Classification of insurance

In this module we will study about various classifications and sub --classifications of
insurance.
Learning Outcomes:

1. Classification of Insurance
2. Types of Insurance in today’s market
3. Personal lines of Insurances

1. Classification of contracts of insurance these products in detail.

Insurance dependent upon human life.
1.2. "General Insurance
There are various types of This includes contracts
[Non life]” business means
insurance products that whereby the payment of
fire, marine or
are offered by insurance money is assured on death
miscellaneous insurance
companies. Insurance [except death by accident
business, whether carried
policies [insurance only].
singly or in combination
products] have been
Life insurance business with one or more of such
conventionally classified
includes Term Insurance businesses.
into Life Insurance and
policies, endowment
General [Non--Life]
policies, whole life policies,
Insurance. money back policies, unit
1.1 “Life Insurance” linked insurance policies

business means the [ULIP], Annuity policies etc.

business of effecting NOTE: Module 5 discusses

Personal Lines
of Insurance

The above types of

insurances can be
categorized differently
from the policyholder’s
point of view.

For Example: the Fire The components of General machines; computers,

Insurance needed by a Insurance business have been jeweler etc. are also part of
large petrochemical traditionally identified as
property.
plant would be different follows:
1.2.2 ‘Marine insurance”
from that of a small--
1.2.1 "Fire insurance” business
scale factory in an business includes:--
means the business of effecting
industrial estate. The a. Marine Hull which
contracts of insurance against
insurance needs of a means the business of
loss by or incidental to fire. effecting contracts of
dwelling house or a shop
insurance upon all types
would be still different. In simple words, fire insurance
of vessels [ships, boats,
covers physical loss of or damage etc.].
Based on the consumer
to property due to various causes b. Marine Cargo which
segments that buy means insurance of
like fire, lightning, flood,
insurance, insurers goods during transit, by
earthquake etc. Causes like land or water and
categorize their products.
robbery, theft, riots etc also are during incidental
General insurance
customarily included under fire warehousing.
products are classified as
insurance. Property means fixed 1.2.3 "Miscellaneous
commercial and personal
assets like houses, shops, insurance business"
lines. Another way of
factories, offices, hotels and other originally meant the
categorizing would be:--
buildings. Movable assets like business of effecting
[i] Corporate sector furniture, television, refrigerator, contracts of insurance on
[ii] Small and medium machinery used in factories, all kind of risks other than
enterprise [SME] sector
office equipment’s like Xerox life, fire and marine
[iii] Personal lines and
[iv] Micro and rural insurance policies
insurance
 Classification of Insurance3

2. Types of Insurance in today’s market

As time passed, many branches of general insurance business developed in the

Indian market and today, we have some insurance companies dealing with life
insurance only, some others dealing with general insurance and some dealing
only with health insurance.

IRDA has identified ten major lines of general insurance business. Insurance
data is compiled and published by IRDA under [i] Aviation, [ii] Engineering,
[iii] Fire, [iv] Health, [v] Liability, [vi] Marine Hull, [vii] Marine Cargo, [viii]
Motor OD, [ix] Motor TP, [x] Personal Accident and the remaining products are
grouped under [xi] All Others.

2.1 Aviation: The insurance of airplanes and the airlines liability to others due
to accidents is covered under Aviation insurance.

2.2 Engineering: Buildings and projects during erection/ construction, working

machinery and equipment, operational risks etc come under this type of
insurance.

2.3 Fire: Explained under 1.2.1 above.

2.4 Health: Costs of treatment on account of illness or accident are under this
type of insurance. Some products cover all kinds of treatments including out--
patient treatment, some cover only hospitalization; while some cover only
major surgeries.

Health insurance is provided by both life and general insurers.

2.5 Liability: When a person is affected by the action or inaction of another person, he can
ask for compensation for the loss suffered. Paying the compensation to the affected person
is the liability of the person who caused the loss.

2.6 Marine Hull: Explained at 1.2.2 above.

2.7 Marine Cargo: Explained at 1.2.2 above.

2.8 Motor Own Damage [OD]: Accidental damage to a vehicle can cause financial loss to the
owner of the vehicle. Such losses can happen to private cars, two wheelers, passenger
carrying or goods carrying commercial vehicles or other vehicles. All these are insured by
Motor OD Policies.

2.9 Motor Third Party [TP] Liability: Motor accidents can cause loss damage of someone
else’s property. Motor accidents can cause loss of life or injury to other people as well. It is
the liability of the owner of the vehicle to pay compensation to person’s affected by
accidents caused by him. Such liability to other people [third parties] is insured through
Motor TP Insurance.

2.10 Personal Accident: Due to accidents, one can lose his life. He can be permanently
disabled by loss of a limb or a vital body part as well. This can make him bedridden
permanently or for some period. Though such losses cannot be compensated, due to the
accident, he would be suffering loss of his livelihood and facing difficulty in carrying out his
normal functions. Personal Accident Insurance pays financial benefits to those affected by
such accidents.

2.11 Others: There are many miscellaneous insurance products that are not classified
under a particular type. The larger among these are:--

[i] Crop insurance

[ii] Cattle insurance
[iii] Travel insurance.

There are specialized insurances to cover special risks like satellites, large public events,
film production etc.
 Classification of Insurance5

3.1 Generic Personal Lines of insurance: Health insurance and personal accident

insurance are personal lines of insurance as they deal with the person, his physical well
being and treatment costs. Personal line insurances are those which are suitable for
individual insured and taken in their own personal names. Personal line products could
be life insurance products, general insurance products and health insurance products.

3.2 Other Retail lines: There are a few more lines of business that are considered by
insurers along with personal lines of business. Beyond giving protection to individual
lives and treatment costs, they protect financial loss of personal properties.

3.2.1 Travel Insurance: Health problems that occur during overseas travel is a major
part of travel insurance. Additionally, there are risks like loss of baggage, loss of
passport, missing flights etc. associated with travel. Domestic travel also can be
insured. There are variants that cover employment and study tours -- covering
employees on deputation overseas and students for medical expenses and
accidents during their study period overseas.

3.2.2 Householders Insurance: This is a package policy covering assets of a household.

i.e. The dwelling unit – the building and its contents against various risks.

3.3 Social sector and Rural insurances: These are specially customized versions of other
insurances sold to rural populations. Examples include hut insurance, pedal cycle
insurance, sheep and goat insurance, bee hive insurance, poultry insurance, agricultural
pump--set insurance etc. For instance, Cycle insurance covers loss/ damage to pedal cycle
and third party liabilities for physical and property damage.

There could be some overlap in these types of insurance. For instance, though Health
insurance is a personal line of insurance, it can also be purchased by an employer to cover
all his employees and their families all across a state or the country, when it is sold to a
corporate buyer.