Insurance Loans

SETTLEMENT OF CLAIMS IN MARINE INSURANCE

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-In case, the
cargoes (goods) are lost due to marine perils insured, the shipper
(cargo-owner) will be indemnified by the insurance company. While settling the
claims of the shipper, the following procedure is generally adopted- (I) Notice
of claim- As soon as the cargoes (goods) are damaged or destroyed due to marine
perils, the shipper (insured) has to bring the matter to the knowledge of the
insurer by issuing a notice of claim. The notice of claim should contain all
the relevant particulars. In case of constructive total loss, the insured is
also required to issue a notice of abandonment to the insurer. (II) Submission
of Relevant Documents- Immediately after issuing the notice of claim, the
insured will have to produce certain documents to the insurer to substantiate
the claim. </div>
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The document to be produced varies according to the type of loss
i.e., total loss and partial loss. In case of total loss, the following
documents are required- (A) Insurance policy- It provides an evidence of the
terms and conditions of insurance. (B) Bill of lading- It is the correspondence
of the insurance contract with the voyage and vessel.  © Invoice or Bill- It provides information
about the quantity and value of goods shipped. (D) Copy of protest i.e.,
statement made by the captain of the vessel on the loss before a Notary public
(if relevant). (E) Bill of Entry. (F) Non-delivery of short landing certificate
(if relevant). (G) Landed but missing certificate. (if relevant) (H) Letter of
subrogation and correspondence exchanged with carriers, port trust, etc.
regarding the claims filed against them. In case of partial loss, the documents
to be produced will vary according to the nature of loss i.e., particular
average loss and general average loss. Documents for Particular Average Claim:
A. Insurance police or Indemnity Bond, if the policy has been lost or
misplaced. B. Bill of lading. C. Invoice. D. Survey Report from a licensed
surveyor. E. Bill of Entry issued by the customs authorities of the destination
or departing port. F. Letter of subrogation. G. Account sales. H. Repair bills.
I. Lost cover board certificate. J. Protest note. </div>
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HISTORY OF MOTOR INSURANCE-
The origin of motor insurance dates back to 1894 when the first motor car was
introduced in U.K. This year 1895 saw 
the first motor insurance policy to cover liability to public risks. By
1899 the cover of accidental damage to the car was incorporated in the policy.
In 1903, the first insurance co. “Car and General Insurance Corporation” was
set up to transact the business. Road traffic Acts 1930 and 1934 were passed to
make third party insurance compulsory subsequently “Road traffic Act” came into
being to consolidate compulsory insurance provisions. In India in 1939, Motor
vehicles Act was passed to make third party insurance compulsory. This act made
provisions for the use, maintenance and operation of motor vehicle. It provided
for licensing of drivers of motor vehicle, Regulation of vehicles, Control of
traffic etc. This Act was amended several times to keep it up to date.
Fundamental Principles Of Motor Insurance- (I) Utmost good faith- This imposes
a legal obligation to disclose material facts to the insurer. The proposal form
must have to be filled up and the declaration clause in the proposal form makes
the duty a contractual duty of utmost good faith. The Motor Vehicle Act 1988
has modified the doctrine. Section 149 of the Act speaks of the “Duty of
insurers to satisfy judgements and awards against person insured in respect of
third party risks”. (II) Insurable Interest- It implies “the legal right to
insure”. The vehicle is the property which is exposed to loss or damage as a
result of which the owner insured is to suffer financially.<br />
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The insured also
has legal liability towards third parties. He/She suffers from financial loss
if involved in liability through third party by negligent use of the vehicle
therefore,. In case of Hire purchase agreement, the finance company has an
insurable interest in the vehicle till the loan is repaid in full. (III)
Indemnity- This principle ensures that the insured does not make any profit out
of the loss. The insured is placed after a loss as far as possible in the same
financial position as he was immediately prior to the loss. When there is total
loss of the vehicle, indemnity is the market value of the vehicle (its
depreciated value) at the time of loss or the sum insured whichever is less. In
Partial loss, the cost of repairs is paid, but in replacement of old parts by
new, depreciation is charged on the cost of new parts. In the event of Third
party liability, the amount are settled subject to the limit of liability, if
any. (IV) Subrogation- It refers to transfer of rights from the insured to the
insurer i.e., rights to cover loss from the party responsible. The policy
condition provides for subrogation before the settlement of the claim. (V)
Contribution- In case of Double insurance when the vehicle is insured under two
