SP CERTIFICATION STUDY MATERIAL

IC-34 EXAM

GENERAL INSURANCE

CONTENTS
Chapter

Description

Page No.

INTRODUCTION TO INSURANCE

FUNDAMENTALS/PRINCIPLES OF GENERAL
INSURANCE

INSURANCE DOCUMENTS

15

THEORY AND PRACTISE OF RATING

22

LEGISLATIVE AND REGULATORY MATTERS

27

FIRE INSURANCE

40

MARINE INSURANCE

55

MOTOR INSURANCE

67

PERSONAL ACCIDENT INSURANCE

85

10

HEALTH INSURANCE

93

11

LIABILITY INSURANCE

113

12

ENGINEERING INSURANCE

123

13

MISCELLANEOUS INSURANCE

127

14

RURAL INSURANCE

135

15

CLAIMS

147

CHAPTER 1

INTRODUCTION TO INSURANCE
Purpose & Need of Insurance
1. 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
the asset, is the risk that the asset is exposed to.
2. The risk means that there is possibility of loss or damage. It may or may not happen. There
has to be an uncertainty about the risk. If there is no uncertainty about the occurrence of a
event, it cannot be insured against.
3. There are other meanings of the term `risk. To the ordinary man in the street risk means
exposure to danger. In insurance practice, `risk is also used to refer to the peril or loss
producing event. For example, it is said that fire insurance cover the risks of fire, explosion,
cyclone, flood etc. Again, it is used to refer to the property covered by insurance, for
example, a timber construction is considered to be a bad `risk for fire insurance purpose.
4. The mechanism of insurance is very simple. People who are exposed to the same risks come
together and agree that, if any one of the `members suffers a loss, the others will share the
loss and make good to the person who lost. All people who send goods by ship are exposed
to the same risk related to water damage, ship sinking, piracy, etc. Those owning factories
are not exposed to these risks, but they are exposed to different kinds of risks like, fire
hailstorms, earthquakes, lightning, burglary, etc. Like this, different kinds of risks can be
identified and separate groups made, including those exposed to such risks. By this method,
the risk is spread among the community and the likely big impact on one is reduced to
smaller manageable impacts on all.
5. The manner in which the loss is to be shared can be determined before hand. It may be
proportional to the likely loss that each person is likely to suffer, which is indicative of the
benefit he would receive if the peril befell him. The share could be collected from the
members after the loss has occurred or likely shares may be collected in advance, at the
time of admission on the group. Insurance companies collect in advance and create a fund
from which the losses are paid.

6. Human life is also an asset. This asset also can be lost through unexpected early death or
sickness and disabilities caused by accidents. Accidents may or may not happen. Death will
happen, but the timing is uncertain.
7. Insurance does not protect the asset. It does not prevent its loss due to the peril. The peril
cannot be avoided through insurance. The peril can sometimes be avoided, through better
safety and damage control management.

How insurance works

8. People facing common risks come together and make their small contributions to a
common fund. The contribution to be made by each person is determined on the
assumption that while it may not be possible to tell beforehand, which person will suffer, it
is possible to tell, on the basis of past experiences, how many persons, on an average, may
suffer losses. The following example explains the above concept of insurance.

Example
In a village, there are 400 houses, each valued at Rs. 20,000. Every year, on the average, 4
houses get burnt, resulting into a total loss of Rs. 80,000. If all the 400 owners come
together and contribute Rs. 200 each, the common fund would be Rs. 80,000. This is
enough to pay Rs. 20,000 to each of the 4 owners whose houses got burnt. Thus the risk of
4 owners is spread over 400 houses owners of the village.

The Business of Insurance Pooling of Risks and Resources

9. The business of insurance done by insurance companies, called insurers, is to bring together
persons with common insurance interests (sharing the same risks), collecting the share of
contribution (called premium) from all of them, and paying out compensations (called
claims) to those who suffer. The premium is determined on the same lines as indicated in
the example above with some additions made for expenses of administration.
10. Thus, insurance may be described as a method or a technique which provides for collection
of small amounts of premium from many individuals and firms out of which losses suffered
by the few are paid.

Insurance as a Social Security Tool

11. It is now recognized that provision of social security is an obligation of the state. The various
laws, passed by the state for this purpose involve the use of insurance, compulsory or
voluntary, as a tool of social security. The Employees State Insurance Act, 1948 provides for
the Employees State Insurance Corporation to pay for the expenses of sickness,
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disablement, maternity and death and for the maintenance of hospitals, dispensaries etc.
for the benefit of industrial employees and their families, who are insured persons. The
scheme operates in certain industrial areas as notified by the government.
12. Insurers play an important role in the social security schemes sponsored by the
government. The Crop Insurance Scheme (RKBY) is a measure with considerable social
significance. The Scheme benefits not only the insured farmers but also the community
directly and indirectly.
13. All the rural insurance schemes, operated on a commercial basis, are designed ultimately to
provide social security to the rural families.
14. Apart from this support to government schemes, the insurance industry itself offers on a
commercial basis, insurance covers which have the ultimate objective of social security.
Examples are: Janata Personal Accident, Jan Arogya etc.

Role of Insurance in Economic Development

15. An insurance companys strength lies in the fact that huge amounts are collected and
pooled together. These amounts come by way of premiums. Every premium represents a
risk that is covered by that premium. In effect, therefore, these vast amounts represent
pooling of risks. The funds are collected and held in trust for the benefit of the
policyholders. The management of insurance companies are required to keep this aspect in
mind and make all its decisions in ways that benefit the community. This applies also to its
investments. That is why successful insurance companies would not be found investing in
speculative ventures. Their investments benefit the society at large.
16. The system of insurance proves numerous direct and indirect benefits to the individual and
his family as well as to industry and commerce and to the community and the nation as a
whole. Those who insure, both individuals and corporate, are directly benefited because
they are protected from the consequences of the loss that may be caused by the accident
or fortuitous event. Insurance, thus, in a sense protects the capital in industry and releases
the capital for further expansion and development of business and industry.
17. Insurance removes the fear, worry and anxiety associated with this future uncertainty and
thus encourages free investment of capital in business enterprises and promotes efficient
use of existing resources. Thus insurance encourages commercial and industrial
development and thereby contributes to a vigorous economy and increased national
productivity.

18. No bank or financial institution would advance loans on property unless it is insured against
loss or damage by insurance perils.
19. Insurers are closely associated with several agencies and institutions engaged in fire loss
prevention, cargo loss prevention, industrial safety and road safety.
20. Before acceptance of a risk, insurers arrange survey and inspection of the property to be
insured, by qualified engineers and other experts. The object of these surveys is not only to
assess the risk for rating purposes but also to suggest and recommend to the insured,
various improvements in the risk, which will attract lower rates of premium.
21. Insurance ranks with export trade, shipping and banking services as earner of foreign
exchange to the country. Indian insurers operate I more than 30 countries. These
operations earn foreign exchange and represent invisible exports.

CHAPTER 2

FUNDAMENTALS / PRINCIPLES OF GENERAL INSURANCE

Contract of Insurance
1. When the insured pays the premium and the insurer accepts the risks, the contract of insurance is
concluded. The policy issued by the insurer is the evidence of the contract.
2. Like any other contract, the contract of insurance is completed when one party accepts the offer
made by the other party. The offer usually comes for the proposer and the offer is known as the
proposal. Insurance indicate acceptance by the issue of a cover note or a policy.
3. No contract is valid unless there is due consideration. In the case of insurance contracts `premium is
the consideration from the insured and the `promise to indemnify is the consideration from the
insurer.
4. Both parties should be of the same mind with a common intention. For example, if the proposer
desired fir insurance, and the insurers issue a burglary policy, there is no consent arising out of
common intention.
5. The person to the contract should be competent to contract. Minors and persons of unsound mind
cannot enter into insurance contracts.
6. The object of the contract must be legal and not against public policy. For example, stolen goods
cannot be insured.
7. Insurance contracts are subject to certain special principles evolved under common law in the U.K.
which are generally followed by Indian Courts. Theses five principles are known as fundamental or
basic principles of law of insurance.

Utmost Good Faith

8. The parties to a commercial contract, according to law, are required to observe good faith. The
seller cannot mislead the buyer in respect of the transaction, but he has no obligation to disclose all
information about the subject of the contract. `Let the buyer beware, is the legal rule.
9. In insurance contracts also, good faith is required to be observed but in a more onerous way. The
proposer has legal duty to disclose all material information about the subject matter of insurance to
the insurers who do not have this information. Material information is that information which
enables the insurers to make an underwriting decision, that is the decision (i) whether to accept the
risk; and (ii) the rate of premium and terms and conditions of acceptance. This is called the legal
duty of utmost good faith arising under common law. The duty applies not only to material facts
which the proposer knows, but also extends to material facts which he ought to know.

10. The following are some examples of material facts :

Fire Insurance (a) Construction of the building; (b) Occupancy (e.g., office, residence, shop,
godown, manufacturing unit, etc): (c) the nature of goods, i.e., non-hazardous, extra-hazardous etc.
Marine Insurance (a) Method of packing i.e., whether in single gunny bags or double gunny bags
whether in new drums or second hand drums; etc (b) the nature of goods (e.g. whether the
machinery is new or second hand);
Motor Insurance (a) Cubic capacity of engine (private car); (b) the year of manufacture; (c) carrying capacity
of a truck (tonnage); (d) the purpose for which the vehicle is used: (e) the geographical area in which it Is
used; etc.

Personal Accident Insurance (a) The exact nature of occupation; (b) age, height and weigh; (c)
physical disabilities, etc.

General (a) The fact that previous insurers had rejected the proposal, or charged extra premium,
or cancelled or refused to renew the policy; (b) Previous losses suffered by the proposer.
Note: If the insurance is paced through an agent, the latter has similar duty to disclose all material
facts known to him or communicated to him by the proposer.
11. Facts which are common knowledge or matters of law need not be disclosed by the proposer . For
example, if a proposer seeks riot cover, he need not disclose the fact of prevalence or riot
conditions. Insurers are expected to know about it I the normal course.
12. The duty of disclosing material facts ceases when the contract is concluded by the issue of a cover
note or a policy. The duty arises again at the time of renewal of the policy. However, a policy
condition provides the duty also arises during the period of the policy, if there is any change in the
risk.
13. The breach of the duty of utmost good faith may arise (a) through an oversight or because the
proposer thought that it was not material or (b) intentionally. If there is non-disclosure or misrepresentation with fraudulent intention, the insurance contract becomes void. A void contract has
no legal effect or validity. If the duty is broken in any other way, the contract becomes voidable,
which means, the insurer will have the option to avoid the contact and reject the claim.
14. Void and voidable contracts are different from unenforceable contracts. For example, if an
insurance policy is not stamped according to the provision of the Indian Stamp Act, the contract
become unenforceable, i.e., it cannot be produced as evidence in a court of law.

Contractual Duty
15. Proposal forms are designed to obtain all material information about the subject matter of
insurance. Each form contains a declaration to the effect that all the questions have been answered
truly and correctly, and that that the proposal and declaration shall be the basis of the contract.
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16. The legal effect of the declaration is that insurers can avoid the contract if any answer is not
material to the risk. This is called the contractual duty of utmost good faith which is far stricter than
the common law duty.
17. The duty of disclosure of material information regarding a proposal or policy also applies to
insurers, agents or insurance intermediaries, as provided in IRDA Regulations (Protection of
policyholders Interests) 2002.

Insurable Interest
18. The owner of property has a right under law to effect insurance on the property if he is likely to
suffer financially when the property is lost or damaged. This legal right to insure is called insurable
interest, the contract of insurance will be void. Because of this legal requirement of insurable
interest, insurance contracts are not gambling transactions.

Examples of Insurable Interest

(a) Ownership of property (and joint ownership) is clear example of insurable interest.
(b) A bank has insurable interest in the property on the mortgage of which loans have been given.
The interest is limited to the amount of the loan. Usually, under such circumstances, the policies
are issued in the joint names of the insured and the bank.
(c) A ship owner has insurable interest in the ship owned by him. Cargo owners, both sellers and
buyers, have insurable inters in the goods owned by them.
(d) The owner of a motor vehicle has insurable interest in the vehicle: he also has insurable interest
in a potential third party liability. If a third party is injured in the accident, the damages payable
to the third party would be a financial loss tc the insure. Hence, he can insure his third party
liability.
(e) A person has insurable interest on his own life.
Insurable interest can arise in a variety of ways but the above examples are sufficient to explain the
concept.

Time when Insurable Interest should the present

19. In fire and miscellaneous insurances, insurable interest must be present both at the time of taking
the policy and at the time of loss. For example, if the property insured under a fire insurance policy
is sold and there is a loss after the sale, the insured cannot recover the loss as he has no insurable
interest at the time of loss.
20. In marine cargo insurance, insurable interest is required at the time of loss. It may not be present at
the time of effecting insurance. An importer of goods may insure the goods under a marine policy.
Although at that time, he may not be the owner of the goods. Ownership of the goods passes from

the exporter to the importer when the payment is made. If goods arrive damaged at destination,
and if the importer had paid for the goods, he can recover the loss as he has insurable interest at
the time of loss and also has a policy. In marine hull insurance, insurable interest must be present
both at the time of taking the policy and at the time of loss.

Assignment
21. Assignment means transfer of rights and liabilities of an insured to another person who has
acquired insurable interest in the property insured. Generally fire and miscellaneous insurance
policies are assigned only with the consent of the insurers.
22. Marine cargo policies are, however, freely assignable without the previous knowledge or consent of
the insurer. The reason is that the ownership of goods insured under a marine cargo policy
frequently changes when the goods are still in transit, and it is necessary that the benefit of the
policy should pass to the new owner. A marine hull policy cannot be assigned without the consent
of the insurers.

Indemnity
23. The object of the principle of indemnity is to place insured after a loss in the same financial position,
as far as possible, as he occupied immediately before the loss. The effect of his principle is to
prevent the insured form making a profit out of his loss
24. The measure of indemnity applied to some types of property is explained below:

Buildings : In these case the cost of reinstating the building or repairing the damaged portion, is
assessed, and form that, an appropriate allowance is made towards depreciation, depending upon
the age and condition of the building.

Machinery : In practice, the measure of indemnity is the replacement value at the place and date
of loss or damage, less an appropriate allowance towards depreciation.
If the damaged machinery is repairable, the measure of indemnity is the cost of repairing the
damage. If, however, during repairs, any part is replaced, an appropriate allowance is to be made
towards depreciation of the replaced part.

Stocks : In respect of the stocks of wholesalers and retailers, the measure of indemnity is not the
selling price of the wholesaler or the retailer, but it is the price at which he ca replace the goods.
The element of expected profit does not play any part in computing the measure of indemnity.

25. Fire insurance policies may be issued on reinstatement value basis. Under these polices, generally
issued for covering building or machinery, the basis of indemnity is the cost of reinstatement or
replacement of damaged or destroyed property by new property of the same type. In as much as

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the insured gets new property in the place of old, the principle of indemnity is modified. (This is
explained in Chapter on Fire insurance)

Motor Insurance
26. The indemnity shall not exceed
(a) For total / constructive total loss of the vehicle the Insureds Declared Value of the vehicle
(including accessories thereon) as per Schedule of the policy less the value of the wreck.
(b) For partial losses, costs of repair / replacement as per depreciation limits specified in the policy.
Claims of third party liability are indemnified as per law, subject to limits, if any. Under the
policy.

Marine Insurance
27. The values cargo are subject to constant fluctuations during transit from one country to another.
Besides, the market values of ships fluctuate widely, but the market value may not reflect the true
value of the ship to its owner. Therefore, almost all the marine insurance policies are issued as
valued policies or agreed value policies, where under the sum insured is agreed between the
insurers and the insured as the value of the insured property. The agreed amount is payable in the
event of total loss, irrespective of consideration of depreciation, etc.
28. Personal Accident insurances are not contracts of strict indemnity. After an accident in which the
insured person it disabled, it is not practicable to place him in the same financial position in which
he was before the accident, since no monetary value ca be placed on human life. So, there are fixed
benefit policies.

Limitations on the Insurers Liability

29. The measure of indemnity Is subject to several limitations, some of which are mentioned below ;
i.

Every policy of insurance contains a sum insured which is the maximum limit of liability under
the policy.

ii.

The property insurances are generally subject to the condition of average, and if there has been
under insurance , only that proportion of the loss is payable, which the sum insured bears to
the market value of insured property at the time of loss

iii.

Some policies are subject to excess or franchise

The difference between excess and franchise should be clearly understood. In either case if
the loss does not reach the limit, it is not payable at all; if it exceeds the limit, the excess only is
payable under the excess clause and the entire loss is payable under the franchise clause.

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For example, if there are two insurance policies A and B policy A subject to an excess of
Rs.1000/- and policy B subject to a franchise of Rs. 1000/-, and if a loss or Rs. 5000/- is reported
under each policy. Nothing will be payable under both the policies.
If however, the loss under each policy was Rs. 1100/- policy A will pay Rs.1000/- only but policy
B will pay Rs. 1100/iv.

Salvage is property which is partially damaged. By fire for example, and if the full loss is paid.
The insurers may take over the salvage and dispose it off.

30. In fire insurance valued policies can only be issued for properties whose market value cannot be
ascertained e.g. curios, works of art, manuscripts, obsolete machinery and the like, subject to the
valuation certificate being acceptable to insurers. In motor insurance valued policies are issued for
vintage cars. Under these policies, in the event of total loss of the vehicle, the specified sum stated
in the policy s paid.

Subrogation
31. Subrogation may be defined as the transfer of right and remedies of the insured to the insurer who
has indemnified the insured in respect of the loss. If the insured has any rights of action to recover
the loss from any third party, who is primarily responsible for the loss, the insurer, having paid the
loss, is entitled to avail himself of these rights to recover the loss form the third party. The effect is
that the insured does not receive more than the actual amount of his loss and any recovery effected
from the third party goes to the benefit of the insurer to reduce the amount of his loss. The
principle of subrogation arises form the principle of indemnity.
32. The principle may be illustrated by the following example :
If cargo is damaged due to the negligence of a carrier (e.g. railways, truck operators, shipping
companies etc) who have an obligation to make good the loss of the insured, the benefit of the
obligation passes to the insurer.

Subrogation under policy conditions

33. The right of subrogation is implied in all contractor of indemnity. In other words its application to
contracts of indemnity is automatic without any express condition in the contract. It arises,
however, only after payment of a loss.
34. Fire and miscellaneous policies contain an express condition to the effect that the right of
subrogation can be exercised by the insurer even before payment of a claim. In certain
circumstances, it becomes necessary to take action immediately against a third party in order to
ensure that the rights of recovery are not prejudiced by any delay.

12

35. Marine insurance policies are subject to the doctrine of subrogation, but the polices do not contain
any condition, and the insurers are subrogated to the right of the insured only after payment of
claim.
36. The IRDA regulations make specific provision that the policyholder shall assist the insurer in
recovery of claims form other parties.

Contribution
37. An insured may have several insurances on the same subject matter. If the recovers his loss under
all these insurance, he will obviously make a profit out of the loss. Common Low be defined as the
right of insurers who have paid a loss under a policy to recover a proportionate amount from other
insurers who are liable for the same loss.

Contribution under policy conditions

38. The principle of contribution would lead to a situation in which the insured would be able to recover
his loss form any one insurer, who then, will have to effect proportionate recoveries form other
insurers concerned. In order to avoid this, fire policies and majority of accident policies contain a
contribution condition, which modifies the common law position. According to this condition,
whenever contribution applies, the insured is obliged to prefer claims against all the insurers, each
of whom pays only his proportion of the loss.
This can be illustrated with an example
Sum insured with insurer A
Sum insured with insurer B
Sum insured with insurer C
Total Sum insured

Rs 5 000/Rs 10 000/Rs 15 000/Rs 30 000/-

A Pays
B Pays
C Pays
Loss

Rs 1 000/Rs 2 000/Rs 3 000/Rs 6 000/-

39. The principles of subrogation and contribution do not apply to personal accident policies as these
are not contracts of indemnity.

Proximate cause
40. The object of insurance is to provide indemnity for such losses as are caused by insured perils. If
stocks are burnt, then the cause of loss is fire which is covered under a fire policy and hence the claim is
payable. If stocks are stolen, the loss is not payable under the fire policy. As burglary is not a peril
covered. If stocks are burnt by a bomb dropped by an enemy country, then the loss is caused by war
which is an excluded peril and hence not payable under the standard fire policy. Thus, it is important to
determine the cause of loss to decide whether the loss is payable or not.
41. There is no liability for a loss caused by an uninsured peril or an excluded peril.

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42. If the loss is bought about only by one event. It would be no problem to decide the question of
liability. But in actual situations, the loss may be the result of two or more causes, acting simultaneously
or one after the other. Then, it becomes necessary to choose the most important, the most effective,
the most powerful cause which has brought about the loss. This cause is termed the proximate cause
all other causes being considered as remote

Example:
The following example based on English case law will illustrate the distinction between proximate
causes
(a) A person insured under a personal accident policy went out hunting and met with an accident.
Due to shock and weakness. He was unable to walk. Whilst lying on the wet ground he
contracted cold which developed into pneumonia which caused his death. The court held that
the proximate cause of death. The court held that the proximate cause of death was the original
accident and pneumonia ( a disease which is not covered under the policy) only a remote cause.
Hence the claim was payable.
(b) An insured suffered accidental injuries and was taken to hospital. While undergoing treatment
he contracted an infectious disease which caused his death. In this case, the court gave a
contrary ruling. The proximate cause of death was the disease and the original accident only a
remote cause. Hence, the claim was not payable under a personal accident policy.

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CHAPTER 3

INSURANCE DOCUMENTS
Proposal Forms
1. The proposal form contains questions designed to elicit all material information about the
particular risk proposed for insurance. The number and nature of questions vary according to
the particular class of insurance concerned.
2. In marine cargo insurance, it is not the practice to use a proposal form, although sometimes it is
usual to obtain a questionnaire duly completed, proposal forms are required to be used in all
classes (except marine cargo) as per IRDA Regulations. Proposal forms are used in marine hull
insurance.
3. Questions on the following items may be considered as common to all proposal forms :
(a) Proposers name in full; obviously, this is required for purposes of identification. If any other
interest is sought to be insured, e.g. mortgage, bank interest, etc. this must be stated.
(b) Proposers profession, occupation or business.
(c) Previous and present insurances and full details of all losses suffered by him whether or not
they were insured.
(d) Previous and present insurance and full details of all losses suffered by him whether or not
they were insured.
(e) Sum insured : This is the maximum limit of liability under the policy and has to be indicated
in all proposal forms.
(f) Other sections common to all proposal forms relate to signature, date and in some cases
agents recommendation.
4. In addition to these general questions which are common to all proposal forms, there are special
questions depending upon the class of insurance concerned. For example, in motor insurance
the special question relate to the vehicle.
5. The purpose of the proposal form is to provide all material information to the insurers. The form
includes a declaration by the insured that the answers are true and accurate that he agrees that
the form shall be the basis of the insurance contract. Any wrong answer will give the right to
insurers to avoid the contract.

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Policy Forms
6. The policy is a document which provides evidence of the contract of insurance. This document
has to be stamped in accordance with the provisions of the Indian stamp Act 1899. In fire and
miscellaneous insurance, the policy form used is on a scheduled basis i.e. all individual details
relating to a particular insurance are grouped together in a schedule. The scheduled type of
policy may be divided into certain distinct sections viz.
(a) The Heading: Giving the insurers name and address of registered office.
(b) The preamble or Recital Clause: This section introduces or recites the parties to the contract
i.e. the insurer and the insured.
(c) Operative or insuring clause: this specifies the perils insured under the policy and the
circumstances in which the insurer will become liable to make payment to the insured. A
reference is also made to the sum insured or other limits of liability.
(d) Schedule: This section contains all the typewritten information applicable to the particular
contract. In fire insurance, for example, the schedule provides for the following data:

Insured and Address

Policy No
Date of Issue
Agency
Risk Covered
Period Of Insurance
Property Insured

Rate

Premium

Regulation 7 of IRDA Regulations, 2002 (protection of Policyholders interest) provides that

1)

A general insurance policy shall clearly state

a) The names (s) and address (es) of the insured and of any bank (s) or any other person having
financial interest in the subject-matter of insurance.
b) Full description of the property or interest insured;
c) The location or locations of the property or interest insured under the policy and where
appropriate, with respective insured values;
d) Period of insurance;
e) Sums insured;

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f)

Perils covered and not covered;

g) Any franchise or deductible applicable;

h) Premium payable and where the premium is provisional subject to adjustment, the basis of
adjustment of premium be stated;
i)

Policy terms, conditions and warranties;

j)

Action to be taken by the insured upon occurrence of a contingency likely to give rise to a claim
under the policy

k) The obligation of the insured in relation to the subject matter of insurance upon occurrence of
an event giving rise to a claim and the rights of the insurer in the circumstances;
l)

Any special conditions attaching to the policy;

m) Provision for cancellation of the policy on grounds of misrepresentation, fraud, non-disclosure

of material facts or non-cooperation of the insured;
n) The address of the insurer to which all communications in respect of the insurance contract
should be sent;
o) The details of the riders attaching to the main policy;
p) Performa of any communication the insurer may seek from the policyholders to service the
policy.
2) Every insurer shall inform and keep informed periodically the insured on the requirements to be
fulfilled by the insured regarding lodging of a claim arising in terms of the policy and the
procedures to be followed by him to enable the insurer to settle a claim early.
(e) Conditions: most policies contain conditions, which are printed on the policy. These are
called express conditions which are necessary to regulate the contract.
7. Express conditions serve various purposes. Some conditions deal with details of practice.
Example is the condition which provides for cancellation of the policy, timely notification of loss
to the insurers, etc.

Warranties
8. Apart from express conditions, there are express warranties incorporated in the policy. Having
accepted a risk for a certain rate of premium and subject to certain terms and conditions, the
insurer would like to ensure that the risk remains, throughout the duration of the policy. The
same as it existed at the time of the proposal. For this purpose. Warranties are inserted in the
policy.

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Examples
Fire insurance
Warranted that during the currency of this policy no hazardous goods will be stored in the building in
the building herein mentioned.

Marine Insurance
Warranted that the goods are packed in double gunny bags.

Burglary Insurance
Warranted that the premises are guarded by a watchman at all times.
9. If a warranty is breached, the policy becomes voidable at the option of the insurers even when it
is clearly established that the breach has not contributed to a particular loss.

