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COMMERCIAL INSURANCE

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.

COMMERCIAL INSURANCE

1.2 DEFINITION AND MEANING:


1. The act, system, or business of insuring property, etc., against loss or harm
arising in specified contingencies, as fire, accident, or the like, in consideration of a
payment proportionate to the risk involved.
2. Coverage by contract in which one party agrees to indemnify or reimburse
another for loss that occurs under the terms of the contract.
3. The contract itself, set forth in a written or printed agreement or policy.
4. The amount for which anything is insured.
5. An insurance premium.
6. Any means of guaranteeing against loss or harm.
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 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.

COMMERCIAL INSURANCE

2. DIFFERENT TYPES OF COMMERCIAL INSURANCE

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.

COMMERCIAL INSURANCE

2.1 PROPERTY INSURANCE:


Property insurance pays for losses and damages to real or personal property.
Property insurance provides protection against most risks to property, such as fire,
theft and some weather damage. Property is insured in two main ways - open perils
and named perils. Open perils cover all the causes of loss not specifically excluded
in the policy. Common exclusions on open peril policies include damage resulting
from earthquakes, floods, nuclear incidents, acts of terrorism and war. Named
perils require the actual cause of loss to be listed in the policy for insurance to be
provided. The more common named perils include such damage-causing events as
fire, lightning, explosion and theft. For example, a property insurance policy would
cover fire damage to your office space.
i.

Boiler and Machinery Insurance:


Boiler and machinery insurance sometimes referred to as "equipment
breakdown" or "mechanical breakdown coverage," provides coverage for the
accidental breakdown of boilers, machinery, and equipment. This type of
coverage usually will reimburse you for property damage and business
interruption losses. For example, this coverage would cover fire damage to
computers.

ii.

Debris Removal Insurance:


Debris removal insurance covers the cost of removing debris after a fire, flood,
windstorm, etc. For example, a fire burns your building to the ground. Before
you can start rebuilding, the remains of the old building have to be removed.
Your property insurance will cover the costs of rebuilding, but not of removing
the debris.

COMMERCIAL INSURANCE

iii.

Builder's Risk Insurance:


Builder's risk insurance covers buildings while they are being constructed. For
example, a Builder's risk policy would cover losses if a windstorm takes down
your partially constructed condominium complex.

iv.

Glass Insurance:
Glass insurance covers broken store windows and plate glass windows.

v.

Inland Marine Insurance:


Inland marine insurance covers property in transit and other people's property
on your premises. For example, this insurance would cover fire-damage to
customers' clothing from a fire at your dry cleaning business.

vi.

Business Interruption Insurance:


Business interruption insurance covers lost income and expenses resulting
from property damage or loss. For example, if a fire forces you to close your
doors for two months, this insurance would reimburse you for salaries, taxes,
rents, and net profits that would have been earned during the two-month
period.

vii.

Ordinance or Law Insurance:


Ordinance or law insurance covers the costs associated with having to
demolish and rebuild to code when your building has been partially destroyed
(usually 50 percent). For example, your three-story building is 100 years old. A
flood destroys the basement and first two stories. Because more than 50
percent of your building has to be rebuilt, a local ordinance requires that the
building be completely demolished and rebuilt according to current building
codes. Property insurance covers only the replacement value, not the upgrade.
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2.2 LIABILITY INSURANCE:


This commercial insurance provides coverage for injuries caused by a business
concern or the individual business owner to third parties as a result of which the
person or another business concern so affected may sue either the business concern
or the individual business owner for personal injuries or property damages. This
kind of a commercial insurance policy makes payments towards the insurance
claimed by the policy holder for the cost of defending and resolving the law suit
brought against him or her.
In contrast, a general commercial liability insurance policy will only provide
coverage to the policy holder for the common risks such as customer injuries on
the premises of the business concern.
Liability insurance is a part of the general insurance system of risk financing. With
increased globalization the need for liability insurance is gaining importance. Be it
manufacturing unit or a service industry, every industry segment is exposed to
liability claims. With increased awareness of ones rights, the number of such
claims has increased many folds over the years. With Globalization such types of
claims, has crossed the geographical limits. Apart from the huge outgo in such
types of claims, a huge amount is spent on the litigation process, thereby crippling
the companys financials. As such it becomes all the more vital to be properly
equipped to fight such unwelcome situations. Liability insurance is designed to
offer specific protection against third party claims, i.e., payment is not typically
made to the insured, but rather to someone suffering loss who is not a party to the
insurance contract. In general, damage caused intentionally and contractual
liabilities are not covered under liability insurance policies. When a claim is made,
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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 Insurance:

