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1. COMMERCIAL INSURANCE
1.1 INTRODUCTION
Commercial insurance is insurance for a business. In fact, it is one of the most
important investments a business owner can make. Commercial insurance can be
instrumental in protecting a business from potential loss caused by unforeseen and
unfortunate circumstances.
Commercial insurance can provide valuable protection against such things as theft,
property damage, and liability. It can also provide coverage for business
interruption and employee injuries. A business owner who chooses to operate a
business without insurance puts his enterprise at risk of losing money and property
in the wake of an unfortunate event. In some situations, a business owner may even
place personal money and property at risk by failing to secure adequate
commercial insurance.
Whether you are contemplating starting a new business, are a new business owner,
or have owned a business for many years, commercial insurance can be one of the
most important ongoing financial investments you make in the life of your
company. Operating a business is extremely challenging without having to worry
about suffering significant financial loss due to unforeseen circumstances.
Commercial insurance can protect from some of the most common losses
experienced by business owners such as property damage, business interruption,
theft, liability, and worker injury. Purchasing the appropriate commercial insurance
coverage can make the difference between going out of business after a severe loss
or recovering with minimal business interruption and financial impairment to your
companys operations.
Commercial insurance performs a significant role in the world economy. Without
it, the economy could not function. Insurers essentially protect the economic
system from failure by assuming the risks inherent in the production of goods and
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services. This transfer of risk frees insured companies from the potentially
paralyzing fear that an accident or mistake could cause large losses or even
financial ruin.
Organizations need to reduce both internal and external risks. They also require to
safeguard their business against unforeseen circumstances/events. Insurance
companies are catering to small, medium and large scale companies to minimize
their risk. Good Insurance advice can save time, money and worry. Insurance
companies undertake complex procedure to evaluate and review the impact of any
change in commercial activity or new ventures.
The convincing boom of corporate sector in India has given a new definition to
commercial insurance in the country. Proper risk management against any kind of
disaster is the mantra of successful business and other commercial ventures. The
function of risk management is to provide safety against any kind of internal or
external hazard. Commercial insurance companies in India offer products which
suit the business and corporate needs and provide the commercial avenues all kind
of safety and security.
The value of premium for providing coverage to commercial ventures and
corporate sectors is determined on the basis of a few factors which include:
i. Nature of the commercial venture
ii. Size of the organization
iii. Type of the industry
iv. Strength of the employees
v. Annual turnover of the business.
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The most common types of commercial insurance are property, liability and
workers' compensation. In general, property insurance covers damages to your
business property; liability insurance covers damages to third parties; and workers'
compensation insurance covers on-the-job injuries to your employees. Depending
on your business, you may want additional specialized coverages. Listed below
are some of the different types of commercial insurance.
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ii.
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iii.
iv.
Glass Insurance:
Glass insurance covers broken store windows and plate glass windows.
v.
vi.
vii.
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the insurance carrier has the right to defend the insured. If someone sues for
personal injuries or property damage, the cost of defending and resolving the suit
would be covered by the liability insurance policy. A general liability policy will
covers common risks, including customer injuries on company premises. More
specialized varieties of liability insurance include:
i.
Errors and omissions ("E & O") insurance covers inadvertent mistakes or failures
that cause injury to a third party. The act must actually be an inadvertent error, and
not merely poor judgment or intentional acts. Legal liability cover for the liability
claims by third parties, on account of the bodily injury or property damage arising
out of services offered or which should have been offered by the Insured as a part
of their profession. The policy is ideal for all those engaged in service industry,
including medical practitioners, architects, engineers, software firms etc. For
example, an E & O policy would cover damages arising from an insurance agent
failing to file policy applications, or a notary forgetting to fill out notarizations
properly.
ii.
Malpractice Insurance:
It generally covers the payments which may arise out of a professionals defense
costs and/or any judgment or settlement in case the concerned insured professional
causes injury to a third party by conducting below par. These kind of professional
liability insurances are issued to doctors, dentists, accountants, real estate agents,
architects, and all professionals. Malpractice insurance, or professional liability
insurance, pays for losses resulting from injuries to third parties when a
professional's conduct falls below the profession's standard of care. For example, if
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a doctor makes a mistake that other doctors of his specialty would not have made,
his patient might sue him. A malpractice policy will pay his defense costs and any
judgment or settlement. Malpractice insurance is available for doctors, dentists,
accountants, real estate agents, architects, and other professionals.
iii.
