IC38 Notes

CHAPTER – 1

Introduction to Insurance

Insurance – in simple language it means to transfer risk to someone who is capable of handling it generally to insurer (Insurance Company).

Life insurance history and evolution

The origin of insurance business started from London Lloyd coffee house.

1st Life insurance company in the world was Amicable society for Perpetual Assurance.

1st life insurance company to be set up in India was The Oriental Life Insurance company ltd.

1st Non-life insurance company established in India was Triton Insurance company ltd.

1st Indian insurance company was Bombay Mutual Assurance society ltd found in 1870 in Mumbai.

National Insurance company ltd. is the oldest insurance company founded in 1906.

In 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business.

The Life Insurance Companies Act 1912 made it compulsory that premiumrate tables and periodical valuation of companies be certified by an actuary.

The Insurance Act 1938 was the first legislation enacted to regulate the conduct of insurance companies in India.

Life insurance Business was nationalized on 1st September 1956 by merging 170 insurance companies and 75 Provident Fund societies and Life Insurance corporation of India ( LIC ) was formed.

Non – Life insurance business was nationalized in 1972 by amalgamating 106 insurers, General Insurance Corporation of India (GIC) & its 4 subsidaries was formed.

Malhotra committee and IRDA:- Malhotra committee – setup in 1993 to explore and recommend changes for development & it submitted the report in 1994.

IRDAI – Insurance regulatory and Development Authority of India was setup by an act IRDA Act 1999 as a statutory regulatory body for both life and nonlife

Life insurance industry today:

How Insurance Works:

There must be an asset which has economic value (Car-physical; Goodwill-nonphysical; Eye-personal). These assets may lose value due to uncertain event. This chance of loss/damage is known as risk. The cause of risk is known as peril. Persons having similar risks pool (contribute) money (premium) together.

There are 2 types of Risk Burdens –

a)Primary burden of risk – losses actually suffered. E.g. Factory getting fire.

b)Secondary burden of risk – losses that might happen. Eg. physical/mental Stress strain.

Risk management techniques: – The various types of techniques that can be used to manage risk are:

a)Risk avoidance – Controlling risk by avoiding a loss situation

b)Risk retention – One tries to manage the impact to risk and divides to bear the risk and its effects by oneself.

c)Risk reduction and Control – This is a more practical and relevant approach than risk avoidance. It means taking steps to lower the chance of occurrence of a loss and / or to reduce severity of its impact if such loss should occur.

Insurance is a risk transfer mechanism.

Insurance as a tool for managing risk:-

Don't risk a lot for a little. E.g. there is no need to insure a ball pen as its cost is not high.

Don't risk more than what we can afford to lose. E.g. we cannot afford to not insure our house as its cost is high.

Don't insure without considering the likely outcome. E.g. can anyone insure a space satellite?

Insurance refers to protection against an event that might happen whereas Assurance refers to protection against an event that will happen

Role of insurance in Society:

• Insurance benefits society economically and socially.
• It also provides employment
• The money raised from premium is invested in to the development of infrastructure needs.
• Removes the fear, worry and anxiety associated with one‟s future.

Govt. Sponsored Insurance Schemes

Employees state insurance corporation, Crop Insurance Schemes (RKBY), Rural insurance schemes.

Run by insurer and not supported by Govt. schemes

Janata Personal Accident, Jan Arogya

CHAPTER – 2

Customer Service :

Customers provides the bread and butter of a business and no enterprise can afford to treat them indifferently.

The role of customer service and relationships is far more critical in the case of insurance than in other products.

Because Insurance is a Service. Insurance is a Intangible good.

It is necessary for insurance companies and their personnel, which includes their agents, to render high quality service and delight the customer.

Customer Service and Insurance:

The Secret for success in insurance sales is commitment to serving their Customers.

Customer lifetime value may be defined as the sum of economic benefits that can be derived from building a sound relationship with a customer over a long period of time.

