Principles of General Insurance

1
Principles of General Insurance

• M.Rajaram
• J.B.Boda Insurance Brokers Pvt.Ltd
• Delhi

2
General Insurance

• Definition
• History of growth of General Insurance in India
• Growth of general insurance premium
• Classes of General Insurance
• Prospects of further growth in India
• Important terms used in General Insurance
• Underwriting and claim procedures
• Insurance and Reinsurance
• Impact of detariffing rates and products
• Role of Regulator
• Conclusion

3
General Insurance

• Insurance is classified into Life and General
• Any insurance other than human lives comes under
  the scope of General Insurance
• It is preferable to call this as General
  Insurance instead of non-life insurance
• There is vast scope and the market is trying to
  cope up with the demands of the market
• Insurance penetration is improving in India and
  being the second largest developing economy in
  the world the scope is huge

4
Insurance in India

• Marine insurance was being practiced in India
  from the beginning of 19th century
• Offices were established in Kolkatta which was
  the centre for East India Company
• Fire insurance followed in 1825 at Madras
• Swadeshi movement also had its impact on
  Insurance and first Indian Company was formed in
  1907 Indian Mercantile Insurance Company
• Need to control insurance business was felt by
  the British government which introduced the
  Insurance Act in 1938 and Insurance Rules in 1939

5
Development in 1970

• Life Insurance business was nationalised in India
  in the year 1956
• General Insurance business was being done by 106
  companies including LIC (GI)
• On May 13th 1971 an ordinance was promulgated
  taking state control of general insurance
  business with custodians in charge
• In 1972 GI Nationalisation act was passed
  allowing the formation of GIC as the holding
  company and with 4 subsidiaries each having its
  Head Office at one metro
• 1st Jan 1973 GIC and 4 companies were formed
  taking in them 106 companies and the 4 PSUs were
  taking care of the general insurance business in
  the country till 2000 totally. GIC on its own was
  also writing aviation and crop business besides
  becoming the National Asian Reinsurer
• The objective of nationalisation was to spread
  insurance to nook and corner of the country and
  to utilise peoples money for the peoples good
  thus uplifting the socio economic condition of
  the country

6
Liberalisation

• Following globalisation moves Malhotra committee
  had been formed to look into the methods of
  liberalisation of insurance
• Based on the report IRA bill was introduced but
  later on withdrawn without discussions from the
  floor of parliament
• Later on the bill in the modified form as IRDA
  bill was introduced in 1999 and the IRDA act was
  passed.
• An independent statutory authority as Regulator
  for insurance business came into existence in 1999

7
Developments since 2000

• Surveyors and loss assessors regulations 2000
• Third party administrators regulations
  2001
• Investment regulations
  2001
• Policy holders interests regulations
  2002
• Brokers regulations
  2002
• Corporate Agents regulations 2002
• Manner of receipt of premium
  2002
• Rural sector
  2002
• Distribution of surplus
  2002

8
Insurance councils Institutes

• Two councils which had been reconstituted life
  insurance council
• Insurance ombudsman had been appointed
• General insurance council
• IIISLA has been formed
• IIBA- Brokers association
• IIRM- Institute of risk management
• Intermediaries now allowed-Agents/ corporate
  agents/ Brokers
• Institutes for educating the agents/Brokers have
  been formed and passing the examination has been
  made mandatory for carrying out insurance
  business
• Surveyor licensing is being controlled by
  Regulator

9
General Insurance business done

• Year In Crores NAOICUINAGIC
• 1974 219.99 25.325.525.521.52.6
• 1975 253.75 26.626.726.721.12.6
• 1976 286.51 27.126.523.421.02.1
• 1990 2174.43 29.822.426.720.11.0
• 2000 10272 crores
• 2006 gt 20000 crores
• 2007 gt 24000 crores

10
International comparison

• Penetration( premium as of GDP)
• United states 4.32
• Canada 3.31
• UK 3.05
• Germany 3.55
• Japan 2.30
• South Korea 2.89
• China 0.61
• India 0.54

• Density ( Premium per capita) USD
• USA 1474.4
• Canada 700.6
• UK 741.5
• Germany 913.5
• Japan 805.5
• South Korea 262.3
• China 5.0
• India 2.4

11
General Insurance

• Insurance of property
• Insurance of persons
• Insurance of liability
• Insurance of Interest

12
Classes of GI Business

• Fire Property damage and business interruption
  insurance
• Marine- Cargo and Hull
• Misc - Motor/ Engineering/Liability/ Aviation/
  Space/Energy/ Guarantee/ Bonds/ Rural/ Livestock/
  weather/ Crop/
• All risks/ accident/ Travel/ Baggage/

13
Insurers now licensed by IRDA

• GENERAL INSURERS
• 1. Bajaj Allianz
• 2. ICICI Lombard
• 3. Iffco-Tokio General Insurance
• 4. National Insurance
• 5. New India Assurance Company
• 6. Oriental Insurance
• 7. Reliance General Insurance
• 8. Royal Sundaram Alliance
• 9. TATA-AIG General
• 10.United India Insurance
• 11. Cholamandalam MS General
• 12. HDFC Chubb General
• 13. Export Credit Guarantee
• 14. Agriculture Insurance Company
• 15. Star Health Allied
• Sompho/ Shri Ram General/AXA/ Apollo DKV

