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TABLE OF CONTENTS

CHAPTER 1 ................................................................................................................................................ 1
OVERVIEW OF INSURANCE ................................................................................................................. 1
1.1. CONCEPT OF INSURANCE ......................................................................................................... 1
1.2. TYPES OF INSURANCE PRODUCT ........................................................................................... 2
1.2.1. Life Insurance............................................................................................................................ 2
1.2.2. Non-life Insurance ..................................................................................................................... 4
1.2.3. Miscellaneous Insurance........................................................................................................... 7
1.3. EVOLUTION OF INSURANCE IN NEPAL ................................................................................ 8
1.4. NEED FOR INSURANCE POLICY .............................................................................................. 9
1.5. INSURED AND INSURER INTER-RELATION ....................................................................... 12
1.6. NEPALESE INSURANCE CURRENT SCENARIO ................................................................. 13
CHAPTER 2 .............................................................................................................................................. 15
INTRODUCTION TO LUMBINI GENERAL INSURANCE COMPANY LIMITED ..................... 15
2.1. INTRODUCTION.......................................................................................................................... 15
2.2. PRODUCTS OF LUMBINI GENERAL INSURANCE ............................................................. 16
CHAPTER 3 .............................................................................................................................................. 19
ACTIVITIES AT LUMBINI GENERAL INSURANCE ...................................................................... 19
3.1. MARKETING ................................................................................................................................ 19
3.2. UNDERWRITING PROCESS ..................................................................................................... 21
3.3. PREMIUM RATES ....................................................................................................................... 23
3.4. AGENTS ......................................................................................................................................... 23
3.5. CLAIM SETTLEMENT PROCESS AND SURVEYOR ........................................................... 25
3.6. REINSURANCE ............................................................................................................................ 28
CHAPTER 4 .............................................................................................................................................. 30
LEARNINGS ............................................................................................................................................. 30
BIBLIOGRAPHY ..................................................................................................................................... 31
CHAPTER 1

OVERVIEW OF INSURANCE

1.1. CONCEPT OF INSURANCE


Insurance is becoming the most prominent measures to secure the value of life, indemnify the
losses in business and property and to achieve economic development of the nation. Insurance is
the pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify insured
for such losses, to provide other pecuniary benefits on their occurrence. The insurance policy is a
contract between the insurer and the insured, known as the policyholder, which determines that
claims which the insurer is legally required to pay, in exchange for payment, known as the
premium.

Insurance companies are a type of non-bank financial institutions that sell policies and provide
protection from various kinds of risks. More specifically insurance company collect fund in the
form of premium and provide indemnification if the probable loss occur in the future. But financial
institutions provide both benefits and security on the fund collected from their clients. Generally
risks that insurance policies cover include the loss of life, income, or possessions and the high cost
of medical bills
Parties involved in Insurance Policy are:

Insured
A person whose interest is protected by an insurance policy: a person who contracts for an
insurance policy that indemnifies him against loss of property or life or health etc. insured person
may be individual, mortal, person, somebody, someone even soul of a human being.

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Insurer
Insurer is the insurance company which takes the risk of insured person. There are two categories
of insurer: life insurance and non-life insurance. One insurer cannot provide products and services
of both life and non-life insurance simultaneously; means they must establish in distinct base.

1.2. TYPES OF INSURANCE PRODUCT


Insurance Company insures wide variety of uncertain aspects of our life and society that can be
classified as life and general insurance. Life insurance is a contract that is made between an
individual and insurance company where individual agrees to pay premium and in return,
insurance company pays a certain sum of money either on the death of insurer or on the expiry of
a fixed period. It deals only with physical and mental accident of individual whereas general
insurance considers all insurance except life insurance. Life and general insurance are broad
concept and are discussed below.

1.2.1. Life Insurance


Life is uncertain. A man may die relatively young, leaving his dependent without adequate
financial supports. So, life insurance plays a major role to overcome this deficiency. It is an
insurance that is done to safeguard the future of insurers family by giving strength to pursue their
prosperous future. It is not only in the case of death of insurer but also in times of his/her serious
illness or incapable of continuing work. Life insurance provides a support to rebuild the confidence
in future.

Life insurance is a contract providing for payment of a sum of money to the person assured or to
his nominee, on the happening of certain events (Jyotsna & Nishwan 2007:182)

Generally, life insurance is a type of insurance plan conducted by the insurers that is directly
related with providing assurance against the common part of total human life. It is not the assurance
of life as it is impossible. However, it assures and tries to meet the economic aspects of human

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life. It provides future benefits against unseen future accident and it helps to live comfortably
during retirement and incapable stage of life.

Nepal Insurance Act 1992(section 2-1) has defined life insurance as the contract of insurance,
affected on human life on the basis of age to pay a fixed sum to the assured or his nominee, on the
death or on the happening of any contingency, dependent on human life in consideration of
payment of a fixed installment premium by the insured person.

Insurance companies provided various polices in accordance to insured interest and desire. The
policies in life insurance that are common in practice are listed below.

Whole Insurance

Life insurance policy that covers the entire life is called whole insurance. This policy
covers a policy holder against death during his whole life. This policy is a long term policy
that insures the individual throughout his life.

