The process of underwriting determines whether a risk is reasonable to accept, at what

price, and with what conditions.

Insurers consider four factors before accepting a risk:

 The law of large numbers must apply

 The loss must be by chance (i.e., accidental or fortuitous
 The loss must be measurable and able to be defined
 The loss must not be financially catastrophic

The law of large numbers is a foundational insurance principle.

Claims payment and loss handling is the ‘litmus test’ of the value of insurance; it is
the actual “product” paid for.

Declaration - By policy owners - Also known as Basis clause

Insurance penetration (percentage of insurance premium to GDP)

Insurance density (ratio of premium to population)

Insurance contracts that do not come under the ambit of life insurance are called
general insurance. The different forms of general insurance are fire, marine, motor,
accident and other miscellaneous non-life insurance.

Duties, Powers and Functions of IRDA

 Registering and regulating insurance companies
 Protecting policyholders’ interests
 Licensing and establishing norms for insurance intermediaries
 Promoting professional organizations in insurance
 Regulating and supervision of premium rates and terms of general insurance
covers
 Specifying financial reporting norms of insurance companies
 Regulating investment of policyholders’ funds by insurance companies
 Ensuring the protection of solvency margin by insurers
 Safeguarding insurance cover in weaker areas of society

Solvency margin refers to the surplus capital that an insurance company is required to
hold at any point of time.

Available Solvency Margin means the excess of value of assets over the value of
liabilities.

Life insurance companies are expected to maintain a 150% solvency margin.

A whistle-blower is a person who exposes secretive information or activity that is

deemed illegal, unethical, or not correct within a private or public organization. ...
Some third-party groups even offer protection to whistleblowers, but that protection
can only go so far.
Duties, Powers and Functions of TAC (Tariff Advisory Committee)
 Drawing up and Updating Tariffs
 Clarifying Queries of Insurers
 Ensuring Implementation of the Tariffs
 Collection of Data and Analysis
 Publishing Tariffs and Other Regulations
 Inspection of Risks

Insurance Advisory Committee advises IRDAI on development, disclosures and

regulatory aspects of the insurance industry.

The mission of Insurance Council is to:

 Forum to assist, advise insurers in maintaining high standards of conduct
 Interact with the government and various bodies on policy matters
 Actively participate in disseminating insurance awareness in India
 Take steps to develop education and analysis in insurance

The main functional areas of IIB include: (Insurance Information Bureau)

 Act as sole point for the insurance industry data
 IIB generates annual, thematic and customized reports
 Ensure data accessibility to market, researchers, policyholders
 Provide benchmark rates for the industry
 Provides data to IRDAI for setting premium rates
 Act as nodal point between any two insurance repositories
 Repository of insurance sales persons to avoid de-duplication

An Insurance Repository (IR) is a company licensed by IRDA for maintaining data of

insurance policies in electronic form on behalf of Insurers.

The Insurance Ombudsman scheme was created by the Government of India for
individual policyholders to have their complaints settled out of the courts system in a
cost-effective, efficient and impartial way.

Rights and Powers of Ombudsman

 Delay in settlement of claim
 Any repudiation of claim by the insurer
 Disputes regarding to paid premiums
 Misrepresentation of policy terms and conditions
 Policy servicing related grievances
 Non-issuance of insurance policy
 Any matter in violation of the Insurance Act, 1938

As a rule, you cannot insure land.

Homeowner package policies include two sections: Section I, which covers property
exposures; and Section II, which focuses on liability exposures.

Section I has four coverage subsections:

1. Coverage A insures the main dwelling, including any additions attached to the
dwelling, and materials and supplies located on the property for the primary purpose
of working on the building.
2. Coverage B provides coverage for other structures, such as garages and sheds,
which are situated on the property and detached from the dwelling.
3. Coverage C covers the insured’s personal property.
4. Coverage D protects against loss of use, including expenses incurred while the
dwelling is damaged, by a covered peril, beyond the point where the dwelling can be
occupied.

Section II, which focuses on liability exposures. Section II often includes two areas of
coverage:
1. Coverage E - Comprehensive liability insurance.
2. Coverage F - Medical payments to others, claims expenses, and damage to
property of others.

1. Basic Coverage: Includes coverage for 11 perils: fire and lightning, windstorm and
hail, explosion, riot and civil commotion, vehicles, aircraft, smoke, vandalism and
malicious mischief, breakage of glass, theft, and volcanic eruption.
2. Broad Form Coverage: In addition to the 11 perils listed above, broad form covers
falling objects; weight of ice, snow, or sleet; damage resulting from heating or air
conditioning systems; accidental discharge or overflow of water; freezing of plumbing;
and damage from artificially generated electrical currents. It also expands coverage
for some of the basic perils.
3. Open Peril, or, All Risks Coverage: Provides coverage for all perils, unless they
are listed and specifically excluded. Some perils always are excluded, so the term all
risks is not really appropriate, because the policy will never cover all risks.

