INSURANCE MANAGEMENT

BY
S.P.SEN
 FUNCTIONAL DEFINITION
Insurance is a co-operative device to spread loss
caused by a particular risk over a number of
persons, who are exposed to it and who agree to
insure themselves against the risk. Analysis
shows following points:
1. Co-operative device to spread risk.
2. System to cover a number of persons who are
insured against the risk.
3. The principle to share the loss on the basis of
probability of loss to the risk.
4. Method to provide security against losses to the
insured.
5. Co-operative device of distributing losses.
 Contractual Definition
Insurance is a contract where one party (insurer)
agrees to pay to the other party (insured) or his
beneficiary, a certain sum upon a given
contingency (risk) against which insurance is
sought. Analysis indicates;
1. Certain sum, called premium, is charged in
consideration.
2. A large sum is guaranteed by the insurer who
received the premium.
3. Payment will be made in a certain definite sum
(loss or the policy amount whichever may be)
4. The payment is made only upon a contingency.
 NATURE OF LIFE INSURANCE CONTRACT
1. Nature of general contract- It includes offer and
acceptance, free consent, legal consideration and legal
objectives.
2. Insurable Interest- interest on own life and interest on
others’ life. For others life proof is required. Others are
family relations and business relations. Exception regarding
proof requirement is “wife has insurable interest in the life
of her husband and vice versa. General rule for insurable
interest are;
 Time of insurable interest.
 Services-except services of wife, services of others will not
essentially form insurable interest. Must have financial
relationship between the proposer and the life assured.
 Insurable interest must be valuable and valid.
 Legal relationship may be the basis.
 Must be definite and have legal consequence.
3. Utmost good faith- Both the parties proposer (insured) and insurer must be in
same mind at the time of contract. They must make full and true disclosure of
the fact material to risk.
Material facts are age, income, occupation, health, habits, residence, family
history and plan of insurance which is determined on the basis of opinion.
Both the parties are responsible to disclose all the material facts. There should
not be any concealment, misrepresentation, half disclosure and fraud of the
subject matter.
The duty of disclosure finishes at the moment of completion of proposal form.
Contract is voidable at the option of affected person in the absence of utmost
good faith.
Indisputable clause – Section – 45 of Insurance Act, 1938.
“No policy of Life Insurance, after expiry of 2 years from the date on which it was
effected, be called into question by an insurer on the ground that a statement
made in proposal for insurance.
Following facts are not required to be disclosed.
 Circumstances, diminishing the risk,
 Facts waived by insurer, facts of public knowledge, superfluous.
 Implied facts.
 Facts known from ordinary course of business.
WARRANTIES
Representations which are embodied in the policy and
expressly or impliedly forming part of the basis of the
contract, are called Warranties.

Every information given by a proposer for insurance to the

insurer during the negotiation is a representations. Material
representation are the basis of insurance contract.

Representation will be warranty. Warranties may be i)

informative & ii) Promissory.

In informative warranties, the proposer is expected to

disclose all the facts to the best of his knowledge and belief.