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.

Directors' and Officers' Liability Insurance :

It provides insurance coverage in order to make payments towards the legal


cases that may be filed against the directors and officers belonging to
corporations and nonprofit organizations.

COMMERCIAL INSURANCE

2.3 WORKERS' COMPENSATION INSURANCE:


The Policy covers liabilities falling on the employers for death or injury sustained
by his employees who falls in the category of `workman as defined in the
Workmen Compensation Act. The Policy covers statutory liability as well as
liabilities arising under Common Law. The employees not falling under the
definition of `workman can be covered under the Common Law. The Policy
primarily includes the liabilities towards the employees, whilst on work. Medical
expenses can also be covered at the Insureds options. The premium depends on the
annual wages disbursed to the employees and the type of work the employee is
engaged in. Workers' compensation insurance covers you for an employee's on-thejob injuries. Businesses with employees are required by various state laws to carry
some type of workers' compensation insurance. In most cases, workers'
compensation laws prohibit the employee from bringing a negligence lawsuit
against an employer for work-related injuries.Most employers purchase workers
compensation insurance plans from insurance companies specifically designed to
provide workers compensation insurance benefits. In some countries, these are
mandatory, with the exception of a few jurisdictions that allow larger companies to
insure themselves. Smaller companies, however, such as those with just a handful
of employees, need not purchase such plans.
The goal of workers compensation insurance is to get the injured employee back
on his feet and working again as quickly as possible without causing the employer
unnecessary hardship or loss of business.

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2.4 OTHER TYPES OF COMMERCIAL INSURANCE:


I. Agriculture Insurance:
Agricultural Insurance provides the farmers insurance coverage and financial help
in time of their needs. India is a land of agriculture and a vast majority of people
depends on this profession. Agriculture in India is vulnerable to many kinds of
damages which are caused by natural calamities like flood, excessive rain and hailstorming, diseases and pests which play havoc on the crops. Agricultural insurance
schemes provide the farmers financial support in case they are caught in any
undesired situation which proves fatal to their crops.
Agricultural Insurance in India mainly covers the agricultural lands which are
spread over rain-soaked areas. The farmers in India having their lands in the flood
and rain affected regions often bear the brunt of the nature. The agricultural lands
are washed away by excessive rain causing flood which damages crops.
Sometimes, crops are attacked by pests or they die of diseases. These types of
sticky situations often prove very fatal for the farmers.
To save the farmers from these kinds of difficult situations, there are several
agricultural insurance companies in India. These companies compensate the losses
of the farmers done by any natural calamity. Besides, Crop Insurance schemes in
India also encourage the farmers for implementing progressive farming techniques
through the usage of technologically rich agricultural apparatus and high value inputs.
Agricultural Insurance schemes in India are looked after by Agriculture Insurance
Company of India Limited (AIC) which has been formed by the Government of
India. The national corporation of agricultural insurance was set up in the larger
interest of the farmers. Agriculture Insurance Company of India Limited (AIC)
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promotes 5 other organizations, each of them having individual percentage of share