Insurance agent’s role in providing great customer service

• Point of sale – the 1st point for service is the point of sale. The agent should be able to understand the needs and suggest products whose benefit features are best suitable. The role of an agent is like a personal financial planner and advisor.
• Proposal stage – the agent has to help customers in filling the proposal form. It is important that the agent explains and clarifies the proposers doubt while filling the form.
• Acceptance stage – the promptness of agent in handing over FPR to customer develops surety in customers mind. Delivery of policy bond is another major opportunity.
• Premium payment – agents can be in continuous touch with their customers through reminder calls for premium due‟s in order to avoid lapsation of policy.
• Claim settlement – agents play crucial role during claim settlement by providing policy holder details required during investigation stage.
• Communication skills - One of the most important set of skills that an agent needs to possess for effective performance is soft skills. Sift skills relate to one‟s ability to interact effectively with other workers, customers. What goes in to making of a good relationship is TRUST that you generate in your customers mind through – Attraction; Being Present; Communication.

  Communication can take place in several forms – Oral; Written; Non-Verbal; Body Language.

• Elements of effective listening - paying attention, providing feedback, responding appropriately, empathetic listening and not being judgemental.

Non Verbal Communication :

A) Making a great first impression

• Be on time always
• Present yourself appropriately
• A warm, confident and wining smile.
• Being open, confident and positive
• Interest in the other person.

B) Body Language - refers to movements, gestures, facial expressions. The Way we talk, walk, sit and stand.

• Listening skills
• Active Listening

Is where we consciously try to hear not only the words but also, more importantly, try to understand the complete message being sent by another.

• Paying Attention
• Demonstrating that you are listening - Use of body language plays an important role here.
• Provide feedback
• Not being Judgmental - Such judgmental approach can result in the listener being unwilling allow the speaker to continue speaking, considering it a waste of time.
• Responding appropriately
• Empathetic listening – Being empathetic literally means putting yourself in the other and feeling his or her experience as he or she would feel it.

CHAPTER – 3

GRIEVANCE REDRESSAL MECHANISM

Grievance redressal mechanism – IRDA has various regulations in order to render the consumers grievances/complaints which come under protection of policy holder”s interests regulation 2002.

• Integrated grievance management system (IGMS) - IRDA has launched an integrated grievance management system (IGMS) which acts as a central repository of insurance grievance data and as a tool for monitoring grievances in the industry. Policy holders can register on this system with their policy details. Complaints are then forwarded to the respective insurance company.

• The consumer protection act 1986 - the act was passed “to provide for better protection of the interest of consumers and to make provision for the establishment of consumers disputes”.

Ombudsman :

• Total office of ombudsman in India – 12.
• The Ombudsman power is restricted to the value not exceeding Rs.20 Lacs
• Recommendations should be made within 1 month of the receipt of a complaint
• The complainant has to accept the recommendation in writing within 15 days of receipt of such recommendation.
• The insurance companies are required to honor the AWARDS passed by Ombudsman within 15 days.
• If the dispute is not settled, the Ombudsman will pass an award to the insured within 3 months/90 days from the date of receipt of the complaint.
• The insured should acknowledge within 1 month of receipt of such award.

The complainant had made a previous written representation to the insurance company and the insurance company had :

• Rejected the complaint.
• The complainant had not received any reply within one month from insurer.
• The complainant is not satisfied with the reply given by the insurer.
• The complaint is made within one year from the date of rejection by the insurance company.
• The complaint is not pending in any court or consumer forum.

Judicial Channels :

NATIONAL COMMISSION

• Established by central Government by notification.
• Complaints of Claim value exceeding Rs. 1 Crore and appeals against the order of any state commission.

State commission

• Established by state govt. by notification.
• Complaints of Claim value exceeding Rs.20 Lakhs but does not exceed Rs.100 lakhs and appeals against the order of any district forum within the state.

District forum

• Established by state govt. in each district.
• Complaints of Claim value up to Rs. 20 lakhs

Important Days

• 10 days – Insurer has to communicate the policy holder on any inquery.
• 15 days – Customer can cancel the contract within 15 days of receiving the policy (Free look period/Cooling off period).
• 15 days – Insurer has to convey the policy holder about acceptance or rejection of proposal.
• 15 days – In case of claim insurer can ask for additional documents within 15 days of receiving the claim documents.
• 15 days – Insurer has to honor the Award passed by the ombudsman within 15 days.
• 15 days – Grace period in case of monthly mode of premium payment.
• 31 days or one month – Grace period in case of Quarterly/half yearly/annual mode.
• 30 days – ombudsman has to pass recommendation.
• 30 days – Insurer has to settle the claim within 30 days after receiving the claim document.
• 90 days – Ombudsman has to pass an award within 90 days.
• 180 days – maximum time in case of disputed claims.

