innovation in banking & insurance 1- sybbi

7/30/2019 Innovation in Banking & Insurance 1- SYBBI

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Definition

Insurance is a contract between the

insurer and insured under which theinsurer undertakes to compensate the

insured for the loss arising from the risk

insured.

In consideration, the insured agrees to

pay the premium regularly.


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Characteristics

Cooperative Device Sharing Risk

Evaluation of Risk

Payment at contingency

Amount of Payment Large number of insured persons

Is not Gambling

Not a charity


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Importance

*Compensation is received.

*Position becomes as it was prior to the loss.

*Financial Protection to dependents.*Security, Safety & Peace of Mind.

*Security Against Loans.

*Emergency Loan.

Transfer of Risk- Risk of Loss.

Protection to Business men &Public

Minimum Guarantee Profit

Raising Credit.

Easy settlement & Protection

against creditors.


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*Lump sum amount in case of accident resulting

permanent disability.

Mediclaim Support

Source of Employment

Confidence

Tax concessions.(sec 80 C

Income Tax)

Promotes Employee welfare.

Promotion of International Trade.

Growth of Business Competition.


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*Business risk free.

*Safeguards capital Invested.

*Amount maintained for meeting unexpected losses.

*Collect small national savings in form of premium.

*Invest these funds in shares & Debentures.

*Covers injuries, road accidents, disability, death etc.*Employers- Employees.

Stimulates Business Enterprise.

Increases Efficiency.

Capital Formation

Savings

Solving Social Problems


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Essentials Offer & Acceptance.

Free consent.

Agreement must be in writing.

Competent Persons.

Premium as consideration. Object must be lawful.

Element of uncertainty.

Subject matter should be risk.

Risk must be capable to be calculated.


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Principles of Insurance

*Clear & complete & correct info- else void.*Disclose.

*Applicable to all types.

*Interest in the subject matter of insurance.*Physical existence gives-Gain.

*No existence-Direct Financial Loss.

*Property- Ownership.

*Applicable to all types.

Principal of Utmost Faith

Principle of Insurable Interest.


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*Guarantee/Compensation to pay for the loss occurred.

*Amount of Insurance.

*For Protection & not for Profit-making.*Same financial position as prior to the loss.

*Applicable to fire, marine & general.

*More than one policy.*Claim from any one or in proportionate basis from all.

*Applicable to all except Life.

*Corollary of the principle of indemnity.

*All necessary steps to minimize loss.

Principle of Contribution.

Principle of Indemnity.

Principle of Loss minimization


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*Replacing of one person to another.

*Right of ownership will pass to the insurer.

*Prevents the insured to make profit or loss suffered by him.*Insurer steps in the shoes of the insured.

*Corollary of the principle of indemnity.

*Loss caused by series or chain of causes.*Nearer cause needs to be insured.

*Subject Matter should be at risk of loss.

*Insurer gets premium in a contract of insurance for running,

certain risk.

Principle of Subrogation.

Principle of Causa Proxima.

Risk must attach


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* Insurance contract clearly mentions the term or period of

time it covers.

*Life Insurance is a continuing contract with the condition the

premium is to be paid at regular periods. If the premium is

is not paid regularly, the contract becomes invalid and can

be started back after fulfilling certain conditions as given in

the contract.The insurer is legally responsible to pay the compensation for

the loss insured only till the term or period of time of the

policy and not alter that.

Period Of Insurance


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Forms of Insurance Organisations

SELF-INSURANCE (Private Fund)

INDIVIDUAL INSURER

PARTNERSHIP

JOINT STOCK COMPANIES

MUTUAL COMPANIES

CO-OPERATIVE INSURANCE ORGANISATION

LLOYDS ASSOCIATION

STATE INSURANCE


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Types of Insurance

Life Insurance Non-Life

Endowment.

Term

Whole-Life.

Limited Payment whole life

policy.

Convertible-whole life

policy.

Joint Life Policy.

Annuity Policy.Childrens Endowment

Policy.

Unit Linked Policies

Health Insurance

LIC Policies etc.

Marine.

Fire.

Vehicle .

Medical.

Crop.

Fidelity.Burglary.

Cattle

Cash In Transit etc.


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Life Insurance

Life Insurance is a contract between the assurerand the assured, under which the assurer on the

payment of premium, agrees to pay a certain sum

of money on the expiry of the certain period, or on

death, whichever is earlier.

Needs for Life insurance:-Family

Children

Old Age

Special medical reasons.


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Features of Life Insurance in India

Elements of Valid Contract Insurable Interest

Utmost Good Faith

Warranties

Assignment & Nomination Premium

Certainty of event


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Advantages of Life Insurance in India

Encourages & aids thrift

Protection Accidental death benefits

Tax Benefit

Provides Liquidity.


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Types ENDOWMENT POLICY

*Popular Form of life insurance.

*Sum Assured is payable only after expiry of the

period of

the policy or on death.

*Premium needs to be paid till the maturity.

*Regular savings.