Promissory warranties related to future may only be

statements about his expectation or intention.
PROXIMATE CAUSE (CAUSA PROXIMA).
The efficient or effective cause which causes the actual loss
is called proximate cause. It is real and actual cause of
loss. It is not of much practical importance in life
insurance. But in following cases proximate causes are
observed;
1. War risk
2. Suicide
3. Accident benefit.
ASSIGNMENT AND NOMINATION- Life policies can be
assigned freely either on the policy itself or by a separate
deed. Once assigned cannot be revoked.
Nomination can be made or cancelled any time during the
tenure of the policy
RETURN OF PREMIUM- Ordinarily, the premium once paid
cannot be refunded. But it can be refunded on “equity”
ground. Equity implies a condition that the insurer shall
not receive the price of running a risk he runs.
OTHER FEATURES
1. It is a aleatory contract which implies contract depend on
chance.
2. It is unilateral contract because, here, only the insurer
makes an enforceable promise. If first premium is paid,
the insurer is bound to accept subsequent premium and
pay the claim amount.
3. It is a conditional contract because the insurer shall pay
the assured sum only when the contract is continuing by
payment of premium.
4. It is a contract of adhesion as the terms of the contract
are not arrived by mutual negotiations between the
parties as in case of ordinary contract
5. The indemnity contract is not applicable as the value of
loss at death cannot be ascertained because non
estimation of life period and amount of income during life
period etc. Hence, doctrine of subrogation is not
applicable to life policies.
 CLASSIFICATION OF POLICIES
 ON THE BASIS OF DURATION- whole life, term
insurance, endowment insurance and survivorship
policy.
A) Whole Life- such polices are issued for life and the
policy amount will be paid at the death of the assured. It
can be effected either by payment of (i) single premium
(ii) continuous premium payment (iii) limited premium.
B) Limited payment whole life policy- premium payment is
for a limited period but assured sum will be paid on the
death of policy holder. The amount of premium is higher
than whole life policy. Minimum sum assured under this
is Rs.1000/-
C) Convertible whole life- such policies can be converted
to endowment policy after certain period at the option of
the insured. Minimum sum assured under this plan is
Rs.5000/-.
TERM INSURANCE POLICIES- It is for a period ranging from 3
months to 7 years but sum assured is payable on death of
assured during the period but the assurance comes to an
end, should the life assured survive. Premium is paid
through out the term period till death. These are cheapest
policies and always ‘without profit’. Different policies under
this are;
1. Straight-Term (Temporary) insurance- issued for two years
and called two-years temporary assurance policy. Sum
assured payable on death within two years from the
commencement. A single premium is required to be paid at
the outset and issued under without profit plan, have no
surrender value and no loan can be granted on the security
thereof as it is not accumulative nature where payment is
not always certain. This plan cannot be converted into other
plans.
2. Renewable Term policies- it is renewable at the
expiry of term for an additional period without
medical examination but premium is changed as
per age. The policy holder can renew it many
times provided the attainment age has not crossed
55 years.
3. Convertible Term policies- option to convert into
whole life or endowment policy provided the policy
is in force. The premium rates, will be increased
according to the age attained. Persons following
hazardous occupation including armed force
persons and ladies are not eligible under this plan.
Medical examination cost borne by the proposer.
Minimum sum assured is Rs.5000/-. Admission of
age before issuing of policy is essential. No
surrender values loan, no rebate in premium
 ENDOWMENT POLICIES
Pure Endowment policy- sum assured is payable on the life
assureds surviving the endowment term. It is opposite of
term policy because the insured is paid if he survives. Pure
endowment and Term policies, are the bases of all other
policies. Pure endowment is for the benefit of the policy
holder and term policy is for the benefit of others. Pure
endowment has an element of investment and term policy
has the element of protection. Paid-up and surrender
values are allowed and mode of premium payment is
yearly or half-yearly.
Ordinary Endowment policy- represents the life insurance in
true sense. It provides an ideal combination of protection
and investment, taken for a specified period. Sum assured
being payable on death during the period or on his survival
to the end of the period. Premiums are payable throughout
the term of the policy or to a limited period or till the prior
death of the life assured.
Joint Life Endowment policy- covers more tan one
life. Sum assured is payable on expiry of term or
on death of one of the assured during the
endowment period. Premium is payable
throughout the period or till the death of anyone of
the lives assured. Premium calculated according
to age with little modification.
Double Endowment Policy- if the life assured dies
during the endowment period, the basic sum
assured is payable and if he survives to the end of
term double the sum assured is paid. Maturity age
is not beyond 65. The term of policy is ranging
from 10 years to 40 years but no policy is insured
to mature at an age exceeding 65 years.
Fixed Term (marriage) Endowment policy- sum assured is
payable at the end of stipulated period but premium ceases if
the death of assured occurs earlier.
Educational annuity policy- sum assured is not payable in lump
sum but payable in equal half yearly installments over a
period of 5 years. It is like fixed term policy.
Triple benefit policy- is a combination of whole life limited
payment and pure endowment with a guaranteed annual
bonus payable on death during the term period. Term period
varies from 15 to 25 years. It has a guaranteed and steadily
increasing family provision during the selected period along
with the old age benefit. Family benefit does not terminate on
payment of old age benefit. Sum assured is paid on death of
assured.
Anticipated Endowment policy- similar to endowment assurance
except a part of the sum assured is paid at certain interval
before death within maturity of the policy and the balance
sum is payable at maturity. On death during term period full
sum assured is payable without deduction of installment paid
earlier. The term may be for 15, 20, 25 years and with or
without profit plan.
sum assured. Only first class lives will be accepted under this
plan. The sum assured increases automatically by half the
initial sum assured at the end of 5 years and again by half the
initial sum Progressive protection policy with profit- deemed
to be for double the assured at the end of 10 years.
Anticipated whole life policy with profit- provides benefit of
whole life limited payment policy and anticipated payment at
5 year intervals.
New jana raksha policy- designed by considering the problem of
non-payment of premium in time. A special facility whereby
the policy continues to provide full cover for 3 years on
payment of initial extra single premium. The benefits are
same as applicable for all endowment assurance policy with
profit. Minimum and maximum age for entry are 18 and 40
years respectively. Sum assured will be available in the
denomination of Rs.5000, 10,000, and 15,000. revived on
payment of arrears with interest.
Mortgage redemption assurance policy- designed to ensure
that outstanding loan is automatically extinguished in the
event of borrower’s death. Normally issued only male lives
aged up to 50 yrs at entry subject to the condition that the
insurance cover would in no case extend beyond 65 yrs.
Children’s deferred endowment assurance- premium payment
by parent or guardian for first few years and by the assured
in the subsequent years. The risk does not commence
immediately at the issue but only on policy anniversary
following completion of 18 or 21 years.
Children anticipated policy with profit- where life risk will
commence at the age of 18 or 21 yrs as required by the
proponent, automatically vest in child at the end of
deferment period and half of premiums paid during this
period will be paid to him in lump sum. Policy will be
cancelled in case the life assured dies before the deferred
date. No loan is granted, contains disability benefit unless
specifically excluded.
Jeevan sathi- only the lives of husband and wife are jointly
covered. Sum assured along with bonus are payable in the
event of survival to maturity of either or both of the partner.
Married women’s property act policy- a married man can
effect a policy on his own life, wife and/ or children and
shall be deemed to be a trust for their benefit and shall not,
so long as any object of the trust remains, be subject to the
control of the husband or his creditors, or form part of his
estate.
Survivorship, reversionary or contingent assurance- two
persons in this policy, insured and another named person.
Sum assured is payable if the life assured dies before
another specified person or counter life. If the counter life
dies first, nothing is payable and the contract ceases.
 Policies according to premium payment
1. Single premium policy- whole premium is paid at
the beginning of the policy.
2. Level premium policy- regular and equal premiums
are paid at a definite interval.
POLICIES ACCORDING TO PARTICIPATION IN
PROFIT:
1. Without profit or non-participating policies.- policy
holder will get the sum assured and no profit.
2. With profit or participating policies- policy holder
will receive a share of profit along with the sum
assured.
POLICIES ACCORDING TO THE NUMBER OF
PERSONS INSURED:
1. Single Life Policy- life of one individual is covered.
2. Multiple life policies- more than one life is insured.
3. Joint life policy- covers two or more lives.
4. Last survivorship policy- policy amount is payable
at the last death.
POLICIES ACCORDING TO THE METHOD OF
PAYMENT OF POLICY AMOUNT:
1. Lump Sum policies- sum assured is paid in one
installment.
2. Installment or annuity policies- policy amount paid
in several installments.
 NON-CONVENTIONAL PLOICIES

