Beruflich Dokumente
Kultur Dokumente
THESIS ON
Submitted By:
VAIBHAV TRIVEDI
SPRING SUMMER/2007-2009
ALUMNI ID: DS79-F-095
Submitted To:
As the drama of life unfolds on the path from birth to death, people experience unpredictable
events along the way. Not all events are same for every one and we soon learn that life is
uncertain and death is indeterminable. The paradox is that we know we cannot predetermine how
long our life will be, yet we know that death is certainly for everyone. Thus life is full of
Although insurance is a formidable risk management tool but from an insurer’s point of view it is
very critical to assess the risk associated to an individual’s life in an appropriate and accurate
manner.
The ensuing study is an attempt to provide the greater insight to the use of rules and techniques
of risk assessment in the context of risk management process followed by ICICI Prudential Life
Insurance Company. It is divided in to five chapters. The first chapter looks at the details of
ICICI Prudential as a company because unless or until we are known to the company profile to
which we are going to study, we cannot move in the right direction. After a brief look at the
company profile, chapter 2 deals with the basics of Risk Management. Chapter 3 elucidates the
relationship between insurance and risk and how insurance can be applied as a formidable tool to
risk management. Chapter 4 illustrates the Risk Management Process. Chapter 5 illustrates the
importance, methodology and application of underwriting tools and underwriting process used
This is to certify that the dissertation entitled “Risk Assessment & Underwriting of an
Session 2007-2009) to the Indian Institute of Planning & Management, New Delhi been
authentically done by him under my supervision and guidance with due diligence.
The dissertation has been undertaken in fulfillment of the degree requirements for Masters
Date :
Acknowledgement
I would like to express my sincere gratitude to my project guide Mr. Paramjeet Singh Ahuja
for his constant interest and guidance towards the successful completion of the project. I would
also like to acknowledge the support provided by the Central Underwriting Team (CUW) of
ICICI Prudential Life Insurance Company Private Ltd. Lastly, I would like to thank Mr. Nitin
Malhotra, the State Manager U.P, ICICI Prudential Life Insurance Company for helping me out
to get connected with the CUW team and for making available crucial information regarding the
I also express my grateful appreciation to Prof. Sumanta Sharma & Mr. Vijay Boddu for
Last but not the least, it is a pleasure to express my heartfelt thanks to all those who remembered
VAIBHAV TRIVEDI
INTRODUCTION TO THE STUDY
Introduction
This is an overall study of the rules and methods adopted by the organization of ICICI Prudential
Life Insurance Company Pvt. Ltd. for the purpose of underwriting of an Insurance Proposal.
Objectives
The study has undertaken to get an exposure of actual working environment in an organization.
The main objective of the study is to familiarize with the frame work and methods of
1. To provide greater insight to the use of rules and techniques of risk assessment in the
context of risk management process.
2. To know how ICICI Prudential Life works and methods adopted for the purpose of
underwriting of an insurance proposal.
Methodology
Limitation
1. The study is limited to the study of the underwriting department and not on whole of
organization.
2. This study is only subject to an organization and not consist the whole market.
This is to inform that the thesis topic “Risk Assessment & Underwriting of an Insurance
approved .This email is an official confirmation that you would be doing your thesis work
under the guidance of Mr. Paramjeet Singh Ahuja. Make it a comprehensive thesis; the
Please ensure that the objectives as stated by you in your synopsis are met using the appropriate
research design. You must always use the thesis title as approved and registered with us.
You are required to correspond with us by sending at least six response sheets to Prof. Vijay Kr.
mail) at regular intervals, before 30th April 2009(the last date for thesis submission).
Regards,
Sumanta Sharma
Dean (Projects)
The Indian Institute of Planning and Management
New Delhi
Sumanta.sharma@iipm.edu
TABLE OF CONTENTS
BIBLIOGRAPHY
CHAPTER 1: ICICI PRUDENTIAL LIFE INSURANCE COMPANY
1.1 Overview
ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank - one of India's
services group headquartered in the United Kingdom. Total capital infusion stands at Rs. 37.72
billion, with ICICI Bank holding a stake of 74% and Prudential plc holding 26%.
ICICI Prudential began its operations in December 2000 after receiving approval from
Insurance Regulatory Development Authority (IRDA). Today, its nation-wide team comprises
of over 952 branches in addition to 1,004 micro-offices, over 291,000 advisors; and 21
bancassurance partners.
ICICI Prudential was the first life insurer in India to receive a National Insurer Financial
Strength rating of AAA (Ind) from Fitch ratings. For three years in a row, ICICI Prudential has
been voted as India's Most Trusted Private Life Insurer, by The Economic Times - AC Nielsen
ORG Marg survey of 'Most Trusted Brands'. As it grows its distribution, product range and
customer base, it continues to tirelessly uphold its commitment to deliver world-class financial
The ICICI Prudential edge comes from its commitment to its customers, in all that they do - be it
product development, distribution, the sales process or servicing. Here's a peek into what makes
1. Their products have been developed after a clear and thorough understanding of
customers' needs. It is this research that helps them develop Education plans that offer the
ideal way to truly guarantee your child's education, Retirement solutions that are a hedge
against inflation and yet promise a fixed income after you retire, or Health insurance that
arms you with the funds you might need to recover from a dreaded disease.
2. Having the right products is the first step, but it's equally important to ensure that the
customers can access them easily and quickly. To this end, ICICI Prudential has an
advisor base across the length and breadth of the country, and also partners with leading
3. Robust risk management and underwriting practices form the core of our business. With
clear guidelines in place, the company ensures equitable costing of risks, and thereby
4. Entrusted with helping the customers meet their long-term goals, ICICI Prudential adopts
an investment philosophy that aims to achieve risk adjusted returns over the long-term.
5. Last but definitely not the least, company’s 28,000 plus strong team is given the
“To be the dominant Life, Health and Pensions player built on trust by world-class people and
service.”
• Understanding the needs of customers and offering them superior products and
service
The success of the company will be founded in its unflinching commitment to 5 core values –
Integrity, Customer First, Boundary less, Ownership and Passion. Each of the values describes
what the company stands for, the qualities of our people and the way we work.
We do believe that we are on the threshold of an exciting new opportunity, where we can play a
significant role in redefining and reshaping the sector. Given the quality of our parentage and the
Every member of the ICICI Prudential team is committed to 5 core values: Integrity, Customer
First, Boundaryless, Ownership, and Passion. These values shine forth in all we do, and have
become the keystones of our success.
ICICI Bank
ICICI Bank Limited (NYSE:IBN) is India's largest private sector bank and the second largest
bank in the country, with consolidated total assets of $121 billion as of March 31, 2008. ICICI
Bank’s subsidiaries include India’s leading private sector insurance companies and among its
largest securities brokerage firms, mutual funds and private equity firms. ICICI Bank’s presence
Prudential Plc
Established in London in 1848, Prudential plc, through its businesses in the UK, Europe, US,
Asia and the Middle East, provides retail financial services products and services to more than 20
million customers, policyholder and unit holders and manages over £267 billion of funds
worldwide (as of December 31, 2007). In Asia, Prudential is the leading European life insurance
company with life operations in China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia,
the Philippines, Singapore, Taiwan, Thailand, and Vietnam. Prudential is one of the largest retail
fund managers for Asian sourced assets ex-Japan. Its fund management business has expanded
into ten markets, comprising of China, Hong Kong, India, Japan, Korea, Malaysia, Singapore,
ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier
financial powerhouse, and Prudential plc, a leading international financial services group
headquartered in the United Kingdom. ICICI Prudential was amongst the first private sector
insurance companies to begin operations in December 2000 after receiving approval from
ICICI Prudential Life's capital stands at Rs. 37.72 billion (as on March, 2008) with ICICI Bank
and Prudential plc holding 74% and 26% stake respectively. For the year ended March 31, 2008,
the company garnered Retail New Business Weighted premium of Rs. 6,684 crores, registering a
growth of 68% over the last year and has underwritten nearly 3 million retail policies during the
period. The company has assets held over Rs. 28,500 crore.