policies as per policy condition, the loss is shared between the insurers on
pro-rata basis. (VI) Proximate cause- The loss/damage must be proximately
caused by an insured peril. Types of Motor Vehicles- For purposes of insurance,
motor vehicles are classified into three broad categories- 1. Private cars (not
used for carrying passengers for hire or reward). 2. Motor cycles/scooter (Two
wheelers) and three wheelers not exceeding 350CC Engine capacity. 3. Commercial
vehicles such as good carrying vehicles, passenger vehicles, tractors and
others. Kind of Policies- According to the coverage of risks, each vehicle
policy can be divided into the following three categories- 1. Act only policy;
2. Third party policy 3. Comprehensive policy. 1. Act only policy- This policy
is created to meet the requirements of Motor Vehicles Act 1939, which provides
for compulsory insurance in regard to liabilities arising out of use of motor
vehicle in a  public place. This policy
is confined to bodily injury or death of the third parties. According to Section
95(2) of the Motor vehicles act, a insurance policy shall cover any liability
incurred in respect of any one accident up to the following limits- A. Good
Vehicle- RS. 50,000 in all including the liabilities if arising under the
Workmen Compensation Act 1923, in respect of death of or bodily injury to
employees (other than the driver) not exceeding six in number being carries in
the vehicle.<br />
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This means that liabilities if any towards driver and employees
(above six) being carried in the vehicle under workmen compensation act in
addition to RS. 50,000. B. Passenger vehicles- Vehicles which are used for
carrying passenger for: (a) for hire or reward; (b) by reasons of or in
pursuance of contract of employment. (I) in respect of persons other than
passengers carried for hire or reward RS. 50,000 in all. (II) In respect of
passengers- RS. 50,000 in all where the vehicle is registered to carry not more
than 30 passengers; RS. 75,000 in all where the vehicle is registered to carry
not less than 30 but not more than 60 passengers RS. 1,00,000 in all where the
vehicles are registered to carry more than 60 passengers; and subject to the
limit aforesaid RS. 10,000 for each individual passenger where  the vehicle is a motor car (used to carry not
more the 6 passengers excluding the driver) and RS. 5,000 for each individual
passenger in any other case. C. Other vehicles- The amount of liability
incurred except as provided otherwise. </div>
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The Act only policy, besides meeting the
requirements of motor vehicles act, provides for indemnification of the
claimants’ costs and expenses which the insured shall become legally liable to
pay as also costs and expenses incurred with the written consent of the
insurer. The policy may extend to indemnify any driver who is driving the motor
vehicles on the insured’s order or with his permission provided he is not
entitled to indemnify under any other policy. 2. Third party policy- This
covers the insurance of legal liability to others for accidental death or
personal injuries and damage to the property of third parties. Thus, this policy
indemnifies the insured against his legal liability in respect of damage to
property of third parties over and above RS. 2,000. The limit of liability is
as follows: (a) Private car- unlimited (b) Commercial vehicle (I) Goods or
passenger carrying vehicles- RS. 20,000 (II) Other miscellaneous or special
type of vehicle- RS. 50,000 (III) Motor cycle- unlimited. This policy may be
extended to include: A. Fire B. Theft risks C. Legal liability to persons
employed in connection with the operation and/or maintenance and/or unloading
of motor vehicles. 3. Comprehensive Policy- This policy covers all risks to be
insured arising out of legal liability i.e., to third parties under Motor
vehicles act, Total accident and common law. It also covers loss or damage to
vehicles. It provides  cover for private
car, motor cycle/scooter and commercial vehicles. This policy generally covers
the risks such as (I)loss or damage to 
the car. The car, inclusive of lamps, tyres, Accessories etc. is insured
against loss or damage by accidental external means, fire, external explosion,
lightning, frost, burglary, self ignition house breaking or theft, damage by
malicious act or while in transit by road, rail, inland water way, lift or
elevator etc., (ii) Removal charges up to a certain limit regarding removal of
the car to and from the premises of the nearest repairs; (iii) All costs and
expenses incurred with the prior consent of the insurance company; (iv) Risks
covered under third party policy; (v) Medical expenses incurred in connection
with injuries sustained by the insured or any other occupant of the car up to a
certain limit; (vi) Repair charges of the car up to a certain limit for which
the company liable. At the payment of Extra premiums, this policy covers the
risks like (I)  Death or injury to family
members who are above 16 years and below 65 years; (ii) Riots, strikes, thefts,
etc., (iii) Loss of Rugs.</div>
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SETTLEMENT OF CLAIMS IN MARINE INSURANCE