CHAPTER – 4

Regulations of Insurance Agents :

• Appointment of Insurance Agent regulations came into force with effect from 1st April 2016.
• A letter of appointment issued by an insurer to any person to act as an insurance agent .
• “Insurance Agent” means an individual appointed by an insurer for the purpose of soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance.
• “Composite Insurance Agent” means an individual who is appointed as an insurance agent by two or more insurers subject to the condition that he/she shall not act as insurance agent for more than one life insurer, one general insurer, one health insurer and one each of the mono-line insurers.
• “Centralised list of Agents” means a list of agents maintained by the Authority, which contains all details of agents appointed by all insurers.
• “Designated Official” means an officer authorised by the Insurer to make Appointment of an individual as an Insurance Agent.
• An applicant seeking appointment as an insurance agent of an Insurer shall submit an application in Form I-A to the Designated Official of the Insurer.
• The Designated Official shall communicate the reasons for refusal for appointment as agent to the applicant in writing, within 21 days of receipt of the application

Appointment of Composite Insurance Agent by the insurer:

An applicant seeking appointment as a „ Composite Insurance Agent shall make an application to the Designated Official of respective life, general, health insurer or monocline insurer .

Composite Agency Application Form I-B.

Insurance Agency Examination : An applicant shall pass in the Insurance Agency Examination conducted by the Examination Body in the subjects of Life, General, or Health Insurance

Disqualification to act as an Insurance Agent: The conditions for disqualification shall be as stipulated under Section 42 (3) of the Act

CHAPTER – 5

Insurance Contract

An insurance policy is a contract between 2 parties – Insurer (Insurance Company) and Insured (Policy holder) as per Indian Contract act 1872.

For any contract to be a valid contract following elements should be there –

• Offer and Acceptance - – out of the 2 parties one should offer and other party should accept. Usually offer is made by proposer (policy holder) and acceptance is made by insurer.
• Consideration – premium paid by policy holder and the promise to indemnify by insurer is known as consideration.
• Agreement between parties – both parties should agree to the same thing.
• Free consent – there should be no pressure on proposer while taking policy. Consent is free when the policy is taken under no-coercion; undue influence; fraud; misrepresentation; mistake.
• Capacity of the parties - proposer should be legally competent. I.e. Sound mind, not disqualified by law, should not be minor.
• Legality - the object of contract must be legal.

Special features of Insurance Contract–

• Uberima Fides (or) Utmost good faith – it means that every party to contract must disclose all material facts relating to the subject matter of insurance whether asked or not.
• Material facts/Information - proposers family history; medical history; financial details; occupational details; illness if any; habits etc. are known as material facts.

Breach of utmost good faith

• Non-disclosure - not informing certain details.
• Concealment - intentionally not giving details.

Misrepresentation

• Innocent - by mistake giving wrong information
• Fraudulent - intentionally giving wrong information.
• Insurable Interest - it is the financial interest the proposer has in his belongings. I.e. Self; spouse; parents; house; car etc. is termed as insurable interest.

  In Life Insurance – Insurable interest should be present at the start of policy.

  In Non-life Insurance – Insurable interest should be present both at the start and during claim.

  In Marine Insurance – Insurable Interest should be present at the time of claim.

• Proximate Clause - it is the main reason behind the various activities taking place and there by resulting into any event.
• Free Look-In Period (or) Cooling off period - if any proposer after entering into a contract i.e. After taking a policy if he wants to cancel or reject the policy then he or she take this decision within 15days from receiving of policy.
• Indemnity - It means that the policyholder, who suffers a loss, is compensated so as to put him or her in the same financial position as he or she was before the occurrence of the loss event.
• Subrogation - It is the process an insurance company uses to recover claim amounts paid to a policy holder from a negligent third party.