Question No.

1
Discuss the guidelines for settlement of claims by Insurance company. Answer: General guidelines for claims settlement There are some guidelines that must be followed while settling the claims. These guidelines are general in nature, and are not compiled to be the same always. Therefore, the claim settling authority uses discretion and records reasons. Appointment of surveyor The Insurance Act states that surveyor should survey claims above Rs. 20,000. The surveyors appointment should be based on the following points: The surveyor should have a valid license. The surveyor selected should consider the type of loss and nature of the claims. Depending on the situation, if technical expertise is required, a consultant having technical expertise assists the surveyor. One surveyor can be used for various jobs, if the surveyors competence is good for both.

Appointment of investigator Depending on circumstances, it is necessary to appoint an investigator for verifying the claim version of loss. The appointing letter of the investigator o mentions all the reference terms to perform.

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Question No.2
What is premium accounting and claim accounting? Answer: Premium accounting For the businesses that have a fixed rate like that of fire insurance, motor insurance etc., the premium is charged based on the rate. Where as in businesses that do not have fixed rate, the premium is charged based on the guideline rates fixed by the respective technical departments of the insurers Head Office. According to section 64VB of the Insurance Act, 1938; the insurer cannot assume any risk unless the premium is received in advance. Apart from collection of premium by cash, cheque DD etc., the IRDA recently has permitted to collect the premium by other type of receipt like the credit card, debit card, E transfer etc. However, the same has to be collected before assumption of the risk. Service tax of 8% (presently) has to be collected on taxable premium and deposited with the respective excise authorities within prescribed time limit. If the same business is shared among more than one insurer as preferred by the policy holder, then the lead insurer has to collect the full premium along with service tax. But only one share of premium is accounted as premium and the balance is shown as the amount that is due to other co-insurers. As per the Stamp Act, a policy stamp has to be affixed and has to be accounted properly by debiting policy stamp expenses. A premium register is generated in the system on a daily basis. According to the IRDA Regulation, the premium has to be identified as the income over the contract period or the period of risk, whichever is suitable. Most of the general insurance policies are annual contracts and therefore the premium earned is worked out using 1/365 method. In the insurance policies in which the same is not practicable, it is worked out either using 1/24 or 1/12 method. According to the section 64V (1) (ii) (b) of the Insurance Act, 1938, the unearned premium is compared with the reserve for unexpired risks at the end of the financial year and if there is any shortfall it is accounted as unearned premium. Claims accounting Claims outgo is the major outgo of an insurance company. The respective technical department does the processing of claims and the competent authority approves it. The accounts department does the payment and accounting of the claims. When claim is made for a policy that has more than one insurer the lead insurer pays the full amount of claims. Only own share of claim is accounted as claims cost and the balance is shown as amount recoverable from the other insurers (co-insurers). If a claim is made but not settled by the end of the financial year, then enough provision is made for such outstanding claims. By the end of the financial year the IRDA needs the actuarial valuation of the claims liability of an insurer that the appointed actuary makes and if there is any shortfall, it is provided as Incurred But Not Reported (IBNR) losses.

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Question No.3
Critically evaluate the role of agents in insurance industry Answer:Insurance agents are people who possess specialized knowledge in the field of finance. They play an important intermediary role between the customer and the insurance company. They are also known as insurance agents. Insurance agents can be either of the following: An individual A commercial business entity

Insurance Brokers: Well Informed and Unbiased Insurance brokers or agents have a thorough knowledge and extensive experience in the insurance sector and are quite conversant with the contingent risks of life and their possible risk-management. They actually broker the insurance deal between the insurance company and the consumer and in lieu for this, extract a commission. Insurance brokers are basically financial planners who acquire suitable insurance schemes in accordance with the needs of the insurance clients. Insurance brokers are not tied to any specific insurance companies but to multiple ones. So, there is little chance of them favoring insurances of any specific company/companies. An insurance broker is expected to perform extensive research while choosing the right insurance scheme/policy for the clients requirements without any prior biases. Insurance Brokers: Serving a Large Client Base The job of an insurance broker varies from firm-to-firm because in such cases, size does matter. In large business entities, they have a wide range of client base along with their wide range of requirements. However, it is impossible for a single broker to meet all these need. So, each broker in a big business house has categorical specializations according to the needs of the clients. Insurance brokers in small business entities who have comparatively less businesses and a small number of clients are required to do all the associated work themselves. Insurance Brokers: A Brief Job Description Generally, an insurance broker is involved with the following work: Acquisition of clients in need of insurance - Even if people don't have the demand for insurance in a specific field, brokers generate this demand through advertisements and other methods. This is known as business development. Giving proper and adequate service to the client to maintain an ongoing relationship between the insurance company and the client - This is commonly known as servicing of client.

