General Insurance & Its Products1

INSURANCE

INSURANCE = INSURE + ASSURANCE

Insurance is the means of managing risk and protection against financial loss arising as a result
of contingencies, which may or may not occur.

In other words, insurance is the act of providing assurance, against a possible loss, by entering
into a contract, with one who is willing to give assurance. Through this contract the person
willing to give assurance binds himself to make good such loss, if it occurs.

INSURANCE

LIFE INSURANCE GENERAL INSURANCE

GENERAL / NON-LIFE INSURANCE

General insurance means managing risk against financial loss arising due to fire, marine or
miscellaneous events as a result of contingencies, which may or may not occur.

General Insurance means to “Cover the risk of the financial loss from any natural calamities viz.
Flood, Fire, Earthquake, Burglary, etc. i.e. the events which are beyond the control of the owner
of the goods for the things having insurable interest with the utmost good faith by declaring the
facts about the circumstances and the products by paying the stipulated sum, a premium and
not having a motive of making profit from the insurance contract.”
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WHY SHOULD ONE GET INSURED?

 
One of the main reasons one should insure is to protect one’s belongings and assets against
financial loss. When one has earned and accumulated property, protecting it is prudent. The
law also requires us to be insured against some liabilities. That is, in case we should cause a loss
to another person, that person is entitled to compensation. To ensure that we can afford to pay
that compensation, the law requires us to buy liability insurance so that the responsibility of
paying the compensation is transferred to an insurance company.

WHO SHOULD BUY GENERAL INSURANCE?

Anyone who owns an asset can buy insurance to protect it against losses due to fire or theft
and so on. Each one of us can insure our and our dependents’ health and well being
through hospitalization and personal accident policies. To buy a policy the person should be the
one who will bear financial losses if they occur. This is called insurable interest.

PURPOSE OF GENERAL INSURANCE

 Assets are insured, because they are likely to be destroyed and non-functional, through
an accidental occurrence. Fire, Floods, Breakdowns, Lightnings, earthquakes, etc. The
damage that this occurrence may cause the asset is the risk that the asset is exposed to.

 The risk means that there is a possibility of loss or damage. It may happen or may not
happen. There has to be an uncertainty about the risk. If there is no uncertainty about
the occurrence of an event, it cannot be insured against.
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HOW INSURANCE WORKS

The business of insurance done by insurance companies (called insures) is to bring together
persons with common insurance interests (sharing the some risks) collecting the share of
contribution (called premium) from all of them, and paying out compensations (called claims)
to those who suffer. The insurer acts as a trustee for managing the common fund for and on
behalf of the community.

Insurer Payment of On
Claim
Underwrites Premium by Happening of Loss Occurs
Payment
Risk Insured Uncertainty

PRINCIPLES OF INSURANCE

1. Insurable Interest:

The owner of property has a right under law to effect insurance on the property if he is likely to
suffer financially when the property is lost or damaged. this legal right to insure called insurable
interest without insurable interest, the contract of insurance will be void, because of this legal
requirement of insurable interest , insurance contracts are not gambling transactions.

2. Indemnity:

The object of the principle of indemnity is to place of insured after a loss in the same financial
position, as far as possible as he occupied immediately before the loss. The effect of this
principle is to prevent the insured from making a profit out of his loss.

3. Proximate Cause:

The object of insurance is to provide indemnity for such losses as are caused by insured perils. If
stocks are burnt, then the cause of loss is fire which is covered under a fire policy and hence the
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claim is payable. If stocks are stolen, the loss is not payable under the fire policy. As burglary is
not a peril covered. It stocks are burnt by a bomb dropped by an enemy country. Then the loss
is caused by war which is an excluded peril and hence not payable under the standard fire
policy. Thus, it is important to determine the cause of loss to decide whether the loss is payable
or not.