ICICI Prudential Life is also the only private life insurer in India to receive a National Insurer
Financial Strength rating of AAA (Ind) from Fitch ratings. The AAA (Ind) rating is the highest
rating, and is a clear assurance of ICICI Prudential's ability to meet its obligations to customers
For the past seven years, ICICI Prudential Life has retained its leadership position in the life
insurance industry with a wide range of flexible products that meet the needs of the Indian
1.5.2 Distribution
ICICI Prudential Life has one of the largest distribution networks amongst private life insurers in
India. It has a strong presence across India with over 952 branches in addition to 1,004 micro-
The company has 21 bancassurance partners having tie-ups with ICICI Bank, Bank of India,
Federal Bank, South Indian Bank, Shamrao Vitthal Co-Op Bank, Jalgaon Peoples Co-op Bank,
Ernakulam District Co-op Bank, Idukki District Co-op Bank, Ratnagiri Sindhudurg Gramin
Bank, Solapur Gramin Bank, Wainganga Kshetriya Gramin Bank, Aryawart Gramin Bank,
Jharkhand Gramin Bank, Narmada Malwa Gramin Bank, Baitarani Gramya Bank, Ratnagiri
District Central Co-op Bank, Seva Vikas Co-op Bank, Sangli Urban Co-Operative Bank,
Baramati Co-operative Bank, Ballia Kshetriya Co-Operative Bank, The Haryana State Co-
1.5.3 Products
ICICI Prudential Life Insurance offers a range of innovative, customer-centric products that meet
the needs of customers at every life stage. Its products can be enhanced with up to 4 riders, to
like a child's marriage, expenses for a child's higher education or purchase of an asset. It
• LifeTime Gold & LifeTime Plus are unit-linked plans that offer customers the
flexibility and control to customize the policy to meet the changing needs at different
life stages. Each offer 6 fund options - Preserver, Protector, Balancer, Maximiser, Flexi
• LifeLink Super is a single premium unit linked insurance plan which combines life
insurance cover with the opportunity to stay invested in the stock market.
• Premier Life Gold is a limited premium paying plan specially structured for long-
• InvestShield Life New is a unit linked plan that provides premium guarantee on the
invested premiums and ensures that the customer receives only the benefits of fund
• InvestShield Cashbak is a unit linked plan that provides premium guarantee on the
combines the benefits of automatic asset allocation and quarterly rebalancing along with
increased protection.
Protection Solutions
• LifeGuard is a protection plan, which offers life cover at low cost. It is available in 3
options - level term assurance, level term assurance with return of premium & single
premium.
• HomeAssure is a mortgage reducing term assurance plan designed specifically to help
policy. The policy is designed to provide money at important milestones in the child's
life. SmartKid plans are also available in unit-linked form - both single premium and
regular premium.
Retirement Solutions
• ForeverLife is a traditional retirement product that offers guaranteed returns for the
• LifeTime Super Pension is a regular premium unit linked pension plan that helps one
accumulate over the long term and offers 5 annuity options (life annuity, life annuity
with return of purchase price, joint life last survivor annuity with return of purchase
price, life annuity guaranteed for 5, 10 and 15 years & for life thereafter, joint life, last
• Immediate Annuity is a single premium annuity product that guarantees income for
premium paying term of three or five years, to suit professionals and businessmen,
especially those who require more flexibility and customization while planning their
finances.
Health Solutions
• Health Assure Plus: Health Assure is a regular premium plan which provides long
assistance, irrespective of the actual medical expenses. Health Assure Plus offers the
added advantage of an equivalent life insurance cover.
• Cancer Care: is a regular premium plan that pays cash benefit on the diagnosis as
• Cancer Care Plus: is a wellness plan that includes all the benefits of Cancer Care and
• Diabetes Care: Diabetes Care is a unique critical illness product specially developed
for individuals with Type 2 diabetes and pre-diabetes. It makes payments on diagnosis
on any of 6 diabetes related critical illnesses, and also offers a coordinated care approach
to managing the condition. Diabetes Care Plus also offers life cover.
• Diabetes Care Plus: is a unique insurance policy that provides an additional benefit of
conditions (900 surgeries) and has a long term guaranteed coverage upto 20 years.
• Crisis Cover : is a 360-degree product that will provide long-term coverage against 35
ICICI Prudential Life also offers Group Insurance Solutions for companies seeking to
• Group Gratuity Plan: ICICI Prudential Life's group gratuity plan helps employers \
fund their statutory gratuity obligation in a scientific manner. The plan can also be
customized to structure schemes that can provide benefits beyond the statutory
obligations.
• Group Superannuation Plan: ICICI Prudential Life offers both defined
contribution
(DC) and defined benefit (DB) superannuation schemes to optimise returns for the
members of the trust and rationalise the cost. Members have the option of choosing
from various annuity options or opting for a partial commutation of the annuity at the
time of retirement.
• Group Immediate Annuities: In addition to the annuities offered to existing
managed by us.
• Group Term Plan: ICICI Prudential Life's flexible group term solution helps
provide
designation/rank or a multiple of salary. The benefit under the policy is paid to the
ICICI Prudential Life offers flexible riders, which can be added to the basic policy at a marginal
1. Accident & disability benefit: If death occurs as the result of an accident during the
term of the policy, the beneficiary receives an additional amount equal to the rider
sum assured under the policy. If an accident results in total and permanent disability,
10% of rider sum assured will be paid each year, from the end of the 1st year after
the disability date for the remainder of the base policy term or 10 years, whichever is
lesser. If the death occurs while travelling in an authorized mass transport vehicle,
the beneficiary will be entitled to twice the sum assured as additional benefit.
2. Critical Illness Benefit: protects the insured against financial loss in the event of 9
specified critical illnesses. Benefits are payable to the insured for medical expenses
prior to death.
the future premiums continue to be paid by the company till the time of maturity.
This rider is available with SmartKid, LifeTime Plus, LifeTime Super and LifeTime
Super Pension.
4. Income benefit rider: In case of death of the life assured during the term of the
policy, 10% of the sum assured is paid annually to the nominee on each policy
anniversary till the maturity of the rider.
1.6 About the Promoter, Parent Organization of ICICI Prudential Life Insurance in INDIA
ICICI Bank
ICICI Bank Limited (NYSE:IBN) is India's largest private sector bank and the second largest
bank in the country, with consolidated total assets of $121 billion as of March 31, 2008. ICICI
Bank’s subsidiaries include India’s leading private sector insurance companies and among its
largest securities brokerage firms, mutual funds and private equity firms. ICICI Bank’s presence
Established in London in 1848, Prudential plc, through its businesses in the UK and Europe, US,
Asia and the Middle East, provides retail financial services products and services to more than 20
million customers, policyholder and unit holders and manages over £267 billion of funds
worldwide (as of December 31, 2007). In Asia, Prudential is the leading European life insurance
company with life operations in China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia,
the Philippines, Singapore, Taiwan, Thailand, and Vietnam. Prudential is one of the largest retail
fund managers for Asian sourced assets ex-Japan. Its fund management business has expanded
into a total of ten markets: China, Hong Kong, India, Japan, Korea, Malaysia, Singapore,
Its fund management business has expanded into a total of ten markets: China, Hong
Kong, India, Japan, Korea, Malaysia, Singapore, Taiwan, Vietnam and United Arab Emirates.
1.7 Board of Directors
The ICICI Prudential Life Insurance Company Limited Board comprises reputed people from the
Management Team
The ICICI Prudential Life Insurance Company Limited Management team comprises reputed
people from the finance industry both from India and abroad.
