 27- D ]

Securities of, or guaranteed by the Govt of UK

Debentures or other securities issued with the permission of centralgovt., state govt., Act of State Legislature

Immovable property situated in India

Preference share of any company which has paid dividends on itsordinary shares for the 5 years immediately preceding to the current

year. Fixed deposits with banks or cooperative societies

Debentures of or shares in cooperative societies

The funds of the policy-holders areprohibited from being directly /indirectly invested outside India.

8/3/2019 7Insurance-1-10

9/20

Insurance Business in Rural / Social Sector [ Sec. 32 B ]

Rural Sector

A place with population not more than 5,000

Density of population not more than 400 per sq. km.

Atleast 75% of male working population is engaged in agricultural pursuitsas :

**Cultivators

**Agricultural laborers

**Workers in live stock , forestry ,plantation , orchards etc

Life Insurer :Of the total policies written in that year :

I st financial year : 7%

2 nd financial year : 9%

3 rd financial year : 12 %

4 rth financial year : 14 %

5 th financial year : 16 %

General Insurer :

First 2 years should be 2 % and 3 % respectively and thereafter

3% of total gross premium income in that year.

8/3/2019 7Insurance-1-10

10/20

Social Sector

Unorganized sector

Informal sector ;

Economically vulnerable sector / backward classes

Other categories of workers Guardians who need insurance to protect persons with disability

Bidi workers , carpenters , cobblers , artisans , physically disabled self

employed persons , washer men , person running a repairs outlet , rickshaw

puller, vegetable vendors etc.

All insurers are obliged to insure 5,7,10,15, and 20 thousand lives in the

first 5 fin.al years respectively.

8/3/2019 7Insurance-1-10

11/20

Insurance Agents

An insurance agent is a licensed agent with the IRDA who receives / agreesto receive payment by way of commission / other remuneration inconsideration of his soliciting / procuring insurance business, including

continuance, renewal or revival of policies .Code of Conduct

Every insurance agent should :

Identify himselfwith an insurance company

Disseminate the requisite information in respect of insuranceproducts offered for sale by his insurer and take into accountthe needs of the prospects while recommending a specificinsurance plan

Indicate the premium to be chargedby the insurer for the

insurance product offered for sale Explain to the prospectthe nature of information required inthe proposal form by the insurer and also the importance ofdisclosure of material information

8/3/2019 7Insurance-1-10

12/20

Bring to the notice of the insurerany adverse habit or incomeinconsistency of the prospect, in the form of a report

Inform promptlythe prospect about the acceptance or rejection of theproposalby the insurer

Obtain the required documents at the time of filing the proposal form Render the necessary assistance to the policyholders or claimants or

beneficiaries in complying with the requirements for the settlement ofclaims by the insurers

Advise every individualpolicyholder to effect nomination

No Insurance agent should :

Procure insurance without holding a valid license

Induce the prospect to omit any material information in the proposal form

Induce the prospect to submit wrong information or documents

Behave in a discourteous manner with the prospect

Interfere with any proposal introduced by any other agent Offer different rates , advantages , terms and conditions other than those offered by his

insurer

Demand or receive a share of proceeds from the beneficiary under the contract

On cancellation of license , applies for a fresh license before the lapse of 5 year from thedate of such cancellation

8/3/2019 7Insurance-1-10

13/20

INSURANCE BROKERS

Direct Brokers

Carries out the functions specified below in the field of general /

life insurance :

Obtain detailed information of the client's business and risk mgtphilosophy

Rendering advice on appropriate insurance cover and terms

Detailed knowledge about the insurance market

Submitting quotations to the client for consideration

Acting promptly on instruction of clients

Assisting client in paying premiums

Providing services related to insurance consultancy and riskmanagement

Assisting in the settling of claims

Maintaining proper record of claims

8/3/2019 7Insurance-1-10

14/20

Re- Insurance Brokers

Is one who arranges reinsurance for direct insurers with

insurance and reinsurance companies. His function includesthe following :

Familiarizing himself with the client's business and risk retentionphilosophy

Maintaining record of the insurer's business to assist the re-insurer

Rendering advice based on technical data on the re-insurance coversavailable in the international insurance and re-insurance markets

Maintaining data base of available reinsurance markets , includingsolvency rating of individual re-insurers