Automobile Insurance:
Commercial Automobile Insurance provides insurance coverage for the vehicles
used for the purposes of conducting business and also to make payments
towards the persons who may be injured by the same. Vehicle insurance (also
known as auto insurance, car insurance, or motor insurance) is insurance
purchased for cars, trucks, and other vehicles. Its primary use is to provide
protection against losses incurred as a result of traffic accidents and against
liability that could be incurred in an accident. Commercial automobile policies
cover the cars, vans, trucks and trailers used in your business. The coverage will
reimburse you if your vehicles are damaged or stolen or if the driver injures a
person or property.
iv.
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lightning strike. Both fire and other types of damages caused by lightning are
covered by the policy.
Explosion/ Implosion:
Explosion is defined as a sudden, violent burst with a loud report. An explosion is
caused inside a vessel when the pressure within the vessel exceeds the atmospheric
pressure acting externally on its surface. An explosion may cause fire damage or
concussion damage.
Implosion means bursting inward or collapse. This takes place when the external
pressure exceeds the internal pressure. This policy, however, does not cover
destruction or damage caused to the boilers (other than domestic boilers),
economizers or other vessels in which steam is generated and machinery or
apparatus subject to centrifugal force by its own explosion/ implosion. These risks
can be covered in a Boiler & Pressure Plant Insurance Policy, which is specially
designed to handle these risks.
Calculation of Fire Insurance Amount/Premium:
The market value of the property is considered while insuring the sum. The amount
of premium depends on a number of factors and individual policies of different
insurers.
Fire Insurance Claim Procedure:
Individuals/corporate must inform insurer as early as possible, in no case later than
24 hours.
Provide relevant information to the surveyor/claim representative appointed by the
insurer.
The surveyor then analyzes the extent/ value of loss or damage.
The claim process takes anywhere between one to three weeks.
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and electric service feeders (for Cold Storages), Forest fire, Leakage and
Contamination cover, Spoilage Material Damage cover, Sprinkler leakage cover,
Subterranean fire, Spontaneous and Landslide cover, Burglary (other than
Larceny), Machinery Breakdown/Boiler explosion/Electronic Equipment, Business
Interruption
following
fire,
Business
Interruption
following
Machinery
Breakdown.
Major Exclusions:
Damage to the property caused by faulty or defective design materials or
workmanship, inherent vice, wear and tear etc. Interruption of water supply, gas,
electricity or fuel systems. Collapse or cracking of the building. Willful act or gross
negligence. War, Invasion, mutiny, rebellion, revolution etc. Damage direct or
indirect by nuclear weapons material and contamination by radioactivity.
Calculation of Industrial Insurance Amount/Premium:
The
sum
insured
is
generally
equal
to
the
market
value
of
the
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After getting clearance from the surveyor, proceed for repairing machine or
ordering for replacement.
Submit actual bills of repair/replacement with proof of payment to the surveyor the
claim process.
Documents Required for Industrial Insurance Claim Process:
1. Copy of FIR
2. List of loss/damage of stock/equipment
3. Claim Form
List of Some of Insurance Companies Offering Industrial Insurance:
o ICICI Lombard - Industrial Plan
o United India Insurance Co. - Industrial Plant & Machinery Policy
o The New India Assurance Co. - Industrial Products
IV. Marine Insurance:
Since time immemorial, merchants engaged in maritime commerce have explored
ways to ensure the security essential for the transportation of their merchandise.
The onslaught of the perils of the sea has always threatened the safe passage of
goods across the seas and frontiers.
Respite from this burden of trade was only possible through mutual aid and
assistance. Traders pooled together a fund that could be utilized in the contingency
of their partner. Thus became the foundation of what today is popularly known as
Marine Cargo Insurance.
Marine Insurance is the oldest form of insurance in the world. In the olden days,
London as the centre of the British Empire had the greatest share of the world's
trading and commercial activities and it was here that marine insurance principally
developed.