-In case, the cargoes (goods) are lost due to marine perils insured, the shipper (cargo-owner) will be indemnified by the insurance compan...

RISK ASSESSMENT AND CLASSIFICATION

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The Life and health
insurer assesses the risk based on the factors such as a build habits, family
history, occupations and medical history. Sometimes the insurer asks for
medical reports such as a ECG, urine tests for better assessments  of risk. Properly assessed risks will then be
classifieds  into homogeneous groups for
uniform spreading of risk. The process of risk classifications  has three objective: protection of financial
soundness:.  Adverse selection.  Fairness.  </div>
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PROTECTION OF FINANCIAL SOUNDNESS: 
The risk classification  ensures
that premiums reflect the true level of risk and are adequate  to enable the insurer to meet is its  contractual 
obligations to its policy holders. 
More detailed  information on risk  characteristics enable the insurer to
arrive  at a more precise premium.
Inadequate  premiums will lead to
insolvency of the insurer.  So detailed
information on risk  characteristics  of proposer will protect both the insurer and
the insured.  Genetic tests provide
additional and useful information  on the
life expectancy.</div>
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ADVERSE SELECTION: 
Adverse selection is nothing but voluntary entry of a policy holder into
a classified  group by the suppression of
material information. with an intension to get advantage of that group with
respect of the level of risk. The underwriting tries to avoid  this adverse selection by scrutiny of the
risk characteristics  of proposer. In the
absence of complete medical information the insurer is likely to put such an individual
in an inappropriately  low premium  class. This result in subsidization  of a substandard  life by other better lives. If this encourage
a good  number of insured towards
suppressing the information, then  it
will jeopardize the financial viability of the insurer.  The absence of a strong  risk classifications  process will have many result.  The premium of healthy  people will increase, perhaps uncontrollably
to compensate for the claims of unhealthy people. Thus, detailed medical  information including genetic tests
information will help  an insurer in
better and accurate assessments  of risk
and avoid adverse selection. </div>
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FAIRNESS:  Another
objective is to treat all existing policy holder and the new policy holders
fairly. To achieve this objective insurance company must set premiums  at a level consistent with the risk
represented by the each proposed insured. Proper and fair discrimination  can be done through precise estimation of
future lifetime and taking decisions regarding whether ti issue coverage and if
so the premium rate. Unfair discrimination will occur  when no sound actuarial justifications or
reasonably anticipated claims 
experiences can justify  the
manner in which risks are classifieds is kept 
or when an underwriting mis classifies a risk because a relevant piece
of information is kept out of 
consideration.  The above three
objective of risk classifications clearly indicate that an  insurer requires detailed information of risk
under consideration. No the question arises 
whether the detailed information includes the existing routine lab
reports like ECG and MRI scan or advanced genetic tests. It is not easy to
distinguish between genetic and non-genetic diseases. </div>
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The task force on Genetic
Information  and Insurance of the
NIH-DOE, working group (US) of ethical, legal and social implications of human
genome research  delivered  a report on genetic information and health
insurance. This report  stated: As a
practical matter it will become increasingly difficult  to deal with genetic information as a special
and separate from other forms of health related information because  diseases are increasingly  understood as having both genetic  and environment components”.  There is no uniform organizations of genetic
tests and what constitutes genetic information. Different  organizations have defined genetic
information indifferent ways. </div>
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RISK ASSESSMENT AND CLASSIFICATION

The Life and health insurer assesses the risk based on the factors such as a build habits, family history, occupations and medical history...