Constantly remaining in touch with the clients and catering to their problems by gathering proper information and assessing their risk profile and requirements. Renewing the policies of the existing clients in a hassle-free manner and with appropriate judgment and guidance. Giving proper advice to clients in a customized way by gauging their risk profile coupled with extensive research. Keeping abreast with new policies and schemes of the insurance companies so that they can choose the right policy for their clients personal needs. Collecting regular premiums paid by the clients. Processing the accounts of the clients.

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Question No.4
Explain product design and development process in Insurance Industry. Answer:One main issue in the liberalised scenario of the insurance sector is in the area of developing new products. Constant activity in this area is very important for determining the overall profitability, and growth of any insurance company. The main reason for the liberalisation of the insurance sector is that it the public sector was not practical in the process of developing products that satisfied the needs of the customer. Product development process is an important process for an insurance company. Developing insurance products include the following steps: Customer requirement analysis - In the first step, the customer requirements are analysed. In this phase, the information on the amount to be insured, total income, client biometrics such as age and family size, current purchasing habits, and so on are analysed. Business analysis - In the business analysis stage of product development, different departments of the insurance company have the following responsibilities. 1. Marketing department has to perform the market analysis to know the customer needs, and make a forecast for sales. 2. Underwriting department has to prepare the manuals. 3. Customer service department assesses the procedural requirements of the new products. 4. Actuarial department develops the specifications of the product, and the resulting impact on product portfolios. 5. Accounting department reports the financial requirements of the new product. 6. Information systems department checks whether the insurer has enough operating systems to accommodate the new product or not. 7. Investment department along with the actuarial department determines the investment needs for the new product. Prototype development - In this step, a prototype of the product is designed and testing is carried out. Pricing the product - The pricing of the insurance products plays an important role in the design and development of the product. The price of the product should include the risk premium that the insurance company needs for accepting the policy, and the cost for distributing and administering the product to the client. The policy price that is charged to the client includes the risk premium and the cost of the distributor. Product release - This stage is called as the technical design stage. It involves creation of drafts for policy documents, commission structure, underwriting, forms and procedures and issue specifications. Before the product is released to the market the insurance companies have to take care of the following:

1. 2. 3. 4. 5.

Arrangement of training material. Designing promotional materials for the products. Releasing all the information that is needed to understand the product. Administration of the product after release. Complete policy filing, the process by which the organisation obtains all the regulatory approvals from all the applicable authorities that are needed to release the product. 6. Educating and training the staff and the sales agents on administrative procedures and forms that are needed to sell, administer and service the product. The environment in which the insurer functions inspires its product development. This comprises of the legal framework which the insurance industry has to follow and social and economic factors. Any stage of product development has to be carried out in accordance with the customers interest. Thus, since 1973, the Indian Insurance sector has directed the product development towards meeting this goal. In the last three decades, the General Insurance Company (GIC) together with its four subsidiaries has developed 150 new products, and has met its customer requirements. To control poverty and provide employment in the rural areas, the insurance sector developed the Integrated Rural Development Program (IRDP).

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Question No.5
What is facultative reinsurance and treaty reinsurance? Answer: The two different types of reinsurances are: Facultative reinsurance. Treaty reinsurance.