4. Utmost Good faith:

In insurance contracts also, good faith is required to be observed but in a more onerous way.
The proposer has a legal duty to disclose all material information about the subject matter of
insurance to the insurers who do not have this information. Material information is that
information which enables the insurers to make an underwriting decision, that is the decision (i)
whether to accept the risk: and (ii) the rate of premium and terms and conditions of
acceptance. This is called the legal duty of utmost good faith arising under common law. It is
necessary the insured should provide proper information.
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CLASSIFICATION OF INSURANCE

Theft /
Burglary

Marine

Fire
Business
Creditability

Life
Insurance Shop
Insurance
General
Insurance Factory

Health

Home /
Individual Motor

Home
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PRODUCTS OF GENERAL INSURANCE

THEFT / BURGLARY INSURANCE:

The policy is available to commercial establishments, factories, godowns, shops, etc.

Property in any form, including cash, in the business can be covered.

The Risk Covered is:

1. Theft of property after forcible and violent entry into the premises or theft following
actual, forcible and violent exit from the premises.
2. Damage to insured property or premises by burglars.
3. Cash cover operates only when the cash is secured in a safe hand is granted only if the
safe is burglar proof and is of an approved make and design.

Exclusion:

1. The loss of cash abstracted from the safe following the use of the key to the said safe or
any duplicate thereof belonging to the insured is not covered unless such keys has been
obtained by violence or threats of violence. This is generally known as “key clause”.
2. A complete list of the amounts of cash in safe should be kept secured in some place
other than the safe.

For Eg:

ABC Co. has insured goods of Rs. 10 lakhs from New India Assurance Co. Ltd by paying premium
of Rs. 70,000. The goods of Rs. 5 lakhs have been stolen & the insurance Co. will investigate the
case and after completion of required paper work settle the claim of précised amount.
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MARINE INSURANCE:

Marine insurance basically covers three risk areas, namely, hull, cargo and freight. The risks
which these areas are exposed to are collectively known as "Perils of the Sea". These perils
include theft, fire, collision etc. Marine insurance further includes;

Marine Cargo: Marine cargo policy provides protection to the goods loaded on a ship against all
perils between the departure and arrival warehouse. Therefore, marine cargo covers carriage of
goods by sea as well as transportation of goods by land.

Marine Hull: Marine hull policy provides protection against damage to ship caused due to the
perils of the sea. Marine hull policy covers three-fourth of the liability of the hull owner (Ship
owner) against loss due to collisions at sea. The remaining 1/4th of the liability is looked after
by associations formed by ship owners for the purpose (P and I clubs).

The Risk Covered is:

1. Fire.
2. Vessel or craft being stranded, grounded, sunk or capsized.
3. Overturning or derailment of land conveyance.
4. Collision or contract of vessel.
5. Discharge of cargo to a port of districts.
6. General average sacrifice.
7. Jettison.
8. Washing overboard.
9. Earthquake or lighting.
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Exclusions:

1. Nuclear losses.
2. Deliberate damage.
3. War risk.
4. Terrorism.
5. Willful misconduct of insured.
6. Ordinary leakage.
7. Delay, even if delay caused by the risk insured against.
8. Insolvency or financial default of owners.

For Eg:

The Indian exporter was under a CIF contract with the U.S. importer. The value of goods was Rs
10,00,000 and the goods were insured of value of 110% of goods so to cover the freight &
insurance premium paid. The cargo in which the goods were in transit was sunken due to
overturning of cargo. So there was a total loss of goods. The claim was provided to exporter on
the submission of claim documents i.e.

1. Proof of Insurance.
2. Shipping documents.
3. Proof of loss.
4. Claim on carrier.
5. Clearance/Forwarding documents.
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FIRE INSURANCE:

A fire insurance policy involves an insurance company agreeing to pay a certain amount

equivalent to the estimated loss caused by fire to the insured, within the time specified in the
contract. Fire insurance provides protection against damage to property caused by accidents
due to fire, lightening or explosion, whereby the explosion is caused by boilers not being used
for industrial purposes.

The Risk Covered is:

1. Fire i.e. burning of any property.

2. Explosion/implosion as may happen to boilers.
3. Aircraft damaged cause by pressure waves.
4. Lightning.
5. Riot, Strike, Malicious and Terrorism damage.
6. Storm, cyclone, Typhoons, Hurricane, Tornado, Flood.
7. Subsidence and landslide including rock slide.
8. Missile testing operations.