Mr.V.Vaidyanathan, Managing Director & CEO
Ms. Anita Pai, Exec. Vice President Customer Service & Tech.
Mr. Puneet Nanda, Exec. Vice President & Chief Investment Officer
CHAPTER 2: RISK MANAGEMENT – AN INTRODUCTION
Risk is a condition where there is a possibility of an adverse deviation from a desired outcome
that is expected or hoped for; when an event is stated to be possible, it has a probability between
zero and one; it is neither impossible nor indefinite. The degree of risk may or may not be
measurable. Since our purpose is to relate risk to insurance, focus will be on risk, which entails
the possibility of financial loss. Financial loss may be defined as a decline in or disappearance of
value due to a contingency. This means that if the loss of value is intended or if it is certain, it is
For those who define risk as uncertainty, the greater the uncertainty, the greater is the risk. For an
individual, higher the probability of loss, greater is the probability of an adverse deviation from
what is hoped for and therefore greater is the risk. The expected value of loss in a given situation,
or the mathematical value of risk at any point of time, is the probability of the loss materializing
There is some element of risk in every aspect of human endeavor, and many of these risks have
no (or only incidental) financial consequences. As for insurance, we are concerned with those
Dynamic risks are those resulting from changes in the economy. Changes in the price level,
consumer tastes, income and output and technology may cause financial loss to the members of
the economy. These dynamic risks normally benefit society over the long run since they are the
result of adjustments to misallocation of resources. Since these dynamic risks may affect a large
number of individuals, they are generally considered less predictable than static risks, since they
Static risks involve those losses that occur even if there were no changes in the economy. If we
could hold consumer tastes, output and income and the level of technology, constant, some
individuals would still suffer financial loss. These losses arise from causes other than the
changes in the economy, such as perils of nature and dishonesty of other individuals. Unlike
dynamic risks, static risks are not a source of gain to society. Static losses tend to occur with a
degree of regularity over time and, as a result, are generally predictable. Because they are
predictable, static risks are more suited to treatment by insurance than are dynamic risks.
Fundamental risks involve losses that are impersonal in origin and consequences. They are
group risks, caused for the most part in economic, social and political phenomena, although they
may also result from physical occurrences. They affect large segments or even all of the
population. Unemployment, war, inflation, earthquakes and floods are all fundamental risks.
Particular risks involve losses that arise out of individual events and are felt by the individuals
rather than by the entire group. They may be static or dynamic. The burning of a house and the
Since fundamental risks are caused by the conditions more or less beyond the control of
individuals who suffer the losses and since they are not due to the fault of any one in particular, it
is held that society rather than the individual has responsibility to deal with them – social
insurance should be for fundamental risk – private insurance for particular risks though some
Speculative risk refers to a condition where there is a chance that the risk-taker may suffer a
loss or enjoy a gain or maintain status quo. For example, if Jayesh purchase a lottery ticket, he
runs the risk of either losing the money used to buy the ticket or striking the top prize of Rs. 1
crore. This would be an example of taking speculative risk. When an investor invests a sum of
money in to certain shares, he could end up making a profit, suffering a loss or breaking even.
Pure risk refers to a condition where the risk taker either suffers a loss or avoids losses without
enjoying any gain. For example, if Jayesh owns a property, there is a risk that an accidental fire
may decimate it. This is an example of pure risk as the best that Jayesh can hope for is to
Only pure risks are insurable. Insurance is not concerned with protection of individuals against
those losses arising out of speculative risks. Speculative risk is voluntarily accepted because of
These are risks that affect the income-producing ability of the client arising from events
such as employment, death, disability, illness or accident. They can also cause the client
to incur additional expenses relating to his maintenance and sustenance. For example, if
a client is struct by disability, then he will not only be economically unproductive, but
additional expenses, e.g. medical expenses, will be incurred to look after his needs
These are risks that result in loss, destruction or damage to the client’s real and personal
property. Examples of such risks are fire, theft, flood and accidents.
These are risks that expose the client to liability to third parties. They arise as a result of
the client’s words, conduct, property or legal relationships. For example, if client is a
lawyer, he owes a duty of care to his client to give proper advice. If this duty is breached
and client suffers losses, he could be liable for damages. Another example is where a
person negligently steers his car and cause an accident resulting in injuries inflicted on a
pedestrian. The driver will be liable to the pedestrian for damages to compensate him for
These are risks that expose the client to loss due to the acts or omission by others. For
example, if a person engages a contractor to renovate his home but the contractor
botches up (spoil) the job, resulting in extensive damage to the home to the person will
have to suffer losses due to the contractor’s negligence. The situation will be
instituted against him will probably not result in any compensation for the client.
2.5 Methods of Handling Risk
We are surrounded by risks. We take risk when we travel, when we engage in recreational
activities, even when we breathe. Some risks are significant, others are not. When we decide to
leave an umbrella at home, we take the risk that we might get caught in a rain shower. Such a
risk is insignificant. But what about the risks in the following situations?
1. Ricky Agarwal is a 23-year old single man who is working his way through
college with part time jobs. What if he becomes ill and requires a long hospital
stay and expensive medical treatment?
2. Dinesh and Jaya Patel are working parents of two school-aged children. What if
either Dinesh or Jaya becomes disabled and cannot work to support the family?
3. Jagdish and Jayendra Goswami own and mange a convenience store. What if a
fire damages their building?
5. Kavita Waghmare is an artist who supports herself by selling her artwork. What
happens when she retires and her income is no longer sufficient to meet her
economic needs?
In each situation, the individual, family or business can use risk management to deal with the
financial risk it faces. The practice of risk management involves identifying risk, assessing risk
and dealing with risk. In order to eliminate or reduce our exposure to financial risk, we can do at
altogether. We can avoid the risk of personal injury that may result from an airplane
crash by not riding in an airplane, and we can avoid the risk of financial loss in the stock
market by not investing in it. Sometimes, however, avoiding risk is not effective or
practical.
We can try to control risk by taking steps to prevent or reduce losses. For instance,
Jagdish and Jayendra Goswami in one of our earlier examples could reduce the
addition, the Goswamis could install smoke detectors and a sprinkling system in their
building to lessen the extent of damage likely to happen if there is a fire. In these ways,
the Goswamis are attempting to control risk by reducing the likelihood of a loss and
A third method of managing risk is to accept, or retain risk. Simply stated, to accept a
risk is to assume all financial responsibility for that risk. Sometimes, as in the case of an
insignificant risk – loosing an umbrella – the financial loss is not great enough to
warrant much concern. We assume the cost of replacing the umbrella ourselves. Some
people consciously choose to accept more significant risks. For instance, a couple like
Dinesh and Jaya Patel from one of the previous examples may decide not to purchase
disability income insurance because they believe they can just reduce their standard of
Individuals and business sometimes decide to accept total responsibility for a given risk
rather than purchasing insurance to cover the risk. In this situation, the person or
business is said to self-insure against the risk. Self-is a risk management technique by
which a person or a business accepts financial responsibility for losses associated with
specific risks. For example, many employers provide medical expense benefits to heir
employees. An employer can self-insure the benefit plan by setting aside money to pay
employees’ medical expenses or can pay those expenses out of its current income.
Individuals and business can also decide to accept only a part of the risk. For instance,
an employer can partially self-insure a medical expense benefit plan by paying its
employees medical expenses up to a stated amount and buying insurance to cover all
expenses in excess of that stated amount. Many employers now use self-insurance to
Transferring risk is a fourth method of risk management. When you transfer risk to
another party, you are shifting the financially responsibility for that risk to the other
party, generally in exchange for a fee. The most common way for individuals, families
coverage, the insurer issues an insurance policy. The policy is a written document that
contains the terms of the agreement between the insurance company and the owner of
the policy. The agreement is a legally enforceable contract under which the insurance
company agrees to pay a certain amount of money – known as the policy benefit, or the
policy proceeds – when a specific loss occurs, provided that the insurer has received a
specific amount of money, called the premium.
