INSURANCE AND RISK MANAGEMENT

UNIT – I

Introduction to Insurance: Role of Insurance – Characteristics of an Insurable Risk –

Principles of Insurance – Reinsurance – Double Insurance – IT in Insurance.

UNIT – II

Indian Insurance Industry – Reforms – Private Players to Indian Insurance Market –

IRDA Regulations: For Licensing of Insurance Agents – For Protection of Policy Holders‟
Interest. Actuary – Meaning – SOA.

UNIT – III

Insurance Contract: Life Insurance Contract – Features, Policy Conditions and Products;
Non – Life Insurance: Fire and Marine - Features, Policy Conditions and Products. Group,
Health and Social Insurance – Schemes.

UNIT – IV

Introduction to Risk Management – Concept of Risk – Types of Risk – Principles of Risk

Management – Risk Management process – Objectives of Risk Management

UNIT – V

Risk management and control – Methods of Risk management – Risk management by

individuals and corporations – Tools for Controlling Risk
 INSURANCE AND RISK MANAGEMENT
UNIT I

Introduction to Insurance: Role of Insurance – Characteristics of an Insurable Risk –

Principles of Insurance – Reinsurance – Double Insurance – IT in Insurance.
Insurance Introduction
It is a generally acknowledged phenomenon that there are enormous risks in every sphere
of life. For property, there are fire risks; for shipment of goods, there are perils of sea; for human
life, there are risks of death or disability; and so on. The chances of occurrences of the events
causing losses are quite uncertain because these may or may not take place. In other words, our
life and property are not safe and there is always a risk of losing it. A simple way to cover this
risk of loss money-wise is to get life and property insured. In this business, people facing
common risks come together and make their small contributions to the common fund. While it
may not be possible to tell in advance, which person will suffer the losses, it is possible to work
out how many persons on an average out of the group may suffer the losses.

When risk occurs, the loss is made good out of the common fund. In this way, each and
everyone share the risk. In fact, insurance companies bear risk in return for a payment of
premium, which is calculated on the likelihood of loss.

Meaning and definition

Insurance is a contract between two parties. One party is the insured and the other party is
the insurer. Insured is the person whose life or property is insured with the insurer. That is, the
person whose risks are insured is called insured. Insurer is the insurance company to whom risk
is transferred by the insured. That is, the person who insures the risk of insured is called insurer.
Thus insurance is a contract between insurer and insured. It is a contract in which the insurance
company undertakes to indemnify the insured on the happening of certain event for a payment of
consideration. It 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 against.

Definitions of insurance

 Insurance may be defined as a co-operative form of distributing a certain risk over a

group of persons who are exposed to it - Gosh and Agarwal
 Insurance is a process in which uncertainties are made certain- Mc Gill
 Insurance is a plan wherein persons collectively share the losses of risks- Jon Megi
The Role of Insurance

The following point shows the role and importance of insurance:

Insurance has evolved as a process of safeguarding the interest of people from loss and
uncertainty. It may be described as a social device to reduce or eliminate risk of loss to life and
property.

Insurance contributes a lot to the general economic growth of the society by provides
stability to the functioning of process. The insurance industries develop financial institutions and
reduce uncertainties by improving financial resources.

1. Provide safety and security:

Insurance provide financial support and reduce uncertainties in business and human life. It
provides safety and security against particular event. There is always a fear of sudden loss.
Insurance provides a cover against any sudden loss. For example, in case of life insurance
financial assistance is provided to the family of the insured on his death. In case of other
insurance security is provided against the loss due to fire, marine, accidents etc.

2. Generates financial resources:

Insurance generate funds by collecting premium. These funds are invested in government
securities and stock. These funds are gainfully employed in industrial development of a country
for generating more funds and utilized for the economic development of the country.
Employment opportunities are increased by big investments leading to capital formation.

3. Life insurance encourages savings:

Insurance does not only protect against risks and uncertainties, but also provides an
investment channel too. Life insurance enables systematic savings due to payment of regular
premium. Life insurance provides a mode of investment. It develops a habit of saving money by
paying premium. The insured get the lump sum amount at the maturity of the contract. Thus life
insurance encourages savings.
 4. Promotes economic growth

Insurance generates significant impact on the economy by mobilizing domestic savings.

Insurance turn accumulated capital into productive investments. Insurance enables to mitigate
loss, financial stability and promotes trade and commerce activities those results into economic
growth and development. Thus, insurance plays a crucial role in sustainable growth of an
economy.

5. Medical support:

A medical insurance considered essential in managing risk in health. Anyone can be a

victim of critical illness unexpectedly. And rising medical expense is of great concern. Medical
Insurance is one of the insurance policies that cater for different type of health risks. The insured
gets a medical support in case of medical insurance policy.

6. Spreading of risk:

Insurance facilitates spreading of risk from the insured to the insurer. The basic principle
of insurance is to spread risk among a large number of people. A large number of persons get
insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out
of funds of the insurer.

7. Source of collecting funds:

Large funds are collected by the way of premium. These funds are utilised in the
industrial development of a country, which accelerates the economic growth. Employment
opportunities are increased by such big investments. Thus, insurance has become an important
source of capital formation.

Benefits of Insurance

Insurance can be a savior of a business when in real need. It has various benefits which
can be availed by simply entering into an insurance contract.Below are explained some benefits
of insurance.

 Insurance has tax benefits that can be availed while paying the tax.
 It acts as a savior when a business meets any uncertainty. The insurer pays for all losses
as described and agreed in the contract.
  Insurance manages cash-flow uncertainty. This means that the expenses occurred on the
loss are reduced significantly as the insurer pays it for the business.
 When a company is covered with insurance, it meets the mandatory legal obligations. It
lays a positive impact on the financial resources of the company.
 Insurance helps to protect the social interest. In case, when society is affected by business
uncertainty, it helps to recover the burden.
 It helps in increasing investments in the economy. Insurance premiums are utilized in
making further investments by the insurance companies.
 Insurance reduces the uncertainty of a lender by agreeing to terms that the payment will
be made through an insured event.
 Understanding various aspects of insurance is critical while planning to get secured. It is
important to carry out individual research while opting for insurance. Rest, an insurance
agent can help you with the formalities and various schemes.
 It is advised to ensure safety measures by collecting detailed information before entering
into an insurance contract.

PRINCIPLES OF INSURANCE

Insurance is based upon: (a) Principles of Co-operation

(b) Principles of Probability

(a) Principles of Co-operation

Insurance is a co-operative device. If one person is providing for his own losses,
it cannot be strictly insurance because in insurance the loss is shared by a group of persons who
are willing to co-operate.

(b) Principles of Probability

The loss in the form of premium can be distributed only on the basis of theory
of probability. The chances of loss are estimated in advance to affix the amount of
premium. Since the degree of loss depends upon various factors, the affecting factors are
analyzed before determining the amount of loss. With the help of this principle, the uncertainty
of loss is converted into certainty. The insurer did not havetosuffer loss as well as gain
windfall. Therefore, the insurer has to charge only so much of amount which is adequate
to meet the losses. The insurer, on the basis of past experience, present conditions and
future prospects, fixes the amount of premium. Without premium, no co-operation is possible
and the premium cannot be calculated without the help of theory of probability, and
consequently no insurance is possible.

FUNCTIONS OF INSURANCE

The functions of insurance can be bifurcated into two parts:

(a) Primary Functions

(b) Secondary Functions

(a) Primary Functions The primary functions of insurance include the following:

Ø Provide Protection

The primary function of insurance is to provide protection against future risk,

accidents and uncertainty. Insurance cannot check the happening of the risk, but can certainly
provide for losses of risk. Insurance is actually a protection against economic loss, by sharing the
risk with others.

Ø Assessment of risk

Insurance determines the probable volume of risk by evaluating various factors

that give rise to risk. Risk is the basis for determining the premium rate also. Ø Collective
bearing of riskInsurance is a device to share the financial loss of few among many others.
Insurance is a meansby which few losses are shared among large number of people. All
the insured contribute premiums towards a fund, out of which the persons exposed to a
particular risk,are paid.

Ø Savings and investment

Insurance serves as a tool for savings and investment, insurance is a compulsory way of
savings and it restricts the unnecessary expenses by the insured. For the purpose of availing
income-tax exemptions, people invest in insurance also.

(b) Secondary Functions

The secondary functions of insurance include the following:

Ø Prevention of Losses

Insurance cautions individuals and businessmen to adopt suitable device to prevent

unfortunate consequences of risk by observing safety instructions; installation of automatic
sparkler or alarm systems, etc. Reduced rate of premiums stimulate more business to go
for safety and security.

Ø Small capital to cover large risks

Insurance relieves the businessmen from investmentin securities by paying small

amount of premium against larger risks and uncertainty.

Ø Contributes towards the development of large industries

Insurance provides development opportunity to large industries having more risks.

Even the financial institutions may be prepared to give credit to sick industrial units
which have insured their assets including plant and machinery.

Ø Source of Earning Foreign Exchange

Insurance is an international business. The country can earn foreign exchange by way of
issue of insurance policies.

Ø Risk Free Trade

Insurance promotes exports insurance, which makes the foreign trade risk free with the
help of different types of policies under marine insurance cover.

IMPORTANCE OF INSURANCE

The process of insurance has been evolved to safeguard the interests of people
from uncertainty by providing certainty of payment at a given contingency. Insurance not
only serve the needs of individuals or of special groups of individuals, it tends to pervade
and transform our modern social order, too. The role and importance of insuranceherediscussed
from an individual, business and society‘s view:

(A) Individual

Ø Insurance provides security and safety

Insurance provides safety and security against the loss on a particular event. In case of
life insurance, payment is made when death occurs or the term of insurance expires. The loss to
the family at a premature death and payment in old age are adequately provided by
insurance. In other words security against premature death and old age sufferings are
provided by life insurance. In other insurance, too, this security is provided against the loss at a
given contingency. Fore.g.property of insured is secured against loss due to fire in fire
insurance.

Ø Insurance affords peace of mind

Insurance providessecurity which is the prime motivating factor. It tends to stimulate an

individual do more work

. Ø Insurance protects mortgaged property

At the death of the owner of the mortgaged property, the property is taken over by the
lender of money and the family is deprived of the use of the property. On the other hand, the
mortgagee wishes to get the property insured because at the damage or destruction of
the property he may lose his right. Insurance provides adequate amount to the dependents at the
early death and the property-owner to pay off the unpaid loans.

Ø Insurance eliminates dependency

At the death of the husband or father or earning mother, the loss sustained by the
family needs no elaborate explanation. Similarly, at destruction of property and goods, the
family would suffer a lot. The economic independence of the family is reduced
or,sometimes, lost totally. Insurance tries to eliminate dependency.

Ø Life Insurance encourages saving

The elements of protection and investment are present only in case of life insurance. In
property insurance, only protection element exists. In most of the life policies elements of saving
predominates. Systematic saving is possible because regular premiums are required to be
compulsorily paid. In insurance the deposited premium cannot be withdrawn easily before the
expiry of the term of the policy

Ø Life Insurance provides profitable investment

Individuals unwilling or unable to handle their own funds are pleased to find an
outlet for their investment in life insurance policies. The elements of investment i.e.
regular saving, capital formation, and return of capital along with certain additional return
are perfectly observed in life insurance. Life insurance fulfils all these requirements at a low
cost.

(B) Business

Ø Business efficiency is increased with insurance

When the owner of a business is free from botheration oflosses, he wascertainly

devote much time to the business. The carefree owner can work better for the maximization of
the profit. The new as well as old businessmen are guaranteed payment of certain amount with
the insurance policies at the death of the person; at the damage, destruction or
disappearance of the property or goods. The uncertainty of loss may affect the mind of
the businessman adversely. Insurance removes the uncertainty and stimulates the businessman to
work hard.

Ø Enhancement of Credit

Business can obtain loan by pledging the policy as collateral for the loan.
Aperson can avail moreloans due to certainty of payment at their deaths. The insurance
properties are the best collateral and adequate loans are granted by the lenders.

Ø Business continuation

In partnership, business may discontinue at the death of any partner although the
surviving partners can re-start the businesses, but in both the cases the business and the
partners wassuffer economically. Insurance policies provide adequate fund at the time of
death. Each partner may be insured for the amount of his interest in the partnership and
his dependents may get that amount at the death of partner. With the help of property insurance,
the property of the business is protected against disasters and the chance of closure of
the business is reduced.

Ø Welfare of Employee

The welfare of employees is the responsibility of the employer. The former worksfor the
latter. Therefore, the latter has to look after the welfare of the former which can be
provision for early death, provision for disability and provision for old age. These
requirements are easily met by life insurance, accident and sickness benefit and pensions
which are generally provided by group insurance. The premium for group insurance is
generally paid by the employer.
Ø Wealth of the society is protected

The loss of a particular wealth can be protected with insurance. Life insurance
provides for loss of human wealth. The human force, if it is strong, educated and care-
free, will generate more income. Similarly, the loss of damage of property at fire, accident etc.,
can well indemnified by property insurance , cattle, crop, profit and machines are also protected
against their accidental and economical losses. With the advancement of the society, the
wealth or the property of the society attracts more hazard and so new types of insurance are also
invented to protect them against possible losses. Through the prevention of economic
losses, insurance protects the society against degradation. Through stabilization and
expansion of business and industry, the economic security is maximized. The present, future and
potential human and the property resources are well protected.

• Economic Growth of the country

For the economic growth of the country, insurance provides protection against loss of property
and adequate capital to produce more wealth. Welfare of employees createsconducive
atmosphere to work. Adequate capital from insurers accelerates production cycle. Similarly in
business, too, the property and human materials are protected against certain losses;capital
and credit are expanded with the help of insurance. Thus,insurance meets all the requirements for
the economic growth of a country.

Characteristics of Insurable Risk

Definition

A risk that conforms to the norms and specifications of the insurance policy in such a
way that the criterion for insurance is fulfilled is called insurable risk.

Insurance is a risk-management tool. However, insurers are in the business of insurance

as a going concern and to make a profit. They are not inclined to insure every risk that people or
entities may face. On the contrary, insurers are quite discriminating about the risks that they
cover and whether they accept the risk of a particular proposal.

An ―insurable risk‖ is a danger of financial loss that an insurer is willing and able to
cover. Whether a risk is insurable or not is not determined capriciously. There are eight
fundamental characteristics of an insurable risk. If any one of these characteristics is not present,
an insurable risk becomes uninsurable.
Characteristics of an Insurable Risk:

1) Uncertainty

The timing of the loss cannot be expected. Even in the case of life insurance- where death
is expected- the timing of death is the subject of speculation. Therefore, if a loss is expected
(terminal illness/hurricane warning) or forecasted otherwise, the risk would most likely not be
insurable.

2) Capricious

The policy owner is concerned, the loss must happen by chance or be unpredictable. It
would be alright if someone is planning to burn down your home. However, if an insurer is
aware that you have knowledge of this; the risk will be uninsurable. This also suggests that the
policy owner cannot intentionally cause the loss – whether directly or indirectly.

3) Determinable risk

An insurer must be able to apply methods and techniques to determine the likelihood of
the loss. Where life insurance is concerned, this is based on risk groups and health information,
among other factors. With home insurance, underwriting factors like location and market value
are significant. Insurance involves a lot of actuarial work.

4) Sufficiently large market for that risk

If there are not enough people in the market for a particular type of insurance, then the
risk would not be spread over a large enough segment. This means that the likelihood of an
underwriting loss may be to great for the risk to be insurabe.

5) Reasonable cost

Premiums for an insurable risk should not be prohibitive; otherwise people would not be
willing or able to purchase the insurance.

6) Significant loss

Insurance was not designed to cover expenses that people could easily cover for
themselves. If this were the case, then premium rates would be significantly higher. This is the
basis for advising people not to take insurance for losses that their finances could easily
withstand. The policy owner bears the additional risk through higher premiums. This is why
having higher deductibles reduces insurance premiums as well.

7) The risk must not be financially catastrophic

An insurer is highly unlikely to cover a risk that could result in substantial losses that
may render the insurer insolvent. For losses that are substantial, insurers pass on some of the
burden to reinsurers who bear part of the risk. The mechanism of reinsurance actually allows
several otherwise catastrophic risks to become insurable. Particularly in the realm of commercial
insurance, the financial risk of loss can be quite high.

8) The loss must be certain where time and amount are concerned

Using these principles, it may be easier to understand why certain risks cannot be
covered. For instance, someone seeking life insurance – having suicidal intentions – would
violate the characteristic that the loss should not be intentionally caused by the policy owner.

Reinsurance

Reinsurance is insurance that an insurance company purchases from another insurance

company to insulate itself (at least in part) from the risk of a major claims event. With
reinsurance, the company passes on ("cedes") some part of its own insurance liabilities to the
other insurance company. The company that purchases the reinsurance policy is called a "ceding
company" or "cedent" or "cedant" under most arrangements. The company issuing the
reinsurance policy is referred simply as the "reinsurer". In the classic case, reinsurance allows
insurance companies to remain solvent after major claims events, such as major disasters like
hurricanes and wildfires. In addition to its basic role in risk management, reinsurance is
sometimes used to reduce the ceding company's capital requirements, or for tax mitigation or
other purposes.

A company that purchases reinsurance pays a premium to the reinsurance company, who
in exchange would pay a share of the claims incurred by the purchasing company. The reinsurer
may be either a specialist reinsurance company, which only undertakes reinsurance business, or
another insurance company. Insurance companies that accept reinsurance refer to the business as
'assumed reinsurance'.
Definitions of Terms used in Reinsurance

Before going deep into the concept of reinsurance, it is necessary to understand the
meaning of the various terms used in it.

1. Direct Insurer

An insurance company which accepts the risk from the proposer and which is solely
responsible to the policyholder for the obligations undertaken.

2. Reinsurer

The insurance company which provides reinsurance cover to the ceding company is
called the Reinsurer. The offer made by the ceding company is accepted by the Reinsurer. The
Re-insurer may be a direct insurer, who in addition to accepting direct business, also accepts
reinsurance business; or

a professional reinsurer who accepts only reinsurance business but does not transact direct
business.

3. Ceding company

Insurance company that places reinsurance business of the original risk with a reinsuring
company; or the original insurer; the insurer who obtains a guarantee (on fire policy).

4. Cession

This is the amount reinsured with the reinsurance i.e., ceded to the reinsurer.

5. Reinsurance policy

The contract of reinsurance; in fire insurance, it is called guarantee policy.

6. Retention

This is the amount retained by the ceding company for its own account i.e., maximum it
is prepared to lose on anyone loss. It is also known as ‗net limit‗ or ‗net holding‗ or ‗net line‗.

7. Surplus

This refers to the difference between the sum insured under the policy issued by the
ceding company and its retention.
8. Reinsurance Commission

It refers to the amount paid by the reinsurer to the insurer (ceding office) as a contribution
to the acquisition and administration costs. Usually, it is a fixed percentage of premium received
by the reinsurer.

Characteristics of Reinsurance

1. Reinsurance is a contract between the two insurance companies.

2. The original insurer agrees to transfer part of his risk to other insurance company on the same
terms and conditions.

3. The fundamental principles of insurance such as insurable interest, utmost good faith,
indemnity, subrogation and proximate cause also apply to reinsurance.

4. In the event of fire, the insured is entitled to get the amount of claim only from the original
insurer and not from reinsurer.

