OVERVIEW OF FEDILITY INSURANCE

SUBMITTED FOR COURCE NUMBER (109) OF MBA- INSURANCE MANAGEMENT AND ACTUARIAL SCIENCE 2011-2012

FACULTY OF MANAGEMENT STUDIES

Guided By: Shivam sing Sir

Submitted By : Vipul bhatt

PIM

1nd Semester

ContentDefinition Insurable interest Scope of cover Condition Need Importance Types Claim procedure Contents of proposal form Underwriting considerations Rating Period of insurance Extensions Court bonds & government bonds Bibliography

Fidelity guarantee

Definition An agreement whereby, for a designated sum of money, one party agrees to guarantee the loyalty and honesty of an agent, officer, or employee of an employer by promising to compensate the employer for losses incurred as a result of the disloyalty or dishonesty of such individuals. An insurance policy covering employers for any financial losses they may sustain as a result of the dishonesty of employees. Policies can be arranged to cover all employees or specific named persons. A Fidelity Guarantee as issued by the insurers is a contract of insurance as also a contract of guarantee to which the general principles of insurance apply. It does not guarantee the employees honesty but it guarantees that if the employee suffers any direct financial loss arising out of the employees dishonesty

the insurers share indemnify the said loss to the employer within the limitations prescribed by the contract.

Insurable Interest : The term Fidelity Guarantee Insurance

embraces Policies indemnifying employers against pecuniary losses on account of forgery, defalcation (misappropriation of money), embezzlement (diversion of money to ones use) and fraudulent conversion by employees. The object is to provide protection against losses arising out of the default of an individual acting in some capacity such as Cashier, Accountant and Storekeeper etc.

Scope of Cover : The captioned Policy covers the loss sustained

by the employer by reason of any act of forgery and/or fraud and/or dishonesty of monies and/or goods of the employer on the part of the employee Insured committed on or after the date of commencement of the Policy during uninterrupted service with the employer. The loss should be detected during the continuance of the Policy or within 12 calendar months of the expiry of the Policy and in the case of death, dismissal or retirement of the employee within 12 calendar months of such death or dismissal or retirement whichever is earlier.

The cover may be required in respect of a single employee or a group of employees. There are three types of Policies normally issued by the Insurer for this clause of business namely Individual Policy, Collective Policy and Floating Policy.

Conditions:The liability of the Company shall not exceed i. (a) in respect of any employee the sum insured stated against his name or as declared herein.

(b) in respect of all claims under this policy, the total sum insured. ii. If this policy shall be continued in force for more than one period of indemnity or if any liability shall exist on the part of the Company under this Policy and also under any other Policy in respect of fraud or dishonesty of the employee, the liability of the Company hereunder shall not be accumulated or

increased thereby but the aggregate liability of the Company during any number of periods of indemnity and for any number of acts of fraud or dishonesty committed by the employee shall not exceed the sum insured hereunder or the sum insured under any other such policy as aforesaid whichever is greater. iii. The Company shall not be liable to pay more than one claim in respect of the action of any one employee.

When do I need Fidelity/Crime Insurance?

Any business employer needs to be concerned with Employee Dishonest business handing cash or securities needs protection Because crime-related losses are not typically covered by most property insurance policies, crime protection insurance is a necessary component for any business. Unfortunately, the majority of businesses dont purchase enough crime protection.

Why do I need Fidelity/Crime Insurance?

Fraud and embezzlement in the workplace is on the rise, occurring in even the best work environments. These frauds can

go on for years, and when discovered the ultimate impact can be enormous. Smaller companies are especially vulnerable to such crimes. White collar crime can have serious financial consequences, even threatening a private companys survival. Insure Hedge offers a solution to handling crime losses committed by employees, through Forefront Crime Liability Insurance Policy.

Fidelity

Guarantee

Insurance-

Its

Importance

to

Employers.

In the organization the most valuable asset are their employees. Every organization make sure that they employ best talent for the job. Employers have to select person in short span of time which actually not enough to know the person entirely. Sometimes selection of particular employee can go wrong. The successful functioning of any business is often based upon their employees. An employee at times misuses the powers which are given to them.

Organizations are experiencing rise in the frauds and dishonesty among the employee. Even the best of working environment witnessing the frauds of employee. It has been seen that employee who commits the frauds are working in the organization for longer periods. The reasons which usually found in the most cases are insufficient salary, emergency, etc. Often frauds are happen on daily basis with smaller volumes. But eventually when it discovered turns out to be big. Smaller organizations are generally venerable to this kind of frauds.