Whole life insurance doesnt have any expiration date. When signing the contract, the
insurance company and the policy holders agree to set a face value (amount of money
benefit in case of death) and a premium.(Rios-Rull, Jay H.Hong & Jose-Victor 2004:6)
This type of life insurance helps in building the value that is paid out to beneficiary in case
of death of policy holder. Moreover, the premium is fixed irrespective of your age.

Term Insurance

Term insurance policy is the most common life insurance policy and it covers for a
specified term. It protects a policyholders life only until its expiration date and after that

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it expired as it is for certain period. This policy premium is less than whole life insurance
premium costs.

It is beneficial for a short period of time and helps in immediate need. For example, it is a
good choice of parents to have coverage of young children for term life insurance until
their children grow enough to make living themselves. (Rios-Rull, Jay H.Hong & Jose-
Victor 2004:5)

1.2.2. Non-life Insurance


Non-life insurance is also called general insurance. Any insurance other than life insurance is
known as non-life insurance. Because of its nature of measuring any risk in terms of money, it is
also said as pure insurance. General insurance is the insurance of property and liable risk of insured
against most specified cost that is premium. It also includes property insurance, liability insurance
and others forms of insurance.

According to David (1983), This part of insurance includes the insurance and risk transfer of the
property and liability of insured where property insurance against loss arising from the ownership
or use of property includes two general classifications. The first in indemnifies the insured in the
event of loss growing out of damage too or destruction of his/her property. The second form pays
damages for which the insured is legally liable the consequence of negligent acts that result in
injuries to other person or damage to their property. This is known as liability insurance. (David
l.Bickelhacpt 1983:80f)

General insurance is designed according to the customer necessity and it is very appropriate for
covering any kind of uncertainty in future. It can play a vital role in building a progressive business
by assuring their business activities. This will propel individuals and business sectors to take risk
and be successful in future.

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There are different kinds of non-life insurance classified according to their nature, which are as
follows:

1.2.2.1. Marine Insurance

The marine insurance is the oldest form of insurance that originated from Greek and maritime loan.
This insurance policy is focused on insuring the loss or damage involved during transportation of
goods from the points of loading to unloading of the goods. It is very essential insurance for the
shipping industry as it protects against loss or damage by peril of the sea and generally, through
the hazards of transit.

In fact, marine insurance provides all kind of assurance during a given period of voyage that
include from natural disaster to other manmade disaster. The modern marine insurance policy
provides the protection against inland transit loss arising on the way to seller and buyer. Marine
insurance can be classified into following categories: (Goel: 151f)

Hull insurance

Cargo insurance

Freight insurance

Liability Insurance

1.2.2.2. Fire Insurance

The insurance policy that covers loss and damages caused by fire is called fire insurance. It is a
contract made to compensate a certain loss or damage during the policy period caused by fire. Fire
insurance plays a pivotal role in compensating the losses as it can cause a huge destruction of
valuable property.

However, the policy of fire insurance can be modified according to need of insurer that may
include wide range of danger close to fire like wind, storm, earthquake, terrorism, explosion, and

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landslide. Fire insurance contract can be customized by changing the premium as for the need of
insurer. (Goel: 143f)

1.2.2.3. Aviation Insurance

Aviation insurance policy covers the loss and damage occurred in aircraft during flights, landing,
and takeoffs. In addition to that, it also covers the risk of passengers and aircraft hull. Aviation is
a big industry at present. So, aviation insurance policy has an immense importance for assuring
any future damage and loss. It includes the hull insurance, aircraft liability insurance and medical
payments too. (Bennett 2004:33f)

1.2.2.4. Motor Insurance

Automobile insurance has immense impact in sharing the loss and controlling the damage caused
from vehicles. This insurance policy helps by covering the losses and damages resulting due to
accidents of vehicles. With the growing number of vehicles in the street, road accidents have been
major threat compared to other means of transport. Automobile insurance policy generally covers
property, liability, and medical expense according to the contract made between insurance
company and insurer. (Goel: 164f)

1.2.2.5. Engineering Insurance

This insurance policy helps in covering losses and damages occurring in construction and
engineering industries. It covers against damages caused in engineering equipment and plants
during the construction stage. From the small machinery to big equipment, everything is insured
under these policies that enable a sound completion of the consignment. (Gabriel 2007:515)

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1.2.3. Miscellaneous Insurance
1.2.3.1. Contractors All Risk Insurance

This insurance provides indemnity to contractors for physical damage that may take place during
the period of construction and also during certain period of maintenance. This policy can be
extended to cover third party liabilities also, depending upon the agreement. (Gabriel 2007: 515f)

1.2.3.2. Money and Transit Insurance

This type of insurance policy is generally required for bank and financial institution that are
involved in receiving and sending cash from one place to another. It provides the indemnity of the
cash loss during transit period. (Gabriel 2007:518)

1.2.3.3. Personal Accident Insurable Policies

The policy helps insurer by financially assuring against being handicapped or disability resulting
from accident. This insurance policy is very important for any individual as it financially helps in
times of need and incapability. (Goel: 170)

1.2.3.4. Fidelity Guarantee Insurance

The Fidelity guarantee insurance covers the loss and damages against the case of fraud and
dishonesty. The owner of firm or organization gets the guarantee against the fraud or betrayal
caused by the employees. There can be a big loss as valuable employees can misuse their position
and involve in fraud. (Goel: 171f)

1.2.3.5. Third Party Insurance

This policy ensures that third parties involved in an incident are protected. So, for example, if you
were to crash into another car and the accident was deemed to be your fault, then your liability to
the driver of the other car would be covered, although you would not be able to claim for damage

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to your own. This is particularly the case the driver is considered by the insurance company to be
a high risk, or the car value is low so it is unlikely to get a pay-out through an insurance claim.