Exclusions:

1. 5% of each and every claim resulting from the operation and lightning subsidence and
landslide including rockslide covered under the policy.
2. Loss or destruction or damage cause by war.
3. Loss, destruction or damage due to nuclear hazard.
4. Loss, destruction or damage caused by pollution.
5. Loss, destruction or damage to bullion or unset precious stones for an amount
exceeding Rs. 10,000.
6. Loss, destruction or damage to any electrical machine, apparatus, furniture arising from
over running, excessive pressure, short circuit, self heating a leakage of electricity.
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For Eg: ABC Company had bought fire insurance from oriental Bank ltd and due to short circuit
fire takes place the insurer investigated with help of fire brigade report and the company got
the claim as per his insurance.

CREDITABILITY / LOAN INSURANCE:

Loan protection insurance, or loan payment protection insurance, is a form of payment

protection insurance. This type of insurance can help you protect your monthly loan payments
if you become unemployed or suffer an accident or sickness.

Loan protection insurance will typically be used to protect a home loan, car loan or even
sometimes personal loans.

Under a loan insurance cover, the lump sum amount reduces as the outstanding loan decreases
as per the loan schedule.

Benefits:

Loan insurance means during tough times, you'll have an insurance cover to take care of the
EMIs or of the outstanding loan amount. This is especially useful:

1. In case of death or disability due to an accident or sickness;

2. In case of loss of job
3. This effectively reduces the burden on your family in case of any unfortunate event that
occurs with you. They would be saved from the financial trauma of paying off the loans.
4. In cases of a joint loan application, a joint loan insurance plan can be taken which will
effectively cover you and your partner.
5. Both will have the reassurance that if either of you should be faced with redundancy,
illness, have an accident or even die; your repayments will be made for you.

For Eg:

A person takes a loan from ICICI bank for home for Rs. 500000 for 4 years; he pays regular
installments upto 2 years. Unfortunately after 2 years due to disability he is not able to pay
further installments to banks. So in that case the installments will be paid by Insurance Co. to
ICICI bank.
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SHOP INSURANCE:

Shop Insurance is specially designed to meet the needs of small shopkeepers. It is a

comprehensive insurance; catering to different insurance needs of shopkeepers. One policy per
shop is generally given by insurers. It covers damage/ loss to shop due to fire, burglary, riot,
strike, loss of money in transit, fraud committed by client's employees etc. The policy is meant
for shops only, hence restaurants and tea /coffee shops cannot be insured under this insurance
policy.

The risk covered is:

Burglary - Protects contents of your shop against any loss or damage caused by burglary
or attempted burglary.
Burglary of cash in safe - Provides for losses resulting from the burglary of cash kept in
safe.
Cash in transit- Covers losses because of burglary of cash while it is being carried from
the bank/ATM to your shop.
Glass breakage - Covers loss or damage to any fixed plain glass caused by any accident,
external and visible means.
Damage to neon sign - Covers neon or glow signs displayed at your shop premises
against damage caused by fire, accident, riot, and flood.
Tenant’s legal liability - This cover provides for legal liability imposed on you by the
property owner on account of damage to property by fire, earthquake, flood and riots.
Employer’s liability - It provides for legal liability to your employees.

Exclusions:

 Loss or damage in the shop due to natural calamities such as earthquake, cyclone, flood
etc., is not covered by the insurance policy.
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 If a family member of business staff is directly/indirectly involved in the actual theft of

the shop, then the damage caused by the situation shall not be included in the policy
cover.
 Some companies may charge extra money for the damage caused due to terrorist
activity.
 Damage caused due to war, invasion, foreign enemy hostilities, civil war, mutiny, civil
commotion, or nuclear activity is not covered by the insurance policy.
 If the property insured has been removed to another place for the purpose of
renovation, cleaning or repairing, then the policy doesn't guarantee its coverage.

For Eg:

An accident took place at Mr. A shop in which he lost some of his equipments, glasses and
signboard of his shop premises. He suffered total loss of Rs. 25000. But as he had shop
insurance policy for his shop he can claim for the losses he suffered due to accident. So Mr. A
had made a claim for the loss which he had suffered in accident.