*Self & Family members.

*Types (i) Pure(survival) (ii) Ordinary (iii)Joint Life(iv)Double Endowment (v) Triple Benefit.


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WHOLE LIFE POLICY

*Cheapest form of policy.

*Insurance cover against death irrespective of when it

happens.*Premium is paid throughout the lifetime of the assured.

*Policy if kept current, covers over entire life as compared to

term insurance which covers only for a certain term of yeatrs.

*Sum assured is paid only on the death to family members.

LIMITED PAYMENT WHOLE LIFE POLICY.

*Term is fixed.

*Premium is payable for selected period or until death if itoccurs within this period.

* Assured knows how much amount he will be required to pay

no matter how long he lives.

* Sum Assured is paid only on the death of the assured.


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SINGLE PREMIUM WHOLE LIFE POLICY

*Premium is paid at the start of the policy.

*It is available with or without profits

*With Profit, these policies continue to share in the periodicalbonus contribution until the death of the life assured.

*(Do not stop participating in the profits after completion of

the period for which the premium has been paid)

CONVERTIBLE-WHOLE LIFE POLICY

*For Young persons.

*Whole life policy is taken first with low premium.

*During the tenure, policy can be converted to endowmentwith increase in the premium.

*Else continues as Whole Life with premiums reducing every

stage.


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JOINT LIFE POLICY

*Policy covering two or more lives.

*Sum Assured is paid at the end of a fixed term or onfirst

death of any lives assured whichever is earlier.

*Popular with Partnership firms.

GROUP LIFE INSURANCE

*Provides insurance coverage to a group of people

under one contract.

*These schemes are provided for employees,association societies etc.


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ANNUITY PLAN

*Reverse of Life Insurance.(Starts where Life Insurance

ends)

*Premium is payable either monthly, quarterly, half yearly,yearly.

* form of Pension in which insurance company makes a

series of periodic payments to a person or his/her

dependents over a number of years, in return for the money

paid to the insurance company either in a lump sum or in

installments.

*Useful for those who would wish for a regular income for

themselves & their dependents after the expiry of certain

number of years.


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CHILDRENS ENDOWMENT POLICY.

*Policy for childrens marriage, education.

*Premium is payable not at once but on monthly, quarterly,

half-yearly or yearly installments.

TERM INSURANCE

*Pure Risk cover for a specified time period.

*Pays death benefit to the legal heirs of insured dies duringthe term of the policy.

*Temporary & inexpensive Insurance.

*Convertible, Level, Decreasing(constant Premium but the

benefits are reduced over a period of time), Increasing(Premium as well as the benefits increases), Renewable.


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UNIT LINK POLICIES

*Benefits depend upon the performance of a portfolio of

shares.

*The Allocated premiums will be applied to purchaseunits as per the fund type chosen.

*The investment is denoted as units and is represented

by the value that it has attained called Net Asset Value.

*Premium by the insured is spilt (a)Life insurance cover

(b)units of Mutual fund after deduction of costs,

expenses.


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HEALTH INSURANCE

Covers 4 major diseases cancer, kidney transplantation,

heart problems needing by-pass surgery or paralysis.

Under this plan , money is provided at a lump sumandthereafter in regular intervals in case of a major disease

for meeting the expenses of hospitalization or operation.

If the policyholder gets affected with any of the health

problems within one year of policy, he will not get anybenefit, however policy continues as an endowment

policy.


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JEEVAN SATHI POLICY

*For married couple.

*If both Lives survive, Sum assured + Bonus declared

fromtime to time is paid.

*Maturity is twice:

-if one dies before the due date of the policy, the sum

assured is payable to the survivor.-policy continues even after that date till the date of

maturity.

-Same amount is payable to the survivor or nominee.

OTHER LIC POLICIES*Jeevan Akshay *Jeevan Dhara *Jeevan Kishor

*Jeevan Chaya *Jeevan Mitra etc


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PROCEDURE TO TAKE LIFE

INSURANCE POLICY

Submission of proposal form. Submission of agents report.

Doctors Report.

Certificate of Age.

Scrutiny of Documents.

Acceptance of Proposal.

Payment of First Premium.


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NOMINATION

Is the right given to the life insurance

policyholder to appoint a person or

persons to receive the benefit underthe policy in case it becomes a death

claim


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The act of naming a person by the policy holder to

whom the policy money will be paid in the event of the

death of the policy holder.

Nominee- person in whose favour the nomination iseffected

Above 18 years

Nominee details as full name , age , relationship.

Multiple persons are allowed as nominees , share needs

to be specified under S/39 insurance act 1938.

Can change/ cancel the nomination.

In Absence of nomination, payments of the claims may

be delayed due to involvement of legal proceeding. The

claimant will have to present (i) succession certificate or

(ii)letter of administration from the court of law.


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ASSIGNMENT

Transfer of Rights , Title & Interest of

the Life Insurance Policy to a person orpersons.


