Fidility Report

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OVERVIEW OF FEDILITY

INSURANCE

SUBMITTED FOR COURCE NUMBER (109)

OF MBA- INSURANCE MANAGEMENT AND

ACTUARIAL SCIENCE 2011-2012

FACULTY OF MANAGEMENT STUDIES

Guided By: Submitted By :

Shivam sing Sir Vipul bhatt

PIM 1nd

Semester


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Content-

Definition

Insurable interest

Scope of cover

Condition

Need

Importance

Types

Claim procedure

Contents of proposal form

Underwriting considerations

Rating

Period of insurance

Extensions

Court bonds & government bonds

Bibliography


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Fidelity guarantee

Definition

An agreement whereby, for a designated sum of money, one

party agrees to guarantee the loyalty and honesty of an agent,

officer, or employee of an employer by promising to compensate

the employer for losses incurred as a result of the disloyalty or

dishonesty of such individuals.

An insurance policy covering employers for any financial losses

they may sustain as a result of the dishonesty of employees.

Policies can be arranged to cover all employees or specific named

persons.

A Fidelity Guarantee as issued by the insurers is a contract of

insurance as also a contract of guarantee to which the general

principles of insurance apply. It does not guarantee the

employees honesty but it guarantees that if the employee suffers

any direct financial loss arising out of the employees dishonesty


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the insurers share indemnify the said loss to the employer within

the limitations prescribed by the contract.

Insurable Interest : The term Fidelity Guarantee Insurance

embraces Policies indemnifying employers against pecuniary

losses on account of forgery, defalcation (misappropriation of

money), embezzlement (diversion of money to ones use) and

fraudulent conversion by employees. The object is to provide

protection against losses arising out of the default of an individual

acting in some capacity such as Cashier, Accountant and Store-

keeper etc.

Scope of Cover : The captioned Policy covers the loss sustained

by the employer by reason of any act of forgery and/or fraud

and/or dishonesty of monies and/or goods of the employer on the

part of the employee Insured committed on or after the date of

commencement of the Policy during uninterrupted service with

the employer. The loss should be detected during the continuance

of the Policy or within 12 calendar months of the expiry of the

Policy and in the case of death, dismissal or retirement of the

employee within 12 calendar months of such death or dismissal or

retirement whichever is earlier.


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The cover may be required in respect of a single employee or a

group of employees. There are three types of Policies normally

issued by the Insurer for this clause of business namely Individual

Policy, Collective Policy and Floating Policy.

Conditions:-

The liability of the Company shall not exceed

i. (a) in respect of any employee the sum insured stated againsthis name or as declared herein.

(b) in respect of all claims under this policy, the total sum

insured.

ii. If this policy shall be continued in force for more than oneperiod of indemnity or if any liability shall exist on the part of

the Company under this Policy and also under any other Policy

in respect of fraud or dishonesty of the employee, the liability

of the Company hereunder shall not be accumulated or


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increased thereby but the aggregate liability of the Company

during any number of periods of indemnity and for any number

of acts of fraud or dishonesty committed by the employee shall

not exceed the sum insured hereunder or the sum insured

under any other such policy as aforesaid whichever is greater.

iii. The Company shall not be liable to pay more than one claim inrespect of the action of any one employee.

When do I need Fidelity/Crime Insurance?

Any business employer needs to be concerned with Employee

Dishonest business handing cash or securities needs protection

Because crime-related losses are not typically covered by most

property insurance policies, crime protection insurance is a

necessary component for any business. Unfortunately, the

majority of businesses dont purchase enough crime protection.

Why do I need Fidelity/Crime Insurance?

Fraud and embezzlement in the workplace is on the rise,

occurring in even the best work environments. These frauds can


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go on for years, and when discovered the ultimate impact can be

enormous. Smaller companies are especially vulnerable to such

crimes.

White collar crime can have serious financial consequences, even

threatening a private companys survival. Insure Hedge offers a

solution to handling crime losses committed by employees,

through Forefront Crime Liability Insurance Policy.

Fidelity Guarantee Insurance- Its Importance to

Employers.

In the organization the most valuable asset are their

employees. Every organization make sure that they employ best

talent for the job. Employers have to select person in short span

of time which actually not enough to know the person entirely.

Sometimes selection of particular employee can go wrong. The

successful functioning of any business is often based upon their

employees. An employee at times misuses the powers which are

given to them.


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Organizations are experiencing rise in the frauds and

dishonesty among the employee. Even the best of working

environment witnessing the frauds of employee. It has been seen

that employee who commits the frauds are working in the

organization for longer periods. The reasons which usually found

in the most cases are insufficient salary, emergency, etc. Often

frauds are happen on daily basis with smaller volumes. But

eventually when it discovered turns out to be big. Smaller

organizations are generally venerable to this kind of frauds.