 These policies generally gives more

features of investment. Important new
policies are;
1. Policies under LIC Mutual Fund
2. Jeevan Akshay
3. Jeevan dhara
4. Jeevan Kishor
5. Jeevan Chhaya
 Mutual Fund Policies
Close Ended schemes;
1. Dhanashree 1989
2. Dhan 80 CC (I)
3. Dhanvarsha
Open Ended schemes
1. Dhanraksha 1989
2. Dhanavridhi 1989
Jeevan Akshay- it is a pension plan. Last payment
would be falling due prior to death. On death of
assured the original amount invested along with
bonus will be returned to the nominee or legal
heirs. Minimum sum is Rs.10,000/ and multiple
thereof. No upper limit and insured can avail tax
benefit.
Jeevan Dhara- also a pension plan. The payment of annuity has to
start one month after the completion of deferment period. There is
provision of centralized payment. Hence, it is necessary to build
master record for all policy holders. As the final installment will be
received only after the date of vesting, this policy is discontinued
under salary saving scheme. Premium paying term under this plan
is one year less than the deferment period.
Jeevan Kishor- children, both male and female, between the ages of
1-12 years are eligible. Parents or guardian can propose for this
plan. The risk will commence either two years after the date of
commencement of the policy or policy anniversary falling
immediately after the completion of 7 years of age, whichever is
later. The period starting from the date of commencement of the
policy to the date of commencement of risk will be known as
waiting period. Sum assured along with bonus will be payable on
maturity or on death. In case of death of assured before
commencement of risk the premiums paid will be refunded.
Minimum sum assured is Rs.10,000/-.
Jeevan Chhaya- introduced in march 1991,
combination of jeevan mitra and money back plan. It
is financial provision for a single child for higher
education. Child must be less than one year at the
time of proposal. Premium payment ceases on
death of assured. ¼ th of the sum assured payable
at the end of n-3, n-2, n-1 and nth year and bonus
for the full term on full sum assured on maturity. The
term can be 20-25 years. Minimum and maximum
sum assured is Rs.10,000 and Rs. 1,00,000
respectively. Minimum and maximum age of entry is
20 and 40 years respectively. Maximum maturity
age is 65 years.
 SOCIAL INSURANCE
Provided by government on compulsory basis by using power
and its resources. These program are especially vulnerable
to individuals and families with limited income. In India it is in
premature stage due to vast cultural, economic, social
diversities. In developed countries there has been a tendency
to look to the private insurance industry for the coverage of
risk that society deem important. When such risk have not
handled adequately by private insurance, social insurance
programme comes into picture.
IRDA Act 1999 has amended the section 32B and 32C of
Insurance act for implementation of social insurance which
create obligations of insurance industry to take appropriate
step .
The social sector is defined as including the unorganized sector,
the informal sector, the economically vulnerable or backward
classes and others in both rural and urban areas.
Section 32B:
Every insurer shall, after the commencement of IRDA Act 1999,
undertake such percentage of life insurance and general
insurance business in rural and social sector as may be
specified, in the official gazette by the authority in this behalf.
Section 32C:
Every insurer shall, after commencement of IRDA Act 1999,
discharge the obligation specified u/s 32B to provide life
insurance or general insurance policies to those residing in the
rural sectors, workers in the unorganized sector or informal
sector or economically vulnerable or backward classes of the
society and other categories of persons as may be specified
by the regulation made by the authority and such insurance
policies shall include insurance for crops. The IRDA regulation
2000 makes it compulsory for the insurers, existing and new to
promote the social insurance as per the requirement and also
provide benchmark percentage for the players.
 CHARACTERISTICS
1. It is based on law, rather than on contract. Cost and benefit are
established by and can be changed by govt.
2. Coverage is compulsory for all persons to whom the law
applies.they cannot choose to decline to participate, nor can they
select the coverage or the amount of benefits.
3. Objective is to provide some minimum level of security for the
large portion of population. The basic ideology is to provide an
economic system that stresses free enterprise and individual
initiative, people should not rely entirely on govt. programs.
4. Focus is to provide maximum benefit to the lower income
groups. Unless such groups are subsidies to higher income
groups, the payments of the former will not be large enough to
furnish the minimum level of protection.
5. Social insurance usually covers only those who are or who have
been employed. Such plans are concerned for interruption of
income (by death, unemployment or retirement) earned through
employment.
 Social insurance in India
 It is the baby of the social security systems prevailing in the
country. Social security is the security cover which society
furnishes through appropriate organization against risks to
which its members are exposed. Basic idea is to prevent
deprivation and vulnerability to deprivation.
 Studies by UNICEF and world bank indicates that it has been
the direct public support rather than the average income of
population that has been the driving force behind the success
of social security schemes worldwide.
 A comprehensive social security system includes social
insurance, health insurance, disability compensation,
unemployment compensation, old age pension schemes etc.
 Opening up the insurance sector has created increased
awareness about insurance and also provide a sustainable
revenue model to carry out the task of social insurance.
 It is not a constitutional right of the citizens of India.
Schemes:
1. GIC- it has launched certain social insurance
covers like krishi bima yojana, personal accident
social security scheme, hut insurance scheme.
But these schemes failed to achieve desired
objectives.
2. LIC – schemes are- landless agricultural
labourers scheme, group insurance scheme for
the beneficiaries of IRDP, rural group life
insurance, krishi shramik samajik suraksha
yojana, janashree bima yojana etc. but failed to
achieve desired objective.
3. It necessitates creation of a separate body for
social insurance for following reasons.
 Cost minimization
 Avoidance of duplication of work.
 The biggest concern in implementation of schemes are to reach
the target population and cost effectiveness. In India work
based and community based social insurance system should be
encouraged as it has a vary narrow tax base and low tax
revenue.
 Decentralization, that is participation of local administration is
required for better implementation.
 It pertains to the delegated authority and not devolved authority.
The insurer will collect the premium directly from the nodal
agency and nodal agency will do the collection in parts or at one