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Marine insurance falls under commercial insurance. The policy is taken to reduce
business risks. It caters to small scale business organizations to large corporate.
Policy does not cover loss or damage due to willful misconduct, ordinary leakage,
improper packing, delay, war, strike, riot and civil commotion.
Different types of Marine Insurance are available:
1. Marine import transit insurance
2. Marine export transit insurance
3. Marine inland transit insurance
4. Marine insurance claim procedure
Calculation of Marine Insurance Amount/Premium:
Amount of premium depends on factors like nature of cargo, scope of cover,
packing, mode of conveyance, distance and past claims experience. Premium can
be paid on a monthly/quarterly/half-yearly/yearly basis.
Marine Insurance Claim Procedure:
In case of loss/damage in transit, a monetary claim should be lodged with the
carrier within the time limit to protect recovery rights
Appointment of surveyor or claim representative in agreement with the insurer to
determine the nature, cause and extent of loss/damage
The surveyor informs the insurer of the approximate value of loss incurred
Documents Required for Marine Insurance Claim:
1. Original Invoice & packing List - if forming part of Invoice
2. Document of declaration of consignment
3. Damage Certificate from the carrier
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V. Shop Insurance:
Shop Insurance is specially designed to meet the needs of small shopkeepers. For
any retailer, the shop is not only an asset but also is his/her main source of income.
Retailers shudder to think about anything that could go wrong with their premises.
But calamities do happen and it is very important for them to safeguard their
premises. The shopkeeper insurance policy is specifically designed to cover all the
risks and contingencies faced by small or medium-sized shop owners. It provides
protection for the property and the interests of the insured (and their partners) in
the business venture. As a shop owner, once you buy a shop insurance policy, the
insurer agrees to cover you for losses incurred in natural and manmade calamities.
The sum insured depends on the value of your shop and the value of the contents
of the shop. The value of the shop is calculated on the basis of the estimated cost of
rebuilding it completely. The contents of the shop are assessed according to their
value at the time of purchasing the shop insurance policy. The valuation would also
include electrical and mechanical appliances in the shop.
It is a comprehensive insurance, catering to different insurance needs of
shopkeepers. One policy per shop is generally given by insurers. It covers damage/
loss to shop due to fire, burglary, riot, strike, loss of money in transit, fraud
committed by client's employees etc. The policy is meant for shops only, hence
restaurants and tea /coffee shops cannot be insured under this insurance policy.
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Covered Risks: The coverage provides for damage to the building against fire and
its associated perils due to natural or man-made calamities.
Natural calamities include fire, lightning, earthquake, fire, landslide and rockslide
damage, floods, inundations, storms, tempests, typhoons, hurricanes, tornados, or
cyclones.
Man-made calamities include explosion of gas in domestic appliances, bursting
and overflowing tanks or pipes, damage caused by aircrafts, riots, strikes,
malicious or terrorist acts, and impact damage.
Exclusions:
Insurance companies are selective about the risk covers they offer in shopkeepers'
insurance policies. For instance, some may charge an additional price for cover
against terrorist activities. Others may enforce deductibles that expect you to pay a
portion of the claim amount.
Loss, destruction or damage caused by:
War, invasion, foreign enemy hostilities, war-like operations, civil war, mutiny,
civil commotion, Nuclear activity, Pollution or contamination.
Calculation of Shop Insurance Amount/Premium:
The shop is generally insured on a market value basis less the depreciation cost.
Articles in the shop are insured on cost price. Premium amount may vary from
insurer to insurer and the number of sections a person is availing under the policy.
Discount in premium is sometimes given by companies depending upon the
number of sections opted for by the insured. Premium can be paid on a
monthly/quarterly/half yearly/ yearly basis.
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The Residual Market: Businesses that cannot obtain insurance in the standard
market may have another choice, depending on the type of insurance they need,
where they are located and why they have been rejected for coverage. If they are
looking for property coverage and are considered high risks because of conditions
beyond their control, they may be eligible for insurance under state-run programs
known collectively as the residual, involuntary or shared market because
all property insurers doing business in the state share in the premiums and losses.
