INSURANCE

Definition & Meaning:

Insurance is the means of managing risk and protection against financial loss arising as a result

of contingencies, which may or may not occur.

In other words, insurance is the act of providing assurance, against a possible loss, by entering

into a contract, with one who is willing to give assurance. Through this contract the person

willing to give assurance binds himself to make good such loss, if it occurs.

INTRODUCTION:

Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in

exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large,

possibly devastating loss. An insurer is a company selling the insurance; an insured is the person

or entity buying the insurance. The insurance rate is a factor used to determine the amount to be

charged for a certain amount of insurance coverage, called the premium. Risk management, the

practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

One of the- main features of the pre-nationalized insurance sector was the utilization of the

insurance sector as a backup or extension by the well-known industrial houses of India. There are

mainly two forms, of insurance in India viz. Life and non-life. Life insurance provides protection

to a household against the risk of premature death of its income-earning, member. Non-life

insurance can be grouped under three heads viz., fire, marine and miscellaneous insurance. Life

insurance Corporation of India carries on life insurance business and, the General Insurance

Corporation and its four subsidiaries deal with non-life insurance.

After liberalization of the insurance sector in 1999 private players have entered both life and non-

life business in India. The Insurance Regulatory and Development Authority (IRDA) was

constituted in April 2000 as an autonomous body to regulate and develop the business of

insurance and re-insurance in the country in terms of the insurance regulatory and Development

Authority Act, 1999.

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As the insurance market in India is liberalized, the pattern of distribution is likely to undergo vast

changes with new channels being introduced, A quantum jump in Insurance business in terms of

premium, policies, lives covered, etc., would necessitate; corresponding increase in the capacity

of the distribution channels.

THE NEED FOR NEW CHANNELS:

The need for new channels can also be appreciated if distribution is approached from the point of

view of the customer.

Customer choice of the distribution channel is dictated by:

Socio-demographic factors (education, employment income)

Ease of access

Complexity of product/service; need for advice.

On the other hand the insurers' choice of distribution channels is dictated by:

Costs associated relative to the premium charged

Access to customer base

Complexity of the products

Globally, as a result, many different channels such as agents, brokers, banks and direct have

emerged. There have also emerged several variations between these like brokers liaising with

banks, advisors employed by insurers working out of a Bank branch, and bank as a whole acting

as a broker or agent.

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HISTORY OF INSURANCE

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu

(Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings talk in

terms of pooling of resources that could be re-distributed in times of calamities such as fire,

floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient

Indian history has preserved the earliest traces of insurance in the form of marine trade loans and

carriers’ contracts. Insurance in India has evolved over time heavily drawing from other

countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of the Oriental

Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the

Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870

saw the enactment of the British Insurance Act and in the last three decades of the nineteenth

century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in

the Bombay Residency. This era, however, was dominated by foreign insurance offices which

did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and

London Globe Insurance and the Indian offices were up for hard competition from the foreign

companies.

In 1914, the Government of India started publishing returns of Insurance Companies in India.

The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life

business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to

collect statistical information about both life and non-life business transacted in India by Indian

and foreign insurers including provident insurance societies. In 1938, with a view to protecting

the interest of the Insurance public, the earlier legislation was consolidated and amended by the

Insurance Act, 1938 with comprehensive provisions for effective control over the activities of

insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a

large number of insurance companies and the level of competition was high. There were also

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allegations of unfair trade practices. The Government of India, therefore, decided to nationalize

insurance business.

An Ordinance was issued on 19th January, 1956 nationalizing the Life Insurance sector and Life

Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16

non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The

LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west and the

consequent growth of sea-faring trade and commerce in the 17 th century. It came to India as a

legacy of British occupation. General Insurance in India has its roots in the establishment of

Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian

Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of

general insurance business 1957 saw the formation of the General Insurance Council, a wing of

the Insurance Association of India. The General Insurance Council framed a code of conduct for

ensuring fair conduct and sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum solvency

margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general

insurance business was nationalized with effect from 1st January, 1973. 107 insurers were

amalgamated and grouped into four companies, namely National Insurance Company Ltd., the

New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India

Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a

company in 1971 and it commence business on January 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly 200 years.

The process of re-opening of the sector had begun in the early 1990s and the last decade and

more has seen it been opened up substantially. In 1993, the Government set up a committee

under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations

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for reforms in the insurance sector. The objective was to complement the reforms initiated in the

financial sector. The committee submitted its report in 1994 wherein, among other things, it

recommended that the private sector be permitted to enter the insurance industry. They stated

that foreign companies be allowed to enter by floating Indian companies, preferably a joint

venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance

Regulatory and Development Authority (IRDA) was constituted as an autonomous body to

regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in

April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance

customer satisfaction through increased consumer choice and lower premiums, while ensuring

the financial security of the insurance market.