1.2.3.6. Health Insurance


One of the most important types of insurance to have is health insurance. good health is what allows
you to work and earn money and otherwise enjoy life. If you were to come down with a sickness or have an
accident without health insurance you may find yourself unable to receive treatment or even in
debt to the hospital.

1.3. EVOLUTION OF INSURANCE IN NEPAL

The history of insurance practices evolves with Guthi System which is the joint family culture
that has been prevalent from ancient times in Nepal. This system has provided security and
assistance to individuals and families in times of need. It is a kind of trust where lands and money
are allocated from different sources for religious and charitable purposes. Hence, this trust was
referred as Guthi and this money or lands were utilized for a needy purpose, which was called as
a Guthi system. In other words, this was practical system of gathering properties or assets from a
state or people and using in future for some social cause. Guthi is derived from Sanskrit word
Gosthi that refers to an association or an assembly. But modernization and growth of various
small-scale industries brought the necessity of insurance companies in Nepal to insure any loss
and damage. (Neelam Pradhanga, Krishna K. Shrestha& John Dee2009)

In 1937, to meet the growing economic and social development Nepal Bank Limited was
established as the first bank of the country. However, there were not any Nepalese insurance
company and Indian insurance companies were doing business here and taking the premium
collected to foreign land. To stop the strong presence of foreign insurance companies in local
market, Nepal Insurance and Transport Company was establish under the ownership of Nepal
Bank Limited in 1947. It was the first local insurance company ever established in Nepal.

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The democracy in Nepal brought a rapid economic and social revolution and in result, many
industries began to establish. Investment began to increase in education, trade and transport. Many
Indian insurance companies started to have dominance in the Nepalese market as Nepalese
insurance company had limited sources and was still in infant stage. To meet the demand of
increasing need of modern insurance company, Nepal government established Rastriya Beema
Sansthan Private limited. Later, it was converted to Rastriya Beema Sansthan in 1968. (Insurance
Board Nepal)

Beema Samiti was also established in 1968. The word Beema means Insurance and Samiti
means Board in Nepalese language. Hence the word Beema Samiti is synonymous to Insurance
Board, which is constituted to systematize, regularize, develop and regulate the insurance business
within the country under Insurance Act 1992. Deposit Insurance and Credit Insurance Corporation
were established in 2974 and general Insurance Company in 1968. These were the first private
insurance companies in Nepal. After the restoration of democracy, the government initiated
economic liberalization in the country and as a result, many private insurance companies were
introduced.

There are 26 insurance companies registered in Nepal in which 17 are only general insurance
companies and other are either life or both insurance companies.

1.4. NEED FOR INSURANCE POLICY

Life is unpredictable. And insurance is the simplest way to cope with the unforeseen and the
unexpected. It is the best back-up that people or people dependents can rely on when risk becomes
a reality and results in loss of life or property. Plan well and start early. Thats the best way to
make insurance work for people. Premiums will be low, processing will be minimal and a long
term financial cover is in place to take care of later years. Insurance is a contingency plan to take
care of uncertainties.

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It is a way of providing for people dependents and ensuring continuity of their material needs and
wants in your unfortunate absence. It is a way to plan and ensure a regular income whenever people
decide to retire Insurance is a responsibility. It ensures security and mitigates risk. It is an assurance
to someone dependents that he/she cares. Insurance is also an investment tool and provides
tax benefits too. Most of all, insurance is peace of mind. The price of getting insured is negligible
compared to the value that insurance delivers. Insurance is sensible and practical. It can be said
that insurance is like a raincoat which protects us from rain. Because of this reasons insurance is
needed.

Human beings, his family and properties are always exposed to different kinds of risks. Risk
involve the losses. Insurance is a tool which reduces the cost of loss or effect of loss caused by
variety of risk. It accumulates funds to meet individual losses. It is not device to prevent unwanted
event of happening or cause of loss but protects them against that loss by compensating which as
lost. The role and importance of insurance are discussed as follows:

1. Insurance provides security

Insurance provides safety and security against the loss on a particular event. Life insurance
provides security against death and old age sufferings. Fire insurance protects against loss due to
fire while Marine insurance provides protection and safety against loss of ship and cargo. For
personal accident and sickness insurance financial protection is given when the individual is unable
to earn. In other insurance too, this security is provided against the loss at a given contingency.