Cover Notes
10. Cover notes are issued when the negotiations for insurance are in progress and it is necessary to
provide cover on a provisional or when the premises are being inspected for determining the
actual rate applicable. Pending the preparation of the policy. The cover note is issued as
evidence of protection for a temporary period of time and to prove that cover is in force. It
gives brief details of cover. The cover note is temporary and will be superseded once the policy
is issued.
11. Although the cover note is not stamped, it nevertheless represents the same insurance as that
provided by the policy. In fact, the wording of the cover note makes it clear that it is subject to
the usual terms and conditions of the insurers policy for the class of insurance concerned.
12. The marine cover notes are normally issued when details required for the issue of policy such as
name of the steamer, number of packages, or exact value etc. are not known. This usually
happens in the case of imports.

18

Motor cover notes incorporate, in addition to the other details, a certificate as follows:
FORM 52
(See Rule 142 (1) of Motor Vehicle rules, 1989)

1. Registration mark and number or description of the vehicle insured

2. Name and address of insured

3. Effective date and time of commencement Time

of insurance for the purpose of this Act

Date

4. Date of expiry of insurance

.
.

5. Persons or classes of persons entitled to drive

6. Any limitations as to use of motor vehicle

7. The period of validity of this cover note will expire on

I/We herby certify that this Cove Note is issued in accordance with the provision of Chapter
X and XI of the Motor Vehicles Act 1988.
Certificate of Insurance
13. Under the Motor Vehicles Act, a Certificate of Insurance is required to be issued in addition to
the policy.
The form of Certificate of Insurance (Private Cars) is reproduced below:
Policy No

. Certificate No.

Particular of vehicle insure

Reg. Mark,
No. & Place of
Registration

Engine No. &

Chassis No.

Make

Year
Manufacture

of

Type of
Body

C.C

Seating
Capacity

Net Premium
Rs.

19

Name of Registration Authority:

Name & Address of Insured :
Geographical Area : INDIA
Business or Profession :
Effective date of commencement of Insurance for the purpose of Act.
From _________ Oclock on _________
Date of expiry of the insurance. Midnight on ____________
Persons or Class of Persons entitled to drive
Limitations as to use
I/We hereby certify that the Policy to which this Certificate relates as well as this Certificate of Insurance
are issued in accordance with the provisions of Chapter X and Chapter XI of M.V. Act, 1988.
Full address of Issuing Office :
Date of Issue
Duly Constituted Attorney(s)

Marine
14. Certificates on insurance are issued to provide evidence of cover on shipments insured under
cargo open cover or floating policies. (This is explained in detail later under Marine Cargo
Insurance).

Endorsements
15. It is the practice of insurers to issue policies in a standard form, covering certain perils and
excluding certain others. If it is intended, at the time of issuing the policy to modify the terms
and conditions of the policy, it is done by setting out the alteration in a memorandum which is
attached to the policy and forms part of it. This memorandum is called an endorsement.
16. Endorsements may also be issued during the currency of the policy to record alterations. The
alterations normally required under a policy relate to
-

Variations in sum insured (increase / decrease)

Change of insurable interest by way of sale, mortgage, etc.

Extension of insurance to cover additional perils etc.

20

Renewal Notice
17. As a matter of courtesy and healthy business practice, insurers issue a Renewal Notice one
month in advance of the date of expiry, inviting renewal of the policy.
(Note: The claim form and Survey Report are dealt with later in the study course)

21

CHAPTER 4

THEORY AND PRACTICE OF RATING

A.

Basis of Rate Making

1.

The most important question in underwriting is: what should be the rate of premium to be
charged under a policy on insurance. The rate of premium is fixed according to certain principles:
Firstly, the premium varies according to the degree of hazard or exposure to loss or damage of the
property.
Secondly, to assess the variations in the degree of hazard, property must be classified according to
the hazards involved.
Thirdly, the degree of hazard is determined on the basis of past loss experience.

Degree on Hazard
2.

The first principle says that greater the risk, the higher should be the premium. The more probable
the loss and the more severe it is likely to be, the higher should be the premium.

3.

There is a greater likelihood of fire in a building of wooden construction that in a concrete

building. Hence, the former is charged higher premium and the latter lesser premium. Goods
vehicles are more exposed to accidental loss or damage than private cars. Hence the former
attract higher premium than the latter.

Classification of Risks
4.

The second principle flows from the first principle. It says that rates of premium should be
equitable and fair as between different individual insureds. Strictly speaking, each individual
should be charged a premium according to the hazard to which he is exposed. But this is not
feasible. Therefore, a system of classification of risks in broad categories is adopted. For example,
for purposes of premium rating, motor vehicles are classified into private cars, motor cycles and
scooters, and commercial vehicles.

5.

Within the broad groups, further sub-division, according to the hazards involved, is attempted.
Private cars are classified according to the cubic capacity of the engine. Higher the C.C. more
powerful the engine and higher the premium. In fire insurance, godowns are classified according

22

to the type of goods stored e.g. non-hazardous, extra-hazardous etc. the similarity of hazard is the
basis of classification.

Past Loss Experience

6.

The third principle says that the rate of premium is arrived at on the basis of past loss experience.
Therefore, statistical data regarding past losses is most essential for purposes of fixing rates.

7.

To fix the rates, it is necessary to give a `mathematical value to the risks. For example, if the loss
experience of a large number of motor cycles is collected for a period of say 20 or 30 years, the
result will indicate the sum total of the losses resulting from damage to the vehicles. If this
amount of loss is expressed as percentage of the total value of motor cycles we are in a position to
fix the `mathematical value of the risk. This may be expressed in the formula.
L x 100
V
where L refers to the sum total of the losses and V to the total values of the motor cycles.

8.

The following hypothetical figures are used for illustration

Value of motor cycle is Rs. 50,000/-

Loss experience. Out of 1000 cycles, in say, 10 years, 50 cycles are stolen.

On an average, five motor cycles become total losses due to theft every year.

Applying the formula, the result will be:

Losses (Rs. 50,000 X 5)
Values (Rs. 50,000 X 1000)

Rs. 2,50,000 x 100 = %

5,00,00,000

Therefore the rate of premium that a motor cycle owner pays is % of Rs. 50,000/- i.e. Rs. 250/per year. This is called the `pure premium.
9.

The pure premium arrived at as above will constitute a fund which will be sufficient only to pay for
losses. At the rate of Rs. 250 per cycle, Rs. 2.5 lakhs is collected which is paid out in claims on total
losses of 5 vehicles. There is no surplus left.

10.

But insurance operations involve costs of administration (expenses of management) and costs of
procuration of business (agency commission and brokerage). It is also necessary to provide a
margin for unexpected heavy losses. Besides, as insurance is transacted on a commercial basis,
like any other business, it is necessary to provided for a margin of profit which is a return on the
capital invested in the business.
23

11.

Therefore, the `pure premium is suitably loaded or increased by adding percentage to provide for
expenses, reserves and profits. Thus, the final rate of premium will consist of the following
components:-

(i)

Loss payments.

(ii)

Loss expenses (e.g. survey fees)

(iii)

Commission to intermediaries.

(iv)

Expenses of management

(v)

Margin for reserves for unexpected heavy losses e.g., 7 total losses against 5 assumed.

(vi)

Margin for profits.

Withdrawal of Tariff Rates

12.

The Tariff Advisory Committee decided that the rates, terms, conditions and regulations
applicable to Fire, Engineering, Motor, Workmens Compensation and other classes of business
currently under tariffs shall be withdrawn effective from 1 January, 2007.

13.

The rates of premium may be varied by insurers subject to compliance with the guidelines of `File
and Use of General Insurance Products notified.

Motor Third Party Insurance Rates

14.

The motor insurance tariffs will no longer be applicable with effect from 1 st January 2007.
However, the Authority has issued the following directions:

a)

Insurers shall provide motor third party liability insurance cover to all vehicles at the rates of
premium prescribed by the Authority.

b)

Insurers shall not refuse cover for third party risk.

c)

This Circular as well as the prescribed schedule of premium rates shall be prominently displayed
on the Notice Board of every underwriting office of the insurer where it can be viewed by the
public.

Filing of Products
15.

No general insurance product may be sold to any person unless the requirements of the
guidelines are complied with in respect of that product.

16.

The requirements of IRDA are as follows:

24

(i)

Design and rating of products must always be on sound and prudent underwriting basis. The
contingencies insured under the product should be clear and provide transparent cover which is
of value to the insured.

(ii)

All literature relating to the product should be in simple language and easily understandable to
the public at large.

(iii) The insurance product should comply with all the requirements of the Protection of Policyholders
Interests Regulations, 2002.
(iv) The pricing of products should be based on data and with technical justification (e.g. adequate
statistical information on the claims experience).
Under these guidelines, the products are classified in to two broad classifications, namely class rated
products and individual rated products. These are further classified in to the following 5 sub-categories
as follow:
a)

Class Rated Products

i)
Internal tariff rated Products : These are standard products that can be sold by any of
the offices of the insurer with the rates, terms and conditions of cover, including choice of
deducible where applicable, as set out in an internal guide tariff.
Examples are Fire insurance with certain sum insured of category of risk limitations. Motor
insurance other than fleets, Personal Accident Insurance other than groups, health insurance
other that groups, burglary insurance, fidelity insurance and so on.
ii)
Packaged or customized Products : These are products specially designed for an
individual client or class of clients, in terms of scope of cover, basis of insurance, deductibles,
rates and terms and conditions of cover. These will include in surance packages like
Homeowners Comprehensive of Shopkeepers Comprehensive or Bankers Blanket insurance
and so on.
b)

Individual Rated Products

iii)
Individual experience rated products : These are products where the rates, terms and
conditions of cover are determined by reference to the requirements of and the actual claims
experience of the insured concerned. These will typically be insurances with a high frequency
but low intensity of loss occurrence.
Examples are : Cargo insurance, Group P.A. or Health, Motor Fleets, Hull insurance and so on.
iv)
Exposure rated products : These are products where the rates, terms and conditions of
cover are determined by an evaluation of the exposure to loss in respect of the risk concerned,
independent of the actual claims experience of that risk.

25

Examples are : Earthquake risk, Public Liability insurance for high hazard occupancies and so on.
v)

Insurances of large risks : For the purpose of these guidelines, large risks are :

(1)

insurances for total sum insured of Rs.2500 crore or more at one location for property
insurance, material damage and business interruption combined;

(2)

Rs.100 crores or more per event for liability insurances.

These are typically insurances that are designed for individual large clients and where the rates,
terms and conditions of cover may be determined by reference to the international markets.

26

CHAPTER 5

LEGISLATIVE AND REGULATIORY MATTERS

Insurance Act 1938
The insurance Act, 1938 was brought into force from 1st July, 1938 applies to both life and general
insurance business.
The Act has been amended a number of times notably by the passing of the Insurance Regulatory and
Development Authority Act, 1999.
1. The importing provisions of the Insurance Act relate, among other things, to:
(a) Prohibition or Rebates : The Act prohibits use of rebates as an inducement to any person to
take out insurance.
(b) survey of losses : Section 64 UM of the Act, provides that no claim in respect of a loss which
has occurred in India and requiring to be paid or settled in India equal to or exceeding Rs,
20,000.00 on any policy of Insurance shall be admitted for payment or settled by the insurer,
unless he has obtained a report on the loss from a person who holds a licence to act as a
surveyor or loss assessor.
(c) Advance payment of premium : Section 64 VB provides that no insurer shall assume any risk.
Unless and until the premium is received in advance or is guaranteed to be paid or a despite is
made in advance In the prescribed manner.

Insurance Regulatory and Development Authority Act, 1999

2. The powers and function of the Authority are stated in the Act as follows:

To regulate, promote and ensure orderly growth of the insurance and reinsurance
business.

Issue a certificate of registration to insurers, suspend or cancel such registration to the

applicant, i.e. insurance company.

Prepare a code of conduct for the agents. Surveyors and loss assessors or the
intermediaries who take part in the development of insurance business and in the
settlement of the claims.

To protect the interest of the policyholders in matters concerning inter alia, settlement
of insurance claims, terms and condition of contract of insurance etc.

27

To control and regulate the rates, advantages, terms and conditions that may be offered
by insurers in respect of general insurance business.

To prescribe the form and the manner in which books of accounts will be maintained
and statement of accounts will be rendered by insurers and other insurance
intermediaries.

To regulate investment of fund by insurance companies.

Commission, Brokerage or Fee to Intermediary or Insurance Intermediary

3. No intermediary or insurance intermediary shall be paid or contract to be paid by way of
commission, free or as remuneration in any form, an amount exceeding thirty percent of the
premium payable as may be specified by the regulation made by the Authority, in respect of any
policy or policies effected through him.

Provided that the Authority may specify different amount payable by way of commission, fee or
as remuneration to an intermediary or insurance intermediary for different classes of business
of insurance.

General Insurance Business (Nationalization) Amendment Act, 2002

4. The important amendment are:

General Insurance Corporation of India shall cease to superintend control and carry on
the business of general insurance business but shall carry on reinsurance business
only.

Insurance Regulatory and Development Authority

(Licensing of Insurance Agents) Regulations, 2000
The Regulations prescribe qualification, practical training and passing of pre- recruitment examination.

Code of Conduct
5. Every person holding a license, shall adhered to the code of conduct specified below:

i.

Every Insurance Agent Shall

a) Identify himself and the insurance company of whom he is an insurance agent:

28

b) Disclose his license to the prospect on demand:

c) Disseminate the requisite information in respect of insurance products offered for sale
by this insurer and take into account the needs of the prospect while recommending a
specific insurance plan:
d) Disclose the scales of commission in respect of the insurance product offered for sale, if
asked by the prospect:
e) Indicate the premium to be charged by the insurer for the insurance product offered for
sale:
f)

Explain to the prospect the nature of information required in the proposal form by the
insurer, and also the importance of disclosure of material information in the purchase of
an insurance contract:

g) Bring to the notice of the insurer any adverse habits or income inconsistency of the
prospect, in the form of a report (called insurance Agents Confidential Report)
Along with every proposal submitted to the insurer, and any material fact that may
adversely affect the underwriting decision of the insurer as regards acceptance of the
proposal, by making all reasonable enquires about the prospect:
h) Inform promptly the prospect about the acceptance or rejection of the proposal by the
insurer:
i)

Obtain the requisite document at the time of filing the proposal form with the insurer:
and other documents subsequently asked for by the insurer for Completion of the
proposal:

j)

Render necessary assistance to the policyholder or claimants or beneficiaries in

complying. With the requirements for settlement of claims by the insurer:

k) Advice every individual policyholder to effect nomination or assignment or change of

address or exercise of options, as the case may be, and after necessary assistance in this
behalf, wherever necessary:

ii.

No Insurance Agent Shall

(a) Solicit or procure insurance business without holding a valid licence:
(b) Induce the prospect to omit any material information in the proposal form:
(c) Induce the prospect to submit wrong information in the proposal form or document submitted
to the insurer for acceptance of the proposal:
29

(d) Behave in a discourteous manner with the prospect:

(e) Interfere with any proposal introduced by any other insurance agent:
(f) Offer different rates, advantages, terms and conditions other than those an insurance contract:
(g) Demand or receive a share of proceeds from the beneficiary under an insurance contract:
(h) Force a policyholder to terminate the existing policy and to effect a new proposal from him
within three years from the date of such termination:
(i) Have, in case of a corporate agent, portfolio of insurance business under which the premium is
in excess of fifty percent of total premium procured. In any year, form one person (who is not an
individual) or one organization or one group of organization:
(j) Apply for fresh licence to act as an insurance agent, if his licence was earlier cancelled by the
designated person, and a period of five years has not elapsed form the date of such cancellation.
(k) Become or remain a director of any insurance company.

Important Provisions
6. These Regulations are a similar line as the IRDA (Licensing of Insurance Agents) Regulations
2000. The important provision is as follows.

1. A corporate agent can be a firm, a company under the Companies Act, a banking company, a
regional rural bank, a cooperative society, a panchayat, a local authority, a non-government
organization, a micro lending finance organization, a non-banking finance company, or any
other organization that may be approved by the IRDA.
2. The corporate agent has to nominate its partner (in the case of a firm), director (in the case
of a company), or one or more of its officers or employees. As a corporate insurance
executive. The issue of licence to the corporate agent is subject to the insurance executives
satisfying the requisite educational and other qualification, as in the case of an individual
agent. He is also required to undergo the minimum training requirements and pass the
examination conducted by the insurance institute or India. As in the case of individual
agents.
3. The corporate agent also has to nominate one or more of its partners, directors or
employees as specified persons , who will be responsible for soliciting insurance business
on behalf of the corporate agent. The specified person must have a minimum educational

30

qualification on the same lines as individual agents, and undergo the prescribed training and
pass an examination.
4. Both corporate insurance executives and specified persons, are bound by the code of
conduct for agents, as applicable to individual agents. A violation of the code can result in
the cancellation of the licence of the corporate agent. The corporate insurance executives or
certification of the specified persons.

IRDA Regulations (Advertisements)

7. The IRDA has also issued regulations with regard to advertisements. These regulations are
applicable to all advertisements, whether issued by the insurance company or an insurance
intermediary, including an agent. The definition of advertisement has been made very wide so
as to include almost any public communication, recommending or soliciting a sale of an
insurance policy. It is obligatory that every advertisement should have full disclosures of the
product mentioned and of the advertise, including license and registration numbers.
Advertisements to be issued by agents must be approved by the insurer in writing. Before issue.

The IRDA regulations for brokers make inter alia the following provisions:
Direct broker is licensed to carry out specified functions in life insurance or general insurance
or both on behalf of his clients.

Functions of a Direct Broker

8. The functions of a direct broker shall include any any or more of the following.

a) Rendering advice on appropriate insurance cover and terms:

b) Submitting quotation received from insurer/s for consideration of a client:
c) Providing requisite underwriting information as required by an insurer in assessing
the risk to decide pricing terms and condition for cover:
d) Acting promptly on instruction form a client and providing him written
acknowledgement and progress reports:
e) Providing services related to insurance consultancy and risk management:
f)

Assisting in the negotiation of the claims: and

g) Maintaining proper records of claims:

31

Code of Conduct
9. Every insurance broker shall follow recognized standards of professional conduct and discharge
his functions in the interest of the policyholders.

Remuneration
10. No insurance broker shall be paid or contract to be paid by way of remuneration (including
royalty or license fees or administration charges or such other compensation). An amount as
prescribed by the authority.

IRDA Regulations 2000 (Surveyors & Loss Assessors)

11. A license is granted subject to possession of qualification, practical training and passing of
examination.
The specific functions are mentioned in regulation as follows.

Conducting inspections and re-inspection of the property in question, suffering a loss,

spot and final surveys, as and when necessary and comment upon franchise, excess,
under insurance and any other related matter.

Investigating, verifying, etc upon the courses and the circumstances of the loss and
extent of loss, nature of ownership and insurable interest.

Measuring and determining the quantum of loss.

Recommending percentage and quantum of depreciation .

Commenting on the admissibility of the loss as also observance of warranties/

conditions of the policy.

Giving reasons of repudiation of claim, in case the claims is not covered by policy terms
and conditions.

Advising the insurer and the insured about loss minimization, loss control, etc. to avoid
further losses.

Commenting on salvage and its disposal wherever necessary.

Pointing out discrepancy, if any, in the policy wordings.

12. Finally, the Survey report is required to be submitted as expeditiously as possible but not later
than 30 days of appointment. Which period can be extended in exceptional case with the
consent of the insured and insurer.

32

A special feature of the IRDA Regulations is that they specifically provide for a code of conduct
binding on all licensed surveyors and loss assessors. Regulation 8(4) (II) provides that the
authority may refuse to grant or renew license, or suspend or cancel a license if there is a
violation of the code of conduct.
The code prescribes personal qualities of courtesy and integrity which implies not merely
honesty but fair dealings and truthfulness. The prescriptions which directly concern survey work
are:

Objectivity in professional and business judgment

Impartiality when acting in relation to a claim under a policy.

Due diligence, care and skill and due regards to expected professional standards in
survey work.

The IRDA Regulations (Third Party Administrators- Health Services) 2001

13. The above regulations provide for licensing of third party administrators who may be engaged
for a fee or remuneration by insurance companies for the provision of health services in
connection with health insurance business. Under an agreement between the two parties.
The TPAs provide a total and integrated medical claims service to health insurance policy
holders.
The service includes:
Wide network of hospitals/nursing homes all over India where a policy holder can avail cash less
services which mean admission without admission fees or deposits or payment of covered
expenses of treatment at the time of discharge Claims management in terms of collection of
claims document, claims scrutiny and processing, claims payment reporting of claims
management to insurers as required etc.

I.R.D.A Regulations, 2002

(Protection of Policyholders Interests)
These Regulations apply to all insures. Insurance agents, insurance agents, insurance intermediaries and
policyholder.
14. The provision of the Regulation 3 in respect of point of sale are as follow:

33

1) A prospectus of any insurance product shall clearly state the scope of benefits, the
extent of insurance cover and in an explicit manner explain the warranties, exceptions
and conditions of the insurance cover.
2) An insurer or its agent or other intermediary shall provide all material information in
respect of a proposed cover to the prospect to enable the prospect to decide on the
best cover that would be in his or her interest.
3) Where the prospect depends upon the advice of the insurer or his agent or an insurance
intermediary, such a person must advise the prospect dispassionately.
4) In the process of sale, the insurer or its agent or any intermediary shall act according to
the code of conduct prescribed.
15. The provision of Regulation 4 regarding proposal for insurance are as follows

Proposal for Insurance Except in cases of a marine insurance cover, where current market
practices do not insist on a written proposal form, in all cases, a proposal for grant of a cover,
either for life business or for general business, must be evidenced by a written document. It is
the duty of an insurer to furnish to the insured free of charge, within 30 days of the acceptance
of a proposal, a copy of the proposal form,

Grievance Redressal Procedure Every insurer shall have in place proper procedures and
effective mechanism to address complaints and grievances of policy holder efficiently and with
speed and the same along with the information in respect of insurance Ombudsman shall be
communicated to the policy holder along with the policy document and as may be found
necessary.

Claim procedure in respect of a general insurance policy is prescribed by Regulation 9 as follow:

1. An insured or the claimant shall give notice to the insurer of any loss arising under
contract of insurance at the earliest or within such extended times as may be allowed
by the insurer.

On receipt of such a communication, a general insurer shall respond immediately and

give clear indication to the insurer on the procedure that he should follow. In cases
where a surveyor has to be appointed, it shall be so done within 72 hours of the receipt
of intimation from the insured.

34

2. The surveyor shall communicate his findings to the insurer within 30 days of his
appointment with a copy of the report being furnished to the insured, if he so desires.
3. On receipt of the survey report, an insurer shall within a period of 30 days offer a
settlement of the claim to the insured.
If the insurer, for any reasons to be recorded in writing and communicated to the
insured, decides to reject a claim under the policy, it shall do so within a period of 30
days from the receipt of the survey report.
4. Upon acceptance of an offer of settlement by the insured, the payment of the amount
due shall be made within 7 days from the date of acceptance of the offer by the
insured. In the cases of delay in the payment, the insurer shall be liable to pay interest
at a rate which is 2% above the bank rate prevalent at the beginning of the financial
year in which the claim is reviewed by it.
16.

The various aspects of policyholder Servicing are dealt with by Regulation 10 as follows:
1.

An insurer carrying on life or general business, as the case may be, shall at all times,
Respond within 10 days of the receipt of any communication from its policyholders in
all matters, such as:

Recording changes of address:

Issuance of duplicate policy:

Issuance of an endorsement under the policy: nothing a changes of interest or

sum assured or perils insured. Financial interest of a bank and other interests:
and

Guidance on the procedure for registering a claim and early settlement thereof

17. The final regulation under the heading General provides as follow:
(1) The requirements of disclosure of material information regarding a proposal or policy apply,
under these regulations, both to the insurer and the insured.
(2) Any breaches of the obligations cast on an insurer or insurance agent or insurance intermediary
in terms of these regulations may enable the Authority to initiate action against each or all of
them. Jointly or severally, under the Act and /or the Insurance Regulatory and Development
Authority Act, 1999.

IRDA Regulations (Micro-Insurance) 2005

18. The following definitions under the Regulations must be noted:

35

General micro-insurance product means any health insurance contract. Any contract covering
the belongings, such as, jut, livestock or tools or instruments or any personal accident contract,
either on individual or group basis, as per terms stated in Schedule-I appended to these
regulations:
Life micro-insurance product means any term insurance contract with or without return of
premium, any endowment insurance contract or health insurance contract, with or without an
accident benefit rider, either on individual or group basis, as per terms stated in Schedule-II
appended to these regulations:
Micro-insurance agent means (i) a Non-Government Organization (NGO): or (II) a Self Help
Group (SHG): or (III) a Micro-Finance Institution (MFI), who is appointed by an insurer to act as a
micro-insurance agent for distribution of micro insurance products.
Schedules I & II refer to minimum sum insured and maximum sum insured under different micro
policies. The amounts range form Rs. 5000/- to Rs. 50.000/A life insurer may offer life micro-insurance products as also general micro-insurance products.
A general insurer may offer general micro-insurance products as also life micro-insurance
products.
A micro-insurance agent shall be appointed by an insurer clearly specifying terms and conditions
of appointment.
A micro agent shall not work for more than one life insurer and one general insurer.
A micro-agent shall not distribute any product any product other than a micro-insurance
product.
However, the regulations allow distribution of micro-insurance products of individual and
corporate agents and brokers.
Code of Conduct and Advertisement regulations also apply to micro-insurance products.
Every insurer shall issue insurance contract to the individual micro-insurance policyholder in the
vernacular language which is simple and easily understood by the policyholders.
Provided that where issuance of policy contracts in the vernacular language is not possible the
insurer shall as far as possible issue a detailed write-up about the policy details in the vernacular
language.

36

Remuneration/ Commission
19. A micro-insurance agent may be paid, remuneration for all the functions rendered as outlined in
regulation 5 and including commission, by an insurer, and that the same shall not exceed the
limits as stated below:
a) For Life Insurance Business
Single Premium Policies Ten per-cent of the single premium
Non-single premium polices Twenty per cent of the premium for all the years of the
premium paying term.
b) For Non-Life Insurance Business- Fifteen per cent of the Premium

Consumer Protection Act, 1986

20. The Consumer Protection Act 1986 was passed to provide for better protection of the interest of
consumers, and for settlement of consumers disputes. The Act is applicable to the buyers of
goods and services. Insurance has been defined as a service for the purposes of the Act. Every
buyer of insurance is a consumer.
The Act has been amended by the Consumer Protection (Amendment) Act, 2002.
The salient features of the Act are:

It covers all the sectors. Whether private, public or cooperative.