Facultative reinsurance It is a type of reinsurance that is optional; it is a case-by-case method that is used when the ceding company receives an application for insurance that exceeds its retention limit. It is based on the individual agreements that help to cover specific losses. When any primary insurer wants reinsurance for a specific coverage, it enters the market, and bargains with different reinsurance companies for the amount of coverage and premium, looking out for a better value. According to most of the contracts, the reinsurer pays a ceding commission to the insurer to pay for purchase expenses. Before issuing the insurance policy the insurer looks for reinsurance and speaks to many reinsurers. The insurance company does not have any commitments to cede insurance and also the reinsurer has no commitments to accept the insurance. However if the insurance company find a reinsurer who is willing to take the insurance policy then they can enter into a contract. Facultative reinsurance is used when a huge amount of insurance is preferred and while considering a specific risk involved in an individual contract. Facultative reinsurance is the reinsurance of a part of a single policy or the entire policy after negotiating the terms and conditions. It reduces the risk exposure of the ceding company against a particular policy. Facultative reinsurance is not mandatory. One advantage of facultative reinsurance is it is flexible as a reinsurance contract is arranged to fit any kind of cases. It helps the insurance companies in writing large amount of insurance policies. Reinsurance moves the huge losses of the insurers to the reinsurer and thus helps the insurer. One main disadvantage of facultative reinsurance is that it is not reliable. The ceding insurer will not know in advance whether a reinsurer will agree to pay any part of the insurance. The other disadvantage of this kind of reinsurance is the delay in issuing the policy as it cannot be issued until the reinsurance is got for that policy. Treaty reinsurance Treaty reinsurance is one in which the primary insurer agrees to cede the insurance policy to the reinsurer and the reinsurer has to accept it. It includes a standing agreement with a specific reinsurer. The amount of insurance that the primary insurer sells and those policies where both the parties provide the service is specified in the contract. All the business that comes under the contract is automatically reinsured according to the conditions of the treaty.

Treaty reinsurance needs the reinsurer to assume the entire responsibility of the ceding company or a part of it for some particular sections of the business with respect to the terms of the policy. The contract is a compulsory contract because according to the treaty the ceding company has to cede the business and the reinsurer is compelled to assume the business. It is a type of reinsurance that is preferred while considering the groups of homogenous risks. The treaty reinsurance provides many advantages to the primary insurance company. It is automatic, more reliable, and there is no delay in issuing the policy. It is also more cost effective as there is no need to shop around for reinsurers before writing the policy. The treaty reinsurance is not advantageous to the reinsurer. Usually the reinsure does not know about the individual applicant of the policy and has to depend on the underwriting judgment that the primary insurer gives. It may be so that the primary insurer can show bad business like more losses and get reinsured for it as the reinsurer does not know the real fact. The primary insurer may pay insufficient premium to the reinsurer. Therefore the reinsurer undergoes a loss if the risk selection of the primary insurer is not good and they charge insufficient rates. There are different types of treaty reinsurance arrangements which may differ according to the liability of the reinsurer. They are: Quotashare treaty. Surplusshare treaty. Excessofloss treaty. Reinsurance pool.

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Question No.6
What is the role of information technology in promoting insurance products. Answer:The rapid developments in information technology are posing serious challenges for insurance organizations. The use of information technology in insurance industry has an impact on the efficiency of the organization as it reduces the operational costs. After many private players entered the insurance industry, the competition in the insurance sector has become immense. Information technology has helped in enhancing the insurance business. Insurance industry uses information technology for internal administration, accounting, financial management, reports, and so on. Indian insurance organizations are rapidly growing as technology-driven organizations, by replacing billions of files with folders of information. Insurers are heading towards the technological enhancements, in order to focus on the key areas of insurance business. The role of IT in different fields of insurance like: Actuarial investigation - Insurers depend on the rates of actuarial models to decide the quantity of risks which create loss. Insurance organizations are using new technologies, to analyse the claims and policyholders data for providing connection between risk characteristics and claims. Developments in technology allow actuaries to examine risks more precisely. Policy management - Most of the insurance policies are printed and conveyed to policy owners through mail every year. The method of creating documents is accomplished by technicians and typists. In most of the cases, this task is generally completed by using new technology. Customer data is accessed by computer systems, and maintained in huge folders, in order to renew each policy. To assemble the policies, complex software packages are used, and to print the policies high speed printers are utilized. Underwriting Underwriters can use knowledge based expert systems to make underwriting decisions. By using automated systems, underwriters can compare an individuals risk profile with their data and customize policies according to the individuals risk profile. Front end operations: CRM (Customer Relationship Management) packages are used to integrate the different functional processes of the insurance company and provide information to the personnel dealing with the front end operations. CRM facilitates easy retrieval of customer data. LIC is using CRM packages to handle its front end operations.

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