Frauds are generally happens with position where cash,

stocks are handled. Cashier, Accountants, Stock keepers are the

ones who are leading scoreboard in frauds. Frauds are of many

types like burglary, larceny, theft of money, securities, office

equipments etc. Other frauds which tend to occur like misuse of

confidential data which causes enormous losses. Organization

needs to have strong system, accountability which will help to

discover the loss in quick time.

Main factors considered for issuance of Fidelity Guarantee policy


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The extent of control over the work of the person to be

guaranteed necessarily to form the relation ship of master and

servant.

The record, standing and reputation of the employee.

The bonafides of the employer.

The system of checking of the accounts and general supervision

of the employee.

It is essential to obtain the Private Reference and/or Former

employers Report forms in addition to completed Employer and

Employees application form as appropriate.

It should be noted that

1. The cover granted is against a direct pecuniary loss and not a

consequential one.

2. The loss should be in respect of moneys or goods of the

insured.

3. The act should be committed in the course of the duties

specified.

4. If the employee guaranteed under the policy policy had left the

services of the employer and was re-engaged by him, no liability

attaches to the policy, unless the consent of the insurers was

obtained.


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5. No loss that may have been caused by bad accountancy is

payable: the loss must be supported by evidence of any of the

specified acts of dishonesty.

Types of Fidelity Guarantees

Individual Policy : This Policy covers an individual for astated amount.

Collective Policy : This Policy covers group of employees.The Insured decides the amount of guarantee required for

each individual according to his or her responsibility and

position. A schedule is included in the Policy.

Floater Policy : A single amount is shown in the Policywhich represent the Insurers liability in respect of any

one individual and its total liabilities in respect of all

the employees guaranteed who are individually named

in the schedule. Such type of Policies are granted

where the number of persons to be guaranteed are

not less than 5.

Blanket Policy : The Insurer in certain selected cases,issue Blanket Policies without the names of the

guaranteed persons being shown, in respect of all


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employees who are grouped according to categories.

e.g. employees handling cash, other clerical staff etc.

They are issued to large well established business

houses conducting business with sound practices. All

enquiries for this type of Policy must be referred to

Insurers Regional Office/Head Office for acceptance

and quotation.

In case the Policy is required to be issued without mentioning the

name of the employee/s i.e. on unnamed basis, then in such

circumstances all the employees dealing with the cash/goods,

whether permanently or temporarily or by rotation must be

covered.

Further the limit can be fixed for each employees separately or for

the group of the employee as the case may be and the liability of

the Insurer in case of the loss will be restricted to the same limit

irrespective of the sum insured. However, the wider limit in the

line of the sum insured can be considered by the Insurer

depending upon the requirement of the Insured after taking into

account other relevant factors.


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Position policy: This is similar to collective policy with thedifference that instead of using names,the position is

guaranteed for a specified amount ,so that a change in the

person holding the position does not affect the cover.It is to

be noted that the liability of the insurance in respect of each

position remains limited to amount guaranteed for the

position,irrespective of the number of persons acting in that

position.

Excess floating policy:This is a combination of collectivepolicy and floating policy.An employer may safeguard

himself against loss of an unforeen amount by reason of

default continuing for a long time by unusually ingenious

methods of concealment by having a floating guarantee for

any loss in excess of the individual amounts set out in the

schedule.


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Fidelity Guarantee Insurance Claim Procedure

- Insured should take immediate steps against the defaulting

employee for the recovery of cash/goods as the case may be and

also other disciplinary action required, depending on the case.

- Insured must establish the Act of Infidelity committed by the

particular employee covered under the Policy.

- The loss noticed at the time of stock taking in case of stock is not

covered.

- The Insurer shall not be liable, If at the time of any loss, any

other Security Guarantee or Insurance existing covering the same

loss.


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Content of proposal form

-legal status of the employer ,e.g. sole trader,partnership etc.

-amount of guarantee required.

-details of any other security held by the employer.

-references.

-details of past and present service.

-duties assigned to employees,and whether he has any outside

duties.

-whether the employees will have money in his possession during

his duty period.If so ,the manner in which he will make payments

and the likely amount that will remain with him.

-system of check and method of supervision.

-remuneration of employee.

-employees debt or liabilities,if any.

-employees previous defalcations,if any.


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Claims

A fedility guarantee claim form usually contains questions relating

to:

-name of the defaulting employee, and his last known address.

-date on which the loss was discovered.

-period for and the manner in which the embezzlement has been

carried on, and concealed.

-previous irregularity, if any, in the defaulting employees account.

-the extent of loss.

-whether the matter is reported to the police and if so, the date, t

ime and place of reporting.

-security held by the insured, in respect of the defaulting

employee.

-amount of salary, commission or other remuneration or

allowance that may be due from the insured to the defaulting

employee.


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-particulars of property, furniture or other effects belonging to

the defaulting employee.

Underwriting considerations

The main considerations are how far the system of check and

control measures are effective and what supervision is exercised

over the employees.

