Download VTU MBA 4th Sem 16MBAFM402-Risk Management and Insurance RMI Module 7 -Important Notes

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Management of
Insurance
companies
MODULE 7
Insurance Market

--- Content provided by‌ FirstRanker.com ---

?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

--- Content provided by‌ FirstRanker.com ---

insurers, may be exclusive of non-exclusive
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

--- Content provided by⁠ FirstRanker.com ---

MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

--- Content provided by‌ FirstRanker.com ---

service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

--- Content provided by⁠ FirstRanker.com ---

? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

--- Content provided by FirstRanker.com ---

board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

--- Content provided by⁠ FirstRanker.com ---

FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

--- Content provided by⁠ FirstRanker.com ---

Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

--- Content provided by⁠ FirstRanker.com ---

?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

--- Content provided by‍ FirstRanker.com ---

? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

--- Content provided by FirstRanker.com ---

and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

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? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

--- Content provided by​ FirstRanker.com ---

? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

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? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
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Management of

--- Content provided by‍ FirstRanker.com ---

Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

--- Content provided by​ FirstRanker.com ---

insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

--- Content provided by‍ FirstRanker.com ---

Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

--- Content provided by​ FirstRanker.com ---

STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

--- Content provided by‍ FirstRanker.com ---

more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

--- Content provided by‌ FirstRanker.com ---

owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

--- Content provided by⁠ FirstRanker.com ---

? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

--- Content provided by‌ FirstRanker.com ---

insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

--- Content provided by‌ FirstRanker.com ---

It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

--- Content provided by⁠ FirstRanker.com ---

not liable to pay.
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

--- Content provided by⁠ FirstRanker.com ---

MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

--- Content provided by‍ FirstRanker.com ---

service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

--- Content provided by⁠ FirstRanker.com ---

? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

--- Content provided by‍ FirstRanker.com ---

board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

--- Content provided by‍ FirstRanker.com ---

? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

--- Content provided by​ FirstRanker.com ---

insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

--- Content provided by​ FirstRanker.com ---

? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

--- Content provided by‌ FirstRanker.com ---

?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

--- Content provided by‌ FirstRanker.com ---

new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

--- Content provided by⁠ FirstRanker.com ---

companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

--- Content provided by‌ FirstRanker.com ---

company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
FirstRanker.com - FirstRanker's Choice

--- Content provided by‍ FirstRanker.com ---

Management of
Insurance
companies
MODULE 7
Insurance Market

--- Content provided by FirstRanker.com ---

?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

--- Content provided by⁠ FirstRanker.com ---

insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

--- Content provided by⁠ FirstRanker.com ---

? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

--- Content provided by‍ FirstRanker.com ---

interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

--- Content provided by FirstRanker.com ---

may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

--- Content provided by​ FirstRanker.com ---

vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

--- Content provided by FirstRanker.com ---

services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

--- Content provided by‌ FirstRanker.com ---

insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

--- Content provided by FirstRanker.com ---

It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

--- Content provided by‌ FirstRanker.com ---

top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

--- Content provided by‌ FirstRanker.com ---

companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

--- Content provided by⁠ FirstRanker.com ---

? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
FirstRanker.com - FirstRanker's Choice

--- Content provided by‍ FirstRanker.com ---

Management of
Insurance
companies
MODULE 7
Insurance Market

--- Content provided by‌ FirstRanker.com ---

?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

--- Content provided by‍ FirstRanker.com ---

insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

--- Content provided by FirstRanker.com ---

? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

--- Content provided by⁠ FirstRanker.com ---

interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

--- Content provided by​ FirstRanker.com ---

may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

--- Content provided by‍ FirstRanker.com ---

vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

--- Content provided by‍ FirstRanker.com ---

services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

--- Content provided by‍ FirstRanker.com ---

insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

--- Content provided by‌ FirstRanker.com ---

It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

--- Content provided by​ FirstRanker.com ---

top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

--- Content provided by‍ FirstRanker.com ---

companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

--- Content provided by‍ FirstRanker.com ---

? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

--- Content provided by⁠ FirstRanker.com ---

?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

--- Content provided by‍ FirstRanker.com ---

?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
FirstRanker.com - FirstRanker's Choice
Management of

--- Content provided by‍ FirstRanker.com ---

Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

--- Content provided by‌ FirstRanker.com ---

insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

--- Content provided by⁠ FirstRanker.com ---

Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

--- Content provided by​ FirstRanker.com ---

STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

--- Content provided by‍ FirstRanker.com ---

more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

--- Content provided by FirstRanker.com ---

owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

--- Content provided by FirstRanker.com ---

? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

--- Content provided by‍ FirstRanker.com ---

insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

--- Content provided by FirstRanker.com ---

It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

--- Content provided by FirstRanker.com ---

not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

--- Content provided by⁠ FirstRanker.com ---

?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

--- Content provided by FirstRanker.com ---

the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

--- Content provided by⁠ FirstRanker.com ---

? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

--- Content provided by⁠ FirstRanker.com ---

insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

--- Content provided by FirstRanker.com ---

decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

--- Content provided by⁠ FirstRanker.com ---

following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

--- Content provided by FirstRanker.com ---

in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

--- Content provided by‌ FirstRanker.com ---

and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

--- Content provided by‍ FirstRanker.com ---

companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

--- Content provided by⁠ FirstRanker.com ---

?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

--- Content provided by⁠ FirstRanker.com ---

? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

--- Content provided by‍ FirstRanker.com ---

Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

--- Content provided by‍ FirstRanker.com ---

and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

--- Content provided by​ FirstRanker.com ---

alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

--- Content provided by​ FirstRanker.com ---

certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

--- Content provided by⁠ FirstRanker.com ---

?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

--- Content provided by‌ FirstRanker.com ---

corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

--- Content provided by‌ FirstRanker.com ---

Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

--- Content provided by⁠ FirstRanker.com ---

the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

--- Content provided by FirstRanker.com ---

Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

--- Content provided by⁠ FirstRanker.com ---

? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

--- Content provided by‍ FirstRanker.com ---

charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

--- Content provided by​ FirstRanker.com ---

related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

--- Content provided by‌ FirstRanker.com ---

? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

--- Content provided by‌ FirstRanker.com ---

at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

--- Content provided by‌ FirstRanker.com ---

Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

--- Content provided by‍ FirstRanker.com ---

below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
FirstRanker.com - FirstRanker's Choice

--- Content provided by FirstRanker.com ---

Management of
Insurance
companies
MODULE 7
Insurance Market

--- Content provided by⁠ FirstRanker.com ---

?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

--- Content provided by‍ FirstRanker.com ---

insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

--- Content provided by​ FirstRanker.com ---

? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

--- Content provided by​ FirstRanker.com ---

interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

--- Content provided by⁠ FirstRanker.com ---

may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

--- Content provided by FirstRanker.com ---

vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

--- Content provided by‌ FirstRanker.com ---

services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

--- Content provided by‍ FirstRanker.com ---

insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

--- Content provided by FirstRanker.com ---

It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

--- Content provided by FirstRanker.com ---

top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

--- Content provided by‌ FirstRanker.com ---

companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

--- Content provided by FirstRanker.com ---

? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

--- Content provided by⁠ FirstRanker.com ---

?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

--- Content provided by‍ FirstRanker.com ---

?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

--- Content provided by​ FirstRanker.com ---

group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

--- Content provided by FirstRanker.com ---

? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

--- Content provided by⁠ FirstRanker.com ---

? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

--- Content provided by⁠ FirstRanker.com ---

company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

--- Content provided by FirstRanker.com ---

class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

--- Content provided by⁠ FirstRanker.com ---

?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
FirstRanker.com - FirstRanker's Choice
Management of

--- Content provided by‍ FirstRanker.com ---

Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

--- Content provided by⁠ FirstRanker.com ---

insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

--- Content provided by‍ FirstRanker.com ---

Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

--- Content provided by⁠ FirstRanker.com ---

STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

--- Content provided by​ FirstRanker.com ---

more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

--- Content provided by​ FirstRanker.com ---

owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

--- Content provided by‍ FirstRanker.com ---

? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

--- Content provided by‌ FirstRanker.com ---

insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

--- Content provided by‍ FirstRanker.com ---

It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

--- Content provided by‍ FirstRanker.com ---

not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

--- Content provided by‌ FirstRanker.com ---

?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

--- Content provided by‍ FirstRanker.com ---

the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

--- Content provided by‍ FirstRanker.com ---

? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

--- Content provided by​ FirstRanker.com ---

insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

--- Content provided by⁠ FirstRanker.com ---

decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

--- Content provided by‍ FirstRanker.com ---

following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

--- Content provided by⁠ FirstRanker.com ---

in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

--- Content provided by‍ FirstRanker.com ---

and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

--- Content provided by​ FirstRanker.com ---

?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

--- Content provided by FirstRanker.com ---

Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

--- Content provided by‍ FirstRanker.com ---

?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

--- Content provided by‍ FirstRanker.com ---

agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

--- Content provided by‍ FirstRanker.com ---

-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
FirstRanker.com - FirstRanker's Choice

--- Content provided by‍ FirstRanker.com ---

Management of
Insurance
companies
MODULE 7
Insurance Market

--- Content provided by‌ FirstRanker.com ---

?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

--- Content provided by‍ FirstRanker.com ---

insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

--- Content provided by‌ FirstRanker.com ---

? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

--- Content provided by​ FirstRanker.com ---

interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

--- Content provided by‍ FirstRanker.com ---

may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

--- Content provided by‌ FirstRanker.com ---

vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

--- Content provided by FirstRanker.com ---

services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

--- Content provided by‍ FirstRanker.com ---

insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

--- Content provided by⁠ FirstRanker.com ---

It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

--- Content provided by‍ FirstRanker.com ---

top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

--- Content provided by FirstRanker.com ---

companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

--- Content provided by FirstRanker.com ---

? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

--- Content provided by‌ FirstRanker.com ---

?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

--- Content provided by‌ FirstRanker.com ---

?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

--- Content provided by‌ FirstRanker.com ---

group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

--- Content provided by​ FirstRanker.com ---

? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

--- Content provided by⁠ FirstRanker.com ---

? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

--- Content provided by⁠ FirstRanker.com ---

company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

--- Content provided by‍ FirstRanker.com ---

class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

--- Content provided by⁠ FirstRanker.com ---

?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

--- Content provided by‌ FirstRanker.com ---

- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

--- Content provided by‌ FirstRanker.com ---

the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

--- Content provided by​ FirstRanker.com ---

Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

--- Content provided by‌ FirstRanker.com ---

? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

--- Content provided by​ FirstRanker.com ---

Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
FirstRanker.com - FirstRanker's Choice
Management of

--- Content provided by FirstRanker.com ---

Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

--- Content provided by‍ FirstRanker.com ---

insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

--- Content provided by​ FirstRanker.com ---

Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

--- Content provided by FirstRanker.com ---

STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

--- Content provided by⁠ FirstRanker.com ---

more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

--- Content provided by‍ FirstRanker.com ---

owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

--- Content provided by FirstRanker.com ---

? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

--- Content provided by‌ FirstRanker.com ---

insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

--- Content provided by‌ FirstRanker.com ---

It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

--- Content provided by‍ FirstRanker.com ---

not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

--- Content provided by‌ FirstRanker.com ---

?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

--- Content provided by‌ FirstRanker.com ---

the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

--- Content provided by​ FirstRanker.com ---

? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

--- Content provided by⁠ FirstRanker.com ---

insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

--- Content provided by‍ FirstRanker.com ---

decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

--- Content provided by‍ FirstRanker.com ---

following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

--- Content provided by‌ FirstRanker.com ---

in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

--- Content provided by FirstRanker.com ---

and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

--- Content provided by‌ FirstRanker.com ---

?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

--- Content provided by‍ FirstRanker.com ---

Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

--- Content provided by​ FirstRanker.com ---

?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

--- Content provided by FirstRanker.com ---

agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

--- Content provided by⁠ FirstRanker.com ---

-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

--- Content provided by‍ FirstRanker.com ---

? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

--- Content provided by⁠ FirstRanker.com ---

guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

--- Content provided by‍ FirstRanker.com ---

excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

--- Content provided by⁠ FirstRanker.com ---

?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
FirstRanker.com - FirstRanker's Choice

--- Content provided by⁠ FirstRanker.com ---

Management of
Insurance
companies
MODULE 7
Insurance Market

--- Content provided by​ FirstRanker.com ---

?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

--- Content provided by‍ FirstRanker.com ---

insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

--- Content provided by​ FirstRanker.com ---

? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

--- Content provided by​ FirstRanker.com ---

interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

--- Content provided by⁠ FirstRanker.com ---

may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

--- Content provided by FirstRanker.com ---

vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

--- Content provided by‍ FirstRanker.com ---

services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

--- Content provided by⁠ FirstRanker.com ---

insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

--- Content provided by​ FirstRanker.com ---

It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

--- Content provided by‌ FirstRanker.com ---

top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

--- Content provided by‌ FirstRanker.com ---

companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

--- Content provided by FirstRanker.com ---

? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

--- Content provided by‌ FirstRanker.com ---

?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

--- Content provided by‍ FirstRanker.com ---

?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

--- Content provided by‌ FirstRanker.com ---

group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

--- Content provided by‌ FirstRanker.com ---

? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

--- Content provided by​ FirstRanker.com ---

? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

--- Content provided by FirstRanker.com ---

company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

--- Content provided by FirstRanker.com ---

class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

--- Content provided by FirstRanker.com ---

?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

--- Content provided by​ FirstRanker.com ---

- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

--- Content provided by⁠ FirstRanker.com ---

the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

--- Content provided by⁠ FirstRanker.com ---

Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

--- Content provided by FirstRanker.com ---

? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

--- Content provided by‌ FirstRanker.com ---

Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

--- Content provided by‍ FirstRanker.com ---

?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

--- Content provided by​ FirstRanker.com ---

Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

--- Content provided by FirstRanker.com ---

? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

--- Content provided by‌ FirstRanker.com ---

become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

--- Content provided by⁠ FirstRanker.com ---

companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

--- Content provided by​ FirstRanker.com ---

?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

--- Content provided by‍ FirstRanker.com ---

? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

--- Content provided by‍ FirstRanker.com ---

Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

--- Content provided by‍ FirstRanker.com ---

and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

--- Content provided by⁠ FirstRanker.com ---

alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

--- Content provided by​ FirstRanker.com ---

certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

--- Content provided by FirstRanker.com ---

?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

--- Content provided by⁠ FirstRanker.com ---

corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

--- Content provided by⁠ FirstRanker.com ---

Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

--- Content provided by⁠ FirstRanker.com ---

the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

--- Content provided by​ FirstRanker.com ---

Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

--- Content provided by‌ FirstRanker.com ---

? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

--- Content provided by FirstRanker.com ---

charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

--- Content provided by FirstRanker.com ---

related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

--- Content provided by​ FirstRanker.com ---

? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

--- Content provided by​ FirstRanker.com ---

at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

--- Content provided by⁠ FirstRanker.com ---

Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

--- Content provided by‍ FirstRanker.com ---

below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

--- Content provided by‍ FirstRanker.com ---

?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

--- Content provided by FirstRanker.com ---

?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

--- Content provided by‌ FirstRanker.com ---

agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

--- Content provided by‍ FirstRanker.com ---

? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

--- Content provided by​ FirstRanker.com ---

business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

--- Content provided by‌ FirstRanker.com ---

Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

--- Content provided by FirstRanker.com ---

Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

--- Content provided by‍ FirstRanker.com ---

?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

--- Content provided by⁠ FirstRanker.com ---

insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

--- Content provided by‍ FirstRanker.com ---

Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

--- Content provided by​ FirstRanker.com ---

Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

--- Content provided by FirstRanker.com ---

?Public adjustor
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

--- Content provided by​ FirstRanker.com ---

MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

--- Content provided by​ FirstRanker.com ---

service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

--- Content provided by​ FirstRanker.com ---

? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

--- Content provided by​ FirstRanker.com ---

board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

--- Content provided by‌ FirstRanker.com ---

? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

--- Content provided by FirstRanker.com ---

insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

--- Content provided by​ FirstRanker.com ---

? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

--- Content provided by‌ FirstRanker.com ---

?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

--- Content provided by FirstRanker.com ---

new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

--- Content provided by​ FirstRanker.com ---

companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

--- Content provided by​ FirstRanker.com ---

company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

--- Content provided by⁠ FirstRanker.com ---

? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

--- Content provided by‍ FirstRanker.com ---

? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

--- Content provided by FirstRanker.com ---

insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

--- Content provided by⁠ FirstRanker.com ---

Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

--- Content provided by⁠ FirstRanker.com ---

the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

--- Content provided by FirstRanker.com ---

? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

--- Content provided by FirstRanker.com ---

Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

--- Content provided by‍ FirstRanker.com ---

average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

--- Content provided by​ FirstRanker.com ---

?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

--- Content provided by‌ FirstRanker.com ---

Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

--- Content provided by⁠ FirstRanker.com ---

-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

--- Content provided by​ FirstRanker.com ---

? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

--- Content provided by‍ FirstRanker.com ---

? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

--- Content provided by⁠ FirstRanker.com ---

Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

--- Content provided by‍ FirstRanker.com ---

?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

--- Content provided by​ FirstRanker.com ---

?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

--- Content provided by‍ FirstRanker.com ---

event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

--- Content provided by‍ FirstRanker.com ---

refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

--- Content provided by‌ FirstRanker.com ---

?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

--- Content provided by FirstRanker.com ---

Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

--- Content provided by‍ FirstRanker.com ---

?Claim settlement
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

--- Content provided by‍ FirstRanker.com ---

MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

--- Content provided by‍ FirstRanker.com ---

service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

--- Content provided by⁠ FirstRanker.com ---

? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

--- Content provided by‍ FirstRanker.com ---

board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

--- Content provided by​ FirstRanker.com ---

? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

--- Content provided by‍ FirstRanker.com ---

insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

--- Content provided by⁠ FirstRanker.com ---

? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

--- Content provided by​ FirstRanker.com ---

?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

--- Content provided by FirstRanker.com ---

new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

--- Content provided by‍ FirstRanker.com ---

companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

--- Content provided by⁠ FirstRanker.com ---

company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

--- Content provided by‍ FirstRanker.com ---

? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

--- Content provided by FirstRanker.com ---

? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

--- Content provided by‌ FirstRanker.com ---

insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

--- Content provided by FirstRanker.com ---

Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

--- Content provided by⁠ FirstRanker.com ---

the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

--- Content provided by FirstRanker.com ---

? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

--- Content provided by FirstRanker.com ---

Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

--- Content provided by FirstRanker.com ---

average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

--- Content provided by‌ FirstRanker.com ---

?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

--- Content provided by‌ FirstRanker.com ---

Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

--- Content provided by⁠ FirstRanker.com ---

-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

--- Content provided by​ FirstRanker.com ---

? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

--- Content provided by‍ FirstRanker.com ---

? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

--- Content provided by FirstRanker.com ---

Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

--- Content provided by FirstRanker.com ---

?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

--- Content provided by FirstRanker.com ---

?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

--- Content provided by FirstRanker.com ---

event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

--- Content provided by‌ FirstRanker.com ---

refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

--- Content provided by⁠ FirstRanker.com ---

?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

--- Content provided by⁠ FirstRanker.com ---

Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

--- Content provided by‍ FirstRanker.com ---

?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

--- Content provided by‍ FirstRanker.com ---

FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

--- Content provided by​ FirstRanker.com ---

Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

--- Content provided by⁠ FirstRanker.com ---

?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

--- Content provided by‍ FirstRanker.com ---

? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

--- Content provided by‍ FirstRanker.com ---

and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

--- Content provided by‍ FirstRanker.com ---

? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

--- Content provided by​ FirstRanker.com ---

? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

--- Content provided by​ FirstRanker.com ---

? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

--- Content provided by FirstRanker.com ---

an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

--- Content provided by‌ FirstRanker.com ---

premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

--- Content provided by​ FirstRanker.com ---

?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

--- Content provided by‍ FirstRanker.com ---

?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

--- Content provided by​ FirstRanker.com ---

? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

--- Content provided by​ FirstRanker.com ---

Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

--- Content provided by‌ FirstRanker.com ---

and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

--- Content provided by​ FirstRanker.com ---

? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

--- Content provided by‍ FirstRanker.com ---

potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

--- Content provided by​ FirstRanker.com ---

average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

--- Content provided by‍ FirstRanker.com ---

?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

--- Content provided by‍ FirstRanker.com ---

?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

--- Content provided by FirstRanker.com ---

?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

--- Content provided by FirstRanker.com ---

? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

--- Content provided by‍ FirstRanker.com ---

-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

--- Content provided by⁠ FirstRanker.com ---

conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

--- Content provided by​ FirstRanker.com ---

inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

--- Content provided by FirstRanker.com ---

Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

--- Content provided by FirstRanker.com ---

1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

--- Content provided by‌ FirstRanker.com ---

purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

--- Content provided by FirstRanker.com ---

? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

--- Content provided by⁠ FirstRanker.com ---

attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

--- Content provided by⁠ FirstRanker.com ---

?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

--- Content provided by FirstRanker.com ---

?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

--- Content provided by‍ FirstRanker.com ---

Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

--- Content provided by‌ FirstRanker.com ---

? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

--- Content provided by⁠ FirstRanker.com ---

? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

--- Content provided by FirstRanker.com ---

? Police report for TP claims
? Repair bills
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