5. Original insurer cannot insure the risk with a re-insurer, more than the sum assured, originally
by the insured.

6. The original insurer should intimate to the reinsurer about the alteration, if any, made in terms
and conditions with the insured.

Objectives of Reinsurance

The following are the main objectives of reinsurance:

1. Wide distribution of risk to secure the full advantages of the law of averages;

2. Limitation of liability of an amount which is within the financial capacity of the

insurers;

3. Stability in underwriting over a period; and

4. A safeguard against serious effects of conflagrations. Apart from these, sometimes an

insurer may undertake the insurance of certain risks at a higher rate of premium and may reinsure
part of these or the whole of it with some other insurers at a lower rate with the objective of
earning of profit out of it i.e., making profits by way of retaining the difference between the two
premiums.
Methods of Reinsurance

Reinsurance may be effected by two methods. The selection of these methods depends
upon the practice of insurers and the scope of their resources. These methods are:

 Facultative Reinsurance
 Treaty Reinsurance.

1. Facultative Reinsurance

This is the oldest method of reinsurance. This method is also known as ―Specific
reinsurance―. Under this method, each individual risk is submitted by the ceding insurer to the
reinsurer who can accept or decline whatever sum they consider appropriate subject to the
amount of their acceptance being approved by the ceding insurer.

The reinsurer is offered a copy of proposal form which contains details of risk such as the
sum assured, salient features of the risk, perils covered, rate of premium and period of insurance
etc. The reinsurer will go through the contents of the proposal form thoroughly and decide
whether to accept or reject the risks. If he decides to accept, he should specify the amount for
which he would accept the reinsurance. In case, the risk is not fully accepted, the original insurer
may again have to approach another insurer for the balance.

For example, ‗X‘ insurance company has received a proposal for Rs.1,00,00,000. The
retention of the original insurer (i.e. X co) is Rs.50,00,000 and for the balance of Rs.50,00,000,
he approaches the insurer ‗A‘ who accepts for only Rs.25,00,000. The original insurer may again
have to approach insurer ‗B‘ for the balance of Rs. 25,00,000.

2. Treaty Reinsurance

Treaty reinsurance has been defined as

a formal, legally binding agreement or a treaty (agreement) between the principal and the
reinsurer that the reinsurer shall accept without the option of rejecting, a specified proportion of
the excess on any risk over the insurer‘s limit of retention.

Thus, under this method, there is an agreement between the ceding company and the
reinsurance company that amount of every risk over and above the retention shall automatically
be transferred to the reinsurance company. As soon as the original insurer accepts the risk, the
excess above the retention is automatically reinsured.
 For example, if the total sum insured on any risk is Rs.2,00,000 and the retention is
Rs.20,000 the balance of Rs.1,80,000 is reinsured. Accordingly premiums are also paid to the
reinsurers in the same proportion. In the even of loss, insurers also pay the compensation in the
same proportion.

Treaty reinsurance may be

 Quota share treaty;

 Surplus treaty and
 Excess of loss treaty.

1. Quota Share Treaty

Under this method, the ceding company is bound to cede and the reinsurer is bound to
accept a fixed share of every risk coming within the scope of the treaty.

This method is especially suitable for an insurer

 recently established with a small premium income; or

 entering a new class of business for which it may not have the necessary experience; or
 to protect a hazardous class of insurance, where selective ceding is difficult.

This method is highly beneficial to the reinsurer. The liability of the reinsurer attaches as
soon as the ceding office assumes the risk. Then, the ceding office provides the accepting office
with full details of each cession, copies of proposal papers. It does not give the insurer an option
of acceptance or rejection.

It enables the reinsurer to consider any marked divergence of underwriting standards and if
persistent to its disadvantage, it may indicate the need for revision or cancellation of the treaty in
respect of new business.

2. Surplus Treaty

Under this method, the insurers agree to accept the surplus i.e., the difference between
ceding insurers‘ retention and gross acceptance. Surplus treaties are arranged on the basis of
‗lines‘. A ‗line‘ is equivalent to the ceding insurer‘s retention.
3. Excess of Loss Treaty

This is a non-proportional method of reinsurance. The reinsurance protection arranged is

not linked with the sum insured but comes into operation when the total net loss suffered by the
insured due to one event exceeds the figure agreed in the treaty.

The original insurer has to decide the maximum amount which he can bear on any one
loss and seeks reinsurance under which the reinsurer will be responsible for the amount of any
losses and above the amount retained by the direct reinsurer.

Functions

Almost all insurance companies have a reinsurance program. The ultimate goal of that
program is to reduce their exposure to loss by passing part of the risk of loss to a reinsurer or a
group of reinsurers.

• Risk transfer

With reinsurance, the insurer can issue policies with higher limits than would otherwise be
allowed, thus being able to take on more risk because some of that risk is now transferred to the
re-insurer.

• Income smoothing

Reinsurance can make an insurance company's results more predictable by absorbing large
losses. This is likely to reduce the amount of capital needed to provide coverage. The risks are
spread, with the reinsurer or reinsurers bearing some of the loss incurred by the insurance
company. The income smoothing arises because the losses of the cedant are limited. This fosters
stability in claim payouts and caps indemnification costs.

• Surplus relief

Proportional Treaties (or "pro-rata" treaties) provide the cedent with "surplus relief"; surplus
relief being the capacity to write more business and/or at larger limits.[1]

• Arbitrage

The insurance company may be motivated by arbitrage in purchasing reinsurance coverage at

a lower rate than they charge the insured for the underlying risk, whatever the class of insurance.
In general, the reinsurer may be able to cover the risk at a lower premium than the insurer
because:

1. The reinsurer may have some intrinsic cost advantage due to economies of scale or
some other efficiency.

2. Reinsurers may operate under weaker regulation than their clients. This enables them to
use less capital to cover any risk, and to make less conservative assumptions when
valuing the risk.

3. Reinsurers may operate under a more favourable tax regime than their clients.

4. Reinsurers will often have better access to underwriting expertise and to claims
experience data, enabling them to assess the risk more accurately and reduce the need for
contingency margins in pricing the risk

5. Even if the regulatory standards are the same, the reinsurer may be able to hold smaller
actuarial reserves than the cedant if it thinks the premiums charged by the cedant are
excessively conservative.

6. The reinsurer may have a more diverse portfolio of assets and especially liabilities than
the cedant. This may create opportunities for hedging that the cedant could not exploit
alone. Depending on the regulations imposed on the reinsurer, this may mean they can
hold fewer assets to cover the risk.

7. The reinsurer may have a greater risk appetite than the insurer.

• Reinsurer's expertise

The insurance company may want to avail itself of the expertise of a reinsurer, or the
reinsurer's ability to set an appropriate premium, in regard to a specific (specialised) risk. The
reinsurer will also wish to apply this expertise to the underwriting in order to protect their own
interests. Thie is especially the case in Facultative Reinsurance.

• Creating a manageable and profitable portfolio of insured risks

By choosing a particular type of reinsurance method, the insurance company may be able to
create a more balanced and homogeneous portfolio of insured risks. This would make its results
more predictable on a net basis (i.e. allowing for the reinsurance). This is usually one of the
objectives of reinsurance arrangements for the insurance companies.
Advantages or Benefits of Reinsurance

1. Reinsurance boosts Insurance Business

The major advantage of reinsurance is that it assists in the boom of insurance business. It
enables every insurer to accept insurance business as the total risk will be distributed among
other reinsurers.

If there is no reinsurance, the insurer may not be willing to take up risks, particularly
when the risk exceeds beyond his capacity to manage.

2. Reinsurance reduces the risks

The prime principle of insurance is to reduce risk. As the risks are spread across wider
area, the loss of the individual is minimized which gives the insurer the secured feel. The
revenue of insurance companies are stable due to reinsurance. It also helps the insurance
companies to gain knowledge about various types of risks and the basis of rating the risks in the
future.

3. Reinsurance Increases Goodwill of Insurer

Reinsurance helps to boost the overall confidence and goodwill of insurer. When the
insurer develops confidence, he understands the nature of risks involved beyond his capacity.So
reinsurance increases goodwill of an insurer.

4. Reinsurance Limits the Liability

Reinsurance motivates the insurers to undertake and spread the risks. Hence the liability
of insurer is limited to the maximum.

5. Reinsurance Stabilizes premium Rates

The premium rates of insurance are stabilized by reinsurance. Generally, the premium
rates are calculated on the basis of the loss experienced by the insurer in the past, due to the risk
concerned. Reinsurance takes into account of all these data and fixes the premium rate according
for various types of risks under mutual agreement.
6. Reinsurance Protects the Insurance Funds

The insurance funds of the insurer is well protected due to reinsurance. Additional
security and peace of mind is an added advantage of reinsurance for the insurer and the company
that offers the insurance.

7. Reinsurance Reduces Competition

The competitions between inter company is reduced as everyone work in a cooperative

manner and with the helping tendency in the insurance business. Thus reinsurance helps to
control competition and increase overall morale of the employees in the insurance business.

8. Reinsurance Reduces profit fluctuations

The reinsurance plans reduce, to a considerable extent the violent fluctuations in the
profits of the company. If on the other hand, heavy risks are retained by the original insurer, his
profits are greatly upset due to a heavy single loss.

9. Reinsurance Encourages new enterprises

It encourages the new underwriters, who in their early period of development, have
limited retentive capacity. In the absence of reinsurance facility, the tremendous growth of new
enterprises is doubtful.

10. Reinsurance Minimizes dealings

Due to the reinsurance scheme, the insurer is required to indulge in the minimum
dealings with only one insurer. In the absence of insurance facility, the insured will have to
approach several insurers to enter into various individual insurance agreement on the same
property. This involves considerable cost, loss of valuable time and slower down the pace of
protection cover.

Disadvantages of reinsurance

1. Collaboration is Limited

Working with spreadsheets in reinsurance means only one person can access and edit the
data at a time, without taking or being sent a copy of it. In some instances, recipients even end up
being sent the wrong version which can lead to errors in data. With a system, multiple people can
look at and work on the most up-to-date data simultaneously and have confidence the data
quality.

2. Lack of controls, vulnerable to fraud

Spreadsheets do not possess any built-in, automatic audit tracking function. For example,
who accessed the data last, who did what and when to the spreadsheet? How do you know if the
calculations are correct? How do we know results remain accurate after months, quarters, and
years of use? There is always new data entering spreadsheets and new users managing them.
What controls are established to ensure the spreadsheet remains bug free?

3. No log of change

Along the same lines of my previous point, the spreadsheet has no log of change. As
values/calculations/source data changes, the spreadsheet does not maintain the prior value for
auditing/control. Having this function in a system allows you to review accuracy of data over
time and return to previous values if errors are detected.

4. Not prepared for disaster

If there are no best practices put in place for proper spreadsheet storage or back up, your
reinsurance programme is at major risk when disaster strikes. If something happens, full data
recovery can be very difficult if not impossible, and will have a major impact on your business.

5. Susceptible to costly human errors

Spreadsheets are extremely susceptible to trivial human errors. Its estimated that 9 out of
10 spreadsheets contain human errors. Missed negative signs and misaligned rows may sound
harmless, however they can cause a considerable loss to the bottom line. Furthermore, costly
mistakes can damage the confidence of investors or other stakeholders involved in your business.

6. Difficult to troubleshoot or test

Spreadsheets are notoriously difficult to trouble shoot or test, simply because they aren‘t
built for that. However, testing should be an integral component of the quality controls you put in
place to maintain accuracy across reinsurance programmes. When spreadsheets are saved in
different folders, departments or even geographical locations, it becomes that much harder to
implement and conduct quality control processes.
7. Regulatory compliance challenges

Ensuring regulatory compliance for your reinsurance programmes becomes difficult

when using spreadsheets given that data can be susceptible to fraud and errors.

8. Hard to manage data security

For any regulated ceding insurer or assuming reinsurer, there is a need to keep some data
restricted, and some data shareable. Controlling data access and restrictions on spreadsheets can
be difficult over time when there are hundreds of spreadsheets to manage and scores of users
requiring access.

9. Potential for errors and untimeliness in reporting

Management needs timely and accurate information to make robust decisions about their
reinsurance programme. It takes time to coordinate and assemble and unfortunately can also be
prone to errors with multiple people managing the process.

10. Keeping up with the changing business world

Today‘s world is full of major changes shaping and reshaping the business landscape. We
know first hand the insurance industry is part of this change. Examples of this being large scale
business transformation programmes,

11. Scales Poorly

As an organisation‘s reinsurance programme grows, data in spreadsheet-based systems

get more distributed; subsequently compounding all the risks and issues outlined above.

Double insurance

Double insurance is a type of insurance where the same subject matter is insured more
than once. In such cases the same subject is insured, but with different insurers. The method of
double insurance is considered a legal act. In case of loss the insured can claim from both the
insurers and the insurers are liable to pay under their respective policies.

The features of double insurance are:

Double insurance denotes insurance of same subject matter with two different companies
or with the same company under two different policies. Double insurance is possible in case of
indemnity contract like fire, marine and property insurance. Double insurance policy is adopted
where the financial position of the insurer is doubtful.
The following are some of the broad features of double insurance:
1. Subject matter is insured with two or more insurance companies;
2. The insured can claim the amount from the policies; and

3. The insurer cannot claim more than the actual loss.

4. Insurance on the subject matter is affected with two or more insurance companies.

5. A person may get two or more policies and can claim the amount of all these policies.

6. In case of life insurance, more than one policy can be affected and the amount of all these
policies can be claimed on all these policies at the time of death.

7. The insured cannot recover more than the actual loss.

Concepts of Double Insurance:

It is quite possible for a person to take more than one insurance policy to cover the same
risk. This is known as double insurance.

In the case depicted above, Mr. A, the insured the has taken three insurance policies for
the same subject matter of risk, with three insurance companies -I, II & III.

The implications of double insurance are:

(a) In Case of Life Insurance:

In case of life insurance, the insured or his dependents can claim the full amount of
policy from each insurance company. This is so because life insurance is a sort of investment;
and a person can take any number of insurance policies on his life and claim full amount under
each policy.

(b) In Case of Other Types of Insurances:

In case of fire or marine insurance, the insured cannot recover more than the amount of
actual loss from al insurance companies, taken together; because he is not allowed to make any
profit out of the transaction of insurance.
 Suppose Mr. A insures his house against fire from three insurance companies-I, II & III
for Rs.50, 000, 1, 00,000 and 1, 50,000 respectively. His house is destroyed by fire entailing a
loss of Rs.60, 000. He can claim in all Rs.60, 000the actual amount of loss in the ratio of 1:2:3
i.e. Rs. 10,000, Rs.20, 000 and Rs.30, 000 from insurance companies I, II and III respectively.

If he claims the full amount of loss i.e. Rs.60, 000 from Insurance Co. II then insurance
company II can claim proportionate contribution from Insurance Co. I and III i.e. Rs. 10,000
from Co. I and Rs. 30,000 from Co. III.

Difference between Double Insurance and Reinsurance

The term insurance can be described as an arrangement through which the risk of loss can
be shifted from one party (insured) to another (insurer), by paying a specified sum, at definite
intervals, i.e. premium. Double insurance is a form of insurance, wherein the individual/company
insures a particular property with more than one insurer or with multiple policies from the same
insurer.

DIFFERENCE

Differences DOUBLE INSURANCE RE-INSURANCE

Reinsurance implies an arrangement,

Double insurance refers to a wherein the insurer transfer a part of
situation in which the same risk risk, by insuring it with another
Meaning
and subject matter, is insured more
insurance company.
than once.

It can be claimed from the original

insurer, who will claim the same
Compensation It can be claimed with all insurers. from reinsurer.

The reinsurer will only be liable for

Loss will be shared by all the
Loss insurers in proportion of the sum the proportion of reinsurance.
insured.
 To reduce the risk of the insurer
Aim To assure the benefit of insurance

Interest of insured
Insurable interest No interest

Not necessary
Consent of Necessary
insured

Double insurance policy clauses

The general rule is that in the event of double insurance, if a loss is caused by the risk
insured against, subject to the terms of each insurance policy, the insured may recover the full
amount of his loss from whichever insurer or insurers he chooses. In practice, the right to a
contribution between insurers can be varied or excluded by the terms of each policy or by
agreement between the insurers. In the absence of the latter, the issue will most commonly be a
matter of construction of the clauses contained within each policy document, which would often
aim to pre-empt contribution claims.

The most common double insurance clauses include one or a combination of the
following:

"Notification" clauses: These are clauses providing that unless the insured gives a
written notice to the insurer about the existence of a second insurance covering the same risk, the
policy will be void. Typical wording would be: "No claim shall be recoverable if the property
insured be previously or subsequently insured elsewhere, unless the particulars of such insurance
be notified to the company in writing.‖

"Ratable proportion" clauses: Such clauses have the effect of preventing an insured
from claiming his full loss from one insurer. Instead they provide that each insurer will be liable
for a ratable proportion only. Typical wording would be: "If at the time any claim arises under
this policy there is any other existing insurance covering the same loss damage or liability the
company shall not be liable … to pay or contribute more than its ratable proportion of any loss
damage compensation costs or expense‖.
 "Escape" clauses: The effect of these clauses is to relieve the insurer from any liability
under the policy in the event of double insurance. Typical wording would be: "We will not pay
any claim if any loss, damage or liability covered under this insurance is also covered wholly or
in part under any other insurance except in respect of any excess beyond the amount which
would have been covered under such other insurance had this insurance not been effected."

"Excess" clauses: The effect of these clauses is to turn the policy into an excess
insurance whereby it will only come into play if the loss exceeds the limit of the other insurance.
Typical wording would be: "If at the time of the occurrence of any injury … loss, or damage,
there shall be any other indemnity or insurance of any nature … wholly or partly covering the
same, the underwriters shall not be liable to pay or contribute towards any such injury, loss or
damage except in excess of the sum or sums actually recovered or recoverable under such other
indemnity or insurance."

USE OF INRORMATION TECHNOLOGY IN INSURANCE INDUSTRY

Internet can be an effective medium for educating the consumers about insurance. It
serves as a single window for disseminating product, process and procedural information to the
consumers. Product development and target marketing through the Internet: with increase in the
number of insurance companies there will be a need for market segmentation and subsequently
product designed for each of them. Consumer feedback about a particular product as well as
suggestions for different types or covers can also be generated through the Internet

1. E-business insurance in India: –

The Internet has played a vital role in transforming the business of the 21st century.
Computers are now being used extensively for creating a storing data, information with the help
of complex and sophisticated technological tools in every kind of business. This change having
been widely accepted, the advantages are numerous such as fast processing improved.
Efficiency, cost reduction among several other benefits.

2. Maintaining the database:-

The most important factor that is affecting the insurance industry is the marinating the
database of the customers. The insurance industry having a huge list of the customers.In order to
maintain it in manual format it is really the work of stupidity. With the change in time the
computers has taken the work of this things. Thus with the development of the technology it has
becoming possible to maintain such huge database very easily. A person can switch over to the
computer and get the details of the customer very easily. Thus maintaining the database has
really become easy due to the development in technology.

3. E-Commerce in the Indian Insurance Industry

With the advent of the Internet, online processes are replacing conventional models in our
society. The greatest impact in online technology has been achieved by e-commerce. E-
commerce is attractive both to buyers and sellers as it reduces search costs for buyers and
insventory costs for sellers. In this paper we investigate the impact of e-commerce on the
insurance industry in India. The recent growth of Internet infrastructure and introduction of
economic reforms in the insurance sector have opened up the monopolistic Indian insurance
market to competition from foreign alliances.