A three-tier quasi judicial machinery to provide simple, speedy and inexpensive

redressal of consumer grievances.

A district forum has jurisdiction to entertain a complaint if the value of the service and the
compensation claimed is less than Rs. 20 lakhs.
A state commission has original, appellate and supervisory jurisdiction. It would entertain appeals from
the District Forum. It has original jurisdiction to entertain complaints where the value of goods/ service
and compensation claimed exceeds Rs. 20 lakhs but does not exceed Rs. 1 crore.
The National Commission is the final authority established under the Act. It will have the original,
appellate as well as supervisory jurisdiction. It would hear the appeals from the order passed by the
state commission and in its original jurisdiction it will entertain dispute, where goods/ services and the
compensation claimed exceeds Rs. 1 crore. An appeal shall lie within 30 days form the order of the
National Commission to Supreme Court.

37

The procedure for filling a complaint is very simple in all the above three redressal agencies. There is no
fee for filing a complaint or filing an appeal.

Ombudsman
The Central Government, under the powers of the Insurance Act, 1938 made Redressal of Public
Grievances Rules, 1998.
21. These rules apply to life and general insurance in respect of personal lines insurances that is,
insurances taken in an individual capacity.
22. The ombudsman may receive and consider complaints in respect of
a) Any partial or total repudiation of claims by an insurer:
b) Any dispute on the legal construction of the policies in so far as such disputes relate to
claims:
c) Delay in settlement of claims:
23. Any complaint made to the Ombudsman should be in writing. Signed by the insured or his legal
heirs, addressed to an Ombudsman within those jurisdiction the insurer has a branch\ office,
about complaints and settlements, supported by documents, if any, along with an estimate of
the nature and extent of loss to the complainant and the relief sought.
24. No complaints to the Ombudsman shall lie unless
a) The complainant had made a previous written representation to the insurer and the insurer
had.
i.

Rejected the complaint or

ii.

The complainant had made a previous written representation after receipt of the complaint by
the insurer or

iii.

The complainant is not satisfied with the reply given by the insurer.
b) The complaint is made not later than one year after the insurer had rejected the
representation
c) The complaint is not pending in any consumer forum or in Arbitration.
25. The Awards are governed by the following rules:
The award should not be more than Rs. 20 lakh (inclusive of ex-gratia payment and other
expenses).

38

The award should be made within a period of 3 months from the date of receipt of such a
complaint, and the insured should acknowledge the receipt of the award in full as a final
settlement within one month of the receipt of such reward,
The insurer shall comply with the award and send a written intimation to the Ombudsman
within 15 days of the receipt of such acceptance letter.
If the insured does not intimate in writing the acceptance of such award, the insurer may not
implement the award.

39

CHAPTER 6

FIRE INSURANCE
Fire Insurance is designed to provide financial protection for property against loss or damage by fire and
other specified perils.
1. Examples of Insurable Property

Buildings

Contents of buildings such as machinery. Plants and equipment, accessories, etc.

Goods (raw materials, in process, semi- finished, finished, packing materials, etc) in
factories, godowns, in the open.

Contents in dwellings, shops, hotels, etc.

Furniture, fixture and fittings, etc.

The Standard Fire and Special Perils Policy

2. The perils specified in the policy are:
Fire
3. Excluding destruction or5 damage caused to the property insured by
(a) (i) its own fermentation, natural heating or spontaneous combustion.
(ii) its undergoing any heating or drying process.
(b) Burning of property insured by order of any Public Authority :
(Note: Spontaneous Combustion can be covered at extra premium)

Lightning
Explosion / Implosion
4. Explosion / Implosion cover excludes loss. Destruction of or damage
a) To boilers (other than domestic boilers) or their contents resulting from their own
explosion /implosion.
b) Caused by centrifugal forces.
(Note: This risk can be covered by Boiler Explosion Policy in Engineering insurance.)

40

Aircraft Damage
5. Destruction or damage caused by Aircraft, other aerial or space devices and articles dropped
there from excluding those caused by pressure waves.

Riot, Strike and Malicious Damage:

6. Loss of or visible physical damage or destruction by external violent means directly caused to
the property insured by riot, strike, malicious damage.

Terrorism Damage Exclusion Warranty:

7. Notwithstanding any provision to the contrary within this insurance it is agreed that this
insurance excludes loss, damage cost or expense directly or indirectly caused by, any act of
terrorism.
For the purpose of this endorsement an act terrorism means an act. Including but not limited to
the use of force or violence and / or the threat thereof, of any person or group (s) of person
whether acting alone or on behalf of or in connection with any organization (s) or government
(s), committed for political, religious, ideological or similar purpose including the intention to
influence any government and / or to put the public, or any section of the public in fear.

Terrorism Cover
8. When the insured opts for Terrorism Damage cover by paying additional premium as provided,
cover will be granted by attaching an endorsement :
Terrorism cove will be separate cover which can be granted only in conjunction with Riot, strike
and Malicious Damage cove (RSMD), Terrorism cover will not be given n isolation without RSMD
cover.

Deductibles
9. Every claim under terrorism cover will be subject to a deductible as under:
Industrial Risks : 0.5% of Total Sum Insured subject to a minimum or Rs. 1 lakh.
Non-industrial Risks: 0.5% of Total sum insured subject to a minimum or Rs. 25,000/Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation

41

10. The natural perils cover is defined as : Loss, destruction or damage directly caused by Storm,
Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood or Inundation excluding those resulting
from earthquake, volcanic eruption or other convulsion of nature (wherever earthquake cover is
give earthquake, volcanic eruption or other convulsions of nature shall stand deleted.)

Impact Damage
11. Loss or visible physical damage or destruction caused to the property insured due to impact by
any Rail/ Road vehicle or animal by direct contact not belonging to or owned by
a) The insured or any occupier of the premises or
b) Their employees while acting in the course of their employment.
(See also Add-on Covers later in the chapter)

Subsidence and Landslide Including Rock Slide

12. Loss, destruction or damage directly caused by subsidence or part of the site on which the
property stands or Landslide/ Rockslide excluding..
a) The normal cracking, settlement or bedding down of new structures
b) Demolition, construction, structural alterations or repair of any property of ground works or
excavation.

BURSTING AND / OR OVERFLOWING OF WATER TANKS, APPARATUS AND PIPES

MISSILE TESTION OERTATIONS
ACCIDENTAL LEAKAGE FORM AUTOMATIC SPRINKLER INSTALLATONS
13. Excluding destruction or damage caused by Forest Fire.

General Exclusions
14. This policy does not cover
a) The first 5% of each and every claim subject to a minimum of Rs. 10,000/- in respect of each
and every loss arising out of Act if God perils such as Lightning, STFI, Subsidence,
Landslide and Rockslide.
b) The first Rs. 10,000/- for each and ever loss arising out of other perils.
(The excess is not applicable to dwellings)

42

c) Loss, destruction or damage caused by war, and kindred perils.

d) Loss, destruction or damage directly or indirectly caused to the property insured by nuclear
peril.
e) Loss destruction or damage caused to the insured property by pollution or contamination
excluding

f)

Pollution or contamination which itself results form a peril hereby insured against.

Any peril hereby insured against which itself result form pollution or contamination.

Loss, destruction or damage to bullion or unset precious stones, curios or work of art for an
amount exceeding Rs. 10,000/- manuscripts, plans, drawings, stamps, coins or paper money.
Cheques, books of accounts or other business books, computer systems records, explosives
etc. unless otherwise expressly stated in the policy.

g) Loss, destruction or damage to the stock in cold storage premises caused by change of
temperature.
h) Loss, destruction, or damage to any electrical machine, apparatus, fixture or fitting arising
from or occasioned by overrunning, excessive pressure, short circuiting, arcing, self-heating
or leakage of electricity from whatever cause (lightning included) provided that this
exclusion shall apply only to the particular electrical machine, apparatus, fixture of fitting so
affected and not to other machines, apparatus, fixture of fittings which ma be destroyed or
damaged by fire so set up.
This is known as electrical Risks exclusion. These risks can be covered under Machinery
Insurance policy (Engineering Insurance)
It is to be noted that only damage to the particular electric machine, etc by specified
electrical risks is excluded: but resulting fire damage to other machines, etc, is covered.
i)

Expenses incurred on (a) Architects, Surveyors and Consulting Engineers Fees and (b) Debris
Removal necessarily incurred by the Insured following a loss destruction or damage to the
property insured by an insured peril in excess of 3% and 1% of the claim amount
respectively.
(Note: Cover for expenses in excess of 3% and 1% can be arranged by endorsement )

43

15. The other exclusions under the policy are:

a) Loss or damage by spoilage from the interruption of any process caused by any of the
perils covered.
b) Loss or damage by earthquake.
c) Loss or damage to insured property if removed to any building or place other than the
insured premise (except machinery temporarily removed for repairs, etc, for a period
not exceeding 60 days)
d) Theft during or after the occurrence of any insured peril.
(Note: Add-on cover is available for (a),(b) & (c))

General Conditions
16. There are 15 conditions in the policy, and the provisions of these conditions are briefly
explained.
i.

This policy shall be voidable in the event of misrepresentation, mis description or

non- disclosure of ay material particular. This condition deals with the principle of
utmost good faith.

ii.

All insurance under this policy shall cease on expiry of seven days from the date of
fall or displacement of any building or part thereof. Provided such a fall or
displacement is not caused by insured perils. However, the company, subject to an
express notice being given as soon as possible but not later than 7 days of any such
fall or displacement, may agree to continue the insurance subject to revised rates,
terms and conditions as may be decided by it and confirmed in writing to this effect.

iii.

Under any of the following circumstances the insurances ceases to attach as regards
the property affected unless the insured. Before the occurrence of any loss or
damage, obtains the sanction of the company signified by endorsement.

a) If the trade or manufacture carried on be altered, or if the nature of the occupation of or other
circumstances affecting the building insured or containing the insured property be changed in
such a way as to increases the risk of loss or damage by the insured Perils.
b) If the building insured or containing the insured property becomes unoccupied and so remains
for a period of more than 30 days.
c) If the interest in the property insured passes from the insured otherwise than by will or
operation of law.

44

These are material changes in the risk and hence have to be notified to the company. However,
on the death of the insured the legal heirs automatically become the insured.
(iv) If there is a marine policy covering the loss the fire policy will pay only the excess over the amount
payable under the marine policy.
(v)This condition deals with the cancellation of the policy by either of the parties to the contract. If the
cancellation is by the insured then the premium is retained by the company on short period basis. The
insurance company can also cancel the policy by giving 15 days notice to the insured and in such a case
the premium will be refunded on pro-rata basis.
(vi) This condition deals with the duties of the insured on the happening of a loss which are:
a) Notice of loss/ damage should be given to the insurer forthwith.
b) Within 15 days or further time as allowed by the insurance company submit a claim statement
giving itemwise details of amount of loss not including profit of any kind.
c) Particular of other insurance should also be submitted.
d) Non compliance of this condition will make the claim untenable

The second part of this condition makes two provisions.

a) The insurer is not liable for any loss after the expiry of 12 months form the date of loss
unless the claim is the subject of pending action or arbitration.
b) If liability is disclaimed by the insurer and the insured has not filed a suit in a court of law,
within 12 months of the date of disclaimer, the claim is deemed to have been abandoned by
the insured. It is not recoverable thereafter.
(vii) This condition provides for certain right of the insurers following the occurrence of a loss. Insurers
can
a) Enter and take possession of the building or premises where the loss has occurred.
b) Remove, sort, arrange or salvage the property
If the insured or any person on his behalf does not co operate or hinders the process in any
way then all benefits under this policy shall be forfeited.
The insured does not have any right to abandon damaged property whether the insurer takes
possession or not.
(viii) If the claim is fraudulent then the insured loses all benefits under the policy.

45

(ix) This condition gives the insurer the option to reinstate or replace the property that is lost/ damaged
instead of paying the amount of claim to the insured.
(x) This is the condition of average. An insured is expected to insure his property for its full value. In the
event of claim it is found that has not covered the property for it full value, then he has to bear a portion
of the claim for his own account.
Example
Value of Property

Rs. 2,00,000

Sum Insured

Rs. 1,50,000

Loss

Rs.80,000

The amount payable

= 1, 50,000 X 80,000 = R. 60,000
2, 00,000
(xi) This condition provides that in the event of more than one policy covering the loss all policies will
contribute towards the claim amount in the proportion that the particular policys sum insured bear to
the total sum insured under all the policies. (contribution)
(xii) If the loss is caused by a third party the insured is required to give assistance to the insurers to
enable them to recover the loss from the third party responsible for the loss. The insureds right of
recovery against the third party are subrogated to the insurers, and this transfer of right takes place
even before the insurers pay the loss. (This is the subrogation condition).
(xiii) Any dispute regarding the amount of claim payable (liability having been admitted by the insurer)
shall be referred to arbitration as per the provision of the Arbitration and Conciliation Act, 1996.
Arbitration is private method of dispute resolution and is faster and cheaper than the process of
litigation.
(xiv) Every notice and other communication to the company required by these conditions must be
written or printed.
(xv) Upon the settlement of any loss under this policy, prorate premium for the unexpired period from
the date of such loss to the expiry period of insurance for the amount of such loss shall be payable by
the insured to the company.
The additional premium referred to above shall be deducted from the net claim payable under the
policy. However, the sum insured shall stand reduced by the amount of loss in case the insured
immediately on occurrence of the loss exercises his option not to reinstate the sum insured as above.

46

Add On Covers
17. The following Add-On covers are available at extra premium.

(a)Architects, etc. Fees (in excess of 3 % of claim amount)

Covers under the standard policy applies only upto 3% of the claim amount. The extension
provides cover for a higher limit i.e. 7.5 % of the adjusted loss.
(The sum insured on buildings, machinery should be increased to include such fees)

(b) Debris Removal Expenses (in excess of 1% of claim amount)

Following a loss, the insured may have to incur costs and expenses
i.

In the removal of debris form the insured premises.

ii.

Dismantling or demolishing

iii.

Shoring or propping up of the portion of the property, insured destroyed or damaged by

insured perils.
The sum insured for the extension is separately fixed not exceeding 10% of the total
sum insured.

c) Deterioration of Stocks in Cold Storage premises

There are two types of extension of cover for deterioration of stock caused by change of
temperature.
(A) Destruction of or damage to the insured property by changes of temperature in
consequence of failure of electric supply at the terminal ends of electric service feeders
from which the insured obtains electric supply directly due to damages by an insured
peril to property at any Electric Station or Sub-Station of Public Supply undertaking from
which the insured obtains electric supply.
(B) Destruction of or damage to insured property by change of temperature in consequence
of failure of electric supply following damage to property at the insureds premises.
The extension does not cover any loss due to any act of government, municipal
authority etc or due to rationing etc of power supply.

d) Spontaneous Combustion
This extension covers loss or damage by fire only of the insured property caused by its own
fermentation, natural heating or spontaneous combustion.

47

Spontaneous combustion mean burning which result from internal heating and not form
external causes. This takes place In certain commodities e.g. groundnuts, dyes, chemicals,
paints and varnish, gunnies, hay and grass, copra cake, etc.

e) Forest Fire
The extension covers loss or damage to the property insured directly caused by burning,
whether accidental or otherwise, of forest and jungles and the clearing of lands by fire.

f) Impact Damage
Impact damage due to Insureds Own Rail/ Road Vehicles, Forklifts, cranes , stackers and the
like and articles dropped there from.
g)

Earthquake (Fire and Shock)

Earthquake (Fire and Shock) add-on cover is available in two types:
a) If option to delete STFI perils under Standard policy is not exercised.
The extension covers loss or damage (including loss or damage by fire) to property
insured by earthquake including flood overflow of the sea, lakes, reservoirs and
rivers and/or Landslide/Rockslide resulting therefrom.
b) If option to delete STFI perils under standard policy is exercised the cover applies for
loss or damage (including fire) by earthquake including Landslide / Rockslide
resulting therefrom but excluding flood or overflow of the sea, lakes, reservoirs and
rivers caused by earthquake.
The extension is subject to the following:
Excess is 5% of each and every claim subject to a minimum or Rs. 10,000/-

Coverages applies to both fire damage and shock damage.

h) Spoilage Material Damage cover under a separate item in the policy relates to
i.

Loss of stock in process; and

ii.

Damage to machinery, containers and equipment

(including cost of removal of debris and cleaning)
The policy is extended to cover loss or damage by spillage resulting from the
interruption or cessation of any process or operation caused by any of the perils
covered by the policy. Subject to the proviso that liability for damage to the
property insured is first admitted by the company.

48

All stocks must be covered with a separate sum insured for each subject to pro-rata
average, if under insured.

i) Temporary Removal
The extension provides cover in respect of insured stocks (not exceeding 10% of the total
sum insured of suck stock) while temporarily removed to any other premises for fabrication.
j)

Loss of Rent is covered if the insured building or any part thereof is unit for occupation as a
result of damage by insured perils.

The owner-occupant to insure both buildings and contents.

The tenant to insure the contents of the premises for which this extension is sought.

k) start-up Expenses : The policy is extended to cover Startup costs necessarily and
reasonably incurred by the insured consequent upon a loss or damage covered by this
policy
l)

Escalation Clause: This clause, applicable to policies on Buildings, Machinery and

Accessories only, can be incorporated In policies on payment of additional premium.
The clause allow automatic regular increase, not exceeding 25%, in the sum insured
throughout the period of the policy. The automatic increase operates form the date of
inception upto the date occurrence of any of the insured perils. Prorate condition of average
will apply as usual.

Special Policies
Floater Policy
18. These policies cover stocks at various specific location under one sum insured. The insured may
have stocks in tow or more godowns. He is able to declare for insurance the total value of
goods. In all godowns but not separate vales for each godown.
Unspecified locations are not allowed. Similarly, in a manufacturing risk, the stock in the process
blocks, godowns and/ or in the open can be covered under one sum insured.

Declaration policies
19. To take care of frequent fluctuations in stock / stock values, Declaration Policy (ies) can be
granted subject to the following conditions:
a) The policy is issued for a sum insured selected by the insured.

49

(Insurers stipulate a minimum sum insured).

b) Monthly declarations based on the average of the value at risk on each day or highest value
on ay day of the month shall be submitted by the insured. If declaration are not received
within the specified period, the full sum insured under the policy shall be deemed to have
been declared.
c) Refund of premium on adjustment based on the declaration/ cancellations shall not exceed
50% of the total premium.

Illustration
Sum insured

Rs. 1,00,00,000(1 crore)

Rate

Rs. 1. 00 per mille

Premium
Monthly Declarations
January
February
March
April
May
June
July
August
September
October
November
December

Rs. 10, 000/-

Total Declarations
Average Sum Insured
Premium
Premium on average sum
insured

Rs.

52,00,000
56,00,000
46,00,000
46,00,000
30,00,000
30,00,000
30,00,000
30,00,000
40,00,000
40,00,000
40,00,000
40,00,000
4,80,00,00
0
40,00,000
10,000

Rs.
Rs.

4,000
6,000

According to rules above refund cannot exceed 50% of the total premium, therefore, refund is Rs.
5,000/- and not Rs.6, 000/-

50

Reinstatement Value Policies

20. This is the fire policy with the reinstatement value clause attached to it. The clause provides that
in the event of loss, the amount payable is the cost of reinstating property of the same kind or
type, by new property.
This basis of settlement differs from the basis under the fire policy where the losses are settled
on the basis of market value i.e. making deductions for depreciation, etc.
21. The reinstatement value clause incorporates the following special provisions:
a) Reinstatement must be carried out by the insured and completed within 12 months after
the destruction or damage, failing which the loss will be settled on the normal indemnity
basis i.e. according to the Five policy.
b) The reinstatement basis of settlement will not apply
i.

If the insured fails to intimate to the insurer within 6 months or any extended time
his intention to replace the damaged property.

ii.

If the insured is unable or unwilling to replace the damaged property. In such cases
the loss will be settled on the normal basis of indemnity.

c) The work of reinstatement may be carried out upon another site and in any manner
required by the insured provided the liability under the policy is not thereby increased.
These insurance are granted to insureds whose bonafides are satisfactory and, are generally
issued only in respect of building, plant and machinery in comparatively new condition
These insurance are not granted on stocks.

Industrial All Risks Policy

22. This is package cover designed for industrial risk (both manufacturing and storage facilities) with
an overall sum assured or Rs. 100 crores and above. The policy provides cover for the following :

Fire and special perils

Burglary

Machinery Breakdown/ Boiler Explosion/ Electronic Equipment (Material damage)

Business Interruption (Fire & allied perils)

Business Interruption (Machinery Breakdown) This is an optional cover.

51

Discounts in rates are provided. Under insurance of upto 15% is permitted. Apart from
the reduced costs of premium, there is administrative convenience both for the insured
and the insurer.

Agreed Bank Clause

23. All policies in which a Bank has partial interest are to be made out in the name of the Bank and
Owner or Mortgagor and the Agree Bank Clause incorporated in the policy.
The salient features of the clause are:
a) The claim is payable to the bank whose receipt shall be a complete discharge and binding on
all arties insured.
b) Any settlement, compromise etc. in relation to disputes if made with the bank shall be valid
and binding on all parties insured.

Fire Proposal Form

24. The fire proposal form elicits, among other things, the following information.
Description of the property. This would include:
i.

Construction of external wails and root, number of storeys.

ii.

Occupation of each portion of the building

iii.

Presence of hazardous goods.

iv.

Process of manufacture.

v.

The sums proposed for insurance.

vi.

The period of insurance.

vii.

History of previous losses.

viii.

Insurance history- whether previously other insurers had declined he risk, etc.

Consequential Loss (Fire) Insurance

25. Fire insurance is designed to provide protection in respect of loss of or damage to buildings,
machinery, furniture and fittings, goods and merchandise, etc. by fire and allied perils. The
insurance affords cover for material damage. However an indemnity for the material
damage does not provide complete protection to the insured who may also suffer trading
losses due to total or partial stoppage of the business.

52

The purpose of consequential loss or loss of profits insurance (also known as Business
Interruption Insurance) is , therefore, to make good these losses, namely net profit, standing
charges and increased cost of working.
26. Turnover of a business consists of the following three elements:
a. Variable Chares: these are expense incurred in producing the goods (e.g. purchases of
row materials, wages, etc.)
b. Standing Charges : these expenses are fixed in amount irrespective of he volume of
the business transacted (e.g. taxes, bank interest, salaries to permanent staff, etc)
c. Net Profit: this is turnover minus variable and standing charges.
d. Gross Profit: Standing charges and net profit together constitute the gross profit of the
business.

Indemnity period
27. The profits policy indemnity in respect of loss or gross profit during the indemnity period which
is selected by the insured. The indemnity period chosen by the insured may very from 3 months
to 3years.
The indemnity period is to be distinguished from the period of insurance which is usually a year:
the insured peril must occur during the period of insurance and the indemnity period which
commences on the date of loss and terminates when the business returns to normal level.

The Sum insured

28. The sum insured is to be fixed by the insured. As the indemnity provided by the consequential
loss policy is in respect of loss of gross profit for the indemnity period naturally the sum insured
should represent the gross profit of the indemnity period selected. Where the indemnity period
is 12 months or less, the sum insured should be the annual amount of the gross profit i.e. the
annual amount of the net profit and the insured sanding charges. Where the indemnity period is
24 months, the sum insured should represent twice the annual gross profit and so on.
The sum insured is to be computed from the Insureds accounts. The standing charges have to
be specified by the insured. Some examples of the standing charges are:

Interest on loans, bank overdraft and debentures, including brokerage on deposits:

Rent

Director fee ad remuneration;

Legal, audition and other professional fees and expenses;

53

Insurance premiums;

Advertising and Publicity expenses;

Conveyance, stationery, Postage, Telephone, Telex, Telegram, Teleprinter expenses;

Office and General Establishment expenses;

Salaries to permanent staff including Employees State Insurance Contributions;

Wages (including Employees State Insurance Contributions,), etc

When loss becomes payable:
a. Fire or other insured peril must occur at the insured premises,
b. Property used for the business of the insured at the insured premises must be
destroyed or damaged.
c. The business must be interrupted or interfered with as a consequence.
d. The resulting loss Is paid in accordance with the provisions of the policy.

(Note : A formula is incorporated in the policy to calculate the loss. This is known as
specification)
29. Payment of loss under the L.O.P. policy is subject to payment or admission of liability for
the loss under the material damage insurance i.e. fire and special perils policy. (This is
the material damage clause)

54

CHAPTER 7

MARINE INSURANCE
1. Marine insurance, comprises (a) cargo insurance and (b) hull insurance
Cargo insurance provides insurance cover in respect of loss of or damage to goods during transit
by rail, road, sea or air, thus cargo insurance concerns the following:
i.

Export and import shipment by ocean-going vessels of all types,

ii.

Costal shipments by steamers, sailing vessel, mechanized boasts, etc.

iii.

Shipment by inland vessels or country craft, and

iv.

Consignment by rail, road, or air and articles sent by post.

Hull insurance, on the other hand, concerns the insurance of ships (hull, machinery, etc)

Who effects the Insurance

2. A contract of sale involves mainly a seller and a buyer, apart from other associated parties like
caries, banks, clearing agents, etc, the question as to who is responsible for effecting insurance
on the goods, which are the subject for sale, depends on the terms of the sale contract. The
principal types of sale contracts, in so far as marine insurance is directly concerned, are as
follows:
Types of contract

Responsibility For Insurance

Free on Board (F.O.B contract)

The seller is responsible till the goods are paced on board the steamer.
The buyer is responsible thereafter. He can get the insurance done wherever he
likes.

Free on Rail (F.O.R contract)

The provision are the same as In (a) above. This is mainly relevant to internal
transitions.

Cost and Freight (C & F

Contract)

Here also, the buyers responsibility normally attaches once the goods are placed
Board.

Cost, Insurance & Freight (C.I.F

Contract)

In this case, the seller is responsible for arranging the insurance.

3. Banks Finance export/ import business. The goods which are the subject of the sale are
considered by the bank as physical security against the monies advanced by it to the exporter. A
further security by way of an insurance policy is also required by the bank to protect its interests
in the event of the goods suffering loss or damage in transit.