Inflation Guard Endorsement: To acknowledge the effects of inflation, insurance

companies generally offer an inflation guard endorsement. This endorsement
automatically increases the dwelling coverage each year by an amount that is usually
tied to an index.

Actual Cash Value: The actual cash value is the replacement cost minus depreciation.

Replacement Cost: In the event of a total loss, the policy will reimburse a
policyowner the amount required to replace the property up to policy limits.

Guaranteed Replacement Cost: While a homeowner may be adequately covered by

having insurance equal to 80 percent of the replacement cost of the home, he or she
may have a substantial out-of-pocket expense if the home is destroyed. There also are
circumstances where even 100 percent coverage may not be adequate. When this
happens, the replacement cost is often higher than the insurance amount. A
guaranteed replacement cost benefit takes care of this problem.

8 General Exclusions
Ordinance or Law, Earth movement, water damage, power failure, neglect, war,
nuclear hazard, intentional loss.
Nine classes of property are usually excluded under Coverage C of all homeowner’s
forms. The classes are:

1.Articles separately described and specifically insured under homeowners or other

insurance
2.Animals, birds or fish (the animal itself, not the liability it creates)
3.Motorized land vehicles (with some exceptions)
4.Aircraft and their parts (except model or hobby aircraft)
5.Property of roomers, boarders and other unrelated tenants
6.Property contained in an apartment that is regularly rented or held for rental to
others by the insured
7.Property rented or held for rental to others away from the premises
8.Books of account, drawings, paper records, and software media containing business
data
9.Credit cards or fund transfer cards, except as provided under the heading of
Additional Coverages

Motor vehicle (car) insurance normally has four main coverage sections: liability,
medical payments, physical damage, and uninsured motorists. Car liability insurance
protects you against legal liability when your car damages another person or another
person’s property.

Liability coverage extends to expenses for bodily injury to those injured in an

accident (again, not the insured, family members, or other occupants in the insured
vehicle).

Variable life is essentially built on the same type of platform as traditional whole life,
with one main difference.

Rather than investing the cash value in the company’s general account, money is
invested in one of the available sub-accounts. The sub-accounts are similar to pooled /
collective investments (e.g., mutual funds or unit trusts). The investment concept is
similar to that found in variable universal life policies, but usually not having quite
the same amount of variety or opportunity for diversification.

Variable life combines the traditional protection and savings functions of life
insurance with the growth potential of equities.
A variable life policy normally includes a guarantee that the death benefit in any year
will never be less than the initial face amount. However, the cash value is not
guaranteed. Premiums are fixed, like traditional whole life.

Variable universal life (VUL) policies are similar to universal life policies in the same
way variable life policies are similar to whole life policies.
The two have a similar structure, with VUL policies also providing the opportunity
for the policyowner to invest in several mutual fund-type offerings.

Universal life (UL) policies are often referred to on the policy as flexible premium
adjustable life. They have the same elements as a whole life policy, but unbundle the
components—mortality charges, expense charges, and interest rates—and keep them
separate.
Rather than the fixed premiums associated with whole life, conventional universal life
allows for some flexibility in the amount of premium paid. In fact, flexibility is
probably the real distinction of UL.
Premiums may even be skipped occasionally as long as the cash value has enough
funding to cover the expense and mortality charges to keep the policy in force.

First-to-die policies cover two or more individuals and pay the death benefit when the
first covered person dies.
This makes them ideal tools to fund business buy-sell agreements.

Second-to-die (or last-to-die) policies cover two people as well, but do not pay a death
benefit upon the first death.

Policyowners can use dividends in several ways. These include the following;
dividends may be:

1.Taken in cash
2.Left to accumulate at interest with the insurance company
3.Applied toward premium payments
4.Used to purchase paid-up additions (PUAs) to the insurance policysv
5.Used to purchase one-year term insurance (also called the fifth dividend option)

Individuals often purchase term insurance to meet their long-term needs because they
can’t afford to purchase permanent insurance. Once their income increases, they may
want to replace all or part of the term insurance with a policy that more appropriately
addresses their long-term needs. - Conversion clause

Common disaster clause is sometimes called a payment delay clause. Simply stated, if
the insured and the primary beneficiary die in a common disaster, even if the deaths
occur as much as 30 days apart, the beneficiary is presumed to have died first. This
automatically gives the proceeds to the secondary beneficiaries.