time from the group.
 Co-operatives, unions, associations, SHGs, and registered
NGOs may act as nodal agency.
Critical success factors in selection of nodal agencies:
1. High level of mutual trust.
2. Monetary transaction.-existence of monetary transaction
between nodal agency and the groups.
3. Frequency of interaction of nodal agency with the group.
4. Organizational structure of the nodal agency.
5. Interest of nodal agency.
Unemployment Insurance- is designed to provide short term
protection for regularly employed persons who lose their
job and who are willing and able to work. US have well
defined law in this regard. The objectives are;
1. Provide cash income during involuntary unemployment.
2. Help unemployed workers find job.
3. Encourage employers to stabilize employment.
4. Help to stabilize economy.
 FIRE INSURANCE
 Governed by All India Fire Tariff Act 2001, which
lays the terms of coverage, the premium rates and
the conditions of the policy
 Section 2(6A) of insurance act 1938 defines “fire
insurance business” as the business of effecting,
otherwise than incidentally, to some other class of
insurance business, contract of insurance against
loss by incidental to fire or other occurrence
customarily included among the risks insured
against in fire insurance policies.
 There is no statutory enactment for regulation of fire
business in India akin to Marine insurance which is
governed by the Indian Marine Insurance Act, 1963.
 FEATURES- FIRE INSURANCE
1. Personal in nature- purpose is to see that insured does not
suffer loss by reason of his interest in the insured property.
It involves the payment of money if loss occurs.
2. Cause of fire is immaterial- the doctrine of cause proxima
applied unless there is a suspicion of fraud or willful act or
otherwise falling outside the scope of contract.
3. Indivisibility- covers the fire loss in whole and generally
indivisible unless specifically provided by the contract.
4. Other principle applied to fire insurance are (i) insurable
interest (ii) indemnity (iii) utmost good faith (iv) subrogation
and contribution (v) contract from year to year.
The policy has been nomenclatured as standard Fire and
Special Perils policy. The standard risks covered, add-on
covers, exclusions, conditions as prescribed by the tariff.
 Standard Risks
Fire- damage by its own fermentation, natural heating or
spontaneous combustion or its undergoing any heating or
drying process cannot be treated as damage due to fire.
Property insured by order of any public authority is
excluded from the scope of cover.
Lightning- both fire and other types of damages caused by
lightning are covered.
Explosion/Implosion- explosion is a violent burst with a loud
report. Implosion means bursting inward or collapses.
Boilers are not covered here but covered in a boiler and
pressure plant insurance policy.
Aircraft damage- damage directly caused by aircraft and other
aerial devices and/or articles dropped there from is
covered. But damage resulting from pressure waves
caused by aircraft traveling at supersonic speed is
excluded from the scope of the policy.
Riot, Strike, Malicious and terrorism damage- loss directly due
to such activity or by the action of any lawful authorities in
suppressing such disturbances or minimizing its
consequences is covered but not any willful act of such
nature.
Storm, cyclone, typhoon, tempest, hurricane, tornado, flood and
inundation- loss due this covered.
Impact damage- impact by any rail/road vehicle or animal by
direct contact with insured property is covered. But such
things must not be owned by the insured.
Subsidence and landslide including rockslide- loss is covered.
Bursting and/or overflowing of water tanks, apparatus and
pipes- loss covered if loss occurs accidentally.
Missile testing operation- loss is covered.
Leakage from automatic sprinkler installation- accident loss is
covered.
Bush fire- this covers damage caused by burning, whether
accident or otherwise, of bush and jungles and the clearing
of lands by fire but excluding damage caused by forest fire.
 Exclusions
1. 5% of claim resulting from natural calamities.
2. Loss or damage caused by war or war like situations.
3. Damage due to nuclear activities.
4. Loss due to pollution except (a) pollution which result from
a peril hereby insured against, (b) any peril hereby insured
against which itself result from pollution.
5. Loss up to Rs.10,000/- due to giving a finishing touch to a
work for value addition.
6. Damage to the stocks in cold storage premises caused by
change of temperature.
7. Loss due to excessive use of property insured.
8. Indirect losses.
9. Expenses on surveyor’s fees and debris removal up to 3%
and 1% of claim amount.
 Add – on covers
1. Architect, surveyor and consulting engineer’s fees
excess of 3%.
2. Debris removal excess of 1%.
3. Loss in clod storage due to power failure.
4. Forest fire.
5. Impact damage due to insured’s own vehicles,
forklifts and the like and articles dropped there
from.
6. Spontaneous combustion.
7. Omission to insure additions, alterations.
8. Earthquake as per premium rates and excess
applicable as specified in the tariff.
 Reasons of Exclusion
1. To restrict the cover to normal coverage required by
average insured.
2. To exclude loss which are extra-ordinary or catastrophic
nature.
3. To precisely define and clarify the scope of cover.
4. To exclude risk which requires more information.
5. To exclude losses which are convertible under other
policies.
6. To exclude risks which cause losses of high degree of
frequency.
7. To exclude loss which are caused intentionally.
8. To exclude losses which are inevitable.
9. To exclude losses that commercially uninsurable.
10. To match the requirement of particular policy.
 Standard policy coverage
 The tariff advisory committee has prescribed 3 types of fire
coverage, policy A, B & C.
POLICY “A”.- covers (i) fire (ii) lightning (iii) explosion or
implosion (iv) impact damage (v) aircraft damage (vi) riot,
strike and malicious and terrorist damage (vii) storm,
cyclone, tempest, hurricane etc (viii) earthquake, (ix)
subsidence and land slide. Policy ‘A’ can be issued to
cover artisans workshops, bio-gas plant, village and
cottage industries, tiny and small scale industries.
POLICY “B”- covers fire, lightning,explosion/implosion, impact
damage, aircraft damage, riot, strike etc,. The cover is
similar to policy ‘C’. The tariff permits exclusion of riot,
strike and malicious and terrorist damage perils, with
specified reduction in premium rate under the policy.
 Policy ‘C’ is issued to cover industrial/ manufacturing and
storage risks covering fire, lightning, explosion or implosion,
impact damage, riot, strike and malicious damage.
 The riot, strike and malicious damage can be excluded on
specific request with an agreed reduction in premium.
 May be extended to cover followings on an extra premium.
1. Spontaneous combustion
2. Earthquake
3. Storm, tempest, flood etc,
4. Subsidence and landslide
5. Accident leakage or contamination of oil.
6. Spoilage
7. Deterioration of stock due to power failure,
8. Bursting, sprinkler leakage, bush fire, missile testing etc.
 Special coverage