55

Marine Policies
4. For export/ import policies, the Institute Cargo Clauses (I.C.C) are used. These clauses are
drafted by the Institute of London underwriters and are used by insurance companies in a
majority of countries including India. For inland transit local clauses are used.

The Marine Policy Form

5. The form contains the following particulars:
a. Name of insured.
b. Policy number.
c. Sum insured.
d. Premium.
e. Stamp duty.
f.

Steamer or other conveyance.

g. Voyage or journey.
h. Number and date of bill of lading, rail or lorry or registered post or air freight receipt (as
the case may be)
i.

Interest to be insured.

j.

Clauses to which the insurance is subject

k. Name and address of setting agents to whom notice of claim, if any, is to be given.
l.

Place where claims are payable

m. Place of issue of policy and date.

n. Signature of the authorized person signing on behalf of the insurers.

Every marine policy must be stamped in accordance with the provisions of the Indian stamp Act.

56

Institute Cargo Clauses (C)

6. These clauses attached to the policy form, cover the following risks:
a) Fire or explosion
b) Vessel or craft being stranded, grounded, sunk or capsized
c) Overturning or derailment of land conveyance
d) Collision or contract of vessel, craft or conveyance with any external object
other than water
e) Discharge of cargo at a port of distress
f)

General average sacrifice

g) Jettison

Institute Cargo Clauses (B)

Risks Covered
7. I.C.C (B) provide cover as under I.C.C (C) and also the following additional risk are covered.
a) Earthquake, Volcanic eruption or lightning
b) Washing overboard
c) Entry or sea, lake or river water into vessel, craft, hold, conveyance, container, lifvan or
place or storage
d) Total loss of any package lost overboard or dropped whilst loading on to, or unloading
from vessel or craft.
Apart from the risks covered under these clause, cargo is also subject to many other risk which
are known as extraneous risks these risks, which can be added to I.C.C. (B) on payment of extra
premium are:
a) Theft, pilferage and / or non-delivery
b) Fresh water and rainwater damage
c) Hook and / or oil damage
d) Damage by mud, acid and other extraneous substances
e) Breakage

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f)

Leakage

g) Country damage
h) Bursting/ tearing of bags

Institute Cargo Clauses (A)

8. These clauses provide cover for all risks of loss or damage, to the subject matter insured. The
term all risks means losses which are caused by accidental circumstances only. Under I.C.C (C)
and (B), the risk covered are specified; Under A clauses the risks covered are not specified and
all risks are covered.

Exclusions
9. All three sets of clauses contain general exclusions. The more important exclusions are
a) Loss caused by willful misconduct of the insured.
b) Ordinary leakage, ordinary wear and tear etc. these are normal trade losses.
c) Loss caused by inherent vice or nature of the subject matter. For example,
perishable commodities like fruits, vegetables, etc. may deteriorate without any
accidental cause.
d) Deliberate damage by the wrongful act of any person. This is called malicious
damage. And can be covered, at extra premium under (B) and (C) clauses. Under
A clauses, the risk is automatically covered.
e) Loss arising from insolvency or financial default of owners. Operator, etc of the
vessel. This is not an accidental loss. The insured has to be cautious in selecting
the vessel for shipment.
f)

Loss or damage due to inadequate packing

g) War, and kindred perils

h) Strikes, riots, lock-out, civil commotions and terrorism.
(Note: This risk under (H) and (I) can be covered on payment of extra premium.)

Duration of Cover
10. As against time policies issued in the other classes of insurance which cover the subject matter
for a specified period, usually one year, cargo policies are issued for specified voyage or transit
whatever the time taken.

58

The duration of cover is defined in the Transit Clause (popularly known as Warehouse to
Warehouse Clause) of the ICC.
The cover commences from the time the goods leave the warehouse at the place named in the
policy. Continues during the ordinary course of transit and terminates either
a) On delivery to the consignees or other final warehouse at the destination
named
b) On delivery to any intermediate warehouse used by the insured for purpose of
storage of distribution or
c) On the expiry of 60 days after discharge from the vessel at the final port of
discharge whichever shall first occur
(Note: The time limit of 60 days is prescribed to ensure early clearance of goods by the consignee.
Insurers extend the time limit, at extra premium, in genuine circumstances causing delay in clearance.)
The duration of cover for war risks is restricted to the time when the goods are water borne and not on
land. War risk on land is not covered under insurance policies.

Institute Cargo Clauses (Air)

(Excluding Sending by Post)
11. The risks covered are all risks of loss or damages and the exclusion are more or less the same as
under ICC (A) Clauses.
The duration of cover is the same as under ICC (A) except that the period of cover after
unloading of cargo from the aircraft at the place of discharge is limited to 30 days (as against 60
days under ICC (A)) War and SRCC risks can be covered at extra premium.

INLAND TRANSIT (RAIL/ ROAD) CLAUSE C

Risks Covered
Risks of physical loss/ damage caused by:
a) Fire
b) Lightning
Duration of cover
Insurance attaches with the loading of each bale/ package into the wagon/truck for commencement of
transit and continues during ordinary course of transit, including customary transshipments and ceases
immediately on unloading of each bale/ package-

59

a) At destination railway station for rail transits

b) At destination name in the policy in respect of road transits.

INLAND TRANSIT (RAIL/ ROAD) CLAUSE B

Risks Covered
12. Physical loss or damage to the insured goods by
a) Fire
b) Lightning
c) Breakage of bridges
d) Collision with or by the carrying vehicle
e) Overturning of the carrying vehicle
f)

Derailment or accidents of like nature to the carrying railways wagon/ vehicle.

Extraneous risks like theft, pilferage, non delivery etc. can be added to the cover at extra
premium. SRCC risks can also be added.

INLAND TRANSIT (RAIL/ ROAD) CLASUE A

Risks Covered
All risks of loss or damage to the insured goods.
Exclusions
All three sets of clause have the same exclusions as are found in ICC Clauses.

Duration of cover
(B & A)
Under both clauses the risk attaches from the time the goods leave the warehouse and / or the store at
the place named in the policy for the commencement of transit and continues, during the ordinary
course of transit, including customary transshipment, if any,
i.

Until delivery to the final warehouse at the destination named in the policy, or

ii.

In respect of transits by Rail only or Rail and Road, until expiry of 7 days after arrival of the
railway wagon at the final destination railway station, or

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iii.

In respect of transits by Road only, until expiry of 7 days after arrival or the vehicle at the
destination town named in the policy, whichever shall first occur.

Registered Postal Sending

13. There is no standard set of clauses. ICC or inland Transit Clauses may be used. The cover
attaches from the time of issue of the registered post receipt and terminates on delivery of
parcel to the addressee (consignee). For interests which are valuable, it is warranted that the
parcel is insured with the postal authorities.

Rating and Underwriting

14. In cargo insurance, it is not the practice to se proposal forms. Instead, a declaration form has to
be filled up by the proposer. The form does not contain any statement required to be made by
the proposer warranting that all the statements made in the form are true. The declaration form
is not incorporated by reference into the policy as is done in other information
a) Name of the shipper or consignor (the insured)
b) Full description of goods to be insured. The nature of the commodity to be insured is
important for rating and underwriting. Different types of commodities are susceptible for
different types of damage during transit, sugar, cement, etc are easily damaged by sea
water; cotton is liable to catch fire;
c) Method and Type of packing: the possibility of loss or damage depends on this factor.
Generally, goods are packed in bales or bags, cases or bundles, crates, drums or barrels,
loose packing, paper or cardboard cartons, or in bulk etc.
d) Voyage and mode of transit: information will be required on the following points :
i.

The name of the place from place from where transit will commence and the name
of the place where it is to terminate,

ii.

Mode of conveyance to be used in transporting goods, i.e. whether by rail, lorry, air
etc. or a combination or two or more of these. The name of the vessel is to be given
when an overseas voyage is involved. In land transit by rail, lorry or air, the number
of the consignment note and the date there of should be furnished. The postal
receipt number and date thereof is required in case of goods sent by registered
post.

e) Cover required : the risks against which cover is required should be stated

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f)

Name of Steamer: the correct name of the steamer is necessary to know the details of the
age, tonnage, classification, ownership, etc. shipments effected per old vessels or vessels of
small tonnage attract additional premium.
Shipments made by first class vessels attract normal rates of premium. These vessels
are approved by ship classification societies such as Lloyds Register, American Bureau of
Shipping, Indian Register of Shipping, etc.
To summarise, the rates of premium depends upon:
a) Nature of commodity
b) Method of packing
c) The vessel
d) Type of insurance cover

The practice of cargo Insurance

15. The various document used in cargo insurance are now explained.

Cover Note
16. A cover note is a document granted provisionally pending the issue of a regular policy. For
example, the name of the steamer the number and date of the railway receipt, the number of
packages involved in transit, etc, may not be known.

Marine policy
17. This is document which is an evidence of the contract of marine insurance. It contains the
individual details such as name of the insured, details of goods etc.
A policy covering a single shipment or consignment is known as specific policy.

Open policy
18. An open policy is also known as floating policy it is issued for a substantial amount to cover
shipment or sendings during a particular period of time. Declarations are made under the open
policy and these go to reduce the sum insured.
On receipt of each declaration, a separate certificate of insurance is issued. An open policy is a
stamped document, and, therefore, certificate of insurance issued there under need not be
stamped.
Open policies are generally issued to cover inland consignments.

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Open Cover
19. An open cover is particularly useful for large export and import firms making numerous regular
shipments who would otherwise find it very inconvenient to obtain insurance cover separately
for each and every shipment.
An open cover describes the cargo, voyage and cover in general terms and takes care
automatically of all shipments which fall within its scope. It is usually issued for a period of 12
months and is renewable annually.
Since no stamps are affixed to the open cover, specific policies or certificates of insurance are
issued against declaration and they are required to be stamped according to the stamp Act.
The following are the important feature of an open policy open cover
a) Limit per Bottom or per-Conveyance: The limit per bottom means that the value of a
single shipment declared under the open cove should not exceed the stipulated amount.
b) Basis of valuation : The basis normally adopted is the prime cost of the goods, freight and
other charges incidental to shipment, cost of insurance, plus 10% to cover profit.
c) Location Clause : it may happen in actual practice that a number of different shipments
falling under the scope of the open cover may accumulate at the port of shipment . The
location clause limits the liability of the insurers at any one time or place before shipment
d) Declaration Clause : the insured is made responsible to declare each and every shipment
coming within the scope of the open cover.
e) Cancellation Clause : this clause provides for cancellation of the contract with a certain
period of notice, on either side. In case In case of war and S.R.C.C risk, the period of notice
of notice is much shorter.

Certificate of Insurance
20. A certificate of insurance is issued to satisfy the requirements of the insured or the banks in
respect of each declaration made under an open cove and / or open policy. The certificate,
which is substituted for specific policy. Is a simple document containing particular of the
shipment of sending.

Special Declaration policy

21. This is a form of open policy issued to clients whose annual estimated dispatches (i.e. turnover)
by rail/ road/ inland waterways exceeds a minimum figure, say, Rs 2 crores.
Declaration of dispatches shall be made at periodical intervals and premium is adjusted on
expiry of the policy based on the total declared amount.

63

Claims
22. An insured takes out insurance cover to enable him to recover losses when they arise. They are
payable according to the terms and condition of the policy. The marine perils discussed earlier
give rise to different types of losses.

Total Loss
23. Goods may be totally lost by the operation of the marine peril.
An actual total loss takes place where the subject matter is entirely destroyed or damaged to
such an extent that it is no longer a thing of the kind insured.
As against actual total loss, a constructive total loss, which is a commercial total loss, takes place
where the expenditure to be incurred for repairs or recovery would exceed the value of the
subject-matter after the repairs recovery.

Particular Average
24. This loss occurs where there is damage to goods.

General Average
25. General average is a loss caused by a general average act. An is referred is referred to as
general average act when an extraordinary sacrifice or expenditure is made.
The following are examples of a general average loss:
a) Cargo jettisoned in an effort to refloat the vessel
b) Tugs employed to tow the vessel to safety.
The adjustment of general average is done by specialists known as G.A adjusters

Sue and Labour Charges

26. The insured should at all times act as if he was uninsured and take such steps as a prudent perso
would normally take. In view of this, if there be any expenses incurred by the insured or his
agents to minims the loss or damage payable under the policy. The same are reimbursed by
insurers. Example of expenses incurred by the insured. Known as sue and labour charges, are
landing, warehousing, reconditioning, reforwarding and similar charges. These are payable
under the policy.

64

Extra charges
27. Under this expression come survey fees. They are payable it the claim is admitted. Whenever a
survey is arranged, the fees are paid by the claimant initially and are reimbursed when the
claim is paid.

Claim documents
28. The document required for particular average claims are as under:
a) Policy : the original policy or certificate of insurance.
b) bill of lading: bill of lading is a document which serves as evidence that the goods were
actually shipped.
c) Invoice: an invoice evidences the terms of sale. It also contains complete description of the
goods, price, etc,
d) Survey Report: survey report shows the cause and extent of loss, and is absolutely
necessary for the settlement of claim.
e) Debit Note: this is sometimes referred to as a claims bill.
f)

Letter of subrogation: this is legal document (supplied by insurers) which transfers the
right of the claimant against a third to the insurers.
Some of the other document required in support of particular average claims are ship
survey report, L.O.B certificate or lost over-board certificate if cargo is lost during loading
and unloading operation, short landing certificate etc.

Inland Transit Claims (rail/ road)

29. In regard to claims relating to inland transit, the documents required to be submitted to the
insurer in support of the claim are:
a) Original policy or certificate of insurance duly endorsed.
b) Invoice, in original, or copy thereof
c) Certificate of loss or damage (original) issued by carriers.
d) If goods are totally lost or not delivered, the original railway receipt and / or
non-delivery certificate/ consignment note.
e) Copy of the claim lodged againt the railways/ road carries.
f)

Letter of subrogation, duly stamped.

65

g) Special power of attorney duly stamped. (railway claims)

h) Letter of authority addressed to the railway authorities signed by the consignors
in favors of consigns whenever loss is claimed by consignees.
i)

Letter of authority addressed to the railway authority signed by the consignors

in favors of the insurers.

j)

Letter of undertaking from the claimant in case of non-delivery of consignment

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CHAPTER 8

MOTOR INSURANCE
1. For purpose of insurance, motor vehicles are classified into three broad categories.
a) Private cars
b) Motor cycles and motor scooters
c) Commercial vehicles, further classified into
I.

Goods carrying vehicles.

II.

Passenger carrying vehicles e.g.

III.

Motorized rickshaws.

Taxis

Buses

Miscellaneous vehicle,e.g.

Ambulances

Cinema film recording and publicity vans

Mobile dispensaries etc.

Motor vehicles act, 1988

2. It is necessary to have some knowledge of motor vehicles act passed in 1939 and amended in
1988 and 1994.
The insurance of motor vehicles against damage is not made compulsory, but the insurance of
third party liability arising out of the use of motor vehicles in public places is made compulsory.
No motor vehicle can ply in a public place without such insurance.
The liabilities which required compulsory insurance are as follows.
a) Death or bodily injury of any person including owner of the goods or his authorized
representative carried in the carriage;
b) Damage to any property of third party;
c) Death of bodily injury of any passenger of a public service vehicle;

67

d) Liability arising under workmens compensation act, 1923 in respect of death or bodily injury of :
i. Paid driver of the vehicle;
ii. Conductor, or ticket examiner (public service vehicle)
iii. Worker, carried in a goods vehicle;
The policy of insurance should cover the liability incurred in respect of any one accident as follows:
a) In respect of death of or bodily injury of third party or passenger of a public service vehicle the
amount of liability incurred (without limit)
b) In respect of damage to any property of third party: a limit of Rs. 6, 000/-

No Fault liability
3. Section 140 of the motor vehicles act 1988, provides for liability of the owner of the motor
vehicle to pay compensation in certain cases, on the principle of no fault. The amount of
compensation, so payable, is Rs. 50,000/- for death, and Rs. 25, 000/- for permanent
disablement of any person resulting form an accident arising out of the use of the motor vehicle,
The principle of no fault means the claimant need not prove negligence on the part of the
motorist. Liability is automatic.
Under section 141 (1) of the motor vehicles Act, 1988, claims for death or permanent
disablement can also be pursued under other provisions of the act on the basis of negligence
(fault liability)

Certificate of Insurance
4. The motor vehicles act provides that the policy of insurance shall be of no effect unless and until
a certificate of insurance in the form prescribed under the Rules of act, is issued.
The only evidence of the existence of a valid insurance as required by the motor vehicles act
acceptable to the police authorities and R.T.O is a certificate of insurance issued by the insurers.

Transfer of Certificate of Insurance

5. Section 157 of the new Act (1988) lays down that where a person in whose favour a certificate
of insurance has been issued, transfers to another person the ownership of the motor vehicles
in respect of which the insurance was taken, then the certificate of insurance and the relative
policy shall be automatically deemed to be transferred in favour of the new owner form the
date of transfer of ownership of the vehicle.
The transferee should apply within 14 days form the date of transfer on the prescribed form to
the insurer for making the necessary changes in the certificate of insurance and in the policy,

68

and the insurer is obliged to make such changes in the said documents to give effect to the
transfer of insurance.

Motor accident Claim Tribunals

6. For the speedy disposal of third party claims and at a minimum cost, the claims tribunals have
been constituted by different state government. Only a nominal fee has to be paid for instituting
a case and court fee is not based on the value of the suit thus it is very much less expensive and
poor third party claimants are not prevented from making proper claims.

Hit and Run Accident

7. Section 161 defines hit and run motor accident as accident arising out of the use of a motor
vehicle or motor vehicles the identity where of cannot be ascertained in spite of reasonable
effort for the purpose.
This section provides for payment of compensation (solatium) as follows:
a) In respect of the death of any person resulting form a hit and run motor accident, a fixed
sum of Rs. 25,000/b) In respect of grievous hurt to any person resulting fro a hit and run motor accident, a fixed
sum of Rs. 12,500/Compensation known as solatium is payable out of a solatium Fund established by the
Central Government.

POLICY COVERAGE
8. A. Liability Only policy
Cover is provided by the policy as follows:
1. Subject to the limit of liability as laid down in the schedule hereto, the company will
indemnity the insured in the event of accident caused by or arising out of the use of the
Motor vehicle anywhere in India against all sums including claimants cost and expenses
which the insured shall become legally to pay in respect of
i.

Death of or bodily injury to any person so far as it is necessary to meet the

requirement of the motor vehicles act.

ii.

Damage to property other than property belonging to the insured or held in trust or
in the custody or control of the insured up to the limit specified in the schedule.

2. The company will also pay all costs and expenses incurred with its written consent.

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B. Personal Accident Cover for Owner-Driver

The company undertakes to pay specified compensation for bodily injury/ death sustained by the
owner-driver of the vehicle in direct connection with the vehicle insured or whilst mounting into/
dismounting from or travelling in the insured vehicle as a co-driver, caused by violent, accidental,
external and visible means.
This cover is subject to:
a) The owner-driver is the registered owner of the vehicle insured herein;
b) The owner-driver is the insured named in this policy;
c) The owner-drive holds ad effective driving license.
d) Capital sum insured Rs 1 lac ( two wheelers)
Capital sum insured Rs 2 lacs (private cars and commercial vehicles)

Conditions
9. These relate to notice of loss, cancellation of policy, arbitration, etc.
A new condition, which reads as follows, must be noted.
In the event of death of the sole insured, this policy will not immediately lapse but will remain valid for a
period of three months form the date of death of insured or until the expiry of this policy (whichever is
earlier). During the said period, legal heir (S) of the insured to whom the custody and use of the motor
vehicle passes may apply to have this policy transferred to the name (S) of the heir (S) or obtain a new
insurance policy for the motor vehicle.
All such application should be accompanied by :a) Death certificate in respect of the insured
b) Proof of title to the vehicle
c) Original policy ( this condition appears in package policies also)

Private car package policy

10. This policy provides the so-called comprehensive cover and the structure of the policy form is
the same for all vehicles, (with some differences which are pointed out wherever applicable)

Section I Own Damage

11. The company will indemnify the insured against loss or damage to the vehicle insured
hereunder and / or its accessories whilst thereon

70

i.

By fire explosion self ignition or lightning.

ii.

By burglary housebreaking or theft:

iii.

By riot and strike

iv.

By earthquake (fire and shock damage)

v.

By flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost.

vi.

By accidental external means

vii.

By malicious act

viii.

By terrorist activity

ix.

Whilst in transit by road, rail, inland-waterway, lift, elevator or air:

x.

By landslide, rockslide.

xi.

By landslide, rockslide.

Subject to deduction for depreciation at the rates mentioned below in respect of parts replaced:
1
2
3
4

For all rubber/ nylon / plastic parts, tyres and tubes, batteries and air
bags
For Fibre glass components
For all parts made of glass

50%
30%
NIL

Rate of depreciation for all other for all other parts Including wooden
parts will be as per the age of vehicle.

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Examples

Age of Vehicle

% of Depreciation

Not exceeding 6 months

0%

Exceeding 6 months but not

exceeding 1 year

5%

Exceeding 1 year but not exceeding 2

years

10%

Exceeding 5 years but not exceeding

10 years

40%

Exceeding 10 years

50%

12. The company shall not be liable to make any payment in respect of:
a) Consequential loss, depreciation, wear and tear, mechanical or electrical breakdown, failure
or breakages:
b) Damage to types and tubes unless the vehicle is damaged at the same time in which case
the liability of the company shall be limited to 50% of the cost of replacement.
and
c) any accidental loss or damage suffered whilst the insured or any person driving the vehicle
with the knowledge and consent of the insured is under the influence of intoxicating or
drugs.
(Notes : 1.In the motor cycle and commercial vehicle policy there is an additional exclusion
- Loss of or damage to accessories by burglary housebreaking or theft unless the vehicle is stolen at
the same time.
2. In commercial vehicle policy, there is a further exclusion:
- Damage caused by overloading or strain of the vehicle)
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13. In the event of the vehicle being disabled by reason of loss or damage covered under this policy
the company will bear the reasonable cost of protection and removal to the nearest repairer
and redelivery to the insured but not exceeding in all Rs. 1500/- in respect of any one accident .
(Note: for two-wheelers the limit Is Rs.300/- for three-wheeled vehicles it is Rs. 750/- and for taxis Rs.
1500)
The insured may authorize the repair of the vehicle necessitated by damage for which the company may
be liable under this policy provided that
a) The estimated cost of such repair including replacements . if any, does not exceed Rs.500/- ( for
two wheelers it Is Rs150/-)
b) The company is furnished forthwith with a detailed estimate of the cost of repairs: and
c) The insured shall give the company every assistance to see that such repair is necessary and the
charges are reasonable.

Sum insured- Insureds Declared Value (IDV)

14. The insureds declared Value (IDV) of the vehicle will be deemed to be the SUM INSURED for
the purpose of the policy which is fixed at the commencement of each policy period for the
insured vehicle.
The IDV of the vehicle (and accessories if any fitted to the vehicle) is to be fixed on the basis of
the manufactures listed selling price of the brand and model as the vehicle insured at the
commencement of insurance / renewal and adjusted for depreciation ( as per schedule in the
policy)
IDV of vehicles beyond 5 years of age and of obsolete models of the vehicles (i.e. models which
the manufacturers have discontinued to manufacture) is to be determined on the basis of an
understanding between the insurer and the insured.
IDV shall be treated as the Market Value throughout the policy period without any further
depreciation for the purpose of Total Loss (TL) / Constructive Total Loss (CTL) claims.
The insured vehicle shall be treated as a CTL if the aggregate cost of retrieval and / or repair of
the vehicle, subject to terms and conditions of the policy, exceeds 75% of the IDV of the vehicle.

SECTION II LIABILTIY TO THIRD PARTIES

15. Subject to the limits of liability as laid down in the Schedule hereto the company will indemnify
the insured in the event of an accident caused by or arising out of the use of the vehicle against
all sums which the insured shall become legally liable to pay in respect of

73

i.

Death of or a injury to any person including occupants carried in the vehicle

( provided such occupants are not carried for hire or reward) but except so far as it
is necessary to meet the requirement of motor vehicles act the company shall not
be liable where such death or injury arises out of and in the course or the
employment of such person by the insured.

ii.

Damage to property other than property belonging to the insured or held in trust or
in the custody or control of the insured.

16. The company will pay all costs and expenses incurred with its written consent.

SECTION III PERSONAL ACCIDENT COVER FOR OWNER DRIVER

17. The clause is the same as under Liability only policy.

General Exception
(Applicable to all section of the policy)
18. The company shall not liable under this policy in respect of
1. Any accidental loss or damage and / or liability caused sustained or incurred outside the
geographical area;
2. Any claim arising out of any contractual liability;
3. Any accidental loss damage and/ or liability caused sustained or incurred whilst the vehicle
insured herein is
a) Being used otherwise than in accordance with the limitations as to use
b) Being driven by or is for the purpose of being driven by him / her in the charge of any
person other than licensed Driver.
4. War and nuclear risk

Deductible
19. The company shall not be liable for deductible for each and every claim under Section I (Own
Damage)
Some Examples

Motorised Two Wheelers

Private cars not exceeding 1500cc
Goods vehicle (exceeding 16500 kg. G.V.W)

Rs
50/500/1500/-

74

20. The commercial vehicle package policy has an additional cover. It provides that whilst the
insured vehicle is being used for the purpose of towing any one disable mechanically- propelled
vehicle A) the cove provided by the policy remains operative, and B) under Section II of the
policy. Indemnity will also be provided for the liability in connection with such towed vehicle.
This however is subject to the following two provisos
i.

The towed vehicle should not be towed for hire or reward and

ii.

No cover is available under the policy for the damage to three towed vehicle or
property conveyed thereby.

Rating
21. Rates of premium (except for motor third party policies) are left to insurers who will fix the rates
according to their own underwriting experience and risk assessment. For illustration of he
general approach of rating, some examples of rating factor used, are provided for some types of
vehicles.

Private Cars
22. The premium rating is based on the following factor:
a) Insureds Declared Value (IDV) of the vehicle.
b) Cubic Capacity
c) Geographical Zones
d) Age of the vehicle
Rates of own Damage are provided separately for
a) Age of vehicle i) not exceeding 5 years
ii) Exceeding 5 years but not exceeding 10 years
iii) Exceeding 10 years
b) Cubic capacity i) not exceeding 1000
ii) Exceeding 1000 but not exceeding 1500
iii) Exceeding 1500
c) Zone A- Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi and pune

75

Zone B- Rest of India

The rates are higher for higher age and C.C and use in Zone A.
(Note : the rates in percentage are to be applied on the IDV)

Additional premium
Electrical/ Electronic Fittings
23. If electrical and or electronic items fitted to the vehicle but not included in the manufacturers
selling price of the vehicle are to be insured, it can be done separately under section- I
(loss of or damage to the vehicle insured) of the package policy at an additional premium on the
value of such fittings to be specifically declared by the insured in the proposal form and or in a
letter forming part of he proposal form.