2. Insurance reduces business risk or losses

In Business, commerce and industry, huge properties are employed. Because of slight negligence,
the property may be turned in to ashes. A person may not be sure of his life, health and cannot
continue the business up to the longer period to support his dependents. By the help of insurance,
he can be sure of his earning, because the insurance company will pay a fixed amount at the time
of death, damage by fire, theft, accident and other perils.

3. Insurance provides peace of mind

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Insurance removes the tensions, fears, anxiety, frustrate or weaken of the human mind associated
with the future uncertainty. By providing financial position and promise to compensate losses arise
out from various risk, it provides peace of mind and stimulates more and better work performance
of an individual.

4. Life insurance encourages saving

The insured has an obligation to pay premium regularly and cannot be withdrawn easily before the
expiry of the term of policy. Life insurance encourages the habit of regular and systematic saving
through premium and after a certain period, it would be a part of necessary saving of the insured
person.

5. Insurance accelerates the economic growth of the country

To develop the economic growth of the country, insurance provides strong hand and mind, with
protection against loss of property and capital to produce more wealth. It provides protection
against different kinds of loss caused by risk. It accumulates the capital from the insured and
utilizes for the development of country. Thus, the insurance meets all the requirements for the
economic growth of a country.

6. Insurance provides credit facilities

The insured person can get loan by pledging insurance policy and the interest will not exceed the
cash value of policy charged by insurer. In case of death of insured person, the policy can be
utilized for setting of the loan with interest. Business person can take loan on the basis of insurance
documents from the bank also.

7. Insurance helps to reduce inflation

Inflation created from oversupply of money and on less production entities. Insurance can help to
reduce the inflationary pressure in two ways. Firstly, it collects money as an amount of premium
which controls over supply of money and secondly, it provides sufficient funds for increase
production entities. Thus, it reduces the impact of inflation.

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8. Insurance makes security and welfare of employees

The security and welfare of employees is the responsibility of employer. These security and
welfare are easily met by life insurance, accident and sickness benefit and pension which are
generally provided by group insurance. The premium for group insurance is normally paid by the
employer. Insurance is the simple method for employer to fulfill their responsibility. Due to these
benefits, employee will devote their maximum capacities to complete their job.

9. Other Importances of Insurance

a) Insurance helps to promote foreign trade providing protection again trade risk.

b) Insurance increases business efficiency eliminating the loss of damage, destruction, or


disappearance of property of goods.

c) Insurance protects the social wealth providing protection against social evil.

d) Development of insurance business helps to solve the evil of unemployment, generating


employment opportunity in the country.

e) The insured gets tax benefit in life insurance.

1.5. INSURED AND INSURER INTER-RELATION

There should be a good relationship between insured and insurer in order to prosper of insurance
company. Insurance companies, along with the brokers and agents who sell life and non-life
insurance, are committed to safeguarding insureds rights when they shop for insurance and when
insured submit a claim for concerned loss. Insureds rights include the right to be informed fully,
to be treated fairly, to timely complaint resolution, and to privacy. These rights are grounded in
the contract between insured and insurer and the insurance laws of insured people province.

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With rights, however, come responsibilities including, for example, the expectation that insured
person will provide complete and accurate information to their insurance company. The policy
outlines other important responsibilities. Insurers, their distribution networks, and governments
also have important roles to play in ensuring that insured rights are protected.

1.6. NEPALESE INSURANCE CURRENT SCENARIO

Insurance plays a significant role in overall financial market of an economy. Due to several
reasons, Nepalese insurance market has not been effective and efficient in comparison to foreign
insurance market. According to National board of Nepal, only 6% of Nepalese are insured and
around 1.6 million people belong to various insurance companies in Nepal. In year 2009, 25
companies had registered where total transaction of 122.4724 million US dollars was made which
includes73.03 million US dollars of non-life insurance and 49.43 million US dollars of life
insurance.

A total of Rs. 17,656.9 million was earned through life and non-life Insurance businesses in FY
2010/11. The insurance premium continued to grow in its subsequent years due to the expansion
and development of insurance business reaching a total earnings of Rs. 36,289.0 million in FY
2014/15. The premium amount has increased by 19.25 percent in FY 2014/15 as compared to that
of its preceding fiscal year. Premiums including that of life and non-life insurance had reached Rs.
25.74 billion by the first eight months of the current fiscal year while this is estimated to reach Rs.
38.60 billion by the end of this fiscal year.

Fiscal Year Total Insurance Premium (in Rs 10 Million) Growth Rate


Life Non-Life Total In Percentage
2010/11 1059.3 706.39 1765.59 15.68
2011/12 1416.93 784.43 2201.36 24.67
2012/13 1611.15 816.82 2427.97 10.29
2013/14 2000.53 1042.60 3043.13 25.33
2014/15 2497.33 1131.57 3628.90 19.25
2015/16** 1748.70 825.32 3680 6.36

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(In Rs. 10 Million)

Source: Insurance Board

Figure 1: Total Life and Non-Life Insurance Premium

Source: Insurance Board

Figure 2: Growth of Life and Non-Life Insurance Businesses

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CHAPTER 2

INTRODUCTION TO LUMBINI GENERAL INSURANCE


COMPANY LIMITED

2.1. INTRODUCTION

Lumbini General Insurance Company Ltd LGIC) is the insurance company that deals with general
insurance other than life. LGIC have jointly promoted by prominent bankers, entrepreneurs, top
dealers of automobile, Tourism specialists and other products, industrialists, finance companies
and vast experienced persons in the insurance industry for more than two decades.