 Reinstatement value policies- losses are

settled on market value of the property.
 Stock policies- includes floater and
declaration policies. Stock at different
location covers under floater policies. Firms
facing frequent fluctuation in stock quantity
or value covers under declaration policies.
 Consequential loss policies- covers those
heavy industries having high investment in
fixed assets.
 Type of Fire Policies
 Specific policies- amount is fixed irrespective of the
value of property.
 Valued policy- where it is difficult to determine the
value of property.
 Average policy- contains average clause. Insured is
considered to be a self insurer to the extent of under
insurance.
 Floating policy- covers loss of goods in different
locations.
 Replacement policy- covers the market value of the
insured property. Also known as re-instatement
policy.
 Declaration policy- granted only in respect of stock of
inventories. Every month the insured must declare in
writing the stock covered under the policy.
 Comprehensive policy-covers full protection not only
the risk of fire but combining with risk against
burglary, riot, civil commotion, theft, damage from
pest lightning.
 Consequential loss policy- indemnification of loss of
profit due to dislocation of business covers loss of
property or goods, loss of net profit, outstanding
expenses, prepaid expenses etc.
 Adjustable policy- premium is adjustable on pro-rata
basis as per valuation of stock. Issued to remove
disadvantage of declaration policy.
 Declaration Policy Vs. Adjustable Policy
Insurer’s liability is the insured’s last Insurer’s liability is the last declaration
declaration made. made on amount.
Periodical declaration have no direct Direct bearing of periodical declaration
bearing on measurement of indemnity.

Maximum amount insured would be Risk cover is always for the declared
considered risk during the period of value.
policy.

Premium calculation is based on the Declaration is on the basis of policy

ascertainment of average by the amount adjusted by endorsement
periodical actual declaration.