Use of CNG /LPG Fuel

24. In case of vehicles fitted with bi-fuel system such as Petrol/ Diesel and CNG / LPG, permitted by
the concerned RTA, the CNG/LPG kit fitted to the vehicle is to be insured separately at an
addition premium on the value of such kit to be specifically declared by the insured in the
proposal form and / or in a letter forming part of the proposal form.

Fibre Glass Fuel Tanks

25. All policies covering vehicles fitted with fibre glass fuel tanks will attract an additional premium
in the Own Damage section.

Discounts
26. A discount in the Own Damage Premium is allowed for membership of recognized Automobile
Associations.
Private cars certified by the vintage and Classic Car Club of India are granted a discount on Own
Damage premium.
Vehicles fitted anti-theft devices approved by automobile Research Association of India, Pune
are eligible for a discount on Own Damage premium.

Motorized Two Wheelers

27. The rating factors are the same as for private cars.
Age limits and geographical zones the same as for private car but rates are provided separately
for C.C

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i.

Not exceeding 150

ii.

Exceeding 150 but not exceeding 350

iii.

Exceeding 350

(Note. Rates are to be applied on the IDV)

Additional premium provisions are the same as for private cars.

Four wheeled vehicles (passengers For Hire)

28. For taxis for Own Damage cover rates of premium very according to
a) Age of the vehicle upto 5 years, between 5 and 7 years and exceeding 7 years.
b) C.C upto 1000, between 1000 and 1500 and exceeding 1500
c) Zone A and B.
The rates are applied on the IDV of the vehicle.

Buses
29. For Own Damage cover the rates very according to
a) Age of the vehicle (as for taxis)
b) Maximum licensed carrying capacity

Not exceeding 18 passengers

Exceeding 18 and not exceeding 36 passengers, etc

c) Zone A- Chennai, Delhi, Kolkata, Mumbai

Zone B- all other state capitals
Zone c reset of india
The rates are applied on the IDV of the vehicle. The rates are higher for higher passenger capacity. The
rates are the lowest of zone c and increased for zone B and zone A.

Goods Carrying Vehicles (public Carrier)

30. Own Damage rates vary according to
a) Age of the vehicle (as for buses and taxis)
b) Zone A,B and C
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Note : the rates provided apply for vehicle with Gross vehicle weight (GVW) not exceeding 12,000 kgs.
For vehicles exceeding 12 000 kgs, additional premium for each 100 kgs of GVW in excess of 12000 kgs.
The rates are applied on the IDV vehicle. Rates are higher for age and Zone B and C

No Claim Bonus
31. With a view to encourage safe driving and improve claims experience, it Is the universal practice
to grant No Claim Bonus at renewal of the policy. A discount in Own Damage premium Is
granted which may range form 20% after one year of claim free insurance to 50% after five
years of claims free insurance.
The following practice is generally followed.
a) The percentage of applicable NCB Is computed on the Own Damage premium required for
renewal of the insurance.
b) The entitlement of NCB shall follow the fortune of the original insured and not the vehicle or
the policy. In the event of transfer of interest in the policy from one insured to another, the
entitlement of NCB for the new insured will e as per the transferees eligibility following the
transfer of interest.
c) In the event of he insured. Transferring his insurance form one insurer to another insurer,
the transferee insurer may allow the same rate of NCB which the insured would have
received from the previous insurer. Evidence of the insureds NCB entitlement either in the
form of a renewal notice or a letter confirming the NCB entitlement form the previous
insurer will be required for this purpose.

Claims (Own Damage)

32. On receipt of notice of loss, a claim form is issued to the insured for completion and return.
The insured is required to submit a detailed estimate of repairs form any repairer of his choice.

Assessment
33. Independent licensed automobile surveyors are assigned the task of assessing the cause and
extent of loss. They are supplied with a copy of the policy, the claim form and the repairers
estimate. They inspect he damaged vehicle discuses the cost of repair or replacement with the
repairer and submit their survey report.
In respect of minor damage claims, independent surveyors are not always appointed. The
insurers own officials or their own automobile engineers inspect the vehicle and submit a
report.

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Settlement
34. The survey report is examined and settlement is effected in accordance with the
recommendation contained therein. The usual practice is to authorize the repair directly with
the repairer to whom a letter is issued to that effect.
On receipt of their final bill of repairs after completion of repairs and a satisfaction note or
voucher from the insured that the vehicle has been repaired to his satisfaction, the payment to
the repairer is effected.
Sometimes, the repairer is paid directly by the insured in which case the letter is reimbursed on
submission of a receipted bill form the repairers.

Claims Documents
35. Apart form claim form and survey report the other documents required. For processing the
claim are:
1. Driving Licence
2. Registration Certificate Book
3. Fitness Certificate (commercial vehicles)
4. Permit (commercial vehicles)
5. Policy report
6. Final Bill from repairers
7. Satisfaction Note from the insured
8. Receipted bill form the repairer, if paid by insured.

Total Loss Claims

36. Whenever a surveyor finds that a vehicle is either beyond repairs or the repairs are not an
economic proposition, the surveyor will recommend settlement on Total loss or constructive
total loss basis.
The insured will be paid in cash the IDV and the insurers will take over the salvage of the
damaged vehicle which will thereafter be disposed of for their own benefit calling tenders
through advertisement in newspaper.

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However, before the actual payment is made to the insured, the insurers will collect form him
the Registration and taxation books, ignition keys and blank. T.O and T.T.O. form duly signed by
the insured, so that the salvage can be transferred in the name of he salvage buyer.
If the vehicle is beyond repairs and has to be scrapped the R.C Book and the keys will have to be
returned to the Registering Authority for cancellation.

Theft Claims
37. Total losses can also arise due to the theft of the vehicle and its remaining untraced by the
police authorities till the end. These will have to be supported by a copy of the First information
report lodged with the police authorities immediately after the theft has been detected.
If the police do not succeed in recovering the vehicle after a period of, say 3-4 months, they file
away the case certifying that the case is classified as true but undetected. This certificate is
essential before a total loss following theft is settled by the insurers.
The document to be submitted by the insured will be the same as those mentioned for total loss
claims. If the R.C Book and Taxation Certificate are also stolen along with vehicle, it will be
necessary for the insured to obtain duplicate ones form the Registering Authority and thereafter
deposit them with the insurers.
Some insurers also obtain form the insured a special type of a discharge on a stamped paper
whereby the insured undertakes to refund the claim amount f the vehicle is subsequently traced
and delivered to him by the police. He also undertakes in the discharge form to pa any taxes
which may be R.C Books etc. are preserved by the Insurer in their custody so that these are
made readily available if the vehicle is traced at a later date.

Third party claims

38. Motor vehicles Act 1988, empowers the State Governments to set up Motor Accident Claims
Tribunals for adjudicating upon third party claims.
When a tribunal has been set up for an area, no civil court has any jurisdiction to entertain any claim
falling under the tribunals jurisdiction.
While making the award, the tribunal has to specify the amount payable by the insurer.
The procedure for third party claims is briefly described as follow:
On receipt of notice claim form the insured. Or the third party of form the MACT, the matter is
entrusted to an advocate.
If the claim intimation is received form he MACT, a letter is addressed to the insured to ascertain the
following information

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1. The claim number for own damage if lodged.

2. The police Station where the claim was reported indicating the number and date of their station
Diary.
3. Drivers name and address.
4. Name and address of the advocate if the insured has appointed the one
5. Number of the policy under which the vehicle is covered and the address of office where
covered
6. Details of drivers prosecution, if any, e.g. court address, copy of charge sheet, etc.
Simultaneously, a letter is addressed to the police station asking for copies of police report or
panchanama and of he statements made to them relating to the accident
A copy of the claim form is obtained form the insured.
The following information is needed to determine the question of liability of the insured and the
liability under the policy.
1. Existence of insurance is needed to determine of liability under the policy.
2. Drivers statement and statements of witnesses to the accident.
3. Details of Drivers prosecution, charges and judgment in the criminal case.
4. Details of accident to decide negligence of parties involved for deciding the aspect of
contributory Negligence
5. Defenses under Motor Vehicles Act, 1988 whether available or not.
6. Post mortem Report (fatal claims)
In the case of bodily injury, medical report is obtained indicating the following information
1. The age of the claimant and his general physical condition
2. His occupation
3. The nature and extent of injuries
4. The estimated duration of disability
5. The extent to which the claimant will be disabled totally or partially form following his usual
occupation or any other occupation
6. The extent of permanent incapacity, if any

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7. The medical examiners general opinion

It may also be necessary to arrange independent medical examination
39. In order to consider the quantum of damages that may be regarded as reasonable the following
information is sought
(1) In fatal accident claims:
a) Status of the deceased,
b) Monthly income,
c) Contribution to the family
d) Relationship with the claimant,
e) Status of the claimant
(2) In the event of claims of injury:
a) Medical certificate regarding injury suffered and extent of disability arising out of
injury.
b) Medical expenditure involved supported by vouchers.
c) Monthly income to calculate loss of income due to the injured having been confined
to bed or hospital.
40. On the basis of the above information, the advocates opinion is obtained. Large claims are
usually referred to solicitors. A written statement is then filed by the advocate depending upon the
facts of the case. In certain cases, it may be desirable to make a compromise settlement,
particularly when the drive has been convicted or facts indicate prima facie case of negligence.
The insured and/ or the driver are required to co-operate with the insurers advocate.
Eventually, the claim is decided upon by the MACT where usually, the insured/ driver and the third
parties along with their advocates are present. The amount awarded is paid to the third party against
proper discharge receipt

Compromise Settlements
41. Where there is clear liability under the policy, claims are negotiated with the third party to
accept a compromise settlement, which if accepted by the third party, is registered with the
MACT and its consent obtained. The cheque is deposited with MACT for disbursement to the
rightful beneficiaries.

Lok Adalats
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42. Pending cases with the MACT, where the liability under the policy is not in doubt, are placed before
the Lok Adalat or Lok Nyaayalaya, for a voluntary and amicable settlement between the parties, acop6y
of decision in the prescribed memo and the cheques are deposited with MACT. Lok Adalat sessions are
organized regularly in liaison with the Legal Aid Board of each State and MACT to effect amicable
settlement of third party claims.

No Fault Liability
43. these claims are settled by depositing the appropriate amount with the MACT after obtaining death
certificate, medical certificate and policy report

Motor Third Party Insurance Pool

44. The IRDA has issued a direction that all general insurers shall collectively participate in a pool to
share all motor third party insurance, business underwritten by any of the registered general insurance
in accordance with the following provisions.
The participation of General Insurance Corporation of India (GIC) in the pooled business shall be such
percentage of the motor business that is ceded to it by all insurers as statutory reinsurance cessions
under section 101A of the insurance Act
The business remaining after such cession to GIC shall be shared among all the registered general
insurance writing motor insurance business in proportion to the gross direct general insurance premium
in all cases of general insurance underwritten by them in that financial year.
45. Underwriting of business: underwriting officer of insured shall follow the underwriting instruction of
the General insurance council in the matter of procedures for underwriting and documentation and
accounting and settlement of balance.
The business shall be underwritten at rates and terms and condition of cover as notified by the
Authority from time to time.
No vehicle owner shall be denied third party insurance cover in respect of his vehicle which is holding a
valid permit for use on public roads except on ground of attempted fraud.
46. Claims processing and settlement: All claims in respect of third party death or injury or physical
damage shall be processed for settlement in a speedy and efficient manner in council. For this purpose,
the council shall adopt a pro active claims settlement policy adopting the most efficient claims
processing practices possible.
47. Administration of the pooling arrangement: The GIC shall act as the administrator of the pooling
arrangement. It will act under the guidance of the general insurance council. For this purpose, the
council may establish such Committees of insurers as are necessary to operate the pooling arrangement
and process and settle claims in the most efficient manner.

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48. Remuneration: there will be no agency commission or brokerage payable in respect of motor third
party insurance business.
49. Review: the authority will review the operation of the pooling arrangement and the need for
regulation of the premium rates and terms of cover and will issue such directions from time to time as
may be considered necessary.

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CHAPTER 9

PERSONAL ACCIDENT INSURANCE

1. The policy provides that, if the insured shall sustain any bodily injury resulting solely and directly
form accident caused by external violent and visible means, then the company shall pay to the
insured or his legal personal representative (s),as the case may be, the sum or sums set forth, in
the policy.
2. The following is a specimen table of benefits on the basis of sum insured or Rs. 1 lac which sum
insured is selected for the purpose of illustration
Contingency
Death
Loss of two limbs or both eyes or one limb
and one eye.
Loss of one limb or one eye
Permanent total disablement other than the
above (e.g. Paralysis due to an accident)
Permanent partial disablement (e.g. loss of a
finger)

Temporary Total disablement

Amount of Compensation payable

Rs. 1, 00, 000 (i.e. 100% of capital sum insured)
Rs. 1, 00, 000 (i.e. 100% of capital sum insured)
Rs. 50, 000 (i.e. 50% of capital sum insured)
100 % of capital sum insured
Percentage as shown in the table in the policy
Weekly payment of Rs.1000 /- (i.e. One percent of the
capital sum insured)
subject to a maximum of 100 week The amount of
weekly payment is restricted
to a maximum sum of Rs. 3000/-) whatever be the
capital sum insured.
This limit applies to all policies held by the insured.

3. The benefits (a), (b), (c), (d) and (e) above are referred to as capital benefits, and benefit (f) as
weekly benefit.
(If is not necessary that all benefits stated above are to be covered. On underwriting
consideration or at the request of the insured. Policies may be issued covering all the above
benefits or the benefit (a) to (c) or (a) to (e) or only benefit (a).

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Types of Disablement
4. (i) Permanent total disablement : Here, disablement is of permanent and irrecoverable nature
and is absolutely total, in the sense that the insured person is prevented form engaging in
gainful employment of any kind. (Example: paraysis)
(ii) Permanent partial disablement: this is similar to permanent total disablement with the
difference that, the disablement is not total but is only partial. An example is the loss of a toe or
a finger.
(iii) Temporary total disablement: this is a disablement which is total but a temporary period
only.
Additional Benefits at No Extra Premium
5. a) Expenses incurred for carriage of dead body of insured (death due to accident only) to place
of residence are reimbursed subject to limits.
b ) in the event of death or permanent total disablement of the insured person, the policy
provides for education fund for the dependent children, in addition to capital sum insured and is
application to Personal Accident Individual policy only.
C ) compensation payable for death, loss of limb (S) or sight and permanent total disablement is
increased by 5 % of each renewal but amount of such increase shall not exceed 50 % of the
capital sum insured.
The earned cumulative Bonus will not be lost if he policy is renewed within 30 days after its
expiry.
Exclusions
6. No compensation is payable in respect of death, injury or disablement of the insured :
i.

From intentional self-injury, suicide or attempted suicide.

ii.

Whilst under the influence of intoxicating liquor drugs

iii.

Whilst under the influence of intoxicating into dismounting from or travelling in any
aircraft other than as passenger (fare paying or otherwise) in any duly licensed standard
type of aircraft anywhere in the world

iv.

Directly or indirectly caused by venereal diseases or insanity

v.

Arising or resulting from the insured committing any breach of law with criminal intent.

vi.

Form service in the armed forces

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vii.

Resulting directly or indirectly form child birth or pregnancy.

Policy Conditions
7. The conditions provide for the following :
a) Written notice of claims with full particular

In case of death written notice must, be so given before internment or cremation, and in
any case, within one calendar after the death,

In the event of loss of sight or amputation of limbs, written notice thereof must be given
within one calendar month after such loss of sight or amputation.

Proof of claim satisfactory to the company shall be furnished.

A post modern examination report, if necessary, be furnished within the space of

fourteen days after demand in writing.

No sum payable under this policy shall carry interest

b) The insured shall give immediate notice to the company of any changes in his business or
occupation. The insured shall on tendering any premium of the renewal of this policy give
notice in writing to the company of any disease. Physical defect or infirmity with which he
has become affected since the payment of last preceding premium
Special Features

The cover is for 24 hours and on a worldwide basis

Travel as a passenger in a licensed standard type of aircraft is automatically covered.

Rating
8. In personal accident insurance, the rating factor used is the occupation. Generally speaking
exposure to personal accident at home. On the street etc, is the same for all persons. But the
risk associated with occupation vary according to the nature of work performed. For example,
an office manager is less exposed to risk at work than a civil engineer working at a site where a
building is constructed.
It is not practicable to fix a rate for each profession or occupation . hence, occupation are
classified into groups, each group reflecting, more or less, similar risk exposure. A common
practice is illustrated as follows.
Risk Group I:

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Accountant, Doctors, Lawyers, architect, consulting, engineers, teacher, banker, persons engaged in
administration function persons primarily engaged in administration function persons primarily engaged
in occupation of similar hazards.
Risk Group II:
Builders, contractor and engineers engaged in superintending function only, veterinary doctor, paid
drivers of motor cars and light motor. Vehicle and persons engaged in occupation of similar hazards and
not engaged in manual labour.
Cash Carrying Employees. Garage and motor mechanics, Machine Operators, Drivers of trucks or lorries
and other heavy vehicles, Professional Athletes and sportsmen etc.
Risk Group III
Person working in underground mines, explosive, jockeys, Circus personnel and persons engaged in
occupations activities of similar hazard.

Age limits
9. The minimum age limit is 5 years and maximum 70 however, no medical examination is required
is required for renewal of fresh cover.
10. .Family Package Cover
Earning Member (Person Insured) and Spouse, if earning

100% of the Capital sum insured for each

Spouse (if not earning member)

50% of the capital sum insured or Rs 1 lakh

whichever is lower

Children (between the age of 5 years and 25 years)

25% of the capital sum insured or Rs 50000/whichever is lower per child

Extensions
A personal accident policy can be extended by endorsement, on payment of extra premium to cover
medical expenses incurred by the insured in connection with the accidental bodily injury, subject to
specified limits.
War risk cover can be granted to Indian personnel/ expert working in foreign countries on civilian duties
at additional premium.
Proposal Form

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11. The form elicits information on the following

i.

Personal details i.e. age, height and weight, full description of occupation and average
monthly income.

ii.

Physical condition

iii.

Habits and pastimes etc.

Sum Insured
12. The sum insured is selected by the insured but insurers exercise some control. The sum insured
is compared with the average monthly income of the insured. A policy for Rs 1 lac may not
granted to a person earning Rs.1000/- per month, because in the event of temporary
disablement, his benefit per week is Rs. 1000/- (Rs 4000/-) per month) which is disproportionate
to his monthly salary.
Although it is difficult to specify the extract amount for which the cover could be granted (since
the practice differs with insures) it may be indicated that the cover granted for, say an amount
equivalent to 60 to 72 months earning of the insured. This restriction is not strictly applied if the
policy is for Capital Sums only.
While giving cover to persons who are not gainfully employed e.g. housewives, student etc, the
insurers make sure that they provide for capital benefit only and that no weekly compensation is
provided for.
Flight Insurance Coupons
13. Passenger Flight Coupon provides cover for accidental bodily injury sustained (as defined in the
personal accident policy) whilst in or entering into or descending from any aircraft owned and /
or operated by regular airline over a scheduled route by which the insured is travelling as a
passenger during the flight specified.

Contingency
Benefit
Death
Capital Sum Insured (100%)
Loss of two limbs
Capital Sum Insured (100%)
Loss of one limb and one eye
Capital Sum Insured (100%)
Loss of two eyes
Capital Sum Insured (100%)
Loss of one limb or one eye
50% of Capital Sum Insured
Temporary total disablement upto 104 1% of Capital Sum Insured per week not to exceed Rs
weeks
3000/-

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There are two methods of issuing these cover (a) the cover may be issued for specific flight (s) only or (b)
the cover may be issued for a certain specific period of time and the company will be on risk in respect
of all the flight undertaken by the insured within that period
Under (a) flat premium is charged based on the sum insured and the duration of flight (s) under (b) a
deposit premium is collected from the insured. At the end of the policy period the insured is expected to
declare all the flights actually undertaken by him. On the basis of this information the premium earned
is calculated and the deposit premium is adjusted.
These declaration policies can be given not only to individuals but also to companies in respect of their
employees who travel by air frequently. These policies are issued to reputed concerns only.
Group Personal Accident Policy
14. Group policies can be issued where there is some common relationship among the persons to
be insured and a central point for the administration of the insurance scheme accordingly these
policies can be granted to group clearly falling under any one of the following categories.

Employer employee relationship including dependants or the employee.

Pre-identified segments/ groups where the premium is to be paid by the stat /

central Government

Member of registered co operative society

Members of registered service clubs

Holders of credit card of Banks/Diners/Master/Visa

Holders of Deposit Certificate issued by Banks/NBFCs

Shareholder of Banks /public Limited Companies

Proposals relating to any category other than the seven categories may also
considered for group policies provided there is some common relationship among
the persons to be insured and the insurer can deal with a central point for the
administration of the group insurance scheme. The rationale is to avoid situation
where artificial groups may be formed solely for the purpose of obtaining the group
discount in premium.

Salient Features of Group Policy

15. The coverage is the same as under individual P. A policy except that cumulative bonus and
education grant do apply. However, medical expenses and war risks extension are available.
The sum insured is fixed separately for each insured person.

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If P.A cover is required only for the restricted hours of duty ( and not for all 24 hours of the day)
a reduced premium equivalent to 75% of the appropriate premium is charged. The cover applies
to accident to employees arising out of and the course of employment only (on duty0
If cover is required only for the restricted hours, when the employee is not work and / or not on
official duty, the reduced premium of 50% of the appropriate premium is charged (off duty)
It is possible to exclude the Death benefit, subject to following conditions
i.

A group life policy covering death benefit for the same group of persons is in existence.

ii.

Group P.A policy covers a group of 100 persons and above.

A discount in the premium is allowed form the total premium

Group Discount Scale
16. Discount in premium varies according to size of the group
Bonus/ Malus
17. Rating under renewal of group policies is determined with reference to the claims experience .
favourable experience is rewarded with a discount in the renewal premium (bonus and adverse
experience is penalized by loading of renewal premium (malus) according to a scale. Normal
rates will apply for renewal if the experience is say 70%
Janata P.A Policy
18. Any person, irrespective of sex and occupation in the age group 10 to 70 years may be covered
The minimum sum insured is Rs 25000/- and maximum Rs 100000/- per person per annum. The
rate of premium is Rs 15/- per sum insured of Rs 25000/- which can be increased in multiplies of
Rs 25000/- and rate applicable accordingly.
Group policies may be issued to cover persons falling under any of the categories mentioned
under group P.A policy. The group discount is allowed as per size of the group.
Long term ( policy terms form 2 to 5 years) discount is allowed.

Claims Documents
19. The following documents are necessary in addition to the claim form
Medical Certificate : to obtain medical opinion on the cause of extent of incapacity or progress
toward recovery.

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Receipt/ Discharge Form : to acknowledge the money and to confirm the finality of the
settlement.
Death Certificate: to give the date and cause of death post modern report where a postmodern has been done.

Probate or Letters of Administration : the legal document to prove the title of an executor or an
administrator (i.e. if no assignment is made)
For disablement claims the documents, interalia, required are:

Medical certificate, diagnostic reports etc.

Prescription, bills and receipts

Leave of absence certificate from the employer

Medical fitness certificate

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CHAPTER 10

HEALTH INSURANCE
Introduction
Different types of health insurance schemes with different names, are introduced by insurers, Broadly
speaking, all these schemes have certain common basis features. This chapter deals with these feature
of some major schemes available in the market.
Mediclaim Policy (individual)
1. The policy provides for reimbursement of Hospitalization / Domiciliary hospitalization expenses
for illness / desease suffered or accidental injury sustained during the policy period.
The policy pays for expenses incurred under the following heads.
A) Room, Boarding Expenses in the Hospital / Nursing Home
B) Nursing Expenses
C) Surgeon, Anaesthetist, Medical Practitoner, Consultants, Specialist fees
D) Anaesthesia Blood, Oxygen, Operation Theatre Charges, Surgical Appliances. Medicine and
Drugs, Diagnostic Materials, and X-ray dialysis, chemotherapy, Rodiotherapy, cost of
pacemaker, Artificial Limbs and Cost of organs and similar expences.
2. The liability in respect of all claims admitted during the period of insurance shall not exceed the
sum insured for the person as mentioned in the schedule.
The company will pay through the third party administrator named in the schedule of the policy
to the hospital/ nursing home or the insured person reasonable and necessary expenses
incurred in respect or medical/ surgical treatment.
Reimbursement is allowed only when treatment is taken in a hospital or nursing home which
satisfies the criteria specified in the policy.
(note : the policy definer TPA as one who is licensed by the IRDA and is engaged for a fee by the
company for the provision of health services. See chapter 5)
The criteria refer to registration with the local authorities or provision of number of in-patient
beds. Operation theatre and qualified doctors and nursing staff round the clock
Expenses on Hospitalization for minimum period of 24 hours are admissible. However this time
limit is not applied to specific treatment i.e. dialysis. Chemotherapy, radiotherapy eye surgery,

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dental surgery, lithotripsy (kidney stone removal) D&C, tonsillectomy taken in the hospital /
nursing home and the insured is discharged on the same day the treatment will be considered to
be taken under hospitalization benefit.
Relevant medical expenses incurred during period upto 30 days prior to and period of 60 days
after hospitalization are treated as part of the claim.
Domiciliary Hospitalization Benefit
3. This means medical treatment for a period exceeding three days for such illness/ injury which in
the normal course would require treatment at the hospital/ nursing home but actually taken
whilst confined at home in india under any of the following circumstance namely:
i.

the condition of the patients is such that he / she cannot be removed to the hospital /
nursing home or

ii.

the patient cannot be removed to hospital/ nursing home for lack of accommodation
therein
However this benefit does not cover
a) expense incurred for pre and post hospital treatment and
b) expenses incurred for treatment for any of the following diseases

Asthma

Bronchitis

Chronic Nephritis

Diarrhoea and all type of dysenteries including gastroenteritis

Diabetes mellitus and insipiduss

Epilepsy

Hypertension

Influenza, cough and cold

All psychiatric or psychosomatic disorders

Pyrexia of unknown origin for less than 10 days

Tonsillitis and upper respiratory tract infection including larynigitis and pharyngitis

Arthritis, Gout and Rheumatism

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4. Under the policy any one illness means continuous period of illness and it includes relapse
within 45 days from the day of last consultation with the hospital/ nursing home where
treatment may have been taken. Occurrence of same illness after a lapse of 45 days will be
considered as fresh illness for the purpose of this policy.
Exclusions
5. No claims is payable in respect of the following;
a) All diseases/ injuries which are pre-existing when the cover incepts for the first time. For this
purpose, the date of inception of the intial mediclaim policy taken form any of the Indian
insurance companies is taken, provided the renewals are continues and without any break.
b) Any disease other than those stated in clause (c) below, contracted by the insured person
during the first 30 days form the commencement date of the policy.
This condition shall not however in case of the insured person having been covered under
the scheme or group insurance scheme with any of the Indian insurance companies for a
continuous period of preceding 12 months without any break.
(Note: the above exclusion (a) and (b) do not apply
i.