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Assignor(policyholder who transfer the title) &Assignee(person who derives the title from the assignor)

Two Types- Absolute and Conditional

Cannot be cancelled and Changed The Third Parties may be creditor, bank, the assured

himself or any other person.

AS per Section 38, of the Insurance Act 1938,

Assignment can be effected:-Either by Endorsement upon the policy document OR

By Endorsement upon a separate document

Should be signed by the assignor or his duly authorizedagent.

Attestation by at least one witness.

It is compulsory for the assured to give notice ofassignment to the assurer for making the assignmenteffective.


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SURRENDER VALUE & PAID UP

VALUE OF POLICY

Surrender means giving up of an insurance policy

before the date of maturity.

Surrender value means the amount of money which the

insurer agrees to pay in case the assured decides to

surrender his policy before its due date.

The Amount of Surrender value is calculated on the

basis of actual premium paid and number of years the

policy has been active.

Minimum 3 years premiums need to be paid so that the

policy can acquire a surrender value.

Surrender value is paid at the time of discontinuation of

the policy.


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PAID UP VALUE Paid Up Value= Original Sum assured * No of Premiums

paid

Total no of premiums that wererequired to be paid.

Paid up value is the amount at which your sum assured

would be reduced if you discontinue paying the premiums.

Policy continues with a reduced sum assured and premiumsneed not be paid.

3 Years minimum premiums need to be paid.

Paid up value is paid only on maturity or death of the

policyholder which ever is earlier.

In case of with profit or participating policy, the bonus or

profits are added to the paid up value but future gains or

profits are not added to such policy.


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CLAIM SETTLEMENT UNDER

LIFE INSURANCE POLICY

(A) Procedure to be following in case of

claims by MATURITY.

Obtain a copy of maturity intimation. (If not received

within 2 months then the policy holder needs to contactthe concerned Divisional Office & obtain a copy of the

maturity intimation

Submit the Policy Document

Submit the Age Proof Submit the Discharge Form no 3825.(duly stamped

and signed attested by witness)


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Assignment/Re-assignment Deed, if any

If policy or Any deed of assignment/ re-assignment is

lost by the policy holder, he has to submit an indemnity

bond (in a particular format)along with a reliable suretyof sound financial standing.

Existing certificates in case of Childrens Deferred

Assurance & Pure endowment policies.

Insurance co will send a cheque to the policyholder forthe money due to him as per the terms of the policy.


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(B)Procedure to be following in case of

claims by MATURITY.

Intimation of Death-To be sent by the person who is entitled to get the

proceeds of the policy

Letter of information of Death should contain:-

Name of Life Assured, Statement that life assured isdead, date of death, cause of death, place of death,

policy number/s, claimants relationship with the

assure or his status (Nominee/ Assignee)

Submission of Death Proof Submission of Age Proof

Certificate of Ownership

Payment and Discharge


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General Insurance FIRE INSURANCE

*Protection to the property against fire,lightning/explosion.

*Covers damage caused due to perils like storm,earthquake

aircraft, riot etc.*Types:-

(a)Specific covers the loss of the assured upto a

certain amount which is less than the real value of the

property. Insurers liability arises only when when thelosses reaches to the extent of certain specified sum.

(b)Comprehensive risk of fire, burglary, riot,theftpest, damage, lightning etc- All in policies


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(c)Valued Property is valued by experts at the time of

affecting the policy.

Amount can be either less or more than the actual loss.

Fixed amount is payable irrespective of the actual

amount of loss.

(d)Floating can be issued for stocks to take care of

frequent changes in sum assured at various locations

Goods kept at different places, a floating fire insurance

policy can be obtained by such a trader to cover the risk

of goods lying at different places under one policy.

(e)Average Policy- contains the average clause.

Insurance company needs to pay only that portion of

the loss which is borne by the insured amount to the

actual value of the subject matter of the insurance.


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(f) Stock Declaration Policy- Covering the stock where

great fluctuations in the value can happen throughout

the contract period.

75% of the premium has to be deposited in advance.

At the end of year, the average stock & final premium is

calculated.

(g) Loss of profit policy- covers the loss of profit which

sustains as a result of fire.

Consequential loss policy.

(h)Standard fire policy- compensation of all the direct

loss or damage caused by lightning & burning.

It also covers damages by earthquake, hair flood,

explosion, cyclone & riot.


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(i)Reinstatement policy- Insurance company pays more than

the actual value of the property destroyed by fire in order to

cover the cost of replacement of the said property.

(j) Schedule Policy- insures many properties under collectiveterms & conditions.

(k) Sprinkler Leakage policy- covers the loss of building as a

result of the damage by the leakage of liquid or water.

(l) Excess policy- Stock of merchandise whose value isconstantly fluctuating.

Insured takes an ordinary policy for minimum value of the

stock & excess policy for excess value of the stock.

The actual value of the stock will be reported periodically.