The IRDA opened up the market in August 2000 with the invitation for application for

registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the

power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000

onwards framed various regulations ranging from registration of companies for carrying on

insurance business to protection of policyholders’ interests.

In December, 2000, the subsidiaries of the General Insurance Corporation of India were

restructured as independent companies and at the same time GIC was converted into a national

re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

Today there are 14 general insurance companies including the ECGC and Agriculture Insurance

Corporation of India and 14 life insurance companies operating in the country.

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INSURANCE INTERMEDIARIES

Insurance mediators or intermediaries are autonomous populace or firms who carry the insurer

and the insured together and act as a mediator. Some groups’ 0f intermediaries also act as a

distribution channel for bringing the product of the insurance to the customer as in the case of

brokers. An insurance intermediary acts either on behalf of the client or the insurance company.

In India, the insurance intermediaries except surveyor were not in existence till 1999 but with

liberalization, privatization and globalization (LPG) of insurance sector the distribution channel

have also been widened and the IRDA Act, 1999 included the term "Insurance Intermediaries" in

the Insurance Act, 1938. Up to 1999, the insurance product was sold either through an Agent or

the company directly through Development Officers and branch mangers. Prior to 1950, the

chief agent, special agent, and principle agent were also in existence but the practice was

discounted after 1950.

In India the insurance intermediaries have been defined in the IRDA Act, 1999 and section

2(1) (f) of the act states:

"Intermediaries or insurance intermediary includes insurance brokers, insurance,

consultants, surveyors and loss assessors."

Through the insurance sector has been privatized the insurers can deal with intermediaries only if

they are holding valid license issued by the authority and the authority has laid down the norms

for licensing of intermediaries.

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INSURANCE BROKER

Role in the PastAn insurance broker is seen as one of the intermediaries who operate in the insurance market.

The term insurance broker finds a mention in the definition of the term intermediary or insurance

intermediary in the Insurance Regulatory and Development Authority Act, 1999. The definition

intermediary includes and limits itself to insurance brokers, reinsurance brokers, insurance

consultants, surveyors and loss assessors. It would be pertinent to note that there is no mention of

the term agent in this definition as of date.

The description “intermediary” is usually synonymous with the concept of a third party whose

role is to ensure that both the parties to a contract obtain what they want, the third party working

for both parties for their joint benefit.  However, in the Indian context, the insurance broker has

been seen since the introduction of the Broking Regulations as a person who will represent the

insured and add value to the transaction. The relationship is almost invariably contractual

supported by a mandate from the insured and is usually intended to be paid for the services

rendered, by way of brokerage which forms part of and emanates usually out of the premium.

The upshot of this view was that although the broker owes his loyalty primarily to the insured,

the broker gets ultimately paid by the insurer for services being rendered primarily to the insured.

This leads to a dichotomy of sorts with the poser as to how an insured could trust the loyalty of

his broker when the latter was being actually paid by the insurer. In the light of this method of

receiving compensation, the scenario could be ripe for an unprincipled insurer to step in and take

advantage of the situation vis-à-vis the insured by justifying his stance that it was the insured

who desired to approach the insurer directly despite the presence of the broker owing to alleged

loss of confidence and trust in the broker by the insured. Of course, in the international arena

there were departures from this norm with consultancy assignments being undertaken on a Fee

basis with payments made by the insured to the broker?  The transition into this phase in India is

seen in some segments where the role of the broker is perceived rightly by the user of such

services by seeing value creation by the broker in the transaction.

As regards general insurance business in the tariff regime, the function of the broker was to

advise the insured on a suitable insurance programmed by improving the current programmed

and to attract suitable insurers on the best terms. In the absence of opportunity being provided to

the intermediary to bring to the table his experience in drafting the policy wordings or for that

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matter in improvising the rates, a question was often raised as what is the value addition that the

broker can bring to the transaction. The most important and crucial role that a broker played,

which all would appreciate, was to increase the level of informed “decision making” by the

insured in transferring the risk to the most competitive insurance company.

However, in the detariff scenario the role and responsibilities of the insurance broker has

multiplied in the sense that he not only has to get the right price for the insured to enable him to

take informed decision to select the right underwriter, but he also has a duty towards the

underwriter to ensure that all parameters of rating a risk have been rightly applied. This is only to

ensure that a clear balance is maintained so that one does not impinge on the other in the event of

a catastrophe.