Joint and Survivor: Income payments are made to the primary annuitant while both
are alive, and the survivor receives some payment after the death of the primary
annuitant.

Pure Life Annuity: Income payments last for the lifetime of the annuitant, and then
terminate.

Life and Period Certain: Income payments last for the lifetime of the annuitant, with a
minimum specified payment period (e.g., 10 years) guaranteed.

Refund Annuity: If the value of the income payments over the life of the annuitant
does not equal the principal value of the annuity at the date of annuitization, the
balance is paid to the beneficiary either as continued payments or a lump sum.

Annuitize: Begin a series of payments from the amount accumulated within the
annuity contract. For most contracts, once annuity payments begin, the owner can no
longer make contributions into the annuity contract. Technically, the accumulation
vehicle has been sold to purchase the income stream. Payments may be fixed or
variable, and may begin shortly after the contract is executed (i.e., immediate annuity)
or at some point in the future (i.e., deferred annuity).

Variable Annuity: Payout based on the number of units accumulated. Payments are
variable and not guaranteed, although contracts may offer minimum guarantees as an
option. Unlike a fixed annuity, the owner bears all investment risk.

Indexed annuities (IAs) offer some of the growth potential of the stock market with
the downside protection of a guaranteed annuity.

Coinsurance is a percentage of the expenses that are paid by the insurance company
once the deductible has been met for covered services. - In medical cases

A copayment is a set amount that the insured will pay for a service, such as a doctor
visit. The copay amount may or may not be applied to the annual deductible or
coinsurance percentage depending on the plan. Copayments are another cost-sharing
feature that varies among the different plan categories.

Another term with which you need to be familiar when discussing health insurance is
maximum out-of-pocket limit (MOOP limit), or just out-of-pocket limit.
The MOOP limit is a set amount that varies among the plans beyond which the
insurance company pays 100 percent of the expenses for covered services.
This is a stop-loss amount that allows individuals to know exactly the most they might
have to pay in any given year for healthcare expenses.

A hybrid policy pairs a life insurance or annuity contract with long-term care
insurance and in some cases with disability protection as well.

The difference between life insurance and disability income insurance is the
difference between mortality and morbidity.

Mortality refers to the potential of death; specifically, the number of people who die
in a population. Morbidity refers to a condition of unhealthiness or disease. Life
insurance protects against the risk of premature death—mortality.

Similar to a partial disability provision, a residual disability provision allows for a

lesser amount of benefits to be paid if the insured is able to return to work in some
capacity.

The difference is that partial disability is generally paid for a shorter period when the
insured cannot work full time, whereas residual disability benefits may be payable for
the entire benefit period if, as a result of the disability, the insured’s income is
reduced even when working full time.

Bancassurance is an arrangement between a bank and an insurance company allowing

the insurance company to sell its products to the bank's client base. This partnership
arrangement can be profitable for both companies.

Point of Sales Persons (PoSP)

 IRDAI introduced PoSP in the year 2015.
 Every PoSP can represent an insurance company or an insurance intermediary.
 These individuals sell only basic insurance products
 Do not require a lot of underwriting.
 The insurance policy is automatically generated by the system.

Insurance Repositories
For maintaining insurance policies data in electronic form
On behalf of the insurance companies.
Policies are known as “electronic policies” or “e Policies”.
Policy holder needs to open e Insurance Account with the Insurance Repository
Conversion of all policies, issued by different insurers, into electronic mode

4 Insurance repositories as of June 30, 2019

 NSDL Database Management Limited
 Central Insurance Repository Limited
 Karvy Insurance Repository Limited
 CAMS Repository Services Limited

Pure premium to pay for losses and loss related expenses

‘Load’ to cover other expenses and profit
Gross Rate = Pure Premium + Load
Gross Premium = Gross Rate x Quantity of Exposure Units

Investment Linked Insurance – Unit Linked Insurance (ULIP)

 Life insurance plans - combining protection with investment
 Part of premium used to provide life insurance
 Remaining part invested in financial funds
 Plans exposed to investment risk, borne by policy buyer
 Charge different types of fees
 Insurance cover, fund management, policy administration, surrender, fund
switching
 Typically deducted through sale of the units
 Rest of the units remain invested in policy

Employees’ Deposit Linked Insurance (EDLI) Scheme

 There is no minimum service required to avail the benefit
 Covered by the EDLI scheme as long as person is active member of EPF
 Employer contributes (0.50% of monthly salary/maximum of Rs. 75 per month)
 No fee deducted from the employee’s salary
 No exclusions to the insurance coverage provided by EDLI
 It protects the insured person - whether person in India or abroad
 Benefits under EDLI are transferable with any job change