INFORMATION TECHNOLOGY IN INSURANCE MARKET

Computerization:

Initially, in the late 1950‘s the insurance companies used Unit Record Machines (Electro
Magnetic Machines) to process data punched into cards. Computers were introduces in the mid
1960‘s and by the 1980‘s the Unit Phased Machines were phased out and the entire process was
computerized. This brought about greater efficiency and quick service delivery

Internet:

Today, the internet has completely changed the service delivery process. Internet is today
used to even sell insurance policies. Internet is, in fact, proving to be one of the widely used
distribution networks for selling insurance policies. Also internet is used for sending premium
notices to policy holders through e-mails.Companies like LIC (www.licindia.com), ICICI
(www.iciciprudential.com) all have websites from which people can get the information about
their products, prices, various schemes, and lots of other information.

Electronic Clearance Service (ECS):

Almost all the big organizations today provide the ECS facility to its customers. A policy
holder having an account in any bank which is a member of the local clearing house can opt for
ECS debit to pay premiums. The advantage here is that once the option is exercised, the policy
holder need not visit a branch for paying the premium or collecting the receipts. On the day
indicated by the policy holder, the premium amount will be directly debited to the bank account
of the policyholder and the receipt will be issued by the designated branch office.

Call Centers and SMS services:

Almost all the insurance companies have their own call centers which cater to the phone
based queries of the policyholders. This service is 24×7 and they have the Interactive Voice
Response (IVR) systems at all the branches

INFORMATION TECHNOLOGY INTRODUCED IN LIC

LIC has been one of the pioneering organizations in India who introduced the leverage of
Information Technology in servicing and in their business. Data pertaining to almost 10 crores
policies is being held on computers in LIC. We have gone in for relevant and appropriate
technology over the years.

1964 saw the introduction of computers in LIC. Unit Record Machines introduced in late
1950‘s were phased out in 1980‘s and replaced by Microprocessors based computers in Branch
and Divisional Offices for Back Office Computerization. Standardization of Hardware and
Software commenced in 1990‘s. Standard Computer Packages were developed and implemented
for Ordinary and Salary Savings Scheme (SSS) Policies.

INSURANCE SOFTWARE

The online Insurance Management System Software solution is a fully automated and
integrated policy processing system for both personal and commercial insurance carriers. It is a
scalable, reliable, and cost-effective solution for carrying out all business-critical insurance
processing functions.

Insurance Software Solutions provider for all segments of the insurance community and
insurance product management. The web based Insurance Management System Software
solution helps to solve long-standing time-to-market challenges. The web based insurance
management system expertise and solution can dramatically lessen the cost of policy ownership
services.
DIFFERENT TYPES OF INSURANCE SOFTWARE

Insurance Policy Administration System

Insurance policy administration system consists of a mathematical notation that captures

the relationship between policies and objects and the entities that manage policies for those
objects.The Insurance policy administration system is consisting of a number of policy
administration domains.The domains are arranged in a hierarchy, representing descending levels
of authority.

Claims Management Systems

This system ensures claims are processed fast and efficiently. Operator flexibility is the
key, and we aim to improve operator productivity while processing claims.

 Real-time status for quick resubmission and faster reimbursements.

 Unique claim aging tool shows thousands of claims status in one view.
 Insurance Claims System uses electronic filing system to primary and secondary payers.
 Each claim is scrubbed with up-to- date Medicare rules.
 This Claim Processing System helps in quick resubmission for claim
 Insurance Agency Management System
 Insurance Agency Management System facilitates an insurance company‘s ability to
address relationships with its product distribution channels.
 This system helps in managing current Agencies, can add New Agencies or Delete
Current Agencies.
 Insurance Agency Management System is the solution that delivers to manage and grow
your insurance agency to assist day-to-day management of your agency. Agency
management utilized for small business, individual or enterprise business
 Insurance Agent Management System
 Insurance Agent Management System maintains Multiple Agents from Multiple
Agencies, keep the track of their activities from Policy Registration to Claim processing.
 All their data, their commission, their policies status updates, etc. are taken care by this
module.
  This Insurance system helps in smooth functioning of the Agents working and makes the
processes faster and efficient.
 Policy Management System
 Policy registration is intended to be a vehicle for the exploration and discussion of policy
issues and is aimed in particular at enhancing communication between health policy
researchers, legislators, decision-makers, and professionals concerned with developing,
implementing, and analyzing health policy.
 Policy renewals and policy cancellation can be managed by the insurance policy
management system

User Management System

 A new user registers by filling in a form on your web-site.

 If necessary, the new user is first place in a waiting list until you approve the new user.
 After adding the user, the user can login to the system with his or her username and
password to make changes.
 You can use overviews of users for mailing purposes etc..
 User Management System manages all the users of the system i.e. Customer,
Administrator or Agents.
 It keeps the track of thee the activities they performs, their data, their access information,
etc.
 Endorsements Management System
 Endorsements to a title insurance policy are addenda or attachments to the policy that
may correct or modify a previously issued title policy, or alter or modify the provisions of
the exceptions, conditions and stipulations of the title policy so that the insured party
receives greater coverage than would exist under the terms of the unendorsed title policy.

Data import / Export system

 It handles large amounts of data to import and export it securely.

 It does processing and management of large and sensitive data
compression/decompression and/or encryption/decryption allowing the exchange of data
through the network with high performance and stability, exchange of data among Web
 server(s), business application server(s) and database server(s) and account information
including user passwords
 Policy Registration and Quotations Engine
 Policy registration is intended to be a vehicle for the exploration and discussion of policy
issues and is aimed in particular at enhancing communication between policy researchers,
legislators, decision-makers, and professionals concerned with developing,
implementing, and analyzing health policy.
 Policy quotations engine is an on demand quotation management feature coupled with
detailed profit optimization and approval management engines.
 With quotation engine you can automate the sales and services processes that are
currently being done using a hybrid of spreadsheets, documents and emails with little to
no process control.
 When you have completed your quotation you can use the engine to seek approvals for
non- standard pricing and/or terms and conditions. Discounts and loading management.

Insurance Administration Management System

 Insurance Administration Management system can manage multiple administrators and

can have the track of the right assigned to them.
 It takes care that all the Administrators function with the system as per the rights assigned
to them ad they can get their work done in efficient manner.
 Customizable and strong administration system.
 Insurance Sales Management can be managed by insurance sales system.
 Content Management System Module
 Content Management System is used for managing the capture, storage, security, revision
control, retrieval, distribution, preservation and destruction of documents and content.
 Content Management System especially concerns content imported into or generated
from within an organization in the course of its operation, and includes the control of
access to this content from outside of the organization‘s processes.

Insurance Document Management System

It‘s important to maintain documents so that you can get to them faster, and easily. Even
IT offers document management solutions for easy maintenance of your policies, endorsements,
quotes, binders and the like. Design your templates in common word processing tools, and the
document management system will integrate and process these templates to generate and
maintain documents. The documents can be retrieved at any time and are indexed in a database
for quick searches.The reports like Modification Report, Policy Management Report, Payments
Received Report, Agent commission report, etc.

Insurance Accounting and Automation

Insurance accounting is quite a complicated task, given the fact that there are so many
issues with regulation, taxes, filing, commissions, brokers/underwriters, endorsements etc. We
can build applications of insurance accounting systems and insurance billing systems that
automate part of this task for you and help build better and more flexible solutions.

Workflow solutions

Workflow solutions that will ease the task of issuing claims, policies, reimbursements,
payments etc. You can enforce hierarchical constraints and automate workflow, thereby ensuring
that all your checks and balances are in place.

Auditing

Insurance is a highly regulated industry, so audit controls are very important. For this
purpose, Radix can write audit control solutions customized to your purpose that will help you
track and control business issues within your organization

Business Intelligence

Reporting and charting solutions that will make sense of your data. We can help you
analyze your past data for better decision-making and help you make more informed decisions.

Online Data Back-up System

Online Back-up System is used to have the backed of the data on another server so that in
case Original Data get Damage, Lost, etc. then the data is available for work.
This system helps in the Real Time Data Backup and maintains the data for the future purpose.
 It also facilities the data back-up at other Geographical location.
 The benefit of Online Insurance Management System
 Online Back-up System is used to have the backed of the data on another server so that in
case Original Data get Damage, Lost, etc. then the data is available for work.
 This system helps in the Real Time Data Backup and maintains the data for the future
purpose.
 It also facilities the data back-up at other Geographical location
 UNIT II
Indian Insurance Industry – Reforms – Private Players to Indian Insurance Market –
IRDA Regulations: For Licensing of Insurance Agents – For Protection of Policy Holders‟
Interest. Actuary – Meaning – SOA.

Insurance in India

Insurance in India refers to the market for insurance in India which covers both the public
and private sector organisations. It is listed in the Constitution of India in the Seventh Schedule
as a Union List subject, meaning it can only be legislated by the Central Government only.

The insurance sector has gone through a number of phases by allowing private companies
to solicit insurance and also allowing foreign direct investment. India allowed private companies
in insurance sector in 2000, setting a limit on FDI to 26%, which was increased to 49% in 2014.
Since the privatisation in 2001, the largest life-insurance company in India, Life Insurance
Corporation of India has seen its market share slowly slipping to private giants like HDFC Life,
Exide Life Insurance, ICICI Prudential Life Insurance and SBI Life Insurance Company.

History

Insurance in this current form has its history dating back to 1818[citation needed], 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 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, which was
founded in 1906, and is still in business.

The Government of India issued an Ordinance on 19 January 1956 nationalising the Life
Insurance sector and Life Insurance Corporation came into existence in the same year. The Life
Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers and also 75 provident
societies—245 Indian and foreign insurers in all. In 1972 with the General Insurance Business
(Nationalisation) Act was passed by the Indian Parliament, and consequently, General Insurance
business was nationalized with effect from 1 January 1973. 107 insurers were amalgamated and
grouped into four companies, namely National Insurance Company Ltd., the New India
Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance
Company Ltd. The General Insurance Corporation of India was incorporated as a company in
1971 and it commenced business on 1 January 1973.

The LIC had monopoly till the late 90s when the Insurance sector was reopened to the
private sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life
Insurance Corporation of India, LIC) and General Insurers (General Insurance Corporation of
India, GIC). GIC had four subsidiary companies. With effect from December 2000, these
subsidiaries have been de-linked from the parent company and were set up as independent
insurance companies: Oriental Insurance Company Limited, New India Assurance Company
Limited, National Insurance Company Limited and United India Insurance Company.

Industry structure

By 2012 Indian Insurance is a US$72 billion industry. However, only two million people
(0.2% of the total population of 1 billion) are covered under Mediclaim. With more and more
private companies in the sector, this situation is expected to change. ECGC, ESIC and AIC
provide insurance services for niche markets. So, their scope is limited by legislation but enjoy
some special powers. The majority of Western Countries have state run medical systems so have
less need for medical insurance. In the UK, for example, the corporate cover of employees, when
added to the individual purchase of coverage gives approximately 11–12% of the population on
cover - due largely to usage of the state financed National Health Service (NHS), whereas in
developed nations with a more limited state system, like USA, about 75% of the total population
are covered under some insurance scheme.

Insurance repository

On 16 September 2013, IRDA launched "insurance repository" services in India. It is a

unique concept and first to be introduced in India. This system enables policy holders to buy and
keep insurance policies in dematerialised or electronic form. Policyholders can hold all their
insurance policies in an electronic format in a single account called electronic insurance account
(eIA). Insurance Regulatory and Development Authority of India has issued licences to five
entities to act as Insurance Repository:

 CDSL Insurance Repository Limited (CDSL IR),

 SHCIL Projects Limited
  Karvy Insurance repository Limited
 NSDL Database Management Limited
 CAMS Repository Services Limited

Legal structure

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 was the first legislation governing all forms of insurance to
provide strict state control over insurance business. Life insurance in India was completely
nationalised on 19 January 1956, through the Life Insurance Corporation Act. All 245 insurance
companies operating then in the country were merged into one entity, the Life Insurance
Corporation of India.

The General Insurance Business Act of 1972 was enacted to nationalise about 107
general insurance companies then and subsequently merging them into four companies. All the
companies were amalgamated into National Insurance, New India Assurance, Oriental Insurance
and United India Insurance, which were headquartered in each of the four metropolitan
cities.Until 1999, there were no private insurance companies in India. The government then
introduced the Insurance Regulatory and Development Authority Act in 1999, thereby de-
regulating the insurance sector and allowing private companies. Furthermore, foreign investment
was also allowed and capped at 26% holding in the Indian insurance companies.

In 2006, the Actuaries Act was passed by parliament to give the profession statutory
status on par with Chartered Accountants, Notaries, Cost & Works Accountants, Advocates,
Architects and Company Secretaries.A minimum capital of US$80 million(Rs. 4 billion) is
required by legislation to set up an insurance business.

Authorities

The primary regulator for insurance in India is the Insurance Regulatory and
Development Authority of India (IRDAI) which was established in 1999 under the government
legislation called the Insurance Regulatory and Development Authority Act, 1999.

The industry recognises examinations conducted by the IAI (for 280 actuaries), III (for
2.2 million retail agents, 361 brokers, 175 bancassurers, 125 corporate agents and 29 third-party
administrators) and IIISLA (for 8,200 surveyors and loss assessors). There are 9 licensed web
aggregators. TAC is the sole data repository for the non-life industry. IBAI gives voice to
brokers while GI Council and LI Council are platforms for insurers. AIGIEA, AIIEA, AIIEF,
AILICEF, AILIEA, FLICOA, GIEAIA, GIEU and NFIFWI cater to the employees of the
insurers. In addition, there are a dozen Ombudsman offices to address client grievances.

Insurance education

A number of institutions provide specialist education for the insurance industry, these
include;

National Insurance Academy, Pune, specialized in teaching, conducting research and

providing consulting services in the insurance sector. NIA offers a two-year PGDM programme
in insurance. NIA was founded as Ministry of Finance initiative with capital support from the
then public insurance companies, both Life (LIC) and Non-Life (GIC, National, Oriental, United
& New India).

Institute of Insurance and Risk Management, Hyderabad, was established by the regulator
IRDA. The institute offers Postgraduate diploma in Life, General Insurance, Risk Management
and Actuarial Sciences. The institute is a global learning and research centre in insurance, risk
management, actuarial sciences. They provide consulting services for the financial industry.

Amity School of Insurance Banking and Actuarial science (ASIBAS) of Amity University,
Noida and established in 2000, offers MBA programmes in Insurance, Insurance and Banking,
and MSc/BSc actuarial sciences to a Post Graduate Diploma in Actuarial Sciences.

Pondicherry University offers an MBA in insurance management. Pondicherry University is

the only central university which offers insurance management in India.

Birla Institute of Management Technology is a graduate business school located in Greater

Noida, established in 1988, offers a PGDM-IBM programme in insurance business management.
This programme was launched in 2000 by the Centre for Insurance and Risk Management and is
accredited by the Insurance Regulatory and Development Authority. Life Office Management
Association (LOMA), USA is BIMTECH's educational partner and BIMTECH is an approved
centre for LOMA examination. The Chartered Insurance Institute (CII), UK has accorded
recognition (by way of credits) to the BIMTECH PGDM-IBM programme. Their two-year
PGDM programme in insurance business has been recognised as equivalent to the Associate
level of the Insurance Institute of India, Mumbai.

National Law University, Jodhpur offers a two-year MBA and one year MS (for engineering
graduates) programme in insurance.

To become an insurance advisor in India, Insurance Act, 1938 mandates that the individual has
to be "a Major with sound mind". After the advent of IRDA as insurance regulator, it has framed
various regulations, viz. training hours, examination and fees which are amended from time to
time. Since November 2011 IRDA has introduced a syllabus (IC-33) conceived and developed
by CII, London. The syllabus mainly aims to make an Insurance Agent a financial professional.

Insurance Industry in India

Introduction

The past decade has seen considerable growth in the insurance sector and has seen the
introduction of a large number of innovative products – a natural and positive outcome of
increasing competition. The insurance sector plays a very crucial role in the economy of any
country – it increases avenues for savings of individuals, protects the future of individuals and
spreads risks of institutions by forming a large pool of fund. The sector also contributes
significantly to the capital markets and assists in large capital infrastructure developments of our
country through their funds.

The insurance industry in India is divided into 2 basic sectors – Life Insurance and Non-
life Insurance (also called General Insurance and even called Property and Casualty or P&C ).
Both these sectors are governed by Insurance Regulatory and Development Authority (IRDA) of
India which is a government body which frames the rules for the entire industry and all insurance
companies have to abide by them. IRDA is the policy maker for the entire insurance industry in
India and also serves as the custodian of consumers rights.

History of insurance in India

The insurance sector had only government owned entities till a decade back. LIC (Life
Insurance Corporation of India) was the only life insurance provider. In the general insurance
space there were players like National Insurance, New India Assurance, Oriental Insurance and
United India Insurance which offered solutions. All this changed in the year 2000 when private
players were allowed to start operations. A host of private players entered this market and have
been aggressive ever since. As of now we have 23 life insurance companies and 24 general
insurance companies. There are a number of new players who are awaiting regulatory clearances
and approvals to start their business in India in both the life and general insurance sectors.

Current market Scenario

LIC is by far the biggest life insurance company in India both in terms of market share
and their presence in India – it is the only government owned entity. Most of the private players,
in both life and non-life sectors, have started business in India with the partnership of established
insurance players in the world. The expertise of these global players help the Indian insurance
company‘s perform much better as they can replicate the learning gained from other markets
over a large period of time. The foreign partner in any insurance company in India is not allowed
to own more than 26% of the shares in Indian insurance company as per IRDA regulations. We
have seen big financial groups in India like SBI, ICICI and HDFC enter this pace and become
aggressive players. Other famous corporate groups like the Tatas, Birlas and the Ambanis have
also formed insurance companies.

List of Life Insurance Companies

While LIC has been around for a long time and is an extremely profit making venture,
some of the private players have just about started making profits on a year-on-year basis.Some
of the private players are:

1. Aegon Religare

2. Aviva India

3. Bajaj Allianz Life Insurance

4. Bharti Axa Life Insurance

5. Birla Sun Life

6. Canara HSBC

7. DLF Pramerica

8. Future Generali Life

9. HDFC Standard
10. ICICI Prudential

11. IDBI Fortis

12. IndiaFirst

13. ING Vysya

14. Kotak Mahindra Old Mutual

15. LIC

16. Max New York

17. Met Life

18. Reliance Life Insurance

19. Sahara India

20. SBI Life

21. Shriram Life Insurance

22. Star Union Dai-ichi

23. Tata AIG Life Insurance

List of Non-Life Insurance Companies

The core business of almost all non-life insurance companies in India are loss making. It
is only through investment income that these companies report profits. This has been the status
of the general insurance companies for quite a few years and as a result the premium collected
are not proportionate to the risks and claims are either greater than the premium collected .