The Way Forward:   Thrust towards developing and cultivating consumer loyalty

Advances in technology are transforming the traditional roles of the broker and the consumer.

The broker is gradually evolving into the new role of the facilitator. He facilitates the satisfaction

of the needs felt by the insured. In the process, the underwriter, broker and the consumer are

forming symbiotic relationships in which their mutual loyalties are recognized and nurtured.

In the earlier era, when the broker was absent, the consumer was taken for granted.  He was a

docile underdog in the world of insurance. Business opening hours, mode of payment, suite of

products, range of services was all decisions dictated by the underwriter at his sole discretion.

Dissatisfied insured’s were pushed aside and the queue for buying the products continued to be

filled in by the less demanding and more subservient consumers.

However, the unprecedented sea change brought in by the private insurers both in life and

general insurance business post liberalization of the insurance industry has resulted in a new

movement where consumer delight is the buzz word.  We have witnessed this in the banking and

telecom sectors in our country in the last two decades and there is no reason why it will not catch

up with insurance sector in the next decade.

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Shift towards Retaining the Client

Handling overzealous and well informed consumers who are increasingly demanding to satiate

for themselves the best of services, thanks not only to the purchasing power but also due to the

variety of choice confronting them is going to be the order of the day. We have seen new

patterns of consumption with the spread of electronic media and consumer activist groups. 

Though quality of product becomes the focus area together with price sensitivity, the moves

made by the different players in the market clearly herald a drive towards consumer retention.

Today, as environmental awareness is on the rise and further, the media reporting of any

managerial misadventure prompt and instantaneous, consumer reactions impinge far more

swiftly on purchasing patterns.  At times, the immediate fall out of this is that the consumer

forms pre conceived notions with regard to supply side of insurance. In this context, the broker

will have to play an important role to play as he will do the cementing of relationships with the

right information.   The true role of a broker will get tested and be up for judgment by those who

would avail of his services.

Adequate Data Based Experiences

In the wake of the discussions above, a broker’s office would be expected to deliver far more

than what has been delivered in the past.  This would call for a high degree of qualified

professionals with hands-on experience manning the brokers’ offices and the brokers’ offices

functioning with a combined strength of the extended marketing  arm of the underwriters and the

erstwhile risk management role played by the in house team of the insured’s.

Implementing such schemes requires a high degree of professionalism, infrastructure to

understand the forces that are redesigning the concept of the insured’s and dynamism into the

market brought in by the changing roles of consumer group activists. A broker’s office therefore

will have to be built on these foundations on which it is expected that the consumer loyalty will

be built and sustained.

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WHO CAN BECOME AN INSURANCE BROKER?

Any person may be an individual, a partnership firm or a company formed and registered under

the companies Act, 1956 can apply for grant of license to be a Broker. (In case of a company the

aggregate holding of equity shares by foreign Company either by itself or through Its

Subsidiaries or nominees or persons should be within the prescribed limits laid down by the

Reserve Bank Of India).

HOW TO APPLY:

The application is to be sent to the insurance regulatory and development authority in prescribed

form and it can be made for anyone of the following categories:

CATEGORY - 1

(A) Direct general insurance broker, or

(B) Direct life insurance broker.

This means a person who is registered in respect of either general insurance business for life

insurance business but not for reinsurance business. Such individuals contribute maximum share

of business in life insurance.

CATEGORY - 2

Re insurance broker, which is different from category one and is also called indirect broker.

CATEGORY – 3

Composite broker whose functions will consist of that of Direct Insurance Broker and

Reinsurance Broker.

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CATEGORY – 4

Others insurance consultants, risk management consultants or any other classification as may be

approved by the authority. Such intermediaries create awareness among the people about the

importance of insurance and also provide consultancy as to how to invest in the insurance.

FUNCTIONS OF BROKERS:

The functions of brokers are as follows:

1. Obtaining a detailed knowledge of the clients business and philosophy,

2. Maintaining clear records of the clients business so that this can be explained to an

insurer and other parties,

3. Provision to the client of technical advice and advice on developments in the insurance

market and the law,

4. Maintaining a detailed knowledge of available markets,

5. Selection and recommendation of an insurer or group of insurers,

6. Negotiating with insurer on the client behalf,

7. Acting promptly on instructions from a client and providing written acknowledgements

and progress reports,

8. Collecting and remitting premiums and claims,

9. Where appropriate and dependent oh the size of both the client and broker, providing

additional services such as insurance consultancy services, risk management services and

uninsured loss recoveries,

10. Maintaining precise records of past claims; and

11. Providing services such as insurance consultancy risk management services and

uninsured loss recoveries.