holdings.
India is an agrarian society with 75% of the population depending on it, for their
livelihood. Agriculture or crop insurance has assumed importance with large scale
damage caused due to pest attacks, crop diseases and vagaries of weather. The
objective is to provide insurance coverage and financial support to the farmers in
the event of failure of any of the notified crop as a result of natural calamities,
pests & diseases. The list of crops being covered for insurance differs from state to
state. Generally quite a few Kharif and Rabi season crops are covered. These crops
are insured at the community/block/gram panchayat levels. Agriculture insurance
schemes are of immense help to farmers, providing them with financial security.
Calculation of Agriculture Insurance Amount/Premium:
The amount of premium depends on a number of factors like size of land of the
farmer, his financial standing, number of crops being insured and the sum insured.
Agriculture Insurance Claim Procedure:
Farmers can claim from the banks by submitting a claim form. The claim
representative will analyze the extent of damage caused to the crops. Based on the
report of the surveyor, the claim is given to farmers within a month.
Documents Required for Agriculture Insurance Claim:
1. The farmer must approach the designated branch / PACS and submit the
proposal form in the prescribed format.
2. The farmer must provide documentary evidence in regard to the possession of
cultivable land (copy of the pass book and extract.
3. Land revenue receipt should be enclosed
4. The farmer must furnish area sown confirmation certificate, if required.
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List of Some of Insurance Companies Offering Agriculture Insurance:


o Agriculture Insurance Co. of India - Varsha Bima
o United India Insurance Co. - Rural Policies
II. Fire Insurance:
Fire Insurance is governed by All India Fire Tariff effective from 31.3.2001 issued
by Tariff Advisory Committee, a Statutory Body. It is a commercial policy
covering building, offices, machinery, contents and personal belongings of the
office. It mitigates the risk of loss of customers arising from fire breakout. The
insured should take all possible steps to minimize the loss.
What are the risks covered under fire insurance?
Fire insurance business in India is governed by the All India Fire Tariff that lays
down the terms of coverage, the premium rates and the conditions of the Fire
Policy. The fire insurance policy has been renamed as Standard Fire and Special
Perils Policy. The risks covered are as follows:
Fire:
Destruction or damage to the property insured 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. For e.g., paints or chemicals in a factory
undergoing heat treatment and consequently damaged by fire is not covered.
Further, burning of property insured by order of any Public Authority is excluded
from the scope of cover.
Lightning:
Lightning may result in fire damage or other types of damage, such as a roof
broken by a falling chimney struck by lightning or cracks in a building due to a

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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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Documents Required for Fire Insurance Claim:


1. True copy of the policy along with schedule.
2. Report of fire brigade.
3. Claim Form
4. Photographs
5. Past claims experience
List of Some of Insurance Companies Offering Fire Insurance:
o ICICI Lombard - Fire and Special Perils Policy (Material Damage)
o United India Insurance Co. - Standard Fire and Special Perils Policy
III. Industrial Insurance:
Industrial insurance is a comprehensive policy covering a gamut of products. This
is a specially designed policy covering any kind of loss or damage caused to the
products it covers.
This policy is a Comprehensive Package Policy which covers almost all risks and
perils, which a large industry may face during its operation. This policy covers
Buildings, Machinery, Furniture, Fixtures, Fitting & electrical installations on
Reinstatement value, while the stock is covered on market value basis.
Underinsurance on each item of the schedule will be ignored if it does not exceed
15% of sum insured. Policy also covers equipments and machinery sent for repairs
outside the premises for a period of 60 days. Transit risk inside the compound of an
industry is also covered.
Covered Risks:
Bursting and overflowing of water tanks, apparatus and pipes, Deterioration of
stocks due to power failure following damage to premises of public power stations
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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

equipment/machinery being insured. The insured amount also includes cost of


installation, duty, taxes, freight etc. If the amount insured is less than the market
price, then the claims are paid proportionately.
Industrial Insurance Claim Process:
Insured should inform the insurer's office by phone, letter or fax.
Necessary steps should be taken to minimize the loss.
Obtain estimate of repair from repairer of your choice.
The claim process takes anywhere between one to three weeks.
Submit this repair estimate and claim form to the surveyor deputed by the
insurance company.
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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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List of Some of Insurance Companies Offering Marine Insurance:


o ICICI Lombard - Marine Import Transit Insurance Policy
o United India Insurance Co. - Marine Cargo
o The New India Assurance Co. - Marine Cargo Policy.