If in the opinion of panel of Medical Practitioners constituted by the company for the
purpose, the insured person could not have known of the existence of the disease or
any symptoms or complaints thereof at the time of making the proposal for insurance to
the company.

ii.

The insured had not taken any consultation or treatment in respect of the
hospitalization for which claim under the policy is made, prior to taking the insurance)

c) During the first year of the operation of the policy the expenses on treatment of diseases
such as Cataract, benign prostatic Hypethrophy, Hysterectomy for Menorrhagia or
Fibromyoma, hernia, hydrrocele, congenital interna disease, Fistula in anus, pilees, sinustitls
and related disoreder. If these disease even during subsequent period of renewal.
d) Circumcision unless necessary for treatment of a disease not excluded hereunder or as may
be necessitated due to an accident, vaccination or inoculation or change of life or cosmetic
or aesthetic treatment of any description, plastic surgery other than as may be necessitated
due to an accident or as a part of any illness.
e) Cost of spectacles and contact lenses, hearing aids.
f)

Dental treatment or surgery of any kind unless requiring hospitalization.

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g) Convalescence, general debility, run down condition or rest cure, congenital external
disease, or defect or anomalies, sterility, venereal disease. Intentional self injury and use of
intoxicating drugs / alcohol.
h) Various conditions commonly referred to as AIDS
i)

Charges incurred at Hospital or Nursing Home primarily for diagnostic X-RAY or laboratory
examinations or other diagnostic studies not consistent with the positive existence or
presence of any ailment, sickness or injury for which confinement is required at a Hospital/
Nursing Home or at Home under Domiciliary Hospitalisation defined.

j)

Expenses on vitamins and tonics unless forming part of treatment.

k) Treatment arising from pregnancy ( including voluntary termination of pregnancy) and

childbirth (including Caesarian section)
l)

Naturopathy treatment

Condition
6. The conditions which are special to this policy are:
a) Notice of any claim with full particular shall be sent to the TPA immediately and within 24
hours of emergency hospitalization/ domiciliary hospitalization.
b) All claim document must be filed with the TPA within 7 days from the date of discharge form
the hospital or the date of completion of post hospitalization treatment (original bills,
receipts etc. must be furnished to the TPA)
c) Any medical practitioner authorized by the TPA/ company shall be allowed to examine the
insured person in case of any alleged injury or disease, as may be reasonably required by the
company.
d) All treatments shall have to be taken in India and all claims are payable in Indian currency.
e) If the TPA or the company shall disclaim liability for any claim and if the insured shall not
within 12 months from the date of receipt of such disclaimer notify the TPA/ company that
he does not accept such disclaimer and intends to recover his claim, shall be deemed to
have been abandoned.
Cumulative Bonus
7. The sum insured is increased by 5% for each claim free year of insurance subject to maximum
accumulation of 10 years. In the event of a claim. The increased percentage will be reduced by
10% of the sum insured at the next renewal but the basis sum insured will remain the same.

96

Cost of Health Checkup

8. The insured shall be entitled to reimbursement of medical check up once in every four
underwriting years subject to no claim preferred during this period. The cost shall not exceed
1% of the average sum insured during the block of four years.
(None: both the above benefit apply in respect of continuous insurance without break. In
exceptional circumstance maximum 7 days break is allowed subject to medical examination)
The premium varies according to the sum insured and age limits as follow;
Sum Insured and premium
9. The sum insured is decided by the insured. The sum insured is usually available from Rs. 15000/to Rs 500000/- Upto 35 years/ 46-55 years/56-65 years/66-70 years /71-75 years /76-80 years
Tax benefit is available under section 80D of income tax act.
Age Limit
10. This insurance is available to person between age of 3 months and 5 year of age can be covered
provided one of both parents are covered simultaneously.
Family discount
11. A discount in the total premium Is allowed to a family comprising the insured and any one or
more of the following

Spouse

Dependent children

Dependent parent

Proposal Form
12. The proposal form incorporates a prospectus which gives detail of the cover, such as coverage,
exclusions, provision etc. the proposer has to sign it as having noted its contents
The special features of the declaration to be signed by the proposer are as follow

The insured person consents and authorized the insurer to seek medical information
form any hospital/ Medical practitioner who has at any time attended or may attend
concerning any illness which affect his physical or mental health.

The insured person confirms that he has read the prospectus forming part of the form
and is willing to accept the terms and condition.

97

The declaration includes the usual warranty regarding the truth of the statement and
the proposal form as the basis of the contract

The proposal form elicits, inter alia, the following information;

a) Past diseases and illness and details of treatment
b) Average monthly income
c) Income Tax PAN NO.
(Note: Stamp size photographs of Insured Persons have to be attached to the form)
MEDICAL QUESTIONNAIRE
13. In case of adverse medical history in the proposal form, the insured person has to complete a
detailed questionnaire relating to diabetes, hypertension, chest pain or coronary insufficiency or
Myocardial infarction.
These have to be supported by a form completed by consulting physician
The proposal form provides for assignment of money payable in the event of death to specified
person (name and relationship to the insured has to be declared) whose receipt shall be
sufficient discharge to the company.
Group Mediclaim policies
14. The Group Mediclaim is available to any Group/ association / institution / corporate body
provided it has a central administration point and subject to a minimum number of persons to
be cover. The group shall fall clearly under the same categories as specified for group P.A. policy.
(chapter 9)
The group policy is issued in the name of the Group / Association / Institution / Corporate Body
(called Insured) with a schedule of names of the members including his / her eligible family
members (called Insured Persons) forming part of the policy.
The coverage under the policy is the same as under Individual Mediclaim Policy with the
following differences :-

Cumulative bonus and Health Check up expense are not payable

Group discount in the premium is available.

Renewal premium is subject to Bonus / Malus clause.

Maternity benefit extension is available at extra premium.

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Group Discount
15. The group discount is allowed according to scale depending upon the total number of Insured
persons covered under the Group Policy at the inception of the policy.

Bonus / Malus :
Low Claim Ratio Discount (Bonus)
16. Low Claim Ratio Discount is allowed on the total premium at renewal only depending upon the
incurred claims ratio for the entire group.
(Note : Incurred claims means claims paid plus claims outstanding at the end of the period less
outstanding at the beginning of the period in respect of the entire group insured under the
policy during the relevant period)
High Claim Ratio Loading (Malus)
17. On the same basis of incurred claims ratio, loading is applied to the renewal premium for
adverse claims experience.
Maternity Expenses Benefit Extension
18. This is an optional cover which is available on loading of the total basic premium for all the
insured persons under the policy. Total basic premium means the total premium computed
before applying Group Discount and / or High Claim Ratio Loading, Low Claim Discount.
Option for maternity benefits has to be exercised at the inception of the policy period and no
refund is allowable in case of Insureds cancellation of this option during currency of the policy.
The maximum benefit allowable is upto Rs. 50000/- or the Sum Insured opted by the member of
the group, whichever is lower.
The special conditions applicable to this extension are :
a) These Benefits are admissible only if the expenses are incurred in Hospital / Nursing Home as inpatients in India.
b) A waiting period of 9 months is applicable for payment of any claim relation to normal delivery
or Caesarean section or abdominal operation for extra uterine pregnancy. The waiting period
may be relaxed only in case of delivery, miscarriage, or abortion induced by accident or other
medical emergency.

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c) Claim in respect of delivery for only first two children will be considered in respect of any one
Insured Person. Those Insured Persons who already have two or more living children will not be
eligible for this benefit.
d) Expenses incurred in connection with voluntary medical termination of pregnancy during the
first 12 weeks from the date of conception are not covered.
e) Pre-natal and Post-natal expenses are not covered unless admitted in Hospital / Nursing Home
and treatment is taken there.

Details of Insured Person

19. The insured is required to furnish a complete list of Insured Persons in the prescribed format
according to Sum Insured.
Any additions and deletions during the currency of the policy should be intimated to the
Company in the same format. However such additions and deletions will be incorporated in the
policy from the first day of the following month subject to pro-rata premium adjustment.
No change of Sum Insured for any Insured Person will be permitted during the currency or the
policy.
No refund of Premium is allowed for deletion of insured person if he or she has recovered a
claim under the policy.
Cancer Policy (CPAA)
20. This policy is granted to members of the Cancer Patients Aid Association (CPAA).
The insured by virtue of being a member of the CPAA has to submit a proposal form with a
declaration that he is in good health and is not suffering from cancer. He has to undergo a
medical check-up and a certification to that effect has to be made by CPAA in the proposal form.
The proposal form and the certification form part of the contract of Insurance.
The premium shall be paid by the insured to CPAA as part of the membership fee and this also
applies as a condition precedent to the renewal of the policy.
(Note : Group policies are also available with discount in the premium)
Coverage
21. If the insured during the currency of the policy suffers from cancer (as defined), the policy will
pay to the insured medical / surgical / hospitalization / diagnostic expenses actually and
necessarily incurred but not exceeding the sum insured. Only allopathic mode of treatment is
covered.

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The sum insured is increased by 5% in respect of each completed year during which the policy
shall have been in force prior to the claim but the maximum increase is restricted to 50% of the
sum insured. This cumulative bonus is lost if the policy is not renewed within 30 days after its
expiry.
Exclusions
22. No claim is payable
-

If the insured contracts Cancer within a period of 30 days from the date of becoming a member
of CPAA.

Unless the diagnostic investigation reveals positive presence of cancer.

By reason of the contract of the insured with radiation or radioactivity from any source other
than diagnostic or therapeutic source.

If the insured ceases to be a member of the CPAA.

Claim Procedure
-

Notice of Claim shall be served upon the insurers within 30 days of the happening of any event
which gives rise to a claim.

The claim shall be substantiated with supporting documents within a reasonable period, duly
certified by the CPAA.

Claim for reimbursement of medical expense may be submitted on quarterly basis.

Differences as to the claim or quantum thereof are to be referred to the committee set up by
CPAA and the company.

If the Company disclaims liability or there is dispute as to the quantum payable and if such
questions are not referred to the committee within three months thereafter the claim is
deemed to have been abandoned.
(Note : A similar scheme with some variations, is available to members of Indian Cancer Society)

Critical Illness Insurance

23. The policy is designed to pay the sum insured if during the policy period the insured is found to
have a Critical Illness contracted during the Period of Insurance, and survives such Critical Illness
for at least 30 days from the date of its discovery.
A Critical Illness shall mean one of the following suffered or undertaken by the Insured as long
as it is shown in the Schedule to be an operative event.
1. Cancer
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2. Coronary Artery By Pass Graft Surgery

3. Myocardial Infarction (Heart Attack)
4. End Stage Renal Failure
5. Major Organ Transplant
6. Stoke
7. Paralysis
8. Heart Valve Replacement Surgery
9. End Stage Liver Disease
10. Loss of Limbs
11. Loss of Speech
12. Major Burns
13. Coma
14. Alzheimers Disease
15. Blindness
16. Parkinsons Disease
17. Deafness
18. Multiple Sclerosis
Exclusions
24. The company shall not be liable or make any payment for any claim directly or indirectly caused
by, based on, arising out of or howsoever attributable to any of the following :
1) Any Critical Illness existing or for which the Insured sought or received treatment prior to :
a) The inception date of the first Policy of a series of Critical Illness Policies taken by the Insured
from the Company without any break, where this insurance is shown in the Schedule to be an
annual contract or a longer-term contract.
b) The inception date of this Policy where this insurance is shown in the Schedule to be an annual
contract and either.
(i) This is the Insureds first critical illness policy taken from the company, or

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(ii) There has been a break between this Critical Illness Policy being taken and an earlier Critical
Illness Policy having expired.
2) Any Critical Illness discovered or discoverable within 90 days of the inception date of this Policy,
but this exclusion shall not apply to the second or subsequent Critical Illness Policy taken by the
Insured from the Company without any break.
3) Congenital external illness or defects or anomalies, intentional self-injury and the use or misuse
of intoxication liquor or drugs.
4) Pregnancy and Childbirth.
5) Conditions commonly referred to as AIDS.
When & How to Claim
25. It is a condition precedent to the Companys liability that upon the discovery of any event of
Critical Illness the Insured shall :
a) Give the Company notice in writing to the address shown in the Schedule within 21 days from
the date of discovery.
b) Promptly give the Company any and all information and documentation concerning the claim or
the Companys liability for it.
c) If asked to by the Company, submit to a medical examination by the Companys own doctor as
often as the Company considers necessary.
Overseas Medical Policy
26. This policy provides for payment of medical expenses in respect of illness suffered or accident
sustained by Indian residents during their overseas trips for specified purpose.
Eligibility
27. Indian Residents undertaking bonafide trips abroad for :
(i) Business and Official purposes.
(ii) Holiday purpose.
(iii) Employment.
(iv) Studies.
(v) Accompanying spouse and children of the person who is going abroad will be treated as going
under holiday travel.

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(vi) Foreign nationals working in India for Indian Employers of Multi-National Organisation getting
their salary in Indian Rupees, Covering their official visits abroad provided they are undertaken
on behalf of their Employers.
Age Limit :
28. (a) For adults upto 70 years.
Cover beyond 70 years is granted at extra premium.
(b) For children above 6 months
Children between the age of 6 months to 5 years are covered by excluding certain specific
children diseases such as Mumps, Measles, etc.
Policy Coverage
29. First of all it is necessary to understand certain definitions :
Insured person is that person named in the overseas policy schedule, for whom the appropriate
premium has been paid.
Period of insurance
30. The insurance is valid form the first day of insurance of date and time or date and time of
departure form india whichever is late and expires on the last day of the number of days
specified in the policy schedule or an return to india whichever is earlier.
Extension of the period of insurance is automatic for the period not exceeding 7 days, and
without extra charge, if necessitated by delay of public transport services beyond the control of
the insured person.
Local Medical Advisors
31. Name and address of an overseas independent entity which provides emergency assistance and
claims administration services abroad are specified In the policy (name and address of an
independent agency providing assistance to the insured person whilst in india also specified)
Section A-Medical Expenses and Repatriation
32. the section specifically provides that the policy is not a general health insurance policy. Medical
expense coverage is intended for use by the insured person in the event of a sudden and
unexpected sickness or accident when the insured person is outside the republic of india.
This insurance will pay up to the limit shown in the schedule in total for the insured person In
respect of covered medical relate expenses, incurred outside the republic of india by the insured
person suffering bodily injury, sickness, disease or death during the period of insurance
If local medical Advisor recommend that continued treatment in india is appropriate, the policy
is extended to cover medical expenses incurred in india as specified in covered expenses,
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provided the expenses will only be paid for treatment incurred within the 90 days period
immediately following the first manifestation of bodily injury, sickness or disease.
Covered Expenses:
a) Expenses for physician services, hospital and medical service and local emergency medical
transportation
b) up to US $ 225 per occurrence, for dental services for the immediate relief of dental pain only.
However, dental care necessary as result of a covered accident shall be subject to the limit of
cover and deductible
c) Expenses for physician ordered emergency medical evacuation, including medically appropriate
transportation and necessary medical care en route ot the nearest hospital when the insured
person is critically ill or injured and no suitable local care is available.
d) Expenses for medical evacuation, including transportation and medical care en route to a
hospital in India or the Insured Persons normal place of residence in India when deemed
medically advisable by the Medical Advisors and the attending physician.
e) If the Insured Peron dies outside India, the expenses for preparing the air transportation of the
remains for repatriation to India or up to an equivalent amount for a local burial or cremation in
the country where the death occurred.
33. Some examples of specific conditions applicable to this section are :
a) No Claim will be paid in respect of
(i) expenses for treatment which could reasonably be delayed until the Insured Persons return to
the Republic of India. The question of what can or what cannot be reasonably delayed will be
dedicated jointly by the treating physician and the Local Medical Advisors.
(ii) cosmetic surgery unless necessary as a result of a covered accident.
(ii) routine physical examination or any other examination where there is no objective indication of
impairment of normal health.
b) The insurance will not cover pregnancy of the Insured Person including resulting childbirth, etc.
miscarriage, abortion or complication of any of these.
Section B- Personal Accident
34. This insurance will pay the limit as shown in the Schedule if the Insured Person sustains bodily
injury and such bodily injury within 12 months of the date of the injury is the sole and direct
cause of death, permanent total disablement of loss of eye(s) or limb(s).
Not more than US $ 2,000 is payable in respect of death if the insured persons age is under 16.

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Section C Loss of Checked Baggage

35. This insurance will pay up to the limit of cover shown in the Schedule in the event of the Insured
Person suffering a total loss of Baggage that has been checked by an International Airline for an
International flight.
No claim will be paid for valuables such as photographic, audio, computer, telecommunication
and electrical equipment & telescopes, binoculars, spectacles, sunglasses, antiques, jewellery,
furs and articles made of precious stones and metals.
Any recovery from a carrier or any airline shall become the property of insurers.
Section D Delay of Checked Baggage
36. This insurance will pay up to the limit of cover shown in the Schedule for the necessary
emergency purchase of replacement items in the event that the Insured Person suffers a delay
of more than 12 hours from the scheduled arrival time at the destination for delivery of Baggage
that has been checked by an International Airline for an International outbound flight from
India.
A non-delivery certificate from the airline and proof of purchase must be submitted in support
of any claim under this section.
Section E Loss of Passport
37. This insurance will pay upto the limit of cover shown in the Schedule for the reimbursement of
actual expenses necessarily and reasonably incurred by the Insured Person in connection with
obtaining emergency travel documents in lieu of lost passport, outside India.
No claim will be paid that is less than the deductible stated in the Schedule. The deductible shall
apply to each insured event and shall be borne by the Insured Person.
No Claim shall be paid for
a) Loss or damage to passport due to delay, or from confiscation or detention by customs, police
or other authority.
b) Theft which is not reported to police authority and an official report obtained.
Section F Personal Liability
38. This insurance will pay up to the limit of cover shown in the Schedule if the Insured Person in his
or her private capacity becomes legally liable to pay for accidental bodily injury to Third Parties
or accidental damage to Third Party Property, arising from an incident during the covered trip.
Some exclusions are as follows :
No claim shall be paid
a) for less than the deductible. (The deductible shall not apply to claims for Third Party Property
damge)
b) arising out of animals belonging to the insured person, or pursuit of a trade, profession,
occupation etc.

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General Exclusions (All Sections)

39. Some examples are:
No claim will be paid :
a) Where the insured person :
i) is travelling against the advise of a physician; or
ii) is on waiting list for specified medical treatment; or
iii) is travelling for the purpose of obtaining medical treatment; or
iv) has received a terminal prognosis for a medical condition.
b) Suicide, attempted suicide, venereal disease or abuse of drugs or alcoholic drinks or HIV related
illness.
c) In respect of medical services obtained within India. (Unless when specifically provided)
d) Arising from the insured taking part in Naval, Military or Airforce operations.
e) Arising from aviation except where the insured flies as a passenger in an aircraft properly
licensed to carry passengers.
f) Arising from participation in professional sports events or other hazardous sports.

a)

b)

c)
d)

e)
f)
g)

General Conditions Applicable to all Sections (Some Examples)

(i) The policy will be valid only if the Insured journey commences within 14 days of the First
Day of Insurance as indicated in the policy schedule.
(ii) Cancellation of the policy may be done ONLY in cases where a journey is not undertaken and
ONLY on production of the Insured Persons PASSPORT as a proof that the journey has not
been undertaken. Such cancellation will be subject to deduction of cancellation charge by
the underwriters as applicable.
In the event of any occurrence likely to give rise to a claim under this Insurance, the Insured
Person, or his representative, must notify Local Medical Advisors immediately.
For non-emergency claims Local Medical Advisors should be contacted upon return to the
Republic of India and a claim from obtained. This document, together with invoices, travel
documents and any other relevant details must be sent to them clearly stating under which
section of this policy a claim is being made.
This insurance does not operate beyond a period of 180 days continuous because from India
unless specifically agree by Insurers.
Pre-existing Exclusion: This policy is not designed to provide an indemnity in respect of medical
services, the need for which arises out of a pre-exiting condition i.e. any sickness for which the
Insured Person has sought medical advice or has taken medical treatment in the preceding 12
months prior to the commencement of travel.
The laws of the Republic of India shall govern the validity, interpretation, etc. of the policy.
Any dispute under the policy shall be subject to arbitration as per provisions of the Indian
Arbitration and Conciliation Act, 1996.
No sum payable under the policy shall carry interest.

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Plans
40. For the purpose of illustration only, the details of some common plans are provided below :
(Figures in U.S. Dollars)
A-1
(World-wide
A-2 (World-wide excluding
excluding USA /
USA / Canada )
Canada )

Sections
A

Illness / treatment for Accident

50,000

2,50,000

Deductibles
Personal Accident

100
10,000

100
25,000

Loss of Checked baggage

1000

1000

Delay of Checked in Baggage - over

100
12 hrs - (outbound flights)

100

Loss of Passport
Deductibles
Personal Liability
Deductibles

250
30
2,00,000
200

E
F

150
30
2,00,000
200

The Proposal Form

41. in addition to the usual details, the proposal form elicits the following information.
- Age-Type of Plan Passport number
- Name, address, registration number of the usual physician
- Countries to be visited, purpose of trip, proposed date of departure, number of days of stay abrod
The form also elicits detailed information on the proposers medical condition and medical history.
(Note: if the answers indicate adverse condition, medical report has to be completed by an M.D and
accompanied with ECG, Blood Sugar / Urine Strip Test report etc. Medical Report are also
required where the proposer is above a specified age)
The declaration in the form includes consent to the insurer/ Medical Advisor to seek medical
information form any doctor who has attended on the proposer.
The proposer further declares as follow
- I will be travelling against the advice of a physician
- I am not on waiting list for any medical treatment
- I will not be travelling for the purpose of obtaining medical treatment
- I have not received a terminal prognosis for a medical condition before this day.
Premium
42. The premium depends upon age, duration of say and the countries visited.

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Corporate Frequent Travellers

43. This is an annual policy granted officials of companies registered under the companies Act, who are
regularly travelling abroad. This policy is also made available to partner countries visited.
Corporate Frequent Travellers
43. this is an policy ranted to official of companies registered under the companies act, who are
regularly travelling abroad. This policy is also made available to partner of registered firms.
The salient features of the endorsement attached to the policy are
a) The insurance is valid in respect of trips undertaken during the 12 month following the date of
purchase as stated in the schedule subject to he duration of any one trip not exceeding 60 days.
b) In the event that the insured person is travelling outside india on the last day of insurance the
cover shall extend to include duration of trip until his return to india within 59 days of the expiry
date.
c) No cover is available for persons over the age of 70.
d) The cover granted is always subject to the insured person advising the insurance company any
material changes in his health condition.
e) Policy to be issued to individuals only.
Corporate Group OMP (Declaration Basis)
44. This is a new scheme designed for corporate who regularly send their employees abroad for
business, training, project work, etc.
This policy is granted by charging an advance deposit premium for a specified number of days and the
insured is required to submit details of the person (S) who go abroad, for e.g. country of visit, age date
of departure and date of return to India etc. such declaration would have to be given prior to departure
from India. Calculation of actual premium on the basis of number of days and necessary replenishment
is done as and when required.
The policy operated as per endorsement attached to overseas medical policy and provides as follow
1. This policy is issued to M/s. on the basis of the undertaking given by them. The
word insured person mentioned in the policy would refer to the corporate client/ employee of
the corporate client, as applicable.
2. This insurance is valid in respect of trips undertaken by the employees of the insured who are in
good health and for whom separate certificate of insurance have been issued as authorized,
during the 12 months following the date of purchase as stated in the chedule.

109

3. In case of a certificate where period of insurance cover goes beyond the expiry date of this
policy the insured person named therein, shall continue to be covered for period of insurance
stated in the said certificate applying same terms and conditions mentioned in the insurance
policy.
4. It is understood and agreed that the person covered under this endorsement was not more than
70 years of age at the inception of the period of insurance.
a) It is understood and agreed that the cover granted under this endorsement in subject to medical
report (i.e. Blood/ Urine Strip Test and ECG and / or Stress test) submitted by the insured person
who is above the age of 60 years at the time of commencement of journey, or who has been
treated for any illness/ injury during the 12 months preceding the journey.
b) It is understood and agreed that the cover granted under this endorsement is always subject to
the insured person advising the insurance company any material change in his/her health
condition.
5. No certificate will be issued for a period exceeding 180 days.
6. Premium under this policy will be adjusted on declaration basis, subject to a minimum retention
of 500 dayss premium.
Undertaking by the insured
45. the undertaking given by corporate insured prior to issuance of Group Overseas Mediclaim policy
declaration basis of worded as follows
We M/s
. undertake to give a deposit premium equal to premium of at least
500 days travel under plan (world wide travel including USA/Canada).
We declare that all our employees travelling abroad on official work are in good health and are of less
than 60 years of age, further each employee travelling abroad will be covered under the policy issued by
you and certificates will e issued as per format provided starting form serial nos. 001 to
for the
period
to
(annual policy) the original certificate will be given to the travelling
employee, the second copy will be given to you and third copy will be retained by us for our records. We
confirm that the certificates will be issued to employee travelling abroad prior to actual date of
departure.
Employees who are above 60 years of age (but not exceeding 70 year) and those who have taken
treatment for an illness / disease/ injury during the 12 months preceding the date of otutward journey,
will submit a duly completed proposal form accompanied by medical reports, as necessary certificate in
respect of such employees will be issued with the approval of the underwriting office of the insurance
company.
Authorized signatory

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Premium
46. The premium is charged on per day basis and varies according to the type of plan countries visited.
Employment and study policy
47. The policy is designed for Indian citizens temporarily posted abroad in a sedentary non-manual work
or student prosecuting studies or engaging in research activities abroad.
The new scheme, is on a world wide basis, including USA/ Canada and comprises two sections as follow
Sub-Section A:
48. Medical Expenses incurred in respect of disease / injury contracted / sustained during the policy
period.
i.