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PROCESSING OF APPLICATION FOR BROKERSHIP:

While processing the application for grant of licenses the authority itself towards the following

aspects:

Availability of infrastructure, i.e. adequate office space, equipment and manpower.

Applicant should have minimum 2 persons in his employment who have the experience to

conduct the business of insurance broker.

Applicant should have no direct or indirect connection with a person whose application has

been rejected earlier.

Applicant should have a net worth of Rs. 25 lakhs in case of category 1, Rs. 100 lakhs for

category 2, Rs. 125 lakhs for category 3, and Rs. 10 lakhs for category-4.

IF FEE IS NOT PAID BY BROKER:

If the broker fails to pay the fee within the stipulated period Authority may suspend his license

and the insurance broker shall cease. To function as an insurance broker for the duration of the

suspension period any person who acts as a insurance broker without holding a license shall be

punishable with the Authority with a fine, which, may extend to Rs.l lakh.

REMUNERATION TO BROKERS:

Brokers belonging to Category 1 will be paid brokerage not exceeding 17.5% of the premium

payable on the policy. In other categories the market forces will determine the remuneration.

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CODE OF CONDUCT FOR BROKERS:

The code of conduct is required to establish a recognized standards of Professional conduct of

which all insurance brokers should, in the interest of the Public and in the performance of their

duties, conform and in doing so they should bear in mind this objective and the underlying spirit

of this code in the matter of regulation of their professional standard. The code of conduct will

cover the following:

1) Brokers Relationship With Clients :

Insurance Brokers must:

Deal with their clients with utmost good faith and truthfulness at an times;

Act with care and meticulousness;

Make sure that the client understands his relationship with the broker and on whose

behalf the broker is acting;

Treat all information supplied by the prospective clients a completely confidential to

themselves and to the Insurers to which the business is being offered;

Take appropriate steps to maintain the security of confidential documents in the

possession;

Understand the type of clients that they are dealing with and the extent of the client

awareness of risk and insurance. This knowledge should be taken into account in their

dealings with their c1ient, and

Avoid conflicts of interest.

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2.) Sales Practices of Brokers:

Insurance brokers must:

Authentic that they are members of the insurance brokers association of India (IBAI), as

approved by the Authority;

Make out who they are and explain as soon as possible the degree of choice in the

products that they are able to offer;

Ensure that the policy proposed is suitable to the needs of the prospective clients;

Offer advice only on those matters in which they are knowledgeable and seek or

recommend other specialist advice when necessary;

Not make inaccurate or unfair criticisms of any insurer or IBAI member;

Enlighten why a policy or policies are proposed and provide comparisons in terms of

price, cover and / or service where they are able to offer more than one choice of product

cover and / or service where they are able to offer more than offer more than one product;

Explain the period for which the quotation remains valid if cover is not affected

immediately;

Clarity the procedures to follow in the event of a complaint

3) Duty to Disclose Information

Insurance broker must:

Make certain that the consequences of non-disclosure and inaccuracies are pointed out to

the prospective client;

Stay away from influencing the prospective client and make it clear that all the answers

or statements given are the latter’s own responsibility;

Appeal their client to make true, air and complete disclosure where they believe that the

client has not done so. If further disclosure is not forthcoming they should consider

declining to act further;

Explain to their clients the importance of disclosing all subsequent changes that might

affect the Insurance throughout the duration of the policy; and

Disclose on behalf of their client all material facts within and give a fair presentation of

the risk.

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4.) Explanation of the contract

Insurance Brokers must:

Categorize the insurer or insurers. Any changes once the contract has commenced must

be advised immediately;

Draw attention to any major or unusual restrictions and exclusions in the policy, explain

how the contract, may be cancelled;

Notify changes to the terms and conditions of any Insurance contract and give reasonable

notice before any changes take effect;

Advise their clients of any Insurance proposed on their behalf which will be effected with

an insurer outside India and, if appropriate of the possible risks involved; and

Advise their, client that any non-insurance product will not be subject to IBAl and, if

appropriate, the implications in terms of consumer redress and solvency.

5) Renewal Procedures:

Insurance Brokers must:

Promise that their clients are aware of the expiry date of the insurance even if they choose

not to offer further cover to the client;

Make certain that renewal notice contains a warning about the duty of disclosure

including the necessity to advice changes affecting the policy which have occurred since

the policy inception or the last renewal date;

Ensure that renewal notices contain a warning that the proposer keep a record (including

copies of letters) of all information supplied to the insurer for the purpose of renewal of

the contract; and

Assurance that their client always receives the insurers renewal invitation.