--- Content provided by​ FirstRanker.com ---

companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

--- Content provided by​ FirstRanker.com ---

?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

--- Content provided by‍ FirstRanker.com ---

? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

--- Content provided by‌ FirstRanker.com ---

Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

--- Content provided by‌ FirstRanker.com ---

and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

--- Content provided by⁠ FirstRanker.com ---

alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

--- Content provided by FirstRanker.com ---

certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

--- Content provided by​ FirstRanker.com ---

?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

--- Content provided by⁠ FirstRanker.com ---

corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

--- Content provided by‌ FirstRanker.com ---

Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

--- Content provided by⁠ FirstRanker.com ---

the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

--- Content provided by⁠ FirstRanker.com ---

Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

--- Content provided by​ FirstRanker.com ---

? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

--- Content provided by FirstRanker.com ---

charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

--- Content provided by FirstRanker.com ---

related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

--- Content provided by‍ FirstRanker.com ---

? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

--- Content provided by FirstRanker.com ---

at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

--- Content provided by‍ FirstRanker.com ---

Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

--- Content provided by‌ FirstRanker.com ---

below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

--- Content provided by​ FirstRanker.com ---

?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

--- Content provided by​ FirstRanker.com ---

?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

--- Content provided by​ FirstRanker.com ---

agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

--- Content provided by​ FirstRanker.com ---

? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

--- Content provided by⁠ FirstRanker.com ---

business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

--- Content provided by​ FirstRanker.com ---

Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

--- Content provided by​ FirstRanker.com ---

Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

--- Content provided by⁠ FirstRanker.com ---

?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

--- Content provided by‍ FirstRanker.com ---

insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

--- Content provided by‍ FirstRanker.com ---

Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

--- Content provided by​ FirstRanker.com ---

Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

--- Content provided by‍ FirstRanker.com ---

?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and

--- Content provided by FirstRanker.com ---

gives an estimate
?Claim settlement
Claim settlement in health
insurance
? Cashless method:

--- Content provided by FirstRanker.com ---

? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff

--- Content provided by⁠ FirstRanker.com ---

? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L
? Registration certificate

--- Content provided by⁠ FirstRanker.com ---

? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs

--- Content provided by‍ FirstRanker.com ---

? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and

--- Content provided by‍ FirstRanker.com ---

claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained

--- Content provided by‌ FirstRanker.com ---

? Claim register and policy records are marked with claim
settlement details
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

--- Content provided by​ FirstRanker.com ---

companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

--- Content provided by‌ FirstRanker.com ---

?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

--- Content provided by‌ FirstRanker.com ---

? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

--- Content provided by⁠ FirstRanker.com ---

Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

--- Content provided by FirstRanker.com ---

and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

--- Content provided by​ FirstRanker.com ---

alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

--- Content provided by⁠ FirstRanker.com ---

certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

--- Content provided by FirstRanker.com ---

?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

--- Content provided by​ FirstRanker.com ---

corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

--- Content provided by​ FirstRanker.com ---

Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

--- Content provided by FirstRanker.com ---

the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

--- Content provided by​ FirstRanker.com ---

Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

--- Content provided by FirstRanker.com ---

? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

--- Content provided by​ FirstRanker.com ---

charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

--- Content provided by‌ FirstRanker.com ---

related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

--- Content provided by‍ FirstRanker.com ---

? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

--- Content provided by FirstRanker.com ---

at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

--- Content provided by‌ FirstRanker.com ---

Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

--- Content provided by‌ FirstRanker.com ---

below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

--- Content provided by​ FirstRanker.com ---

?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

--- Content provided by​ FirstRanker.com ---

?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

--- Content provided by⁠ FirstRanker.com ---

agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

--- Content provided by‌ FirstRanker.com ---

? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

--- Content provided by FirstRanker.com ---

business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

--- Content provided by​ FirstRanker.com ---

Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

--- Content provided by‌ FirstRanker.com ---

Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

--- Content provided by‌ FirstRanker.com ---

?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

--- Content provided by‌ FirstRanker.com ---

insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

--- Content provided by​ FirstRanker.com ---

Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

--- Content provided by​ FirstRanker.com ---

Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

--- Content provided by​ FirstRanker.com ---

?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and

--- Content provided by‌ FirstRanker.com ---

gives an estimate
?Claim settlement
Claim settlement in health
insurance
? Cashless method:

--- Content provided by‌ FirstRanker.com ---

? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff

--- Content provided by‍ FirstRanker.com ---

? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L
? Registration certificate

--- Content provided by‍ FirstRanker.com ---

? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs

--- Content provided by⁠ FirstRanker.com ---

? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and

--- Content provided by‍ FirstRanker.com ---

claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained

--- Content provided by​ FirstRanker.com ---

? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for

--- Content provided by‌ FirstRanker.com ---

a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later

--- Content provided by⁠ FirstRanker.com ---

?Insured hands over all documents like RC book
etc to the insurer
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

--- Content provided by‌ FirstRanker.com ---

companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

--- Content provided by‍ FirstRanker.com ---

?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

--- Content provided by​ FirstRanker.com ---

? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

--- Content provided by​ FirstRanker.com ---

Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

--- Content provided by‌ FirstRanker.com ---

and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

--- Content provided by FirstRanker.com ---

alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

--- Content provided by‌ FirstRanker.com ---

certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

--- Content provided by FirstRanker.com ---

?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

--- Content provided by⁠ FirstRanker.com ---

corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

--- Content provided by‍ FirstRanker.com ---

Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

--- Content provided by⁠ FirstRanker.com ---

the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

--- Content provided by⁠ FirstRanker.com ---

Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

--- Content provided by FirstRanker.com ---

? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

--- Content provided by‌ FirstRanker.com ---

charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

--- Content provided by‌ FirstRanker.com ---

related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

--- Content provided by FirstRanker.com ---

? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

--- Content provided by⁠ FirstRanker.com ---

at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

--- Content provided by​ FirstRanker.com ---

Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

--- Content provided by FirstRanker.com ---

below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

--- Content provided by​ FirstRanker.com ---

?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

--- Content provided by​ FirstRanker.com ---

?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

--- Content provided by⁠ FirstRanker.com ---

agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

--- Content provided by‌ FirstRanker.com ---

? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

--- Content provided by​ FirstRanker.com ---

business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

--- Content provided by‍ FirstRanker.com ---

Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

--- Content provided by‌ FirstRanker.com ---

Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

--- Content provided by FirstRanker.com ---

?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

--- Content provided by​ FirstRanker.com ---

insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

--- Content provided by‍ FirstRanker.com ---

Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

--- Content provided by⁠ FirstRanker.com ---

Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

--- Content provided by FirstRanker.com ---

?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and

--- Content provided by‍ FirstRanker.com ---

gives an estimate
?Claim settlement
Claim settlement in health
insurance
? Cashless method:

--- Content provided by FirstRanker.com ---

? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff

--- Content provided by​ FirstRanker.com ---

? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L
? Registration certificate

--- Content provided by‍ FirstRanker.com ---

? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs

--- Content provided by​ FirstRanker.com ---

? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and

--- Content provided by FirstRanker.com ---

claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained

--- Content provided by‍ FirstRanker.com ---

? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for

--- Content provided by‌ FirstRanker.com ---

a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later

--- Content provided by‍ FirstRanker.com ---

?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted

--- Content provided by‍ FirstRanker.com ---

in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.

--- Content provided by‌ FirstRanker.com ---

?Discharge form and indemnity bond are also required.
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

--- Content provided by FirstRanker.com ---

MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

--- Content provided by FirstRanker.com ---

service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

--- Content provided by⁠ FirstRanker.com ---

? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

--- Content provided by FirstRanker.com ---

board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

--- Content provided by​ FirstRanker.com ---

? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

--- Content provided by​ FirstRanker.com ---

insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

--- Content provided by‍ FirstRanker.com ---

? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

--- Content provided by FirstRanker.com ---

?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

--- Content provided by FirstRanker.com ---

new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

--- Content provided by‌ FirstRanker.com ---

companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

--- Content provided by FirstRanker.com ---

company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

--- Content provided by⁠ FirstRanker.com ---

? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

--- Content provided by‌ FirstRanker.com ---

? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

--- Content provided by FirstRanker.com ---

insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

--- Content provided by‍ FirstRanker.com ---

Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

--- Content provided by FirstRanker.com ---

the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

--- Content provided by‌ FirstRanker.com ---

? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

--- Content provided by FirstRanker.com ---

Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

--- Content provided by⁠ FirstRanker.com ---

average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

--- Content provided by⁠ FirstRanker.com ---

?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

--- Content provided by‍ FirstRanker.com ---

Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

--- Content provided by‍ FirstRanker.com ---

-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

--- Content provided by​ FirstRanker.com ---

? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

--- Content provided by‌ FirstRanker.com ---

? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

--- Content provided by FirstRanker.com ---

Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

--- Content provided by FirstRanker.com ---

?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

--- Content provided by‌ FirstRanker.com ---

?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

--- Content provided by​ FirstRanker.com ---

event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

--- Content provided by⁠ FirstRanker.com ---

refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

--- Content provided by‌ FirstRanker.com ---

?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

--- Content provided by‌ FirstRanker.com ---

Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

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service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

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? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

--- Content provided by​ FirstRanker.com ---

board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

--- Content provided by‍ FirstRanker.com ---

new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

--- Content provided by‌ FirstRanker.com ---

company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

--- Content provided by⁠ FirstRanker.com ---

insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

--- Content provided by‍ FirstRanker.com ---

Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

--- Content provided by FirstRanker.com ---

the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

--- Content provided by​ FirstRanker.com ---

Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

--- Content provided by​ FirstRanker.com ---

? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

--- Content provided by‍ FirstRanker.com ---

? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

--- Content provided by‍ FirstRanker.com ---

event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

--- Content provided by⁠ FirstRanker.com ---

?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

--- Content provided by FirstRanker.com ---

Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

--- Content provided by‌ FirstRanker.com ---

?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

--- Content provided by​ FirstRanker.com ---

Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

--- Content provided by​ FirstRanker.com ---

? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

--- Content provided by FirstRanker.com ---

? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

--- Content provided by FirstRanker.com ---

? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

--- Content provided by‍ FirstRanker.com ---

? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

--- Content provided by FirstRanker.com ---

settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

--- Content provided by‌ FirstRanker.com ---

basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

--- Content provided by‌ FirstRanker.com ---

etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

--- Content provided by​ FirstRanker.com ---

?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

--- Content provided by FirstRanker.com ---

Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

--- Content provided by FirstRanker.com ---

insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
FirstRanker.com - FirstRanker's Choice

--- Content provided by⁠ FirstRanker.com ---

Management of
Insurance
companies
MODULE 7
Insurance Market

--- Content provided by‌ FirstRanker.com ---

?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

--- Content provided by​ FirstRanker.com ---

insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

--- Content provided by‍ FirstRanker.com ---

? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

--- Content provided by FirstRanker.com ---

interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

--- Content provided by⁠ FirstRanker.com ---

may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

--- Content provided by‍ FirstRanker.com ---

vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

--- Content provided by​ FirstRanker.com ---

services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

--- Content provided by⁠ FirstRanker.com ---

insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

--- Content provided by‍ FirstRanker.com ---

It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

--- Content provided by​ FirstRanker.com ---

top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

--- Content provided by⁠ FirstRanker.com ---

companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

--- Content provided by FirstRanker.com ---

? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

--- Content provided by​ FirstRanker.com ---

?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

--- Content provided by‌ FirstRanker.com ---

?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

--- Content provided by FirstRanker.com ---

group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

--- Content provided by​ FirstRanker.com ---

? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

--- Content provided by FirstRanker.com ---

? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

--- Content provided by FirstRanker.com ---

company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

--- Content provided by⁠ FirstRanker.com ---

class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

--- Content provided by⁠ FirstRanker.com ---

?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

--- Content provided by​ FirstRanker.com ---

- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

--- Content provided by‌ FirstRanker.com ---

the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

--- Content provided by​ FirstRanker.com ---

Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

--- Content provided by FirstRanker.com ---

? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

--- Content provided by FirstRanker.com ---

Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

--- Content provided by‍ FirstRanker.com ---

?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

--- Content provided by⁠ FirstRanker.com ---

Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

--- Content provided by‌ FirstRanker.com ---

? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

--- Content provided by FirstRanker.com ---

become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

--- Content provided by‌ FirstRanker.com ---

?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

--- Content provided by⁠ FirstRanker.com ---

documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

--- Content provided by​ FirstRanker.com ---

insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

--- Content provided by​ FirstRanker.com ---

? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

--- Content provided by⁠ FirstRanker.com ---

? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

--- Content provided by‍ FirstRanker.com ---

? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

--- Content provided by⁠ FirstRanker.com ---

? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

--- Content provided by‌ FirstRanker.com ---

the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

--- Content provided by​ FirstRanker.com ---

?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

--- Content provided by​ FirstRanker.com ---

?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

--- Content provided by‍ FirstRanker.com ---

?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

--- Content provided by⁠ FirstRanker.com ---

?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

--- Content provided by⁠ FirstRanker.com ---

?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

--- Content provided by‍ FirstRanker.com ---

This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

--- Content provided by‍ FirstRanker.com ---

policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

--- Content provided by⁠ FirstRanker.com ---

?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
FirstRanker.com - FirstRanker's Choice
Management of

--- Content provided by FirstRanker.com ---

Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

--- Content provided by FirstRanker.com ---

insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

--- Content provided by FirstRanker.com ---

Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

--- Content provided by​ FirstRanker.com ---

STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

--- Content provided by​ FirstRanker.com ---

more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

--- Content provided by‍ FirstRanker.com ---

owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

--- Content provided by‍ FirstRanker.com ---

? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

--- Content provided by FirstRanker.com ---

insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

--- Content provided by FirstRanker.com ---

It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

--- Content provided by‌ FirstRanker.com ---

not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

--- Content provided by‍ FirstRanker.com ---

?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

--- Content provided by​ FirstRanker.com ---

the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

--- Content provided by​ FirstRanker.com ---

? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

--- Content provided by‍ FirstRanker.com ---

insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

--- Content provided by‍ FirstRanker.com ---

decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

--- Content provided by‍ FirstRanker.com ---

following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

--- Content provided by FirstRanker.com ---

in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

--- Content provided by FirstRanker.com ---

and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

--- Content provided by FirstRanker.com ---

?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

--- Content provided by FirstRanker.com ---

Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

--- Content provided by⁠ FirstRanker.com ---

?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

--- Content provided by FirstRanker.com ---

agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

--- Content provided by‍ FirstRanker.com ---

-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

--- Content provided by‍ FirstRanker.com ---

? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

--- Content provided by⁠ FirstRanker.com ---

guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

--- Content provided by‍ FirstRanker.com ---

excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

--- Content provided by⁠ FirstRanker.com ---

?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

--- Content provided by​ FirstRanker.com ---

? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

--- Content provided by FirstRanker.com ---

? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

--- Content provided by FirstRanker.com ---

? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

--- Content provided by‌ FirstRanker.com ---

?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

--- Content provided by​ FirstRanker.com ---

?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

--- Content provided by⁠ FirstRanker.com ---

? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

--- Content provided by​ FirstRanker.com ---

? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

--- Content provided by‌ FirstRanker.com ---

? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

--- Content provided by‍ FirstRanker.com ---

Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

--- Content provided by FirstRanker.com ---

? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

--- Content provided by​ FirstRanker.com ---

? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

--- Content provided by‌ FirstRanker.com ---

in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

--- Content provided by FirstRanker.com ---

by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

--- Content provided by⁠ FirstRanker.com ---

?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

--- Content provided by​ FirstRanker.com ---

RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

--- Content provided by FirstRanker.com ---

? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

--- Content provided by​ FirstRanker.com ---

cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

--- Content provided by‍ FirstRanker.com ---

?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

--- Content provided by​ FirstRanker.com ---

?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

--- Content provided by‌ FirstRanker.com ---

Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

--- Content provided by FirstRanker.com ---

n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

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? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
FirstRanker.com - FirstRanker's Choice