In general, individuals and business can purchase insurance policies, which covers three
types of risks: property damage risk, liability risk and personal risk.
Insurers that sell insurance policies to provide financial security from property damage
companies.
Property insurance provides a benefit if the insured items are damaged or lost because
Property insurance or life insurance (also referred to as property and casualty insurance)
are commonly marked together in one policy. Suppose, for example, you are driving a
accidentally crash through your neighbor’s front door. The damage to your neighbor’s
home will be paid by your policy’s liability coverage; the money to repair your car will
Personal insurance; Insurers that sell insurance policies to provide financial security
from personal risk are known as life and health insurance companies. It is the transfer of
personal risk to life and health insurers that we will address in this book. Both
individuals and business purchase life and health insurance policies to provide
The business of insurance is related to the protection of the economic value of assets. Every asset
has a value. The asset would have been created through the efforts of the owner, in the
expectation that, either through the income generated there from or some other output, some of
his needs would be met. In the case of a factory or a cow, the production is sold and income
There is no direct income. There is normally expected lifetime for the asset during which it is
expected to perform. The owner, aware of this, can so manage his affairs that by the end of that
life time, a substitute is made available to ensure that the value or income is not lost. However, if
the asset gets lost earlier, being destroyed or made non-functional, through an accident or other
unfortunate event, the owner and those deriving benefits there from suffer. Insurance is a
Assets are insured, because they are likely to be destroyed or made non-functional, through an
accidental occurrence. Such possible occurrences are called perils. Fire, floods, breakdowns,
lightning, earthquakes etc. are perils. The damage that these perils may cause to the asset is the
People have always sought ways to spread risk and protect themselves from loss. Centuries ago,
Chinese merchants divided their cargo among several junks when transporting goods down the
treacherous Yangtze River. If one of the boats was lost, to the river or to pirates, each merchant
lost just part of the shipment. It was an early method of spreading risk. Arab traders did the same
encourage commerce, a form of insurance called bottomry bonds was developed. They were
called bottomry bonds after “bottoms”, a name applied to ships in those days. Under such a
bond, the borrower was freed from any obligation if the collateral was lost through no willful act
on the part of the borrower. It was an early form of insurance. The basic protection helped
3.1.2 Indemnification
One of the important terms of the contractual agreement between the insurance company and the
owner of an insurance policy is the amount of policy benefit that will be payable if a covered loss
occurs. Depending on the way in which a policy states the amount of the policy benefit, every
contract of indemnity is an insurance policy under which the amount of the policy benefit
payable for a covered loss is based on the actual amount of financial loss that results from the
loss, as determined at the time of loss. The policy states that the amount of the benefit is equal to
the amount of the financial loss or the maximum amount stated in the contract, whichever is less.
When the owner of such a contract submits a claim – a request for payment under the terms of
the policy – the benefit paid by the insurance company will not be greater than the actual amount
Many types of health insurance policies pay a benefit based on the actual cost of a person’s
medical expenses and, as such, are contracts of indemnity. For example, assume that Bala Swami
is insured by a health insurance policy that will pay any covered hospital expenses Bala incurs.
The policy states the maximum amount payable to cover Bala’s expenses while he is
hospitalized. If he is hospitalized and his actual hospital expenses are less than that maximum
amount, the insurance company will not pay the stated maximum; instead, the insurance
company will pay a sum that is based on the actual amount of Bala’s hospital bill. Property and
Transferring risk is a fourth method of risk management. When you transfer risk to another
party, you are shifting the financially responsibility for that risk to the other party, generally in
exchange for a fee. The most common way for individuals, families and business to transfer risk
When an insurance company agrees to provide a person or a business with insurance coverage,
the insurer issues an insurance policy. The policy is a written document that contains the terms of
the agreement between the insurance company and the owner of the policy. The agreement is a
legally enforceable contract under which the insurance company agrees to pay a certain amount
of money – known as the policy benefit, or the policy proceeds – when a specific loss occurs,
provided that the insurer has received a specific amount of money, called the premium.
In general, individuals and business can purchase insurance policies, which covers three types of
Insurers that sell insurance policies to provide financial security from property damage risk and
Property insurance or life insurance (also referred to as property and casualty insurance)
are commonly marked together in one policy. Suppose, for example, you are driving a
accidentally crash through your neighbor’s front door. The damage to your neighbor’s
home will be paid by your policy’s liability coverage; the money to repair your car will
Personal insurance; Insurers that sell insurance policies to provide financial security
from personal risk are known as life and health insurance companies. It is the transfer of
personal risk to life and health insurers that we will address in this book. Both
individuals and business purchase life and health insurance policies to provide
Insurance products are designed in accordance with some basic principles that define which risks
are insurable. In order for a risk-a potential loss-to be considered insurable, it must have certain
characteristics as follows:
These five basic characteristics are used to define an insurable risk form the foundation of the
business of insurance. A potential loss that does not have these characteristics generally is not
In order for a potential loss to be insurable, the element of chance must be present. The
intentionally caused by the person covered by the insurance. For example, people cannot
generally control whether they will become seriously ill; as a result, insurance
companies can offer health insurance policies to provide economic protection against
financial losses caused by the chance event that the person who is insured will become
When this principle of loss is applied in its strictest sense to life insurance, an apparent
problem arises: death is certain to occur. The timing of an individual’s death, however,
is usually out of the individual’s control. Therefore, although the event being insured
against-death-is a certain event rather than a chance event, the timing of that event
For most types of insurance, an insurable loss must be definite in terms of time and
amount. In other words, the insurer must be able to determine when to pay policy
benefits and how much those benefits should be. Death, illness, disability and old agare
generally identifiable conditions. The amount of economic loss resulting from these
As described earlier, insignificant losses, like the loss of an umbrella, are not normally
insured. The administrative expenses of paying benefits when a very small loss occurs
would drive the cost for such insurance protection so high in relation to the amount of
the potential loss that most people would find the protection unaffordable
On the other hand, some losses would cause financial hardship to most people and are
that resulted in a long period of disability, he/she would lose a significant amount of
predict the probable rate of loss that the people insured by the coverage will experience.
To predict the loss rate for a given group of insured’s, the insurer must predict the
number and timing of covered losses that will occur in that group of insured’s. An
insurer predicts the loss rate for a group of insured’s so that it can determine the proper
No one can predict the losses that a specific person will experience. We do not know when a
specific person will die, become disabled or need hospitalization. It is possible, however, to
predict with a fairly high degree of accuracy the number of people in a given large group who
will die or become disabled or need hospitalization during a given period of time.
These predictions of future losses are based on the concept that, even though individual events-
such as the death of a particular person-occur randomly, we can use observations of past events
to determine the likelihood that a given event will occur in the future. This likelihood is called
probability of event. An important concept that is used to determine the probability of an event
Although insurance is only one of the techniques available for dealing with the pure risks that an
individual faces many of the risk management decisions boil down to a choice between insurance
and non-insurance.