6) Claims Management by Brokers

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Insurance brokers must:

Put in plain words to their clients their obligations to notify claims promptly and to

disclose all material facts and advice subsequent developments as soon as possible;

Request their clients to make true, fair and compete disclosure where they believe that

the client has not done so. If further disclosure is not forthcoming they should consider

declining to act further for the client;

Give prompt advice to the client of any requirements concerning the claim;

Forward any information received from the client regarding a claim or an incident that

may rise to a claim without delay, and in any event within three working days; and

Inform the client without the delay of the insurer's decision or otherwise of a claim; and

on request give all responsible assistance to a client in pursuing his claim pursuing his

claim.

7) Complaint:

Insurance Brokers must:

Ascertain that letter of instructions; policies and renewal documents contain details of

complaints handling procedures;

Accept complaints either by phone or in writing;

Acknowledge a complaint not later than 14 days from the receipt of correspondence;

advise the member of staff who will be dealing with the complaint and the timetable for

dealing with it;

Ensure that they have a procedure so that the complaints are dealt wit at a suitably senior

level; and

Have in place a system for recording and monitoring complaints.

8) Documentation:

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Insurance Brokers must:

Make sure that any documents, issued by them comply with all statutory or regulatory

requirements from time to time in force;

Send policy documents without avoidable delay;

Make available, with policy documentation, advice that the documentation should be read

carefully and retained by the client;

Not withhold documentation from their clients without their consent, unless adequate and

justifiable reasons are disclosed in writing and without delay to the client.

9) Handling Client /Insurer Money:

Insurance broker must:

Make certain that the money belonging to clients or insurers are not mixed with their/his

own;

Separate accounts are properly maintained in regard to those amounts proper information

is periodically made to the client/insurer;

Ensure that these moneys are banked in a proper manner;

Ensure that moneys belonging to others are kept with them for a reasonable period only.

10) Remuneration:

Insurance Brokers must:

Reveal all fees or charges (not commission) they propose to charge the client, which will

be in addition to the insurance premium. Score back of commission will be considered as

a charge for this purpose;

Recommend the client in writing of the insurance premium and any fees charges

separately and the purposes of any related services;

If requested by a client, disclose the amount of their commission or other remuneration

they receive as a result of effecting insurance for that client. This will include any

payment received as a result of securing on behalf of the client any service additional to

the arrangement of the contract of insurance; and

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Advice their client prior to affecting the insurance of their intention to make any

deductions from the amount of claim collected for a client where there are reorganized

practices for the type of insurance concerned.

11) Competence and Training:

Insurance Brokers must:

Make certain that their staff are aware of and adhere to the standards expected of them by

this code;

Make sure that are competent, suitable and have been given the necessary training as

required by the authority;

Ensure that there is a system in place to monitor the quality of advice given by their staff;

and

Ensure that members of staff are aware of legal requirements including the law of agency

affecting their activities; and only handle.

INSURANCE AGENTS

Insurance companies do the business of insuring people against perils, whose main business is to

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club people sharing the same risk; collect the share of contribution from all of them, and then

payout the compensation to the sufferers. The business of insurance companies both life and

non-life is procured through an individual who is appointed as an agent.

An Agent is a person licensed by the IRDA to do insurance business. Agents are not the regular

employees of the insurer; they work on commission basis in a freelance manner. There are some

qualifications and procedural formalities, which have to be fulfilled for grant of a license of

agent.

An agent, in order to obtain a license, has to go through a training programmed and appear for an

examination. The purpose of licensing course is designed to prepare an individual to work as an

insurance agent. It provides a foundation, terminology, and concepts upon which an individual

can build successful career as an agent.

COMMON LICENSING PROVISIONS:

Evidence of all of the following has to be made available to the authority before registration as

an agent.

Section 42 (4) of the amended Insurance Act, 1938 states an agent to be one who is not:

a) A minor;

b) Found to be of unsound mind by a court of competent jurisdiction;

c) Found guilty of criminal misappropriation or criminal breach of trust or cheating or

forgery or an abetment of or attempt to commit such offence by a court of competent

jurisdiction; and

d) Found guilty of having knowingly participated in or convinced at any fraud, dishonesty

or misrepresentation against an insurer or an insured.

e) Possesses a pass in 12th standard (reduced to 10th standard for rural agents);

f) Has been trained for a minimum period of four weeks; and

g) Has a pass in an examination prescribed by the Authority.