--- Content provided by‌ FirstRanker.com ---

Management of
Insurance
companies
MODULE 7
Insurance Market

--- Content provided by‌ FirstRanker.com ---

?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

--- Content provided by​ FirstRanker.com ---

insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

--- Content provided by‌ FirstRanker.com ---

? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

--- Content provided by FirstRanker.com ---

interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

--- Content provided by‍ FirstRanker.com ---

may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

--- Content provided by‍ FirstRanker.com ---

vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

--- Content provided by‌ FirstRanker.com ---

services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

--- Content provided by‍ FirstRanker.com ---

insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

--- Content provided by‍ FirstRanker.com ---

It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

--- Content provided by FirstRanker.com ---

top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

--- Content provided by FirstRanker.com ---

companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

--- Content provided by‍ FirstRanker.com ---

? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

--- Content provided by‌ FirstRanker.com ---

?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

--- Content provided by‌ FirstRanker.com ---

?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

--- Content provided by⁠ FirstRanker.com ---

group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

--- Content provided by‌ FirstRanker.com ---

? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

--- Content provided by⁠ FirstRanker.com ---

? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

--- Content provided by FirstRanker.com ---

company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

--- Content provided by‌ FirstRanker.com ---

class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

--- Content provided by‍ FirstRanker.com ---

?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

--- Content provided by FirstRanker.com ---

- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

--- Content provided by FirstRanker.com ---

the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

--- Content provided by​ FirstRanker.com ---

Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

--- Content provided by​ FirstRanker.com ---

? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

--- Content provided by‌ FirstRanker.com ---

Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

--- Content provided by‍ FirstRanker.com ---

?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

--- Content provided by​ FirstRanker.com ---

Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

--- Content provided by‌ FirstRanker.com ---

? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

--- Content provided by‍ FirstRanker.com ---

become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

--- Content provided by FirstRanker.com ---

?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

--- Content provided by‌ FirstRanker.com ---

documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

--- Content provided by​ FirstRanker.com ---

insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

--- Content provided by‍ FirstRanker.com ---

? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

--- Content provided by⁠ FirstRanker.com ---

? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

--- Content provided by FirstRanker.com ---

? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

--- Content provided by⁠ FirstRanker.com ---

? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

--- Content provided by‌ FirstRanker.com ---

the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

--- Content provided by​ FirstRanker.com ---

?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

--- Content provided by‍ FirstRanker.com ---

?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

--- Content provided by‍ FirstRanker.com ---

?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

--- Content provided by​ FirstRanker.com ---

?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

--- Content provided by​ FirstRanker.com ---

?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

--- Content provided by‍ FirstRanker.com ---

This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

--- Content provided by‌ FirstRanker.com ---

policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

--- Content provided by‌ FirstRanker.com ---

?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

--- Content provided by‍ FirstRanker.com ---

? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

--- Content provided by‌ FirstRanker.com ---

? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

--- Content provided by⁠ FirstRanker.com ---

Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

--- Content provided by⁠ FirstRanker.com ---

Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

--- Content provided by‍ FirstRanker.com ---

?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

--- Content provided by​ FirstRanker.com ---

FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

--- Content provided by FirstRanker.com ---

Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

--- Content provided by​ FirstRanker.com ---

?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

--- Content provided by‌ FirstRanker.com ---

? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

--- Content provided by​ FirstRanker.com ---

and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

--- Content provided by‌ FirstRanker.com ---

? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

--- Content provided by⁠ FirstRanker.com ---

? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

--- Content provided by FirstRanker.com ---

? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

--- Content provided by⁠ FirstRanker.com ---

an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

--- Content provided by‌ FirstRanker.com ---

premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

--- Content provided by‌ FirstRanker.com ---

?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

--- Content provided by FirstRanker.com ---

?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

--- Content provided by‌ FirstRanker.com ---

? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

--- Content provided by​ FirstRanker.com ---

Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

--- Content provided by‍ FirstRanker.com ---

and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

--- Content provided by FirstRanker.com ---

? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

--- Content provided by​ FirstRanker.com ---

potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

--- Content provided by‌ FirstRanker.com ---

average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

--- Content provided by​ FirstRanker.com ---

?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

--- Content provided by‍ FirstRanker.com ---

?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

--- Content provided by FirstRanker.com ---

?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

--- Content provided by FirstRanker.com ---

? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

--- Content provided by‍ FirstRanker.com ---

-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

--- Content provided by​ FirstRanker.com ---

conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

--- Content provided by⁠ FirstRanker.com ---

inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

--- Content provided by​ FirstRanker.com ---

Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

--- Content provided by‌ FirstRanker.com ---

1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

--- Content provided by‍ FirstRanker.com ---

purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

--- Content provided by‌ FirstRanker.com ---

? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

--- Content provided by​ FirstRanker.com ---

attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

--- Content provided by‌ FirstRanker.com ---

?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

--- Content provided by‍ FirstRanker.com ---

?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

--- Content provided by FirstRanker.com ---

Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

--- Content provided by​ FirstRanker.com ---

? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

--- Content provided by‍ FirstRanker.com ---

? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

--- Content provided by​ FirstRanker.com ---

? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued

--- Content provided by‌ FirstRanker.com ---

? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the

--- Content provided by⁠ FirstRanker.com ---

repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details

--- Content provided by‍ FirstRanker.com ---

Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever

--- Content provided by​ FirstRanker.com ---

is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer

--- Content provided by‌ FirstRanker.com ---

Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable

--- Content provided by⁠ FirstRanker.com ---

certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing

--- Content provided by​ FirstRanker.com ---

Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given

--- Content provided by‌ FirstRanker.com ---

time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY

--- Content provided by FirstRanker.com ---

?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the

--- Content provided by‍ FirstRanker.com ---

business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium

--- Content provided by⁠ FirstRanker.com ---

Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is

--- Content provided by⁠ FirstRanker.com ---

taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency

--- Content provided by FirstRanker.com ---

pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia

--- Content provided by‍ FirstRanker.com ---

FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the

--- Content provided by‌ FirstRanker.com ---

organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims

--- Content provided by‍ FirstRanker.com ---

cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.

--- Content provided by​ FirstRanker.com ---

? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand

--- Content provided by FirstRanker.com ---

of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc

--- Content provided by​ FirstRanker.com ---

FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

--- Content provided by‍ FirstRanker.com ---

Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

--- Content provided by FirstRanker.com ---

?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

--- Content provided by⁠ FirstRanker.com ---

? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

--- Content provided by‌ FirstRanker.com ---

and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

--- Content provided by‌ FirstRanker.com ---

? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

--- Content provided by⁠ FirstRanker.com ---

? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

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? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

--- Content provided by‍ FirstRanker.com ---

an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

--- Content provided by​ FirstRanker.com ---

premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

--- Content provided by​ FirstRanker.com ---

?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

--- Content provided by FirstRanker.com ---

?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

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? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

--- Content provided by‍ FirstRanker.com ---

Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

--- Content provided by‍ FirstRanker.com ---

and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

--- Content provided by⁠ FirstRanker.com ---

? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

--- Content provided by‍ FirstRanker.com ---

potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

--- Content provided by​ FirstRanker.com ---

average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

--- Content provided by‍ FirstRanker.com ---

?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

--- Content provided by‌ FirstRanker.com ---

?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

--- Content provided by‌ FirstRanker.com ---

?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

--- Content provided by‌ FirstRanker.com ---

? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

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-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

--- Content provided by⁠ FirstRanker.com ---

conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

--- Content provided by⁠ FirstRanker.com ---

inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

--- Content provided by​ FirstRanker.com ---

Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

--- Content provided by⁠ FirstRanker.com ---

1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

--- Content provided by‌ FirstRanker.com ---

purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

--- Content provided by​ FirstRanker.com ---

? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

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attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

--- Content provided by‌ FirstRanker.com ---

?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

--- Content provided by⁠ FirstRanker.com ---

?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

--- Content provided by⁠ FirstRanker.com ---

Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

--- Content provided by FirstRanker.com ---

? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

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? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

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? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued

--- Content provided by‍ FirstRanker.com ---

? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the

--- Content provided by‌ FirstRanker.com ---

repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details

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Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever

--- Content provided by​ FirstRanker.com ---

is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer

--- Content provided by‌ FirstRanker.com ---

Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable

--- Content provided by‌ FirstRanker.com ---

certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing

--- Content provided by FirstRanker.com ---

Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given

--- Content provided by FirstRanker.com ---

time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY

--- Content provided by‌ FirstRanker.com ---

?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the

--- Content provided by FirstRanker.com ---

business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium

--- Content provided by⁠ FirstRanker.com ---

Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is

--- Content provided by FirstRanker.com ---

taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency

--- Content provided by‍ FirstRanker.com ---

pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia

--- Content provided by‍ FirstRanker.com ---

FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the

--- Content provided by​ FirstRanker.com ---

organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims

--- Content provided by​ FirstRanker.com ---

cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.

--- Content provided by FirstRanker.com ---

? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand

--- Content provided by​ FirstRanker.com ---

of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc

--- Content provided by​ FirstRanker.com ---

Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be

--- Content provided by‍ FirstRanker.com ---

made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within

--- Content provided by‌ FirstRanker.com ---

6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
FirstRanker.com - FirstRanker's Choice
Management of

--- Content provided by‌ FirstRanker.com ---

Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

--- Content provided by​ FirstRanker.com ---

insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

--- Content provided by‌ FirstRanker.com ---

Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

--- Content provided by⁠ FirstRanker.com ---

STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

--- Content provided by FirstRanker.com ---

more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

--- Content provided by‍ FirstRanker.com ---

owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

--- Content provided by⁠ FirstRanker.com ---

? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

--- Content provided by⁠ FirstRanker.com ---

insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

--- Content provided by‍ FirstRanker.com ---

It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

--- Content provided by‌ FirstRanker.com ---

not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

--- Content provided by​ FirstRanker.com ---

?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

--- Content provided by⁠ FirstRanker.com ---

the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

--- Content provided by FirstRanker.com ---

? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

--- Content provided by FirstRanker.com ---

insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

--- Content provided by​ FirstRanker.com ---

decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

--- Content provided by​ FirstRanker.com ---

following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

--- Content provided by​ FirstRanker.com ---

in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

--- Content provided by‍ FirstRanker.com ---

and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

--- Content provided by‌ FirstRanker.com ---

?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

--- Content provided by‌ FirstRanker.com ---

Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

--- Content provided by​ FirstRanker.com ---

?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

--- Content provided by‌ FirstRanker.com ---

agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

--- Content provided by‍ FirstRanker.com ---

-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

--- Content provided by⁠ FirstRanker.com ---

? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

--- Content provided by‌ FirstRanker.com ---

guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

--- Content provided by‌ FirstRanker.com ---

excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

--- Content provided by‌ FirstRanker.com ---

?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

--- Content provided by​ FirstRanker.com ---

? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

--- Content provided by⁠ FirstRanker.com ---

? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

--- Content provided by​ FirstRanker.com ---

? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

--- Content provided by‍ FirstRanker.com ---

?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

--- Content provided by‍ FirstRanker.com ---

?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

--- Content provided by FirstRanker.com ---

? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

--- Content provided by‍ FirstRanker.com ---

? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

--- Content provided by‍ FirstRanker.com ---

? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

--- Content provided by FirstRanker.com ---

Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

--- Content provided by‌ FirstRanker.com ---

? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

--- Content provided by‌ FirstRanker.com ---

? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

--- Content provided by FirstRanker.com ---

in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

--- Content provided by FirstRanker.com ---

by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

--- Content provided by FirstRanker.com ---

?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

--- Content provided by​ FirstRanker.com ---

RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

--- Content provided by FirstRanker.com ---

? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

--- Content provided by​ FirstRanker.com ---

cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

--- Content provided by​ FirstRanker.com ---

?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

--- Content provided by‍ FirstRanker.com ---

?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

--- Content provided by‍ FirstRanker.com ---

Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

--- Content provided by⁠ FirstRanker.com ---

n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

--- Content provided by‍ FirstRanker.com ---

? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

--- Content provided by‌ FirstRanker.com ---

?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

--- Content provided by‌ FirstRanker.com ---

Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

--- Content provided by​ FirstRanker.com ---

? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

--- Content provided by‍ FirstRanker.com ---

? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

--- Content provided by‌ FirstRanker.com ---

? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

--- Content provided by‍ FirstRanker.com ---

? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

--- Content provided by FirstRanker.com ---

stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

--- Content provided by‌ FirstRanker.com ---

frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

--- Content provided by‌ FirstRanker.com ---

spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

--- Content provided by FirstRanker.com ---

supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
FirstRanker.com - FirstRanker's Choice
Management of

--- Content provided by⁠ FirstRanker.com ---

Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

--- Content provided by FirstRanker.com ---

insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

--- Content provided by‌ FirstRanker.com ---

Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

--- Content provided by⁠ FirstRanker.com ---

STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

--- Content provided by​ FirstRanker.com ---

more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

--- Content provided by FirstRanker.com ---

owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

--- Content provided by​ FirstRanker.com ---

? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

--- Content provided by‍ FirstRanker.com ---

insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

--- Content provided by FirstRanker.com ---

It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

--- Content provided by​ FirstRanker.com ---

not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

--- Content provided by‌ FirstRanker.com ---

?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

--- Content provided by​ FirstRanker.com ---

the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

--- Content provided by FirstRanker.com ---

? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

--- Content provided by⁠ FirstRanker.com ---

insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

--- Content provided by‍ FirstRanker.com ---

decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

--- Content provided by​ FirstRanker.com ---

following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

--- Content provided by⁠ FirstRanker.com ---

in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

--- Content provided by⁠ FirstRanker.com ---

and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

--- Content provided by‌ FirstRanker.com ---

?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

--- Content provided by FirstRanker.com ---

Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

--- Content provided by⁠ FirstRanker.com ---

?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

--- Content provided by‍ FirstRanker.com ---

agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

--- Content provided by⁠ FirstRanker.com ---

-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

--- Content provided by‌ FirstRanker.com ---

? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

--- Content provided by⁠ FirstRanker.com ---

guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

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excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

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?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

--- Content provided by‍ FirstRanker.com ---

? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

--- Content provided by⁠ FirstRanker.com ---

? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

--- Content provided by‍ FirstRanker.com ---

? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

--- Content provided by‍ FirstRanker.com ---

?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

--- Content provided by⁠ FirstRanker.com ---

?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

--- Content provided by​ FirstRanker.com ---

? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

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? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

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? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

--- Content provided by​ FirstRanker.com ---

Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

--- Content provided by FirstRanker.com ---

? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

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? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

--- Content provided by FirstRanker.com ---

in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

--- Content provided by⁠ FirstRanker.com ---

by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

--- Content provided by‍ FirstRanker.com ---

?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

--- Content provided by⁠ FirstRanker.com ---

RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

--- Content provided by‍ FirstRanker.com ---

? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

--- Content provided by FirstRanker.com ---

cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

--- Content provided by‍ FirstRanker.com ---

?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

--- Content provided by‍ FirstRanker.com ---

?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

--- Content provided by‍ FirstRanker.com ---

Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

--- Content provided by‌ FirstRanker.com ---

n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

--- Content provided by​ FirstRanker.com ---

? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

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?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

--- Content provided by⁠ FirstRanker.com ---

Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

--- Content provided by‍ FirstRanker.com ---

? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

--- Content provided by⁠ FirstRanker.com ---

? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

--- Content provided by‍ FirstRanker.com ---

? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

--- Content provided by‌ FirstRanker.com ---

? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

--- Content provided by‍ FirstRanker.com ---

stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

--- Content provided by⁠ FirstRanker.com ---

frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

--- Content provided by‌ FirstRanker.com ---

spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

--- Content provided by‌ FirstRanker.com ---

supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

--- Content provided by FirstRanker.com ---

hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

--- Content provided by‍ FirstRanker.com ---

? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
FirstRanker.com - FirstRanker's Choice

--- Content provided by FirstRanker.com ---

Management of
Insurance
companies
MODULE 7
Insurance Market

--- Content provided by⁠ FirstRanker.com ---

?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

--- Content provided by​ FirstRanker.com ---

insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

--- Content provided by FirstRanker.com ---

? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

--- Content provided by FirstRanker.com ---

interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

--- Content provided by⁠ FirstRanker.com ---

may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

--- Content provided by⁠ FirstRanker.com ---

vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

--- Content provided by⁠ FirstRanker.com ---

services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

--- Content provided by​ FirstRanker.com ---

insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

--- Content provided by‌ FirstRanker.com ---

It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

--- Content provided by‌ FirstRanker.com ---

top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

--- Content provided by FirstRanker.com ---

companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

--- Content provided by​ FirstRanker.com ---

? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

--- Content provided by FirstRanker.com ---

?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

--- Content provided by FirstRanker.com ---

?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

--- Content provided by​ FirstRanker.com ---

group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

--- Content provided by​ FirstRanker.com ---

? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

--- Content provided by‌ FirstRanker.com ---

? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

--- Content provided by⁠ FirstRanker.com ---

company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

--- Content provided by⁠ FirstRanker.com ---

class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

--- Content provided by‌ FirstRanker.com ---

?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

--- Content provided by‌ FirstRanker.com ---

- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

--- Content provided by‌ FirstRanker.com ---

the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

--- Content provided by⁠ FirstRanker.com ---

Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

--- Content provided by‌ FirstRanker.com ---

? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

--- Content provided by‌ FirstRanker.com ---

Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

--- Content provided by FirstRanker.com ---

?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

--- Content provided by⁠ FirstRanker.com ---

Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

--- Content provided by‌ FirstRanker.com ---

? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

--- Content provided by‍ FirstRanker.com ---

become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

--- Content provided by​ FirstRanker.com ---

?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

--- Content provided by‌ FirstRanker.com ---

documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

--- Content provided by FirstRanker.com ---

insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

--- Content provided by⁠ FirstRanker.com ---

? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

--- Content provided by⁠ FirstRanker.com ---

? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

--- Content provided by‍ FirstRanker.com ---

? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

--- Content provided by FirstRanker.com ---

? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

--- Content provided by FirstRanker.com ---

the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

--- Content provided by‌ FirstRanker.com ---

?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

--- Content provided by​ FirstRanker.com ---

?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

--- Content provided by​ FirstRanker.com ---

?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

--- Content provided by FirstRanker.com ---

?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

--- Content provided by⁠ FirstRanker.com ---

?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

--- Content provided by‌ FirstRanker.com ---

This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

--- Content provided by‍ FirstRanker.com ---

policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

--- Content provided by‍ FirstRanker.com ---

?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

--- Content provided by‍ FirstRanker.com ---

? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

--- Content provided by‌ FirstRanker.com ---

? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

--- Content provided by‌ FirstRanker.com ---

Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

--- Content provided by​ FirstRanker.com ---

Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

--- Content provided by FirstRanker.com ---

?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

--- Content provided by⁠ FirstRanker.com ---

Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.

--- Content provided by⁠ FirstRanker.com ---

? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.

--- Content provided by⁠ FirstRanker.com ---

? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement

--- Content provided by FirstRanker.com ---

? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.

--- Content provided by​ FirstRanker.com ---

? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request

--- Content provided by‍ FirstRanker.com ---

? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.

--- Content provided by‌ FirstRanker.com ---

?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply

--- Content provided by FirstRanker.com ---

curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle

--- Content provided by‍ FirstRanker.com ---

? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium

--- Content provided by​ FirstRanker.com ---

? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS

--- Content provided by‌ FirstRanker.com ---

Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have

--- Content provided by​ FirstRanker.com ---

? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.

--- Content provided by⁠ FirstRanker.com ---

? All other premiums are fixed y the companies on a market basis.
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

--- Content provided by‌ FirstRanker.com ---

MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

--- Content provided by⁠ FirstRanker.com ---

service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

--- Content provided by FirstRanker.com ---

? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

--- Content provided by FirstRanker.com ---

board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

--- Content provided by​ FirstRanker.com ---

? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

--- Content provided by⁠ FirstRanker.com ---

insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

--- Content provided by⁠ FirstRanker.com ---

? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

--- Content provided by⁠ FirstRanker.com ---

?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

--- Content provided by‍ FirstRanker.com ---

new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

--- Content provided by‍ FirstRanker.com ---

companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

--- Content provided by‍ FirstRanker.com ---

company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

--- Content provided by FirstRanker.com ---

? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

--- Content provided by‍ FirstRanker.com ---

? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

--- Content provided by FirstRanker.com ---

insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

--- Content provided by‍ FirstRanker.com ---

Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

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the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

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Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

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? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

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? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

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event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

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?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

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Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

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insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

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?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

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expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

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Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

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accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

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? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

--- Content provided by FirstRanker.com ---

policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

--- Content provided by⁠ FirstRanker.com ---

quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

--- Content provided by FirstRanker.com ---

varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

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Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

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?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

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? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

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and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

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? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

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? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

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? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

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an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

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premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

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?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

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?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

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? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

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Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

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and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

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? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

--- Content provided by⁠ FirstRanker.com ---

potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

--- Content provided by‌ FirstRanker.com ---

average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

--- Content provided by FirstRanker.com ---

?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

--- Content provided by​ FirstRanker.com ---

?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

--- Content provided by FirstRanker.com ---

?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

--- Content provided by​ FirstRanker.com ---

? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

--- Content provided by FirstRanker.com ---

-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

--- Content provided by‌ FirstRanker.com ---

conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

--- Content provided by FirstRanker.com ---

inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

--- Content provided by‍ FirstRanker.com ---

Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

--- Content provided by⁠ FirstRanker.com ---

1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

--- Content provided by FirstRanker.com ---

purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

--- Content provided by⁠ FirstRanker.com ---

? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

--- Content provided by FirstRanker.com ---

attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

--- Content provided by‍ FirstRanker.com ---

?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

--- Content provided by⁠ FirstRanker.com ---

?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

--- Content provided by​ FirstRanker.com ---

Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

--- Content provided by​ FirstRanker.com ---

? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

--- Content provided by​ FirstRanker.com ---

? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

--- Content provided by‍ FirstRanker.com ---

? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued

--- Content provided by‍ FirstRanker.com ---

? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the

--- Content provided by​ FirstRanker.com ---

repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details

--- Content provided by FirstRanker.com ---

Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever

--- Content provided by⁠ FirstRanker.com ---

is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer

--- Content provided by⁠ FirstRanker.com ---

Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable

--- Content provided by‍ FirstRanker.com ---

certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing

--- Content provided by⁠ FirstRanker.com ---

Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given

--- Content provided by‍ FirstRanker.com ---

time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY

--- Content provided by‍ FirstRanker.com ---

?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the

--- Content provided by‍ FirstRanker.com ---

business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium

--- Content provided by‌ FirstRanker.com ---

Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is

--- Content provided by FirstRanker.com ---

taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency

--- Content provided by‍ FirstRanker.com ---

pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia

--- Content provided by‌ FirstRanker.com ---

FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the

--- Content provided by⁠ FirstRanker.com ---

organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims

--- Content provided by‌ FirstRanker.com ---

cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.