(m) Maximum value with discount policy

CLAIM SETTLEMENT UNDER FIRE


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CLAIM SETTLEMENT UNDER FIRE

INSURANCE POLICYInforming the insurance co. about the loss(correct

and true information, details of policy number, place of

fire, time and cause of fire if known)

Assessment of Loss by the insured

Should not throw away the damaged goods or assets

but he must keep them till the time the surveyor arrives

at the place where fore took place

Appointment of Surveyorby the Insurance company

once it receives the information.

Duty of the surveyor to find the exact cause of the fire

and to assess the exact amount of loss.

Investigation- He asks the insured to provide the

necessary details about the loss by producing some

proof such as purchase vouchers, & other records.


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He may visit once or couple of times

Preparation of detailed report

Reporting of all the details to the insurance company

Verifying the claim proposal by the claims sanctioning

department

Appeal- means to make a request an authority to

change the decision made by it.

Insurance co. settles the claim at a lower value than

expected by the insured then the insured can make an

appeal to the insurance co to consider again the amount

or claim sanctioned by it.

The insured may also enter into negotiations with the

insurance co.

After agreement, insurance company issues the

cheque

MARINE INSURANCE


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MARINE INSURANCE

*Oldest type of insurance.

*To indemnify the assured against losses due to marine

adventure/ sea voyage.

*Types:-

(a)Voyage- Journey by sea- AT & FROM.

(b)Time Tenure is fixed, (one year on the vessel).

(c) Mixed Time & Voyage both included.- Issued for ships

& steamers.

(d)Valued Fixed value is paid whether loss suffered istotal

or partial.

(e)Unvalued- Loss is examined & compensation is paidacc.

to amount of loss.

(f)Floating/ Declaration/Open/Unnamed Covers ships of a

policy holder carrying goods from one part to another.


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CLAIM SETTLEMENT UNDER MARINE INSURANCE

(From Text Book)


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MOTOR INSURANCE

Motor Vehicle insurance covers claims against the driver

& also in respect of damage to the insureds vehicle.

Provides safety to the motor by damage due to thefts oraccidents.

Insures the policy holder against any loss and harm

caused to his motor & its accessories due to natural

mishaps or accidentsMay cover both legal liability claims against the driver &

damage to the insured vehicle.

CLASSIFICATION OF VEHICLES- FOUR WHEELERS,

2 WHEELERS, COMERCIAL, MISCELLANEOUS.TYPES OF MOTOR INSURANCE POLICIES

Act/Liability policy

Package/Comprehensive policy

C I


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Car Insurance

Two Wheeler Insurance

Commercial Vehicle Insurance

INSURANCE CLAIMS:-VOLUNTARY EXCESS

NCB

DAMAGE CAUSED

HEALTH /MEDICAL INSURANCECovers medical insurance for themselves or their familymembers.

Renewed every year.

Medical claims relating to sickness & hospitalization arecovered in this scheme.

The claim amount depends on the amount of medicalexpenses & type of sickness.


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INDIVIDUAL MEDICLAIM POLICY

GROUP MEDICLAIM POLICY.

OVERSEAS MEDICLAIM POLICY

MEDICAL INSURANCE

CRITICAL ILLNESS

HEALTH INSURANCE CLAIM

Planned HospitalizationUnplanned

RIDERS


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CROP INSURANCE

Contract of crop insurance is a contract which provides

financial help to farmers if the crop fails due to drought

or flood, irregular rainfall, temperature.National Agricultural Insurance(NAIS) for crops has

been specially introduced since 2000 to provide

insurance cover to small & marginal farmers.

Insurance cover if provided if any crops fails due tonatural calamities such as floods, droughts, cyclones

etc, pests & crop diseases.

Fid lit G t I


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Fidelity Guarantee Insurance

Guarantees the employer for any damages or loss

happening due to employees dishonesty.

Guarantees to pay if the employer suffers any loss due toemployees dishonesty.

The insurer pays the loss to the employer as per the agreed

terms in the contract.

Burglary Insurance

Loss or damage of household goods & properties due to

theft, burglary, house breaking & similar kinds of acts are

covered

Actual Loss is compensated.

Cattle Insurance

Covers the death of animals like bulls, buffaloes, cows

Cause of death may be accident, disease etc.

It helps the farmers as they buy cattle from their savings.

C h I T i


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Cash In Transist-

Covers any loss in the event of money or cash being stolenfrom the business premised of the insured or while it is beingcarried from or/to the bank.