1. Agriculture Insurance Company

2. Apollo Munich Health Insurance

3. Bajaj Allianz General Insurance

4. Bharti AXA General Insurance

5. Cholamandalam MS

6. Export Credit Guarantee Corp

7. Future Generali

8. HDFC Standard

10. ICICI Prudential

11. IDBI Fortis

12. IndiaFirst

13. ING Vysya

14. Kotak Mahindra Old Mutual

15. LIC

16. Max New York

17. Met Life

18. Reliance Life Insurance

19. Sahara India

20. SBI Life

21. Shriram Life Insurance

22. Star Union Dai-ichi

23. Tata AIG Life Insurance

Life Insurance Companies: Private Sector Companies

1. Aegon Life Insurance Co. Ltd.

2. Aviva Life Insurance Co. India Ltd.

3. Bajaj Allianz Life Insurance Co. Ltd.

4. Bharti AXA Life Insurance Co. Ltd.

5. Birla Sun Life Insurance Co. Ltd.

6. Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd.

7. DHFL Pramerica Life Insurance Co. Ltd.

8. Edelweiss Tokio Life Insurance Co. Ltd

9. Exide Life Insurance Co. Ltd.

10. Future Generali India Life Insurance Co. Ltd.

11. HDFC Standard Life Insurance Co. Ltd.

12. ICICI Prudential Life Insurance Co. Ltd.

13. IDBI Federal Life Insurance Co. Ltd.

14. IndiaFirst Life Insurance Co. Ltd

15. Kotak Mahindra Old Mutual Life Insurance Ltd.

16. Max Life Insurance Co. Ltd.

17. PNB MetLife India Insurance Co. Ltd.

18. Reliance Life Insurance Co. Ltd.

19. Sahara India Life Insurance Co. Ltd.

20. SBI Life Insurance Co. Ltd.

21. Shriram Life Insurance Co. Ltd.

22. Star Union Dai-Ichi Life Insurance Co. Ltd.

23. Tata AIA Life Insurance Co. Ltd.

General Insurance Companies: Private Sector Companies

1. Aditya Birla Health Insurance Co. Ltd.

2. Bajaj Allianz General Insurance Co. Ltd.

3. Bharti AXA General Insurance Co.Ltd.

4. Cholamandalam General Insurance Co. Ltd.

5. Future Generali India Insurance Co.Ltd.

6. HDFC ERGO General Insurance Co. Ltd.

7. ICICI Lombard General Insurance Co. Ltd.

8. IFFCO-Tokio General Insurance Co. Ltd.

9. Kotak General Insurance Co. Ltd.

10. L&T General Insurance Co. Ltd.

11. Liberty Videocon General Insurance Co. Ltd.

12. Magma HDI General Insurance Co. Ltd.

13. Raheja QBE General Insurance Co. Ltd.

14. Reliance General Insurance Co. Ltd.

15. Royal Sundaram Alliance Insurance Co. Ltd

16. SBI General Insurance Co. Ltd.

17. Shriram General Insurance Co. Ltd.

18. TATA AIG General Insurance Co. Ltd.

19. Universal Sompo General Insurance Co.Ltd.

Health insurance companies

1. Apollo Munich Health Insurance Co.Ltd.

2. Star Health Allied Insurance Co. Ltd.

3. Max Bupa Health Insurance Co. Ltd.

4. Religare Health Insurance Co. Ltd.

5. Cigna TTK Health Insurance Co. Ltd.

This collaboration with the foreign markets has made the Insurance Sector in India only grow
tremendously with a high current market share. India allowed private companies in insurance
sector in 2000, setting a limit on FDI to 26%, which was increased to 49% in 2014. IRDAI states
– Insurance Laws (Amendment) Act, 2015 provides for enhancement of the Foreign Investment
Cap in an Indian Insurance Company from 26% to an Explicitly Composite Limit of 49% with
the safeguard of Indian Ownership and Control.

Private insurers like HDFC, ICICI and SBI have been some tough competitors for
providing life as well as non-life products to the insurance sector in India.

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY, NEW DELHI

Insurance Regulatory and Development Authority (Licensing of Insurance Agents)

Regulations, 2000

In exercise of the powers conferred by sub-section (6) of section 42 and clauses (k), (l),
(m), (n), (o) and (p) of sub-section (2) of section 114A of the Insurance Act, 1938 (4 of 1938),
the Authority, in consultation with the Insurance Advisory Committee, hereby makes the
following regulations, namely:-

1. Short title and commencement.--(1) These regulations may be called Insurance Regulatory
and Development Authority (Licensing of Insurance Agents) Regulations, 2000.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions.-In these regulations,unless the context otherwise requires, -

(a) ―Act‖ means the Insurance Act, 1938 (4 of 1938);

(b) ―Approved Institution‖ means an Institution engaged in education and/or training
particularly in the area of insurance sales, service and marketing, approved and notified by the
Authority;

(c) ―Authority‖ means the Insurance Regulatory and Development Authority established under
the provisions of Section 3 of the Insurance Regulatory and Development Authority Act, 1999
(41 of 1999);

(d) ―Composite insurance agent‖ means an insurance agent who holds a licence to act as an
insurance agent for a life insurer and a general insurer;

(e) ―Corporate Agent‖ means a person other than an individual as specified in clause (i);

(f) ―Designated person‖ means an officer normally in charge of marketing operations, as

specified by an insurer, and authorised by the Authority to issue or renew licences under these
regulations;

(g) ―Examination Body‖ means an Institution, which conducts pre-recruitment tests for
insurance agents and which is duly recognised by the Authority;

(h) ―Licence‖ means a certificate of licence to act as an insurance agent issued under these
regulations;

(j) ―Practical Training‖ includes orientation, particularly in the area of insurance sales, service
and marketing, through training modules as approved by the Authority;

(k) ―Proposal form‖ means an application for purchase of an insurance product which shall be
the basis of insurance contract;

(l) ―Prospect‖ means a potential purchaser of an insurance product;

(m) ―Recognised Board or Institution‖ means such board or institution as may be recognised by
any State Government or the Central Government.

(2) All words and expressions used herein and not defined but defined in the Insurance Act,
1938(4 of 1938), or in the Insurance Regulatory and Development Authority Act, 1999 (41 of
1999), shall have the meanings respectively assigned to them in those Acts.
3. Issue or renewal of licence.---(1) A person desiring to obtain or renew a licence (hereinafter
referred to as ―the applicant‖) to act as an insurance agent or a composite insurance agent shall
proceed as follows:-

(a) the applicant shall make an application to a designated person---

(b) The fees payable by the applicant to the Authority shall be as specified in Regulation 7.

(2) The designated person may, on receipt of the application along with the evidence of payment
of fees to the Authority, and on being satisfied that the applicant, ---

(i) possesses the qualifications as specified under Regulation 4;

(ii) possesses the practical training as specified under Regulation 5;

(iii) has passed the examination as specified under Regulation 6;

(iv) has furnished the application complete in all respects;

(v) has the requisite knowledge to solicit and procure insurance business; and

(vi) is capable of providing the necessary service to the policyholders;

(3) If the designated person refuses to grant or renew a licence under this regulation, he shall
give the reasons therefor to the applicant.

4. Qualifications of the applicant.--- The applicant shall possess the minimum qualification of a
pass in 12th Standard or equivalent examination conducted by any recognised Board/Institution,
where the applicant resides in a place with a population of five thousand or more as per the last
census, and a pass in 10th Standard or equivalent examination from a recognised Board/
Institution if the applicant resides in any other place.

5. Practical Training. --- (1) The applicant shall have completed from an approved institution,
at least, one hundred hours‘ practical training in life or general insurance business, as the case
may be, which may be spread over three to four weeks, where such applicant is seeking licence
for the first time to act as insurance agent.

(2) Where the applicant, referred to under sub-regulation (1), is---

(a) an Associate/Fellow of the Insurance Institute of India, Mumbai;

(b) an Associate/Fellow of the Institute of Chartered Accountants of India, New Delhi;

(c) an Associate/Fellow of the Institute of Costs and Works Accountants of India, Calcutta;

(d) an Associate/Fellow of the Institute of Company Secretaries of India, New Delhi;

(e) an Associate/Fellow of the Actuarial Society of India, Mumbai;

(f) a Master of Business Administration of any Institution / University recognised by any

State Government or the Central Government; or

(g) possessing any professional qualification in marketing from any Institution / University
recognised by any State Government or the Central Government--

6. Examination.—The Applicant shall have passed the pre-recruitment examination in life or

general insurance business, or both, as the case may be, conducted by the Insurance Institute of
India, Mumbai, or any other examination body.

7. Fees payable.-- (1) The fees payable to the Authority for issue or renewal of licence to act as
insurance agent or a composite insurance agent shall be rupees two hundred and fifty.

(2) The additional fees payable to the Authority, under the circumstances mentioned in sub-
section (3) of section 42 of the Act, shall be rupees one hundred.

8. Code of Conduct (1) Every person holding a licence, shall adhere to the code of conduct
specified below:-

(i) Every insurance agent shall,---

(a) identify himself and the insurance company of whom he is an insurance agent;

(b) disclose his licence to the prospect on demand;

(c) disseminate the requisite information in respect of insurance products offered for sale by his
insurer and take into account the needs of the prospect while recommending a specific insurance
plan;

(d) disclose the scales of commission in respect of the insurance product offered for sale, if
asked by the prospect;

(e) indicate the premium to be charged by the insurer for the insurance product offered for sale;
(f) explain to the prospect the nature of information required in the proposal form by the
insurer, and also the importance of disclosure of material information in the purchase of an
insurance contract;

(g) bring to the notice of the insurer any adverse habits or income inconsistency of the
prospect, in the form of a report (called ―Insurance Agent‘s Confidential Report‖) along with
every proposal submitted to the insurer

(h) inform promptly the prospect about the acceptance or rejection of the proposal by the
insurer;

(i) obtain the requisite documents at the time of filing the proposal form with the insurer; and
other documents subsequently asked for by the insurer for completion of the proposal;

(j) render necessary assistance to the policyholders or claimants or beneficiaries in

complying with the requirements for settlement of claims by the insurer;

(k) advise every individual policyholder to effect nomination or assignment or change of

address or exercise of options, as the case may be, and offer necessary assistance in this behalf,
wherever necessary;

9. Cancellation of licence.--- The designated person may cancel a licence of an insurance agent,
if the insurance agent suffers, at any time during the currency of the licence, from any of the
disqualifications mentioned in sub-section (4) of section 42 of the Act, and recover from him the
licence and the identity card issued earlier.

10. Issue of duplicate licence.---The Authority may issue a duplicate licence replace a licence
lost, destroyed, or mutilated on payment a fee of rupees fifty.

11. Non-application to existing insurance agents. --- Nothing contained in Regulations 4 to 6

of these Regulations shall apply to the existing agents before the commencement of these
Regulations.

Insurance Regulatory and Development Authority (Protection of Policyholders‘ Interests)

Regulations, 2002.

In exercise of the powers conferred by clause (zc) of sub-section (2) of section 114A of the
Insurance Act, 1938 (4 of 1938) read with sections 14 and 26 of the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999), the Authority, in consultation with the Insurance
Advisory Committee, hereby makes the following regulations, namely:

Short title and commencement

1. (1) These regulations may be called the Insurance Regulatory and Development Authority
(Protection of Policyholders‘ Interests) Regulations, 2002

(2) They shall come into force on the date of their publication in the Official Gazette and
shall apply to all contracts of insurance effected thereafter, except regulation 4(1) which shall
come into force on 1st October, 2002.

(3) These Regulations are in addition to any other regulations made by the Authority, which
may, inter alia, provide for protection of the interest of policyholders.

(4) These Regulations apply to all insurers, insurance agents, insurance intermediaries and
policyholders.

Definitions

2. (1) In these regulations, unless the context otherwise requires:

(a) ―Act‖ means the Insurance Act, 1938 (4 of 1938);

(b) ―Authority‖ means the Insurance Regulatory and Development Authority established under
the provisions of section 3 of the Insurance Regulatory and Development Authority Act, 1999
(41 of 1999);

(c) ―Cover‖ means an insurance contract whether in the form of a policy or a cover note or a
Certificate of Insurance or any other form prevalent in the industry to evidence the existence of
an insurance contract;

(d) ―Proposal form‖ means a form to be filled in by the proposer for insurance, for furnishing
all material information required by the insurer in respect of a risk, in order to enable the insurer
to decide whether to accept or decline, to undertake the risk, and in the event of acceptance of the
risk, to determine the rates, terms and conditions of a cover to be granted.
(e) ―Prospectus‖ means a document issued by the insurer or in its behalf to the prospective
buyers of insurance, and should contain such particulars as are mentioned in Rule 11 of
Insurance Rules, 1939 and includes a brochure or leaflet serving the purpose

(f) Words and expressions used and not defined in these regulations, but defined in the Act, or
the Life Insurance Corporation Act, 1956, (31 of 1956) or the General Insurance Business
(Nationalisation) Act 1972 (57 of 1972), or the Insurance Regulatory and Development
Authority Act, 1999

3. Point of Sale

(1) Notwithstanding anything mentioned in regulation 2(e) above, a prospectus of any insurance
product shall clearly state the scope of benefits, the extent of insurance cover and in an explicit
manner explain the warranties, exceptions and conditions of the insurance cover and, in case of
life insurance, whether the product is participating (with-profits) or non-participating (without-
profits).

(2) An insurer or its agent or other intermediary shall provide all material information in respect
of a proposed cover to the prospect to enable the prospect to decide on the best cover that would
be in his or her interest.

(3) Where the prospect depends upon the advice of the insurer or his agent or an insurance
intermediary, such a person must advise the prospect dispassionately.

(4) Where, for any reason, the proposal and other connected papers are not filled by the
prospect, a certificate may be incorporated at the end of proposal form from the prospect that the
contents of the form and documents have been fully explained to him and that he has fully
understood the significance of the proposed contract.

(5) In the process of sale, the insurer or its agent or any intermediary shall act according to the
code of conduct prescribed by:

i) the Authority

ii) the Councils that have been established under section 64C of the Act and

iii) the recognized professional body or association of which the agent or intermediary or
insurance intermediary is a member.
4. Proposal for insurance

(1) Except in cases of a marine insurance cover, where current market practices do not insist on
a written proposal form, in all cases, a proposal for grant of a cover, either for life business or for
general business, must be evidenced by a written document. It is the duty of an insurer to furnish
to the insured free of charge, within 30 days of the acceptance of a proposal, a copy of the
proposal form.

(2) Forms and documents used in the grant of cover may, depending upon the circumstances of
each case, be made available in languages recognised under the Constitution of India.

(3) In filling the form of proposal, the prospect is to be guided by the provisions of Section 45 of
the Act. Any proposal form seeking information for grant of life cover may prominently state
therein the requirements of Section 45 of the Act.

(4) Where a proposal form is not used, the insurer shall record the information obtained orally or
in writing, and confirm it within a period of 15 days thereof with the proposer and incorporate
the information in its cover note or policy.

(5) Wherever the benefit of nomination is available to the proposer, in terms of the Act or the
conditions of policy, the insurer shall draw the attention of the proposer to it and encourage the
prospect to avail the facility.

(6) Proposals shall be processed by the insurer with speed and efficiency and all decisions
thereof shall be communicated by it in writing within a reasonable period not exceeding 15 days
from receipt of proposals by the insurer.

5. Grievance redressal procedure

Every insurer shall have in place proper procedures and effective mechanism to address
complaints and grievances of policyholders efficiently and with speed and the same along-with
the information in respect of Insurance Ombudsman shall be communicated to the policyholder
along-with the policy document and as maybe found necessary.

6. Matters to be stated in life insurance policy

(1) A life insurance policy shall clearly state:

(a) the name of the plan governing the policy, its terms and conditions;
(b) whether it is participating in profits or not;

(c) the basis of participation in profits such as cash bonus, deferred bonus, simple or compound
reversionary bonus;

(d) the benefits payable and the contingencies upon which these are payable and the other terms
and conditions of the insurance contract;

(e) the details of the riders attaching to the main policy;

(f) the date of commencement of risk and the date of maturity or date(s) on which the benefits
are payable;

(g) the premiums payable, periodicity of payment, grace period allowed for payment of the
premium, the date the last instalment of premium, the implication of discontinuing the payment
of an instalment(s) of premium and also the provisions of a guaranteed surrender value.

(h) the age at entry and whether the same has been admitted;

(i) the policy requirements for (a) conversion of the policy into paid up policy, (b) surrender (c)
non-forfeiture and (d) revival of lapsed policies;

(2) While acting under regulation 6(1) in forwarding the policy to the insured, the insurer shall
inform by the letter forwarding the policy that he has a period of 15 days from the date of receipt
of the policy document to review the terms and conditions of the policy and where the insured
disagrees to any of those terms or conditions.

(3) In respect of a unit linked policy, in addition to the deductions under sub-regulation (2) of
this regulation, the insurer shall also be entitled to repurchase the unit at the price of the units on
the date of cancellation.

(4) In respect of a cover, where premium charged is dependent on age, the insurer shall ensure
that the age is admitted as far as possible before issuance of the policy document.

7. Matters to be stated in general insurance policy

(1) A general insurance policy shall clearly state:

(a) the name(s) and address(es) of the insured and of any bank(s) or any other person having
financial interest in the subject matter of insurance;
(b) full description of the property or interest insured;

(c) the location or locations of the property or interest insured under the policy and, where
appropriate, with respective insured values;

(d) period of Insurance;

(e) sums insured;

(f) perils covered and not covered;

(2) Every insurer shall inform and keep informed periodically the insured on the requirements to
be fulfilled by the insured regarding lodging of a claim arising in terms of the policy and the
procedures to be followed by him to enable the insurer to settle a claim early.

8. Claims procedure in respect of a life insurance policy

(1) A life insurance policy shall •state the primarydocuments which are normally required to be
submitted by a claimant in support of a claim.

(2) A life insurance company, upon receiving a claim, shall process the claim without delay. Any
queries or requirement of additional documents, to the extent possible, shall be raised all at once
and not in a piece-meal manner, within a period of 15 days of the receipt of the claim.

(3) A claim under a life policy shall be paid or be disputed giving all the relevant reasons, within
30 days from the date of receipt of all relevant papers and clarifications required.

9. Claim procedure in respect of a general insurance policy

(1) An insured or the claimant shall give notice to the insurer of any loss arising under contract
of insurance at the earliest or within such extended time as may be allowed by the insurer

(2) Where the insured is unable to furnish all the particulars required by the surveyor or where
the surveyor does not receive the full cooperation of the insured, the insurer or the surveyor as
the case may be, shall inform in writing the insured about the delay that may result in the
assessment of the claim.
10. Policyholders‘ Servicing

(1) An insurer carrying on life or general business, as the case may be, shall at all times, respond
within 10 days of the receipt of any communication from its policyholders in all matters, such as:

(a) recording change of address;

(b) noting a new nomination or change of nomination under a policy;

(c) noting an assignment on the policy;

(d) providing information on the current status of a policy indicating matters, such as, accrued
bonus, surrender value and entitlement to a loan;

11. General

(1) The requirements of disclosure of ―material information‖ regarding a proposal or policy

apply, under these regulations, both to the insurer and the insured.

(2) The policyholder shall assist the insurer, if the latter so requires, in the prosecution of a
proceeding or in the matter of recovery of claims which the insurer has against third parties.

(3) The policyholder shall furnish all information that is sought from him by the insurer and also
any other information which the insurer considers as having a bearing on the risk to enable the
latter to assess properly the risk sought to be covered by a policy.

Actuary

An actuary is a professional who assesses and manages the risks of financial investments,
insurance policies and other potentially risky ventures.