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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Shop Insurance Claim Procedure:


Take necessary steps to minimize the loss/damage.
Report the claim to insurer.
A surveyor appointed by the company will analyze the damage /loss incurred.
The claim process takes anywhere between 7-21 days.
Documents Required for Shop Insurance Claim:
1. Copy of FIR in case of theft
2. List of articles loss/damage
3. Proof of ownership of shop
4. Claim form
List of Some of Insurance Companies Offering Shop Insurance:
o ICICI Lombard - Shop Cover
o The New India Assurance Co. - Policy Package For Shop
o United India Insurance Co. - Protection Against Damage of Shop
o Bajaj Allianz - Shop/ Showroom Insurance

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3. PARTICIPANTS OF COMMERCIAL INSURANCE


3.1 INSURANCE PROVIDERS:
The providers of commercial insurance are extraordinarily diverse. They vary in
size, specialty and role in the industry.
Insurance Companies: Insurance companies can be categorized in many ways.
One is by the size of their policyholder surplus or capital. The larger the
policyholder surplus the more risk they can assume. The smallest companies have
less than $1 million in surplus and the largest more than $2 billion. Most fall into
the $250 million and under policyholder surplus category. Insurers can also be
divided according to premiums, which are roughly equivalent to revenues.
The largest have premiums in excess of $10 billion. Most commercial insurers are
stock companies owned by their stockholders, but some are mutual, which are
owned by their policyholders, and a few are reciprocal insurance exchanges.
Reciprocals are an old form of insurance entity where members or subscribers
provide insurance to one another; share profits, losses and expenses; elect a
board; and appoint an attorney-in-fact, which may be an individual or a
corporation, to manage the operation.
An insurance company may be a single entity or a holding company with
subsidiaries. Subsidiaries may be organized to operate in a single state, sell
different insurance products from the parent organization or cater to a
nonstandard market. Some parent companies are domiciled outside the United
States and some insurers have non-insurance related parents. Large commercial
insurers generally operate in most states and some have global operations.
Smaller or specialized insurers may focus on a specific geographical area or
specific states.

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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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commercial policyholder, or on an excess-of-loss basis, with the reinsurer


assuming losses above a certain level for a fee. Reinsurers also spread the risk
they have assumed as a result of the reinsurance transaction by selling off slices
and layers of risk to other reinsurers all over the world.
Reinsurance is an international business. Six countries were represented among
the 10 top global reinsurers in 2003. The top two are German and Swiss, each
with more than twice the premium volume of the next two, which are U.S.
companies.
3.3 DISTRIBUTORS:
Distribution
At the retail level, commercial insurance is distributed by insurance agents and
brokers who work for organizations that are part of the distribution system,
insurance agencies and brokers. Recently, however, the lines between agencies
and brokers have become blurred. Traditionally, agents have represented the
insurance company and brokers have represented the client.
Agents and brokers are known as producers. Agents may be captive agents selling
policies written by a single insurer, the agents employer, or an independent agent
selling policies from a number of different insurers. Independent insurance
agencies have a larger portion of the commercial lines business than captive
agencies -- about two-thirds. For personal lines, the ratio is reversed.
It is the brokers responsibility to seek out appropriate insurance coverages for the
client and obtain the best overall price, terms and conditions. Brokers are most
often associated with large or complex commercial lines risks.
Brokers may also become wholesalers who act as intermediaries between retail
brokers or agents and insurance company underwriters. To be able to transact
business with surplus lines insurers, wholesale brokers must be licensed as
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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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their insurance company employers, while independent agents are compensated