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The expectations from an agent are:

Agent should offer consumers good service by responding to customer’s needs in terms

of grant cover, advice, conduct, etc

Agent should be willing to promote products in personal lines market making the best use

of their professional ability.

Needs for Agent's Training:

Agents are provided training to:

a) Instruct him (her) complete knowledge of products;

b) Imbibe in him (her) the importance of Pre-and-post sale service to customers;

c) Equip him (her) as a trusted professional capable of advising persons on “Insurance";

d) Make him (her) as an efficient salesperson;

e) Enable him (her) to master various techniques in the area of sale of insurance products;

Training Schedule and Structure:

Training Modus Operandi

The classroom training may be by means of lectures, discussions, Speeches/seminars, question-

answer sessions, case, studies, role-playing, exchange of experiences, team training, replication

of real life situation in the classroom; open house, self-study, etc

"'The use of various audiovisual devices while taking the lectures like slides, overhead projectors

computers, markers, etc may be encouraged.

The training institute will arrange 'to supply every agent -an agents manual, service manual, list

of all products available in .the market, a handbook containing specimen copies of proposal

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form, claim form, etc. from the insurance company who has nominated the agent for the training

course.

Examination For Agents

a) All agents on completion of their training will have to appear in a written examination.

b) The exam will consist of objective type questions only.

c) The exam will be of maximum 100 marks.

d) The time for examination will be 2 hours.

e) 10% of Question will be numerical.

f) This will be followed by an interview of 25 marks, conducted by the insurance company.

g) Every agent will have to score at least 50% marks in the written exam and 60% in the

interview for qualifying in the agents examination and for award of a certificate.

Practical Training:

a) Every person aspiring to take up agency as a career will have to undergo on the job practical

training with the designated company where he will work under the supervision of a sales

functionary.

b) The sales functionary will teach the trainee the nuances of creating the need in the mind of the

customer, understanding the wants of the clients, proposing 2 or 3 solutions for satisfying the

want and finally helping him decide the best option and closing the deal.

c) In addition, administrative matters, documentation, etc. will also be taught to the trainee.

SURVEYOR AND LOSS ASSESSORS:

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This category of intermediaries is related to only non-life business. Their main functions are to

survey and assess any mis-happening or disaster and evaluate the financial loss to the insurance

companies. The insurance companies make '\financial assistance on the basis of the evaluation

made surveyor. More specifically, the functions of any Surveyor and Loss Assessor will be as

follows:

Conduct inspection, re-inspection, pre-inspection of the property in question suffering a

loss;

Examine, inquire, investigate, verify and check upon the causes and the circumstances of

the loss in question including their nature and extent of loss and related

factors/documents;

Estimate measure determine: the quantum-description-valuation of the subject under loss;

Initiate immediate measures to protect damage property and to prevent aggravation of

losses;

Advise the insurer and the insured about the loss minimization;

Loss control, security, and safety measures, where appropriate to avoid further losses;

Check the admissibility of the loss whether it falls within the scope of the policy contract,

to point out about the adequacy or inadequacy of the sum insured, and whether the

amount claimed are: fair reasonable and necessary;

Survey and assess the loss on behalf of insurer a or insuring public; Recommend the net

liability in terms of insurance contract;

Advice on repair and replacement techniques;

Checking the ownership-insurable interest-indemnity related proofs;

Declare whether the surveyor/loss assessor has an interest in the subject matter in

question or whether it pertains to any blood relation, business partners or through

shareholding & if so refrain from carrying out the survey and loss assessment in that

respect;

Report on the financial loss of the damage suffered by the insured to the insurer. The

reporting must be intelligently communicated, so that, adequate information and the

supporting documents and statements satisfy beyond doubt that the recommendations are

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sub stained and the he has thoroughly discharged his duties expected of him;

Report about unfair claim handling practices, observed during discharge of duties;

Comment any happening in the process of discharge of duties if it is against the law of

the land;

State there is no professional negligence in discharge of the service;

Report about the damages to the third parties and properties which are not parties to the

contact of insurance;

Adjust the loss after it is assessed, taking into account; the policy conditions, exclusions

and other factors, e.g. custom duty, usage of items expenses for which others may be

responsible and salvage positioned. Etc

Eligibility for becoming Surveyor

Any person who holds any of the following qualifications can become a Surveyor and Loss

Assessor:

Degree of a recognized university in any branch of engineering;

Fellow or Associate member of institute of Chartered Accountants of India or Institute of

cost works Accountants of India;

Actuarial qualifications or holds a degree or diploma of any recognized university or

institute in relation to insurance; and

Holds a Diploma in insurance granted or recognized by the Government.