Actuaries in Insurance

Most actuaries work at insurance companies, where their risk-management capabilities

are particularly applicable. Insurance companies want to take on policies that offer little risk, and
the most traditional actuarial practices revolve around analyzing various factors related to life
expectancy, constructing mortality tables that provide a measure of predictability and making
recommendations to brokers in individual cases. While actuarial science is most commonly
applied to mortality analysis for life insurance, many of the same procedures are also used for
property, liability and other kinds of insurance.
The Role of Actuary in Life Insurance Sector

An actuary is a professional valuer who compiles and analyses statistics and uses them to
calculate insurance risks and premiums.Actuarial Science is applicable in any situation where
risk and uncertainty are present.Life Insurance is one of the traditional and largest areas of
practice for actuaries.

Actuaries can fill a number of diverse roles within the operation of life insurance
companies. For the insurance industry, they develop, price, and manage insurance products. Not
only that, but they also give advice to insurance companies, review contracts, plans and policies
to ensure that the policies have taken the risks into account.

The job of an actuary can be extremely complex and challenging but of course
demanding! Coming to the basics, it emphasizes the application of probabilities, time value of
money, mortality rates through models that are designed for projection and analysis of a
particular situation.

Job of an Actuary:

Pricing and Designing of Policies

Pricing is the method of determining the price of various insurance products. Pricing
involves complexity especially when it comes to insurance. How? Let‘s take an example! When
you sell a pen, the costs of producing it is relatively known. You know how much you paid for
the raw material, labor cost and other expenses.

They calculate the premium based on some underlying assumptions regarding mortality,
interest rates, and expenses and make sure that the company makes an adequate amount of profit.

Actuarial Valuation

Actuarial valuation involves the estimation of future liabilities like estimates for unpaid
claim liabilities, the amount of sum assured surrender value calculations. They monitor the funds
required to pay the benefits promised to the policyholders, and suggest the bonuses to be added
to with-profit contracts. Valuation also includes Reserving.

Reserves are basically the amount that the company needs to set aside in order to meet
future liabilities. Premiums are usually paid in advance. In the early years, the premiums
received are more than enough to pay the claims that may arise in those years, but in later years
the premiums are too small to pay the claims. To solve this problem, actuaries invest the
premiums received in early years and also set an appropriate amount of reserves to meet the
future liabilities.

Profit Testing

Pricing and reserving would be meaningless if the company fails to make profits on its
products. Profit is necessary for any business to survive. For life insurance companies, actuaries
estimate the future profits based on expected inflows and outgoes. And these expected figures
are calculated using some assumptions regarding probabilities, interest rates, and life expectancy.

Asset-Liability Management (ALM)

Asset-Liability management is one of the fundamental elements of life insurance

operations. ALM is important because the mismatching of assets and liabilities can lead to
financial instability. ALM is the practice of creating business strategies related to assets and
liabilities of the company to achieve the financial goals for a given set of risks.

Experience Analysis and Reporting

Actuaries are also responsible for experience analysis. It is basically a comparison

between the past and future. Experience analysis is looking closely whether the actual experience
has corresponded with the assumptions they previously made. They revise the assumptions and
review the actuarial methods to make sure that they are appropriate for the changing conditions,
to do the future analysis more effectively.

Duties of an actuary

1. Expert Witness Testimony

Actuaries are often called up to provide testimony as expert witnesses in a lawsuit dealing
insurance or financial risks in general. An actuary may just be asked to testify as an expert
witness in a lawsuit, or they may be asked to testify for their employees. Actuaries working with
insurance companies may be requested to testify in government cases where federal or state
legislatures are attempting to create new laws dealing with insurance companies.

2. Reviewing Company Policies

Within every business, you will find contracts and policies of some sort. A very
important duty of an actuary is reviewing company policies and contracts. Actuaries also look
over annuity plans, insurance policies, pension plans, and various contracts. Their purpose of
looking over and reviewing these documents is to determine the risk factors in each contract and
help the company set guidelines that are beneficial and pose fewer risks to the employees.

3. Working on Statistical Data

One of the most important duties of an actuary is to gather and analyze data. They use
data on accidents, sickness, death, retirement, and disability in their area as well as other
information that may be relevant to the employer. They compile all the data into an algorithm to
determine how they affect financial risk. Here is one example. An actuary working for an auto
insurance company will look over a customer‘s driving record and vehicle information to
determine if the customer is a good risk for the insurance company and what sort of premium the
customer should be charged to cover the possible risk.

4. Developing New Risk Analysis Methods

Actuaries often work alongside statisticians, mathematicians or accountants and rely on

their data to help come up with statistical models. Although actuaries analyze financial risks
based on statistical data, the data does not always remain the same, and adjustments must be
made. Actuaries are often asked to gather new statistical data to evaluate risks of insurance
policies or on situations that may be present that were not present in the past.

5. Communicating to Businesses

Although a lot of the duties of an actuary involve collecting and analyzing data, actuaries
also spend an equal amount of time communicating their findings to different managers within a
company or to different businesses. They used computers and statistics to determine possible
risks, prepare reports and presentations and communicate their findings to clients and
stakeholders.

Procedure for Appointment of an Appointed Actuary. —

A. An insurer registered to carry on insurance business in India shall, subject to sub-

regulation (B) and sub-regulation (F) appoints an actuary, who shall be known as the ‗Appointed
Actuary‘ for the purposes of the Act.

B. A person shall be eligible to be appointed as an Appointed Actuary for an insurer, if he

or she is:
 i. Ordinarily resident in India;

ii. A Fellow member in accordance with the Actuaries Act, 2006;

iii. A Fellow member satisfying the following requirements in case of a Life insurer:

a. Passed specialization subject in life insurance. Currently, the specialization shall mean
Specialist Application level subject as prescribed by the Institute of Actuaries of India.

b. Relevant experience of at least 10 years in life insurance industry out of which at least
5 years shall be post fellowship experience.

c. The applicant shall have at least 3 years post fellowship experience in annual statutory
valuation of alife insurer.

iv. A Fellow member satisfying the following requirements in case of a General insurer
or reinsurer:

a. Passed specialization subject in general insurance. Currently, the specialization shall

mean Specialist Application level subject as prescribed by the Institute of Actuaries of India.

b. Relevant experience of at least 7 years in general insurance industry out of which at

least 2 years shall be post fellowship experience.

c. The applicant shall have at least 1 year post fellowship experience in annual statutory
valuation of ageneral insurer.

v. A Fellow member satisfying the following requirements in case of a health insurer:

a. Passed specialization subject in health or general insurance. Currently, the

specialization shall mean Specialist Application level subject as prescribed by the Institute of
Actuaries of India.

b. Relevant experience of at least 7 years in health or general insurance industry out of

which at least 2 years shall be post fellowship experience.

c. At least 1-year post fellowship experience shall be in respect of annual statutory

valuation of a health insurer or a general insurer.

vi. An employee of the insurer;

vii. A person who has not committed any breach of professional or other misconduct;
viii. Not an appointed actuary of another insurer in India;

ix. A person who possesses a Certificate of Practice issued by the Institute of Actuaries of India;

x. Not over the age of 65 years.

Powers of Appointed Actuary:

A. An Appointed Actuary shall have access to all information or documents in

possession, or under control, of the insurer if such access is necessary for the proper and
effective performance of the functions and duties of the Appointed Actuary.

B. The Appointed Actuary may seek any information for the purpose of sub-regulation
(A) of this regulation from any officer or employee of the insurer.

C. The Appointed Actuary shall be entitled:

(i) to attend all meetings of the management including meeting of the directors of the insurer;

(ii) to speak and discuss on any matter, at such meeting, —

a. that relates to the actuarial advice given to the directors;

b. that may affect the solvency of the insurer;

c. that may affect the ability of the insurer to meet the reasonable expectations of policyholders;
or

d. on which actuarial advice is necessary.

(iii) to attend, —

a. any meeting of the shareholders or the policyholders of the insurer; or

b. any other meeting of members of the insurer at which the insurer‘s annual accounts or
financial statements are to be considered or at which any matter in connection with the
Appointed Actuary‘s duties is discussed.

9. Duties and obligations. — In particular and without prejudice to the generality of the
foregoing matters, and in the interests of the insurance industry and the policyholders, the duties
and obligations of an Appointed Actuary of an insurer shall include: —

(i) Ensuring that all the requisite records have been made available to him or her for the
purpose of conducting actuarial valuation of liabilities and assets of the insurer;
 (ii) Rendering actuarial advice to the management of the insurer, in particular in the areas
of product design and pricing, insurance contract wording, investments and reinsurance;

(iii) Ensuring the solvency of the insurer at all times;

(iv) Complying with the provisions of the section 64V of the Act in regard to certification
of the assets and

Liabilities that have been valued in the manner required under the said section;

(v) Complying with the provisions of the section 64 VA of the Act in regard to
maintenance of required control level of solvency margin in the manner required under the said
section;

(vi) Drawing the attention of management of the insurer, to any matter on which he or
she thinks that action is required to be taken by the insurer to avoid–

(a) Any contravention of the Act; or

(b) Prejudice to the interests of policyholders;

(vii) Complying with the Authority‘s directions from time to time;

(viii) Ensuring that overall pricing policy of the insurer is in line with the overall
underwriting and claims management policy of the insurer;

(ix) Ensuring adequacy of reinsurance arrangements;

(x) Contributing to the effective implementation of the risk management system;

c. Complying with section 40B & 40C of the Act;

d. Ensuring that the premium rates of the insurance products are fair;

e. Certifying that the mathematical reserves have been determined taking into account the
guidance notes issued by the Institute of Actuaries of India and any directions given by the
Authority;

f. Ensuring that the policyholders‘ reasonable expectations have been considered in the matter of
valuation of liabilities and distribution of surplus to the participating policyholders who are
entitled for a share of surplus;

g. Submitting the actuarial advice in the interests of the insurance industry and the policyholders;
h. Coordinating the calculation of mathematical reserves;

(xiii) In addition to (i) to (xi) above, the duties of the Appointed Actuary of the insurer
carrying on general insurance business or health insurance business include:

a. Ensuring that the premium rates of the insurance products are fair;

b. Ensuring that the actuarial principles, in the determination of liabilities, have been used in the
calculation of reserves for incurred but not reported claims (IBNR) and other reserves

c. Complying with section 40B & 40C of the Act;

d. Coordinating the calculation of IBNR and other reserves (including IBNER and PDR) where
actuarial advice is sought by the Authority;

e. Ensuring the appropriateness of the methodologies and underlying models used, as well as the
assumptions made in the calculation of IBNR and other reserves (including IBNER and PDR)
where actuarial advice is sought by the Authority;

f. Assessing the sufficiency and quality of the data used in the calculation of IBNR and other
reserves (including IBNER and PDR) where actuarial advice is sought by the Authority;

(xiv) informing the Authority in writing of his or her opinion, within a reasonable time,
whether,

a. the insurer has contravened the Act or any other Acts;

b. the contravention is of such a nature that it may affect significantly the interests of the owners
or beneficiaries of policies issued by the insurer;

c. the directors of the insurer have failed to take such action as is reasonably necessary to enable
him to exercise his or her duties and obligations under this regulation; or

d. an officer or employee of the insurer has engaged in conduct calculated to prevent him or her
exercising his or her duties and obligations under this regulation.

(xv) If an Appointed Actuary is disqualified to act as an Actuary, he/she ceases to exist as

Appointed Actuary forthwith;

(xvi) While carrying out his/her duties and obligations, the Appointed Actuary shall pay
due regard to generally accepted actuarial principles and practice.
Service Oriented Architecture:

Service Oriented Architecture (SOA), simply put, is an architecture style for developing
and integrating software. This style involves creating services out of applications which can be
used by other applications regardless of the computing platforms. SOA is not the ―big thing‖ of
the future. It, in fact, is increasingly becoming mainstream. In the context of the Insurance
industry, SOA delivers significant advantages, namely those of a) dealing with legacy designs
and implementations, b) creating new sales channels and c) driving efficiency and customer
satisfaction and d) launching innovative business models.

SOA‘s utility for Insurance Industry

The insurance industry lends itself beautifully to SOA. The main drivers are:

Legacy systems: Being a century old industry which adopted IT early on, the industry
has several reliable legacy systems. How does one use the legacy systems to build on them?

Consolidation/M&A: The industry has witnessed a fair share of M&A activity. How
does one integrate businesses with very different technology applications and platforms?

New business models: The insurance industry (like any other) is continually bringing out
new business models. The advent of the internet, e-commerce and overall customer orientation
has made innovating on new business models essential

SOA in action in the Insurance industry

Successful implementation examples abound and across countries. The biggest names in
insurance have taken on the SOA challenge. One of the foremost insurance players has used
SOA actively across several countries.
 UNIT III
Insurance Contract: Life Insurance Contract – Features, Policy Conditions and Products;
Non – Life Insurance: Fire and Marine - Features, Policy Conditions and Products. Group,
Health and Social Insurance – Schemes.

INSURANCE CONTRACT

An insurance contract is a document representing the agreement between an insurance

company and the insured. Central to any insurance contract is the insuring agreement, which
specifies the risks that are covered, the limits of the policy, and the term of the policy.
Additionally, all insurance contracts specify conditions, which are requirements of the insured,
such as paying the premium or reporting a loss; limitations, which specify the limits of the
policy, such as the maximum amount that the insurance company will pay;exclusions, which
specify what is not covered by the contract.

There are 4 requirements for any valid contract, including insurance contracts:

• offer and acceptance,

• consideration,
• competent parties, and
• Legal purpose.

Offer and Acceptance

Insurance contracts are contracts of adhesion, which means they are offered on a "take it
or leave it" basis. The insurance company draws up the contract, which only becomes mutually
binding when the buyer makes an offer by accepting the terms or mailing in the first payment.

Consideration

Consideration is the part of the insurance contract that defines how much the insured will
pay in premiums for the coverage offered, and how the insurance company will reimburse the
insured in the event of a loss. Consideration spells out the financial obligations of both parties.

Legal Capacity and Legal Purpose

In order to enter into an insurance contract, both parties must be legally capable of
delivering what is promised. The insured must be of sound mind and of legal age, and the
insurance provider must conform to any licensing requirements of the state in which the
insurance is offered. Legal purpose means that the contract is invalid if it insures or encourages
illegal activities.
Indemnification

Most insurance contracts operate on the principle of indemnity, which means the
insurance company agrees to make the insured whole after a specified loss, but no more and no
less. The principle of indemnity states an insured cannot profit from an insurance contract and
the payout must closely equal the actual amount lost.

Life Insurance

Life insurance is a contract between an insurer and a policyholder in which the insurer
guarantees payment of a death benefit to named beneficiaries upon the death of the insured. The
insurance company promises a death benefit in consideration of the payment of premium by the
insured.

LIFE INSURANCE CONTRACT

Life insurance is a contract between an insurer and a policyholder in which the insurer
guarantees payment of a death benefit to named beneficiaries upon the death of the insured. The
insurance company promises a death benefit in consideration of the payment of premium by the
insured.

Features of Life Insurance Contract

 Nature of General Contract

 Insurable Interest
 Utmost Good Faith
 Warranties
 Proximate Cause
 Assignment and Nomination

In life insurance contract the first three features are very important while the rest of them are
of complementary nature.

1. Nature of General Contract

The life insurance contract is a sort of contract it is approved by the Indian Contract Act.
According to Section 2(H) and Section 10 of Indian Contract Act, a valid contract must have the
following essentialities:

• Agreement (offer and acceptance)

 • Competency of the parties

• Free consent of the parties

• Legal consideration

• Legal objective

2. Insurable Interest

Insurable interest is the pecuniary interest. The insured must have insurable interest in the
life to be insured for a valid contract. Insurable interest arises out of the pecuniary relationship
that exists between the policy-holder and the life assured so that the former stands to loose by the
death of the latter and/or continues to gain by his survival. If such relationship exists, then the
former has insurable interest in the life of the latter.

3. Utmost Good Faith

Life insurance requires that the principle of utmost good, faith should be preserved by
both the parties. The principle of utmost good faith says that the parties, proposer (insured) and
insurer must be of the same mind at the time of contract because only then the risk may be
correctly ascertained. They must make full and true disclosure of the facts material to the risk.

4. Warranties

Warranties are an integral part of the contract, i.e., these are the basis of the contract
between the proposer and insurer and if any statement, whether material or non-material, is
untrue, the contract shall be null and void and the premium paid by him may be forfeited by the
insurer. The policy issued will contain that the proposal and personal statement shall form part of
the Policy and be the basis of the contract. Warranties may be informative and promissory. In life
insurance the informative warranties are more important. The proposal is expected to disclose all
the material facts to the best of his knowledge and belief.

5. Proximate Cause

The efficient or effective cause which causes the loss is called proximate cause. It is the
real and actual cause of loss. If the cause of loss (peril) is insured, the insurer will pay; otherwise
the insurer will not compensate. In life insurance the doctrine of Causa Proxima (Proximate
Cause) is not applicable because the insurer is bound to pay the amount of insurance whatever
may be the reason of death.
6. Assignment and Nomination

The Policy in life insurance can be assigned freely for a legal consideration or love and
affection. The assignment shall be complete and effectual only on the execution of such
endorsement either on the Policy itself or by a separate deed. Notice for this purpose must be
given to the insurer who will acknowledge the assignment. Once the assignment is completed, it
cannot be revoked by the assignor because he ceases to be the owner of the Policy unless
reassignment is made by the assignee in favor of the assignor. An assignee may be the owner of
the policy both on survival of the life assured, or on his death according to the terms of transfer.

POLICY CONDITIONS OF LIFE INSURANCE CONTRACT

Payment of Premiums:A grace period of one month but not less than 30 days is
allowed where the mode of payment is yearly, half-yearly or quarterly and 15 days for monthly
payments. If death occurs within this period, the life assured is covered for full sum assured.

Non-forfeiture regulations: If the policy has run for atleast 3 full years and subsequent
premiums have not been paid the policy shall not be void but the sum assured will be reduced to
a sum which will bear the same ratio as to the number of premiums paid bear to the total number
of premiums payable.The concessions regarding claim in the above case is explained in the
appropriate section.

Forfeiture in certain events:In case of untrue or incorrect statement contained in the

proposal, personal statement, declaration and connected documents or any material information
with held, subject to the provision of Section 45 of the Insurance Act 1938, wherever applicable,
the policy shall be declared void and all claims to any benefits in virtue thereof shall cease.

Suicide:The policy shall be void, if the Life Assured commits at any time or after the
date on which the risk under the policy has commenced but before the expiry of one year from
the date of commencement of the policy.

Guaranteed Surrender Value: After payment of premiums for at least three years, the
Surrender Value allowed under the policy is equal to 30% of the total premiums paid excluding
premiums for the 1st year and all extra premiums.

Salary Saving Scheme:The rate of installment premium shown in the schedule of the
policy will remain constant as long as the employee continues with the employer given in the
proposal. On leaving the employment of said employer the policyholder should intimate the
Corporation. In case of the Salary Saving Scheme being withdrawn by the said employer, the
Corporation will intimate the same to the policyholder. Thereafter the 5% rebate given under
Salary Saving Scheme will be withdrawn.

Alterations:After the policy is issued, the policyholder in a number of cases finds the
terms not suitable to him and desires to change them. LIC allows certain types of alterations
during the lifetime of the policy. However, no alteration is permitted within one year of the
commencement of the policy with some exceptions. The following alterations are allowed.