Advantages
A. Indemnification
B. Reduction of Uncertainty
Before purchasing insurance, the potential insured bears the risk associated with possible
losses. As a result, the person is uncertain about the outcome. The insurance transfers
financial consequences of loss to the insurer, who then becomes responsible for
compensating the insured for the loss and providing other loss related services according
to the insurance contract. This is expected to reduce the insured’s anxiety and
uncertainty.
time of payment of claims. This enables the insurers to invest these funds, which is
always sizable, and earns attractive returns on the investment made. The returns on the
investments go on to reduce the premium required to be paid for the contract. Though
the individual insured person can also earn returns on their premium amounts, had they
not purchased insurance, the investment expertise available with the insurers, the
opportunities for investing available to the insurers and the size of the investible funds
that the insurer have will make the returns earned by the insurer much more attractive
than what individual can think of. Also, since the Government governs the way the
insurers invest the funds, most of the accumulated funds are invested in the development
of infrastructure of the nation and also the development of capital markets, which is
D. Loss Control
After insuring the various risks of the organizations, insurance companies take interest
in controlling the losses by providing loss reduction education and advices by trained
experts, which result in lesser losses even in cases where losses have occurred. The
organizations would have had to spend heavily for getting such loss control and loss
Disadvantages
Although the advantages of purchasing insurance as a tool in management of risks are numerous,
a) Operating Expenses
Insurers incur expenses in loss control measures, in acquisition of insurance business,
claim settlement activities, in risk inspections and rating activities and other general
administrative works. These expenses and a reasonable amount of profit for the insurer
must be charged to the premium payable by the insured. Thus the premium paid by the
insured is more than expected value of losses. The insured pays more than what is his
share in losses that the group is likely to experience because of the expenses listed
above.
b) Moral Hazard
coverage reduces the insured’s incentives to prevent loss or to contain the amount of
damage due to the loss when it occurs. In certain cases, there can be intentional damages
when not required etc. in some other cases, there can be attempts to overstate the
damage due to the loss in order to get higher compensation than what would have been
allowed. Thus moral hazard increases the amount of losses experienced by the group in
relation to what would have been in the absence of insurance arrangement. This also
gets provided for in the insurance premium calculations, which the insured persons will
have to pay.
Overall, the advantages that the insurance mechanism provides are much
more than the effects of the disadvantages discussed above, in most of the cases.
CHAPTER 4: RISK MANAGEMENT PROCESS
The Rules
Before undertaking risk management planning, the financial planner must equip himself with
certain fundamental knowledge. He must be familiar with the rules of risk management, which
are:
1. Don't risk more than what you can afford to loose.
Under this rule, risks that can cause unbearable looses, as well as risks that can only
result in negligible losses, should be identified. For the farmers, steps should be
undertaken to eliminate or reduce the impact of losses.. for example, if the client
becomes permanently and totally disabled due to an illness, he will loose his income
producing capabilities. This can be fatal to the client's survival and he should take up
The odds of any loss occurring are another relevant factor to be considered. For
example, if a particular loss is likely to happen, insurance may not be a viable option as
the premiums will probably be too high. Different solutions will have to be adopted in
such cases. For example, if the client owns a goldsmith shop that is located in a high
crime rate area and has suffered numerous break-ins before, the cost of acquiring theft
insurance will most likely be prohibitive as the chances of another break-in occurring
are very high and the premium will be heavily loaded. As such, the client may have to
consider alternative solutions to manage the risk like relocating the shop to a safer place.
Under this rule, if the cost of carrying out a particular risk management technique is
negligible compared to the potential loss and assuming the potential loss to be large, the
made of wood, there is a risk that it might get gutted by fire. The loss sustained in such
an event can be extremely high and if the premium required acquiring adequate fire
insurance coverage is low, the client should, pursuant ti this rule, acquire the fire
insurance coverage.
This rule is also related to the Large Loss principle, which dictates that in
risk management, risks that can result in catastrophic losses should be insured first.
The three rules of risk management elaborated above should be considered together. Sometimes
application of these rules may result in conflicting conclusions and the financial planner has to
weigh the relevant factors and advise the client accordingly. For example, if a client has a past
history of medical problems, which makes him insurable but at premium rates that are extremely
high, there is a conflict of atleast two principles. Firstly, if no insurance is taken, the occurrence
of the client's death may result in consequences, which are unbearable to the client and his
family. On the other hand, the cost of insurance is high relative to the benefits. In such a case, the
financial planner has to consider all the relevant factors like affordability, family needs and
pure risk faced by the individuals and business. It is a function of management. The
management of an organization has ultimate responsibility for dealing with all risks facing the
organization, including both pure and speculative risks. Risk management focuses its attention
Risk management deals with insurable and uninsurable risks and the choice of the
appropriate technique for dealing with them. Insurance management includes the use of
but it is restricted to the area of those risks that are considered to be insurable. Risk management,
in contrast is concerned with all pure risks, regardless of whether they are insurable or not.
The emphasis in risk management is not reducing the cost of handling risk by whatever means
that are considered most appropriate and insurance is viewed as simply one of various
The risk management process consists of six steps, which are as follows:
The primary objective of the risk management effort is to preserve the operating
attaining its other goals by the losses arising from pure risks. This implies
that could prevent the organization from performing its functions, whatever those
the humanitarian goal of protecting employees from accidents that might result
in death or serious injury. Other goals may focus on cost, the efficient use of
process, the basic question would be “How can the assets be or earning capacity
about the whole host of ways in which an organization may be impeded from
marked down as a task within the job description of a particular manager, for
example, the risk manager who is employed to carry out the whole function of
risk management.
The risk management must dig into the operations of the organization and
discover the risks to which it is exposed. He must be armed with the relevant
tools of trade and make use of them. There are a number of important tools or
provide the risk manager with a powerful weapon in the endeavor towards
the risk manager in discovering the risks to which the firm is exposed. Because
risks may lurk in many sources, the risk manager needs a wide-reaching
all aspects of the business of the organization and the changes in operations, the
Once it has been identified that there is a risk, then steps have to be taken to
measure the potential impact of that risk on the organization. The next step is
sense, the measurement of risk starts with the gathering of information , followed
by the analysis of past experience, and then move on to look at what data tells us
about the level of severity of risk and its periodicity to which an organization is
exposed. There is a need for accuracy and relevance at each stage and, above all,
it is necessary to ensure that the results make sense and can be understood.
The cost of risk can be looked at from a number of different perspectives. There
is at least the:
1. Frequency of risk;
The risk manager must evaluate the risks that are identified. This means
that measuring the potential size of the loss and the probability that it is likely to
occur. The evaluation requires some ranking of priorities. Certain risks, because
of the severity of the possible loss they would entail, will demand attention prior
to others, and in most instances there will be a number of exposures that are
and unimportant.
Critical risks include all exposures in which the possible losses are of a
how risk is measured, it has had a significant impact on the personal and national
life of many countries. There were a number of incidents, names of which have
become commonplace the world over. e.g. Bhopal, Chernobyl, Kings Cross, the
Airport. These were major risks which certainly grabbed headlines when they
occurred. There will be many less serious events and it is this major thrust of risk
with which the people in the risk and insurance business spend their time.
Important risks include those exposures in which the possible losses would not
lead to bankruptcy, but would require the firm to borrow in order to continue
operations.
be met out of the existing assets or current income of the firm without imposing
depend on financial loss that might result from a given exposure and also the
ability of the firm to absorb such losses. In other words, the size of an
large organization.
2. To deal with the risk through loss prevention – the proper loss prevention
programs must be designed and implemented;
3. To transfer the risk through insurance and this must be followed by the
selection of an insurer.
for two reasons. First, the risk management process does not take place in a
vacuum. Things change, new risks arise and old ones disappear. The techniques
that were appropriate last year may not be most advisable this year, and constant
of the risk management pro grammes permits the manager to review decisions
Once the risks have been identified and evaluated, the next step is consideration of the
approaches that may be used to deal with risks and the selection of the techniques that should be
Risk control focuses on minimizing the risk of loss to which an entity is exposed.
Risk financing concentrates in arranging the availability of funds to meet losses arising from the
risk that remain after the application of risk control techniques. Risk control techniques include
avoidance and reduction of risk, while risk financing involves a choice between retention and
transfer. This means both the chance that something will happen and the severity of the incident,
should it occur.
Risk Control
Risk control covers all those measures aimed at avoiding, eliminating or reducing the
chances of loss-producing events occurring, or limiting the severity of losses that do happen.