In addition, since auto liability insurance is mandatory in all states, all 51
jurisdictions provide auto insurance programs for businesses that have difficulty
obtaining auto insurance in the standard market. Most are assigned risk plans,
where all auto insurers in the state are assigned residual market applicants on a
rotating basis according to their market share. A few states have somewhat
different arrangements to ensure that nobody has to drive without liability
insurance.
3.2 REINSURERS:
Just as businesses are able to transfer risk to insurers, known as primary insurers
in the insurance community, insurers are able to transfer or cede some of the
risk they assume in insuring businesses to other insurance companies, known as
reinsurers. By transferring some of the risk primary insurers reduce their liability
for losses, which allows them to write more insurance. Some insurers are heavily
reinsured, others are not.
Reinsurers reimburse primary insurers for losses, according to the terms of the
reinsurance contract, either on a shared or proportional basis, with the primary
insurer and reinsurer sharing both the losses and the premiums collected from the
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surplus lines brokers in the state where the policyholder or the risk to be insured
is located. Wholesale brokers may also work with other wholesale brokers in the
London Market, or elsewhere to secure coverage.
Wholesale brokers may also be managing general agents, who are given authority
by insurers to underwrite and bind insurance -- provide temporary coverage
until an insurance policy can be issued. Managing general agents, who have a
close relationship with the insurance companies they work with, may also handle
claims and even help in the placement of reinsurance contracts.
Managing general agents may also arrange so-called program business which is
specialty insurance for homogeneous groups of policyholders, such as members
of a specific industry. These programs, often offered and endorsed by trade
associations, may provide coverage at lower prices. As insurers seek out niche
products, programs are increasingly available to a wide range of businesses and
organizations from bed and breakfast inns to churches. Programs may also
provide specially tailored liability insurance for professionals, such as vocational
or physical rehabilitation specialists who work part or full time out of a home
office. To be successful, a program must generate a sufficient volume of premium
and the risks within each program must be relatively homogeneous.
Compensation
Insurance company employees, whether they work for standard, surplus lines or
reinsurance companies, are compensated the same way that employees in other
industries are compensated, with bonuses and other incentives in many
companies for outstanding contributions to the organization.
Producers and others in the retail and wholesale distribution system are
compensated in a variety of ways. Captive insurance agents are compensated by
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its ability to meet its obligations to policyholders. Rating downgrades are watched
closely and can significantly affect an insurer's
ability to attract and retain business.
Among the factors they consider are:
1. Company earnings over a period of years to assess stability and sources of
profits and control over expenses
2. Capital adequacy and operating leverage (Capital is the cushion that allows
a company to keep its commitments even if the value of its assets falls or
its liabilities increase.)
3. Investment performance and investment risk management
4. The strength of an insurers reinsurance program (an important cushion in
the event of a catastrophe.)
5. Managements ability, experience and integrity.
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4. COMPANY OPERATIONS
4.1 COMMERCIAL UNDERWRITING:
Insurance companies protect businesses from financial loss by assuming billions
of dollars in risks each year. It is the underwriters responsibility to evaluate a
businesss risk of loss and decide whether to insure the business and if so, at what
price.
Evaluating risks involves considerable research. Information on applications is
often supplemented with reports from loss control consultants, medical reports,
information from data vendors, and actuarial studies. For example a factorys
application may require an engineering survey, a fire hazard survey or other
investigations. The Internet has greatly enhanced the resources available to
underwriters doing research on a business. Based on its research, the underwriting
department may require the applicant to make changes to improve safety, or
decide not to provide coverage.
Technology plays an important role in an underwriters job. In addition to using
the Internet for research, underwriters use specialized computer applications to
manage risks more efficiently and accurately. Depending on the nature of the risk
and the complexity of the insurance policy, these systems automatically analyze
and rate insurance applications, recommend acceptance or denial of the risk, and
adjust the premium rate in accordance with the risk. The greater the risk and
complexity of an operation, the more likely that the policy will be specifically
tailored to meet the policyholders needs. In making all these decisions,
underwriters serve as the main link between the insurance company and the
insurance broker or agent. Underwriters also work closely with claims personnel.