PERSONAL ACCIDENT INSURANCE

Covers loss due to accident

To protect against risk to life or disability arising directly from

accident.The amount of compensation depends on the amountinsured with the insurance company

LIVESTOCK INSURANCE

PEDAL CYCLE INSURANCE

AVIATION INSURANCE

RURAL INSURANCE

MICRO INSURANCE


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RISK & INSURANCE


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RISK & INSURANCE

CLASSIFICATION

Financial & Non-Financial Risk

Static & Dynamic Risk

Fundamental & Particular Risk

Pure & Speculative Risk

FACTORS AFFECTING RISK OF INSURANCEBUSINESS

Age

Physique or Body

Physical Condition

Personal & Family History

Occupation

Residence

Present Habits


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Present Habits

Gender

Economic Status

Defense ServicesRace & Nationality

Plan of Insurance

Morals

SOURCES OF INFORMATION

Proposal Form

Agents report

Medical Examiners reportInspection report

Medical Information Bureau

Family Physician


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Definitions

Risk- A measure of likelihood to achieve objectives

- Two components (probability and consequences)

Risk Management

- Act or practice of controlling risk

+ Identifying and tracking risk drivers+ Defining risk mitigation plans

+ Performing periodic risk assessments


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PROCESS


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Determination of objectives

Risk Identification

Risk EvaluationSelection of Risk Management Techniques

Implementation of Decision

Evaluation & Review


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Determination of objectives

Identifying the objectives of risk management

functions.

The objective may be classified into two broad

categories i.e

pre loss or post loss.


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Risk Identification

Process of specifying, describing and documenting program

risks and their sensitivities to other risks

Internal External


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Risk Analysis/Evaluation

Process of evaluating program risks for their impacts to

performance, cost, and schedule objectives

Process includes assessing each risks:

Probability of occurrence, and Consequences of failure to mitigate the risk


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SELECTION OF RISK MANAGEMENT TECHNIQUES

Risk Control

Either through avoiding the risk or reducing the risk.

Risk Financing

Risk Retention(Funded or unfunded retention) or

transfer


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Implementation of the Decision

Identification and Grouping of risk categories.

Organization Prepares itself for Administration &Financial resources


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Risk Monitoring, Review

Process that systematically tracks and evaluates the

performance of risk mitigation actions

- against established metrics throughout the acquisition*

process, and

- develops further risk handling options as appropriate

* Acquisition includes any procurement from government or contractor

sources within all phases from early research through logistics,

operations, support, and disposal


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Reinsurrance and Double Insurance

What Reinsurance Does Not


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What Reinsurance Does Not

Do!

IT IS NOT A MAGIC POTION

What Reinsurance Does Not Do!


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What Reinsurance Does Not Do!

Convert an uninsurable risk into aninsurable one.

Make loss either more or less likely to

happen Make loss either greater or lesser in

magnitude

Convert bad business into goodbusiness


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REINSURANCE

Reinsurance is a contract of insurance whereby oneinsurer (called the reinsurer or assuming company)

agrees, for a portion of the premium, to indemnify

another insurer (called the reinsured or ceding

company) for losses paid by the latter underinsurance policies issued to its policyholders.

Is an arrangement whereby an original insurer who

has insured a risk insures a part of that risk again

with another insurer, that is to say, reinsures a partof the risk in order to diminish his own liability.

ELEMENTS OF REINSURANCE


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ELEMENTS OF REINSURANCE

Reinsurance is a form of Insurance.

There are only two parties to the reinsurance contract -

the Reinsurer and the Reinsured - both of whom areempowered to insure.

The subject matter of a reinsurance contract is the

insurance liabilitythe Reinsured has assumed under

insurance policies issued to its own policyholders. A reinsurance contract is an indemnity contract even in

life and personal accident insurance, caused by

insurance policy obligations.


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CHARACTERISTICS OF REINSURANCE

Spreading of loss Principles of insurance applicable to Reinsurance

Terminated when original Insurance lapses for any

reason

All types of insurance Original Insurer cannot do reinsurance more than his

insured sum.

Reinsurer is not liable to original insured in event of loss.

NEED FOR REINSURANCE


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An Insurance Company would therefore buy Reinsurance :

To protect its Capital and its Shareholders

To Stabilise its results from year to year by leveling claims

fluctuations

To increase its Capacity to handle larger and more

complex risks of various classes

To maintain any statutory minimum Solvency

requirements and provide Security

To Spread risks throughout world markets, not just

locally, to lessen financial impact on any single

economy

Limit concentration of risk

Take advantage of risk expertise of reinsurers who have

grater experience of business (territory class)


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Most risks, both natural and man-made, are insured and yet thelikely losses are often beyond the capacity of any single

insurance company or even insurance market.

Reinsurance is therefore the means by which Insurance

Companies obtain the necessary protection.

Types of Reinsurance


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Types of Reinsurance

SHOPPING / STREET INSURANCE

NO STANDING AGREEMENT REGARDING REMAININGOF RISK OF ONE COMPANY BY THE OTHER.

EACH POLICY IS TREATED AS INDIVIDUAL BASIS.

Reinsurer is sought only when the need of reinsurance on

a policy arises.Each case is scrutinized on merits & may or may not be

accepted.

Ceding company not sure for reinsurance , hence it

exercises a greater care in selecting the risk.


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Facultative Reinsurance

Primary insurer and reinsurer negotiate a specificagreement for a particular risk/exposure.

Best suited for unique, large exposures.

High transaction costs.