--- Content provided by FirstRanker.com ---

? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand

--- Content provided by⁠ FirstRanker.com ---

of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc

--- Content provided by‌ FirstRanker.com ---

Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be

--- Content provided by‌ FirstRanker.com ---

made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within

--- Content provided by​ FirstRanker.com ---

6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and

--- Content provided by‍ FirstRanker.com ---

supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.

--- Content provided by‍ FirstRanker.com ---

?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.

--- Content provided by‍ FirstRanker.com ---

Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in

--- Content provided by⁠ FirstRanker.com ---

? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH

--- Content provided by​ FirstRanker.com ---

STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do

--- Content provided by​ FirstRanker.com ---

not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price

--- Content provided by‍ FirstRanker.com ---

regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees

--- Content provided by​ FirstRanker.com ---

? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways

--- Content provided by‍ FirstRanker.com ---

? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:

--- Content provided by​ FirstRanker.com ---

?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general

--- Content provided by FirstRanker.com ---

insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
FirstRanker.com - FirstRanker's Choice
Management of

--- Content provided by​ FirstRanker.com ---

Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

--- Content provided by FirstRanker.com ---

insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

--- Content provided by​ FirstRanker.com ---

Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

--- Content provided by‍ FirstRanker.com ---

STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

--- Content provided by FirstRanker.com ---

more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

--- Content provided by‍ FirstRanker.com ---

owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

--- Content provided by FirstRanker.com ---

? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

--- Content provided by FirstRanker.com ---

insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

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It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

--- Content provided by⁠ FirstRanker.com ---

not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

--- Content provided by‍ FirstRanker.com ---

?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

--- Content provided by‌ FirstRanker.com ---

the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

--- Content provided by‍ FirstRanker.com ---

? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

--- Content provided by​ FirstRanker.com ---

insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

--- Content provided by​ FirstRanker.com ---

decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

--- Content provided by‍ FirstRanker.com ---

following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

--- Content provided by‌ FirstRanker.com ---

in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

--- Content provided by⁠ FirstRanker.com ---

and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

--- Content provided by​ FirstRanker.com ---

?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

--- Content provided by⁠ FirstRanker.com ---

Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

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?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

--- Content provided by‍ FirstRanker.com ---

agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

--- Content provided by FirstRanker.com ---

-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

--- Content provided by‍ FirstRanker.com ---

? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

--- Content provided by‌ FirstRanker.com ---

guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

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excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

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?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

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? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

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? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

--- Content provided by‌ FirstRanker.com ---

? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

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?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

--- Content provided by⁠ FirstRanker.com ---

?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

--- Content provided by⁠ FirstRanker.com ---

? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

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? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

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? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

--- Content provided by​ FirstRanker.com ---

Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

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? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

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? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

--- Content provided by​ FirstRanker.com ---

in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

--- Content provided by​ FirstRanker.com ---

by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

--- Content provided by‌ FirstRanker.com ---

?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

--- Content provided by⁠ FirstRanker.com ---

RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

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? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

--- Content provided by FirstRanker.com ---

cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

--- Content provided by‌ FirstRanker.com ---

?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

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?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

--- Content provided by​ FirstRanker.com ---

Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

--- Content provided by​ FirstRanker.com ---

n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

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? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

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?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

--- Content provided by⁠ FirstRanker.com ---

Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

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? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

--- Content provided by FirstRanker.com ---

? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

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? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

--- Content provided by​ FirstRanker.com ---

? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

--- Content provided by​ FirstRanker.com ---

stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

--- Content provided by​ FirstRanker.com ---

frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

--- Content provided by‌ FirstRanker.com ---

spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

--- Content provided by‌ FirstRanker.com ---

supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

--- Content provided by‍ FirstRanker.com ---

hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

--- Content provided by⁠ FirstRanker.com ---

? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation

--- Content provided by​ FirstRanker.com ---

? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform

--- Content provided by‌ FirstRanker.com ---

? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.

--- Content provided by‍ FirstRanker.com ---

Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company

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? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting

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? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.

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?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting

--- Content provided by FirstRanker.com ---

brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.

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? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
FirstRanker.com - FirstRanker's Choice
Management of

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Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

--- Content provided by‌ FirstRanker.com ---

insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

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Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

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STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

--- Content provided by‍ FirstRanker.com ---

more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

--- Content provided by‍ FirstRanker.com ---

owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

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? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

--- Content provided by‌ FirstRanker.com ---

insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

--- Content provided by‌ FirstRanker.com ---

It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

--- Content provided by FirstRanker.com ---

not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

--- Content provided by‍ FirstRanker.com ---

?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

--- Content provided by‍ FirstRanker.com ---

the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

--- Content provided by​ FirstRanker.com ---

? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

--- Content provided by​ FirstRanker.com ---

insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

--- Content provided by FirstRanker.com ---

decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

--- Content provided by​ FirstRanker.com ---

following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

--- Content provided by‍ FirstRanker.com ---

in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

--- Content provided by​ FirstRanker.com ---

and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

--- Content provided by⁠ FirstRanker.com ---

?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

--- Content provided by‌ FirstRanker.com ---

Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

--- Content provided by FirstRanker.com ---

?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

--- Content provided by⁠ FirstRanker.com ---

agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

--- Content provided by‌ FirstRanker.com ---

-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

--- Content provided by‌ FirstRanker.com ---

? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

--- Content provided by FirstRanker.com ---

guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

--- Content provided by​ FirstRanker.com ---

excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

--- Content provided by‍ FirstRanker.com ---

?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

--- Content provided by‌ FirstRanker.com ---

? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

--- Content provided by⁠ FirstRanker.com ---

? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

--- Content provided by FirstRanker.com ---

? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

--- Content provided by​ FirstRanker.com ---

?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

--- Content provided by⁠ FirstRanker.com ---

?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

--- Content provided by‌ FirstRanker.com ---

? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

--- Content provided by​ FirstRanker.com ---

? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

--- Content provided by​ FirstRanker.com ---

? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

--- Content provided by⁠ FirstRanker.com ---

Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

--- Content provided by FirstRanker.com ---

? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

--- Content provided by FirstRanker.com ---

? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

--- Content provided by‌ FirstRanker.com ---

in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

--- Content provided by‌ FirstRanker.com ---

by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

--- Content provided by FirstRanker.com ---

?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

--- Content provided by FirstRanker.com ---

RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

--- Content provided by⁠ FirstRanker.com ---

? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

--- Content provided by‌ FirstRanker.com ---

cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

--- Content provided by​ FirstRanker.com ---

?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

--- Content provided by‍ FirstRanker.com ---

?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

--- Content provided by⁠ FirstRanker.com ---

Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

--- Content provided by‌ FirstRanker.com ---

n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

--- Content provided by‍ FirstRanker.com ---

? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

--- Content provided by⁠ FirstRanker.com ---

?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

--- Content provided by‌ FirstRanker.com ---

Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

--- Content provided by FirstRanker.com ---

? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

--- Content provided by​ FirstRanker.com ---

? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

--- Content provided by‍ FirstRanker.com ---

? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

--- Content provided by⁠ FirstRanker.com ---

? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

--- Content provided by FirstRanker.com ---

stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

--- Content provided by FirstRanker.com ---

frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

--- Content provided by​ FirstRanker.com ---

spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

--- Content provided by‌ FirstRanker.com ---

supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

--- Content provided by⁠ FirstRanker.com ---

hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

--- Content provided by‍ FirstRanker.com ---

? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation

--- Content provided by‌ FirstRanker.com ---

? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform

--- Content provided by‌ FirstRanker.com ---

? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.

--- Content provided by‌ FirstRanker.com ---

Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company

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? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting

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? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.

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?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting

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brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.

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? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed

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by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for

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the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

FirstRanker.com - FirstRanker's Choice

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Management of
Insurance
companies
MODULE 7
Insurance Market

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?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

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insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

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? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

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interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

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may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

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vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

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services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

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insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

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It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

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top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

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companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

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? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

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?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

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?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

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group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

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? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

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? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

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company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

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class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

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?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

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- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

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the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

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Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

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? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

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Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

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?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

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Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

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? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

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become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

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?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

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documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

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insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

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? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

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? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

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? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

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? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

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the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

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?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

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?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

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?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

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?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

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?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

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This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

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policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

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?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

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? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

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? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

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Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

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Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

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?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

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Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.

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? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.

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? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement

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? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.

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? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request

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? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.

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?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply

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curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle

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? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium

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? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS

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Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have

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? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.

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? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies

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? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on

--- Content provided by FirstRanker.com ---

matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely

--- Content provided by‌ FirstRanker.com ---

depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for

--- Content provided by‍ FirstRanker.com ---

writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of

--- Content provided by‌ FirstRanker.com ---

marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents

--- Content provided by‌ FirstRanker.com ---

?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.

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?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health
?Disability

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?Long term care
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

--- Content provided by‍ FirstRanker.com ---

service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

--- Content provided by​ FirstRanker.com ---

? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

--- Content provided by‌ FirstRanker.com ---

board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

--- Content provided by⁠ FirstRanker.com ---

new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

--- Content provided by⁠ FirstRanker.com ---

company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

--- Content provided by FirstRanker.com ---

insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

--- Content provided by‍ FirstRanker.com ---

Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

--- Content provided by⁠ FirstRanker.com ---

the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

--- Content provided by​ FirstRanker.com ---

? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

--- Content provided by⁠ FirstRanker.com ---

Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

--- Content provided by FirstRanker.com ---

average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

--- Content provided by⁠ FirstRanker.com ---

Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

--- Content provided by FirstRanker.com ---

-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

--- Content provided by‍ FirstRanker.com ---

? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

--- Content provided by‍ FirstRanker.com ---

? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

--- Content provided by​ FirstRanker.com ---

?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

--- Content provided by FirstRanker.com ---

event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

--- Content provided by⁠ FirstRanker.com ---

refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

--- Content provided by‌ FirstRanker.com ---

?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

--- Content provided by‍ FirstRanker.com ---

Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

--- Content provided by‍ FirstRanker.com ---

?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

--- Content provided by‌ FirstRanker.com ---

Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

--- Content provided by FirstRanker.com ---

? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

--- Content provided by‌ FirstRanker.com ---

? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

--- Content provided by‍ FirstRanker.com ---

? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

--- Content provided by​ FirstRanker.com ---

? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

--- Content provided by FirstRanker.com ---

settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

--- Content provided by‌ FirstRanker.com ---

basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

--- Content provided by‍ FirstRanker.com ---

etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

--- Content provided by⁠ FirstRanker.com ---

?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

--- Content provided by‌ FirstRanker.com ---

Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

--- Content provided by‌ FirstRanker.com ---

insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

--- Content provided by FirstRanker.com ---

?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

--- Content provided by FirstRanker.com ---

expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

--- Content provided by‍ FirstRanker.com ---

Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

--- Content provided by‍ FirstRanker.com ---

accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

--- Content provided by⁠ FirstRanker.com ---

? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

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policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

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quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

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varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.

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?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION

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AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like

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education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.

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?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an

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insurance broker or insurance underwriter?.

Type of insurance includes
?Property
?Life

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?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health

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insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
FirstRanker.com - FirstRanker's Choice
Management of

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Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

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insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

--- Content provided by​ FirstRanker.com ---

Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

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STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

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more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

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owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

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? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

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insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

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It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

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not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

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?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

--- Content provided by‌ FirstRanker.com ---

the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

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? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

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insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

--- Content provided by⁠ FirstRanker.com ---

decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

--- Content provided by‌ FirstRanker.com ---

following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

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in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

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and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

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?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

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Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

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?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

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agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

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-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

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? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

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guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

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excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

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?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

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? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

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? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

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? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

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?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

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?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

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? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

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? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

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? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

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Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

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? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

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? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

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in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

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by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

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?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

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RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

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? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

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cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

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?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

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?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

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Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

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n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

--- Content provided by‌ FirstRanker.com ---

? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

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?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

--- Content provided by​ FirstRanker.com ---

Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

--- Content provided by FirstRanker.com ---

? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

--- Content provided by⁠ FirstRanker.com ---

? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

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? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

--- Content provided by FirstRanker.com ---

? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

--- Content provided by FirstRanker.com ---

stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

--- Content provided by‍ FirstRanker.com ---

frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

--- Content provided by‍ FirstRanker.com ---

spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

--- Content provided by⁠ FirstRanker.com ---

supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

--- Content provided by​ FirstRanker.com ---

hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

--- Content provided by​ FirstRanker.com ---

? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation

--- Content provided by​ FirstRanker.com ---

? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform

--- Content provided by‍ FirstRanker.com ---

? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.

--- Content provided by⁠ FirstRanker.com ---

Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company

--- Content provided by‍ FirstRanker.com ---

? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting

--- Content provided by‌ FirstRanker.com ---

? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.

--- Content provided by​ FirstRanker.com ---

?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting

--- Content provided by‌ FirstRanker.com ---

brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.

--- Content provided by‌ FirstRanker.com ---

? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed

--- Content provided by‌ FirstRanker.com ---

by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for

--- Content provided by⁠ FirstRanker.com ---

the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes

--- Content provided by⁠ FirstRanker.com ---

?Property
?Life
?Health
?Disability
?Long term care

--- Content provided by FirstRanker.com ---

? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.

--- Content provided by‍ FirstRanker.com ---

EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.

--- Content provided by​ FirstRanker.com ---

? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
FirstRanker.com - FirstRanker's Choice

--- Content provided by FirstRanker.com ---

Management of
Insurance
companies
MODULE 7
Insurance Market

--- Content provided by‌ FirstRanker.com ---

?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

--- Content provided by⁠ FirstRanker.com ---

insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

--- Content provided by‍ FirstRanker.com ---

? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

--- Content provided by FirstRanker.com ---

interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

--- Content provided by‌ FirstRanker.com ---

may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

--- Content provided by‍ FirstRanker.com ---

vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

--- Content provided by​ FirstRanker.com ---

services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

--- Content provided by‍ FirstRanker.com ---

insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

--- Content provided by FirstRanker.com ---

It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

--- Content provided by FirstRanker.com ---

top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

--- Content provided by⁠ FirstRanker.com ---

companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

--- Content provided by​ FirstRanker.com ---

? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

--- Content provided by FirstRanker.com ---

?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

--- Content provided by⁠ FirstRanker.com ---

?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

--- Content provided by​ FirstRanker.com ---

group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

--- Content provided by‌ FirstRanker.com ---

? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

--- Content provided by FirstRanker.com ---

? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

--- Content provided by‍ FirstRanker.com ---

company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

--- Content provided by⁠ FirstRanker.com ---

class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

--- Content provided by FirstRanker.com ---

?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

--- Content provided by⁠ FirstRanker.com ---

- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

--- Content provided by⁠ FirstRanker.com ---

the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

--- Content provided by​ FirstRanker.com ---

Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

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? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

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Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

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?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

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Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

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? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

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become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

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?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

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documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

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insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

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? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

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? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

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? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

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? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

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the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

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?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

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?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

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?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

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?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

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?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

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This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

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policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

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?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

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? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

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? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

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Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

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Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

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?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

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Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.

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? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.

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? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement

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? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.

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? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request

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? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.

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?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply

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curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle

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? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium

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? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS

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Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have

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? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.

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? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies

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? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on

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matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely

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depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for

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writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of

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marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents

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?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.

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?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health
?Disability

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?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must

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complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for

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sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.

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? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the

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policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
FirstRanker.com - FirstRanker's Choice
Management of

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Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

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insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

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Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

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STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

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more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

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owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

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? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

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insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

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It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

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not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

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?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

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the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

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? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

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insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

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decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

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following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

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in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

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and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

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?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

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Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

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?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

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agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

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-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

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? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

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guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

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excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

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?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

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? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

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? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

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? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

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?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

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?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

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? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

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? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

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? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

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Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

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? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

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? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

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in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

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by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

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?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

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RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

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? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

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cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

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?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

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?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

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Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

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n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

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? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

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?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

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Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

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? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

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? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

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? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

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? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

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stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

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frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

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spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

--- Content provided by​ FirstRanker.com ---

supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

--- Content provided by‌ FirstRanker.com ---

hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

--- Content provided by‌ FirstRanker.com ---

? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation

--- Content provided by FirstRanker.com ---

? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform

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? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.

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Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company

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? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting

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? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.

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?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting

--- Content provided by​ FirstRanker.com ---

brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.

--- Content provided by FirstRanker.com ---

? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed

--- Content provided by‌ FirstRanker.com ---

by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for

--- Content provided by FirstRanker.com ---

the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes

--- Content provided by‌ FirstRanker.com ---

?Property
?Life
?Health
?Disability
?Long term care

--- Content provided by​ FirstRanker.com ---

? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.

--- Content provided by​ FirstRanker.com ---

EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.

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? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal

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by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.

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? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent

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? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct

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purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies

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FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

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Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

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?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

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? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

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and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

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? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

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? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

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? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

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an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

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premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

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?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

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?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

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? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

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Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

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and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

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? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

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potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

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average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

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?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

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?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

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?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

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? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

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-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

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conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

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inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

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Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

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1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

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purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

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? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

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attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

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?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

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?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

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Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

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? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

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? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

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? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued

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? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the

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repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details

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Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever

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is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer

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Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable

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certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing

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Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given

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time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY

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?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the

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business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium

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Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is

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taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency

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pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia

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FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the

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organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims

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cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.

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? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand

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of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc

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Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be

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made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within

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6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and

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supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.

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?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.

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Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in

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? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH

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STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do

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not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price

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regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees

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? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways

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? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:

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?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general

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insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :

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? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.

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Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this

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service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health

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?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.

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? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.

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? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance

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proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.

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? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents

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? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be

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represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor

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? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY

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FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

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Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

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?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

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? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

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and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

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? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

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? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

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? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

--- Content provided by​ FirstRanker.com ---

an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

--- Content provided by FirstRanker.com ---

premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

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?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

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?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

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? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

--- Content provided by​ FirstRanker.com ---

Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

--- Content provided by⁠ FirstRanker.com ---

and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

--- Content provided by FirstRanker.com ---

? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

--- Content provided by⁠ FirstRanker.com ---

potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

--- Content provided by​ FirstRanker.com ---

average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

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?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

--- Content provided by‍ FirstRanker.com ---

?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

--- Content provided by‍ FirstRanker.com ---

?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

--- Content provided by‌ FirstRanker.com ---

? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

--- Content provided by‌ FirstRanker.com ---

-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

--- Content provided by⁠ FirstRanker.com ---

conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

--- Content provided by⁠ FirstRanker.com ---

inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

--- Content provided by⁠ FirstRanker.com ---

Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

--- Content provided by‌ FirstRanker.com ---

1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

--- Content provided by⁠ FirstRanker.com ---

purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

--- Content provided by​ FirstRanker.com ---

? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

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attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

--- Content provided by‍ FirstRanker.com ---

?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

--- Content provided by‍ FirstRanker.com ---

?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

--- Content provided by‌ FirstRanker.com ---

Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

--- Content provided by​ FirstRanker.com ---

? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

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? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

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? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued

--- Content provided by‍ FirstRanker.com ---

? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the

--- Content provided by​ FirstRanker.com ---

repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details

--- Content provided by​ FirstRanker.com ---

Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever

--- Content provided by‌ FirstRanker.com ---

is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer

--- Content provided by⁠ FirstRanker.com ---

Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable

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certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing

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Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given

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time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY

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?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the

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business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium

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Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is

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taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency

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pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia

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FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the

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organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims

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cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.