Modus Operandi for License

Any person possessing the above-mentioned conditions can apply Insurance Authority in a

prescribed format provided he following grounds:

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That a person is minor;

That he is found to be unsound mind by a court of competent jurisdiction;

That he has been found guilty of criminal misappropriation or criminal breach of trust or

cheating or forgery or an abetment of or attempt to commit any such offence by a Court

of competent jurisdiction; and

That he does not poses the requisite qualifications and practical training for a period not

exceeding twelve months.

Code of conduct for Surveyor and Loss Assessors

Like the brokers and agents, every surveyor and loss assessor including the Company/ Firm of

Surveyor and Loss Assessors shall abide by the code of conduct specified by-the Authority from

time to time. In particular and without prejudice to the generality of the foregoing the code of

conduct shall include the following:

To exhibit the identity card and/or the license issued by the Authority while carrying out the

job of survey and loss assessment and be physically fit to undertake the rigorous of the job.

'To conduct the survey job in a manner and behavior, which is transparent, honest, sincere,

fair, objective and free from personal interest and ensure that the professional, technical

standards of competence are upheld.

To endeavor to keep abreast with profession attending professional courses, trainings,

seminars and workshops upgrading the required skills.

To uphold not only ethical behavior but professional reputation and credibility while

refraining from making remarks, comments or grievances in the public or to the press

without exhausting internal professional and legal avenue.

Any conduct of surveyor and loss assessor which is not: professional, proper, right, efficient,

good behavior, efficient or contains deliberate disobedience, unlawful behavior, neglect of

duty, conduct amiss, malfeasance, will include among other matters to be misconduct and

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volatize of the code of conduct. The Authority, before imposing any penalty, fine or

suspension or cancellation of a license because of misconduct shall cause an enquiry and

provide reasonable opportunity to the license-holder of being heard.

THIRD PARTY ADMINISTRATORS (TPAs) - HEALTH

SERVICES:

Third Party Administrators (TPAs) are the intermediaries who bring all the components of health

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care delivery - hospitals, physicians, and clinics; long-term care facilities and pharmacies - into a

single entity. They extend quality health care and services at reasonable costs. It is important to

take an overview of the health insurance scenario in India before taking a detailed look at the

functioning of TPAs. The IRDA has defined TPA as "an insurance intermediary licensed by the

Authority who, either directly or indirectly, solicits or effects coverage of underwrites, collects,

charges premiums from an insured, or adjusts or settle claims in connection with health

insurance, except as an agent or broker or an insurer.

Functioning of TPAs

TPAs sort out health care providers by setting up networks with hospitals, general practitioners,

diagnostic centres, pharmacies, dental clinics etc. They sign a memorandum of understanding

with insurance companies under which they let policyholders know about the various health care

delivery facilities and methods for settling claims.

Policyholders get themselves registered with TPAs to benefits from these services and at the time

of hospitalization, health facilities are expected to pass on this information to the TPAs. The

medical representative of the TPA examines acceptability of the case and accordingly informs

the health care providers to go ahead with the treatment.

The agreement between TPAs and health care facilities includes the collection of documents and

bills concerning the treatment. Documents are assessed and sent to the insurance company for

reimbursement. TPAs also procure reimbursements from the insurance company and pay the

health care provider. TPAs usually have in-house specialists comprising medical doctors,

insurance consultants, legal experts and IT professionals. The mainstay of TP As is an

information management system.

The client groups of TP As fall into two categories: corporate and individuals. The major sources

of revenue are the fees charged for providing various services. Insurance companies pay the fee

in proportion to the volume and scope of services provided by TPAs and usually it is a fixed

percentage of the premium collected from the enrollees.

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CODE OF CONDUCT FOR TPA'S:

The IRDA has made it compulsory for TPAs to get a license to operate in India.

So far IRDA has granted this license 23 TPAs. The TPAs have formed an association called

Indian Association of TPAs to protect their interests.

IRDA along with the Insurance Advisory Committee has formulated the Insurance Regulatory

and Development Authority (Third Party Administration - Health Services) Regulations, 2001 to

regulate TPAs.

Some of the regulations include:

Only an organization registered under the Companies Act 1956 with a share capital of at

least Rs. 10 million in equity shares can set up TPA health services.

The primary object of the company should be to carry on business in India as a TPA in

health services. It should not be involved in any other business.

At least one of the directors shall be a qualified medical doctor registered with the

Medical Council of India. The CEO or CAO of TPA should have successfully undergone

a course in hospital management from an institution recognized by IRDA and have

passed the licentiate examination conducted by the Insurance Institute of India, Mumbai.