by the insurers with whom they have placed business. Independent agent
commissions may be calculated based on the business received, and percentages
may differ among insurers and for different types of coverage. Independent
agents may also receive contingent commissions, not unlike incentives provided
in other industries to their sales force, for a high volume of business or business
that was especially profitable.
3.4 RISK MANAGERS:
Risk management deals with loss exposures -- circumstances that exist inside or
outside a companys operations that have the potential to cause a loss. A major
incident such as a fire or explosion at a manufacturing plant or hurricane force
winds that lift the roof off the building could shut down operations. On the
liability side, a lawsuit, if successful, could jeopardize a
companys financial well-being.
Large companies generally employ risk managers to manage the risk of loss. It is
the risk managers responsibility to anticipate, evaluate and minimize the adverse
impact of all possible losses. Strategies for controlling losses include avoidance -avoiding the activity that could produce a loss altogether if the activity, product or
service cant be modified; loss control techniques, such as limiting access to
warehouses to reduce the incidence of theft; and transferring the financial
consequences of potential losses to an insurance company.
3.5 RATING AGENCIES:
Rating agenciesprivate firms that evaluate insurance companies financial
strengthplay an important part in the insurance marketplace. The ratings issued
by these agencies represent their opinions of an insurers' financial condition and
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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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Insurance companies, agencies and brokerage firms may provide safety


inspection and engineering services as part of the services they offer to industrial
and business clients. The insurers safety engineer or loss control expert may also
be called on by an underwriter to perform a safety audit before an insurance
policy is written.
Loss control produces widespread benefits. For instance, a loss control
professional's recommendations for controlling fire hazards in a particular factory
benefit not only the factory owners, but also protect the financial security of
employees and their families by enhancing worker safety. In addition, owners and
occupants of adjoining buildings are protected from spreading fires. Businesses,
having avoided ruin by fire, continue to contribute taxes and other benefits to
their community.

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5. COMMERCIAL INSURANCE AGENT


The Commercial Insurance Agent is a professional who assists a business
owner in making one of the most important investments in the form of
Commercial Insurance in order to protect his or her business from the potential
losses that may be caused by unexpected and unfortunate circumstances.
A Commercial Insurance Agent (or a business insurance agent) provides
valuable advice to business owners regarding the most profitable Commercial
Insurance policies which not only protect the businesses against such things as
theft, property damage, and liability but also provide coverage for businesses
against all sorts of interruptions and employee injuries.
It may also happen that a particular business owner commits his or her individual
cash and/or property to unforeseen danger by not securing sufficient commercial
insurance. In such cases the business owners desperately require the advice of a
dependable Commercial Insurance Agent who insists the business owners to
subscribe to the most suitable Commercial Insurance
policy available.
Commercial Insurance Agents are reliable insurance agents who specialize in
commercial insurance policies that enable all kind of business concerns to run and
progress freely without constraints. Commercially insured business concerns can
operate and grow freely without the fear of any kind of danger that might hamper
its existence.
The Commercial Insurance Agent that the business owner has decided upon
should be capable of discussing different types of commercial insurance policies
with him or her and thereby assist the business owner in selecting the most
suitable Commercial Insurance policy that fulfills all or most of the individual
requirements of the business owner.

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6. COMMERCIAL INSURANCE COVERAGES


6.1 Commercial Property Coverage :
Property Insurance is any type of insurance that indemnifies an insured party who
suffers a financial loss because property has been damaged or destroyed. Property
is considered to be any item that has a value.

Property can be classified as real

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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6.3 Coverage Extensions and Additional Coverage:


In addition to the limits stated in the Building and Personal Property coverage
form, the policy has a coverage extensions section and an additional coverage
section. The coverage extensions section provides limited coverage for newly
acquired or constructed property, property of others, certain outdoor property, and
the cost to research and reconstruct information on destroyed records. When
coverage is placed on the all risk form, two additional extensions are added for
property in transit and coverage for certain repair costs related to damage caused
by water. The two additional extensions are covered by certain perils only. The
additional coverage section provides coverage for indirect losses that result from a
direct loss. The coverage applies to removal of debris, preservation of property, fire
department service charges and pollutant cleanup and removal.
6.4 Physical Damage Coverage:
Collision Coverage:
This coverage provides protection against loss or damage to a covered auto or a
non-owned auto resulting from the impact with another vehicle or object. Collision
losses are paid regardless of fault.
Comprehensive Coverage:
Comprehensive coverage provides protection against loss or damage to a covered
auto resulting from loss other than a collision or upset. This coverage also provides
for supplemental payments for transportation expenses in the event of total theft of
a covered auto or a non-owned auto. Coverage begins forty-eight hours after the
theft.