Facultative Obligatory Treaty (Facultative +Treaty) The insurer cede risks of any agreed class which

Reinsurer must accept if ceded


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Treaty Reinsurance/Automatic

Reinsurer is obligated to accept all business that falls

within the terms of the treaty.

Lower transactions costs but greater potential for

adverse selection.

Best suited for numerous, smaller exposures that are

more similar.

1. Quota Share Treaty

2. Surplus Treaty

3. Excess of Loss Treaty



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Primary insurer cedes a fixed, predetermined % ofpremium & losses on every risk it insurers within

class(es) subject to treaty.

75%

$50,000 Policy

25%

75%25%

$100,000 Policy

75%25%

$150,000 Policy

Simple to rate & administer.

Does not stabilize underwriting results.

Can help reduce reported expenses.

Can cede profitable business.


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Every risk or policy is shared in the percentage

agreed in terms of sum insured subject to a

maximum limit and also the premium

Profitable to reinsurer as he participate in every risk

or policy

It is costly to ceding insurer and so a short term

arrangement or for new class of business

Good for new Insurer with less capital in relation to

underwriting of insurance business

2. Surplus Treaty


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p y

Minimum limit ofretention stated in $ or

INR; % of premiums &losses ceded varies bypolicy.

Avoids cessions on

small policies.

Better at providing

large-line capacity.

More costly toadminister.

Used on property risks,

rarely liability.

75%25%

$100,000 Policy

83%17%

$150,000 Policy

Example:

$25,000 retention

3 Excess of Loss Treaty


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3.Excess of Loss Treaty

Provides against Catastrophic Losses.

If the total net loss exceeds the maximum limit providedin the treaty the excess amount is paid by the insurer.

The premium depends upon the nature and extent of

reinsurance.

A number of insurer agrees to pool together all their

business to a leading office & the payment is made by

this leading office. Profit of this association is distributed amongst the

insurers according to their shares to the business.

4. Pool or Syndicate Method

DOUBLE INSURANCE


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DOUBLE INSURANCE

Subject matter of insurance is insured with two or more

insurers and the total sum insured exceeds the actualvalue of the subject matter.

In life insurance, double insurance is allowed as nobody

can place a value of human life.

In case of non-life insurance, a property can always bevalued & it cannot be insured at a higher sum whether

with one insurer or more.

If total sum assured with all the insurers is less than the

value of property it does not amount to doubleinsurance.

Assured can not demand more than the actual loss.

UNDERWRITING


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UNDERWRITING

Underwriting refers to the process of selecting,classifying, and pricing applicants for insurance

A statement of underwriting policy establishes policiesthat are consistent with the companys objectives, suchas

Acceptable classes of business

Amounts of insurance that can be written A line underwriter makes daily decisions concerning the

acceptance or rejection of business

UNDERWRITING PROCESS


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UNDERWRITING PROCESS

The process of determining the level or risk presented by

the applicant, and deciding whether to accept the policy,and if so, at what terms and at what price.

Collect the information

Classify and analyse the information

Premium is decided.

Acceptance or Rejection of the proposal.

First Premium receipt is issued on the payment of the first

premium by the proposer.

Top 3 Challenges


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Disclos

ures Impact

Increase in

cost Asymmetricalportfolio

ClaimsRepudiation

Extremecustomer

discomfort

p g

79

UWS

kills?? Impact

Inappropriate,inconsistent

decisions Loss of

credibility

Increasedmedicalevidence

Higherdeclinaturerate

Loss ofbusiness

ProcessingHurdles Impact

Delay inissuance

Customercools off

Dissatisfiedcustomer,agent

Reduced

businessvolumes

Objectives of Underwriting


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Objectives of Underwriting Access the risk

Fix the premium

Carry Inspection of various factors

Assist in the activities in calculation of pricing of the

product

To be more Financially feasible

Minimise the effects of adverse selection

Attain underwriting profit

Select prospective insureds according to the companys

underwriting standardsAdverse selection is the tendency of people with a higher-than-average

chance of loss to seek insurance at standard rates. If not controlled by

underwriting, this will result in higher-than-expected loss levels.

Adverse selection


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Adverse selectionApplicant A Applicant B

35 year old

Goes to gym everyday

Yearly routine health check ups

No ailments

Healthy and fit

35 year oldNo physical activity

Back pain on and off

Diagnosed with hypertension a month back

Recommended blood test for sugar

Premium Rs 1000 Premium Rs 1000

No adverse disclosure

Adverseselection

No adverse disclosure

INSURANCE LEGISLATION IN INDIA


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INSURANCE LEGISLATION IN INDIA

insurance in its current form has its history dating back

until 1818, when Oriental Life Insurance Company was

started by Anita Bhavsar in Kolkata to cater to the needsof 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 LifeAssurance 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 businessin 1906.

It is in business.
http://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Kolkata


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. The Life Insurance Companies Act, 1912 made it

necessary that the premium-rate tables and periodical

valuations of companies should be certified by anactuary. However, the disparity still existed as

discrimination between Indian and foreign companies.