PREMIUM ON POLICIES

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 Any factor that causes  a greater 
likelihood  of loss should  theoretically 
be charged a higher rate. Thus, for rating  purpose, the insurers  try to see the insured  risks as forming  part of the some class of risks that share
similar characteristics . At the  same
time, for  rating purpose  the insurers 
have to try to distinguish the specific 
risk from the class  of risks  to find out the degree  of differential  treatment the risk would  attract 
depending  on its individual
characteristics. For instance  for a
health insurance cover the insurers 
charge older  people a  significantly 
higher premiums than they charge younger people for term life insurance.
Old people are more likely to fall sick than 
young people,  so the risk of loss
the insured’s  ill health is greater  in any 
given below  period  of time, 
and therefore  the risk premium
must be higher  to cover the greater
risk. Older people are thus treated 
differently than younger people. That is a particular  old man proposing  himself 
for health  insurance would  be seen par 
as part of the  common class of
other old men and  rated accordingly .
But if they insurer  finds that the old
man enjoys  excellent  health has 
healthy  exercising  habits, is a 
non-smoker and non-drinker , and that both his parents  had lived into their  nineties, and the insurers  would distinguish  him as a 
specific risk, and a  would like
that ro reduce  his rates  substantially 
from the common rates 
applicable  to other old men.  In a motor 
insurance, information, on the driver’s 
experiences  and claims free
record is significant. The insurance company use the information  and claims free record is significant .<br />
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The
insurance company uses the information 
to assess the likelihood that a driver will have been an accident  and adjust 
premiums accordingly. A driver who drives  great distance at high speeds, for  example 
might be a charged a different 
rate than a  driver  who drives 
short distance  at low speed . The
rate will be adjust  justifiable by only
if there the insurer is sure that a high-speed long-distance  driver incurs 
greater risk to an insurance pool than the  slow, around town driver. There fore in
treating  the insured  differently the insurers  should be able to logically and
actuarially  justify their reasons  for doing so, so that the
discriminations  is not unjust or un
lawful. RATING CONCERNS;  We have seen
that the rate would  depend on
various  factors,  Deciding 
the factors  and ascribing  appropriate 
weights  to them is the
insured’s  challenges.  Depending on the type of the insurance
product line of business the insurance companies  some times 
use automated ratings 
packages  by encoding  the ratings rules, thereby a reducing  the amount the  of manual 
work in working  out premiums. In
a  marine cargo insurance, the rate would
depend  on factors such as a nature of
cargo,  scope of cover, packing, mode
of  conveyance,  distance and past claims  experience. 
An example  of a Risk Based
Pricing  Model (RBPM)  in marine Cargo insurance is given
below:.  EXAMPLE FACTORS AND
WEIGHTS-1:  On a  composite 
matrix a range of a  weight age
points   can be ascribed  to multiple 
rating factors based on the loss propensity  of a marine cargo consignments  as given below. The total rate to be charged
for a marine cargo policy  can be
distributed  over the 14   factors mentioned above  contributing 
to 100 per cent  of the premium.
Such  mathematical  rating models 
helps  companies  in fixing 
rates in the balanced  manner, i,
e,  the underwriter would be more
objective  in his decisions  if there is a rating  from structure in place.</div>
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  FACTORS AND WEIGHTS-2:  In the motor context  weight age 
points can be ascribed  to
multiple  rating  factors to rate a vehicle as given below  . It is a 
possible  that many  more rating factors could be added at the or
a few  removed  depending 
on the conditions  of a
particular  market. The total rate to be
charged  for a motor  vehicle can be  derived from the above weight ages proportionate  to their 
loss-making  potential  which can be spread  over the above 14  factors mentioned  contributing 
to 100 percent  of the premium.
Such rating  factors and weight ages  become the back done of a risk factored
rating system  (RFRS)  or Risk factor based Rating System, which
is  used in countries like Japan. </div>
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  RISK ASSESSMENT:   We have seen that risks are a  evaluated 
before acceptance  or
immediately  after acceptance  for finalizing  intricacies 
of the rate. Risk  evaluation  can involve 
an inspector’s  visit to
check  the site a and seeing   the physical 
features of the risk. This can include 
checking  the constructing  of the building  its height 
the processes  done in it's a  its proximity 
to other risks, the geographical, location for  chances the of flood or earthquake or cyclone
prone areas  etc.,  The insurers may suggest  risk improvement such as a installation of
fire proof  doors, burglar alarms
and  smoke detectors, or offer incentives
by the way of discounts  for improving  the risk. Ths insurer’s  do mathematical  modeling 
based on risk  perceptions .
Methods of  identifying  hazards, objectively  assessing then and weighing  their loss and potential  on mathematical  scales in all finding  out the probability of an operating  hazard with which hazards can  operate on a given risk and are studied  using 
certain models  called
hazards  identifications  study, (HAZID)  and hazard and Operability  studies. 
(HAZOP), which enable  the
insurers  to evaluation  risk potential  accurately 
and scientifically.  The basis
HAZOP model given in  indicates how the
mathematical  weights  work in the risk evaluation.  As the likelihood  increases the loss becomes  more of a 
certainty  than a fortuitous  event. As the severity  goes up it becomes  increasing 
difficult  for the insurer to
absorb  the losses.<br />
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 Risk management  reduces 
the Likelihood  or
probability  of a loss and reduce  the severity 
or intensity  of a loss. Loss  prevention 
and loss minimization 
activities  are initiated  at the instance  of the insurers.  They form 
agencies  to educate  target on reducing  losses by the various methods. Drivers of
tankers  carrying  hazardous 
goods are trained by the on fire prevention,  cargo handlers  at ports are trained to handle cargo with
care,  pedestrians are taught  road discipline,  and the general public  is advised 
on precautions  to be taken  while bursting  crackers, during  festival 
seasons. The philosophy  is that
if any loss is averted or any risk preserved 
the insurer  gains;  beyond 
this, of course, the preservation of the nation’s  wealth is a very everyone’s  responsibility.</div>
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PREMIUM ON POLICIES

Any factor that causes a greater likelihood of loss should theoretically be charged a higher rate. Thus, for rating purpose, the in...