Under the policy

ii.

52 weeks after the onset of injury/ sickness

iii.

12 weeks after the expiration date of the insurance

Sub- Section B:
49. if the insured person is evacuated to india the insurers will pay medical expenses in india, as
provided under sub-section a above and in addition but within the overall limit of US $ 5 00 000/Sub-Section C:
50. Repatriation and Alternative Expenses: In the event of the death of an insured person, the insurers
will pay the actual expenses for preparation and transportation to india of the remains of the insured
person of funeral expenses incurred in the country of posting, not exceeding US $ 8,000 in total.
Sub-Section D:
51. medical emergency reunion expenses upto US $ 5,000/- in all when, as a result of a covered injury or
covered sickness insured person is hospitalized and it s agreed by all parties that the insured person
shall be medically evacuated to india as soon as possible insurer will pay upon the recommendation and
prior approval of the claims administrator the following expenses incurred in respect of travel by the
mother or father or guardian spouse.
a) The cost of an economy Air Ticket for one person from India to the Airport serving the area wher the
insured person is hospitalized and return to India.
b) Reasonable travel and accommodation expenses incurred in relation to emergency reunion.
The proposal form, underwriting procedure. Policy exclusion etc, are more or less similar to Overseas
Medical Scheme for Business or Holiday.

111

The scheme may include add-on covers as follows

a) Loss of checked baggage (limit US $ 1,000)
b) Delayed baggage (limit of US $ 100) (outbound flight)

112

CHAPTER 11

LIABLITY INSURANCE
1. The purpose of liability insurance is to provide indemnity in respect of damages payable under
law of personal injury to third parties or damage to their property.
2. This legal liability may arise under common law on the basis of negligence or under statutory
law (e.g. public liability insurance act or workmans compensation act) on no-fault basis, that
is even when there is no negligence.
3. Legal liability towards third parties arising out of motor vehicles has been dealt with in an earlier
chapter. But there are other situations where legal liability may arise and insurance to cover
this liability are dealt with in this chapter. These policies are known as public liability policies
whereas in respect of motor vehicles, the policies are known as third party insurance policies.
4. Another class of legal liability insurance relates to employers legal liability towards his
employees for death or bodily and the policy as known as employers liability insurance or
workmans compensation insurance.
Compulsory Public Liability Policy
5. The public liability insurance Act, 1991 imposes no fault liability i.e. irrespective of any wrongful
act, neglect or default on the owner to pay relief in the event of (a) death of or injury to any
person (other than workman within the meaning of workmens compensation Act) or (b)
damage to property of any person arising out of an accident while handling any hazardous
substance.
No fault liability means the claimant is not required to prove that the death, injury for damage
was due to any wrongful act neglect or default of any person.
The amount of relief payable under section 3 is as per the schedule incorporated in the act as
follows
i
ii

Fatal Accident
Permanent Total disability

Rs. 25,000/- per person

Rs. 25,000/- per person

Iii) Permanent partial disability: the amount of relief on the basis of percentage of disablement. As
certified by an authorized physician i.e. a registered medical practitioner.
iv) Temporary partial disablement which reduces the earning capacity of the victim. Fixed monthly relief
not exceeding Rs. 1000/- per month upto a maximum of 3 months (provided the victim has been
hospitalized for a period exceeding 3 days is above 16 years of age)

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v) Actual Medical Expense : Upto a maximum of Rs 12500 in each case under (i) and (iv) above
vi) actual damage to property upto Rs. 6000/Compulsory Insurance
6. The liability has to be compulsorily insured under a contract of insurance, for an amount not less
than the amount of the paid-up capital of the undertaking handling any hazardous substance.
7. The maximum aggregate liability of the insurer to pay relief under an award to the several
claimants arising out of an accident shall not exceed rupees five crore and in case of more than
one accident during the currency of the policy or one year, whichever is less, shall not exceed
rupees fifteen crores in the aggregate.
8. Ever owner, in addition to premium, has to pay to the insurer an equivalent amount to be
credited tot the environment Relief Fund established under the act the contribution received
by the insurer shall be remitted as per the scheme made by the Government.
9. The policy indemnifies insured owner against the statutory liability arising out accidents,
occurring during the currency of the policy, due to handling hazardous substances, as provided
for in the public liability insurance act and subject to the terms, of the policy.
10. The policy excludes the following liabilities.
i.

Arising out of willful or intentional non-compliance of any statutory provisions.

ii.

In respect of fines, penalties, punitive and / or exemplary damages.

iii.

In respect of damage to property owned, leased etc, by the insured or in his custody.
This is not deemed to be third party property. The insured can avail of a separate
Material Damage policy

11. The rates of premium are based on limit of indemnity (any one accident) and the turnover, as
per the schedule.
A. On Limit of Indemnity
Limit of Indemnity (Rs)
Upto 1 lac
1.1. to 2.5 lac
2.5 to 5.0 lac and so on

Rate per Mille

0.7
0.75
0.8

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B. Turnover Loading
The loading is provided for turnover in different slabs, for example
-

Upto Rs.1.00 crore

Exceeding Rs.1.00 crore but not exceeding Rs. 5.00 crores and so on

(if the insured owner also purchases a public liability policy based o negligence on the same
premises a discount on the premium under the later policy is allowable)

(Note: an amount, equal to the premium has also to be paid to the insurers, as contribution to
the environment Relief Fund set up by the government. This fund pays relief when it exceeds
the amount payable under the policy)
12. Application for claim for relief must be made, within 5 years of the occurrence of the accident
to the collector who shall hold an enquiry and make an award. The insurer is required to
deposit the award with the collector within 30 days of the announcement of the award.

Public Liability Policy (Industrial / Non Industrial Risks)

13. Industrial Risks are manufacturing premises including godowns, warehouses etc. forming part
thereof.
Non-industrial Risks are:
i.

Hotels, Motels, Club houses, Restaurants, Boarding and Lodging houses, Flight kitchens.

ii.

Cinema Halls, Auditoriums, Theatres, Public Halls, Pandals, Open air theatres.

iii.

Residential premises.

iv.

Office/ Administrative premises, Medical establishments, Airport premises (other than aviation
liabilities) Research institutes and laboratories.

v.

School, Educational Institutions, Public Libraries.

vi.

Exhibitions, fairs and fetes, stadia

vii.

Permanent amusement parks.

viii.

Film studios-indoor and outdoor, Circus Zoos.

ix.

Depots, Warehouses, Godowns, Shops, Tank farms and similar other non-industrial risk.

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Cover
14. The policy indemnifies the insured
-

Against their legal liability

Other than liability under the Public Liability insurances Act, 1991, or any other statute that may
come into force after the issue or the policy.

To pay compensation including claimants costs. Fees and expenses.

Anywhere in india in accordance with Indian Law and

In respect of accidents which cause death or injury or damage to property of third parties.
The indemnity only applies to claims
a) Arising out of accidents during the period of insurance and
b) First made in writing against the insured during the policy period. policy period means the
period commencing from the effective date and hour as shown in the policy schedule and
terminating at midnight on the expiry date as shown in the policy schedule (for example.
The period may commence at 11 A.M. ON 1.1.1994. and expire at midnight on 31.12.1994)
period of Insurance means the period commencing form the retroactive date and
terminating on the expiry date as shown in the policy schedule.
If the policy period is form 1-1-1994 to 31-12-1994 and the policy renewed form 1-1-1995 to
31-12-1995 then under the renewed policy the retroactive date will be 1-1-1994

For Example
1. Accidents must occur and claims must be made against the insured during 1994 (policy period)
2. Similarly, accidents must occur and claims must be made against the insured during 1995. In
addition, if accidents occur during 1994 and claims are made against the insured during 1995,
1995 policy will take care of these claims: because the retroactive date under the policy is 1-11994 which date will continue in further renewals.
The indemnity clause excludes liability in respect of
a) Products (This can be covered under a separate policy explained later)
b) Pollution (can be covered on payment of extra premium)
The other important exclusions are
a) Transportation of hazardous substances (can be covered at extra premium)

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b) Injuries to employees (this can be covered under a separate workmans compensation

policy)
c) Acts of god which may cause catastrophic losses. However, earthquake risk may be covered
on payment of extra premium,
d) Liability arising out of fines, penalties, punitive damages, etc, is excluded. This is on grounds
of public policy.
Limits of indemnity
15. The insured has to select limits of indemnity a) any accident (A.O.A)and b) any year (A.O.Y)
(policy period) in the ratio of 1:1, 1:2, 1:3, or 1:4,
Example
A.O.A

A.O.Y

Rs 10 lacs,

Rs. 10 lacs or Rs 20 lacs or Rs. 30 lacs or Rs 40 lacs

Excess
16. The insured has to bear compulsory excess of a specified percentage of the limit of indemnity,
any one accident,
Over and above this excess the insured can apt for voluntary excess for which discount
discounts in the premium are granted.
Premium
17. The rates of premium, for industrial risks depends upon
a) Risk group
b) The limit indemnity A.O.A
c) The ratio of A.O.A limit to A.O.Y limit
d) Turnover
Risks are categorized into 4 group depending upon the hazard factors involved. Some examples
are
Group I
Biscuit factories
Group II
Breweries
Group III
Distilleries
Group IV
Match factories
(Note: the rates are the lowest for group 1 risks and are on an increasing scale for the other groups)

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Extensions of Cover
18. On payment of extra premium the following extensions of cover are available
a) Liability for pollution
b) Liability arising out of transportation of dangerous or hazardous substances by
rail/road/pipeline.
c) Liability of collaborator who has a technical collaboration agreement with the insured
d) Earthquake risk
Non-Industrial Risks
19. The rating system for non-industrial risks depends upon various factors such as
Various factors such as
The types of construction of the risk.
-

Occupancy or storage.

Ratio of limits of indemnity AQA to AQY.

Limit of indemnity AQA

Turnover

Seating capacity (e.g. cinemas)

Number of students, etc (e.g. schools)

For example, for hotels the rate depends upon type of construction limit of Any one accident and
turnover.
Non- industrial policy can be extended to cover additional liabilities.
Property in the custody of the insured
20. The cover applies only if valuables are kept in the strong room/cloak room maintained by the
insured for safe keeping and monies, securities documents (including credit cards) and plans
are excluded from the cover.
(Note: this extension is available for hotels/motels/clubs/restaurants/boarding and lodging house/flight
kitchens)

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Sports Facilities
21. This extension includes legal liability arising out of use of sports facilities.
(Note: this extension is available to hotels, club houses, and restaurants, boarding and lodging
houses, schools and educational institution)
The following extensions are available under policies issued on all non-industrial risks (except
shops and godown)
Foods and Beverages
22. Legal liability arising out of poisoning by foreign or deleterious matter in food, beverages and /
or any other edible items supplied by the insured.
Legal liability arising out of accident (including accidents arising out of contamination of water)
in connection with the use of swimming pool in the insured premises
(Note: pollution and earthquake extensions are also available)
Products Liability Policy
23. The demanded for product liability insurance has arisen because of the wide variety of
products (e.g. canned food stuff aerated waters, medicines and injections, animal and poultry
feeding stuff, electrical appliances, mechanical equipment, acids and chemicals, gas cylinders,
etc) manufactured and sold to the public in the modern industrial society which products, if
defective, may cause death, bodily injury or illness or even damage property. Apart form the
goods the containers too can cause injury or damage.
The structure of the policy is more or less the same as under public liability policy for
(industrial/ non-industrial risks) the differences relating only to the coverage and some
exclusions.
The indemnity only applies to claims arising out of accidents during the period of insurance and
fist made in writing against the insured during the policy period arising out of any defects in the
products specified in the schedule
The policy does not cover liability for claims.
I. For costs incurred in the repair or replacement of any part of any product which is or
is alleged to be defective
II. Arising out of any product guarantee
III. For costs arising out of the recall of any product or part thereof
(Note: there is a compulsory excess under the policy)

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Premium
24. The rates of premium depend upon
I. Group of risk
II. Turnover
III. Limit of indemnity any one year
IV. Ratio of limit of indemnity A.O.A to A.O.Y
Products are classified into 7. Groups some examples are
Group products
I. Carpets, clocks and watches
II. Alcoholic beverages
III. Fork lift trucks, milk products, soft drinks
IV. Motor vehicles
V. Cosmetics, pharmaceutical products
VI. Motor vehicle tyres and tubes
VII. Explosive and fireworks, ladders, scaffolding (metal)
(Note: Lowest rates are charged for risks under Group I for the other groups the rates of premium are
charged in ascending order)
Export
25. Exports can be covered as an extension of the policy covering domestic sales or separate policy
can be issued only for exports
Lift (third party) insurance
26. The policy is designed for owner of passenger lifts in building to cover third party liabilities for
personal injuries or property damage arising out of the use and operation of lifts.
The coverage applies to
a) Death or bodily injury of any person (not being member of the insureds family or an
employee of the insured)

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b) Loss of or damage to property (not being the property of the insured or of his family
member or of his employees)
c) Direct damage to personal effect of any person (not being a member of the insureds family
or an employee of the insured)
The rates of premium very according to limits of indemnity any one person any one
accident and any one year
Professional Indemnities
27. Professional indemnities are designed to provide insurance protection to professional people
against their legal liability to
Pay damages arising out o negligence in the negligence in the performance of their professional
duties.
Policies are available to
a) Doctors/ medical practitioner
b) Medical establishment
c) Engineer architects and interior decorators
d) Chartered accountants, financial consultants, management consultant, and
e) Lawyers, advocates, and solicitor
Professional risk fall into broad groups
a) Where professional negligence may result in bodily injuries (fatal or
dentists, etc/ fall into this group

otherwise) doctors,

b) Where professional negligence may result in financial loss. Chartered accountants, solicitors, etc
fall into this group.
Rating
28. Rates of premium (per mille) are charged on A.O.Y limit. For doctors, separate rates apply for
general practitioners, consultants, surgeons, plastic surgeons etc.
For medical establishments there is basic rates plus additional per capital premium for
inpatient and outpatient.
For engineers, architect, interior decorators. There is a basic rate plus a rate on annul fees. For
chartered accountants, etc, and solicitors, etc, the basic rate is charged plus per cpita rate
separately for qualified staff and other like clerks, stenographers, etc.

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Except for doctors, there is provision for discount for voluntary excess
Employers Liability Policy
29. This is also known as workmens compensation insurance
The policy protects the employers against their legal liability for payment of compensation
arising as a result of death or disablement of the employees arising out of and in the couse of
employment
Polices : provides indemnity against legal liability under the workmens compensation Act,
Fatal Accidents Act and common Law.
The policy does not specify any sum insured because the amount of compensation stipulated in
the Act/s or awarded by a court of law determine the limits of liability of the insurers.
Generally, the rates is charged as a rate per mile of the total earning of the employees
The total earning of the employees cannot be accurately computed at the commencement of
the policy. An estimate of the total earning is made and deposit premium is charged. The
premium is finally adjusted after the expiry of the policy on the basis of the actual total earning
of the employees during the period.
Extensions
30. The policy can be extended, at extra premium to include a) certain diseases mentioned in act b)
medical expenses c) liability for contractors workmen.
Directors and Officers Liability Policy
31. This is a highly specialized type of insurance newly introduced in india. Directors and Officers of
a company hold positions of trust and responsibility. They may become liablt to pay damages
to shareholders, employees, creditors, etc. of the company, for wrongful acts committee by
them in the supervision and management of the affairs of the company. The policy is designed
to provide protection to Directors and Officers against their personal civil liability

122

CHAPTER 12

ENGINEERING INSURANCE
Contractors All Risks (C.A.R) Policy
1. This policy is designed to protect the interest of contractors and principal in respect of civil
engineering projects, like building, bridges tunnel, etc.
The policy provides and All Risk covers. Every risk is covered which is not specifically excluded.
This means that almost any sudden and unforeseen loss or damage occurring during the period
of insurance to the property insured on the construction site is indemnified he more important
causes of losses indemnifiable under C.A.R. Insurance are
- Fire, lightning, explosion
- Flood
- Windstorm
- Theft & Burglary
- Accidental damage
- Collapse, impact etc.
- Act of terrorism etc.
The policy can be extended to cover third party liability and other exposures.
Sum insured is required by the policy to be equal to the estimated completely erected value of the
contract works inclusive of materials, wages, construction costs, freight, customs duties and items
supplied by the principal. If the sum insured is less than the amount required to be insured the insurers
will apply average to the extent of under insurance.
Cover shall commence form the commencement of work or after the unloading of the property insured
at the site, whichever is earlier. The cover expires when the completed part thereof is taken over or put
into service or the date specified in the policy. Whichever is earlier.
Erection All Risks (EAR) Policy
2. The Erection all risks policy (EAR) also known as storage cumerection (SCE) policy is concerned
with erection of electrical plant and machinery and equipment and structures involving no or
very little civil engineering work.
The coverage is the same as under C.A.R Policy. Third party liability cover may be added.

123

The sum insured shall be the completely erected value of the property inclusive of freight etc.
and the cost of erection. Average is applied if there is under insurance.
The insurance shall commence. Form the time of unloading of the property at the site and shall
continue until the first test operation or test loading is concluded (whichever is earlier)
Marine Cum-Erection (MCE) Policy
3. Cover under standard EAR Policy commences with the delivery of the fist consignment
of plant and machinery at the site of erection. This would mean a separate Marine
Transit policy for imported equipment and inland transit policy for indigenous
equipment.
Under a composite marine cum-erection policy cover starts form the moment the
equipments leave the manufacturers warehouse within the country or overseas and
continues during the voyage to the port of entry, unloading at the port of entry inland
transit to he site of erection including incidental storage and thereafter during, testing
and commissioning
The marine cover is against all risks of physical loss or damage as provided by the
marine policy with the institute. cargo clauses (all Risks) attached. War, strikes riot and
civil commotion are additional perils which can be covered.
Machinery Breakdown Policy
4. Insurable property under the policy is boilers, electrical mechanical and lifting equipment. The
policy covers unforeseen and sudden physical damage by any cause (subject to excepted risks)
to the insured property.
Sum insured is the current replacement values.
Contractors Plant & Machinery (CPM) policy
an annual policy can be granted to a contractor who may be using his plat and machinery at
different projects during the course of the year.
The standard contractors plant and machinery policy covers unforeseen and sudden physical
loss or damage form any cause subject to specified exclusion.
Boiler and pressure plant policy
5. The policy covers boiler and pressure vessels, against
a) Damage, other than by fire, to the boilers and to surrounding property of the insured.
b) Third party legal liability of the insured on account of bodily injury to the person, or damage
to the property.

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Machinery Loss of Profits (MLOP) policy

6. Whereas the machinery insurance or the Boiler and pressure vessel insurance policies indemnify
an insured against material damage resulting from breakdown and/ or explosion collapse
respectively, such damage may also result in business interruption at the insured premises.
Not only would the manufacture 1) be unable to make the profit which he had hitherto been
making, but 2) there would also be several continuing expenses to meet although the business
was no longer earning the money to pay them in addition an effort to reduce the degree of
interruption of the business the manufacturer may adopt alternative measures, but at increased
cost.
These losses are covered under machinery loss of profits policy (MLOP) it is condition of the
MLOP policy that a claim must first be admitted under concurrent material damage policy (i.e
machinery and / or boiler policy) before a clam becomes admissible under the machinery LOP
policy
Advance Loss of Profit (ALOP) Policy
7. This is also known as Delay in Startup Policy (DSU) the policy covers financial consequence of
project being delayed because of accidental damage to the project materials
Deterioration of Stock Policy
8. The cover is against the risk of deterioration of stock following breakdown of the refrigeration
plant and machinery, a claim of which is admissible in terms of the concurrent machinery
breakdown policy
Electronic Equipment Policy
9. The policy is divided into 3 sections
Equipment (Section1)
10. The cover applies to any unforeseen and sudden physical los or damage form any causes, (other
than those specifically excluded) in a manner necessitation repair or replacement.
Some examples of exclusion are
- Loss or damage caused by failure or interruption of any gas, water or electricity supply
- Loss or damage due to wear and tear, etc.
- A maintenance contract with the computer makers is warranted in the policy

125

External Data Media (Section 2)

11. The coverage applies if the external data media, specified in the schedule (type and quantity)
inclusive of the information stored, which material directly processed in EDP systems, suffers
material damage by a peril covered under section 1 of the policy
The sum insured shall be the amount required for replacing lost or damaged data media by new
material and for reproducing lost information.
The special exclusion relating to section 2
Any cost arising from false programming punching or inadvertent cancelling of information etc
Increased Cost of working (Section 3)
12. This section indemnifies the insured for all additional costs incurred to ensure continued data
processing on substitute equipment if such cost are incurred as an unavoidable consequence of
loss or damage indemnifiable under material damage section of the policy the indemnity period
commence with the putting into use of the substitute equipments may be up to 12 weeks 26, 40
or 52 weeks

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CHAPTER 13

MISCELLANEOUS INSURANCE
Burglary Insurance
1. The policy is available to commercial establishment factories, godowns, shops etc property in
any form, including cash, in the business premises can be covered.
This risks covered are
a) Theft of property after actual forcible and violent entry into the premises or theft following
actual, forcible and violent exit form the premises
b) Damage to insured property or premises by burglars
Cash cover operates only when the cash is secured in a safe and is granted only if the safe is
burglar proof and is of an approved makes and design.
The cover is granted subject to the following two clauses
i.

The loss of cash abstracted form the safe following the use of the key to the said
safe or any duplicate thereof belonging to the insured is not covered unless such key
has been obtained by violence or threats of violence. This is generally known as
key clause

ii.

A complete list of the amount of cash in safe should be kept secure in some place
other than the safe.

Some important exclusion under the policy are

a) Theft by persons lawfully on the premises (larceny or ordinary theft is not covered)
b) Loss insurable under fire or plate glass policy
2. The policy can be extended to cover riot, strikes and terrorism risks at extra premium
In the event of under-insurance, pro-rata average is applied
However, where bulk commodities or heavy machinery are involved and the value is large the
sum insured can be agreed, to be less than the values and pro-rata average can be waived, for
example where the value is Rs.100 lacs the sum insure can be fixed at a percentage, say 25 % or
40% etc. etc of the values. This is known as first loss policy this policy is issued where
probability of total loss by burglary is remote
3. Burglary policies can be issued on a declaration basis or floating basis according to the practice
in fire insurance

127

Rates of premium depend upon the nature of insured property, construction and location of
premises, safety measures (e.g. watchmen, burglar alarm) etc.
All Risks Insurance Policy
4. The policy is especially suitable for covering jewellery valuable, curios, antiques and other works
of art, paintings, watches, cameras, and other similar articles.
All risks cover in respect of works of art, paintings etc. are granted on agreed value basis after
obtaining, if required, report of professional valuers.
Moral hazard is an important consideration and policies are issued to known clients only.
Baggage Insurance
5. The policy is intended to cover accompanied baggage (not dealers stock or travelers samples)
during specified journey, which includes air, sea, rail or road travel undertaken by the insured.
The risks covered are burglary, theft or damage by accidental means.
In view of the high moral hazard, these covers are sparingly granted by the insurers, and that
too, only to known clients.
Money Insurance
6. The properly covered under this policy is
a) Wages in direct transit form the bank to the insured premises.
b) Money other than under (a) above, in transit to and from insured premises / bank/ post
office / any other specified premises.
c) Money other than under (a) and (b) above, collected by the insureds employees and in
transit to the premises or bank.
d) Any other transit as may be specified.
The risks covered are theft, robbery and accident. On payment of additional premium th policy
may be extended to cover dishonesty of persons carrying the cash, riot, strik and terrorism risks,
disbursement risk, that is loss during payment of wages to employees, etc.
7. The policy for transit specifies two amounts, (i) limit of the insurers liability for any one loss, and
(ii) the estimated amount in transit during th policy period. The latter represents the amount to
which the rate of premium is to be applied o arrive at the amount of premium.
Provisional premium is changed on the estimated amount in transit and adjusted on expiry of
the policy based on actual amount in transit during the policy period as declared by the insured.
Claims are processed on the basis of the police report and survey report.
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Fidelity Guarantees
8. Briefly fidelity guarantee insurance indemnifies the employers against the financial loss suffered
by them due to the specified dishonest acts of their employees.
Period of Discovery
9. Fidelity guarantee policies stipulate time limit for discovery o loss. The customary time limit
provided is that the act or acts insured against should be discovered not later than 12 months
after the resignation, dismissal, retirement o death of the employee, o not later than 12 month
after the termination of the policy, whichever be the earlier. The proposal form (known as
employers form) has to be completed by the insured/ employer.

Types of policy
10. (a) Individual policy: this type o policy is used where only one individual is to be guaranteed.
(b) Collective policy: Where the entire staff or a number of selected individuals are to be
covered, a collective policy is issued. A collective policy comprises a schedule containing the
names of the employees to whom the guarantee applies with a note of the duties of each
employee.
(c) Floating policy or floater: this is an extension of the collective form o contract but instead of
individual amounts of guarantee, a specified sum o guarantee is floated over the whole group.
(d) Positive policy: this is similar to a collective policy with the difference that instead of using
names, the position is guaranteed for specified amount, so that a change in the person holding
the position does not affect the cover.
(e) Blanket policy: this policy covers the entire staff without showing names or positions. No
enquiries about the employees are made by the insurers. Such policies are only suitable for a
employer with a large staff and the organization to make adequate enquiries into the
antecedents of his employees.
Rating
The rate of premium depends upon the type of occupation, status of th employee, the system of
check and supervision.
11. The premium for a floating policy comprises a percentage charge and a per capita charge, the
percentage charge is applied on the amount guaranteed and the per capita charge on the
number of employees to be guaranteed. For example. If a floating policy has to be issued
covering 20 employees for an amount of Rs. 2,00,000 and the percentage charge is, say, one

129

percent and per capita charge Rs.5, the premium payable would be Rs.2,100 arrived at as
shown below :

Percentage charge @ 1% of Rs.2,00,000

2,000

Per capita charge @ Rs.5 for 20 persons (20x5)

100

Total

2,100

Television Insurance
12. The policy covers television apparatus and antenna against loss o or damage by
(i) Accidental external means;
(ii) Fire lightning;
(iii) Flood and storm;
(iv) Theft;
(v) Riot and strikes; and
(vi) Earthquake fire and shock etc.
The policy indemnifies the insured :
against loss of or damage to the television apparatus and third party liability.