So by insuring the shop by shop insurance policy shopkeepers can claim for the losses/ damages
like accidents, riots, burglary, forgery etc.

FACTORY INSURANCE:

Factory Insurance provides the protection to the businesses against the possible hazards like
flood, theft, damage, fire etc. This insurance usually covers the buildings, plants, machineries,
stocks.
Also in addition to that employer's liability insurance, product liability insurance is covered
within this policy.
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HEALTH INSURANCE:

Health insurance protects you and your dependants against any financial constraints arising on
account of a medical emergency. Basically, the client pays a sum of money called the Premium
and in turn the Insurance firm would commit to pay a predetermined sum of money to meet
the customer's claims.

Health insurance may be the most important type of insurance for anyone to carry.

The Risk Covered is:

a) Hospital Reimbursement: Reimbursement of your hospital expenses in case of sudden

illness, accidents or emergency surgeries and
b) Hospital Cash Payout: Additional cash benefit for each and every completed day of
hospitalization.

c) Minimum 24hrs Hospitalizations.

Exclusions:

a) Person suffering from Heart Diseases, High Blood Pressure, Diabetes, Obesity etc.

b) Pregnancy.

For Eg: ABC person gets a Health Insurance Policy form Reliance General Insurance Co. Ltd. He
goes for a Health Wise Plan: By paying Rs.5000 premium; gets insured Himself, His Wife & Child
and got a cover of Rs.5 lakhs.
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After couple of months his child gets hospitalized due to malaria and was admitted for 2 days.
In this case the Reliance General Insurance Co. Ltd. will settle the claim by reimbursing all the
hospital bills.

MOTOR INSURANCE:

Motor insurance (also known as auto insurance, car insurance, or vehicle insurance) is
insurance purchased for cars, trucks, and other vehicles. Its primary use is to provide protection
against losses incurred as a result of traffic accidents and against liability that could be incurred
in an accident.

Legally, no motor vehicle is allowed to be driven on the road without valid insurance. Hence, it
is obligatory to get the vehicle insured.

The risk covered is:

 Undertake to reimburse the expenses incurred for repair or replacement of parts of the
vehicle.
 To pay the market value of the vehicle in case of a total loss, provided that the
originating cause of such damage is an accident, including theft.
 Loss or Damage to your vehicle against Natural Calamities like Fire, explosion, self-
ignition or lightning, earthquake, flood, typhoon, hurricane, storm, tempest, inundation,
cyclone, hailstorm, frost, landslide, rockslide.

Not covered:

 Normal wear and tear and general ageing of the vehicle.

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 Depreciation or any consequential loss.

 Mechanical / Electrical breakdown.

For Eg:

Suppose my vehicle may hit a tree causing 5 lakhs worth of vehicle damage and no personal
injury. In these types of simple claims, the adjuster simple assesses the cost of damage and
estimated amount is paid to me after completing the required paperwork.

HOME INSURANCE:

Home insurance, also commonly called hazard insurance or homeowners insurance, is the type
of property insurance that covers private homes. It is an insurance policy that combines various
personal insurance protections, which can include losses occurring to one's home, its contents,
loss of its use (additional living expenses), or loss of other personal possessions of the
homeowner, as well as liability insurance for accidents that may happen at the home or at the
hands of the homeowner within the policy territory. It requires that at least one of the named
insured occupies the home.

The home insurance policy is usually a term contract—a contract that is in effect for a fixed
period of time. The payment the insured makes to the insurer is called the premium. The
insured must pay the insurer the premium each term. Most insurers charge a lower premium if
it appears less likely the home will be damaged or destroyed

For Eg:

A person owns a home worth Rs. 2000000 has insured it with ABC INSURANCE CO. He paid for
Rs 30000 for 1 year. His part (wall) of home was destroyed by floods which insurance company
valued it for Rs 100000, so he will be paid claim of Rs 100000 only.
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Non-Life Insurance companies:

Public Sector

 New India Assurance Co. Ltd.

 United India Insurance Co. Ltd.
 Oriental Insurance Co. Ltd.
 National Insurance Co. Ltd

Private Sector

 ICICI Lombard General Insurance Co. Ltd.