NON MEDICAL UNDERWRITING

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 An insurer can
choose to underwrite a risk purely on the basis of information declared
personally in a personal statements in the personal forms. This is a called non
medical underwriting . This comes  under
the umbrella  of “Uberima fides” the
principle of utmost good faith. This does not mean any  lowering of standard of selections.
Coupled  with the field representative’s
like agent field officer’s  report the
personal can be accepted. The claim experience under non medical is generally
not unfavorable . We have a lot of saving in cost due to medical
fees, hassles avoided for the proposer , simplicity in forms etc.,  </div>
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SAFEGUARDS IN NON MEDICAL UNDERWRITING: The
information  given by the proposer in the
personal form in is checked by agent field officer from the their personal
knowledge . In  additional they give a
special report called confidential report . In case the proposer is an employee
in an organizations , it is possible to check the details with his employees if
required, If the proposer is a female , the 
insurer can insist  on certain
minimum  educational qualification if she
is not employed.  Normally an insurer may
grip give up to Rs. 50,000 for un employed persons and Rs. 1,00,000 for other
male lives under what can be called as, non medical   general category up to the age of 40.  There can be another category called non
medical special, which is a meant for the both male and female employed
category up to the rs. 8,00,000 . Age 
restrictions  can be there up to
age of 45.  Special categories of people
can be considered under non medical scheme 
like people working in defense 
service and also professional like doctors, engineers, chartered
accountants,  architects etc.,  Here the sum assured can go up to the Rs.
8,00,000. </div>
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Similarly  ladies who are
income tax payees in view of their income from rentals, business, investments
etc.,  Provided  they are fairly educated can be
considered  under non medical categories
.  There can be a few restrictions  with regard to the products, term maximum
maturity age, etc.,  depending  on the life. 
Age being the basis of premium calculations  has to be the proved beyond doubt by the
means of evidences like the school leaving 
certificate  , employer’s
certificate  passport etc., <br /></div>
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MEDICAL UNDERWRITING:  Beyond 
the non medical limits it is necessary to take the help of a medical
report to assess the risk. The non medical 
format takes care of the factors that a person should normally be aware
of the whereas the medical format goes to the beyond it to give the insurer
certain vital information. After the field worker’s initial scrutiny hence they
are called the primary underwriters , comes the role of a medical examiner in
assessing the risk. The examination brings out certain information that the
proponent may be knowing but still intentionally  trying to suppress it or he may not be  revealing 
them inadvertently or he may be a it is the  ignorant of that information.</div>
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NON MEDICAL UNDERWRITING

An insurer can choose to underwrite a risk purely on the basis of information declared personally in a personal statements in the person...

MEANING OF REINSURANCE

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 As mentioned earlier
reinsurance  is nothing but a sub
insurance , When an insurer transfer 
apart of his  risk on a
particular  insurance  by insuring it with another insurer or other
re insurer, it is termed as a “ Reinsurance “ Reinsurance  means insuring again by the insurer of a risk
already insured . Every insurer has a limit to the risk that he can bear. If at
anytime  a profitable venture comes his
way , he may insure it even if the risk involved is beyond his capacity  which is his retention limit. In such cases ,
in order to safeguard his interest he may reinsure the same for an amount in
excess of his retention limit which other 
insurers, so that the loss due to risk is spread over many insurers.
Reinsurance  is, therefore a  contracts between  two insurers and the original contract or the
insured is not at all affected by it. </div>
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Now there contracts on the same subject
matter. The first contract is between the original insurer or direct insurer
and the owner of the subject matter or the original insured.  The other contract reinsurance contract is
between the original insurer (also know as principal insurer or Re
insurance  or ceding company). and the
reinsurer also known  as guaranteeing
company. In the case of the  loss on the
subject matter, the original insurer collects the insured  sum from there reinsurer and ten settle the
loss value in full  to the original
insured. An example will make the concept if reinsurance  more clear as to how it works in actual practice
. Suppose  X a factory owner approaches
an insurance company Y for the 
insurance  for an amount  say Rs. 80 crores., Looking to the  financial position Company Y
consideration  to retain  Only Rs. 30 crores . Company  Y can deal this proposal in two ways. The
first  is to decline  the risk which is beyond his financial  capacity and the other is to accept it for
the whole  amount and approach the other