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? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand

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of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc

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Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be

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made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within

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6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and

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supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.

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?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.

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Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in

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? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH

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STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do

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not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price

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regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees

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? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways

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? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:

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?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general

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insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :

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? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.

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Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this

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service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health

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?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.

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? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.

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? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance

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proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.

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? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents

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? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be

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represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor

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? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY

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Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
FirstRanker.com - FirstRanker's Choice

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Management of
Insurance
companies
MODULE 7
Insurance Market

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?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

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insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

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? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

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interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

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may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

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vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

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services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

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insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

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It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

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top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

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companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

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? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

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?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

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?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

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group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

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? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

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? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

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company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

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class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

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?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

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- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

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the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

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Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

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? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

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Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

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?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

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Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

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? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

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become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

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?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

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documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

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insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

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? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

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? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

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? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

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? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

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the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

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?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

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?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

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?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

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?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

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?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

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This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

--- Content provided by FirstRanker.com ---

policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

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?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

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? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

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? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

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Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

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Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

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?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

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Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.

--- Content provided by​ FirstRanker.com ---

? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.

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? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement

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? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.

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? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request

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? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.

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?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply

--- Content provided by‍ FirstRanker.com ---

curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle

--- Content provided by FirstRanker.com ---

? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium

--- Content provided by FirstRanker.com ---

? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS

--- Content provided by‍ FirstRanker.com ---

Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have

--- Content provided by FirstRanker.com ---

? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.

--- Content provided by‌ FirstRanker.com ---

? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies

--- Content provided by​ FirstRanker.com ---

? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on

--- Content provided by‌ FirstRanker.com ---

matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely

--- Content provided by FirstRanker.com ---

depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for

--- Content provided by FirstRanker.com ---

writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of

--- Content provided by‌ FirstRanker.com ---

marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents

--- Content provided by‍ FirstRanker.com ---

?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.

--- Content provided by​ FirstRanker.com ---

?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

--- Content provided by‍ FirstRanker.com ---

Type of insurance includes
?Property
?Life
?Health
?Disability

--- Content provided by‌ FirstRanker.com ---

?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must

--- Content provided by‍ FirstRanker.com ---

complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for

--- Content provided by FirstRanker.com ---

sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.

--- Content provided by‍ FirstRanker.com ---

? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the

--- Content provided by​ FirstRanker.com ---

policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company

--- Content provided by‌ FirstRanker.com ---

as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank

--- Content provided by⁠ FirstRanker.com ---

? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance

--- Content provided by‍ FirstRanker.com ---

like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent

--- Content provided by FirstRanker.com ---

Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below

--- Content provided by FirstRanker.com ---

v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market

--- Content provided by FirstRanker.com ---

v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product

--- Content provided by FirstRanker.com ---

FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

--- Content provided by⁠ FirstRanker.com ---

Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

--- Content provided by FirstRanker.com ---

?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

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? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

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and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

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? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

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? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

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? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

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an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

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premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

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?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

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?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

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? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

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Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

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and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

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? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

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potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

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average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

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?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

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?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

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?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

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? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

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-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

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conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

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inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

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Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

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1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

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purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

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? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

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attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

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?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

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?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

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Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

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? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

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? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

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? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued

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? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the

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repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details

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Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever

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is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer

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Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable

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certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing

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Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given

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time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY

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?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the

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business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium

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Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is

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taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency

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pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia

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FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the

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organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims

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cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.

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? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand

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of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc

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Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be

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made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within

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6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and

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supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.

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?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.

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Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in

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? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH

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STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do

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not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price

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regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees

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? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways

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? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:

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?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general

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insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :

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? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.

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Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this

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service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health

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?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.

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? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.

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? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance

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proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.

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? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents

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? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be

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represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor

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? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY

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Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct

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specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the

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insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any

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insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim

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? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or

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mentioned.
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

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service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

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? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

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board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

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new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

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company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

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insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

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Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

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the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

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Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

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? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

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? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

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event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

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?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

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Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

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insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

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?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

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expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

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Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

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accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

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? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

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policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

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quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

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varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.

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?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION

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AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like

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education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.

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?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an

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insurance broker or insurance underwriter?.

Type of insurance includes
?Property
?Life

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?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health

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insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent

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? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.

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? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents

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required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.

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Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?

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? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance

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? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY

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SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.

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Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and

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specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers

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v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of

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all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as

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responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a

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representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan

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v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

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companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

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?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

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? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

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Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

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and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

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alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

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certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

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?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

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corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

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Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

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the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

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Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

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? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

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charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

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related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

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? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

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at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

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Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

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below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

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?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

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?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

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agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

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? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

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business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

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Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

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Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

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?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

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insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

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Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

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Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

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?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and

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gives an estimate
?Claim settlement
Claim settlement in health
insurance
? Cashless method:

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? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff

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? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L
? Registration certificate

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? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs

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? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and

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claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained

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? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for

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a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later

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?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted

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in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.

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?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the

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insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.

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Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY

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?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to

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benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:

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? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n

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Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc

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Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company

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to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit

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?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without

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profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.

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? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.

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? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the

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policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of

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receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract

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Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left

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indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.

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?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.

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? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability

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improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,

--- Content provided by FirstRanker.com ---

solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general

--- Content provided by⁠ FirstRanker.com ---

public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels

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1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.

--- Content provided by​ FirstRanker.com ---

? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like

--- Content provided by FirstRanker.com ---

premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business

--- Content provided by​ FirstRanker.com ---

has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.

--- Content provided by‌ FirstRanker.com ---

TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.

--- Content provided by FirstRanker.com ---

? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on

--- Content provided by‌ FirstRanker.com ---

company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.

--- Content provided by FirstRanker.com ---

? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes
?Property

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?Life
?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.

--- Content provided by FirstRanker.com ---

? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:

--- Content provided by⁠ FirstRanker.com ---

? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product

--- Content provided by‍ FirstRanker.com ---

offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.

--- Content provided by FirstRanker.com ---

? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also

--- Content provided by FirstRanker.com ---

regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling

--- Content provided by⁠ FirstRanker.com ---

insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly

--- Content provided by​ FirstRanker.com ---

with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance

--- Content provided by‍ FirstRanker.com ---

Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types

--- Content provided by FirstRanker.com ---

businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.

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v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as

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returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product

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? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured

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? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below

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v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while

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recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale

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? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or

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rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal

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FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

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Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

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?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

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? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

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and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

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? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

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? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

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? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

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an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

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premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

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?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

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?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

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? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

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Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

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and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

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? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

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potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

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average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

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?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

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?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

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?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

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? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

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-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

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conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

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inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

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Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

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1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

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purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

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? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

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attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

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?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

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?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

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Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

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? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

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? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

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? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued

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? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the

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repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details

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Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever

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is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer

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Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable

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certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing

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Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given

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time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY

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?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the

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business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium

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Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is

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taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency

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pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia

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FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the

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organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims

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cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.

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? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand

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of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc

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Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be

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made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within

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6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and

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supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.

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?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.

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Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in

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? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH

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STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do

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not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price

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regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees

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? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways

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? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:

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?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general

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insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :

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? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.

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Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this

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service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health

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?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.

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? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.

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? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance

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proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.

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? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents

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? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be

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represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor

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? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY

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Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct

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specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the

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insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any

--- Content provided by‌ FirstRanker.com ---

insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim

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? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or

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mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative

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v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance

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product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect

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? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the

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proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer

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v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
FirstRanker.com - FirstRanker's Choice
Management of

--- Content provided by FirstRanker.com ---

Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

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insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

--- Content provided by‌ FirstRanker.com ---

Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

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STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

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more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

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owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

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? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

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insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

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It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

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not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

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?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

--- Content provided by‌ FirstRanker.com ---

the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

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? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

--- Content provided by⁠ FirstRanker.com ---

insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

--- Content provided by⁠ FirstRanker.com ---

decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

--- Content provided by‌ FirstRanker.com ---

following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

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in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

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and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

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?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

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Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

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?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

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agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

--- Content provided by⁠ FirstRanker.com ---

-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

--- Content provided by‌ FirstRanker.com ---

? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

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guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

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excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

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?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

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? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

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? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

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? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

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?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

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?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

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? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

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? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

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? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

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Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

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? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

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? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

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in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

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by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

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?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

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RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

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? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

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cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

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?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

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?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

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Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

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n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

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? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

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?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

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Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

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? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

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? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

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? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

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? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

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stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

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frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

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spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

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supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

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hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

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? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation

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? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform

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? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.

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Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company

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? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting

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? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.

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?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting

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brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.

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? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed

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by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for

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the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes

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?Property
?Life
?Health
?Disability
?Long term care

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? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.

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EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.

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? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal

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by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.

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? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent

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? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct

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purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies

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Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are

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empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every

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specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person

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do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance

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product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and

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insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person

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shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the

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insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance

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product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract

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? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by

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the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever

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necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form

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? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit

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? He should not interfere with the proposal made by any other specified
person
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

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companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

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?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

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? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

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Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

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and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

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alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

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certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

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?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

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corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

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Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

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the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

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Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

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? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

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charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

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related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

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? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

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at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

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Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

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below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

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?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

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?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

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agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

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? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

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business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

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Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

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Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

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?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

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insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

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Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

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Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

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?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and

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gives an estimate
?Claim settlement
Claim settlement in health
insurance
? Cashless method:

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? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff

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? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L
? Registration certificate

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? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs

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? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and

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claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained

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? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for

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a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later

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?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted

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in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.

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?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the

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insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.

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Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY

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?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to

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benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:

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? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n

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Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc

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Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company

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to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit

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?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without

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profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.

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? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.

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? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the

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policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of

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receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract

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Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left

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indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.

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?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.

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? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability

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improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,

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solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general

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public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels

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1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.

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? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like

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premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business

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has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.

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TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.

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? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on

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company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.

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? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes
?Property

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?Life
?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.

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? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:

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? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product

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offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.

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? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also

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regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling

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insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly

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with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance

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Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types

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businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.

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v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as

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returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product

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? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured

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? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below

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v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while

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recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale

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? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or

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rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal

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v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary

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No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong

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information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified

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person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract

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? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier

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? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
FirstRanker.com - FirstRanker's Choice
Management of

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Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

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insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

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Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

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STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

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more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

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owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

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? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

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insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

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It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

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not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

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?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

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the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

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? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

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insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

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decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

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following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

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in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

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and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

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?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

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Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

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?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

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agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

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-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

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? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

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guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

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excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

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?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

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? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

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? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

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? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

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?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

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?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

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? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

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? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

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? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

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Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

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? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

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? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

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in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

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by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

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?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

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RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

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? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

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cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

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?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

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?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

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Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

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n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

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? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

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?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

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Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

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? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

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? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

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? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

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? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

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stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

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frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

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spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

--- Content provided by​ FirstRanker.com ---

supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

--- Content provided by FirstRanker.com ---

hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

--- Content provided by​ FirstRanker.com ---

? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation

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? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform

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? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.

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Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company

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? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting

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? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.

--- Content provided by‌ FirstRanker.com ---

?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting

--- Content provided by​ FirstRanker.com ---

brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.

--- Content provided by​ FirstRanker.com ---

? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed

--- Content provided by⁠ FirstRanker.com ---

by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for

--- Content provided by FirstRanker.com ---

the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes

--- Content provided by FirstRanker.com ---

?Property
?Life
?Health
?Disability
?Long term care

--- Content provided by​ FirstRanker.com ---

? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.

--- Content provided by​ FirstRanker.com ---

EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.

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? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal

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by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.

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? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent

--- Content provided by‌ FirstRanker.com ---

? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct

--- Content provided by FirstRanker.com ---

purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies

--- Content provided by FirstRanker.com ---

Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are

--- Content provided by⁠ FirstRanker.com ---

empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every

--- Content provided by‌ FirstRanker.com ---

specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person

--- Content provided by‍ FirstRanker.com ---

do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance

--- Content provided by FirstRanker.com ---

product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and

--- Content provided by‍ FirstRanker.com ---

insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person

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shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the

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insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance

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product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract

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? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by

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the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever

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necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form

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? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit

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? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the

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beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if

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the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents

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www.irda.gov.in
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

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service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

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? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

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board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

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new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

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company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

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insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

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Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

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the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

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Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

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? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

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? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

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event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

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?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

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Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

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insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

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?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

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expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

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Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

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accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

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? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

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policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

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quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

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varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.

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?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION

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AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like

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education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.

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?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an

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insurance broker or insurance underwriter?.

Type of insurance includes
?Property
?Life

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?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health

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insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent

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? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.

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? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents

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required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.

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Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?

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? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance

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? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY

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SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.

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Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and

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specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers

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v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of

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all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as

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responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a

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representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan

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v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of

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information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer

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? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the

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settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:

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? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer

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for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person

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? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy

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and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within

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the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers

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SUBMISSION BY :
SWEEDAL CARDOZA
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

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companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

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?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

--- Content provided by‍ FirstRanker.com ---

? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

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Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

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and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

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alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

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certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

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?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

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corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

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Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

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the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

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Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

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? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

--- Content provided by​ FirstRanker.com ---

charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

--- Content provided by​ FirstRanker.com ---

related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

--- Content provided by‌ FirstRanker.com ---

? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

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at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

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Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

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below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

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?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

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?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

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agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

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? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

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business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

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Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

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Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

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?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

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insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

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Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

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Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

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?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and

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gives an estimate
?Claim settlement
Claim settlement in health
insurance
? Cashless method:

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? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff

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? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L
? Registration certificate

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? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs

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? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and

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claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained

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? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for

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a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later

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?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted

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in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.

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?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the

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insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.

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Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY

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?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to

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benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:

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? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n

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Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc

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Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company

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to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit

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?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without

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profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.

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? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.

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? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the

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policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of

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receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract

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Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left

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indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.

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?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.

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? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability

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improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,

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solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general

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public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels

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1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.

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? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like

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premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business

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has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.

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TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.

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? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on

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company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.

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? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes
?Property

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?Life
?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.

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? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:

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? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product

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offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.

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? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also

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regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling

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insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly

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with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance

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Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types

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businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.

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v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as

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returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product

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? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured

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? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below

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v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while

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recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale

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? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or

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rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal

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v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary

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No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong

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information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified

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person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract

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? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier

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? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in

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Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?

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Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the

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insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
FirstRanker.com - FirstRanker's Choice

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Management of
Insurance
companies
MODULE 7
Insurance Market

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?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

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insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

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? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

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interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

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may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

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vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

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services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

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insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

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It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

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top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

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companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

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? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

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?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

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?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

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group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

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? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

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? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

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company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

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class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

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?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

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- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

--- Content provided by FirstRanker.com ---

the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

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Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

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? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

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Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

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?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

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Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

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? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

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become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

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?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

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documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

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insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

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? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

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? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

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? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

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? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

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the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

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?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

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?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

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?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

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?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

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?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

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This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

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policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

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?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

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? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

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? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

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Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

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Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

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?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

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Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.

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? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.

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? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement

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? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.

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? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request

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? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.

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?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply

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curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle

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? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium

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? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS

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Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have

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? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.

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? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies

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? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on

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matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely

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depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for

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writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of

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marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents

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?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.

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?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health
?Disability

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?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must

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complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for

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sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.

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? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the

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policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company

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as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank

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? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance

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like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent

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Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below

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v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market

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v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product

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? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the

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risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.

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Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded

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v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer

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? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in

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the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer

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? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change

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in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material

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information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any

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personal benefit
? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer

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? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination

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? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing

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Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA

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Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client

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,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in

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particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients

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?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
FirstRanker.com - FirstRanker's Choice
Management of

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Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

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insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

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Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

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STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

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more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

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owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

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? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

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insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

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It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

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not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

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?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

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the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

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? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

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insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

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decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

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following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

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in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

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and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

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?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

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Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

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?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

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agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

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-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

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? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

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guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

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excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

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?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

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? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

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? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

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? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

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?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

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?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

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? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

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? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

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? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

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Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

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? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

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? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

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in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

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by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

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?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

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RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

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? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

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cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

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?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

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?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

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Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

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n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

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? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

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?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

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Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

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? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

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? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

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? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

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? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

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stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

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frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

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spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

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supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

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hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

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? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation

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? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform

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? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.

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Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company

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? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting

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? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.

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?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting

--- Content provided by‌ FirstRanker.com ---

brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.

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? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed

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by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for

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the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes

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?Property
?Life
?Health
?Disability
?Long term care

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? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.

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EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.

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? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal

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by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.

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? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent

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? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct

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purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies

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Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are

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empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every

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specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person

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do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance

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product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and

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insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person

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shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the

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insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance

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product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract

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? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by

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the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever

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necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form

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? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit

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? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the

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beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if

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the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents

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www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :

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? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying

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the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.

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?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence

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and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker

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3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant
FirstRanker.com - FirstRanker's Choice
Management of

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Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

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insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

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Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

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STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

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more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

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owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

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? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

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insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

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It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

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not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

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?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

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the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

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? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

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insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

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decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

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following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

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in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

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and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

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?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

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Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

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?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

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agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

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-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

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? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

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guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

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excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

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?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

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? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

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? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

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? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

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?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

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?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

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? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

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? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

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? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

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Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

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? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

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? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

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in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

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by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

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?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

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RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

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? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

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cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

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?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

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?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

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Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

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n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

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? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

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?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

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Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

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? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

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? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

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? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

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? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

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stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

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frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

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spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

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supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

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hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

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? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation

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? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform

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? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.

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Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company

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? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting

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? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.

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?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting

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brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.

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? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed

--- Content provided by​ FirstRanker.com ---

by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for

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the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes

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?Property
?Life
?Health
?Disability
?Long term care

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? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.

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EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.

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? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal

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by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.

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? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent

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? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct

--- Content provided by​ FirstRanker.com ---

purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies

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Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are

--- Content provided by​ FirstRanker.com ---

empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every

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specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person

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do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance

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product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and

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insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person

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shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the

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insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance

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product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract

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? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by

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the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever

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necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form

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? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit

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? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the

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beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if

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the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents

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www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :

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? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying

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the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.

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?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence

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and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker

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3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their

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functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed

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30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .
FirstRanker.com - FirstRanker's Choice

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Management of
Insurance
companies
MODULE 7
Insurance Market

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?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

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insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

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? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

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interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

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may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

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vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

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services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

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insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

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It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

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top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

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companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

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? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

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?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

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?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

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group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

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? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

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? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

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company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

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class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

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?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

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- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

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the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

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Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

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? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

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Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

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?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

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Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

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? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

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become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

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?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

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documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

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insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

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? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

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? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

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? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

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? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

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the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

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?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

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?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

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?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

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?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

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?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

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This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

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policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

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?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

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? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

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? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

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Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

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Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

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?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

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Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.