Frauds are generally happens with position where cash, stocks are handled. Cashier, Accountants, Stock keepers are the ones who are leading scoreboard in frauds. Frauds are of many types like burglary, larceny, theft of money, securities, office equipments etc. Other frauds which tend to occur like misuse of confidential data which causes enormous losses. Organization needs to have strong system, accountability which will help to discover the loss in quick time.

Main factors considered for issuance of Fidelity Guarantee policy

 The extent of control over the work of the person to be guaranteed necessarily to form the relation ship of master and servant. The record, standing and reputation of the employee. The bonafides of the employer.

The system of checking of the accounts and general supervision of the employee.

It is essential to obtain the Private Reference and/or Former employers Report forms in addition to completed Employer and Employees application form as appropriate. It should be noted that 1. The cover granted is against a direct pecuniary loss and not a consequential one.

2. The loss should be in respect of moneys or goods of the insured. 3. The act should be committed in the course of the duties specified. 4. If the employee guaranteed under the policy policy had left the services of the employer and was re-engaged by him, no liability attaches to the policy, unless the consent of the insurers was obtained.

5. No loss that may have been caused by bad accountancy is payable: the loss must be supported by evidence of any of the specified acts of dishonesty.

Types of Fidelity Guarantees

Individual Policy : This Policy covers an individual for a stated amount. Collective Policy : This Policy covers group of employees. The Insured decides the amount of guarantee required for each individual according to his or her responsibility and position. A schedule is included in the Policy. Floater Policy : A single amount is shown in the Policy which represent the Insurers liability in respect of any one individual and its total liabilities in respect of all the employees guaranteed who are individually named in the schedule. Such type of Policies are granted where the number of persons to be guaranteed are not less than 5. Blanket Policy : The Insurer in certain selected cases, issue Blanket Policies without the names of the guaranteed persons being shown, in respect of all

employees who are grouped according to categories. e.g. employees handling cash, other clerical staff etc. They are issued to large well established business houses conducting business with sound practices. All enquiries for this type of Policy must be referred to Insurers Regional Office/Head Office for acceptance and quotation. In case the Policy is required to be issued without mentioning the name of the employee/s i.e. on unnamed basis, then in such circumstances all the employees dealing with the cash/goods, whether permanently or temporarily or by rotation must be covered. Further the limit can be fixed for each employees separately or for the group of the employee as the case may be and the liability of the Insurer in case of the loss will be restricted to the same limit irrespective of the sum insured. However, the wider limit in the line of the sum insured can be considered by the Insurer depending upon the requirement of the Insured after taking into account other relevant factors.

 Position policy: This is similar to collective policy with the difference that instead of using names,the position is guaranteed for a specified amount ,so that a change in the person holding the position does not affect the cover.It is to be noted that the liability of the insurance in respect of each position remains limited to amount guaranteed for the position,irrespective of the number of persons acting in that position. Excess floating policy:This is a combination of collective policy and floating policy.An employer may safeguard

himself against loss of an unforeen amount by reason of default continuing for a long time by unusually ingenious methods of concealment by having a floating guarantee for any loss in excess of the individual amounts set out in the schedule.

Fidelity Guarantee Insurance Claim Procedure

- Insured should take immediate steps against the defaulting employee for the recovery of cash/goods as the case may be and also other disciplinary action required, depending on the case. - Insured must establish the Act of Infidelity committed by the particular employee covered under the Policy.

- The loss noticed at the time of stock taking in case of stock is not covered. - The Insurer shall not be liable, If at the time of any loss, any other Security Guarantee or Insurance existing covering the same loss.

Content of proposal form

-legal status of the employer ,e.g. sole trader,partnership etc. -amount of guarantee required. -details of any other security held by the employer. -references. -details of past and present service. -duties assigned to employees,and whether he has any outside duties. -whether the employees will have money in his possession during his duty period.If so ,the manner in which he will make payments and the likely amount that will remain with him. -system of check and method of supervision. -remuneration of employee. -employees debt or liabilities,if any. -employees previous defalcations,if any.

Claims

A fedility guarantee claim form usually contains questions relating to: -name of the defaulting employee, and his last known address. -date on which the loss was discovered. -period for and the manner in which the embezzlement has been carried on, and concealed. -previous irregularity, if any, in the defaulting employees account. -the extent of loss. -whether the matter is reported to the police and if so, the date, t ime and place of reporting. -security held by the insured, in respect of the defaulting employee. -amount of salary, commission or other remuneration or allowance that may be due from the insured to the defaulting employee.