Apart from this he should have undergone practical training of at least three months in

the field of health management.

Foreign equity in TP As is limited to 26 per cent.

TPAs shall not charge any kind of fee from the clients.

IRDA guidelines do not permit marketing of health insurance policies by the TPA.

TPAs have to maintain and report to IRDA on transaction carried out on behalf of the

insurer.

TPAs are expected to furnish to the insurance company and the authority an annual report

and other return as may require by the Authority.

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IRDA has drawn up a code of the TPAs refraining them from trading information,

submitting wrong information to insurers and advertising without prior approval of the

insurer among other things.

INSURANCE INTERMEDIARIES IN INDIA - INTROSPECTION

In terms of sheer numbers, the strength of LIC’s distribution channel comprising over 5.90 lakh

active Agents and over 18,800 development officers appears to be phenomenal. This is indeed a

diverse in nature and spread, for which a strong marketing network is imperative. The network

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duly supported by 2048 servicing branches no doubt gives us the confidence in terms of

numbers. Let us examine the Indian intermediaries’ channel.

Since the reorganization in 80’s LIC has been laying a lot of emphasis on professionalizing its

field force. Prior to these attempts, most of the – training needs were left to the Agent’s

instructors and this arrangement had many shortcomings, which included:

a) Lack of professional approach, technical and material know how on the part of the

instructor himself.

b) Fewer number of instructors in comparison to the training requirements of agents;

c) Lack of proper infrastructure and training facilities; and lukewarm approach on the part

of the development officers in promoting professionalism amongst their agents.

Even today, some of the agents do not have adequate product knowledge and their sales skills

have not been developed beyond a certain level. One of the inhibiting factors possibly is ensuring

that the agency force remains dependent on sales supervision or in other words, fear of

independence of the agency force is predominant. As such, the phenomenon of dependency was

and is being encouraged to maintain a firm grip/hold over the agency force. One of the best

indicators of this phenomenon is the fact that when the umbrella of sales supervision is somehow

not available, a majority of agents get terminated due to lack of guidance, which they had got

used to. This has also given rise to a situation where a majority of agents never visit the office, as

the need to do so is never emphasized upon them by their sales supervisor.

However, with training becoming a major focus of the reorganization especially for the field

force with the creation of a network of ZTCs and STCs to provide both knowledge and

professional inputs to the agents as well as the. Development officers, the situation has been

slowly changing for the better. However, a lot still needs to be done in terms of qualitative

improvement of our agents, which cannot be achieved just through training but also requires

qualitative improvement in selection/recruitment itself.

Life insurance requires need-based selling. For need-based selling, we need to emphasize on the

customer’s need distinct from the salesman’s need. The picture of life insurance selling has to be

in conformity with the customer aspirations. Some of the agents have a tendency to sell products

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that they want to sell rather than the products is attributable to the commission structure

somehow has been designed to give the agents. The incentive to promote certain products, which

would guarantee a bulkier commission initially, rather than those products wherein the

commissions are spread out over a period of time. To overcome this lacuna, it is essential that the

basis rate of commission itself be restructured. So that the agents do not derive any benefit in so

far as promoting a product for there own short-term financial gain. This will lead to a situation

where the customer is more assured of being sold a product of his choice rather than being

misled into buying a product that he does not need.

SUMMARY AND FINDINGS:

The concept of broker is very well entrenched in the developed countries and more than

40% of the insurance business is conducted through brokers as compared to India.

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The broker will not only act for one insurance company but he can represent more than

three companies at a time.

Agents present eligibility conditions to be certainly being made more stringent and the

minimum qualification level for rural and urban agents needs to be raised. This is

necessary because insurance is not a simple product but a complex service that will

require a certain degree of understanding to ensure correct sale.

In general insurance, the claims are settled on the basis of the report submitted by the

independent agency which is known as surveyor or loss assessors and they are qualified

persons, having expertise in this field. If an insurance company employs its own experts

then they may be biased toward the claim, as they are an employee of insurance

company. Therefore, to avoid any conflicts of interest independent surveyors are

necessary.

Third party administrators in health services also play an important role in insurance

sector but health insurance is not very popular in India because it is a costly proposal.

Further more there is lack of awareness among the people about the benefits they can

derive from health insurance. At present, health insurance purchased by those who are

affluent and can afford to pay the medical bills whereas it is actually required by those

who cannot afford the costly medical treatment.

BIBLIOGRAPHY

Mathew M.J. Insurance Principles And Practices

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www.irdaindia.com

www.bimaonline.com

www.insure2besecure.com

www.agencyfaqs.com

www.insuremagic.com

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