• LIFE INSURERS
• 1. Bajaj Allianz
• 2. Birla sun life
• 3. HDFC Std life
• 4. ICICI Prduential
• 5. ING Vysya
• 6. LIC
• 7. Max New York Life
• 8. Metlife
• 9. Kotak Mahindra OM
• 10.SBI Life
• 11.TATA-AIG Life
• 12.Reliance Life
• 13.AVIVA life
• 14.Sahara India life
• 15.Shri Ram Life
• 16.Bharti AXA Life

14
New Companies licensed

• Life
• 2000 3
• 2001 7
• 2002 2
• 2003 1
• 2004
• 2005
• 2006
• 2007

• General
• 2000 3
• 2001 3
• 2002 3
• 2003
• 2004
• 2005
• 2006
• 2007

15
Terminology used in General Insurance

• Proposer-Insured-Insurer
• Risk- Peril
• Proposal form
• Sum Insured
• Premium ( Consideration)
• Excess ( Deductible)
• Indemnity
• Cover note
• Policy document
• Endorsement-for effecting changes in the policy
• Warranties/ Clauses
• Conditions
• Underwriting
• Renewal
• Hazard

16
Basic Principles of General Insce

• Insurance is a legal agreement entered between
  Insured and Insurer due to which due to the
  consideration, the Insurer agrees to indemnify
  the Insured, for the loss or damage or liability
  created due an accident which is covered under
  the policy subject to the terms and conditions of
  the contract
• All insurance policies are subject to the
  warranties, conditions and clauses of the policy
  contract and claims will be settled accordingly

17
Basic principles

• UTMOST GOOD FAITH- which is embodied in all
  insurance contracts and appears in the conditions
  of the policy documents.
• Since only the Insured who is the
  owner/possessing the property he/she needs to
  declare the details which are to be considered by
  the Underwriter. To obtain the requisite details
  the Insurer arranges all questions in order in
  the proposal form so that he/she knows where to
  look for the required details. Material fact is
  the detail of the risk which will influence the
  mind of the Underwriter to accept/reject and if
  to accept the rate /terms at which the risk is to
  be accepted.
• Duty of disclosure is on the proposer/Insured and
  if wilful concealment/ non-disclosure of facts
  could be established the claim if any could be
  denied

18
Insurable interest

• Only the person who has insurable interest can
  arrange insurance and seek indemnity due to loss
  or damage
• Insurable interest is defined as legal interest
  in another persons life or in the protection of
  property from injury,loss,destruction or
  pecuniary damage
• By virtue of ownership
• Tenant who had leased property
• Employers interest on employees lives

19
Proximate cause

• Insurer is liable for any loss proximately caused
  by a peril insured against, but he is not liable
  for any loss which is not proximately caused by a
  peril insured against-Judge Lumb
• Proximate cause means the active, efficient cause
  that sets in motion a train of events which
  brings about a result, without the intervention
  of any force started and working actively from a
  new and independent source

20
Indemnity

• Insurance contracts are mostly contracts of
  indemnity
• Insured is entitled to obtain the loss amount
  suffered from the insurances he had effected on
  the property
• He is not to be benefited due the loss/damage
• If sum insured is on agreed value basis the loss
  will be settled on that basis
• Extent of indemnity will be based on the market
  value of the property at the time of occurrence
  of the event which caused the loss/damage or
  destruction
• Subrogation and contribution are the corollaries
  of indemnity to ensure that the claim settlement
  follows the normal indemnity

21
Underwriting and claims

• Offer and acceptance- Proposal is studied by the
  Underwriter who then quotes the premium terms,
  warranties and conditions
• Once accepted by the proposer and premium is
  paid, the cover note is issued. Later on policy
  document is issued.
• Alterations/ changes are effected by endorsements
• Claim is being processed to take into account the
  salvage, under-insurance and excess under the
  policy and many times to deduct the additional
  premium for restoring the sum insured to the
  original level by charging the additional premium
  on the claim amount paid from the date of loss
  till the date of expiry.
• Claim will be subject to getting the subrogation
  rights preserved against the third parties
  responsible for making good the loss and
  transferring the same to Insurers

22
Changes

• Fire insurance Reinstatement value
• (other than stocks) Market value
• Marine insurance Agreed value
• Marine hull insurance Agreed value
• Motor insurance Insured declared value
• Engineering insurance Present day replacement
  value
• Misc insurance Market value

23
Insurances which need to become popular

• Business Interruption insurance
• Engineering insurance
• Liability insurance- CGL Public /Product
• E O ( PI) liability insurance
• D O liability insurance
• PI for Lawyers/CAs/Doctors/ Brokers/Architects/
  structural engineers
• Overseas travel insurance
• Employees benefit policies ( GPA/GMC)
  

24
Detariffing

• TAC was earlier providing the rates, terms policy
  wordings and regulations as to how to conduct the
  business
• Nearly 70 of the business was in the purview of
  the tariff
• After liberalising the market by allowing new
  players Tariff rates had been withdrawn wef
  1-1-2007 but with some limitations
• From 1-1-2008 it is expected that the policy
  wordings will be withdrawn by IRDA which will
  allow freedom to the insurers to come out with
  their policy design wordings clauses and
  warranties.
• The beneficiary will be the customers/ insureds

25
Thanks