Here, one is seeking to change the conditions that bring about loss-producing events or increase
their severity. Though some measures call for little more than commonsense, often considerable
technical knowledge is required which is beyond the capabilities of ordinary persons and needs
expert risk managers in the particular field?
Risk Financing
Here one is concerned with the manner in which those risks that remain after the
risk control measure have been implemented, shall be financed. It has to be recognized that in the
long run an individual/organization will have to pay for its own losses. Therefore the primary
objective of risk financing is to spread more evenly over time, the cost of risks in order to reduce
the financial strain and possible insolvency, which the random occurrence of large losses may
cause. The secondary objective is to minimise the cost of risk. Essentially an organization can
“The interrelationship of Risk analysis, Risk control and Risk financing is depicted as a
flowchart in the next page”
CHAPTER 5: UNDERWRITING OF AN INSURANCE PROPOSAL
Firstly, certain risks may have such a high probability of occurrence that the premium
payable will be too expensive in relation to the benefits offered. For example, some insurers will
issue personal accidents policies only at very high premiums to people working in a highly
Secondly, the insurer may find it prudent not to insure certain risks. Unless mandated
Generally, for a risk to be insurable, the following four characteristics must be present:
1. There must be a sufficiently large number of homogeneous exposure units to make the
losses reasonably predictable.
Definition:
Insurance involves the sharing of loss due to exposure to a common peril. All insured parties
make contributions to a common fund from which payment of an agreed sum can be made to
members who are victims of the peril. For the payment of the contributions (premiums) to be
equitable, the sum must be commensurate with the risk that the paying member adds to the
insurable pool.
Underwriting is a process of selection and classification of risk exposures to determine
the extent of contribution payable by any particular individual who wish to be member. The goal
of underwriting is not the selection of risks that will not result in losses; rather, it is to avoid a
disproportionate amount of bad risks, in addition, an underwriter has to gain a sufficient number
Guidelines:
The underwriting process aims to establish a schedule or premiums for each class of risk.
In the area of life insurance for example, it is usually subject to the following principles:
For the insurance concept to be viable, the main class should be those in the
average level of risk. This is especially important for insurers who do not insure
morale of the agency force can be maintained; the cost of business can be
controlled, public goodwill can be preserved and the group will be more stable.
To ensure stability within each risk classification, each class covers risks that
deviate from the class average to a specified extent. The margin of risk allowed
to exceed the average in each class should, approximately, not be more than the
margin allowed for the below average risks in order to control the extent of
mortality expenses.
variety of cases. However, the program must attain a certain minimum level of
The underwriting process must ensure that the mortality expenses are in line with
The insurer must be capable of ascertaining that, during the process of being
insured, the risks remain insurable and that adverse selection is minimized. To do
guidelines.
Secondly, the insurer will instruct the insurance agent to be field underwriters
apply to guidelines.
5.3 Life Insurance Underwriting
In life insurance underwriting, several factors are normally taken in to account to assess the level
Age
Except for the first few years of life , the risk of death and injuries faced by a person
Build
The relationship between the prospect’s height, weight and girth is an important
indicator of the health of a person and will thus affect his mortality. If the relationship is
not within certain acceptable ranges, this may indicate that the person is more
susceptible to illness or death and as a result, his premium will be higher. For example, a
significantly obess person may run a higher risk of diabetes or heart disease, and for
insurance to be equitable to all policyholders; the person may have to pay a higher
premium.
Physical Condition
If the prospect has any physical condition that affects his life expectancy, his premium
will also have to be adjusted. Examples are heart valve defect or mental defect.
Personal History
Information on the prospect’s personal history like his health record, past habits and
surroundings, previous occupation and insurance are relevant to the underwriter and can
The prospect’s family history is important as it enables the underwriter to discover any
hereditary defects or illness, which may be found in the family. This may affect the life
expectancy of the prospect. For example, if a person’s parents and/or siblings have
suffered from colon cancer before, there is a higher of the disease striking him as well.
Residence
The person’s place to stay can be a relevant factor in assessing his life expectancy. It can
be argued, all other things being equal, that a person living in a diseased and violence
ridden country is more likely to have a lower life expectancy than one who lives in a
Habits
These habits refer to the taking of drugs or the consumption of alcohol. A drug addict or
an alcoholic is unlikely to be insurable and prospect are normally required to declare any
Occupation
underwriter. If the prospect works in a place that is accident prone, dangerous or filled
with toxic particles, his life expectancy will be affected for the worse and a higher
premium will be imposed on him. If the occupation requires him to perform dangerous
and life threatening tasks, again the premium is likely to increase substantially. In fact,
Morals
A person’s sense of mortality is reflected in his conduct. The underwriter would desire
in their prospect a minimum level of morality before agreeing to insure him. If the
person happens to have an unsavory reputation, the insurer will be very careful about
insuring him, as the information provided by the prospect in the application form may be
Sex
All things being equal, the premium for the female is usually lower than that of a male
because statistics have shown that they have longer life expectancy than the males.
The strictness of underwriting standards also depends on the type of the insurance
policy. The gauge is the amount of risk found in the policy. The amount of risk in a
policy refers to the extent of the insurer’s exposure under the policy. For example, in
underwriting a single premium policy, the underwriter is usually more lenient as the
lump sum payment would have minimised the insurer’s risk exposure.
Avocation
Certain avocations taken up by the prospects will result in a higher premium. Examples
of such avocations are deep sea diving, speedboat racing, mountain climbing or
motorcar racing.
Economic Status
Under the principles of insurance laws, there is no limit to the value of a human life and
a person can take up as much insurance coverage as he wants to. However, in practice,
acceptable.
The law does not prohibit the insurer from exercising its discretion in limiting the
insurance coverage of any particular person. Most insurers will provide coverage up to
an amount deemed suitable in relation to the insured’s economic means. This will
prevent over-insurance and also ensure a higher chance of the insured being faithful in
Military Service
If the prospect is undergoing military service at a war front, the insurer may be unlikely
to provide coverage for the soldier but in India, the life insurance cover is available for
The underwriter has an important role to study and assess all relevant information available from
Agent
usually given precise information as to what types of risks are deemed acceptable to the
insurer.
insured. As he is only representative from the insurer to see and speak to the prospect, he
is expected to report any instances of false representations. For example, if the prospect
is blind but omits to declare this in the application form, the agent has a duty to inform
The Applicant
Medical Sources
The insurer may also send the applicant for the relevant medical examinations and tests
or apply for an attending physician’s report to ascertain the health of the applicant.
Under this method, regular and routine applications are managed by the clerical staff.
The more difficult or borderline cases will be referred to senior supervisors for their
assessment. These supervisors normally have a wealth of experience to tap on and their
impression of the case is crucial to the outcome. The judgment method is normally
suitable in cases where there is only one unfavorable factor or the only decision
This method is based on the premise that a large number of factors determine the nature
of the risk. An insured with an average risk is given a 100% rating. Any adverse factor
will increase the rating by an amount related to the seriousness of the adverse factor
while a favorable factor will reduce the rating by an amount related to the extent of
While accepting the proposals, care should be taken. The cases of over insurance should be
avoided, as the risk cannot be covered by charging some extra premium (as in the case of
medical risk) and the probability of lapse of policy will be very high.
2. Whether the income is in the proportion of the life cover proposed by the customer.
The following table indicates the maximum sum at risk that can be extended to an individual.
Up to 35 20 times
36 – 40 15 times
41 – 45 12 times
46 – 50 10 times
51 – 60 5 times
Above 60 On Merits
Note:
When the sum at risk is above 15 lakhs, one has to submit an income proof.
For people not earning income, factors determining insurance depends on the education,
Income Document: Shows the consolidated annual income of an individual. This is essential to
ensure that the cover asked for by the client is justified as per financial underwriting.