The registration date, date of license and date of operation is as follows:

Registration Date : 2061-9-09 BS (December 24, 2004 (Office of the Company Registrar)

Date of License : 2062-3-31 BS (July 15, 2005) (Insurance Board)

Date of Operation : 2062-4-02 BS (July 17, 2005)

Vision

To become a leading insurer of the country by providing services to the full satisfaction of
customers and prompt claim settlement.

Mission

To become the provider of quality insurance services and prompt settlement of claims in the
country.

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Objectives

To become the insurer of the first choice.


To provide insurance services with a difference.
To respond to all insurance needs courteously and efficiently.
To ensure steady and handsome return on shareholders investment.
To promote employees productivity through sustainable benefits, appropriate training
and planned career development.
To become a responsible national institution contributing to social service.
To adopt updated management system.
To provide Efficient Services to the Customers
To provide volume of Revenue to the Nation.

2.2. PRODUCTS OF LUMBINI GENERAL INSURANCE

Fire Insurance
Fire Insurance is a contract of indemnity against loss due to fire and lightening to the insured
property. In addition, there are allied covers Flood, Landslide, Inundation, Storm, Hurricane,
Aircraft Damage, Impact Damage, Explosion, Implosion, Earthquake, Riot, Strike, Terrorism,
Malicious Damage, Sabotage and Consequential Loss of Fire. Lumbini General Insurance
Company Ltd. started this policy from 17th July, 2005.

Marine Insurance
Marine Insurance [Cargo] is a contract of indemnity against loss/damage to the insured
cargo/goods during the transit period by Land/Sea/Air. For Export/Import Policies, the Institute
Cargo Clauses A/B/C are used. In addition, extraneous risk like TPND, SRCC can be added to the
cover at extra premium. Lumbini General Insurance Company Ltd. started this policy from 18th
July, 2005.

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Motor-Vehicle Insurance:
Motor-Vehicle Insurance is a contract of indemnity against loss/damage to the insured motor-
vehicle during the period of cover. For insurance purpose, motor-vehicles are classified into 3
categories: (a) Private Car, (b) Motor Cycle/Scooter, (c) Commercial Vehicle [Passenger/Goods
Carrying]. Accordingly, Risks are classified into 3 Sections I. Own Damage, II. Third Party,
III. Personal Accident and Medical Cover of Driver, Passengers etc. In addition, RSD can be added
to the cover at extra premium. Lumbini General Insurance Company Ltd. started this policy from
17th July, 2005.

Engineering Insurance:
Engineering Insurance is a contract of indemnity against loss/damage to the insured
project/property during the currency of the policy. For insurance purpose, a project insurance can
be classified into 4 categories
(a) Erection All Risks Insurance,
(b) Marine-cum-Erection Insurance,
(c) Contractors All Risks Insurance,
(d) Contractors Plant & Machinery Insurance.
Further, there are other classes of Engineering Insurances like Boiler/Pressure Plant Insurance;
Machinery Insurance; Loss of Profits [Machinery] Insurance; Computer/ Electronic Machine
Insurance. Lumbini General Insurance Company Ltd. started this policy from 28th July, 2005.

Aviation Insurance
Aviation Insurance is a contract of indemnity against loss/damage to the insured Aircraft/Crew
Members/Passengers/TP during currency of the policy. Lumbini General Insurance Company Ltd.
has not started this policy yet because the risk associated is too high causing huge chances of loss.
However, the premium received is not enough to compensate the losses. Also, major portion of
the premium has to be forwarded to Reinsurance Company leaving in hand only marginal amount
as retention as pooling of losses is difficult for the company.

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Agriculture Insurance
Agriculture Insurance is a contract of indemnity against loss/damage to the insured
Crop/Cattle/Bird/Fish/Bee etc. [more than Micro Insurance Scheme] during the currency of the
policy. Micro Insurance is a contract of indemnity/compensation against loss/damage to the
insured Property/Person (small entrepreneur/Crop/Cattle/Bird etc. [other than Agriculture
Insurance Scheme]. Lumbini General Insurance Company Ltd. started this policy from 12th
September, 2013.

Miscellaneous Accidental Insurance


Miscellaneous Accidental Insurance is a contract of indemnity/compensation against loss/damage
to the insured Property/Subject-Matter/Person or Group/Institution during the currency of the
respective policy. Under this class of insurance, there are various types of insurance covers as
follows:
Group/Personal Accident Insurance
Bankers Indemnity Insurance
Money Insurance
Burglary Insurance
Fidelity Guarantee Insurance
Health [Medical & Hospitalization] Insurance
Overseas Travel & Medical Insurance
Household Insurance
Ostrich Insurance
Credit/Debit Card Insurance
General Third Party Liability Insurance
Plate Glass Insurance
Lumbini General Insurance Company Ltd. started this policy from 19th July, 2005.