-money should not be allowed to accumulate in the hands of any

one employee to an unreasonable extent.

-All moneys collected on behalf of the employer should be paid

over daily or at short intervals.

-Employees engaged in handling money should not also be

employed upon the books or records in which the money is

accounted.

-Employees collecting money should not to make any

disbursements there from.

-All payments should be made by crossed cheques only.

-Receipts of all money collected should be made on printed andnumbered forms out of a bookwith counter foils.

-The responsibility for the correctness of every payment should be

shared by atleast two persons.


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-Their should be continuous professional audit by a firm of

recognized standing.

-Their should be independent surprise check at regular and

frequent intervals,of all money transaction.

Rating

The premium under individual and collective policies is charged asa rate percent of the amount guaranteed ,subject to a minimum

premium.The factors ordinarily taken into consideration for

determining the rate of premium are the amount of guarantee

,the type of occupation,the system of check and the method of

supervision.The rate percent varies from risk to risk depending

upon merits of each case.Generally speaking ,it ranges from .20

percent to 1 percent.

The premium of a floating policy comprises a percent charge as

per capita charge.The percent charge is applied on the amount

guaranteed and the per capita charge on the number employees

to be guaranteed.

For example-


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If a floating policy has to be issued covering 200 employees for an

amount of Rs 200000 and the percentage charge is say one

percent and per capita charge Rs 5,the premium payable would

be Rs 3000 arrived at as shown below:

Percentage charge @1% of Rs 200000 2000

Per capita charge @ Rs 5 for 200 persons 1000

(200*5)

Total 3000

The minimum premium is always insisted upon because the

expenses for scrutiny of proposal,issue of policy,stationery cost

etc. would be same whether the cover be for Rs 1000 or Rs

100000.

Period of insurance

The policies are customarily,issued for a period of a 12

months.Short period covers are seldom issued,as insurers

consider such covers as a selection against them.Furthermore,the


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exposure of risk under short period policies is considerably higher

than that under annual policies.

Extensions

It is not unusual for employers to ask for extending the

conventional policy to cover negligence or lack of care on the part

of the employee.Government departments,the posts,and

telegraphs directorate,the Railways,and many public sector

institutions demand such extension.Since the terms negligence

and lack of care do not admit of precise definitions,it is not a safe

underwriting proposition to cover them.


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Court bonds

1.Administration bonds

When a person dies intestate, that is ,without making a will,or

when the will made by a person is not in order,or when an

executor named in a will is not in a position,or refuses,to

discharge his duties,the court appoints an administrator for

winding up the affairs of the deceased.The person who is

appointed as an administrator has to furnish a surety for the

proper accounting of the deceaseds estate.

The bond issued by insurers in favour of the court guaranteeing

the proper discharge of duties by the administrator and the

proper accounting of the estate of the deceased is known as an

administration bond.

2.Liquidators and receivership bonds

Estate which are under dispute and referred to the court for

adjudication are temporarily placed under the care of a receiver

during the pendency of the case.The receiver has to administerthe estate and render to the court,proper accounting of the

estate when under his care.A receiver may also be appointed to

administer the estate of a minor who is placed under the court of


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wards till he attains majority,or of a person who is pronounced

mentally incapable.

Liquidators are appointed by the court to deal with the estates of

persons who have filed insolvency petition before the court or are

declared insolvent by the courts.

Unlike the receivers,the liquidators have to meet the claims of the

insolvents estate from his debtor.The liquidator has to produce a

bond guaranteeing his honest and faithful accounting to the

estate.

Government bonds

1.Custom bonds- Customs bonds are to be executed by the

importer in favour of the controller of exports and imports

agreeing,inter alia ,to perform the conditions stipulated in the

import trade control regulations.

A representative list of importers who have to execute custom

bonds is given below:


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-persons or corporate bodies who are permitted to import motor

cars for their personal use.

-manufacturers who import essential raw materials on which a

confessional customs duty is levied provided they produce an end

use certificate that the imported materials have been consumed

in the production of goods originally declared by the

manufacturer.

-supplier of industrial chemicals imported in special containers

who have to export back the containers after using the contents.

2.Excise bonds- Excise bonds are to be executed by

manufacturers in the country in respect of finished products

assembled or produced in the country,which are dutiable.The

excise duty is to be paid to the excise department in lieu of which

a bond may be executed.Manufacturers of

alchol,sugar,textiles,automobiles,etc are required to execute the

bond.


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Bibliography

1..http://www.edocfind.com/

2. www.irdaindia.org

3. www.fidelityguaranteinsurance.com

Books:

Insurance Institute of IndiaIc-78.
http://www.edocfind.com/http://www.edocfind.com/http://www.edocfind.com/http://www.irdaindia.org/http://www.irdaindia.org/http://www.fidelityguaranteinsurance.com/http://www.fidelityguaranteinsurance.com/http://www.irdaindia.org/http://www.edocfind.com/

Documents

Fidility Report