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4.2 CLAIMS:
When an insured business suffers a covered loss, it submits a claim seeking
compensation. Insurance claims departments handle a wide variety of claims for
property damage, liability, and bodily injury. Their main role is to investigate the
claims, negotiate settlements, and authorize payments to claimants. They must
determine whether the customers insurance policy covers the loss and how much
of the loss should be paid to the claimant, depending on deductibles or retentions,
co-payments and other risking sharing provisions in the policy. .
Insurance company claims adjusters plan and schedule the work required to
process a claim that would follow a loss, for example, an accident at processing
plant or damage to a business property caused by a hurricane. They investigate
claims by interviewing the claimant and witnesses, consulting police and hospital
records, and inspecting property damage to determine the extent of the insurers
liability. Adjusters may also consult with accountants, architects, construction
workers, engineers, lawyers, physicians and other experts. Most claims are easily
settled. When claims are contested, adjusters will work with attorneys and expert
witnesses to defend the insurers position. When adjusters or examiners suspect
fraud, they refer the claim to an investigator specially trained to detect and
investigate fraud.
4.3 LOSS CONTROL:
Loss control activities aimed at preventing or reducing the size of losses due to
accidents and theft have been integral to the insurance industry as far back as
1752 when Benjamin Franklin, founder of the first U.S. fire insurance company,
launched a fire safety campaign to teach property owners how to recognize and
remove fire hazards.
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property or personal property. Real property is land and the attachments to the
land, such as buildings. Personal Property is all property that is not real property.
The Building and Personal Property coverage form is the form used to insure
almost all types of commercial property. The insuring agreement in the Building
and Personal Property coverage form promises to pay for direct physical loss or
damage to covered property at the premises described in the policy when caused by
or resulting from a covered cause of loss. The following is a brief outline of
coverage and how they are used within the Commercial Building and Personal
Property coverage form.
6.2 Buildings and Business Personal Property:
Coverage for the building includes the building and structures, completed additions
to covered buildings, outdoor fixtures, permanently installed fixtures, machinery
and equipment. The building material used to maintain and service the insured's
premises is also insured. Business Personal Property owned by the insured and
used in the insured's business is covered for direct loss or damage. The coverage
includes furniture and fixtures, stock, and several other similar business property
items when not specifically excluded from coverage. The policy is also designed to
protect the insured against loss or damage to the personal property of others while
in the insured's care, custody or control.
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Fire Insurance
Marine Insurance
Industrial Insurance
Commercial Vehicles
Corporate Insurance
Credit Insurance
Liability Insurance
Shop Insurance
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7.2
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Again they
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Questionnaire
1.How many types of commercial insurance does you have?
Ans: Property insurance,
Liability insurance,
Worker compensation.
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9. CONCLUSION
In many ways it is a commoditized industry where many companies compete
mostly on price and on perceived service. For years, insurance companies have
sought ways to price risks more effectively and accurately but the business process
has remained largely unchanged. With recent advances in computing, insurance,
whether it is personal or commercial insurance, is something we all need but hope
companies now have the ability to improve pricing precision and enhance customer
service. PA holds the promise for greater competitive pricing advantage while
simultaneously enabling an overhaul in customer service delivery and enhanced
data collection and data quality. As these advances transform the personal and
commercial insurance industries, an emerging school of thought and technology is
developing around automated decision making. EDM or the strategy, process,
and technical infrastructure components that enable automated decision making
across an enterprise offers companies across all industries a holistic approach to
processing information in a systematic manner. While it seems intuitive that EDM
and PA are a natural convergence, they are seldom discussed as part of an
integrated solution. Taking it a step further, unless a process is in place to
consistently and accurately act on predictive analytics insights in an automated
manner, the benefits of predictive analytics may never be fully realized.
PA in commercial lines is no longer in its infancy but has evolved to be a necessary
core competency among many of top 100 insurance carriers. As the market
becomes more and more saturated with predictive analytics, the pricing advantage
enjoyed by early adopters no longer exists, as the playing field has been leveled.
Insurers are also being faced with soft market and external market pressures, which
creates an even greater emphasis on "getting it right" from a pricing perspective.
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BIBLIOGRAPHY
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http://www.surfindia.com/finance/shop-insurance.html
http://www.icicilombard.com/app/ilom-en/Businessproducts/Fire-Perils.aspx
http://www.bajajallianz.com/BagicCorp/index.jsp
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