Rendering consultancy and risk management services for reinsurance

Selecting and recommending a re-insurer or a group of re-insurers Negotiating with a re-insurer on the client's behalf

Assisting in finalizing the reinsurance contract ,payment of premiumand settlement of claims if any

8/3/2019 7Insurance-1-10

15/20

Composite Brokers

An insurance broker who arranges insurance for the clients with theinsurance companies and / or reinsurance for his clients. He performs the

function of both the direct brokeras well as the re-insurance broker

Grant of License

An insurance broker should obtain a license from IRDA. Meet followingcapital requirement :

Direct broker : Rs 50 lakh

Reinsurance broker : Rs 200 lakh

Composite broker :Rs 250 lakh

Fulfills the following deposit requirements;

A sum equivalent to 20% of the initial capital in fixed deposit with a bank tobe released only with a prior permission of IRDA. IRDA may fix this depositlimit.

8/3/2019 7Insurance-1-10

16/20

Third party Administrator (TPAs)

They are licensed by IRDA for the provision of health cover. Are themiddlemen in the health delivery chain, which links physician, hospitals,

clinics and diagnostic centres.

In USA most insurance companies have their own TPAs, while in India

TPAs are separate external entities.

These TPAs serve more than one insurer at a time.

TPAs get a license for more than 3 years then they have to get it renewed.

IRDA has set up the minimum paid up capital of Rs 1 crore for TPAs.

8/3/2019 7Insurance-1-10

17/20

Surveyors and Loss Assessors

Claims of loss amounting to Rs 20,000 or more can be admitted

by an insurer payment orsettled only after obtaining a report

from an approved surveyor / loss assessor holding a

license from IRDA.

In case of a claim of less than Rs 20,000 in value on any policy

of insurance , an insurer can employ a surveyor / loss assessor

other than an approved one for surveying such loss onpayment of remuneration as thought fit.

8/3/2019 7Insurance-1-10

18/20

Licensing of Surveyors / Loss Assessors

Must obtain a license from IRDA .The license is valid for 5 years and

renewed for 5 years at one time against payment as specified by the IRDA.

DUTIES AND RESPONSIBILITIES Estimate , measure and determine the quantum and description of the

subject under loss nature of ownership and insurable interest.

Conduct spot and final survey , as and when necessary ,and commentupon excess / under insurance and any other related matter

Examine , inquire , investigate , verify and check upon the causesand

the circumstances of the loss in question also the extent of loss . Advise the insurerand the insured about the loss minimization , losscontrol , security and safety measures , wherever appropriate , to avoidfurther losses

Comment on the admissibility of the loss as also observance of warrantyconditions under the policy contract

Assess the loss on behalf of the insurer

Give reasons for denial of claim , incase the claim is not covered by policyterms and conditions

Comment on its disposal and salvage value

A surveyor / loss assessor should submit his report to the insurer as

expeditiously as possible,but not later than 30 days of his appointment.

8/3/2019 7Insurance-1-10

19/20

ACTUARY

DUTIES AND OBLIGATIONS

In the interest of the insurance industry and the policyholders , the dutiesand obligations of an appointed actuary of an insurer include :

Render advice regarding product design , pricing , insurance contractwording , investments and re-insurance

Ensure the solvency of the insurer at all times

Comply with provisions of Insurance Act regarding maintenance ofrequired solvency margins

Comply with provisions of Insurance Act regarding certification of theassets and liabilities

Draw attention of the management towards important issues to avoid (i) anycontravention of the Insurance Act (ii) prejudice to the interests of thepolicyholders

Comply with IRDA directions from time to time

Ensure that all requisite records have been made available to him/ her forthe purpose of conducting actuarial valuation of assets and liabilities

Ensure that the premium rates of the insurance products are fair To certify that necessary reserves have been determined as per the norms

ofActuarial society of India and IRDA

Ensure that the policyholders` reasonable expectations have beenconsidered in the matter of valuation of liabilities and distribution of surplusto the participating policyholders , who are entitled to a share of the surplus

8/3/2019 7Insurance-1-10

20/20

Risks Management in Insurance Business

Risks Management is a process of planning, organizing, directing and controlling

the resources and activities of an organization in order to minimize the adverse

effects of potential losses at the least possible cost.

Risk in Insurance Business:-

Portfolio risk Solvency risk

Marketing risk

Market risk

Operational risk