»Alteration in class or term.

»Reduction in the Sum Assured

»Alteration in the mode of payment of premiums

»Removal of an extra premium

»Alteration from without profit plan to with profit plan

»Alternation in name

»Correction in policies

»Settlement option of payment of sum assured by installments

»Grant of accident benefit

»Grant of premium waiver benefit under CDA policies

»Alteration in currency and place of payment of policy monies

Age Proof accepted by LIC:The Proofs of age, which are generally acceptable to the
Corporation, are as under:

»Certified extract from Municipal or other records made at the time of birth.

»Certificate of Baptism or certified extract from family Bible if it contains age or date of
birth.

»Certified extract from School or College if age or date of birth is stated therein.

»Certified extract from Service Register in case of Govt. employees and employees of
Quasi-Govt. institutions including Public Limited Companies and Pass port issued by the
Pass port Authorities in India.
Alternative Age Proofs which are accepted:

»Marriage certificate in the case of Roman Catholics issued by Roman Catholic Church.

»Certified extracts from the Service Registers of Commercial Institutions or Industrial

Undertakings provided it is specifically mentioned in such extracts that conclusive
evidence of age was produced at the time of recruitment of the employee.

»Certificate of Birth granted by Syedna v. Molana Badruddin Sahib of Baroda

»Identity Cards issued by Defence Department.

»A true copy of the University Certificate or of Matriculation/Higher Secondary

Education, S.S.L. Certificate issued by a Board set up by a State/Central Government.

»Non- standard age proof like Horoscope, Service Record where age is not verified at the
time of entry, E.S.I.S. Card, Marriage Certificate in case of Muslim Proposer, Elder‘s
Declaration, Self-declaration and Certificate by Village Panchayats are accepted subject
to certain rules.

Nomination:The nominee is statutorily recognized as a payee who can give a valid

discharge to the Corporation for the payment of policy monies. A nomination made in this
manner is required to be notified to the Corporation and registered by it in its records. A
nomination is not required to be stamped.

Assignment:An assignment has an effect of directly transferring the rights of the

transferor in respect of the property transferred. Immediately on execution of an assignment of
the Policy of life assurance the assignor forgoes all his rights, title and interest in the Policy to
the assignee. The premium/loan interest notices etc. in such cases will be sent to the assignee.

Claims settlement procedure:The settlement of claims is a very important aspect of

service to the policyholders. Hence, the Corporation has laid great emphasis on expeditious
settlement of Maturity as well as Death Claims.

Double Accident Benefit Claims:Double Accident Benefit is provided as an inject to the

life insurance cover. For this purpose an extra premium of Rs.1/- per Rs.1000/- S.A is charged.
For claiming the benefits under the Accident Benefit the claimant has to produce the proof to the
satisfaction of the Corporation that the accident is defined as per the policy conditions. Normally
for claiming this benefit documents like FIR, Post-mortem Report are insisted upon.
 Disability Benefit Claims:Disability benefit claims consist of waiver of future premiums
under the policy and extended disability benefit consisting in addition of a monthly benefit
payment as per policy conditions. The essential condition for claiming this benefit is that the
disability is total and permanent so as to preclude him from earning any wage/compensation or
profit as a result of the accident

Claims Review Committees:The Corporation settles a large number of Death Claims

every year. Only in case of fraudulent suppression of material information is the liability
repudiated. This is to ensure that claims are not paid to fraudulent persons at the cost of honest
policyholders.

LIFE INSURANCE PRODUCTS

The different types of life insurance are:

• Term life insurance

• Permanent life insurance

• Whole life insurance

• Universal life insurance

• Variable life insurance

• Variable universal life insurance

• Simplified issue life insurance

• Guaranteed issue life insurance

• Final expense insurance

• Group life insurance

Term life insurance

Term life insurance is a "pure" insurance policy: when you pay your premium, you‘re
just paying for the death benefit that goes to your beneficiaries in the event of your death. The
death benefit can be paid out as a lump sum, a monthly payment, or an annuity, although most
people ask the insurance company for the lump sum.
Whole life insurance

Whole life insurance, on the other hand, has a death benefit but also a cash value. Each
month, a certain portion of your premium will go into a tax-deferred savings account, called the
cash value of the policy.

Permanent life insurance

Permanent life insurance is an umbrella term that covers several different, more specific
life insurance types. In general, permanent life policies will last for as long as you pay the
premiums, and they have a cash value component.Whole life insurance is a type of permanent
policy, so a lot of the same pros and cons we discussed above can apply to the other types.

Universal life insurance

Universal life insurance has a cash value, just like a whole policy. Your premiums go
toward both the cash value and the death benefit.

Variable life insurance

A variable life insurance cash value, though, is more along the lines of what you‘d expect
when you think of investing: a series of mutual fund-like sub-accounts where you can get some
decent growth, but you can also lose money depending on the market. The cash value is more or
less placed in the stock market.

Variable universal life insurance

A variable universal life insurance policy takes the best of the other two policies: you
can adjust the premium and death benefit amount while investing the cash value in the policy‘s
sub-accounts.But variable universal life insurance also comes with the same headaches as the
other two. Again, this is more complicated than most people looking for life insurance need, and
it isn‘t your best available option for an investment or insurance.

Simplified issue life insurance

Typically when you apply for life insurance, you go through a paramedical exam as part
of the underwriting process so the insurer can find out how risky you are to insure. Ultimately, it
helps them set your premium rate.
Guaranteed issue life insurance

Guaranteed issue life insurance is useful for elderly applicants, but others can likely get
more life insurance coverage at a lower cost with a different policy type.

Final expense insurance

Final expense insurance is a unique type of policy: it covers the cost of anything
associated with your death, whether its medical costs, a funeral, or cremation – whatever your
literal final expense is. It‘s usually only issued to people of a certain age and the policy is valid
up to a certain age.

TYPES OF NON LIFE INSURANCE

• Health Insurance

• Motor Insurance

• Travel Insurance

• Home Insurance

• Fire Insurance

Health Insurance

This type of general insurance covers the cost of medical care. It pays for or reimburses
the amount you pay towards the treatment of any injury or illness.

It usually covers:

• Hospitalisation

• The treatment of critical illnesses

• Medical bills prior to or post hospitalisation

• Day care procedures like Cataract operations

Motor Insurance

Motor insurance is for your car or bike what health insurance is for your health.It is a
general insurance cover that offers financial protection to your vehicles from loss due to
accidents, damage, theft, fire or natural calamities
1. Car Insurance

It‘s precious—your car. You paid lakhs of rupees to buy that beauty. Even a single
scratch can be painful, forget about bigger damages.Car insurance can reduce this pain for a few
thousand rupees.

2. Two-wheeler Insurance

This is your bike‘s guardian angel. It‘s similar to Car insurance.

Travel insurance

Travel insurance compensates you or pays for any financial liabilities arising out of
medical and non-medical emergencies during your travel abroad or within the country.

It covers you during a trip that lasts under 180 days. It covers you for several trips you
take within a year.

Travel insurance usually cover

• Loss of baggage

• Emergency medical expenses

• Loss of passport

• Hijacking

• Delayed flights

• Accidental death

Home Insurance

Home insurance is a cover that pays or compensates you for damage to your home due to
natural calamities, man-made disasters or other threats.It covers liabilities due to fire, burglary,
theft, flood, earthquakes, and sabotage. It not only offers financial protection to your home, but
also takes care of the valuables inside the property.

Fire Insurance

Fire insurance pays or compensates for the damages caused to your property or goods due
to fire.It covers the replacement, reconstruction or repair expenses of the insured property as well
as the surrounding structures.It also covers the damages caused to a third-party property due to
fire.

FIRE INSURANCE CONTRACT

A fire insurance is a contract under which the insurer in return for a consideration
(premium) agrees to indemnify the insured for the financial loss which the latter may suffer due
to destruction of or damage to property or goods, caused by fire, during a specified period. The
contract specifies the maximum amount , agreed to by the parties at the time of the contract,
which the insured can claim in case of loss. This amount is not , however , the measure of the
loss. The loss can be ascertained only after the fire has occurred. The insurer is liable to make
good the actual amount of loss not exceeding the maximum amount fixed under the policy.

A fire insurance policy cannot be assigned without the permission of the insurer because the
insured must have insurable interest in the property at the time of contract as well as at the time
of loss. The insurable interest in goods may arise out on account of (i) ownership, (ii) possession,
or (iii) contract. A person with a limited interest in a property or goods may insure them to cover
not only his own interest but also the interest of others in them. Under fire insurance, the
following persons have insurable interest in the subject matter:-

• Owner

• Mortgagee

• Pawnee

• Pawn broker

• Official receiver or assignee in insolvency proceedings

• Warehouse keeper in the goods of customer

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

The term 'fire' is used in its popular and literal sense and means a fire which has 'broken
bounds'. 'Fire' which is used for domestic or manufacturing purposes is not fire as long as it is
confined within usual limits.

In the fire insurance policy, 'Fire' means the production of light and heat by combustion or
burning. Thus, fire, must result from actual ignition and the resulting loss must be proximately
caused by such ignition. The phrase 'loss or damage by fire' also includes the loss or damage
caused by efforts to extinguish fire.

The types of losses covered by fire insurance are:-

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

• Pulling down of adjacent premises by the fire brigade in order to prevent the progress of
flame.

• Breakage of goods in the process of their removal from the building where fire is raging
e.g. damage caused by throwing furniture out of window.

• Wages paid to persons employed for extinguishing fire.

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

• loss due to fire caused by earthquake, invasion, act of foreign enemy, hostilities or war,
civil strife, riots, mutiny, martial law, military rising or rebellion or insurrection.

• loss caused by subterranean (underground) fire.

• loss caused by burning of property by order of any public authority.

• loss by theft during or after the occurrence of fire.

• loss or damage to property caused by its own fermentation or spontaneous combustion

e.g. exploding of a bomb due to an inherent defect in it.

• loss or damage by lightening or explosion is not covered unless these cause actual
ignition which spread into fire.

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

• The loss must be caused by actual fire or ignition and not just by high temperature.

• The proximate cause of loss should be fire.

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

• The ignition must be either of the goods or of the premises where goods are kept.

• The fire must be accidental, not intentional. If the fire is caused through a malicious or
deliberate act of the insured or his agents, the insurer will not be liable for the loss.
Types of Fire Insurance Policies:-

Specific policy:- is a policy which covers the loss up to a specific amount which is less
than the real value of the property. The actual value of the property is not taken into
consideration while determining the amount of indemnity. Such a policy is not subject to
'average clause'. 'Average clause' is a clause by which the insured is called upon to bear a portion
of the loss himself. The main object of the clause is to check under-insurance, to encourage full
insurance and to impress upon the property owners to get their property accurately valued before
insurance. If the insurer has inserted an average clause, the policy is known as "Average Policy".

Comprehensive policy:- is also known as 'all in one' policy and covers risks like fire,
theft, burglary, third party risks, etc. It may also cover loss of profits during the period the
business remains closed due to fire.

Valued policy:- is a departure from the contract of indemnity. Under it the insured can
recover a fixed amount agreed to at the time the policy is taken. In the event of loss, only the
fixed amount is payable, irrespective of the actual amount of loss.

Floating policy:- is a policy which covers loss by fire caused to property belonging to the
same person but located at different places under a single sum and for one premium. Such a
policy might cover goods lying in two warehouses at two different locations. This policy is
always subject to 'average clause'.

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

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

FEATURES OF A FIRE INSURANCE CONTRACT

1. A fire insurance contract is a contract of indemnity. It means the insured can only recover the
amount of loss subject to a maximum of the sum assured.

2. The insured person should have insurable interest in the subject-matter of the ‗contract, both at
the time of the contract and at the time of loss.

3. A contract of fire insurance covers the risk of loss resulting from fire or any cause which is a
proximate cause of such loss.
4. A fire insurance contract is an yearly contract.„It automatically lapses after the expiry of the
year, unless it is renewed.

General Principles of Fire Insurance:

Fire insurance has three important principles:

1. Utmost Good Faith.

2. Insurable interest in property.

3. Principle of indemnity.

Various conditions under fire insurance policy

(1) Â Voidable Condition: This condition provides that the policy shall be void able in
the event of misrepresentation, mis-description or non-disclosure of any material particulars.
This condition emphasizes the principle of utmost good faith.

(2) Â Policy Ceasing Condition: All insurances under the policy cease to affect after 7
days from the date of fall of displacement of any building or part thereof. However, if the
displacement/fall occurs due to an insured peril, and notice is given within due time, the insurer
may agree to continue the cover subject to revised terms and conditions, or by endorsements.

(3) Â This is known as the Material alteration Condition. Under the following conditions,
the insurance cease to attach as regards to the property affected. (a) Changes in trade or
manufacture or nature of occupation or other circumstances which increase the risk of loss or
damage by insured perils. (b) Un occupancy of the building for a period of more than 30 days (c)
Transfer of insurable interest unless by will or operation of law.

(4) Â The insurance does not cover any loss or damage to property which at the time of
loss is insured under any marine policy. However the policy covers the excess beyond the
amount payable under the marine policy. This is known as Marine clause.

(5) Â Termination Condition: The insurance may be terminated at any point of time by
the insured and the premium be refunded at short period scale on a fifteen days notice. The
insurer can also terminate the policy on fifteen days notice and refund the premium for the
unexpired term on pro-rata basis.
 (6) Â This condition is divided into two parts. The first part of the condition plays down
the duties of the insured in the event of loss /damage and the procedure to be followed by him.

(7) This is known as the right of entry condition. This condition gives the company right
to enter the premises where loss has occurred , take possession of the property and deal with it or
sell such property.

(8) Â This condition deals with fraud. According to this condition, all benefits under the
policy shall be forfeited in the following circumstances :

• The claim is fraudulent.

• The claim is supported by a false declaration.

• Fraudulent means are used by the insured or any other person on his behalf.

• Loss or damage is caused by the willful act of the insured or any other person with his
connivance.

(9) This is the ‗reinstatement‘ condition. The operative clause provides that the company may
pay the value of the property at the time of its destruction or the amount of damage or at its
option reinstate/replace such property.

(10)  This is the pro-rata average condition. If the property at the time of claim be
collectively of a larger value than the sum insured, then the Insured shall act his own insurer for
the difference, and shall bear a rate able proportion of the loss accordingly. If there is under
insurance, i.e the sum insured is less than the value of the property, on the date of loss, the
payable amount is proportionately reduced. The main objective is to penalize under insurance by
a corresponding under payment of claim.

(11) This is the contribution condition. In the event of more than one policy covering the
same property, the company will pay only the rate able proportion of the loss. Rate able
proportion of the policy may be defined as that proportion of the loss as the sum insured under
the policy bears to the total sum total insured under all the policies.

(12) This is the subrogation condition. The insured‘s rights to obtain relief/ indemnify are
subrogated to the insurers, even before they indemnify the loss. The condition also provides that
the insured shall, at the expense of the company render help and assistance for enforcing these
rights against the other parties responsible for the loss.
 (13) The arbitration condition provides –

• Any dispute or difference as to the quantum to be paid under this policy shall
independently be referred to arbitration.

• No dispute can be referred to arbitration if the company disputes or denies the liability
under the claim.

• A sole arbitrator has to e appointed in writing, agreed by both the parties.

• If the parties cannot agree upon a single arbitrator within 30 days of any party invoking
arbitration, then a panel of three arbitrators can be appointed, where two arbitrators are
selected by the two parties, and the third is chosen by the two selected arbitrators.

(14) Every notice or other communication to the company must be written or printed.

(15) The full sum insured has to be maintained throughout the currency of the policy. Upon
settlement of loss, pro-rata premium from the date of loss to the date of expiry is to be paid by
the insured. The extra premium is deducted from the claim amount.

MARINE INSURANCE

Marine insurance protects against business losses incurred during water transport
operations. The insurance agent, Paul, asks Cregg to tell him more about the business.

TYPES OF MARINE INSURANCE

Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessel along
with all the articles and pieces of furniture on the ship. This type of marine insurance is mostly
taken out by the owner of the ship to avoid any loss to the vessel in case of any mishaps
occurring.

Machinery Insurance: All the essential machinery are covered under this insurance and
in case of any operational damages, claims can be compensated (post-survey and approval by the
surveyor).

Protection & Indemnity (P&I) Insurance: This insurance is provided by the P&I club,
which is ship owners mutual insurance covering the liabilities to the third party and risks which
are not covered elsewhere in standard H & M and other policies.
 Protection: Risks which are connected with ownership of the vessel. E.g. Crew related
claims.

Indemnity: Risks which are related to the hiring of the ship. E.g. Cargo-related claims.

Liability Insurance: Liability insurance is that type of marine insurance where

compensation is sought to be provided to any liability occurring on account of a ship crashing or
colliding and on account of any other induced attacks.

Freight, Demurrage and Defense (FD&D) Insurance: Often referred to as ―FD&D‖ or

simply ―Defense,‖ this insurance provides claims for handling assistance and legal costs for a
wide range of disputes which are not covered under H&M or P&I insurance.

Freight Insurance: Freight insurance offers and provides protection to merchant vessels‘
corporations which stand a chance of losing money in the form of freight in case the cargo is lost
due to the ship meeting with an accident. This type of marine insurance solves the problem of
companies losing money because of a few unprecedented events and accidents occurring.

Marine Cargo Insurance: Cargo insurance caters specifically to the marine cargo
carried by ship and also pertains to the belongings of a ship‘s voyages. It protects the cargo
owner against damage or loss of cargo due to ship accident or due to delay in the voyage or
unloading. Marine cargo insurance has third-party liability covering the damage to the port, ship
or other transport forms (rail or truck) resulted from the dangerous cargo carried by them.

TYPES OF POLICY

Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid
for a particular voyage.

Time Policy: A marine insurance policy which is valid for a specified time period –
generally valid for a year – is classified as a time policy.

Mixed Policy: A marine insurance policy which offers a client the benefit of both time
and voyage policy is recognized as a mixed policy.

Open (or) unvalued Policy: In this type of marine insurance policy, the value of the
cargo and consignment is not put down in the policy beforehand. Therefore reimbursement is
done only after the loss of the cargo and consignment is inspected and valued.
 Valued Policy: A valued marine insurance policy is the opposite of an open marine
insurance policy. In this type of policy, the value of the cargo and consignment is ascertained and
is mentioned in the policy document beforehand thus making clear about the value of the
reimbursements in case of any loss to the cargo and consignment.

Port Risk Policy: This kind of marine insurance policy is taken out in order to ensure the
safety of the ship while it is stationed in a port.

Wager Policy: A wager policy is one where there are no fixed terms for reimbursements
mentioned. If the insurance company finds the damages worth the claim then the reimbursements
are provided, else there is no compensation offered. Also, it has to be noted that a wager policy is
not a written insurance policy and as such is not valid in a court of law.

Floating Policy: A marine insurance policy where only the amount of claim is specified
and all other details are omitted till the time the ship embarks on its journey, is known as a
floating policy. For clients who undertake frequent trips of cargo transportation through waters,
this is the most ideal and feasible marine insurance policy.

Single Vessel Policy: This policy is suitable for small ship-owner having only one ship or
having one ship in different fleets. It covers the risk of one vessel of the insured.