insurer for the excess of his own limit I, e  
for balance of the Rs. 50 crores . The excess for which he approached to
the other insurer is called is that. reinsurance .</div>
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DEFINITIONS OF REINSURANCE:
(1). PROF R. S. SHARMA:  When an insurer
transfer a part of the risk on a particular policy by the insuring it with some
other , it is called  reinsurance ,:.  (2). W. A. DINSDALE: When  the amount the any risk of the risks  from one hazard is such that it is necessary   to effect re-insurance ., (3).  FEDERATION OF INSURANCE INSTITUTE MUMBAI :
Reinsurance  is an arrangement whereby  an insurer who has accepted an insurance ,
transfers a part of the  risk to another
insurer so that the his liability on any one risk is limited  to a figure proportionate to his financial  capacity.:’ (4).REIGAL & MILLER:
Reinsurance  is that   the transfer by it is a an insurance  company 
or a of a position of its risk to another  company .   </div>
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CHARACTERISTICS OF REINSURANCE - From the above
definitions one can  observe the
characteristics   of reinsurance : (1). Reinsurance  is a contract between the two insurers.  (2). It belongs  to the class of liability insurance  and its undertakes  or secures the risk of liability of the
direct  reinsurer only. The reinsurer
shall never be liable to the original insured. (3). Reinsurer is liable only
for the risk or any part of the a risk as expressly  mentioned in the reinsurance  contract., (4). The fundamental principles of
insurance  such as a insurable interest
utmost good faith, indemnity  ,
subrogation , proximate clause also, apply to reinsurance ., (5).
Reinsurance  can be restored to in all
types of insurance . (6). The insured has to make claim  from the original insurer in the event of the
of a loss as he has no direct  contact
with the reinsurer., (7). Original insurer cannot insure the risk with a
reinsurer more than the sum assured originally 
by the insured. (8). The direct insurer is indemnified only when a
liability  has been created on account of
the loss of the original insured. (9). The contract or reinsurance  is in fact co-extensive  with the original contract.  For example 
if for any reason the original contract come to an end or is
avoided  the contract of reinsurance  also comes to an end. (10). On payments of
the loss under  the policy of the
reinsurance , the reinsurer is subrogated to all rights if the of the original
insurer which may include the  rights of
the insured to which the original insurer is subrogated.</div>
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 REASON FOR TAKING
REINSURANCE: The following are the reasons for which reinsurance  is taken: (1). SPREAD OF RISK:  An insurer will wish to relieve himself from
uncertainty of loss. By spreading the risk of loss, the insurer will have
security and peace of mind. (2). STABILITY: 
Reinsurance  helps to avoid
fluctuations in claims from year  to
year.  (3). CAPACITY:  Every insurer will have  a financial limit on the size of the loss it
will be prepared to accept. By purchasing 
reinsurance , the insurer can accept all sizes of the risks in the
knowledge  that it can reinsurer any part
of the loss which it is the feels  is too
large.(4). CATASTROPHE:  The
possibility  of complete catastrophe  and numerous 
by special the catastrophe agreements with a reinsurers.  (5). TECHNICAL SERVICES:  Reinsurance 
have experiences in dealing with the largest  and most difficult risks. They can be  provide information to insurers and
often  become involved in researching new
areas of the market on behalf of a number of their clients. DEFINITIONS OF
TERMS  USED:  For the proper understanding of
reinsurance  various special terms used
are explained below:  (1). CEDING COMPANY
REINSURED: The original insurer who seeks to again reinsurer a apart of
the  risk insured   is the ceding company. also  called the Reinsured .  (2). REINSURER: The insurer who provides  reinsurance 
cover to the ceding company is called the Reinsurance . The offer made
by the ceding  company is accepted  by the 
reinsurer. The Reinsurer may be the a direct insurer who in addition to
accepting direct business, also accepts reinsurance , business, or (b), a
professional reinsurer who only reinsurance , business but also  not transact direct business,.   (3). RETENTION: Retention  is the amount of maximum liability which are
the original insurer can assume  for a
particular risk. In other words, if the original insurer can assume for a  particular risk. In other words, if the
original insurer, looking  to his
financial status feels that the Rs., 
2,00,000 under each proposal is the retention limit that he can accept
under any proposal up to this limit and for excess, seek reinsurance . The
other factors which may the affect the retention limit, are the size  of the company, type of the policy and the
class of risk. (4).  CESSION : The amount
given the off by the way of the reinsurance 
and, therefore the amount accepted by the reinsurer, a reinsurance : an
amount  ceded as reinsurance .  (5). RETRO CESSION: Reinsurance  may themselves reinsurer  and the amount of the risk give away is
termed as “ Retro cession”:.  (6).
SURPLUS: This refers to the differences between the sum insured under  the policy issued by the ceding company and
its retention</div>
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MEANING OF REINSURANCE

