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9971687048

(iii) Paper III - Insurance and Management

Part 1 Insurance

e) Insurance lines and products : Property-Liability, Life

Insurance and Annuities and Health Insurance; Liability
risks and Insurance, valuation and Solvency requirements,
Specialist Insurance lines in India - Agricultural and Export
Credit Guarantee; Reinsurance, GIC of India, obligator
sessions and retention of risk within the Country.
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Insurance lines and products: Property- Liability

Insurance can be broadly classified as:

A) Life Insurance
B) Non- Life Insurance

As the name denotes, Life Insurance deals with insurance of human life and Non life
deals with all insurance other than life.

Non-Life insurance can be further classified into:

A) Property Insurance
B) Liability Insurance

Property Insurance: Insurance of property means insurance of buildings, machinery,

stocks etc against Fire and Allied Perils, Burglary Risks and so on. Goods in transit via
Sea, Air, Railways, Roads and Courier can be insured under Marine Cargo Insurance.
Hulls of ship and boats can be insured under Marine Hull Insurance. Further, there are
specialized policies available such as Aviation Insurance Policy for insurance of planes
and helicopters. Thus Property Insurance is a very vast category of General Insurance
and the type of cover that you need depends upon the type of property you are seeking
to cover.

Types of Property Insurance:

A) Fire Insurance
B) Various types of Engineering Insurance
C) Marine Insurance, etc.
D) Motor Insurance

Fire Insurance: The most popular property insurance is the standard fire insurance
policy. The fire insurance policy offers protection against any unforeseen loss or
damage to/destruction of property due to fire or other perils covered under the policy.
The different types of property that could be covered under a fire insurance policy are
dwellings, offices, shops, hospitals, places o f worship and their contents
industrial/manufacturing risks and contents such as machinery, plants, equipment and
accessories; goods including raw material, material in process, semi-finished goods,
finished goods, packing materials etc in factories, go-downs and in the open; utilities
located outside industrial/manufacturing risks; storage risks outside the compound of
industrial risks; tank farms/gas holders located outside the compound of industrial risks
etc.
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What a Fire Policy Covers: Thought it is called Fire Insurance, apart from the risk of fire,
it also offers cover against lightning, explosion/implosion, aircraft damage, riot, strike
and malicious damage, storm, cyclone, typhoon, hurricane, flood and inundation, impact
damage, subsidence and landslide including rockslide, bursting and/or overflowing of
water tanks, apparatus and pipes, missile testing operations, accidental leakage from
automatic sprinkler installations, bush fire etc.

What a Fire Policy Excludes: fire insurance policy usually does not cover a certain
amount known as excess under the policy. Loss or damage caused by war and
warlike operations, nuclear perils, pollution or Contamination, electrical/mechanical
breakdown, burglary and housebreaking are excluded. Certain perils like earthquake,
spontaneous combustion etc can be covered on payment of additional premium. Fire
insurance policies are issued for one year except for dwellings, where a policy may be
issued for long term (with a minimum period of three years).

Engineering Insurance: The rapid industrialization of our country has led to increasing
use of machines in industry. Though use of machinery results in increased production
capacities, in the event of accident and breakdowns, they can be potential sources of
financial loss and could even result in the closure of business. In spite of proper care
and maintenance of machinery, mishap may yet occur. Sometimes the extent of
damage may be quite high and may also lead to fatal or nonfatal injuries to human
beings nearby. The remedy for such losses is offered by means of the pecuniary
protection given under Orientals engineering insurance policies. The various
engineering policies offered by us may be divided under the following three major
heads:
1. Project Insurance
2. Operational Machineries Insurance
3. Business Interruption Insurance

Project Insurance: Before an industry is set up, it involves project planning, financing,
procurement of land, land levelling an dearthwork, excavation of land, placing orders
and procurement of machineries from various places, storing these machineries and
other equipments connected with the project in safe conditions, erecting the equipments
as per a planned schedule and finally testing and commissioning the erected plant and
machinery for their rated capacity. The engineering policies, recommended at the
project stage can be any one of the following three covers:

1. Erection All Risks (also know as Storage Cum Erection Insurance)

2. Contractors (Construction) All Risks Insurance
3. Contractors Plant and Machinery Insurance
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Operational Machineries Insurance: After the completion of testing and

commissioning and commencement of commercial production, the machineries that are
installed and working in a specified premises can be covered under any of the following
policies (depending upon the nature and type of plant and machinery):

1. Machinery Breakdown Insurance

2. Boiler and Pressure Plant Insurance
3. Electronic Equipment Insurance
4. Civil Engineering Completed Risks Insurance
5. Deterioration of Stocks Insurance Refrigeration Plant (Stock) Policy

Business Interruption Insurance (Consequential Loss Insurance):Following

property damage, due to break down of the machinery/electronic equipment or
explosion of a boiler covered under the respective material damage policies, there may
be an interruption in the operations and leading to loss of gross profits during such
interruption periods. Such loss of gross profit is covered under business interruption
policies. This insurance covers additional cost of working also, to resume production

MARINE INSURANCE: A contract of marine insurance is an agreement whereby the

insurer undertakes to indemnify the insured, in the manner and to the extent thereby
agreed, against transit losses, that is to say losses incidental to transit. A contract of
marine insurance may by its express terms or by usage of trade be extended so as to
protect the insured against losses on inland waters or any land risk which may be
incidental to any sea voyage. In simple words the marine insurance includes:

(A) Hull insurance which is concerned with the insurance of ships (hull, machinery, etc.

(B) Cargo insurance which provides insurance cover in respect of loss of or damage to
goods during transit by rail, road, sea or air.

Policies in Marine Insurance:

OPEN COVER: These policies are generally issued where there are frequent transits of
materials requiring to be insured, sometimes at short notice. Open Cover Usually,
importers /exporters of goods who have frequent consignments in transit and cannot
specify from or to which country the goods are transported and the individual terms of
contract may avail this. Generally, when banks finance such transactions they issue a
letter of credit and using this as a basis the insured may seek an annual cover. Each
consignment is thereafter separately declared to the insurer, premium paid and a
certificate of insurance issued.
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Open Policy: Commonly used to insure routine inland transit of goods, open policy
requires that a certain sum of premium, based on the annual turnover of goods
transported, is paid and monthly or fortnightly declarations, declaring the value of goods
transported declared. The premium is replenished at regular intervals, based on the
value of the consignments declared, always ensuring that each consignment is
adequately insured that is the value declared should be as per invoice (cost,
insurance and freight- CIF + 10%) In the event of a claim, in marine policies as well,
which are agreed value policies, proportionate value of the goods insured would be
considered while assessing loss. Earlier, a special declaration policy, for higher annual
turnovers, with greater discounts, used to be given but this is not so prevalent
nowadays.

CARGO CLAUSES: The actual details of the covers which are used are governed by
the Institute Cargo Clauses (sending by sea): Institute Cargo Clauses A/B/C -
BOTH ICC - B & C are named perils polices whereas ICC (A)- is all risks.

ICC (A) covers all accidental loss or damage to property other than losses caused by
excepted perils/occurrences.

Motor insurance: There has been a sudden rise in the motor accidents in the last few
years. Much of these are attributable to increase in the number of vehicles. Every
vehicle before being driven on roads has to be compulsorily insured. The motor
insurance policy represents a combined coverage of the vehicles including accessories,
loss or damage to his property or life and the third party coverage. Persons driving
vehicles may cause losses and injuries to other persons. Every individual who owns a
motor vehicle is also exposed to certain other risks. These include damage to his
vehicle due to accidents, theft, fire, collision and natural disasters and also injuries to
himself. In 1939, motor vehicle act came into force in India and compulsory insurance
was introduced by motor vehicle act to protect the pedestrians and other third parties.

Definition: Motor insurance policy is a contract between the insured and the insurer in
which the insurer promises to indemnify the financial liability in event of loss to the
insured. Motor Vehicles Act in 1939 was passed to mainly safeguard the interests of
pedestrians. According to the Act, a vehicle cannot be used in a public place without
insuring the third part liability. According to Section 24 of Motor Vehicles Act, No
person shall use or allow any other person to use a motor vehicle in a public place,
unless the vehicle is covered by a policy of Insurance.