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? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.

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? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement

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? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.

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? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request

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? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.

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?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply

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curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle

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? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium

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? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS

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Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have

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? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.

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? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies

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? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on

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matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely

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depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for

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writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of

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marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents

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?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.

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?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health
?Disability

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?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must

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complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for

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sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.

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? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the

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policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company

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as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank

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? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance

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like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent

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Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below

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v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market

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v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product

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? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the

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risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.

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Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded

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v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer

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? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in

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the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer

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? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change

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in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material

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information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any

--- Content provided by⁠ FirstRanker.com ---

personal benefit
? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer

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? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination

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? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing

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Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA

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Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client

--- Content provided by FirstRanker.com ---

,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in

--- Content provided by​ FirstRanker.com ---

particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients

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?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker

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2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant
Provisions

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?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs

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?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .

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?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5

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years
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

--- Content provided by FirstRanker.com ---

service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

--- Content provided by​ FirstRanker.com ---

? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

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board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

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new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

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company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

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insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

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Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

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the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

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Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

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? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

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? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

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event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

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?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

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Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

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insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

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?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

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expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

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Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

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accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

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? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

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policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

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quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

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varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.

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?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION

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AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like

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education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.

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?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an

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insurance broker or insurance underwriter?.

Type of insurance includes
?Property
?Life

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?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health

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insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent

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? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.

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? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents

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required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.

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Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?

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? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance

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? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY

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SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.

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Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and

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specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers

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v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of

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all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as

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responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a

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representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan

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v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of

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information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer

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? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the

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settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:

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? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer

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for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person

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? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy

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and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within

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the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers

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SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill

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the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to

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insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client

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?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .

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? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker

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5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,

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direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or

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10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from

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the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :
?Improvement in customer service

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?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations
FirstRanker.com - FirstRanker's Choice

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Management of
Insurance
companies
MODULE 7
Insurance Market

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?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

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insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

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? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

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interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

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may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

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vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

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services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

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insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

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It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

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top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

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companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

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? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

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?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

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?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

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group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

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? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

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? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

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company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

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class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

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?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

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- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

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the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

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Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

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? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

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Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

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?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

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Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

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? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

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become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

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?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

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documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

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insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

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? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

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? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

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? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

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? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

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the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

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?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

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?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

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?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

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?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

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?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

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This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

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policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

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?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

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? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

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? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

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Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

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Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

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?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

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Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.

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? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.

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? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement

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? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.

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? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request

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? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.

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?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply

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curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle

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? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium

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? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS

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Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have

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? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.

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? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies

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? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on

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matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely

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depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for

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writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of

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marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents

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?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.

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?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health
?Disability

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?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must

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complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for

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sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.

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? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the

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policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company

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as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank

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? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance

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like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent

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Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below

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v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market

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v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product

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? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the

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risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.

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Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded

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v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer

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? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in

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the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer

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? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change

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in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material

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information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any

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personal benefit
? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer

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? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination

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? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing

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Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA

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Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client

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,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in

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particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients

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?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker

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2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant
Provisions

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?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs

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?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .

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?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5

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years
Benefits :
?Improvement in customer service
?Transfer of technology and
managerial know-how

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?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others
BY VARNA
FirstRanker.com - FirstRanker's Choice

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Management of
Insurance
companies
MODULE 7
Insurance Market

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?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

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insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

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? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

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interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

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may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

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vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

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services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

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insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

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It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

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top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

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companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

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? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

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?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

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?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

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group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

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? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

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? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

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company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

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class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

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?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

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- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

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the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

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Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

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? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

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Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

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?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

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Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

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? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

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become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

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?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

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documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

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insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

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? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

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? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

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? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

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? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

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the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

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?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

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?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

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?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

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?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

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?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

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This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

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policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

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?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

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? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

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? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

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Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

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Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

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?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

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Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.

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? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.

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? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement

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? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.

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? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request

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? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.

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?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply

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curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle

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? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium

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? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS

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Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have

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? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.

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? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies

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? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on

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matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely

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depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for

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writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of

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marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents

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?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.

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?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health
?Disability

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?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must

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complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for

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sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.

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? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the

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policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company

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as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank

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? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance

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like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent

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Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below

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v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market

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v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product

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? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the

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risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.

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Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded

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v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer

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? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in

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the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer

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? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change

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in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material

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information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any

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personal benefit
? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer

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? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination

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? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing

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Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA

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Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client

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,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in

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particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients

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?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker

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2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant
Provisions

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?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs

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?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .

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?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5

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years
Benefits :
?Improvement in customer service
?Transfer of technology and
managerial know-how

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?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others
BY VARNA
Other channels

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An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of
different groups of customers against the
cost of distributing their products and

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services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.
FirstRanker.com - FirstRanker's Choice
Management of

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Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

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insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

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Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

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STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

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more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

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owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

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? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

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insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

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It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

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not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

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?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

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the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

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? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

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insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

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decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

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following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

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in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

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and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

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?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

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Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

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?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

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agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

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-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

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? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

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guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

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excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

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?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

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? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

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? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

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? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

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?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

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?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

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? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

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? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

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? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

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Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

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? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

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? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

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in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

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by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

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?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

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RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

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? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

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cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

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?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

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?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

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Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

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n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

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? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

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?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

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Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

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? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

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? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

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? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

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? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

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stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

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frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

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spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

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supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

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hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

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? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation

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? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform

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? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.

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Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company

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? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting

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? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.

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?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting

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brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.

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? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed

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by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for

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the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes

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?Property
?Life
?Health
?Disability
?Long term care

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? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.

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EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.

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? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal

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by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.

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? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent

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? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct

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purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies

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Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are

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empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every

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specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person

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do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance

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product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and

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insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person

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shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the

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insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance

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product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract

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? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by

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the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever

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necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form

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? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit

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? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the

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beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if

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the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents

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www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :

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? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying

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the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.

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?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence

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and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker

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3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their

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functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed

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30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained

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by brokers , has to submit audited financial
statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5
years

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Benefits :
?Improvement in customer service
?Transfer of technology and
managerial know-how
?Benefits to insurance Companies

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?Foreign exchange considerations
Channels of Insurance-Others
BY VARNA
Other channels
An increasing number of insurers are using

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multiple distribution channels as they
continue to balance the needs of
different groups of customers against the
cost of distributing their products and
services. When it comes to insurance

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distribution channels, one size does not
necessarily fit all.
The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.

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Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products
through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known

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as bank assurance.
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

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service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

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? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

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board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

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new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

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company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

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insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

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Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

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the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

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Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

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? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

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? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

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event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

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?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

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Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

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insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

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?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

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expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

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Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

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accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

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? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

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policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

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quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

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varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.

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?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION

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AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like

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education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.

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?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an

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insurance broker or insurance underwriter?.

Type of insurance includes
?Property
?Life

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?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health

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insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent

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? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.

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? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents

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required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.

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Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?

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? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance

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? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY

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SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.

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Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and

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specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers

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v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of

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all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as

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responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a

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representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan

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v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of

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information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer

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? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the

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settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:

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? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer

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for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person

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? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy

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and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within

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the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers

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SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill

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the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to

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insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client

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?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .

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? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker

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5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,

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direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or

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10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from

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the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :
?Improvement in customer service

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?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others

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BY VARNA
Other channels
An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of

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different groups of customers against the
cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.

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The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products

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through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:

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? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide

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administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

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companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

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?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

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? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

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Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

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and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

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alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

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certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

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?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

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corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

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Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

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the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

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Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

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? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

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charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

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related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

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? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

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at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

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Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

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below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

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?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

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?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

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agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

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? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

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business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

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Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

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Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

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?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

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insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

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Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

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Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

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?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and

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gives an estimate
?Claim settlement
Claim settlement in health
insurance
? Cashless method:

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? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff

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? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L
? Registration certificate

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? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs

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? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and

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claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained

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? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for

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a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later

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?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted

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in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.

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?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the

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insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.

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Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY

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?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to

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benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:

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? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n

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Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc

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Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company

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to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit

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?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without

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profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.

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? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.

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? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the

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policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of

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receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract

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Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left

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indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.

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?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.

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? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability

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improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,

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solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general

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public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels

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1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.

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? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like

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premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business

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has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.

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TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.

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? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on

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company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.

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? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes
?Property

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?Life
?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.

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? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:

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? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product

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offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.

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? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also

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regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling

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insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly

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with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance

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Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types

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businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.

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v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as

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returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product

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? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured

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? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below

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v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while

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recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale

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? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or

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rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal

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v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary

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No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong

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information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified

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person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract

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? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier

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? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in

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Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?

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Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the

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insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific

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insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and

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insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker

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4. Category - Composite broker
5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes

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?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium

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?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial

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statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :

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?Improvement in customer service
?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations

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Channels of Insurance-Others
BY VARNA
Other channels
An increasing number of insurers are using
multiple distribution channels as they

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continue to balance the needs of
different groups of customers against the
cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not

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necessarily fit all.
The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.

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Companies which are bank owned, they are selling their products
through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.

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Internet marketing:
? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific

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information about the company and its product lines to provide
administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on

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product or services. They, then return to the agent to complete the
purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites

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which they provide information about the products and services.
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

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service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

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? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

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board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

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new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

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company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

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insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

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Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

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the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

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Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

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? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

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? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

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event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

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?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

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Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

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insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

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?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

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expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

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Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

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accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

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? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

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policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

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quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

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varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.

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?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION

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AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like

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education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.

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?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an

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insurance broker or insurance underwriter?.

Type of insurance includes
?Property
?Life

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?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health

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insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent

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? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.

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? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents

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required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.

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Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?

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? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance

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? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY

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SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.

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Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and

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specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers

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v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of

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all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as

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responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a

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representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan

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v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of

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information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer

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? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the

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settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:

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? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer

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for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person

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? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy

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and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within

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the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers

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SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill

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the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to

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insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client

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?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .

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? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker

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5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,

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direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or

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10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from

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the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :
?Improvement in customer service

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?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others

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BY VARNA
Other channels
An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of

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different groups of customers against the
cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.

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The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products

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through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:

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? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide

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administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the

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purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites
which they provide information about the products and services.

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Work site marketing:
It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.

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FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

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Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

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?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

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? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

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and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

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? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

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? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

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? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

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an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

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premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

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?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

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?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

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? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

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Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

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and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

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? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

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potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

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average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

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?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

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?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

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?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

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? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

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-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

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conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

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inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

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Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

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1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

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purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

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? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

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attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

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?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

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?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

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Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

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? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

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? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

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? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued

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? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the

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repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details

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Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever

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is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer

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Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable

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certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing

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Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given

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time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY

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?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the

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business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium

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Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is

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taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency

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pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia

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FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the

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organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims

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cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.

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? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand

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of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc

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Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be

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made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within

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6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and

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supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.

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?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.

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Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in

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? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH

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STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do

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not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price

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regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees

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? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways

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? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:

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?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general

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insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :

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? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.

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Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this

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service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health

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?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.

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? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.

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? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance

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proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.

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? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents

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? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be

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represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor

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? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY

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Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct

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specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the

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insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any

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insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim

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? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or

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mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative

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v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance

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product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect

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? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the

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proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer

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v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate

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? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal

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? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions

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other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such

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termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and

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writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :

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SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs

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of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the

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administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable

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insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:

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1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant

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Provisions
?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.

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2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the

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PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from
the year end of accounting.

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?The records should be kept atleast for 5
years
Benefits :
?Improvement in customer service
?Transfer of technology and

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managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others
BY VARNA

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Other channels
An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of
different groups of customers against the

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cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.
The other distribution channels of insurance are:

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Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products
through their parent bank.

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? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:
? In this technological world internet is also a channels of selling

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insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide
administrative support to its policy holdres and to serve as a

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prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the
purchase. This behavior highlights the current role that the internet

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plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites
which they provide information about the products and services.
Work site marketing:

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It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.
? In this channel life insurers send team to a target group and explain

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the products either individual or group products suitable to them.
The target group may be employees of a particular company or an
educational institute.
? One possible reason for insufficient development of this channel in
india is that employers generally expect some kind of incentives to

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provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

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companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

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?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

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? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

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Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

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and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

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alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

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certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

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?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

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corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

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Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

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the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

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Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

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? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

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charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

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related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

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? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

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at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

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Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

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below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

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?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

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?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

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agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

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? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

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business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

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Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

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Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

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?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

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insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

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Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

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Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

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?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and

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gives an estimate
?Claim settlement
Claim settlement in health
insurance
? Cashless method:

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? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff

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? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L
? Registration certificate

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? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs

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? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and

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claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained

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? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for

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a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later

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?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted

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in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.

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?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the

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insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.

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Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY

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?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to

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benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:

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? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n

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Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc

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Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company

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to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit

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?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without

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profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.

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? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.

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? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the

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policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of

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receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract

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Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left

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indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.

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?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.

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? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability

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improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,

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solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general

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public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels

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1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.

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? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like

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premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business

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has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.

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TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.

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? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on

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company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.

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? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes
?Property

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?Life
?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.

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? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:

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? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product

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offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.

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? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also

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regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling

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insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly

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with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance

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Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types

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businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.

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v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as

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returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product

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? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured

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? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below

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v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while

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recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale

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? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or

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rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal

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v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary

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No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong

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information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified

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person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract

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? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier

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? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in

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Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?

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Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the

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insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific

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insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and

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insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker

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4. Category - Composite broker
5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes

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?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium

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?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial

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statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :

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?Improvement in customer service
?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations

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Channels of Insurance-Others
BY VARNA
Other channels
An increasing number of insurers are using
multiple distribution channels as they

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continue to balance the needs of
different groups of customers against the
cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not

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necessarily fit all.
The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.

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Companies which are bank owned, they are selling their products
through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.

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Internet marketing:
? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific

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information about the company and its product lines to provide
administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on

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product or services. They, then return to the agent to complete the
purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites

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which they provide information about the products and services.
Work site marketing:
It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact

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for insurance is directly made with employee rather than the employer.
? In this channel life insurers send team to a target group and explain
the products either individual or group products suitable to them.
The target group may be employees of a particular company or an
educational institute.

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? One possible reason for insufficient development of this channel in
india is that employers generally expect some kind of incentives to
provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.
Invisible insurer:

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In this model, the insurance company or its representative is not the
entity marketing the products. The insurance cover is sold by an
automobile/ credit card company as an add on product leveraging
the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.

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Product like creditor insurance, automobile insurance, and credit card
related insurance could be distributed using this channel. This model
can be adopted in all market segments for the lines of business
mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.

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FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

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Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

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?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

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? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

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and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

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? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

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? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

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? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

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an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

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premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

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?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

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?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

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? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

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Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

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and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

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? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

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potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

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average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

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?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

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?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

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?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

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? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

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-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

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conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

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inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

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Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

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1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

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purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

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? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

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attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

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?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

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?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

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Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

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? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

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? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

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? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued

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? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the

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repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details

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Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever

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is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer

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Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable

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certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing

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Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given

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time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY

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?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the

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business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium

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Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is

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taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency

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pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia

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FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the

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organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims

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cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.

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? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand

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of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc

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Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be

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made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within

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6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and

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supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.

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?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.

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Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in

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? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH

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STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do

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not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price

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regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees

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? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways

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? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:

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?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general

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insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :

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? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.

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Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this

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service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health

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?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.

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? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.

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? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance

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proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.

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? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents

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? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be

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represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor

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? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY

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Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct

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specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the

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insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any

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insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim

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? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or

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mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative

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v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance

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product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect

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? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the

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proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer

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v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate

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? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal

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? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions

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other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such

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termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and

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writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :

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SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs

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of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the

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administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable

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insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:

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1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant

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Provisions
?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.

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2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the

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PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from
the year end of accounting.

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?The records should be kept atleast for 5
years
Benefits :
?Improvement in customer service
?Transfer of technology and

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managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others
BY VARNA

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Other channels
An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of
different groups of customers against the

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cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.
The other distribution channels of insurance are:

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Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products
through their parent bank.

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? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:
? In this technological world internet is also a channels of selling

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insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide
administrative support to its policy holdres and to serve as a

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prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the
purchase. This behavior highlights the current role that the internet

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plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites
which they provide information about the products and services.
Work site marketing:

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It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.
? In this channel life insurers send team to a target group and explain

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the products either individual or group products suitable to them.
The target group may be employees of a particular company or an
educational institute.
? One possible reason for insufficient development of this channel in
india is that employers generally expect some kind of incentives to

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provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.
Invisible insurer:
In this model, the insurance company or its representative is not the
entity marketing the products. The insurance cover is sold by an

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automobile/ credit card company as an add on product leveraging
the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.
Product like creditor insurance, automobile insurance, and credit card
related insurance could be distributed using this channel. This model

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can be adopted in all market segments for the lines of business
mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.
Source:
www.general

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insuranceassociation.org.sg
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

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service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

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? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

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board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

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new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

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company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

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insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

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Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

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the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

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Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

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? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

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? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

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event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

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?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

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Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

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insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

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?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

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expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

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Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

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accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

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? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

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policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

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quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

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varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.

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?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION

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AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like

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education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.

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?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an

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insurance broker or insurance underwriter?.

Type of insurance includes
?Property
?Life

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?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health

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insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent

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? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.

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? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents

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required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.

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Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?

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? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance

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? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY

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SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.

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Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and

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specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers

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v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of

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all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as

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responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a

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representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan

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v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of

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information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer

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? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the

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settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:

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? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer

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for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person

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? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy

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and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within

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the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers

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SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill

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the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to

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insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client

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?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .

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? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker

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5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,

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direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or

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10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from

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the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :
?Improvement in customer service

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?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others

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BY VARNA
Other channels
An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of

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different groups of customers against the
cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.

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The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products

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through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:

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? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide

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administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the

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purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites
which they provide information about the products and services.

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Work site marketing:
It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.

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? In this channel life insurers send team to a target group and explain
the products either individual or group products suitable to them.
The target group may be employees of a particular company or an
educational institute.
? One possible reason for insufficient development of this channel in

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india is that employers generally expect some kind of incentives to
provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.
Invisible insurer:
In this model, the insurance company or its representative is not the

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entity marketing the products. The insurance cover is sold by an
automobile/ credit card company as an add on product leveraging
the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.
Product like creditor insurance, automobile insurance, and credit card

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related insurance could be distributed using this channel. This model
can be adopted in all market segments for the lines of business
mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.
Source:

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www.general
insuranceassociation.org.sg
Critical success factors for Insurance players
Change in the attitude of population
? Usually think as Tax benefit

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? Lustre should wipe out once they implement
? Need to educate people
Open and Transparent Environment created under the IRDA
? Objective should be clearly communicate with customer
? Customer should feel safe

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? Otherwise there will be an air of uncertainty
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

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service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

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? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

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board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

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new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

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company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

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insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

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Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

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the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

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Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

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? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

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? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

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event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

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?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

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Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

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insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

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?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

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expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

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Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

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accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

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? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

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policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

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quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

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varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.

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?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION

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AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like

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education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.