As mentioned earlier reinsurance is nothing but a sub insurance , When an insurer transfer apart of his risk on a particular insuran...

Life Insurance vs Non-Life Insurance

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 Life insurance differs
from non-life insurance such as fire, marine, miscellaneous insurance, on the
following counts: (I) Nature of Contract: A life insurance contract is a
contingent contract. It combines protection with investment. But a contract of
fire and marine insurance is a contract of indemnity. (II) Duration of
Contract: Life insurance is a long-term contract, while non-life insurance is a
short-term contract made generally for a year. (III) Happening of event: The
event of death in life insurance is certain but only uncertainty is the time
when the death will occur. But in non-life insurance, the contingency insured
may or may not happen. (IV) Insurable Interest: In life insurance, the
insurable interest must exist at the time of the contract and need not exist at
the time a claim is made. In fire insurance, the insurable interest should be
present both at the time of insurance and at the time of loss. In marine
insurance, the insurable interest should be present at the time of loss. (V)
Premium: In the case of life insurance, the premium depends upon the age,
health,  occupation of the insured. </div>
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Whereas in non-life insurance, the
premium varies according to the degree of risk. (VI) Surrender Value: In the case
the policyholder is unable to pay premium continuously, he can surrender the
policy for a surrender value amount with the LIC. There is no such facility in
non-life insurance. (VII) Maximum Sum Assured: A life insurance can be taken
for any amount subject to the premium paying capacity of the individual. But in
non-life insurance, the policy can be taken up to the value of property. (VIII)
Purpose: Life insurance policy is taken for the protection of the family of the
insured. While the non-life insurance, the policy is taken for the protection
of properties. (IX) Partial losses: Life insurance never gives protection
against partial losses. But non-life insurance gives protection against partial
losses. (X) Classification of risk: In life insurance, the lives are graded in
three categories i.e. standard life, sub-standard life and life liable to be
rejected. But in non-life insurance, gradation of risks is rather difficult.
(XI) Examination of the subject: In life insurance it is mandatory to undergo
medical examination at the time of taking a policy, whereas in non-life
insurance, a survey is made on the property insured.</div>
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 Fundamental Principles of
Life Insurance- The essential elements that are required for creation of a
valid contract such as offer, and acceptance, competence of the parties to
contract, free consent of the parties, legal object and lawful consideration,
are applicable to life insurance contract too. In addition to these, the life
insurance contract should be based upon two important principles viz., utmost
goodfaith and insurable interest. (1) Offer and acceptance: Offer is an
intimation of proposer’s intention to buy life assurance. The offer in life
assurance is called proposal and has usually the following forms: (a) Proposal
for assurance. (b) Medical Reports. © Agent’s Report. Proposal form gives
information about the moral hazard involved, while medical report reveals the
physical fitness of the life to be assured. The agent’s report brings out moral
hazard in the proposal as also bonafides of the proposal. If after assessing
the proposal for assurance, the insurer is prepared to issue a policy, it sends
a letter of “Acceptance” to the proposer. This letter of acceptance is also
called counter offer which is accepted by the proposer by paying the first
premium. In some cases insurer may modify the terms of offer. So there is no
acceptance unless proposer accepts the revised terms and pays the premium. (2)
Capacity of parties: Minors, persons of unsound mind and enemy, aliens cannot
effect assurance. Similarly only those insurers can grant policies, which are
licensed by the IRD Authority: (A) A minor is not competent to contract, but a
natural guardian (parent) can enter into a valid contract on behalf of a minor.
(B) Under the Children Deferred Assurance, the parent or guardian proposes for
assurance on the life of the child. Till the child attains the age of majority
(18 years), the policy remains the property of the proposer. After the policy
has invested in the child automatically, on attainment of the age of majority,
proposer, (parent) has no control over the policy. © Children </div>
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Endowment policy
is effected on the life of the parent for the benefit of the child. Premiums
are charged according to the age of the parent or guardian. Premiums may cease
at the death of parent but benefits are payable at the end of the term. Thus,
minor child is not a party to the contract. (D) Persons of unsound mind: A
person of unsound mind cannot enter into any contract: (I) When a person of
apparently sound mind enters into a contract of life assurance which is
bonafide and properly completed, it is a valid contract. (II) When an
originally valid contract has been entered into, it will not be affected if one
of the parties becomes insane afterwards. It means that if life assured becomes
lunatic after taking the insurance policy, the contract will remain valid. (E)
Other disqualifications- (I) A contract with an alien enemy is void. (II) An
insolvent cannot enter into a contract. (3) Free Consent: When parties to the
contract agree upon the terms and condition of the agreement in the same sense,
they are said to have consented. Consent is considered free when it is not
obtained by coercion, undue influence, fraud, misrepresentation or mistake.
Importance of Free Consent and agent: </div>
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Where a person signs a proposal, he gives
his consent. But when he signs in vernacular or a language different from that
of for, he must declare in his own hand that the contents of proposal were
explained to him and he has signed the proposal after fully understanding them.
The witness to the proposal should also certify that he has explained the
contents of the form to the proposer, only then the consent is considered to be
free.</div>
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Life Insurance vs Non-Life Insurance

Life insurance differs from non-life insurance such as fire, marine, miscellaneous insurance, on the following counts: (I) Nature of Con...

INVESTMENT OF FUNDS

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 The life fund represents the
accumulated liabilities of the insurance company towards policyholders and is
to be kept as trust money. The company invests it to earn the assumed interest.
The supreme consideration in the investment of life fund is to preserve the
interest of the policyholders. Principles of Investment- The following are the
basic principles or canons of investment policy for an insurer: (I) Safety and
Security- The primary purpose of investment of life fund is not to earn
profits, as the insurer is merely a trustee, but to maintain complete security.
Therefore, the securities in which it may be invested should never at any time
fall in their face value.</div>
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 According to statutory guidelines (amended), the
insurer is required to invest the life fund in the following manner: At least
25% in Government securities; Another 25% either in Government securities or
other approved securities;. . This could be used to meet a sudden contingency
or to avail of an exceptional investment opportunity. (III) Profitability- The
insurer must earn at least the assumed rate of interest otherwise there will be
a loss. The investments should be made in such securities which can yield the
highest return but not at the cost of safety. It has been realized that safety
and profitability are apposed to each other and so a fair and balanced policy
of investment should be observed. (IV) Diversification- The investment of the
funds should be diversified. It means spreading over investments among
different classes of securities so that risks and returns are adjusted. The
diversification can be according to time factor. It provides maximum security
and yields an efficient  rate of return.
So the principle of “not having all one’s eggs in one basket” should be adopted.
(V) Aid to Life Business- The funds should be invested in those projects or
activities which may provide more and more employment opportunities and may
also increase the standard of living of the people, so that the insurer can get
the benefits of the lower mortality rate and increase in new business.
VALUATION- The term ‘valuation’ has been defined as a periodical examination of
the financial position of an insurance company meant to judge the adequacy of
the insurance fund and to calculate its profit or loss. It is used for
comparing the actual results of mortality experienced, interest earned and
expenses incurred with the predetermined figures. It also helps in the
calculation of any surplus which might be available for distribution as profits.<br />
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 According to Section 28 of the Life Insurance Act 1956, 95% of the profit of
life insurance must be distributed to the policyholders by way of ‘Bonus’ on
with profit policies and the remaining 5% has to be utilized for such purpose
as the Government may determine. The valuation process: The Valuation process
involves the following steps- (I) Calculation of Net Liability- In life
insurance, the claim must arise either on the death of the assured or expiry of
the policy period. The difference between the present value of the future
premiums to be received and the present value fo future liability on all
policies in force is to be taken as “Net liability” for life insurance
companies. The calculation of net liability on all outstanding policies is done
by experts called ‘actuaries’. The LIC of India makes the valuation of its net
liability every two years. The process by which net liability is determined by
an actuary is called actuarial valuation. (II) Calculation of Life Assurance
Fund- The difference in Life Revenue account is to be taken as closing balance
of the Life Assurance Fund.</div>
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 In other words, the excess of income over
expenditure of a life insurance business during the current year is merged into
reserve called Life Assurance Fund. (III) Calculation of Surplus or Deficiency-
The final stage in the valuation process is ascertainment of surplus or
deficiency. The comparison of net liability with life assurance fund will
reveal surplus or deficiency. If the former is less than the latter one,
surplus is created and when the former is more than the latter, deficiency is
arrived.</div>
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INVESTMENT OF FUNDS