Types of Motor Insurance Policies: The All India Motor Tariff governs motor
insurance business in India. According to the Tariff all classes of vehicles can use two
types of policy forms. They are form A and form B. Form A which is known as Act
Policy is a compulsory requirement of the motor vehicle act. Use without such insurance
is a penal offence. Form B which is also known as Comprehensive Policy is an optional
cover.
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1. Liability only policy This covers third party liability and/or death and property
damage. Compulsory personal accident covers for the owner in respect of owner driven
vehicles is also included.
2. Package policy This covers loss or damage to the vehicle insured in addition to 1
above.
3. Comprehensive policy- Apart from the above-mentioned coverage, it is permissible
to cover private cars against the risk of fine and/or theft and third party/ theft risks.

Liability Insurance: In our lives, we often encounter situations where someone caused
any harm. Whether it is property, material, spiritual, moral, labor, etc. And after that
comes up is such a thing as a "liability insurance". Insurance can be of different types
and refers to a variety of life situations. This type of insurance is used to shift the burden
of responsibility on the shoulders of the insurance company and to protect themselves
from unnecessary expenses. There are several types of liability insurance, the most
basic.

Employers Liability Insurance: If an employee, during the course of employment,

sustains injury or contacts any disease which can be considered as an occupational
disease, the employer is liable under the law to pay compensation as laid down in the
Act. In India this type of liability is governed by the Workmans Compensation Act, 1923.
The act clearly lays down the compensation for death, permanent and temporary
disablement. The amount of compensation payable depends on the age of the
employee and the wages drawn at the time of death/injury, the lower the age the higher
would be the compensation payable. Similarly, higher the wages drawn higher would be
the compensation payable.
Coverage under the policy
This policy provides coverage against legal liability arising under the -
i) Workmens Compensation Act, 1923
ii) The Fatal Accidents Act, 1855
iii) Common law
Personal injury or disease should have occurred during the course of the policy period.
Legal expenses incurred by the insured to defend their liability, provided the same is
incurred with the consent of the insurer.

Public Liability Insurance: To indemnify the insured, in respect of all sums which they
become legally liable to pay to third parties, as compensation for damages in respect ofl
i. Death, personal injury, bodily injury or illness of any person.
ii. Loss of or damage to property as a result of an occurrence happening in the territorial
limits (all liability policies specify the territorial limit covered) in connection with and
during the course of the business activities or caused by any of its (the insureds)
products.
In India, under Public Liability Insurance Act, 1991, certain guidelines have been laid
down about the liability of industries. Under Public Liability Insurance Act 1991, the
liability of the enterprise dealing in hazardous substance is defined. If death/injury or
damage to property is caused by an accident the owner shall be liable. If it is a no fault
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liability, the claimant need not establish that the death/injury etc. was caused by the
default/negligence of the insured.

Professional Indemnity Insurance: This policy provides indemnification to the

policyholder against loss incurred only as a result of their negligent act, error or
omission in carrying out their business. This policy is also known as Errors and
Omissions Insurance as well as malpractice insurance. The liability under this policy
primarily arises due to the negligence of the insured in performance of their professional
duties.
Coverage: To indemnify the insured against all sums for which they shall become
legally liable to pay as compensation to third parties for bodily injury or for loss or
damage to third party property arising out of or from any negligent act, error or omission
committed or omitted or alleged to have been done during the course of the conduct or
performance of the professional services and duties, including all legal costs and
expenses. Professional Indemnity policy is usually availed by Accountants, Doctors,
and Architects etc.

Product Liability Insurance: The liability under this section arises as per the terms of
the Sale of Goods Act, 1930 (date of the Act). As per this provision, only those who
have purchased the goods can file a claim and secondly the claimant need not prove
negligence on the part of the seller. The policy aims at making good the losses incurred
by the claimant in terms of -
i. personal injury/death sustained as a result of use of the product.
ii. Loss/damage to property sustained as a result of the use of the product.

Directors and Officers Liability Insurance (D&O) - The D&O policy provides cover for
the personal liability of Directors and Officers arising due to wrongful acts in their
managerial capacity. Defense costs are also covered and are payable in advance of
final judgment. This policy provides protection for claims brought against directors,
officers and employees for actual or alleged breach of duty, neglect, misstatements or
errors in their managerial capacity.

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