High premium is fixed at the beginning Premium is calculated according to the

for maximum coverage and excess variation of the risk and the liability of
actual premium will be returnable at the insurer.
the end of the year.
 Rate fixation
 Rate calculation is made in following manner;
i) Base rate for the class of property.
ii) Reduction in rates based on exclusion and add on covers.
iii) Extra tariff for hazardous assets.
iv) Discount is allowed for claim experience.
v) Further discount is allowed for betterment of risk.
Followings are to be considered on fixation of premium
i) Type of insured
ii) Location of property
iii) Storage facility and other infrastructure
iv) Additional premium on ‘add-on covers’ and discount on
‘exclusion’.
 Documents
 Proposal Form- contains details of proposer, type of
coverage, details of subject matter, sum insured,
insured declaration/authentication, risk inspection
report.
 Cover note- is issued pending issue of policy covers
proposer’s detail, sum insured, details of risk
covered, premium detail, date of issue and validity,
date of commencement and expiry of cover,
authentication, warranties and clauses.
 Policy document- must follow the format prescribed
by the tariff. Must contain all the information as
contained in the cover note, and endorsement and
alteration made to the policy.
 Right of insurer
 Right to avoid the policy- in case of willful act and
misrepresentation.
 Right of entry control over the property- arises on the
happening of the event to take the possession of the
property.
 Right of reinstatement- replace the asset paying the
amount of loss.
 Right of subrogation-entitled to all rights and remedies
available to the insured after paying for the loss to the
insured.
 Right to contribution- when more than one policies are
taken by the insured, loss will be shared proportionately
among the insurers.
 Right to salvage- it is the duty of assured to hand over the
salvage to the insurance company in case of loss to the
property insured.
 MARINE INSURANCE
 A Contract of marine insurance is an agreement whereby
the insurer undertakes to indemnify the assured in a
manner and to the extent thereby agreed, against marine
losses, that is, the losses incidental to marine adventure.
 Protect from total or partial loss or damage of sea going
ship and cargoes.
 Contracts are amongst the least charging and most
familiar of all types of risk business.
 There is a marine adventure when any insurable property
is exposed to marine perils/sea perils.
 Perils of sea refers only to fortuitous accidents or
causalities of the sea, and does not include the ordinary
action of the winds and wave. Collision with rock or with
another ship, ventilators problem etc. considered as sea
perils.
 ELEMENTS OF MARINE INSURANCE
 Fundamental features of general contract.
 Insurable interest.
 Utmost good faith.
 Contract of indemnity.
 Principle of subrogation and contribution.
 Warranties.- express warranties are safety of ship,
neutrality of ship and goods, no deviation of route, date of
sailing. Implied warranties includes sea- worthiness, non-
deviation, legality of the voyage and proper documentation
of the ship.
 Proximate cause
 Assignment and nomination of policy.
 Return of premium- if the insurer have never been on the
risk, they cannot be said to have earned the premium.
 The insurer is known as ‘underwriter’.
 Types of Marine Insurance
 Two broad categories- ocean marine insurance and Inland marine
insurance.
 Ocean marine insurance is one of the form of transportation
insurance. The contract reflect basic marine law, trade customs,
and court interpretation. It is classified into 4 category indicating
various insurable interest. They are:
1. Hull insurance- covers physical damage to the ship or vessel
similar to collision insurance.
2. Cargo insurance- covers the shipper of the goods if the goods are
damaged or lost. Open cargo policy can be used for regular
shipment. The open cargo policy has no expiration date and
remains in force until it is cancelled.
3. Protection and Indemnity (P&I) Insurance- is usually written as a
separate contract that provides comprehensive liability insurance
for property damage or bodily injury to third parties.
4. Freight Insurance- indemnifies the ship owner for the loss of
earnings if the goods are damaged or lost and are not delivered.
 Fundamental concept of ocean marine
insurance
 Covered Perils- includes sea perils and others which
includes loss from fire, enemies, pirates, thieves,
jettison(throwing goods overboard to save ship),
battery(fraud by the master or crew at the expenses of the
ship or cargo owners) and similar perils. It can also be
written on an ‘all risk’ basis. All unexpected and fortuitous
losses are covered except those specifically excluded.
 Particular average- refers partial loss that falls entirely on a
particular interest. Under the free of particular average
clause (FPA) partial losses are not covered unless the loss
is caused by certain peril. The FPA clause can be written
with franchise deductible, where the franchise amount is
stated as a percentage of the property. Thus FPA clause of
3% means that loss under 3% falls entirely on the insured.
 General average- is a loss incurred for the common good
and consequently is shared by all parties to the venture
based on their proportion. Conditions to be satisfied to
have a general average loss are;
1. Necessary- the sacrifice is necessary to protect all
interests in venture-ship, cargo, & freight.
2. Voluntary- the sacrifice must be voluntary.
3. Successful- the effort must be successful.
4. Free from fault- parties must be free from fault.
 Sue and labour- the insured is required to do everything
possible to save and preserve the goods in case of loss.
 Warehouse to warehouse- protections as is afforded
under the agreement extends from the time the goods
leave the warehouse of the shipper, until they reach the
warehouse of the consignee.
 Abandonment- two types of losses are considered:
actual and constructive. Actual total loss occurs when
the property is completely destroyed. Constructive
losses are partial losses but it would cost more to
restore it than it is worth. The ship may be abandoned
to the insurer and the insured collects the full amount
of the policy.
 Coinsurance-if the insurance carried does not equal
the full value of the goods at the time of loss, the
insured must share in the loss though ocean marine
insurance does not contain such clause.
 Warranties- express warranties are written into the
contract and become a condition of coverage of
insurance.it can be ‘free of capture and seizure’
(FC&S), Strike, riot and civil commotion (SR&CC),
delay warranty, trading warranty. Implied warranties
become part of the contract by custom.
 INLAND MARINE INSURANCE
 Ocean marine insurance first covered property from the point
of embarkation to the place where the goods landed.
 Inland marine insurance developed in 1920. It is classified as
followings;
1. Domestic goods in transit.
2. Property held by bailees- bailees are liable for damage to
customer’s property only if their or they are negligent.
3. Mobile equipment and property- inland marine property
floaters can be used to cover property that is frequently
moved from one location to another.
4. Property of certain dealers- certain ‘block’ policies are used
to insure dealers. Most policies provide coverage on an ‘all-
risk’ basis.
5. Means of transportation and communication- refers to
property at a fixed location that is used in transportation or
communication.
 Inland marine insurance classified into two
categories for the purpose of regulation. They are
‘filed forms’ and nonfiled forms.
 With filed forms, the policy forms and rates are
filed with the state insurance department. It is
used where there are large number of potential
insured and the loss exposures are reasonably
homogenous.
 Non-filed forms refers to policy forms and rates
that are not filed with state insurance department.
It is used in situation where the insured has
specialized or unique needs, the number of
potential insured is relatively small, and loss
exposures are diverse.
 Marine insurance in India
 It was practised in India 3000 years ago.
 Travelers are exposed to risk of loosing due to
piracy.
 Moreland has maintained that the practice of
insurance was quite common during the rule of
Akbar to Aurangzeb but the nature and coverage
is not well known.
 Britishers opened general insurance in India
around 1700. The Sun Insurance Office Ltd was
first company set up in 1710 followed by several
insurance companies around the world in marine
insurance field.
 In 1972, the government of India nationalized the
general insurance businesses by forming GIC.
 Kinds of marine insurance policies.
 Voyage Policy- limits the risk are determined by place of
particular voyage.
 Time policy- designed to cover for some specified period of
time.
 Voyage and time policy or mixed policy- combination of
voyage and time policy.
 Valued policy- specifies the agreed value of the subject
matter insured. It is not common now-a-days
 Unvalued policy- the value of the subject matter insured is
not specified at the time of effecting policy.
 Wagering policy- issued without there being any insurable
interest, or a policy bearing evidence that the insured is
willing to dispense with any proof of interest. If policy
contains ‘policy proof of interest’ or ‘interest’ or ‘no-interest’ it
is wagering or honour policy. It is void in law but continued to
be common.
 Floating policy- method of obtaining a long term contract
for goods insurance.
 Construction or builder’s risk policy- covers the risk
incidental to the building of a vessel.
 Open cover policy- to manage their marine insurance in
advance and to be assured to cover at all times, and also
to avoid the effects of possible fluctuating rate, importers
and exporters avail some kind of ‘blanket insurance’. Most
popular one is ‘open cover’. It is an agreement between the
assured and his underwriter under which the former agrees
to declare and later to accept, all shipment coming within
the scope of the open cover during some stipulated period
of time.
 Port risk policy- cover a ship or cargo during a period in
port against risk peculiar to a port as distinguished from
voyage risks. Rare now-a days.
 INSURANCE MARKETING
 The concept of “caveat Emptor” has changed to “caveat
Vendor”.
 Marketing is a total system of interacting business activities
for satisfaction of present and potential customer. Hence,
total system should be designed in such a way to generate
maximum benefit.
 Business decision should be market oriented.
 Marketing is a dynamic business process- a total integrated
process.
 Marketing program starts with the germination of the
product idea and continues till the customers wants are
completely satisfied.
 Marketing program is done with a maximum of
effectiveness and a minimum of cost.
 Marketing must increase profitable sales over the long run.
COMPONENTS OF MARKETING CONCEPT:
1. Adoption of a predominantly market or product
orientation.
2. A co-ordinate set of activities that allows the
organization to achieve the goals.
3. Result oriented marketing. Operating
Satisfaction of
Result
Customers
Wants and desires