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CHAPTER 3

ACTIVITIES AT LUMBINI GENERAL INSURANCE

3.1. MARKETING
Marketing at LGIC is focused on serving customers and assisting them with issuance of insurance
policy. The marketing department provides customer with proposal form and assist them in filling
out form and get them familiar to the requirement of the respective policy. After filling of proposal
form, the marketing department transfers the proposal form to the underwriting department. After
the evaluation of the proposal form by the underwriting department, the marketing department acts
accordingly and commence the insurance policy process.

Marketing department endorsed their insurance policies through personal relation with major
institutions. The workforce of marketing department are provided in-house training about
insurance products and how to bring the business. For this employees have to go through an
intensive training program of 19 hours which is organized by the company itself. If a staff has
received some equivalent training which has been provided by Beema Samiti, it is also taken into
consideration and the employee doesnt have to go through the training provided by the company.

They have 21 service networks all over the country. In case a city or village doesnt have a branch
of LGIC, representatives of the company do all the sales and marketing activity at such locations
on behalf of the company. For agriculture insurance, 5 districts are allotted to the company from
Beema Samiti namely: Bhojpur, Udaypur, Siraha, Khotang, and Sankhuwasabha. The company
can only sell agriculture insurance in the districts that are allocated to them.

Proposal Form

In order to take insurance, a person or organization should decide the product they want the cover
for, the peril they want to cover against, the current monetary value of the product and for how
long they want it to be covered. After that they have to get the proposal form from LGIC or its
website, fill in the appropriate fields and submit at any of the companys offices. Further, the

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marketing staff are available to help the person or organization in filling the proposal form in any
of the branch or head office.

As for the proposal form, its main purpose is to get the information from the insured so as to
issue an insurance policy. It requires the information as mentioned below:

Name and Address of proposer


Details about the proposed properties, persons, liabilities, etc.
Location, Transit Route of proposer
Property, profession, age of proposed persons, nature of business for liabilities etc.
Risk retention
Period of Insurance
Proposed value, Limit of liabilities, sum insured for the insurance
Past insurance and claim record

Apart from this, proposal form act as a basis from which the insurance company acts, issues
policy and refer at time of claim settlement. So, the proposal form act as the evidence for the
insurance company for undertaking any action.

The different documents required at time of undertaking the insurance policy are as:

For Motor Vehicle Insurance: photocopy of the vehicle registration book (Blue Book) and
Renewal Notice from the previous Insurance Co. for No Claim Discount.
For Marine Transit Insurance: Invoice / Performa Invoice, Packing list, Letter of Credit
(L/C) etc.
For Contractors' All Risk Insurance: Contract Document, Bill of Quantity (BOQ).
For Travel Medical Insurance: Copy of Passport and for other insurance, as required by the
Insurance Company.

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3.2. UNDERWRITING PROCESS

Insurance underwriting is the process of evaluating the risks of a property (such as in home or car
insurance), a situation or an individual (such as in life insurance) to determine if it is profitable for
the insurance company to take on the risk and accept responsibility on behalf of the insurance
company by means of providing insurance for a set price (the insurance premium charged for the
risk).

An insurance underwriter chooses who and what the insurance company will insure based on a
risk assessment. Underwriting is the "behind the scenes" work in an insurance company. Insurance
underwriting also involves choosing who or what the insurance company will not insure.

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Customer consults with
marketing department

Customer fills proposal


form

Company helps customer


if required(marketing)

Company studies insuring


materials(underwriting)

Price is quoted
(premium) Customer pays premium
and receives insurance
policy

Custo
mer
YES accep
Policy prepared and Customer is informed
forwarded to marketing ts about the payment of
dept. policy premium

NO

Customer leaves without


insurance policy

Figure: Simple underwriting process in Insurance Company

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3.3. PREMIUM RATES
In most of the insurance products, the premium rates are pre specified by the Insurance Board of
Nepal. However, in some of the products, insurance companies have been given the right to
determine their own premium rates. Some of the products in which LGIC determines their own
premium rates are as follows:

CAR (Contractors All Risk) Insurance

GAP (Group Personal Accident) Insurance

The premium rates for such products are determined on the basis of the following parameters

Risk associated to the company while undertaking the insured request


The place where the insurance policy is provided
The time period for which the insurance is provided
The surrounding property

The rates are determined by LGIC on the basis of these parameters. Hence, the rates determined
by LGIC may differ from other insurance companies as there perception for all these category may
differ. Also, there is a provision of excess deductibles wherein any active retention on the part of
the insured or the inclusion of loss minimizing activities like adding a fire alarm and springer to
avoid damage from the firm. Such activities tend to minimize the premium rates. All such activities
are notified by the LGIC to the insured at the time of taking policy and making the insurance
payment as premium.

3.4. AGENTS

An agent in the financial sense is any person who has been legally empowered to act on behalf of
another person. An agent is a person who is employed or obligated to act on behalf of a person or
to represent them in negotiations or dealings with third parties. The agent-client relationship can
be legally enforced if the terms of the contract have been disclosed, and agents have an obligation
to perform their designated services promptly and diligently. They also cannot enter into any other
contracts which would interfere with their outstanding contractual obligations as agents.