The oldest existing insurance company in India is the

National Insurance Company Ltd., which was founded

INSURANCE ACT 1938
http://en.wikipedia.org/wiki/Actuaryhttp://en.wikipedia.org/wiki/Actuary


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The insurance sector went through a full circle of

phases from being unregulated to completely regulated

and then currently being partly deregulated. It isgoverned by a number of acts.

The Insurance Act of 1938[1] was the first legislation

governing all forms of insurance to provide strict state

control over insurance business. Agents- Chief Agent and Special Agent
http://en.wikipedia.org/wiki/Insurance_in_Indiahttp://en.wikipedia.org/wiki/Insurance_in_India


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LIFE INSURANCE ACT 1956

GENERAL INSURANCE ACT 1972

IRDA ACT 1999

(From TB- Structure, Objectives, Duties, Power &

Functions, Initiatives)


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IMPACT OF PRIVATISATION &

LIBERALIZATION


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CORPORATE GOVERNANCE


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Refers to the processes, structures &

information used for directing &

overseeing the management of aninstitution.

Is about promoting corporate fairness,

transparency& accountability

Is a system by which the businesses are

directed & controlled


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Is the system by which the companies

are directed & controlled by themanagement in the best interest of the

stakeholders & others, ensuring greater

transparency & better & timely financial

reporting

Is holding the balance between economic& social goals & between individual &

community goals

Clear Cut distinction between the owners &


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stakeholders(Ownership & Professional Management)

Establishes the mechanisms for achieving accountability

between the Board, Senior Management &shareholders, while protecting the interests of relevant

stakeholders.

Sets out the structure through which the division of

power is determined. Includes the relationships among the many stakeholders

involved & the goals for which the corporation is

governed.

Internal & External Stakeholders Aims at maximum welfare of the maximum number.

To Generate accurate & reliable information.

CORPORATE GOVERNANCE MODELS AROUND THE


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WORLD

There are many different models of corporate governance

around the world. These differ according to the variety ofcapitalism in which they are embedded.

India's SEBI Committee on Corporate Governance

defines corporate governance as the "acceptance by

management of the inalienable rights of shareholders asthe true owners of the corporation and of their own role

as trustees on behalf of the shareholders. It is about

commitment to values, about ethical business conduct

and about making a distinction between personal &

corporate funds in the management of a company

It has been suggested that the Indian approach is drawn

from the Gandhian principle of trusteeship and the

Directive Principles of the Indian Constitution

In the United States, corporations are directly governed

b t t l hil th h ( ff i d t di )
http://en.wikipedia.org/wiki/SEBIhttp://en.wikipedia.org/wiki/SEBI


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by state laws, while the exchange (offering and trading)

of securities in corporations (including shares) is

governed by federal legislation

The "Anglo-American model" of corporate governance

emphasizes the interests of shareholders. It relies on a

single-tiered Board of Directors that is normally

dominated by non-executive directors elected by

shareholders. Because of this, it is also known as "theunitary system. Policies are framed by the BOD and

implemented by the management.

German Model- Shareholders own the co. , they do not

entirely dictate the governance. Shareholders elect 50%members of the supervisory board & the other half is

appointed by labour unions.

Some continental European countries including


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Some continental European countries, including

Germany and the Netherlands, require a two-tiered

Board of Directors as a means of improving corporate

governanceIn the two-tiered board, the Executive Board, made up of

company executives, generally runs day-to-day

operations while the supervisory board, made up entirely

of non-executive directors who represent shareholdersand employees, hires and fires the members of the

executive board, determines their compensation, and

reviews major business decisions

IMPORTANCE


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Improves economic efficiency

Increases market confidence

Protects welfare & interests of a wide range ofconstituencies & communities nearby

Prepares a small enterprise for growth & helps to secure

new business opportunities when they rise

Attracts long capital- foreign as well as domestic Ensures Purity & quality or product after the product

leaves the factory

Provides the structure through which the objectives of

the company are set Enhances the long term value of the company for its

shareholders.

Integrates all the participants involved in a process which

i i t th i l


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is economic , at the same social.

Helps to achieve its outcomes & obligations through

sound planning & risk management. Provides stability & growth to the companies

Goodwill

Protects interest of the investors of all categories

PRINCIPLES


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RIGHTS & EQUITABLE TREATMENT OF

SHAREHOLDERS

Freedom to exercise their rights by openly & effectivelycommunicating information

Encouraging shareholders to participate in general

meetings.