The life fund represents the accumulated liabilities of the insurance company towards policyholders and is to be kept as trust money. The...

IMPORTANCE OF FORMS IN INSURANCE

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The  insurance contract  is said to be a matter of solicitation  . This conventionally  means that the buyer of  insurance has asked  for the covers  and the insurer has given it to him,. The
agent is seen as a  an  insurance advisor, advising the insured on
the right type of  insurance he requires
for his protections  . In the Chinese
market,  insurance solicitor is the term
used for employees who procure market, 
insurance business for the insurer implying  that the insurers is soliciting the business
. In actual  practice, solicitation
covers the communications  process before
the  insurance contract is entered  into , a and implies  the accountability of the insured  and the insurer to the contract that has come
into effect. This process can be broken up as follows.,  1.  The
insured and the insurer or its his representative have been introduced  to each other.  2. The insured’s  need for risk management  has been conveyed to the insurer.,  3.  The
insurer  has explained  the 
insurance products and its benefits 
to the insured and,  . 4. Before
entering  into the contract both parties
have ( especially the insured has) arrived at a reasonable  clarity on the scope and reach of the
contract  making them accountable  to whatever they are doing.  </div>
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Often this process involves  a dialogue 
or a series of dialogue  and
reading of literature about the 
insurance products to enable  the
insured to understand the product.  Till
this time, the communications  is
mostly  verbal. Once the insured product
decides to purchases  the  insurance, he has to formally offer his risk
to the insurers for  insurance cover,.  From this point onwards there are a
number  of forms that are used by
the  insurance with some variations as regards
the contents and compositing  ,
depending  on the market traditions  and the regulatory requirements . </div>
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FORMS
RELATING TO THE CONTRACT OF INSURANCE PURPOSE AND CONSTITUENTS:  Forms are important for reducing  ambiguity in the  complex 
insurance market. Different  types
of insurances , different kinds of covers 
within each type, different terms and conditions relating to the covers,
and policy to policy differences 
make   insurance contractors  complex. Insurances contacts  touch people from all walks to life the same
type of the cover is given to cover the needs of different  industries, and contractors  sometimes needs to be honoured  across different  countries. From a policy holder protections
point of view many  of the insured  may not be able to understand the terms and
conditions of the documents  completely.
When a  claim is not paid , he would feel
that the he was given a raw deal as the he did not understand the  fine print 
in the policy. It is also possible that some insurers  resort to abortive policy wordings to
deprive  the insured of some types of
claims. Unless the contents  are
standardized  there would be  total chaps and everyone  would feel that the insurers, </div>
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who has drafted
the forms, has cheated  the insured. It
is a therefore important, for the insurers 
that the forms are transport  and
trusted  as clean documents.
Transparency  and clarity a can be a  achieved 
only when the people who deal with the insurers everyone in the  insurance industry , and the courts are clear
regarding the terminologies used in the forms, contextual  meaning of the constituents  of the forms and the purpose that a form
serves. Standardization  of forms and
term is to ensure that in the  insurance
market and in all  insurance
transactions. all speak the same language 
and all understand the same meaning that is a conveyed  . The purpose , contents  and importance of some of the terms are discussed  below.</div>
</div>
</div>

IMPORTANCE OF FORMS IN INSURANCE

The insurance contract is said to be a matter of solicitation . This conventionally means that the buyer of insurance has asked for...