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Two of the most common kinds of agents are attorneys, who represent their clients legally, and
stock brokers, who are hired by the actual investor to make investment decisions and manage their
portfolio. The person being represented by the agent in these scenarios is called the principal. In
the financial world, it refers to a fiduciary relationship by which an agent is authorized to perform
transactions on behalf of their client. Legally speaking, there are three broad classes of agents:

Universal agents: universal agents have a broad mandate to act on behalf of their client.
Oftentimes these agents have been given power of attorney for their client, which gives
them considerable representative power in their client's legal proceedings. Sometimes these
kinds of agents are also authorized to make financial transactions on behalf of their clients.
General agents: agents who are contracted to represent their client for specific types of
transactions or proceedings over an agreed-upon period.
Special agents: authorized to make a single transaction or series of transactions over a brief
period of time.

Individuals will hire agents to perform tasks which they feel they do not have the time or expertise
to perform themselves. Many people will think of sports, real estate or talent agents when they
think of the agent/principal relationship, and these kinds of professional relationships do hold to
that principle. Athletes, actors and prospective homeowners may prefer to broadly empower an
agent to negotiate on their behalf because the agents are more familiar with the industry and have
a better idea of how to position their clients to negotiate the most favorable contracts. Another
possible scenario is agency by necessity, which occurs if an individual is in no position (if they are
in a coma, or otherwise incapacitated) to make a time-sensitive decision. Businesses often hire
agents to represent them on a particular venture or negotiation. Legally, corporations must hire
agents to represent them, since corporations are fictitious legal entities and can't represent
themselves.

Would-be investors generally solicit the services of a stock broker to act as a middleman between
them and the stock market, a very common form of the agent/principal relationship. Even finding
an online brokerage service through which to make investments involves authorizing the brokerage
to act as one's agent. Hiring an agent to manage one's investments can be extremely advantageous;
markets fluctuate rapidly and even if an individual investor is paying close attention to the assets

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in their portfolio, they may nevertheless lack the expertise to act most effectively on their own
behalf.

LGIC does marketing of its products mostly from its own employees and using its public
relationship. Though LGIC uses 112 agents but the number of the agents bringing business is
significantly decreasing as the commission to agents have decreased from 15% to only 5% as per
the new regulation by Insurance Board of Nepal.

LGIC also distribute its insurance products using the bank also known as Bancaasurance
(Definition). The list of institution LGIC has associated itself to provide the insurance products to
the people are as follows

1. NMB Bank Limited


2. Sanima Bank Limited
3. Rastriya Banijay Bank Limited
4. NIC Asia Bank Limited
5. Nabil Bank Limited
6. Prabhu Bank Limited
7. Siddhartha Bank Limited

3.5. CLAIM SETTLEMENT PROCESS AND SURVEYOR


The claim settlement is done when there is occurrence of loss which is covered under the policy.
The claim settlement process involves certain regulated procedures which has to be fulfilled before
settling claim. As per the regulation of Insurance Board, the claim amount is advanced to insured
only when the surveyor submits the report. The claim amount which is of minimal amount and
does not require lots of inquiry are processed by company themselves.

While issuing the policy to insured, insurance companies gives options to insured wherein insured
undertakes to accept the certain amount of retention which will be bear by themselves. In this case
insurance company wont bear any loss that is within that limit and any loss beyond that will be
bear by insurance companies and be compensated to insured.

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For any claim processing, firstly, the insured has to give intimation to insurance companies about
the happening of event that has caused the loss. The intimation has to be provided within the
specified period otherwise the insured claim request will be declined. After the intimation of event,
the insurance company will sent the surveyor to evaluate the quantum of loss. The surveyors
report act as a basis while compensating to the insured. There are cases wherein the representatives
from insurance companies also visits, to verify the loss event and process the claims.

In case of insurance claims which are backed up by Reinsurance Company and the quantum of
loss is enormous, the reinsurance company also sends their representatives to evaluate the loss
along with the concerned insurance companies.

For processing of claims, there are documents which has to be mandatorily submitted to insurance
companies by insured; claim settlement application, photos of the property which has met with an
accident, police report in case of theft and accidents of vehicle. The insurance companies
determines the claims and reimburses to the insured after verifying the documents and looking into
the surveyors report.

The time period for processing the claim is at maximum 35 days, however if the cases involves
death, than the claims are processed within a week (Third Party or Accidental cases). There are
instances wherein the claim dont get settled within the specified period, if there is reason to
believe to the insurance companies that the claims filed are carried with fraudulent intentions. In
this case the statutory body is involved and claim is settled after its final decision on the argued
case.

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Client report of damage
within specified period

Client submits required


documents

NO Company verifies
insured documents
and surveyor report

Reject the claim


YES

Company assist to
recourse

Client receives damage

Figure: General Claim Settlement Process

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Surveyors are service providers to a general insurance company, usually at the time of a fire or
motor insurance claim. They carry out claim surveys and estimate the quantum of loss.