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?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an

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insurance broker or insurance underwriter?.

Type of insurance includes
?Property
?Life

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?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health

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insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent

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? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.

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? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents

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required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.

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Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?

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? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance

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? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY

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SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.

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Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and

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specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers

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v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of

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all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as

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responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a

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representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan

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v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of

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information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer

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? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the

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settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:

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? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer

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for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person

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? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy

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and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within

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the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers

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SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill

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the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to

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insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client

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?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .

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? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker

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5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,

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direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or

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10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from

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the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :
?Improvement in customer service

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?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others

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BY VARNA
Other channels
An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of

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different groups of customers against the
cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.

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The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products

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through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:

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? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide

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administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the

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purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites
which they provide information about the products and services.

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Work site marketing:
It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.

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? In this channel life insurers send team to a target group and explain
the products either individual or group products suitable to them.
The target group may be employees of a particular company or an
educational institute.
? One possible reason for insufficient development of this channel in

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india is that employers generally expect some kind of incentives to
provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.
Invisible insurer:
In this model, the insurance company or its representative is not the

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entity marketing the products. The insurance cover is sold by an
automobile/ credit card company as an add on product leveraging
the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.
Product like creditor insurance, automobile insurance, and credit card

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related insurance could be distributed using this channel. This model
can be adopted in all market segments for the lines of business
mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.
Source:

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www.general
insuranceassociation.org.sg
Critical success factors for Insurance players
Change in the attitude of population
? Usually think as Tax benefit

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? Lustre should wipe out once they implement
? Need to educate people
Open and Transparent Environment created under the IRDA
? Objective should be clearly communicate with customer
? Customer should feel safe

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? Otherwise there will be an air of uncertainty
Trained professionals to Build and sell the product
? Insurance agents are trained
? Excellent sales team is required to compete
Rationale Approach to the Investment criteria

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? IRDA provides guidelines for investment patterns
? For the interest of public
? Stringent Accounting practice to prevent Failures amongst the
Insurers
? Insurers deal with masses hard-earned money

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? Prevent from going burst
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

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service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

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? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

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board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

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new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

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company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

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insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

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Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

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the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

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Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

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? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

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? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

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event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

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?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

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Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

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insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

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?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

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expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

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Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

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accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

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? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

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policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

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quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

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varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.

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?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION

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AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like

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education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.

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?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an

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insurance broker or insurance underwriter?.

Type of insurance includes
?Property
?Life

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?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health

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insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent

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? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.

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? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents

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required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.

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Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?

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? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance

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? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY

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SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.

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Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and

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specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers

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v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of

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all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as

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responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a

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representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan

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v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of

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information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer

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? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the

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settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:

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? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer

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for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person

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? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy

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and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within

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the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers

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SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill

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the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to

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insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client

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?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .

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? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker

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5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,

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direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or

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10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from

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the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :
?Improvement in customer service

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?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others

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BY VARNA
Other channels
An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of

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different groups of customers against the
cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.

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The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products

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through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:

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? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide

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administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the

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purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites
which they provide information about the products and services.

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Work site marketing:
It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.

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? In this channel life insurers send team to a target group and explain
the products either individual or group products suitable to them.
The target group may be employees of a particular company or an
educational institute.
? One possible reason for insufficient development of this channel in

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india is that employers generally expect some kind of incentives to
provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.
Invisible insurer:
In this model, the insurance company or its representative is not the

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entity marketing the products. The insurance cover is sold by an
automobile/ credit card company as an add on product leveraging
the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.
Product like creditor insurance, automobile insurance, and credit card

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related insurance could be distributed using this channel. This model
can be adopted in all market segments for the lines of business
mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.
Source:

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www.general
insuranceassociation.org.sg
Critical success factors for Insurance players
Change in the attitude of population
? Usually think as Tax benefit

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? Lustre should wipe out once they implement
? Need to educate people
Open and Transparent Environment created under the IRDA
? Objective should be clearly communicate with customer
? Customer should feel safe

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? Otherwise there will be an air of uncertainty
Trained professionals to Build and sell the product
? Insurance agents are trained
? Excellent sales team is required to compete
Rationale Approach to the Investment criteria

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? IRDA provides guidelines for investment patterns
? For the interest of public
? Stringent Accounting practice to prevent Failures amongst the
Insurers
? Insurers deal with masses hard-earned money

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? Prevent from going burst
Well established Distribution network
? Distribution is the key area
? Public sector banks are one of the leaders
Level playing field at all stages of Development in the

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sector for all the players
? Providing an unbiased environment
? Responsibility of government
Financial literacy
FirstRanker.com - FirstRanker's Choice

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Management of
Insurance
companies
MODULE 7
Insurance Market

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?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

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insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

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? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

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interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

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may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

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vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

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services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

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insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

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It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

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top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

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companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

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? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

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?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

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?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

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group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

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? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

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? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

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company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

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class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

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?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

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- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

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the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

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Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

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? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

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Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

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?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

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Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

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? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

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become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

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?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

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documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

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insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

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? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

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? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

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? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

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? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

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the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

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?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

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?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

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?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

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?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

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?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

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This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

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policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

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?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

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? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

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? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

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Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

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Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

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?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

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Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.

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? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.

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? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement

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? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.

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? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request

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? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.

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?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply

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curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle

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? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium

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? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS

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Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have

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? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.

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? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies

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? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on

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matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely

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depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for

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writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of

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marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents

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?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.

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?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health
?Disability

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?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must

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complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for

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sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.

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? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the

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policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company

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as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank

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? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance

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like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent

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Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below

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v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market

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v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product

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? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the

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risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.

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Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded

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v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer

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? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in

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the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer

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? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change

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in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material

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information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any

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personal benefit
? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer

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? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination

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? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing

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Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA

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Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client

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,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in

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particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients

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?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker

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2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant
Provisions

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?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs

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?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .

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?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5

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years
Benefits :
?Improvement in customer service
?Transfer of technology and
managerial know-how

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?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others
BY VARNA
Other channels

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An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of
different groups of customers against the
cost of distributing their products and

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services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.
The other distribution channels of insurance are:
Banks:

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? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products
through their parent bank.
? The public sector bank with their vast branch networks, are helpful to

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the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:
? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the

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internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide
administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.

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? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the
purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.

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? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites
which they provide information about the products and services.
Work site marketing:
It is the distribution method providing the voluntary insurance products

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to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.
? In this channel life insurers send team to a target group and explain
the products either individual or group products suitable to them.

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The target group may be employees of a particular company or an
educational institute.
? One possible reason for insufficient development of this channel in
india is that employers generally expect some kind of incentives to
provide the facilities to the life insurers for making presentations and

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making arrangements for deduction of premium from salaries.
Invisible insurer:
In this model, the insurance company or its representative is not the
entity marketing the products. The insurance cover is sold by an
automobile/ credit card company as an add on product leveraging

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the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.
Product like creditor insurance, automobile insurance, and credit card
related insurance could be distributed using this channel. This model
can be adopted in all market segments for the lines of business

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mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.
Source:
www.general
insuranceassociation.org.sg

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Critical success factors for Insurance players
Change in the attitude of population
? Usually think as Tax benefit
? Lustre should wipe out once they implement
? Need to educate people

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Open and Transparent Environment created under the IRDA
? Objective should be clearly communicate with customer
? Customer should feel safe
? Otherwise there will be an air of uncertainty
Trained professionals to Build and sell the product

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? Insurance agents are trained
? Excellent sales team is required to compete
Rationale Approach to the Investment criteria
? IRDA provides guidelines for investment patterns
? For the interest of public

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? Stringent Accounting practice to prevent Failures amongst the
Insurers
? Insurers deal with masses hard-earned money
? Prevent from going burst
Well established Distribution network

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? Distribution is the key area
? Public sector banks are one of the leaders
Level playing field at all stages of Development in the
sector for all the players
? Providing an unbiased environment

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? Responsibility of government
Financial literacy
MARKETING
STRATEGIES &
TECHNIQUES

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PRESENTING BY:
WILINDA D?SOUZA
4MT15MBA80
FirstRanker.com - FirstRanker's Choice
Management of

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Insurance
companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who

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insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive

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Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)

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STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling

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more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is

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owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.

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? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised

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insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.

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It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally

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not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.

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?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of

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the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting
? Rate making

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? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an

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insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to

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decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The

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following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed

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in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average

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and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:

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?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising

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Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc

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?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),

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agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.

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-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance

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? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under

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guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes

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excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle

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?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement

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? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss

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? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits

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? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor

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?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents

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?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health
insurance

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? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff

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? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L

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? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills

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Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes

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? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured

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? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical

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in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken

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by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case

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?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with

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RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:

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? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the

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cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy

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?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE

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?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.

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Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)

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n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:

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? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading

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?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +

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Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income

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? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund

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? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.

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? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.

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? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,

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stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time

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frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden

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spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in

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supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of

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hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit

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? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation

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? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform

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? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.

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Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company

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? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting

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? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.

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?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting

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brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.

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? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed

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by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for

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the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes

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?Property
?Life
?Health
?Disability
?Long term care

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? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.

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EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.

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? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal

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by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.

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? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent

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? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct

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purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies

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Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are

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empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every

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specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person

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do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance

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product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and

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insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person

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shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the

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insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance

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product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract

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? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by

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the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever

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necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form

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? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit

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? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the

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beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if

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the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents

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www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :

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? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying

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the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.

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?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence

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and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker

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3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their

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functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed

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30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained

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by brokers , has to submit audited financial
statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5
years

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Benefits :
?Improvement in customer service
?Transfer of technology and
managerial know-how
?Benefits to insurance Companies

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?Foreign exchange considerations
Channels of Insurance-Others
BY VARNA
Other channels
An increasing number of insurers are using

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multiple distribution channels as they
continue to balance the needs of
different groups of customers against the
cost of distributing their products and
services. When it comes to insurance

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distribution channels, one size does not
necessarily fit all.
The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.

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Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products
through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known

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as bank assurance.
Internet marketing:
? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products

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and planning involving the use of these products, to provide specific
information about the company and its product lines to provide
administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage

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process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the
purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to

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increase their reach in to the market. All insurers have websites
which they provide information about the products and services.
Work site marketing:
It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their

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employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.
? In this channel life insurers send team to a target group and explain
the products either individual or group products suitable to them.
The target group may be employees of a particular company or an

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educational institute.
? One possible reason for insufficient development of this channel in
india is that employers generally expect some kind of incentives to
provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.

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Invisible insurer:
In this model, the insurance company or its representative is not the
entity marketing the products. The insurance cover is sold by an
automobile/ credit card company as an add on product leveraging
the brand of the retailer. This risk is carried by the insurance company,

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which underwrites it.
Product like creditor insurance, automobile insurance, and credit card
related insurance could be distributed using this channel. This model
can be adopted in all market segments for the lines of business
mentioned. It is already prevalent in some areas like credit card

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insurance and crop insurance for agricultural loans.
Source:
www.general
insuranceassociation.org.sg
Critical success factors for Insurance players

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Change in the attitude of population
? Usually think as Tax benefit
? Lustre should wipe out once they implement
? Need to educate people
Open and Transparent Environment created under the IRDA

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? Objective should be clearly communicate with customer
? Customer should feel safe
? Otherwise there will be an air of uncertainty
Trained professionals to Build and sell the product
? Insurance agents are trained

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? Excellent sales team is required to compete
Rationale Approach to the Investment criteria
? IRDA provides guidelines for investment patterns
? For the interest of public
? Stringent Accounting practice to prevent Failures amongst the

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Insurers
? Insurers deal with masses hard-earned money
? Prevent from going burst
Well established Distribution network
? Distribution is the key area

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? Public sector banks are one of the leaders
Level playing field at all stages of Development in the
sector for all the players
? Providing an unbiased environment
? Responsibility of government

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Financial literacy
MARKETING
STRATEGIES &
TECHNIQUES
PRESENTING BY:

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WILINDA D?SOUZA
4MT15MBA80
Marketing strategy serves as the foundation of a marketing plan.
Marketing plan contains a list of specific actions required to
successfully implement a specific marketing strategy.

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FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies
MODULE 7

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Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.

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?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)

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? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends

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and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:

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? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.

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? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:

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? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is

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an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect

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premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies

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?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.

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?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales

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? Underwriting
? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping

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Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk

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and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting

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? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit

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potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the

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average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:

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?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average

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?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc

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?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance

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? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance

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-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special

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conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s

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inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor

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Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than

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1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special

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purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.

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? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not

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attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent

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?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance

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?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement

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Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance

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? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form

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? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles

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? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued

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? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the

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repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details

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Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever

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is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer

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Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable

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certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing

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Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given

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time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY

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?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the

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business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium

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Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is

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taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency

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pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia

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FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the

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organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims

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cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.

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? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand

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of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc

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Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be

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made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within

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6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and

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supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.

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?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.

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Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in

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? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH

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STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do

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not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price

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regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees

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? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways

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? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:

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?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general

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insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :

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? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.

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Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this

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service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health

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?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.

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? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.

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? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance

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proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.

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? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents

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? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be

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represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor

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? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY

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Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct

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specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the

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insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any

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insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim

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? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or

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mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative

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v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance

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product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect

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? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the

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proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer

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v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate

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? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal

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? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions

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other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such

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termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and

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writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :

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SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs

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of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the

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administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable

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insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:

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1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant

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Provisions
?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.

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2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the

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PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from
the year end of accounting.

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?The records should be kept atleast for 5
years
Benefits :
?Improvement in customer service
?Transfer of technology and

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managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others
BY VARNA

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Other channels
An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of
different groups of customers against the

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cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.
The other distribution channels of insurance are:

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Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products
through their parent bank.

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? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:
? In this technological world internet is also a channels of selling

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insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide
administrative support to its policy holdres and to serve as a

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prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the
purchase. This behavior highlights the current role that the internet

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plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites
which they provide information about the products and services.
Work site marketing:

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It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.
? In this channel life insurers send team to a target group and explain

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the products either individual or group products suitable to them.
The target group may be employees of a particular company or an
educational institute.
? One possible reason for insufficient development of this channel in
india is that employers generally expect some kind of incentives to

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provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.
Invisible insurer:
In this model, the insurance company or its representative is not the
entity marketing the products. The insurance cover is sold by an

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automobile/ credit card company as an add on product leveraging
the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.
Product like creditor insurance, automobile insurance, and credit card
related insurance could be distributed using this channel. This model

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can be adopted in all market segments for the lines of business
mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.
Source:
www.general

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insuranceassociation.org.sg
Critical success factors for Insurance players
Change in the attitude of population
? Usually think as Tax benefit
? Lustre should wipe out once they implement

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? Need to educate people
Open and Transparent Environment created under the IRDA
? Objective should be clearly communicate with customer
? Customer should feel safe
? Otherwise there will be an air of uncertainty

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Trained professionals to Build and sell the product
? Insurance agents are trained
? Excellent sales team is required to compete
Rationale Approach to the Investment criteria
? IRDA provides guidelines for investment patterns

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? For the interest of public
? Stringent Accounting practice to prevent Failures amongst the
Insurers
? Insurers deal with masses hard-earned money
? Prevent from going burst

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Well established Distribution network
? Distribution is the key area
? Public sector banks are one of the leaders
Level playing field at all stages of Development in the
sector for all the players

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? Providing an unbiased environment
? Responsibility of government
Financial literacy
MARKETING
STRATEGIES &

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TECHNIQUES
PRESENTING BY:
WILINDA D?SOUZA
4MT15MBA80
Marketing strategy serves as the foundation of a marketing plan.

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Marketing plan contains a list of specific actions required to
successfully implement a specific marketing strategy.
Marketing strategy techniques
? Segmentation
? Positioning

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? targeting
FirstRanker.com - FirstRanker's Choice
Management of
Insurance
companies

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MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related

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service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of

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? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through

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board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.

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? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life

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insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.

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? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:

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?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get

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new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.
Organisation structure of insurance

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companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the

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company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.
Functions of Insurers

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? Production/sales
? Underwriting
? Rate making
? Claim settlement
? Investment and financing

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? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps

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insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.

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Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than

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the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.

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? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.

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Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good

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average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance
?Age

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?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol

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Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc

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-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer
? Risk assessment

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? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting

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? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:

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Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?

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?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers
?- carrying passengers

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?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the

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event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include

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refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors

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?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau
?Public adjustor

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Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and
gives an estimate

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?Claim settlement
Claim settlement in health
insurance
? Cashless method:
? Reimbursement method:

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Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:

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? Claim form
? Survey report
? D/L
? Registration certificate
? FC for commercial vehicles

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? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss

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? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.

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? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim

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settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the

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basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book

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etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.

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?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.

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Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the
insurance company for

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insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives

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?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY
?Charging premiums commensurate with

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expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy

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Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to

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accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n
Cost of holding capital:

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? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:

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? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to

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take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)

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?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)

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? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed

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? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other

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forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the

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policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.

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? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks

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?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in

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quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of

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varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players

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come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.

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? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.

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? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public

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? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:

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? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence

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? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc

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DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.

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?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION

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AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like

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education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.

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?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an

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insurance broker or insurance underwriter?.

Type of insurance includes
?Property
?Life

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?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health

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insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent

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? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.

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? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents

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required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.

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Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?

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? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance

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? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY

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SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.

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Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and

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specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers

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v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of

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all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as

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responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a

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representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan

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v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of

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information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer

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? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the

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settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:

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? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer

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for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified
person

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? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy

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and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within

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the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers

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SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill

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the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to

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insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client

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?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .

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? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker

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5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,

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direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or

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10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from

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the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :
?Improvement in customer service

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?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others

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BY VARNA
Other channels
An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of

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different groups of customers against the
cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.

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The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products

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through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:

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? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide

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administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the

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purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites
which they provide information about the products and services.

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Work site marketing:
It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.

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? In this channel life insurers send team to a target group and explain
the products either individual or group products suitable to them.
The target group may be employees of a particular company or an
educational institute.
? One possible reason for insufficient development of this channel in

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india is that employers generally expect some kind of incentives to
provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.
Invisible insurer:
In this model, the insurance company or its representative is not the

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entity marketing the products. The insurance cover is sold by an
automobile/ credit card company as an add on product leveraging
the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.
Product like creditor insurance, automobile insurance, and credit card

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related insurance could be distributed using this channel. This model
can be adopted in all market segments for the lines of business
mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.
Source:

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www.general
insuranceassociation.org.sg
Critical success factors for Insurance players
Change in the attitude of population
? Usually think as Tax benefit

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? Lustre should wipe out once they implement
? Need to educate people
Open and Transparent Environment created under the IRDA
? Objective should be clearly communicate with customer
? Customer should feel safe

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? Otherwise there will be an air of uncertainty
Trained professionals to Build and sell the product
? Insurance agents are trained
? Excellent sales team is required to compete
Rationale Approach to the Investment criteria

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? IRDA provides guidelines for investment patterns
? For the interest of public
? Stringent Accounting practice to prevent Failures amongst the
Insurers
? Insurers deal with masses hard-earned money

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? Prevent from going burst
Well established Distribution network
? Distribution is the key area
? Public sector banks are one of the leaders
Level playing field at all stages of Development in the

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sector for all the players
? Providing an unbiased environment
? Responsibility of government
Financial literacy
MARKETING

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STRATEGIES &
TECHNIQUES
PRESENTING BY:
WILINDA D?SOUZA
4MT15MBA80

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Marketing strategy serves as the foundation of a marketing plan.
Marketing plan contains a list of specific actions required to
successfully implement a specific marketing strategy.
Marketing strategy techniques
? Segmentation

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? Positioning
? targeting
Segmentation:
Market segmentation is the process in
marketing of grouping a market (customers)

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into smaller sub-groups. It is not arbitrarily
imposed on society but it is derived from the
recognition that the total market is often made
up of sub-markets is called as segment.
FirstRanker.com - FirstRanker's Choice

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Management of
Insurance
companies
MODULE 7
Insurance Market

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?Insurers/insurance carriers ? companies who
insure
?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of

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insurers, may be exclusive of non-exclusive
Types of Insurance organisations
? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling

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? - formation (stock or mutual)
STOCK INSURERS:
Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the

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interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans
and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital

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may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests
alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and

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vice versa.
? Mutual insurance companies can be motivated to make and sell
certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing

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services and physical facilities for members to write specialised
insurance products
?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where

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insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a
corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.