Company
customers operation Goal

Knowledge of Recognition of
Wants and desire Results desired
 MARKETING OF INSURANCE PRODUCT
 The most important function of insurance
company includes product design, distribution
services, delivery and investment performance.
 The distribution chain is now assuming focus with
new players exploring various possibilities to
reach out to customers and service them
effectively.
 The future of insurance market and accordingly
the marketing strategy is likely to be influenced by
the followings;
1. The convergence of financial services
2. Rise of E- commerce.
3. The emergence of new distribution channels.
 ISSUES IN INSURANCE MARKETING
 The peculiar nature of the insurance industry
creates implementation of marketing strategy a
difficult task in following ways.
1. Insurance is unpatented, subjective requires
prior experience and physical evidence is
difficult to establish.
2. There is a involvement of customers in
production of services, mass production is
impossible.
3. The services cannot be inventoried and
standardized.
 Characteristics of Insurance Services.
1. Intangibility
2. Heterogeneity
3. Inseparability- life products continues to exist over a
long period of time, and for making its service
available, the insured has to go on paying the
purchase price (premium) through out the term of
the policy. This ensures that the benefit already
accrued under sale are not lost. Therefore, direct
sale of services is the only channel of distribution.
4. Changing Demand.
 Objectives of life insurance marketing
1. Spread of life insurance massage.
2. Mobilization of savings in the form of pension.
3. Profit maximization.
4. Successful distribution of products.
5. Improving customers services.
6. Increasing customer base and its spread.
7. Developing corporate image.
8. Developing guiding policies and their
implementation for a better result.
9. Suggest solution by studying the problems
relating to life insurance business.
 Importance of life insurance marketing
1. Mobilizes the savings of the people for further investment in
productive uses and thus, avoids their wastage.
2. Provides incentives to savings and facilitates capital formation by
offering stable rate if interest and bonus as the price of their
investment.
3. Facilitates increase in production and productivity in the
economy and thus enhances the economic value.
4. Insurance market consisting of expert intermediaries, promotes
stability in value of different insurance schemes.
5. Generate employment.
6. Makes available new variety of useful and quality products to
customers.
7. Insurance marketing is the sole source of business income.
8. Convert latent demand into effective demand and enable people
to raise their standard of living.
9. It is a connecting link between the consumer and the producer.
 Scope of insurance marketing