Features of Marine Insurance Contract

Insurable Interest

The interest must subsist either at the time of affecting the insurance or at the time of
loss. Any interest which is defensible or contingent or partial can be insured. A lender under a
bottom bond or respondent bond has insurable interest as well as masters and seamen‘s wages,
advance freight are insurable, a mortgagee has also insurable interest.

Proposal and Acceptance

A contract of insurance becomes concluded when there is a proposal to the assured and as
insurer accepts the contract, irrespective of issue of policy. Though a contract is concluded
without issue of policy but it cannot be treated as an evidence if marine policy is not issued with
respect to the contract. The policy must specify

• Name of the assured or of some person who effects the insurance on his behalf

• Subject matter insured and the risk insured against

 • Voyage or term of policy or both agreed by the parties

• Sum assured e. Name of the Insurer.

Consideration

The premium is called Consideration which is captured in the contract and is computed
on the basis of assessment of proposal form and is paid at the time of executing the contract.

Issuance of Policy

Policy can be considered as effective legal evidence in a court of law when it is prepared,
stamped and signed and finally issued to the assured party. Although the policy is issued it can
be rectified by the order of court to express the intention of parties stated in the contract.

Floating

Marine insurance contract can be a floating policy which means where a policy through
which insurance only mentions the general terms and names of the ships are left out and other
details to be defined by subsequent declaration to be made by endorsement on the policy or
otherwise.

Assignment

It can be transferred by assignment unless there is a term prohibiting transfer and it can
be assigned before or after loss. Assignment can be effected through a customary manner or any
other manner as agreed between the parties. The party cannot assign the policy after losing
interest in the subject matter.

Doctrine of subrogation

The doctrine means that the assured shall not get more amount than the actual loss or
damage caused. The insurer has the right to receive compensation from the third party from
whom he is actually liable to receive the amount after the payment of the loss/damage amount. In
marine insurance the right of subrogation arises only after the payment. The assured shall assist
the insurer in every possible manner to receive money from the third party.

Utmost good faith

The doctrine of utmost good faith is covered in section 19, 20, 21 and 22 of the Marine
Insurance Act 1963. Contracts regarding insurances are based on the principle of uberrimae fides
which means utmost good faith. If any party to the contract fails to comply with this principle
then contract can be avoided by the other party.The duty of the utmost good faith applies also to
the insurer. He may not urge the proposer to affect an insurance which he knows is not legal or
has run off safely.

Doctrine of Indemnity

Marine insurance is an indemnity policy under which an insurer agrees to compensate for
losses or damages in consideration of the timely payment of premium. The contract of marine
insurance shall cover the clause for indemnity as in no case Assured shall be allowed to make
profits out of claim amount. There is a possibility of making profits by the party in the absence
of indemnity clause in the marine insurance contract.

Warranties

A warranty means that assured shall abide by and shall fulfill certain condition as covered
in contract. If in case any of the warranty is breached, contract shall stand terminated.

Warranties are of two types:

• Express Warranties, and

• Implied Warranties.

• Express Warranties: It is expressly included in the Marine insurance contract.

• Implied Warranties: It is not covered in the contract but it is assumed to be binding on

the parties.

• Seaworthiness of Ship – Ship should be seaworthy at the time of the journey of the ship
begins, or if the voyage takes place in stages, during the beginning of each stage.

• Legality of Venture; – This warranty concludes that the journey insured shall be legal and
that the assured can control the matter it shall be carried out in a lawful manner of the
country.
Group Insurance Policy

Group Insurance refers to the type of insurance which covers a ‗group‘ of people instead
of one individual. The only condition is for all members of one group to be included in a single
policy is that the group‘s risk should be homogeneous.

The ‗Groups‘ can be of two types:

Formal Groups (Employer-Employee): The formal groups include organizations or

companies wherein the employer buys the insurance plan to secure the members of his
organization.

Informal Groups (Non-Employer-Employee): Such groups include members of similar

cultural or social organization. Here the administrator of the group usually buys the insurance to
cover the members of the group.

Features of Group Health Insurance

1. It covers medical benefits not only for insured, but also for a spouse, children, and
dependent parents.

2. It also covers pre-existing illness and maternity.

3. It offers cashless hospitalisation or direct settlement of bills.

4. It also covers other charges such as ambulance costs.

5. Some providers provide reimbursement of medical experts/practitioners for checkups.

The significance of Group Insurance:

Group insurance has transformed the scene of the entire insurance industry. Due to the
variety of insurance products available, both employers and employees are benefitted, as it
renders a component of confidence to workers and they are comforted that even if they face an
illness, handicap, unemployment or untimely demise, it can be handled at a low cost.
Group Insurance in India

With the gradual realisation of the importance of group insurance and demands made by
trade unions, a sharp growth in business was noticed. Group insurance has contributed greatly to
society and some of these benefits are as follows:

Group insurance facilitates small-scale organisations, where workers might find difficult
to buy individual insurance policies.In an arena of compounding cost of living, organisations can
avail of providing insurance facilities to employees at a lower cost.Group insurance extends
coverage to an unlimited of staff under the same agreement; this makes it convenient for all
kinds of companies.

Currently, a large percentage of employers focuses on increasing the productiveness and

team spirit of their employees. Group insurance, has thus, become quite convenient for these
companies to offer healthcare coverage as a part of their employee benefits at a decreased price.

Group insurance beneath the same umbrella offers a range of products for life, mishap and health
insurance, which could assist employers to not only retain staff but boost their output as well.

Advantages of Group Insurance

Employees are the greatest beneficiaries of group insurance, and this has helped to
enhance the scope of employee advantages exponentially.

Affordability: The primary advantage gained by an employee under group insurance is

the affordable feature of the policy, as compared to an individual insurance scheme. Such a plan
is more affordable due to a greater number of staff below the same insurance policy, which leads
to a reduction in administrative expenditures.

Worker Benefit program: Group insurance is one of the most prominent employee
benefit programs in countries outside India. A greater part of the labour force is sometimes
incapable of acquiring an individual insurance policy for themselves or their partners/family due
to the high cost. Thus, it relies exclusively on the employer to support employees' insurance
policy.

Retention: Many businesses offer their staff group insurance as a supplementary benefit.
This not only enhances the employees' efficiency and morale, but it also raises the retention ratio
among them.
 Public Image: Employers can push their public appearance through group insurance
systems and therefore, pull in potential candidates from the market.

Types of Group Insurance Policies in India

Following are the different types of group insurance policies available in India:

Group Term Life Cover: This type of policy offers a life cover to each member
(insured) working in the group (organization). The premium is collected from the group owner
which can be deducted from the salary of the employees on a monthly basis.

Group Health Cover: The group medical cover is to meet the unpredictable medical
needs of each group member. This plan also covers pre-existing diseases along with the
diagnosis costs. In some cases, it covers the maternity expanses, visionary treatment, and dental
checkups too. This may function in the form of cashless card form or the reimbursement of
medical expense up to the limit specified.

Group Personal Accident Insurance Cover: This policy compensates the insured
group‘s members in case they meet with an accident during their employment.

Workers Compensation Insurance: This policy covers all the employer‘s liabilities
under the Workers‘ Compensation Act 1987. Employers like the construction units and
manufacturing hubs must have this insurance policy, as operate at a high risk of a fatal accident
which may follow the partial or even complete disablement of their own selves.

Group Pension/Superannuation Plans: The pension plans are said to the best insurance
cover because they promise the sense of safety and security. Something which promises a regular
monthly income even after 60 is worth sharing the pride. There are different formats of a pension
plan are the Provident fund, Gratuity, and Superannuation.

Public Liability Insurance: This is suitable for groups which are involved in direct
public dealing or provide professional services to individuals. Such individuals can be held
responsible for the results of their decisions made while providing the service and may face legal
scrutiny and penalties. This insurance covers such expenses incurred by the insured group or its
members.

Group Travel Insurance: Covers the hazards faced by travelers, including theft of
documents and luggage. Can also include health cover for the group members.
HEALTH INSURANCE

Health insurance is an insurance product which covers medical and surgical expenses of
an insured individual. It reimburses the expenses incurred due to illness or injury or pays the care
provider of the insured individual directly.

IMPORTANCE OF HEALTH INSURANCE

The importance of Health Insurance is undisputed. It includes several aspects of medical

treatment and other expenses which can otherwise eat into savings. This insurance also provides
tax benefits. If you‘re wondering why this insurance is important, this guide is for you.

Protects savings:

Opting for a Health Insurance policy protects your savings from getting depleted for
medical treatments. Medical emergencies are unpredictable, and with rising medical costs,
quality treatment can get very expensive. This can lead to a rapid loss of savings. With an
insurance policy, depending on the inclusions, a majority of costs are covered. This reduces the
amount spent out of pocket by the person insured.

Coverage provided:

An insurance policy not only provides coverage against hospitalisation expenses but also
covers other medical costs that may be incurred before, during and after the course of treatment.
These include doctor‘s consultation fees, diagnosis test fees, ambulance charges, operation
theatre charges, room rent, post-hospitalisation consultations, daycare treatments such as cataract
operations that do not require hospitalisation, domiciliary hospitalisation, vaccinations,
evacuation, etc. With competition, Health Insurance policies are evolving to include more and
more items relevant to the insured.

Quality treatment:

Most insurance policies have a cashless treatment, where the insurance company directly
settles bills with the hospital. In such types of policies, there is a network of hospitals where the
insured can get treated. This makes quality medical treatment available for the insured without
the hassle of paying for treatment expenses.
Provides coverage for the family:

Buying individual Health Insurance policies can get expensive. But most insurance
companies provide family floater plans where policies and their benefits are clubbed together.
The most common floaters are one floater for the individual, spouse, and children, and a second
floater for parents. These floater policies reduce premium costs and provide additional coverage.
This ensures all types of medical treatment in the family are covered.

Lifestyle changes:

There is a massive shift in the current lifestyle. With the increase in the number of
sedentary workers, there is a higher chance for lifestyle-related diseases such as diabetes, cardiac
problems etc. The higher incidences of these mean more spends on such account. To protect the
family from such shocks, it is best to buy a Health Insurance policy.

TYPES OF HEALTH INSURANCE

1. Individual Health Insurance Plan

Individual Health Insurance Plan is a type of health insurance that covers health expenses
of an insured individual. These policies pay for surgical and hospitalisation expenses of an
insured individual till the cover limit is reached. The premium for an individual plan is decided
on the basis of medical history and the age of the individual buying the plan.

2. Family Floater Health Insurance Plan

If a person wants to buy health insurance for his entire family (spouse, children and
parents) in a single plan, then he should go for a Family Floater Policy. Any family member
covered under the policy can claim in case of hospitalisation and surgical expenses. Like
Individual Health Insurance Plan one has to pay a premium for family floater policy. The
premium for family floater policy is determined based on the age of the eldest member under the
coverage of the policy.

3. Group Health Cover

Group Health Insurance plans are bought by an employer for his employees. The
premium in group insurance is lower than individual health insurance policy. Group health plans
are usually standardised in nature and offer the same benefits to all employees.
4. Senior Citizen Health Insurance

At old age, health issues arise that involve expensive treatments. In order to meet such
high medical cost, insurance companies have designed special health insurance plans for senior
citizens. These plans provide cover to anyone from the age of 65 and above. Generally, the
premium is higher in the case of senior citizen health insurance plan as compared to other
policies.

5. Critical Illness Health Cover

Critical Illness Policy covers the expenses involved in treating the life-threatening
diseases like a tumour, permanent paralysis etc. These policies usually pay a lump sum amount
to insured person on the diagnosis of serious diseases covered in the policy document. Unlike
other policies, Individual Health Insurance and Family Floater Policy, hospitalisation is not
required, only the diagnosis of the disease is enough to claim the benefits.

6. Super Top-Up Policy

Super Top-Up Plans offer an additional coverage over the regular policy that can help to
increase the amount of sum insured. The Super Top-Up Policy can be used only after the sum
insured of one‘s regular policy is exhausted.

SOCIAL INSURANCE

Meaning of Social Insurance:

Social insurance is one of the devices to prevent an individual from falling to the depths
of poverty and misery and to help him in times of emergencies. Insurance involves the setting
aside of sums of money in order to provide compensation against loss, resulting from particular
emergencies.

Main Features of Social Insurance:

(1) It involves the establishment of a common monetary fund out of which all the benefits
in cash or kind are paid, and which is generally built up of the contribution of the workers,
employers and the State.

(2) The contribution of the workers is merely nominal and is kept at a low level so as not
to exceed their paying capacity, whereas the employers and the State provide the major portion
of the finances. This means that there is no close correspondence between workers‘ own
contribution, and the benefits granted to them.

(3) Benefits are granted as a matter of right and without any means test, so as not to touch
the beneficiaries‘ sense of self-respect.

(4) Social insurance is now provided on a compulsory basis so that its benefits might
reach all the needy persons of the society who are sought to be covered.

(5) The benefits are kept within fixed limits, so as to ensure the maintenance of a
minimum standard of living of the beneficiaries during the period of partial or total loss of
income.

(6) It has to be borne in mind that social insurance alleviates the sufferings of the
individual from the particular event, but, it does not prevent it. As a matter of fact, when
prevention is impossible, or nearly so, that insurance has its greatest appeal.

Characteristics of Social Insurance:

1. A common fund is established by employer, State and the workers out of which all the
benefits in cash or kind are paid.

2. The contribution of the workers is nominal which generally does not exceed their
paying capacity, whereas the employers and the State provide the major portion of the finances.

3. The object of the benefits is to ensure the maintenance of a minimum standard of

living to the beneficiaries during the period of partial or total loss of income.

4. Benefits are granted as a matter of right and without any means test, thus, they do not
touch the self-respect of the beneficiaries.

5. It is provided on compulsory basis so that its benefit might reach to all the needy
persons of the society who are sought to be covered by the scheme.

6. Lastly, social insurance reduces the sufferings arising out of the contingencies faced by
individual contingencies which he cannot prevent.
TYPES OF SOCIAL INSURANCE

Social Security

The most common form of social insurance, Social Security, helps retired or disabled
people and their families maintain a healthy standard of living. According to the National
Academy of Social Insurance, one out of every four households receives monthly income from
Social Security. The programs through which disabled and retired beneficiaries earn their
income, receive funding through tax deductions paid by today's workers and their employers.

Medicare

Medicare covers many of the medical expenses of elderly and disabled workers and
veterans. Medicare has several different programs levels, which affect the types of benefits
received by the beneficiaries. Certain plan levels cover different procedures and will provide
assistance with bills incurred through hospital stays, prescription coverage, and doctor
appointments. Like Social Security, Medicare receives funding through taxes deducted from
current workers.

Worker‘s Compensation

Worker's Compensation is a social insurance program designed to protect employees who

experience on-the-job injuries. The state-mandated programs cover a percentage of the medical
costs incurred because of the injury as well as recovering a portion of the employee's lost wages
due to time off from the injury. Compensation insurance also provides a disability program that
helps disabled workers maintain a sustainable income for their families. In addition to protecting
employees, the insurance purchased by employers through the compensation programs provides
protection from lawsuits initiated by the injured employee.

Unemployment Insurance

Unemployment Insurance offers temporary financial protection for workers who

experience unexpected layoffs due to lack of work and other reasons that are no fault of the
employee. Unemployment programs also protect workers who experience unemployment due to
natural disasters like floods and hurricanes. Funding for unemployment insurance is through the
employer's unemployment tax.
Schemes of Insurance

1. PRADHAN MANTRI JAN DHAN YOJANA:

Launched on 28th August 2014.The Objective of ―Pradhan Mantri Jan-Dhan Yojana

(PMJDY)‖ is ensuring access to various financial services like availability of basic savings bank
account, access to need-based credit, remittances facility, insurance and pension to the excluded
sections i.e. weaker sections & low-income groups.

Benefits of schemes are

1. Interest on deposit.

2. Accidental insurance cover of Rs.1Lakh

3. No minimum balance required

4. Life insurance cover of Rs.30,000

5. Overdraft facility after 6 months.

6. Access to Pension, insurance products.

7. RuPay Debit Card.

8. Overdraft facility up to Rs.5000/- is available in only one account per household.

2. MUDRA BANK YOJANA : (Micro Unit Development and Refinance Agency Bank)

Launched on 8th April 2015.MUDRA will provide credit up to Rs.10 lakh to small
entrepreneurs & act as a regulator of Microfinance institutions. The Objective of the scheme is to
encourage entrepreneurs and small business units to expand their capabilities and to reduce
indebtedness.

Schemes offered by MUDRA bank are:

 Shishu-the starters-covers loan up to Rs.50,000

 Kishor-the mid-stage finance seekers-covers loan above Rs.50,000 and up to Rs.5,00,000.

 Tarun-growth seekers- covers loan above Rs.5,00,000 and up to Rs. 10,00,000

3. PRADHAN MANTRI JEEVA JYOTI BIMA YOJANA:

Launched on 9th May 2015.It is government backed life insurance scheme. It is open all
sects of Indian civilians

 Age limit: 18 to 50 years of age.

 Annual premium- Rs.330 per year for life cover of Rs.2,00,000.

4. PRADHAN MANTRI SURAKSHA BIMA YOJANA:

Launched on 9th May 2015.The government scheme is accident insurance coverage and
is affordable for all sects of people.

 Age limit: 18-70 years

 Annual premium: Rs.12 per year.

 Coverage: accidental death and full disability of Rs.2,00,00 and Rs.1,00,000 for partial
disability.

5. ATAL PENSION SCHEME:

Launched on 9th may 2015.The Atal pension scheme is targeted at unorganised sector
workers.Depending upon the contribution, the beneficiary will get guaranteed pension of
Rs.1000 to Rs.5000 per month.Govt will contribute 50% of total contribution or Rs.1000
whichever is lower.

 Age limit: 18-40 years

 The pension will start at the age of 60 years.

6. PRADHAN MANTRI SANSAD ADARSH GRAM YOJANA:

Launched on 11th October 2014.Under this scheme, MPs will be responsible for
developing the socio-economic and physical infrastructure of three villages each by 2019. A total
of eight villages by 2024.The first Adarsh gram must be developed by 2016 and more by 2019.
Total of 6433 Adarsh Grams of 265000 gram Panchayat will be created by 2024.
7. Deen Dayal Upadhyaya Gram Jyoti Yojana:

DDUGJY is a Government of India scheme aimed to provide continuous power supply to

rural India. It is one of the key initiatives of Modi Government and it aims to supply 24×7
uninterrupted power supplies to all homes. The government plans to invest Rs 75,600 crore for
rural electrification under this scheme. The scheme will replace the existing Rajiv Gandhi
Grameen Vidyutikaran Yojana.

8.UDAAN PROJECT:

The Special Industry Initiative J&K ‗Udaan‘ Scheme is to provide skills and enhance the
employability of 40,000 youth over a period of five years in key high growth sectors. The
scheme is being implemented by the National Skill Development Council (NSDC) and the
corporate sector in PPP mode.

9. DIGITAL INDIA:

The Government of India has launched the Digital India programme with the vision to
transform India into a digitally empowered society and knowledge economy.Launched on 1st
July 2015.