-particulars of property, furniture or other effects belonging to the defaulting employee.

Underwriting considerations

The main considerations are how far the system of check and control measures are effective and what supervision is exercised over the employees. -money should not be allowed to accumulate in the hands of any one employee to an unreasonable extent. -All moneys collected on behalf of the employer should be paid over daily or at short intervals. -Employees engaged in handling money should not also be employed upon the books or records in which the money is accounted. -Employees collecting money should not to make any disbursements there from. -All payments should be made by crossed cheques only. -Receipts of all money collected should be made on printed and numbered forms out of a bookwith counter foils. -The responsibility for the correctness of every payment should be shared by atleast two persons.

-Their should be continuous professional audit by a firm of recognized standing. -Their should be independent surprise check at regular and frequent intervals,of all money transaction.

Rating

The premium under individual and collective policies is charged as a rate percent of the amount guaranteed ,subject to a minimum premium.The factors ordinarily taken into consideration for determining the rate of premium are the amount of guarantee ,the type of occupation,the system of check and the method of supervision.The rate percent varies from risk to risk depending upon merits of each case.Generally speaking ,it ranges from .20 percent to 1 percent. The premium of a floating policy comprises a percent charge as per capita charge.The percent charge is applied on the amount guaranteed and the per capita charge on the number employees to be guaranteed. For example-

If a floating policy has to be issued covering 200 employees for an amount of Rs 200000 and the percentage charge is say one percent and per capita charge Rs 5,the premium payable would be Rs 3000 arrived at as shown below:

Percentage charge @1% of Rs 200000 Per capita charge @ Rs 5 for 200 persons (200*5) Total 3000

2000 1000

The minimum premium is always insisted upon because the expenses for scrutiny of proposal,issue of policy,stationery cost etc. would be same whether the cover be for Rs 1000 or Rs 100000.

Period of insurance
The policies are customarily,issued for a period of a 12 months.Short period covers are seldom issued,as insurers consider such covers as a selection against them.Furthermore,the

exposure of risk under short period policies is considerably higher than that under annual policies.

Extensions
It is not unusual for employers to ask for extending the conventional policy to cover negligence or lack of care on the part of the employee.Government departments,the posts,and

telegraphs directorate,the Railways,and many public sector institutions demand such extension.Since the terms negligence and lack of care do not admit of precise definitions,it is not a safe underwriting proposition to cover them.

Court bonds
1.Administration bonds When a person dies intestate, that is ,without making a will,or when the will made by a person is not in order,or when an executor named in a will is not in a position,or refuses,to discharge his duties,the court appoints an administrator for winding up the affairs of the deceased.The person who is appointed as an administrator has to furnish a surety for the proper accounting of the deceaseds estate. The bond issued by insurers in favour of the court guaranteeing the proper discharge of duties by the administrator and the proper accounting of the estate of the deceased is known as an administration bond. 2.Liquidators and receivership bonds Estate which are under dispute and referred to the court for adjudication are temporarily placed under the care of a receiver during the pendency of the case.The receiver has to administer the estate and render to the court,proper accounting of the estate when under his care.A receiver may also be appointed to administer the estate of a minor who is placed under the court of

wards till he attains majority,or of a person who is pronounced mentally incapable. Liquidators are appointed by the court to deal with the estates of persons who have filed insolvency petition before the court or are declared insolvent by the courts. Unlike the receivers,the liquidators have to meet the claims of the insolvents estate from his debtor.The liquidator has to produce a bond guaranteeing his honest and faithful accounting to the estate.

Government bonds
1.Custom bonds- Customs bonds are to be executed by the importer in favour of the controller of exports and imports agreeing,inter alia ,to perform the conditions stipulated in the import trade control regulations. A representative list of importers who have to execute custom bonds is given below:

-persons or corporate bodies who are permitted to import motor cars for their personal use. -manufacturers who import essential raw materials on which a confessional customs duty is levied provided they produce an end use certificate that the imported materials have been consumed in the production of goods originally declared by the manufacturer. -supplier of industrial chemicals imported in special containers who have to export back the containers after using the contents. 2.Excise bondsExcise bonds are to be executed by

manufacturers in the country in respect of finished products assembled or produced in the country,which are dutiable.The excise duty is to be paid to the excise department in lieu of which a bond may be executed.Manufacturers of

alchol,sugar,textiles,automobiles,etc are required to execute the bond.

Bibliography

1.. http://www.edocfind.com/ 2. www.irdaindia.org 3. www.fidelityguaranteinsurance.com

Books:
Insurance Institute of India Ic-78.