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7. COMPANIES PROVIDING COMMERCIAL INSURANCE


7.1
ICICI Lombard General Insurance Company Limited is a joint venture between
ICICI Bank Limited and the US-based $26 billion Fairfax Financial Holdings
Limited. ICICI Bank is India's second largest bank; while Fairfax Financial
Holdings is a diversified financial corporate engaged in general insurance,
reinsurance, insurance claims management and investment management.
ICICI Lombard General Insurance Company received regulatory approvals to
commence general insurance business in August 2001.
ICICI Lombard figures among top commercial insurance companies of India.
The company covers business products which include:

Fire Insurance

Marine Insurance

Industrial Insurance

Commercial Vehicles

Corporate Insurance

Credit Insurance

Liability Insurance

Shop Insurance

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7.2

Bajaj Allianz General Insurance Company Limited is a joint venture between


Bajaj Auto Limited and Allianz AG of Germany. Both enjoy a reputation of
expertise, stability and strength. Incorporated on 19th September 2000 Bajaj
Allianz General Insurance Company received the Insurance Regulatory and
Development Authority (IRDA) certificate of Registration (R3) on May 2nd,
2001 to conduct General Insurance business (including Health Insurance
business) in India. The Company has an authorized and paid up capital of Rs
110 crores.
Bajaj Allianz is one of the leading commercial insurance companies in India. It
offers various commercial insurance plans which include areas like:
Aviation
Project Insurance
Marine Hull Insurance
Sports and Entertainment Insurance
Employees Insurance
Some of the highlights of the Employees Insurance Scheme of Bajaj Alliance are
as follows:
Group Personal Insurance
Group Health Guard
Group critical Illness

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8. FINDINGS AND ANALYSIS


Commercial insurance is essential in today business life. It is one of the most
important investment a business owner can make. It can provides valuable
protection again theft, property damages and liability. Commercial insurance a
significant roll in the world economy without it cannot function. Because it cover
risk more than approximately 50% to 60% . Under the commercial insurance.
Commercial covers property insurance, liability insurance, and worker
compensation insurance
Under the property insurance they covers boiler and machinery insurance, debris
removal insurance, builder risk

insurance, glass insurance, inland marine

insurance, business interruption insurance, law insurance, crime insurance, and


fidelity insurance.
In liability insurance they cover errors and omission insurance, malpractices,
automobiles insurance, directors and officers liability insurance.

Again they

provides agricultural insurance, fire insurance, industrial insurance ,marine


insurance, and shop insurance.
So they can covers maximum risk covered policy like marine, general and also
commercial insurance. So in present it has wide market business industry for
insurance.

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Questionnaire
1.How many types of commercial insurance does you have?
Ans: Property insurance,
Liability insurance,
Worker compensation.

2.In property insurance which types of insurance you provides?


Ans : Boiler and machinery insurance
Debris removal insurance
Builder risk insurance
Glass insurance
Inland marine insurance
Business interruption insurance
Law insurance
Tenant insurance
Crime insurance
Fidelity insurance
3.In liability insurance which types insurance does it covers?
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Ans: Errors and omission insurance


Malpractices insurance
Automobile insurance
Directors and officers liability insurance
4.In addition you have provides any other commercial insurance? And what they
are?
Ans: Yes,
Agricultural insurance
Fire insurance
Industrial insurance
Marine insurance
Shop insurance

5.How many parties involved in commercial insurance

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Ans: insurance provider


Residual market
Reinsurers
Distributors
Risk manager
Rating agency

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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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PA is one piece of a broader strategy for commercial insurance carriers to leverage


its most important asset data. A holistic view of data makes for a powerful
position and greater business agility. And an agile company is ahead of the pack,
where many significant opportunities lie.

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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