Digital India is keyed on three key areas –

 Digital Infrastructure as a Utility to Every Citizen

 Governance & Services on Demand

 Digital Empowerment of Citizens

Pillars of Digital India –

 Broadband Highways

 Universal Access to Phones

 Public Internet Access Programme

 e-Governance – Reforming government through Technology

 e-Kranti – Electronic delivery of services

  Electronics Manufacturing – Target NET ZERO Imports

 IT for Jobs

 Early Harvest Programmes

10. SKILL INDIA:

Launched by PM Narendra Modi on 15th July 2015.Skill India focuses on creating jobs
for youth, the govt has decided to revamp the antiquated industrial training centres that will skill
over 20 lakh youth annually and create 500 million jobs by 2020. The initiative was launched on
the occasion of world youth skills day. Samsung recently signed a major deal in providing hands-
on training to youths for employment and improving the skills at the same time.

11. MAKE IN INDIA:

Launched on 25th September 2014.The main Objective of Make in India initiative is :

 To promote India a manufacturing hub.

 Economic transformation in India

 To eliminate unnecessary law and regulation.

25 sectors have been included in Make in India scheme. Some of the sectors are automobiles,
chemicals,IT, pharmaceuticals, textiles, leather, tourism and hospitality, design manufacturing,
renewable energy,mining and electronics.

12. SWACHH BHARAT:

Launched on 2nd October 2014.Swachh Bharat Abhiyan is a national campaign by the

government of India aims to accomplish the vision of clean India by 2nd October 2019. A
performance ranking on Swachh Bharat Abhiyan of 476 cities in the country, based on the extent
of open defecation and solid waste management practices, released by the Ministry of Urban
Development recently.
 UNIT -IV
Introduction to Risk Management – Concept of Risk – Types of Risk – Principles of Risk
Management – Risk Management process – Objectives of Risk Management

Definition of 'Risk'

Risk implies future uncertainty about deviation from expected earnings or expected
outcome. Risk measures the uncertainty that an investor is willing to take to realize a gain from
an investment.

MEANING OF RISK

Risk is the potential for uncontrolled loss of something of value. Values (such as physical
health, social status, emotional well-being, or financial wealth) can be gained or lost when taking
risk resulting from a given action or inaction, foreseen or unforeseen (planned or not planned).

The Concept of Risk

Insurance replaces the uncertainty of risk with a guarantee that reduces the adverse
effects of risk.

Risk can be defined as the "uncertainty regarding a loss." Losses, such as auto damage due to an
accident or negligence regarding your property, can give rise to a liability risk. The loss involved
with these risks is the lessening or disappearance of value.

Insurance companies have the right to deny insurance, or issue you a non-standard policy
if they decide that your situation poses a risk too high for their definition of standard risk.The
law that requires an insurance company to reveal the source of any third-party information that
caused it to deny or issue a nonstandard policy is known as The Fair Credit Reporting Act.

Risk taking comes naturally to banks. Banks engage themselves in the process of
financial intermediation by taking risks to earn more than what they pay to the depositors. Risk is
an event or injury that can cause damage to an institution‘s income and/or reputation. It is like
energy that cannot be created or destroyed but can only be passed on or managed.

There is a direct relation•ship between risk and reward and the quest for profit
maximiza•tion has given rise to accelerated risk taking for enhanced re•wards. Whatever be the
type of risk, the impact is primarily financial. Ultimately risk manifests in the form of loss of
income and reputation.
There are two classes of risk:

1. Speculative Risks involve the chance of either gain or loss.

For example, buying a lot for $4,500 and hoping to sell it for at least $6,000, is
considered speculation and therefore, uninsurable. Buying into the market, at what is hoped to be
low and selling high later, could result in gain and therefore, is uninsurable.

2. Pure risks involve, only the chance of loss.

For example, accidental injury, a fire in the garage and a debilitating illness have only the
chance for loss and are therefore, insurable.

Types of Risk:

1. Systematic Risk:

Market risk, interest rate risk and purchasing power risk are grouped under systematic
risk.

(i) Market Risk:

It is referred to as stock variability due to changes in investor‘s attitudes and

expectations. The investor‘s reaction towards tangible and intangible events is the chief cause
affecting market risk. Market risk cannot be eliminated but it can be reduced. Market risk
includes such factors as business recessions, depressions and long term changes in consumption
in the economy.

(ii) Interest Rate Risk:

There are four types of movements in prices of stocks in the market. These may be
termed as long term, cyclical, intermediate and short term. Traditionally, investors could attempt
to forecast cyclical savings in interest rates and prices merely by forecasting ups and downs in
general business activity.

(iii) Purchasing Power Risk:

It is also known as inflation risk. It arises out of changes in the prices of goods and
services and technically it covers both inflation and deflation periods. In India, purchasing power
risk is associated with inflation and rising prices. All investors should have an approximate
estimate in their minds before investing their funds of the expected return after making an
allowance for purchasing power risk.

2. Unsystematic Risk:

It arises out of the uncertainty surrounding a particular firm or industry due to factors like
labour strike, consumer preferences and management policies.

(i) Business Risk:

Every firm has its own objectives and aims at a particular gross profit and operating
income. It also hopes to plough back some profits. Business risk is also classified into internal
business risk and external business risk. Internal business risk may be represented by a firm‘s
limiting environment within which it conducts its business. External risks are due to many
factors and some of the important factors are business cycle, demographic factors, political
policies, monetary policy and the economic environment of the economy.

(ii) Financial Risk:

It is associated with the method through which it plans its financial structure. If the
capital structure of a company tends to make earnings unstable, the company may fail
financially. Large amounts of debt financing also increase the risk. Financial risk can be stated as
being between Earnings before Interest and Taxes, and Earnings Before Taxes.

Risk Management :

MEANING:Risk management is the process of identifying, assessing and controlling

threats to an organization's capital and earnings. These threats, or risks, could stem from a wide
variety of sources, including financial uncertainty, legal liabilities, strategic management errors,
accidents and natural disasters.

DEFINITION:Risk Management — the practice of identifying and analyzing loss

exposures and taking steps to minimize the financial impact of the risks they impose. Traditional
risk management, sometimes called "insurance risk management," has focused on "pure risks"
(i.e., possible loss by fortuitous or accidental means) but not business risks (i.e., those that may
present the possibility of loss or gain).
Principles of Risk Management

There are specific core principles in regards to risk management. When looking to
perform an actual risk assessment, the following target areas should be part of the overall risk
management procedure (as defined by the International Standards Organization; ISO):

The process should create value

• It should be an integral part of the organizational process

• It should factor into the overall decision making process

• It must explicitly address uncertainty

• It should be systematic and structured

• It should be based on the best available information

• It should be tailored to the project

• It must take into account human factors

• It should be transparent and all-inclusive

• It should be dynamic and adaptable to change

• It should be continuously monitored and improved upon as the project moves forward.

Dealing with Risk

Once the risks are identified and the specific risk process has been instantiated. There are
actually certain techniques to be aware of pertaining to risk. Being aware of what the risks are
will dictate how effective each of the individual risk management options might be.

• Avoid the Risk – This may seem obvious, but it is an actual technique. There are
instances where a perceived risk can be avoided entirely if certain steps are taken. An
example of this might be a concern over a vendor supplying a given deliverable at a
specific timeframe. It may be decided to perform the actual work for the deliverable in-
house thereby eliminating the risk of the external vendor.

• Reduce the Risk – While some risks cannot be avoided, they can be reduced. This may
be accomplished by fine tuning aspects of the overall project plan or making adjustments
 to specific areas of scope. Whatever the case, reducing a risk reduces the impact it will
have on your project.

• Share the Risk – If a certain risk cannot be avoided or reduced, steps can be taken to
share the risk in some way. Perhaps a joint venture with a third-party will reduce the
downside risk for the organization as a whole. This could reduce the sunk cost and
potential losses of the project if sharing of risk results in it being spread out over several
different individuals or groups.

• Retain the Risk – This is actually a judgement call. Once all options are exhausted, the
team members, sponsor and project manager may just decide to retain the risk and accept
the downside potential as is. This decision is usually made by first determining the upside
potential of the project. If it is deemed that the project‘s expected upside far outweighs
the sunk cost and downside, than the risk itself may be worth it. Note that in certain
cases, insurance can be used to mitigate the downside, although the actual risk retention
itself is what is being accepted by the team.

Risk management strategies and processes

All risk management plans follow the same steps that combine to make up the overall risk
management process:

• Establish context. Understand the circumstances in which the rest of the process will
take place. The criteria that will be used to evaluate risk should also be established and
the structure of the analysis should be defined.

• Risk identification. The company identifies and defines potential risks that may
negatively influence a specific company process or project.

• Risk analysis. Once specific types of risk are identified, the company then determines
the odds of it occurring, as well as its consequences. The goal of risk analysis is to further
understand each specific instance of risk, and how it could influence the company's
projects and objectives.

• Risk assessment and evaluation. The risk is then further evaluated after determining the
risk's overall likelihood of occurrence combined with its overall consequence. The
company can then make decisions on whether the risk is acceptable and whether the
company is willing to take it on based on its risk appetite.
 • Risk mitigation. During this step, companies assess their highest-ranked risks and
develop a plan to alleviate them using specific risk controls. These plans include risk
mitigation processes, risk prevention tactics and contingency plans in the event the risk
comes to fruition.

• Risk monitoring. Part of the mitigation plan includes following up on both the risks and
the overall plan to continuously monitor and track new and existing risks. The overall
risk management process should also be reviewed and updated accordingly.

• Communicate and consult. Internal and external shareholders should be included in

communication and consultation at each appropriate step of the risk management process
and in regards to the process as a whole.

Risk management approaches

After the company's specific risks are identified and the risk management process has been
implemented, there are several different strategies companies can take in regard to different types
of risk:

• Risk avoidance .- While the complete elimination of all risk is rarely possible, a risk
avoidance strategy is designed to deflect as many threats as possible in order to avoid the
costly and disruptive consequences of a damaging event.

• Risk reduction. - Companies are sometimes able to reduce the amount of effect certain
risks can have on company processes. This is achieved by adjusting certain aspects of an
overall project plan or company process, or by reducing its scope.

• Risk sharing. - Sometimes, the consequences of a risk is shared, or distributed among

several of the project's participants or business departments. The risk could also be shared
with a third party, such as a vendor or business partner.

• Risk retaining.- Sometimes, companies decide a risk is worth it from a business

standpoint, and decide to keep the risk and deal with any potential fallout. Companies
will often retain a certain level of risk if a project's anticipated profit is greater than the
costs of its potential risk.
RISK MANAGEMENT OBJECTIVES

Risk management involves the accurate and correct methods to manage risks. Risk is the
uncertainty of an event or unforeseen incident or any unwanted situation. It can also be turned
into a major disaster for any organisation, therefore, it is very important to manage risk because
of the following reasons:

1. To easily identify risks either before occurring or at the initial stage only. Some
categories of risk that can easily be identified are financial, reputational, operational, strategic,
safety, etc.

2. To reduce scams and scandals. If any organization performs risk management

effectively then they can identify the possible scandals and then they can find solutions
accordingly. Scams and scandals hamper the growth of any organization.

3. To ensures the safety of any important information that can be leaked. Data security is
the most important thing for an organization. Risk management helps in protecting the data and
prevents financial risks as well.

4. Strategic planning of risk management might bring in great opportunities. These

opportunities always help in the growth of any business.

5. Risk management helps you to work towards the projects that need major attention. It
not only helps in solving troubles but it also eliminates the hindrances coming in the way.

6. Risk management helps in securing an organization‘s future and helps them in the long
run.
 UNIT V
Risk management and control – Methods of Risk management – Risk management by
individuals and corporations – Tools for Controlling Risk

RISK CONTROL

Risk control is a plan-based business strategy that aims to identify, assess, and prepare for
any dangers, hazards, and other potentials for disaster—both physical and figurative—that may
interfere with an organization's operations and objectives.

METHODS OF RISK MANAGEMENT

1. Accept the Risk

Accepting the risk means that while you have identified it and logged it in your risk
management software, you take no action. You simply accept that it might happen and decide to
deal with it if it does.

This is a good strategy to use for very small risks – risks that won‘t have much of an
impact on your project if they happen and could be easily dealt with if or when they arise. It
could take a lot of time to put together an alternative risk management strategy or take action to
deal with the risk, so it‘s often a better use of your resources to do nothing for small risks.

2. Avoid the Risk

This is a good strategy for when a risk has a potentially large impact on your project. For
example, if January is when your company Finance team is busy doing the corporate accounts,
putting them all through a training course in January to learn a new process isn‘t going to be a
great idea. There‘s a risk that the accounts wouldn‘t get done. It‘s more likely, though, that
there‘s a big risk to their ability to use the new process, since they will all be too busy in January
to attend the training or to take it in even if they do go along to the workshops. Instead, it would
be better to avoid January for training completely. Change the project plan and schedule the
training for February when the bulk of the accounting work is over.

3. Transfer the Risk

Transference is a risk management strategy that isn‘t used very often and tends to be
more common in projects where there are several parties. Essentially, you transfer the impact and
management of the risk to someone else. For example, if you have a third party contracted to
write your software code, you could transfer the risk that there will be errors in the code over to
them. They will then be responsible for managing this risk, perhaps through additional training.
4. Mitigate the Risk

Militating against a risk is probably the most commonly mitigation of risk used risk
management technique. It‘s also the easiest to understand and the easiest to implement. What
mitigation means is that you limit the impact of a risk, so that if it does occur, the problem it
creates is smaller and easier to fix.

A mitigation strategy for this situation would be to provide good training to the Sales
team. There could still be a chance that some team members don‘t understand the product, or
they miss the training session, or they just aren‘t experts in washing machines and never will be,
but the impact of the risk will be far reduced as the majority of the team will be able to
demonstrate the new machine effectively.

5. Exploit the Risk

Exploitation is the risk management strategy to use in these situations. Look for ways to
make the risk happen or for ways to increase the impact if it does. We could train a few junior
Sales admin people to also give washing machine demonstrations and do lots of extra marketing,
so that the chance that there is lots of interest in the new machine is increased, and there are
people to do the demos if needed.

TECHNIQUES OF RISK CONTROL

Avoidance

Avoidance is the best means of loss control. This is because, as the name implies, you‘re
avoiding the risk completely. If your efforts at avoiding the loss have been successful, then there
is a 0% probability that you‘ll suffer a loss (from that particular risk factor, anyway). This is why
avoidance is generally the first of the risk control techniques that‘s considered. It‘s a means of
completely eliminating a threat.

Loss Prevention

Loss prevention is a technique that limits, rather than eliminates, loss. Instead of avoiding
a risk completely, this technique accepts a risk but attempts to minimize the loss as a result of it.
For example, storing inventory in a warehouse means that it is susceptible to theft. However,
since there really is no way to avoid it, a loss prevention program is put in place to minimize the
loss. This program can include patrolling security guards, video cameras, and secured storage
facilities.

Loss Reduction

Loss reduction is a technique that not only accepts risk, but accepts the fact that loss
might occur as a result of the risk. This technique will seek to minimize the loss in the event of
some type of threat. For example, a company might need to store flammable material in a
warehouse. Company management realizes that this is a necessary risk and decides to install
state-of-the-art water sprinklers in the warehouse. If a fire occurs, the amount of loss will be
minimized.

Separation

Separation is a risk control technique that involves dispersing key assets. This ensures
that if something catastrophic occurs at one location, the impact to the business is limited to the
assets only at that location. On the other hand, if all assets were at that location, then the business
would face a much more serious challenge. An example of this is when a company utilizes a
geographically diversified workforce.

Duplication

Duplication is a risk control technique that essentially involves the creation of a backup
plan. This is often necessary with technology. A failure with an information systems server
shouldn‘t bring the whole business to a halt. Instead, a backup or fail-over server should be
readily available for access in the event that the primary server fails. Another example of
duplication as a risk control technique is when a company makes use of a disaster recovery
service.

Diversification

Diversification is a risk control technique that allocates business resources to create

multiple lines of business that offer a variety of products and/or services in different industries.
With diversification, a significant revenue loss from one line of business will not cause
irreparable harm to the company‘s bottom line.
RISK MANAGEMENT FOR INDIVIDUALS

Risk management for individuals is a key element of life-cycle finance, which recognizes
that as investors age, the fundamental nature of their total wealth evolves, as do the risks that
they face. Life-cycle finance is concerned with helping investors achieve their goals, including
an adequate retirement income, by taking a holistic view of the individual‘s financial situation as
he or she moves through life. Individuals are exposed to a range of risks over their lives: They
may become disabled, suffer a prolonged illness, die prematurely, or outlive their resources. In
addition, from an investment perspective, the assets of individuals could decline in value or
provide an inadequate return in relation to financial needs and aspirations.

All of these risks have two things in common: They are typically random, and they can
result in financial hardship without an appropriate risk management strategy. Risk management
for individuals is distinct from risk management for corporations given the distinctive
characteristics of households, which include the finite and unknown lifespan of individuals, the
frequent preference for stable spending among individuals, and the desire to pass on wealth to
heirs (i.e., through bequests). To protect against unexpected financial hardships, risks must be
identified, market and non-market solutions considered, and a plan developed and implemented.
A well-constructed plan for risk management will involve the selection of financial products and
investment strategies that fit an individual‘s financial goals and mitigate the risk of shortfalls.

RISK MANAGEMENT FOR CORPRATIONS

Corporate risk management refers to all of the methods that a company uses to minimize
financial losses. Risk managers, executives, line managers and middle managers, as well as all
employees, perform practices to prevent loss exposure through internal controls of people and
technologies. Risk management also relates to external threats to a corporation, such as the
fluctuations in the financial market that affect its financial assets.

Protecting Shareholders

A corporation has at least one shareholder. A large corporation, such as a publicly-traded

or employee-owned firm, has thousands, or even millions, of shareholders. Corporate risk
management protects the investment of shareholders through specific measures to control risk.
For example, a company needs to ensure that its funds for capital projects, such as construction
or technology development, are protected until they are ready to use.
RISK CONTROL

MEANING:

It is a plan based business strategy that aims to identify, assess, and prepare for any
dangers, hazards, and other potentials for disaster-both physical and figurative-that may interfere
with an organizations operations and objectives.

Risk Control Tools and Techniques

1. Risk reassessment

Risk reassessments involve the following activities:

 Identifying new risks

 Evaluating current risks

 Evaluating the risk management processes

 Closing risks

2. Risk audit

Project managers facilitate risk audits to examine the effectiveness of the risk responses
and to determine whether changes are required. The team also examines the processes to
identify, evaluate, respond to, and control risks.

3. Variance and trend analysis

As with many control processes, we now look for variances between the schedule and
cost baselines and the actual results. When we the variances are increasing, there is increased
uncertainty and risk. Watch the trends and respond before the situation gets out of hand.

4. Technical performance measurement

Imagine that you are working on a software development project and that the functional
requirements have been developed. You‘ve planned to deliver functions at a point in time—at
the end of the fourth sprint, at the end of phase 1, or a milestone. The technical performance
measurement is a measurement of the technical accomplishments.
5. Reserve analysis

During the cost planning, the contingency and management reserves are added to the
project budget as needed. As risks occur, the reserves may decrease. Depending on how your
organization handles reserves and your risk management plan, project managers may request
more reserves when inadequate.

6. Meetings

Project managers should be deliberate risk managers. Engage your team members and
appropriate stakeholders in meetings to facilitate the risk management processes.

 Distribute an agenda with a clearly stated purpose

 Invite the appropriate team members and stakeholders
 Use appropriate tools and techniques
 Distribute meeting minutes containing decisions, action items, issues, and risks
 Finish the Drill