INTERESTS OF OTHER STAKEHOLDERS(Employees,Creditors, Suppliers, Local Communities, Customers,

Policy Makers etc)

ROLE & RESPONSIBILITIES OF THE BOARD

Adequate level of independence & Commitment

Sufficient Relevant skills & Understanding to review &

challenge management performance

INTEGRITY & ETHICAL BEHAVIOR(Code of Conduct)


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In choosing corporate officers & board members

Ethical Decision-Making

DISCLOSURE & TRANSPARENCY

Publicly Know the responsibilities of Board &

Management

INTERNAL CORPORATE GOVERNANCE

CONTROLS


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CONTROLSMONITOR ACTIVITIES & THEN TAKE CORRECTIVE

ACTION TO ACCOMPLISH ORGANISATIONAL GOALS

MONITORING BY THE BOARD OF DIRECTORS

Hire, Fire & Compensate the top Management

Safeguard the invested Capital

INTERNAL CONTROL PROCEDURES & INTERNAL

AUDITORS

BALANCE OF POWER

President be a different person from the TreasurerSeparation of Power

Separate divisions check and balance each others

actions

REMUNERATION

P f B d R ti


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Performance Based Remuneration

Cash or Non-Cash Payments such as shares,

superannuation etc MONITORING BY LARGE SHAREHOLDERS &/OR

MONITORING BY BANKS & OTHER LARGE

CREDITORS

Given their large investment in the firm, thesestakeholders have the incentives, combined with the right

degree of control and power, to monitor the management

EXTERNAL CORPORATE GOVERNANCE

CONTROLS


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CONTROLSEncompass the controls external stakeholders exercise

over the organization

Competition

Debt Covenants

Demand for & Assessment of performance information

Government Regulations

Managerial Labour Market

Media Pressure

Takeovers


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CORPORATE GOVERNANCE & INSURANCE

SECTOR


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SECTOR CG is mainly concerned with how ownership influence,

promoting corporate fairness, transparency &

accountability. CG in insurance companies makes corporate entities,

institutional investment & business opportunity.

Insurance Companies are important constituent of

Corporate Governance. Keeping an open mind, listening, learning from others,

ready to share ideas & thoughts recognizing &

rewarding co-operation & franchise development skill of

employees. Insurers should develop transparency of financial

resources.

Board of Directors consists of 1Chairman, 2 Executive


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Directors, 3 Nominee Directors, 4 Independent

Directors.

BOD has set up Audit Committees, InvestmentCommittees, IT Committees & Personnel &

Administration Committees apart from Policyholders

Council at Divisional level & Zonal Advisory Board at

Zonal Office. Management is accountable to BOD which oversees

whether management is effective & satisfying the

consumers policyholders & employees interests.

CEO is the main functioning body His decisions should not invite conflicts.

Most Important ascepts of CG are Supervision of

M t th h di h f it t t t


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Management through proper discharge of its statutory

responsibility, enforcement of effective internal control

system censuring operation & monitoring of adequate &proper risk management & handling consumers

grievances.

Marketing systems have been self regulatory to monitor

the activities of insurance companies apart from the

IRDA regulations, SEBI guidelines & Insurance Acts.

Insurers should fairly deal with the employees, insured

people & others avoiding manipulation, concealment,

abuse of privileged information, misrepresentation odf

material facts & unfair dealings

NEED OF CG IN INSURANCE INDUSTRY


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Long term performances

Honesty & Integrity of insurers CONFIDENCE

CHANGE MANAGEMENT

Insurance industry is growing faster than GDP

Specialized Insurance cos are enteringManage between safety & solvency

INVESTMENT

Safety Solvency Risk Management & protection of

policyholders interest.

Live up with the securities market & governing rules


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VIABILITY

Operate in a safe & sound manner in accordance with

the applicable rules and regulations

Prove their viability

CORPORATE GOVERNANCE & BANKING

SECTOR


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SECTOR RBI has taken various steps furthering corporate

governance in the Indian Banking System-

TRANSPARENCY & accounting standards in India havebeen enhanced to align with international best practices.

However there are many gaps in disclosures in India

vis--vis the international standards in the area of Risk

Management strategies & risk parameters, performancemeasures.

OFF-SITE SURVEILLANCE mechanism is also active in

monitoring the movement of assets, its impact on capital

adequacy & overall efficiency & adequacy of managerialpractices in banks.

PROMPT CORRECTIVE ACTION has been adopted by

RBI as a part of core principles for effective Banking


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RBI as a part of core principles for effective Banking

supervision.

RBI in keeping with Indian conditions have set 2 tiggerpoints namely NPA and Return on Asset

In future, Banking sector is not only going to grow in size

but also in complexity as the forces of competition gain

further momentum & financial markets acquire greaterdepth.

Real success of the financial sector reforms depend

primarily on the organizational effectiveness of the

banks

CG is important for :-


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Bank have a dominant position in developing economy

financial systems & are extremely important engines of

economic growth.Banks are important source of finance for the majority of

firms

Banks are the main depository for the economys

savings.Many developing countries have liberalized their

banking systems thru privatization/disinvestments &

reducing the role of economic regulation.

Managers have obtained greater freedom in how theyrun their banks.

Bank undertakes periodic inspections of a licensees

t ti


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corporate governance practices.

Inspections include a review:-

The minutes of meetings of the Board,, its committees,& senior management.

All policies & procedures on risk management practices.

Level of reporting to the Board & to the Parent Board

where relevant

Compliance with Statutory & regulatory rules & internal

policies.