1. Changing policies of insurance companies.

2. Evolving consumer needs.
3. Importance of distribution
4. Innovation in insurance marketing.
5. Development of rural market.
6. Entry of public sector banks.
7. Pension plan.
8. Changing government policies.
The above factors helps in widening the
scope of insurance marketing.
 Critical success factor for insurance players
 Following factors must be considered for success of any
insurance company as well as insurance industry.
1. Change in attitude of the population.
2. Open and transparent environment created under IRDA.
3. Well established net work.
4. Trained professionals to build and sell products.
5. Rationale approach to the investment criteria.
6. Stringent accounting practices to prevent failures amongst
the insurer.
7. Level playing field at all stages of development in the sector
for all players.
8. Changing policies of authorities to protect interest of policy
holders.
 MARKETING MIX
 LIFE INSURANCE MARKETING MIX IS AS UNDER.

POLICY SERVICING
PHYSICAL DISTRIBUTION

LIFE INSURANCE
MARKETING
STRATEGY

PROMOTION MIX
PRODUCT MIX

PRICE MIX
 CHANNELS OF DISTRIBUTION
 Life insurance is solely depend on the
agency distribution and general insurance
on development officers.
 There are 3 players in insurance market.
 Mainly two channels- traditional and new

DISTRIBUTORS
1. Buyer- consists of consumers, employees
and employers.
2. Carriers- or the policy issuers will focus on BUYERS CARRIERS
mainly on life and annuities, property
and causalities, health and ancillaries.
3. Distributor- forms a critical link in the
System , provide value added low
Cost services.
 Traditional Channels
Agents- most companies in India follow the
traditional route of marketing through agents.
In case of private players they are named as
‘Insurance Advisors/ planners.
Brokers- are professionals who assess risk on
behalf of client, advice on mitigation of that
risk, identify the optimal insurance policy
structure, bring together the insurer and
insured, carry out work preparatory to
insurance contract and where necessary
assist in the administration and performance of
such contract,in particular when claim arise.
 NEW CHANNELS
1. Direct Marketing- Company owned sales team
concept is now employed by a majority.
2. Broker/corporate agent- authorized by IRDA to
sell and customized products on behalf of
insurance companies.
3. Independent Financial Advisors- authorized
agents of insurance companies having tie-up
may be with more than one company.
4. Telemarketing- marketing through telephonic
devices generating leads through cold calls and
forwarding the leads to the main sales team of
the company.
 NEW CHANNELS

5. Work Site Marketing- the seller send his team to

the target groups and explain the products and
services suitable to them. HDFC, ICICI, Kotak
etc. are using this effectively.
6. Retail Chains- cross selling of products at retail
outlets.
7. Internet Marketing- internet based product
offerings.
8. Banc assurance- distribution of insurance
products through banks.
 MARKETING STRATEGY FOLLOWED BY
INSURANCE COMPANIES IN INDIA.
 Marketing strategy involve mobilization and utilization of
intangible assets that enables the company to;
1. Develop customer relationship- retaining and servicing of
customer effectively.
2. Introduce new products as per the desire of targeted customers.
3. Produce better products at low cost and with short lead time.
4. Mobilize employee skills and motivation for continuous
improvement in process capabilities, quality, and response time.
5. Deploy information technology, database and systems in an
optimum manner.
6. For developing a marketing strategy, a coordinated effort of
organization structure, systems, process, employees,
organization culture and the share value system is to be
integrated.
 Strategies by companies
 LIC:
1. Tie-up with banks for distribution of its product. (tie-
up with Vijaya Bank, Corporation Bank).
2. Development of core banking system.
3. Launching of customized focused product for
different target group.
4. For customer retention “revival of lapsed policies
campaign has been launched.
5. On line payment of premiums.
6. Promotional activities emphasizing on tax benefit
attached to different products.
7. Opening of branches in sub- urban areas and in
small towns to penetrate rural market.
 ICICI Prulife;
1. Strategy is to achieve scale in premium income
and distribution force in shortest time.
2. Work station marketing, corporate marketing,
road shows, stall in fair etc. to build awareness
level among customers. More focus on direct
selling apart from communication.
HDFC Standard Life:
1. Using direct marketing tactics, worksite
marketing and corporate marketing.
2. Multi channel distribution model.
3. Sell its products as long term investment plan.
MAX NEWYORK LIFE:
1. Using individual agent to sell its product.
2. Flexible options has been introduced in products.
3. Using media advertising and event sponsorship.
4. Tie-up with Geojet Infofin Technologies for marketing and
distribution of products.
5. ‘Bundle Method” of product offering includes investment
options ranging from insurance, equities, derivatives,
mutual funds etc.
6. Focus on South Indian & J.K market and selling group
policies.
TATA-AIG
1. Mass marketing strategy to cover as many lives as possible
in the initial years.
2. Stressing creditworthiness of the company and its partner.
OM KATAK Mahindra:- targeting middle income affulent
segment and high net worth individuals.
Bajaj-Allianz:
Focus on “cash less” insurance products. (automobile)
Birla-Sun Life:
1. Only unit linked products.
2. Targeting high net worth customers.
AVIVA & ING Vysya:
Targeting the customer base of respective banking
partners.
SBI Life:
1. Utilizing its huge network of SBI.
2. Offers simple products.
3. Branch wise segmentation and product offerings.
4. Smaller average size of policies.