Pedal cycle Insurance

13. This policy covers loss of or damage to the cycle by fire, lightning, explosion, burglary,
housebreaking, theft and accidental external means, it also covers the insureds legal liability for
bodily injury to third parties and for the loss of or damage to the property of third parties. The
policy my be extended to cover personal accident insurance benefits on payment of additional
premium.
Plate glass Insurance
14. This policy provides cover against the actual breakage of plain glass of ordinary glazing
completely and securely fixed, by any reason whatsoever except those that are specifically
excluded. Normally breakage due to fire explosion, gas. Heat, earthquake, flood, war, riot and
strikes, is excluded.
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Neon sign Insurance

15. This insurance provides cover in respect of loss of or damages to the neon sign installation by (a)
accidental external means or (b) fire, lighting, external explosion of theft.
(note : hoardings may also be covered, more or less, along the same lines as neon sign policy).

Householders Insurance
16. This is package insurance scheme designed to meet the requirements of a householder by
combining under a single policy number of contingencies which are otherwise covered under
separate policies.
A typical policy may provide the following coverages :
Section (1) loss of or damage to the building and contents (excluding money and valuables)
whilst contained in the insured premises by specified perils.

Section (2) loss of or damage to contents (excluding money and valuables) whilst contained in
the insured premises by burglary, house breaking including larceny and theft.

Section (3) loss of or damage to jewellery and valuables caused by accident or misfortune whilst
anywhere in india.

Section (4) loss of or damage to fixed plate glass by accidental means.

Section (5) unforeseen and sudden physical damage caused by mechanical or electrical
breakdowns of domestic appliances.

Section (6) loss of or damage to television apparatus including VCR/VCP.

Section (7) (a) loss of or damage to pedal cycle(s) and legal liability to third parties.

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Section (8) Loss of or damage to personal baggage due to accident or misfortune whilst
travelling anywhere in India.

Section (9) personal accident insurance for insured, his spouse and children as per personal
accident insurance practice.

Section (10): (a) legal liability to third party.

(B) Legal liability as per W.C. act / common law towards employees.
Shopkeepers insurance
17. The policy is designed for small shopkeepers.
The policy is comprised of 10 sections.
Section 1. loss o damage to (A) building / (B) contents (excluding money and valuables) whilst
contained In insured premises by specified perils.
Section 2. los of or damage to contents (excluding money and valuables) whilst contained in the
premises by burglary and housebreaking, (no theft risk is covered)
Section 3. a) Loss of money in transit due to accident / misfortune.
b ) loss of or damage to money / valuables by burglary / house breading whilst contained in a
burglar proof safe.
C ) loss of or money whilst lying in cashiers till and or counter in insureds premises by burglary,
house-breaking or following assault/violence on insured or his employees.
Section 4. Loss of or damage to pedal cycle (s) and legal liability to third parties.
Section 5. Loss of or damage to fixed pate glass in the insured premises.
Section 6. Loss of or damage to Neon sign/glow sign.
Section 7. Loss of or damage to personal Baggage of insured or baggage in connection with
trade, any where in India.
Section 8. Personal accident cover for insured/his employees as per P.A. practice.
Section 9. Direct pecuniary loss suffered by the insured due to fraud or dishonesty committed
by any salaried employees.
Section 10. A) legal liability to a third party
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B) Liability to employees under the W.C. act/common law.

Bankers Blanket Policies

18. The policy provides indemnity for direct loss of money and / or securities sustained by the
insured and discovered during the period specified in the policy.
The term money is deemed to mean bank notes, coins, jewellery, ornaments pledged with the
insured, etc. the term securities is deemed to mean, air consignment notes, certificates of
deposit, certificates of shares / stocks, etc.
The policy provides indemnity against the following contingencies :
A: money and / o securities being lost or destroyed by fire, riot and strikes, burglary, house
breaking, theft, robbery or hold up.
B: money and / or securities being lost stolen, misappropriated, while they are in transit in the
hands of employees.
C: the payment of bogus, fictitious, forged or raised cheques or drafts.
D: the dishonest or criminal act of any employee of the insured, with respect to the loss of
money and / or securities.
E: fraud and / or dishonesty of the insureds employees n respect of any goods and / or
commodities pledged or hypothecated to the insured.
F: loss by robbery, theft or by other causes not excluded whilst in direct transit registered
insured post.
Some important exclusions are:

Trading losses.

Losses attributable to faulty computer computer programming or fraudulent

use computer programme or any other EDP system.

Jewellers block policies

19. In recent years India has become a leading in the world trade of jewellery ad is a major exporter
of processed gold jewellery and precious stones. Jewelers block policy is package scheme
covering several types of losses. Jewellery, gold and silver ornaments, pearls and precious
stones, cash and currency are covered.

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Cover
Section I -

loss of or damage to property whilst contained in the premises insured by fire,

explosion, lighting, burglary, house-breaking, theft, hold-up, robbery, riot, strikes and
malicious damage and terrorism.

Section II -

all risks cover whilst the property insured is in the custody of the insured, his / her
partners, his employees, directors, sorters of diamonds OR

Whilst such property (excluding cash or currency notes) is in the custody of brokers, agents,
cutters and goldsmiths.
Section III -

all risks cover whilst such property is in transit by registered parcel post, air freight and
through angadia.

Section IV -

cover for trade and office furniture and fittings In the premises against the risks specifies
in section I.

Blood Stock (Horse) Insurance

20. This is insurance of horses used for racing, on stud farms, etc.
The policy provides indemnity against the loss sustained as a result death of the animal
occurring during the period of insurance, from accident, illness or disease.

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CHAPTER 14

RURAL INSURANCES
Obligations of Insurers to the Rural Sector
1. The IRDA has, issued the (obligations of insurers to rural or social sectors) regulations, 2000,
which lays down that every insurer transacting general insurance business, shall underwrite
business in the rural sector, to the extent of at least 2% of total gross premium in the first
financial year, at least 3% of gross premium in the second financial year and 5% of the gross
premium in the third and further financial years. The obligations include insurance for crops.
Rural policies
2. Rural policies comprise the insurance of :
- Various livestock e.g., cattle, sheep, goat, etc.
- Sub-animals e.g., silkworm and honeybee.
- Plantation and horticultural crops e.g. rubber, grapes, etc.
- Property e.g. agricultural, pumpsets, etc.
- Person e.g., gramin accident.
The Role of Government
3. The government o India have launched various programmes for the benefit of small farmers,
marginal farmers, agricultural labourers, etc. since 1980, all these programmes have been
integrated into integrated rural development programme (IRDP) which is funded by the central
and state governments on 50:50 basis. The objective of the programs is to provide, to the target
group of rural families, a package of assistance comprising of income generating assets, working
capital, etc. through subsidy, institutional credit, etc.

Special insurance schemes are framed to protect the beneficiaries of IRDP projects, under these
policies, the rates of premium are lower and claims procedure is simplified whenever, the word
scheme is used hereafter, it refers to these special policies.

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Cattle Insurance
4. The word Cattle refers to the following animal whether indigenous, exotic or cross bred, within
the age limit indicated
Milch cows 2 years to 10 years
Milch buffaloes 3 years to 12 years
Stud bulls
(Cow/buffaloes special) 3 years to 8 years
Bullock (castrated bulls and castrated male buffaloes) 3 years to 12 years
Cattle policy provided indemnity for death due to
a) Accident (inclusive of fire, lightning, flood, inundation, storm, hurricane, earthquake,
cyclone. Tornado, tempest and famine)
b) Diseases contracted or occurring during the period of this policy
c) Surgical operations
d) Riot and strike
The policy can also be extended to cove PTD on payment of extra premium
a) Permanent total disability which in the case of milch cattle result in permanent and total
incapacity to conceive or yield milk
b) PTD which in the case of stud bulls result in permanent incapacity for breeding purpose
Exclusion (some examples)
i)

Neglect, overloading, unskillful treatment or use of animal for purpose other than stated in the
policy without the consent of the company in writing

ii) Accidents occurring and/or disease contracted prior to commencement of risk

iii) Theft an clandestine sale of the insured animal
iv) Transport by air and sea
Special condition provide as follow
a) The company is liable to pay the claim if death is due to disease occurring within days form the
commencement of risk

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b) Claim is not entertained unless the ear tags are surrendered to the company if the ear tags are
lost the insured irresponsible to notify the company and get the animal retagged.
Claim Procedure
Non Scheme Animals
In the event of death of an animal immediate intimation should be sent to the insurers and the following
requirement s should be furnished
i.

Duly completed claim form

ii.

Death certificate obtained form qualified veterinarian on companys form

iii.

Postmortem examination report if required by the company

iv.

Ear tag applied to the animal should be surrendered. The companies should follow
the principle of No Tag No claim Generally claim should not be paid if tag is not
submitted however, if cases of genuine hardship, the higher competent authority
may consider the claim if the identity of animal is established

v.

The value of the animal should be established properly keeping in view age, etc

Scheme Animals
Intimation of loss / death of animal should be given to the company or financing bank immediately days.
Within 7 days claimant has to furnish the following requirements within 30 days.
a) Duly completed and signed claim form along with ea tag.
b) Certification of death form veterinary surgeon or a certificate jointly by any tow of he following
i.

Sarpanch of the village

ii.

President or any other office of co op creadit society

iii.

Officer of a bank or credit institution (other than the financing bank) subject to their
declaration that they have seen the carcass and ear tag intact in the ear mentioning
number thereof.

c) Post mortem report, if conducted.

Sum insured
The market value cattle varies form breed to breed, form area to area and from time to time. The sum
insured is based on market value as recommended by a veterinarian. Indemnity is based on sum insured
or market value whichever is less.

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Premium
Lower rates apply to indigenous/ cross-bred animals. Higher rates are charged for exotic animals. Group
discount and long-terms discount are available.
5. Sheep and Goat Insurance
The policy provides indemnity (sum insured or market value whichever is less) against death of sheep
and goats due to
-

Accident (including fire, lighting, flood, cyclone, famine, strike, riot and civil commotion) or
disease

Occurring or contracted during the period of insurance

The exclusion are more or less the same as under catde insurance policy
The market value of sheep and goats varies form breed to
Breed, area to area and time to time. The veterinarian recommendation is a guide for
acceptance of risk and settlement of claim. No salvage value is deducted from claims
The premium rates are separately applied for
a) Indigenous animal
b) Cross breed animal
c) Exotic animals

Animals should be identified by metal ear tagging and/ or tattooing method. Natural marks should be
noted in the proposal and veterinary certificate.
Group discount is available depending upon the number of animals covered ( minimum 101 to 10,000
and above animals)
The salient features of insurance for other animals are outlined in the chart below
Animals
A. Draught horses ponies, mares, mules, yaks used for cart work, farm work etc (age
limit 2 to 8 years)
(Note: Long term Master Policy for 3,4 or 5 years with 25% discount
B.Camels male and female (Age limit 3 to 12 years)

Identification, claims procedure etc. as in Cattle and sheep and goat insurance.

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6. Poultry Insurance
Poultry for the purpose of market agreement refers to a) layers b) broilers and c) parent stock
(hatchery) (exotic and cross- breed only)
The agreement prescribes age limit and minimum number of birds to be insured.
The policy provides indemnity against death of birds due to accident (including fire, lightning, flood,
cyclone/storm/tempest /earthquake, strike, riot, act of terrorism) or disease contracted or occurring
during the period of insurance
Some examples of exclusions are
a) Transit by any mode or transport
b) Improper management (including over crowding)
c) Loss/ death due to natural mortality, non specified or unknown diseases or reasons.
d) Theft and clandestine sale of birds
The sum insured has to be fixed as per the valuation chart for layers and broilers. For parent
stock birds the valuation chart has to be fixed in consultation with the hatchery owners.
Discount for goods features. Some examples are
I.

Farms having resident/ own veterinary office of farms managed by veterinary doctors.

II.

Farms having good dead bird disposal system i.e. farms with incinerator.

III.

Farms with standard layout such as good distance between sheds etc.

Underwriting Consideration
a) All birds in the farm should be insured
b) The minimum number of birds prescribed should be maintained and all the birds are covered on
flock basis and hence to identification is necessary.
c) Farms should have veterinary facility of their own or on consultancy basis

Claims
Claims are admissible only if the mortality due to insured peril in the flock exceeds the excess limit
prescribed. For example, for broilers 5% of the population in each batch is the excess limit
7. Insurance policies are available to cover the following animals

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Elephant used for commercial/ religious purpose in the age group 5 to 60 years

Pigs (indigenous/ cross bred/exotic ) in the age group of 6 months to 3 years.

Rabbits all breeds in the age group of 1 day to 4 years.

Zoo and circus animals and birds the coverage is as per cattle poultry policy

The common feature of the insurance schemes are

a) Coverage is against accident or disease.
b) Sum insured is based on veterinarian certificate
c) Appropriate identification marks on the animal are to be incorporated in the policy.
7A. Dog Insurance
Dogs of indigenous origin, cross-bred and exotic breeds in the age group of 8 weeks to 8 years are
insured against death due to accident and /or diseases
The policy may be extended at extra premium to cover
a) Death by accident in transit by air, rail, road and water
b) Death by accidental poisoning
c) Loss by burglary or housebreaking
d) Loss of show entry fees because of accident / disease
e) Third party liability
8. Silk Worm Insurance
The insurance will cover death or silkworm due to accident or disease contracted during the period of
insurance subject to insurance subject to usual terms , conditions and exclusion of the policy
The cover is in respect of total loss
Valuation of the silkworms should be done by the sericulture officer (tech) not below the rank of a Sr.
Insp (Tech.) of the sericulture Department of the concerned state, at the time of proposing the
insurance.
Claims
Claims form has to be supported by Mortality Certificate by Department of sericulture giving details of
the cause and extent of loss.

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Honey Bee Insurance

9. The insurance applies to hives and or bee colony belonging to the cooperative society or individuals.
The cover is in respect of all accidental loss or damage to the hive and /or bee colony. Theft risk can be
covered on payment of additional premium.
The important exclusions are

Neglect or improper management and / or rough handling

Natural mortality

Any destruction as required by any order of government / municipal authority

An agreed valuation based on the figures provided by the state and village board or khadi and
village industries commission is accepted.

Horticulture/Plantation (inputs) Insurance scheme

Scope or cover
10. Under this policy following horticulture and plantation crops can be covered.
A) Horticulture Crops
1. Grape
2. Citrus (orange, lime, sweet lime)
3. chikoo
4. Pomegranate
5. Banana
B) Plantation Crops
1) Rubber 2) Eucalyptus 3) Poplar 4) Teakwood 5)Oil Palm Plantations 6) All types of trees 7) Sugarcane
8) Tea.
Insured
a) The insured is the individual farmer whether owner or tenant engaged in cultivation of above
b) However, a policy may be issued in the name of an association or an organized and registered
body of farmers engaged in cultivation fo the specified crops where such association / body has
been formed and in functioning for the purpose of procurement of input processing / marketing
of the produce etc. particular of each member are recorded in schedule (to be attached ot and

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forming part of the policy) in a manner that in the event of loss, claims can be assessed and
settled on individual basis.
The policy shall cover and seeks to indemnify the insured to the extent of loss of input due to
loss or damage to the insured tree/fruits (whichever is applicable depending on the crop
insured) occasioned by operation of any one or more of the following perils either in isolation or
in concurrence
a) Fire (including Forest Five and Bush Fire)
b) Lightning
c) Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado whilst in direct and
immediate operation over the insured area.
d) Flood and inundation (inspection report is necessary to cover these risks)
e) Riot, strike and malicious Damage
f)

Acts of Terrorism

The period of insurance is crop duration or one year whichever is shorter.

Comprehensive Floriculture Insurance
11. Policy comprises the following sections
A. Damage to poly house and its structure.
B. Damage to irrigation system.
C. Cover for death of plants.
D. cover for loss or inputs to damage to the flowers
The perils which are common to all the above 4 section are
i.

Fire (including forest fire and Bush Fire)

ii.

Lightning

iii.

Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, whilst in direct and
immediate operation over the insured area.

iv.

Flood and inundation

v.

Riot and strike

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vi.

Earthquake, volcanic eruption or other convulsions of Nature other than those specifically
covered by this insurance.

Agricultural Pump Set Policy

12. the insurance is granted on Centrifugal Pump sets (electrical and diesel) upon 25 H capacity of
approved makes used for agricultural purposes only.
The cover is in respect of unforeseen and sudden physical damage to pump set (including starters) by
a) Fire, lightning
b) Riot, strike, malicious damage, terrorism
c) Burglary (by violent forcible entry and provided the pump set is kept in a locked enclosure)
Flood risk can be granted on a selective basis at extra premium.
There are discounts for group policies, long term policies and for no claim
Salt Works Insurance
13. the cover under the policy applies to earthwork/ mudwork and salt stored on platform against the
risk of
a) Storm, cyclone, flood and allied perils
b) unseasonal rainfall (as declaed by the meteorological department)
the sum insured is the actual cost of construction and the indemnity is restricted to the cost of repair
and / or reconstruction. The sum insured for salt stored on platform is the actual cost of production
excluding anticipate profits.
Cycle rickshaw Policy
14. the policy provides similar cover as under a pedal cycle policy Accidental damage is subject to excess
of Rs 25/It includes legal liability for death or injury of passengers with a limit of Rs.500/- each for 2 passengers
and damage to their goods Rs. 500/Animal Driver Cart Insurance
Scope of cover
A) Loss or Damage to animal driven cart
B) Death or permanent disablement of animal

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C) Liability to third parties & passengers (upto specified limits )

D) Personal accident cover to person driving the cart
E) Towing charges for moving the cart to the nearest repairer up to Rs. 50/- payable
Long term and group discounts are available

Gobar Gas Insurance

15. The Scheme applies to all:
a) Khadi & village industries Workers / artisans.
b) IRDP Beneficiaries.
c) Schedule Castes, Schedule tribes and such other identifiable group.

Risk Covered
i)

Fire

ii)

Lighting

iii)

Explosion/implosion

iv)

Riot, Strike and Malicious Damage.

v)

Impact by Rail/Road Vehicle or animal.

vi)

Aircraft and other aerial and / or space devices.

vii)

Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, flood, inundation.

viii)

Subsidence and Landslide (including Rockslide) Damage

ix)

Earthquake fire & Shock.

Sum insured
Value of the Plant (Digester + gas Holder + Cost of Construction 0, depending on type and cubic capacity.
Hut Insurance
16. Dwelling huts in rural areas constructed with financial aid from Banks / cooperatives/Government
institution are covered against the risk of fire, earthquake, inundation storm, impact damage, riot, strike

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and malicious damage for a maximum sum insured of RS 6000/- comprising RS. 5000/- for structure and
Rs. 1000/- for contents. Premium is Rs. 3/- per mille and Group discounts are available depending upon
the number of huts. Huts have to be indentified by description and number allotted.
Junta personal accident Policy
17. Any person irrespective of sex, occupation and profession in the age group of 10 to 70 Years may be
converged under JANATA personal accident policy.

The policy may be issued for minimum sum insured of Rs. 25.000/- per person per annum and the
maximum sum insured is to be limited to Rs. 1,00m00/- per person per annum.
Garmin personal accident policy
18. - applicable to all persons residing in rural areas only
-one policy per person. However person having a gamin
Policy may also take one janata policy,
-

No. medical examination

Age Group : 10 to 70 years.

a)

Benefits :

Capital benefits

Death due to accident

Rs. 10,000/-

b) Permanent Total Disability due to accident

Rs. 10,000/-

c) Loss of twp eyes, or two limbs, or one eye and one limb due to accident

Rs.10000/-

d) Loss of one eye or one limb due to accident

Rs. 5,000/-

Premium : Rs 5/- per person

Farmers package insurance scheme
19. Section / Description of policy
i)
a)

Fire and allied perils including earthquake

Dwelling / House (other than Kutcha)

b) Contents ( Excluding Jewellery & Valuables ) belonging to the insured and members of his family
permanently residing with him.

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c) For Kutcha construction the premium to be loaded.

ii) Burglary House breaking including Larceny or Theft
iii) Agricultural Pumpset (for HP Up to 25 only )
iv) Animal Driver Cart/ Tonga / Coaches
v) Livestock Driver Cart / tonga/ coaches
vi) Livestock / cattle / Sheep & Goat / camel Horse, ETC.
vii) Agriculture Tractor (comprehensive only)
viii) T.V. St
ix) Pedal Cycle
x) Baggage Insurance
xi) Janata / Gramin personal accident
xii) Jan arogya Bima policy (note: Coverage will be upto a maximum of Rs. 10,000/- per person )
Underwriting features are :
-

Section 1 and any one of the Rural Non traditional business are compulsory

Minimum three covers

Discounts in premium if more than 4 or 6 section are covered.

Tribal package insurance

20. I Property/ Contingency /Risk Covered/ Sum Insured
1. Dwelling Unit / Fire and Allied perils
2. Hut and contents including earthquake
II Personal accident similar to GPA
III Hospitalisation Tuberculosis,
Leprosy and Cancer

Rs. 6,000
(RS. 5000/- hut & RS 1000/- for contents )
RS. 10,000/Rs. 1,000/- +
RS. 4,000/-

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CHAPTER 15

CLAIMS
Procedure
Notice of loss
1.

Policy condition usually provide that the loss be intimated to the insure immediately. The
purpose of an immediate notice is to allow the insurer to investigate a loss at its early
stages.

2. Under certain types of policies 9e.g. Burglary) notice is also to be given to police authorities.
Under Rail transit cargo policies, notice has to be served on the Railways also.
3. On receipt of intimation of loss or damage insurers check that :
(i) The policy is in force on the date of occurrence of the loss or damage;
(ii) The loss or damage is by a peril insured by the policy;
(iii) The subject matter affected by the loss is the same as is insured under the policy , and
(iv) Notice of loss has been received without undue delay.
B. Investigation and Assessment
4. on receipt of the claim from duly completed from the insured, the insurers decide about investigation
and assessment of the loss. If the loss is small, the investigation to determine the cause and extent of
loss is done by an officer of the insurers. The investigation of other claims is entrusted to independent
licensed professional surveyors.
5. For Personal Accident claims the insured is required to submit a report from the attending doctor
specifying the cause of accident or the nature of illness as the case may be and the duration of
disablement . Medical evidence is also required in support of Workmens Compensation claims. Livestock
and cattle claims are assessed on the basis of the report of a veterinary doctor.
6. Third party Claims involving personal injuries are assessed on the basis of medical opinion : those
involving property damage are assessed on the basis of a survey whether any liability at law attaches to
the insured.
Surveyors and Loss Assessors
7. As per IRDA Regulations Surveyors are granted licence to conduct surveys in seven classes of
insurance, namely , fire, marine cargo, Marine hull, Engineering , motor, Miscellaneous and loss of
profits.

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8. The practice in adjustment of marine claims is along different lines. General Average losses are
assessed by specialists Viz. Average Adjusters. Other losses ( e.g. total loss, partial loss etc. ) are
assessed by surveyors.
Claims Documents
Claim forms
9. The contents of the claim from vary with each class of insurance. In general the claim from is
designed to elicit full information regarding the circumstances of the loss, such as date of loss, time,
cause of loss, extent of loss, etc. The other questions vary from one class of insurance top another.
Claim forms are invariably used in fire and miscellaneous insurance.
10. The issue of claim form does not mean that liability for the claim is admitted by insurers. Thus, claim
forms are issued with the remark without prejudice. All correspondence with the insured is also
marked without prejudice.
11. In addition to the claim from, independent survey report etc. certain documents are required to be
submitted by the claimant or secured by the insurers to substantiate the claim. For example for fire
claims, a report from the fire Brigade would be necessary. For cyclone damage, a report from the
Meteorological office may be called for. In burglary claims, a report from the police may be necessary.
For fatal accident claims, reports may be necessary from the coroner and the police. For motor claims,
the insurers like to examine driving license, registration book, police report etc. In marine cargo claims
the nature of documents varies according to the type of loss i.e. total loss, particular average, and inland
transit claims etc. These documents have been identified earlier in the chapter on marine insurance.
Arbitration
12.
Arbitration is methods of settling disputes arising out of contracts.
accordance with the provisions of the arbitration and Conciliation Act, 1996.

Arbitration is done in

13. The normal method of enforcing a contract or setting a dispute there under would to go a court of
law. Such litigation, however, involves considerable delay and expense. The Arbitration Act allows the
parties to submit disputes under a contract to the more informal, less costly and private process of
arbitration.

14. Fire and most miscellaneous policies contain an arbitration clause which provides that if the liability
under the policy is admitted by the company, and there is a difference concerning the quantum to be
paid, such a difference must be referred to arbitration.
Settlement
15. If the claim is found to be in order, payment is made to the claimant and entries made in the
records. The insured may not be the person to whom the money is to be paid. For example, if the
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property insured under a fire policy is mortgaged to a bank, then according to the Agreed Bank Clause,
claim monies are to be paid to the bank, whose receipt will be a complete discharge to the insurers.
Similarly claims for Total Loss on vehicles subject to hire purchase agreements are paid to financiers.
Marine cargo claims are paid to the claimant who produces the marine policy duly endorsed in his favor.
Salvage
16. Salvage refers to partially damaged property. On payment of loss, the salvage belongs to insurers.
For example, when motor claims are settled on total loss basis, the damaged vehicle is taken over by
insurers.
Recoveries
17. After settlement of claims, the insurers under the law of subrogation are entitled to succeed to the
rights and remedies of the insured and to recover the loss paid from a third party who may be
responsible for the loss under respective laws applicable. Thus, insurers can recover the loss from
shipping companies, railways, road carriers, airlines, Port Trust Authorities, For example, in the case of
non-delivery of consignment, the carriers are responsible for the loss. Similarly, the Port Trust is liable
for goods which are safely landed but subsequently missing. For this purpose letter of subrogation duly
stamped is obtained from the insured.
(Note: The IRDA Regulations (Protection of Policyholders Interest) provide that the policyholders shall
assist the insurer, if the latter so requires in the prosecution of a proceeding or in the matter of recovery
of claims which the insurer has against third parties.)

149