The surveyors are appointed by insurance companies as per the quantum of loss to verify the claims
requested by insured. There are several class of surveyors and insurance companies appoints the
respective class of surveyor as per the risks involved. For claim processing, the reinsurance
companies and concerned insurance companies jointly appoints the surveyor and verify the claims
filed by insured. The report submitted by surveyor act as a basis for insurance companies to redeem
the loss to the insured.

The starting of product depends upon the insurance product. In general (non-life) insurance,
various products like motor insurance, fire insurance, marine insurance, GPA (group personal
accident) insurance, CAR (contractors all risks) insurance, personal insurance, travel insurance
engineering insurance, miscellaneous insurance (electronics, machinery, micro, laghubitta) and
health insurance are some of the products offered by LGIC. Health insurance is sold by both life
and non-life insurance companies in Nepal.

In general insurance in Nepal, the agents are not that active like in the life insurance sector. At
LGIC, major portion of insurance products are sold by their marketing employees. Banks also
work as agency for the company. They have tied up with 7 different banks through which various
insurance products are sold.

3.6. REINSURANCE

Reinsurance occurs when multiple insurance companies share risk by purchasing insurance
policies from other insurers to limit the total loss the original insurer would experience in case of
disaster. By spreading risk, an individual insurance company can take on clients whose coverage
would be too great of a burden for the single insurance company to handle alone. When reinsurance
occurs, the premium paid by the insured is typically shared by all of the insurance companies
involved.

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Reinsurance can help a company by providing:

1. Risk Transfer - Companies can share or transfer of specific risks with other companies
2. Arbitrage - Additional profits can be garnered by purchasing insurance elsewhere for less
than the premium the company collects from policyholders.
3. Capital Management - Companies can avoid having to absorb large losses by passing risk;
this frees up additional capital.
4. Solvency Margins - The purchase of surplus relief insurance allows companies to accept
new clients and avoid the need to raise additional capital.
5. Expertise - The expertise of another insurer can help a company obtain a proper rating and
premium.

Lumbini General Insurance reinsures most of its products from GIC (General Insurance
Corporation of India). The main reason behind major business with GIC is because of the certainty,
reliability and promptness in terms of receiving/processing claims. Apart from GIC, LGIC also
does the reinsurance from African insurance companies like African Re Insurance Company.
African Re insurance company are more liberal than GIC but the processing of claims is not certain
and prompt. The reinsurance business is taken care by the brokers. The brokers handle the
insurance business independently.

In Nepal, LGIC does reinsurance from Nepal Reinsurance Company and 10% of its product is
reinsured from Nepal Reinsurance Company as per the treaty signed. The companies from which
LGIC does the reinsurance from are as follows:

General Insurance Corporation of India


African Reinsurance Corporation
Trust international Insurance Company Ltd.
ZEP-RE (PTA Reinsurance Company)
Kenya Reinsurance Corporation Ltd.
Asian Reinsurance Corporation
Sirius International Insurance Corporation
Cica-Re
East African Re Insurance Company

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CHAPTER 4

LEARNINGS

The major learning from this project are mentioned below:

- The major products of LGI are Fire, Motor and Engineering insurance.
- The company is not willing to endorse aviation insurance products because of lack of
pooling of losses and high risk.
- The tariff rate specified by Insurance Board are for the products like fire, motor, marine
and micro insurance.
- The Non-tariff rate products in LGI are Contractors All Risks and Group Personal
Accident.
- The investments are majorly done in government securities, bonds, bank fixed deposits,
stock market
- Insurance board has restricted insurance companies from investing in real estate sectors.
- A large chunk of insurance business is acquired through in-house marketing employees
rather than external agents.
- The insured visiting directly to company without assistance of agents are provided
discounts on premium.
- The insured are also informed about the provision of deductible while issuing the policy.
- The underwriters are responsible for the issuing or declining the insurance policy. The
insured are not rejected directly, rather they are quoted with higher premium rates.
- Claims are settled with respect to the evaluation of the respective proposal forms.
- Claims are settled within 35 working days but in case of adjudication this duration may get
longer.
- In case of third party insurance, the claims are settled within seven days if it involves the
death of the third party.
- Reinsurance of insurance products are done through General Insurance Corporation of
India. The reason for selecting GIC is due to its reliability and promptness while
reimbursing for the claims.

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BIBLIOGRAPHY

Bhatia,Niswan & Sethi,Jyotsna. 2007, Elements of Banking and Insurance, New Delhi

Bickelhaupt, David. 1983, General Insurance, R.D Irwin

Gabriel, A. Vincent., 2007, Management, Third Edition, Singapore, Pearson Education South Asia
Pte.Ltd.

Goel.Kavita, NON-LIFE INSURANCE, UNIT-VII

Insurance Act 1992, Nepal Government, Available: http://bsib.org.np

N. I. Board, Beema Samiti, [Online]. Available: http://bsib.org.np/index.php

Carol,S.C.Bennett.,2004, Dictionary Of Insurance, 2nd Edition, Great Britain.

http://lgic.com.np/en/index.php?id=34

http://bankkosamachar.com/insurance/lumbini-general-insurance-company-ltd-lgic/

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