 Reliance General Insurance Co. Ltd.
 IFFCO Tokyo General Insurance Co. Ltd.
 Bajaj Allianz General Insurance Co. Limited
 TATA AIG General Insurance Co. Limited
 Cholamandalam General Insurance Co. Ltd.
 HDFC General Insurance Co. Ltd.
 Royal Sundaram Alliance Insurance Co. Ltd.
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Conclusion

At last we conclude that general insurance has a great importance in every ones life. General
insurance covers the risk of loss. It is beneficial for business. If any unexpected incident
occurs/happens one will get the claim if he has insured with the particular insurance company.
The premium amount which is paid while buying a general insurance policy is not repaid after
the maturity , so most of the people avoid buying insurance but they are unaware of the big
loss that could occur in front of their small premium .so we recommend that it is necessary to
buy general insurance which covers risk of related assets. So they should buy related general
insurance products which insures there risk.
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Case Study
26/7/2005 – Mumbai under water

Mumbai will never be the same again. And so will the insurance sector in Mumbai after the 26/7 floods.
Torrential rains which killed thousands and rendered many homeless, also led to loss of business and
vehicles.

• The facts:
As fallout of the torrential rains, the non-life insurance sector was flooded with more than 10000 claims
totalling over Rs. 2000 crores. However, these did not include the 50000 cars that have been damaged
in Maharashtra.

While the top four private sector general insurance companies, ICICI Lombard General Insurance, Bajaj
Allianz General Insurance, Iffco Tokio General Insurance and Tata AIG have together received claims
worth over Rs 1,000 crore; the four state-owned general insurance companies New India Insurance,
Oriental Insurance, United Insurance and National Insurance received claims close to Rs 1,500 crore.

Private insurer, Bajaj Allianz General Insurance Company Ltd (BAGICL) alone had received claims for at
least 10,000 motor vehicles after the recent floods in Mumbai.

As several companies temporarily closed down their operations and godown stocks went missing,
corporate claims were the highest, in terms of value. Next came claims for cars and household goods
and from shopkeepers and traders for their warehouses. A majority of individuals and small and medium
entrepreneurs also submitted claims.

ONGC's insurance claim is considered to be the largest given its loss of $ 500 million after fire gutted the
Bombay High rig.

Insurance firms set up special cells to visit victims and settle claims. In many firms, the special teams
worked round-the-clock to take stock of the loss and speed up the settlement process.
Bajaj Allianz settled claims worth about Rs 200 crore without any documentation, to the victims of the
recent floods in Mumbai.

After the natural calamity, the Finance Minister sought speedy redressal of claims. He directed the
Chairmen and Managing Directors of the four public sector general insurance companies that claims
below Rs 50,000, arising out of the recent floods in Maharashtra and Gujarat, should be settled by
August 31.
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Public sector player, National Insurance Company received 3,000 claims for Rs 350 crore from its
customers in Mumbai for damage to property caused by the recent rains.

While some insurers had taken a re-insurance cover, some have not. Mumbai floods brought to fore the
ill-preparedness both among the mega polis administrative officials and the insurance sector. While the
latter seems to have realized the damages, the former is still grappling with the situation. As death toll
continues to rise, insurance firms have realized the need to better manage natural calamities. The
premium for flood covers may rise in coming years.

• The effect:

Here’s a warning to the lakhs of Mumbaikars who are planning to insure their houses in the
wake of the recent deluge. One will have to read the fine print carefully. Public sector insurance
firms are quietly planning to drop the word ‘flood’ from the policy.

As of now, a household insurance policy is basically a fire insurance policy, which also
incorporates a flood insurance policy. However, with 10,000 policy-holders filing claims totaling
Rs 1,500 crores, insurance firms are looking at new ways to keep their heads above water. After
the last calamity—the Latur quake of 1993— insurance firms had dropped earthquakes from
the household insurance policy.

Those wanting to insure their homes against flooding may now have to pay a separate
premium. The insurance sector has suffered losses of about Rs 1,500 crore. These companies
may not get re-insurance for these policies as they had not taken re-insurance for these small
individual polices.