Financial Surrogates
1. It may be possible that you encounter a situation where your client is of a superior profile
and earning a good income, however his tax returns are not reflecting the same. The
client desires to have a high life cover. What does one do in such a situation?
2. If an individual does not have an adequate ITR in relation to the sum assured desired,
3. Surrogates would be accepted only in addition to the main income document (ITR, Form
16) to bridge the gap between the cover applied and maximum allowable limit as per the
4. Surrogates would be accepted as standard income documents for computing the total sum
5. Surrogates can not be used while sum assured is > Rs. 50 lakhs.
Statements
Bank Statements for last one year.
Loan Statements.
Credit Card Statements.
Loan Sanction letter issued by reputed bank.
Loans
Car Loans.
Home Loans.
Personal Loans.
Deposits & Debentures
Term Deposits.
Bonds & Debentures.
Alternative Income Docs.
Fixed Deposits Receipts.
Demat Account Statement.
Miscellaneous
Rent Agreements.
Asset Ownership – Car.
Advance Tax Challans.
Land Ownership documents.
J – Forms; 7x12 papers.
Property Ownership documents.
Copies of sale agreements.
All Life Insurance Proposals can be accepted as risk to company only after a medical
examination.
1. Based on age, profiles, past experience, standard of living and industry standards.
Note:
o The documentation and medical criteria would vary with the type of proposal.
o The above is not applicable for female lives in Group II and Group III.
Jet (non medical) facility for all cases in age bracket 51 – 59 years up to a rated up Sum
Assured of Rs. 1.5 lacs.
o This is applicable for Non Combo Life business only.
Note: Non-medical limit is applicable only for educated life earning regular income through
employment.
Special underwriting norms are required for female lives because of varied socio-economic
For e.g.:
1. A single woman looking for a life insurance however does not have any income.
2. A widow, with no regular income and has grown-up children who are earning their
own income.
3. Husband is the only bread earner and has absolutely no life insurance, but is looking
to have a huge life cover on his spouse, why?
4. A 32 year old lady, marketing manager with HLL earning a hefty pay package and
has a family to support.
Each situation mentioned above is so unique and needs to be treated differently based on their
respective need of insurance. Also the claims experience in India in terms of female lives being
ICICI Prudential has divided the females in to three groups and has defined different definitions
Up to 35 20 times
36 – 40 15 times
41 – 45 12 times
46 – 50 10 times
51 – 60 5 times
above 60 On merits
GROUP II
Graduate - Providing
Graduation certificate Graduate - Not providing Graduation
(mandatory) certificate / Non Graduate
Without
With Income Income With Income
Proof Proof Proof Without Income Proof
18 - 45 yrs -
5 lacs
Above 45 yrs
- 3 lacs
GROUP III
Graduate - Providing
Graduation certificate Graduate - Not providing Graduation
(mandatory) certificate / Non Graduate
18 - 45 yrs - 5
lacs
Above 45 yrs -
3 lacs
Up to 1.5 lac with approval from CUW/ Cluster manager & above
Up to age 45 years - 1.5 lacs - Jet
Minor – a minor life is defined as one who has not completed the age 18.
‘Student’ in underwriting – A student is defined as one who is aged = 25 yrs. (age near
birthday) and is pursuing his / her studies. He / she is not working full time and earning.
*if the student has paid the fees for the entire year then the same is accepted as a valid student id
2. Paternal / Maternal grandparents can propose on grand children who are less than 18
years of age for a total rated up sum assured of Rs. 15,00,000/-. All guidelines for
Maximum Sum Assured allowed under non-medical scheme is Rs. 15 lacs (rated
up).
Proposals where Sum Assured is = 10.00 lacs will be accepted without insisting
on parents insurance.
Above a rated up Sum Assured of Rs.10 lacs, insurance will be subject to double
the parents insurance.
The proposal where rated up Sum Assured is above Rs.25 lacs will be considered
on case-to-case basis.
Note:
For minor lives (age less than / equal to 14 years), difference in height and weight can be
disregarded up to a rated up SA of Rs.5 lacs.
a) Term products will be allowed only to major students on an exception basis only
c) Cover amount would be equivalent to the loan amount sanctioned or the eligible amount
The underwriter can use his discretion to call for medicals if required.
NRI Underwriting
Nonresident Indian has been defined as an individual who is a citizen of India but not
a) Indian citizens who stay abroad for employment or for carrying on business or
stay abroad.
c) Officials of Central and State government and Public Sector undertaking deputed
Insurance on these people can be taken only by completing insurance formalities while the client
is in India.
The rules for NRI proposals are as following:
2. Proposals will be accepted from those NRIs who are residing in North America,
Europe, Australia, selected countries in Asia and South America (Gulf and South
East Asian countries allowed) others after clearance from CUW (Central
Underwriting Team).
4. Can be considered under non-medical subject to Jet and Female life underwriting.
For the purpose of underwriting a Non Resident Indian (NRI) is one who resides outside India
for occupational or personal reasons. Since one of the risk factor for an insurance company is the
1. The standard Medical and Non-Medical norms are applicable even to NRIs.
4. The maximum sum assured cap is Rs. 50 lacs. CUW prelogin approval required for
cases above Rs. 50 lacs.
A declaration from the parents regarding the academic status of the LA to be taken in cases
where the LA are the children studying in approved countries, mentioning the school name,
I confirm that as of academic year _________________the said child is studying in class ____ at
_____________________________________________________________________________
_
Date
Sign ________________________
Place
Name of the Proposer ________________________
“Persons of Indian origin” means a foreign citizen not being a citizen of Pakistan, Bangladesh
and other countries as may be specified by the Central Government from time to time, if,
a) He / she at any time held an Indian passport; or
b) He / she or either of his / her parents or grand parents or great grand parents was
born in and permanently resident in India as defined in the Government of India Act,
1935 and other territories that became part of India thereafter provided neither was at
Note:
For the purpose of underwriting a PIO would mean an individual defined by points (1) or (2)
above.
PIO card not required for SA up o Rs. 10 lacs. This is further subject to the following:
Malaysia.
2. The maximum multiple factor permissible is five times. For a higher multiple
factor, PIO card is mandatory. For a lesser multiple factor, the 10 (10 D) declaration
should be attached.
6. PIOs with earned income only are allowed. For minors, the death benefit is
restricted to Rs. 5 lacs, for housewives exception approval from CUW is required.
7. PIOs having unearned income like rent, dividend etc. will not be considered for
9. Passport can be considered for all types of products, except Term plans, Health
10. Zero death benefit products can be given to PIOs with submission of existence
certificate.
11. PIO card is not required for all ULIP products up to a total rated up Sum Assured of
Rs. 10 lacs.
Medicals waived up to Sum Assured of Rs. 15 lacs rated up to age 14 years for life business
only.
e.g. Social Security Id (in USA), CPR (in Gulf) etc. should be obtained.
10. Proposals can be considered for all types of products, except Term plans, Health
plans, IBR and Pension plans (even zero death benefit plans will not be considered).
compulsory.
Partnership Insurance
A partnership is a business jointly owned by several parties, but which is not itself is a corporate
entity. In the partnership Agreement, it is generally provided that in the event of death of any
partner, the surviving partners will have the option t purchase the deceased partner’s share in the
firm. For this purpose, the partnership firm should have sufficient cash available. Such ready
A partnership, firm has insurable interest in the life of each of the partner to the extent of the
amount of ‘Purchase Money’ required to be paid in respect of the share of each partner.
2. The Deed of Partnership should contain clause that the partnership is revocable
death of any of the partners insured under the policy, the within mentioned policy shall
be either, surrendered to the Company for its cash value, if any or made paid up for
value, if any,
As acquired under the policy as on date of dissolution of the Partnership, and such paid
up policy shall be absolutely assigned in favor of the partners insured under the policy.
• Assignment not allowed, except in the case of dissolution of partnership other tan due to
Since the partnership insurance is linked to the share of the partner in the firm, the following
The lowest of the amount arrived on the basis of the above mentioned three methods would be
Financial Requirements
2. Copies of Income Tax Returns or Assessment Orders of the firm for past 3 years.
3. Copies of latest Audited Profit & Loss Account and Balance Sheet, of the firm for
Plans Allowed
Life Guard WROP¬
Life Guard SP¬
Keyman Insurance
Keyman is a person who is a major driving force behind a business and who is so Unique and
Valuable in all areas of the business that without his presence there would be a substantial loss in
The death of the keyman in any business could cause a business to suffer many types of losses as
indicated below:
1. The loss of customer or sales attracted by his / her ability and personality.
4. The delay or cancellation of any business or project upon which he / she is working.
Note:
The idea of keyman insurance is to indemnify the company for these losses and to allow it to
continue, as the same thriving concern that it was while the keyman was alive and working.
Keyman insurance is linked with the profitability of the company, the following guidelines is
1. 10 times of the total annual compensation package for the keyman, which includes
2. 2 times the average gross profit for the company for the last three years (gross profits
3. 5 times the average net profit of the company for the last three years, increasing to 8
The lowest of the amount arrived at on the basis of the above mentioned three methods would be
the total permissible amount for keyman insurance for that company.
It should be noted, however, that if there is more than one keyman, then the total face amount
thus arrived at should be prorated for each keyman in the ratio that his compensation package
If the Key Person holds > 50% of capital or family holds > 70% of capital then in such a
situation, proposal by the company will be considered, however the eligibility will be worked out
Plans Allowed
1. Life Guard WROP
2. Life Guard SP
Employers have an insurable interest in the lives of his employees. In view of this we can allow
life insurance cover for employees where the premiums are paid by the employer. This is
however subject to insurer’s complete satisfaction about the absence of moral hazard.
An employer employee relationship would be established where the employee earns a salary
from the employer. The insurance policies can be taken for all employees or for a class of
employees. The employer may or may not be the Proposer under the policy.
The main reasons for the employer to have his employees’ lives covered are:
The basic difference between the Employer Employee scheme and the Keyman Insurance is that
in the former the Employee or his nominee is the beneficiary whereas in the latter the beneficiary
entity in excess of 5 % can get insurance cover under the Employer – Employee Scheme.
For ascertaining the limit of 5%, shareholding or ownership held by the concerned employee, his
aggregated together.
1. A sole proprietorship as the employer where the employee (other than the sole
2. A partnership firm as the employer where the employee (other than a partner) is any
3. A corporate as the employer where the employee is any employee of the corporate.
The employer should provide the following undertakings under the deferred assignment option:
1. That he will compulsorily assign the policy at the end of 4 years, if it has not resulted
3. That he will pass on the death benefit to the legal heirs of the employee.
4. That he will not surrender the policy except when the employee leaves the company.
5. That he will forego the rights to partial withdrawal under the policy.
6. That he will not assign the policy to any other party during the pre-assignment
period.
The proposal form has to be signed by an authorized signatory of the Employer along with
A letter on the entity’s letterhead signed by the sole proprietor or the managing partner or
1. The fact that they have opted for the employer – employee scheme and will be
2. The authorized signatories who can sign the document on behalf of the employer
3. The names of the employees to be covered along with the Plan type, Term, Sum
4. The assignment form duly filled in and signed by the authorized signatory making an
assignment in the name of the employee should be collected at the proposal stage.
5. The nomination form duly filled in and signed by the employee making a
The policy document will be dispatched to the employee after the policy is assigned in the
The employer is the Proposer under the policy and retains the right to assign the policy
(deferred assignment).
The proposal form has to be signed by an authorized signatory of the Employer along with
A letter on the entity’s letterhead signed by the sole proprietor or the managing partner or
the authorized signatory or the governing body stating the following:
1. The fact that they have opted for the employer – employee scheme & will be paying
2. The authorized signatories who can sign the documents on behalf of the employer
3. The names of the employees to be covered along with the Plan type, Term, Sum
The policy shall be assigned to the life to be assured at the earliest as per the agreement
between employee & employer. A separate letter from the employer, stating the objective of
insurance and timing or conditions of assignment of the policy should be obtained with the
The restrictions imposed by the employer should be reasonable. Normally these should not
After the stipulated period is over, the employer has to initiate the process of assignment of
the policy to the employee. If the Employee leaves the company or the Employer does not
want to pay the premiums, the Employer should intimate to the Insurance Company.
The employee is the Proposer on his own life but the premiums have been paid by the
1. If this option is selected then the proposal will be sent together with a letter from the
employer that the premiums under the policy is paid by the employer.
2. If this option is exercised, then no further assignment or any action is required on the
All plans allowed except Pension Products, Life Guard ROP, Cash Bak, Smart Kid & Smart Kid
ULIP.
Basic documents:
7. Salary proof like salary slip for last three months, salary certificate, Form-16 from
1. ITR of the Employer / audited P & L account & Balance Sheet of last three years.
2. Copy of AOA & MOA (form 32 if the name is not appearing in MOA) / Partnership
deed.
Requirements incase of self proposed policy but premium is being paid by the Employer.
Annexure 1
This is the certified abstract of the resolution passed at the meeting of Partners / Managing
meeting).
In the meeting, it was resolved that the Company to take Employer-Employee Scheme Insurance
be paid by the company to safeguard any probable losses in the event of the exit of the above
2. The employee does not have beneficial ownership in <name of employer entity> in
excess of 5%. For ascertaining the limit of 5%, shareholding or ownership held by concerned
employee, his / her spouse, children, son-in-law, daughter-in-law, parents, brother or sister have
and conditions with ICICI Prudential Life Insurance and sign all the documents, including
Place:
Annexure 2
In connection with the life insurance policy proposed to be taken by us with ICICI Prudential
Life Insurance Company Limited (“ICICI Prudential”). We undertake that the above mentioned
policy will be assigned to Mr. ______________(name of the employee) at the end of ______
years (not exceeding 4 years) from the date of commencement of the policy.
to get in touch with ICICI Prudential Life Insurance Company to complete the assignment at the
end of the stipulated time period.
2. The employee does not have beneficial ownership in <name of employer entity> in
excess of 5%. For ascertaining the limit of 5%, shareholding or ownership held by
3. In case the employee survives the 4 years period from the date of the commencement
of the policy proposed (“Policy”) to be issued by ICICI Prudential, the said policy
4. In case the employee dies with in the said period of 4 years, the death benefits, if any
paid to us by ICICI Prudential shall be passed on to the legal heirs of the deceased
employee.
5. We waive our rights to surrender the policy during the period of employment of the
employee with us, except when the employee leaves the organization.
6. In case of Unit Linked Insurance Policy, we waive our rights to make partial
withdrawals from the said policy since the object of this policy is to grant an
We agree and understand that this undertaking will form a part of the proposal form. These
Date:
Place:
BIBLIOGRAPHY
SYNOPSIS
Details:-
Name: - Vaibhav Trivedi
Batch: - PGPSS-07-09
Phone: - +919899350432
Title:-
Risk Assessment & Underwriting of an Insurance Proposal
(ICICI Prudential
Company Approach).
Research objective:-
Analysis of underwriting process in Insurance Company. (ICICI
Prudential)
Area of Research:-
As a drama of life unfolds on the path from birth to death,
people
will be, yet we know that death is certain for everyone. Thus
life is full of
Scope of Research:-
During the project, we will first be taking out the details of
ICICI Prudential
Research Methodology:-
The basic methodology will include:-
Justification of research:-
The main purpose of this project is to provide greater insight
to the use f
Insurance Company.