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It is only a representative and is personally
not liable to pay.
Organisation structure of insurance
companies
?Owners of shareholders of the company are at the

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top who elect a board of directors for the company.
?Board of directors is the primary governing body for
the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the

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companies who work towards implementation of
the targets set by the board.
Functions of Insurers
? Production/sales
? Underwriting

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? Rate making
? Claim settlement
? Investment and financing
? Accounting and record keeping
Underwriting

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?Underwriting is the process by which an
insurer takes decision to accept risk and
charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales

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?Each company has its own set of rules to
decide on underwriting and it is also
related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a

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group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:
? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.

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? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits
at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable

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? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.
Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with

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company?s risk norms:
?2. balance rate classes (above and
below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk

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class without cross subsidising
Factors in underwriting in Life insurance
?Age
?Health condition ? cholesterol, BP, build etc
?Income levels

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?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military
?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through

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- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the
agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about

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the party.
-underwriting in field by the agent/producer
? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk

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Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made
business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection

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? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:
Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988

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Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc
Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like

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?- goods carrying vehicle
?- trailers
?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles

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Claims settlement
? Claim refers to demand made by the insured on the
insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:

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? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.
Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has

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become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs
Types of claim adjustors
?Insurance agent
?Company adjustor

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?Independent adjustor
?Adjustment bureau
?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary

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documents
?Adjustor assesses the situation and
gives an estimate
?Claim settlement
Claim settlement in health

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insurance
? Cashless method:
? Reimbursement method:
Claims settlement in motor insurance
? Two types

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? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff
? Claim settlement involves the following document:
? Claim form
? Survey report

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? D/L
? Registration certificate
? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims

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? Repair bills
Claims procedure for repairs
? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate

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? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and
claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from

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the insured
? Discharge voucher or receipt is obtained
? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss

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?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for
a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.

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?Insured is paid money and the salvage is taken
by the insurer and auctioned later
?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft

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?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted
in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months

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?RC book/duplicate RC book and non-user form with
RTO is also required.
?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium

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?MEANING:
? Consideration paid to the
insurance company for
insurance protection for a given
time period is called premium.

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This is the selling price and is the
cost of insurance to the insured.
Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the

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policy
?2. RATE EQUITY
?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.

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?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to
benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:

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? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:
? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums

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? PV = 1/(1+r)
n
Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium

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Admin costs:
? Admin costs like marketing, administration, etc
Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS

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Profit loading
?Amount added by the insurance company
to pure insurance premium and other costs to
take care of required profits for the
organisation.

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?Premium = cost of claims + other expenses +
Required profit
?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.

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Investment income
? Life Insurance companies sell two types of policies viz with profits and without
profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.

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? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.
? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.

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? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.
? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement

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? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the
policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.

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? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of
receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request

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? In money back policies survival benefits are paid as per time
frame mentioned in the contract
Capital Shocks
?Insurance capital is a matter of demand and
supply.

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?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left
indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply

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curve shifts to the right indicating an increase in
supply and reduction in price.
?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle

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? The process of Underwriting undergoes a cycle of
hard and soft stance.
? When underwriting makes profits many players
come in
? Increases supply and reduces premium

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? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability
improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS

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Price Regulation
? Several regulations governing registration, agency, brokers,
solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have

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? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general
public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.

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? All other premiums are fixed y the companies on a market basis.
Distribution channels
1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies

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? They represent a single company
? Categorised as life, general.
? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on

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matters affecting underwriting
? Assists policy related services to the policy holder like
premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely

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depend on the agency distribution force.
?On the contrary the general insurance business
has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for

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writing business more than 10 lakh, thus prohibiting
brokers.
TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of

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marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.
? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents

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?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on
company?s behalf.
?The agent generally receives a commission for this
service.

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?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.
? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

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Type of insurance includes
?Property
?Life
?Health
?Disability

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?Long term care
? Every state (USA) requires insurance agent to be licensed.
? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must

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complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:
? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for

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sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product
offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.

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? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.
? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the

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policy holder.
? The agent should provide all the information regarding nomination and also
regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company

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as an agent
? Usually a bank. Bank acting as an agent for selling
insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank

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? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly
with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance

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like financial services companies
Various Channels in Insurance
Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent

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Corporate Agents are the entities that are
empowered to function as agents for various types
businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below

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v Be responsible for all the act of its corporate executive and every
specified person.
v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market

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v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as
returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product

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? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product
? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the

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risk or act as an insurer. He acts as an agent between the insurer and
insured
? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.

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Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below
v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded

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v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while
recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer

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? Indicate the premium to be charged by the insurer for the insurance
product offered for sale
? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in

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the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or
rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer

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? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal
v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change

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in the address or excise of options as the case may where ever
necessary
No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material

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information in the proposal form
? He should induce (not make) the customer to submit wrong
information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any

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personal benefit
? He should not interfere with the proposal made by any other specified
person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer

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? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract
? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination

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? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier
? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing

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Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in
Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA

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Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?
Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client

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,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the
insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in

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particular when claims arise ?.
?They are the professionals who assess the specific
insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients

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?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and
insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker

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2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker
4. Category - Composite broker
5. Category - Insurance Consultant
Provisions

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?Guidelines provide the qualification norms and their
functions for various classes
?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs

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?Brokerage is determined by IRDA, its cannot exceed
30% of the premium
?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .

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?Books of accounts has to be maintained
by brokers , has to submit audited financial
statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5

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years
Benefits :
?Improvement in customer service
?Transfer of technology and
managerial know-how

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?Benefits to insurance Companies
?Foreign exchange considerations
Channels of Insurance-Others
BY VARNA
Other channels

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An increasing number of insurers are using
multiple distribution channels as they
continue to balance the needs of
different groups of customers against the
cost of distributing their products and

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services. When it comes to insurance
distribution channels, one size does not
necessarily fit all.
The other distribution channels of insurance are:
Banks:

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? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.
Companies which are bank owned, they are selling their products
through their parent bank.
? The public sector bank with their vast branch networks, are helpful to

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the insurance companies. This channel of selling insurance is known
as bank assurance.
Internet marketing:
? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the

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internet to provide general information of financial services products
and planning involving the use of these products, to provide specific
information about the company and its product lines to provide
administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.

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? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on
product or services. They, then return to the agent to complete the
purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.

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? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites
which they provide information about the products and services.
Work site marketing:
It is the distribution method providing the voluntary insurance products

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to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact
for insurance is directly made with employee rather than the employer.
? In this channel life insurers send team to a target group and explain
the products either individual or group products suitable to them.

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The target group may be employees of a particular company or an
educational institute.
? One possible reason for insufficient development of this channel in
india is that employers generally expect some kind of incentives to
provide the facilities to the life insurers for making presentations and

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making arrangements for deduction of premium from salaries.
Invisible insurer:
In this model, the insurance company or its representative is not the
entity marketing the products. The insurance cover is sold by an
automobile/ credit card company as an add on product leveraging

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the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.
Product like creditor insurance, automobile insurance, and credit card
related insurance could be distributed using this channel. This model
can be adopted in all market segments for the lines of business

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mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.
Source:
www.general
insuranceassociation.org.sg

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Critical success factors for Insurance players
Change in the attitude of population
? Usually think as Tax benefit
? Lustre should wipe out once they implement
? Need to educate people

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Open and Transparent Environment created under the IRDA
? Objective should be clearly communicate with customer
? Customer should feel safe
? Otherwise there will be an air of uncertainty
Trained professionals to Build and sell the product

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? Insurance agents are trained
? Excellent sales team is required to compete
Rationale Approach to the Investment criteria
? IRDA provides guidelines for investment patterns
? For the interest of public

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? Stringent Accounting practice to prevent Failures amongst the
Insurers
? Insurers deal with masses hard-earned money
? Prevent from going burst
Well established Distribution network

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? Distribution is the key area
? Public sector banks are one of the leaders
Level playing field at all stages of Development in the
sector for all the players
? Providing an unbiased environment

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? Responsibility of government
Financial literacy
MARKETING
STRATEGIES &
TECHNIQUES

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PRESENTING BY:
WILINDA D?SOUZA
4MT15MBA80
Marketing strategy serves as the foundation of a marketing plan.
Marketing plan contains a list of specific actions required to

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successfully implement a specific marketing strategy.
Marketing strategy techniques
? Segmentation
? Positioning
? targeting

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Segmentation:
Market segmentation is the process in
marketing of grouping a market (customers)
into smaller sub-groups. It is not arbitrarily
imposed on society but it is derived from the

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recognition that the total market is often made
up of sub-markets is called as segment.
Market segmentation consists two main phases:
?Identification of broad, large markets.
?Segmentation of these markets in order to

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select the most appropriate target markets
and develop marketing mixes accordingly.
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

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companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

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?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

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? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

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Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

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and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

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alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

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certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

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?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

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corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

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Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

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the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

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Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

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? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

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charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

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related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

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? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

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at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

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Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

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below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

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?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

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?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

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agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

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? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

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business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

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Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

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Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

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?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

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insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

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Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

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Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

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?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and

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gives an estimate
?Claim settlement
Claim settlement in health
insurance
? Cashless method:

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? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff

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? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L
? Registration certificate

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? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs

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? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and

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claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained

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? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for

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a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later

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?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted

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in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.

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?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the

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insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.

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Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY

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?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to

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benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:

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? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n

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Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc

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Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company

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to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit

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?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without

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profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.

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? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.

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? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the

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policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of

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receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract

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Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left

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indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.

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?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.

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? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability

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improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,

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solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general

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public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels

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1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.

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? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like

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premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business

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has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.

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TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.

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? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on

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company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.

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? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes
?Property

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?Life
?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.

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? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:

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? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product

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offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.

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? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also

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regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling

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insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly

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with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance

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Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types

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businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.

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v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as

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returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product

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? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured

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? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below

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v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while

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recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale

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? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or

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rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal

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v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary

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No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong

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information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified

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person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract

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? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier

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? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in

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Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?

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Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the

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insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific

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insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and

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insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker

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4. Category - Composite broker
5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes

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?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium

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?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial

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statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :

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?Improvement in customer service
?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations

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Channels of Insurance-Others
BY VARNA
Other channels
An increasing number of insurers are using
multiple distribution channels as they

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continue to balance the needs of
different groups of customers against the
cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not

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necessarily fit all.
The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.

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Companies which are bank owned, they are selling their products
through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.

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Internet marketing:
? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific

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information about the company and its product lines to provide
administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on

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product or services. They, then return to the agent to complete the
purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites

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which they provide information about the products and services.
Work site marketing:
It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact

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for insurance is directly made with employee rather than the employer.
? In this channel life insurers send team to a target group and explain
the products either individual or group products suitable to them.
The target group may be employees of a particular company or an
educational institute.

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? One possible reason for insufficient development of this channel in
india is that employers generally expect some kind of incentives to
provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.
Invisible insurer:

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In this model, the insurance company or its representative is not the
entity marketing the products. The insurance cover is sold by an
automobile/ credit card company as an add on product leveraging
the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.

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Product like creditor insurance, automobile insurance, and credit card
related insurance could be distributed using this channel. This model
can be adopted in all market segments for the lines of business
mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.

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Source:
www.general
insuranceassociation.org.sg
Critical success factors for Insurance players
Change in the attitude of population

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? Usually think as Tax benefit
? Lustre should wipe out once they implement
? Need to educate people
Open and Transparent Environment created under the IRDA
? Objective should be clearly communicate with customer

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? Customer should feel safe
? Otherwise there will be an air of uncertainty
Trained professionals to Build and sell the product
? Insurance agents are trained
? Excellent sales team is required to compete

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Rationale Approach to the Investment criteria
? IRDA provides guidelines for investment patterns
? For the interest of public
? Stringent Accounting practice to prevent Failures amongst the
Insurers

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? Insurers deal with masses hard-earned money
? Prevent from going burst
Well established Distribution network
? Distribution is the key area
? Public sector banks are one of the leaders

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Level playing field at all stages of Development in the
sector for all the players
? Providing an unbiased environment
? Responsibility of government
Financial literacy

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MARKETING
STRATEGIES &
TECHNIQUES
PRESENTING BY:
WILINDA D?SOUZA

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4MT15MBA80
Marketing strategy serves as the foundation of a marketing plan.
Marketing plan contains a list of specific actions required to
successfully implement a specific marketing strategy.
Marketing strategy techniques

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? Segmentation
? Positioning
? targeting
Segmentation:
Market segmentation is the process in

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marketing of grouping a market (customers)
into smaller sub-groups. It is not arbitrarily
imposed on society but it is derived from the
recognition that the total market is often made
up of sub-markets is called as segment.

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Market segmentation consists two main phases:
?Identification of broad, large markets.
?Segmentation of these markets in order to
select the most appropriate target markets
and develop marketing mixes accordingly.

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Positioning:
Positioning is how the target market
defines the insurer in relation to their
competitors. A good position is:
?What makes you unique?

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?This is considered a benefit by your target
market
FirstRanker.com - FirstRanker's Choice
Management of
Insurance

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companies
MODULE 7
Insurance Market
?Insurers/insurance carriers ? companies who
insure

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?Insurance brokers ? other insurance related
service providers like surveyors etc.
?Insurance agencies ? sell on behalf of
insurers, may be exclusive of non-exclusive
Types of Insurance organisations

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? Can be classified on the basis of
? - risk coverage (life, health fire etc)
? - agency system (independent, exclusive, direct selling
? - formation (stock or mutual)
STOCK INSURERS:

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Companies that are owned and controlled by stockholders through
board of directors and officers. Shareholders get profits as dividends
and policyholders get bonus. Therefore they have to balance the
interests of both. They raise money by issuing more stock or selling
more policies. In case of life insurance the policy holders take loans

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and pay interest.
? MUTUAL INSURERS:
? Mutual companies owned by policy holders for non-profit. Initial capital
may be arranged by an intermediary which is repaid later. As it is
owned by policy holders company interests are aligned to their interests

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alone. Their only way to make money is by selling more policies. Life
insurers can give loan and earn interest.
? A mutual insurer may de-mutualise and become a stock company and
vice versa.
? Mutual insurance companies can be motivated to make and sell

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certain kinds of policies which a stock company cannot make.
? LLOYD?S OF LONDON:
? Lloyd?s is not a single insurer but a leading insurance market providing
services and physical facilities for members to write specialised
insurance products

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?RECIPROCAL EXCHANGE:
?Also called inter insurance exchange, it is
an unincorporated organisation where
insurance is exchanged among members.
It is managed by an attorney?in-fact. It is a

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corporation authorised by members to get
new members, pay losses, collect
premiums, invest and perform admin jobs.
It is only a representative and is personally
not liable to pay.

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Organisation structure of insurance
companies
?Owners of shareholders of the company are at the
top who elect a board of directors for the company.
?Board of directors is the primary governing body for

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the company . It sets goals and policies of the
company.
?Board controls the CEO and other employees of the
companies who work towards implementation of
the targets set by the board.

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Functions of Insurers
? Production/sales
? Underwriting
? Rate making
? Claim settlement

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? Investment and financing
? Accounting and record keeping
Underwriting
?Underwriting is the process by which an
insurer takes decision to accept risk and

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charge a premium . Underwriting helps
insurance company to take calculated risk
and earn money by way of sales
?Each company has its own set of rules to
decide on underwriting and it is also

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related to the type of policy taken.
Risk categories in underwriting
? Underwriting involves classification of risk into various classes. A risk class is a
group of insured that involves similar level of risk to the company. The
following are the 4 such risk classes:

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? 1. preferred risks: here the anticipated mortality is significantly lower than
the average. It represents least risk for the insurer and maximum profit
potential.
? 2. standard lives: Here the anticipated mortality is same as what is assumed
in the mortality as average. Here the risk is on par with average and profits

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at expected levels.
? 3. sub-standard lives: here the anticipatory mortality is higher that the
average but they are still considered insurable
? 4. declined lives: here the expected mortality is far higher than the average
and the insurer cannot accept the proposals even at higher premiums.

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Such proposals are declined by the insurer.
Principles of underwriting:
?1. to accept proposals in line with
company?s risk norms:
?2. balance rate classes (above and

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below normal ) to arrive at a good
average
?3. to fix equitable rates for each risk
class without cross subsidising
Factors in underwriting in Life insurance

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?Age
?Health condition ? cholesterol, BP, build etc
?Income levels
?Family history- cancer , heart, diabetes, etc
?Occupation ? hazardous like aviation, military

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?Habits ? tobacco, alcohol
Underwriting process in life insurance
? Getting information of risk through
- application containing (part A is general and Part-2 is medical info),
agent?s statement or report, signature of all parties including the

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agent, mode term of payment etc
-Medical examination for life and health insurance
-Independent agency providing financial and social information about
the party.
-underwriting in field by the agent/producer

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? Risk assessment
? Decision: Accept at standard rates/charge extra premium/special
conditions/reject risk
Underwriting in non-life insurance
? Escalating costs, awards and increasing incidents has made

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business unprofitable. More care is required in underwriting
? Source of information is application, local inspector, broker?s
inspection report, prior experience and company inspection
? Underwriting done by NB dept at branch/division level under
guidelines set by HO as under:

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Types of vehicles:
Type of vehicles underwritten is as per classification given in the Motor
Vehicle Act 1988
Private car: vehicles used for social, domestic, and pleasure purposes
excluding use of horse, racing,, reliability trial, speed testing, etc

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Two wheelers: motorised two wheelers ? same as above?
?Commercial vehicles: motor vehicles other than
1 and 2 above like
?- goods carrying vehicle
?- trailers

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?- carrying passengers
?- agricultural and forestry vehicles/special
purpose vehicles
Claims settlement
? Claim refers to demand made by the insured on the

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insurer to pay the compensation upon happening of the
event.
? OBJECTIVES/STEPS:
? 1. Verification of covered loss
? 2. Fair and prompt payment of claims ? pay properly.

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Not more, not less. Unfair claim practices include
refusing to pay claims without proper investigation. Not
attempting to pay in good faith once liability has
become clear. Compelling insureds to go for lawsuits
? 3. provide personal assistence after covered loss occurs

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Types of claim adjustors
?Insurance agent
?Company adjustor
?Independent adjustor
?Adjustment bureau

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?Public adjustor
Claim settlement in life insurance
?File a claim and provide necessary
documents
?Adjustor assesses the situation and

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gives an estimate
?Claim settlement
Claim settlement in health
insurance
? Cashless method:

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? Reimbursement method:
Claims settlement in motor insurance
? Two types
? 3P insurance ? compulsory, std tariff
? Own insurance ? voluntary, variable tariff

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? Claim settlement involves the following document:
? Claim form
? Survey report
? D/L
? Registration certificate

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? FC for commercial vehicles
? Permit for commercial vehicles
? Police report for TP claims
? Repair bills
Claims procedure for repairs

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? Verification of claim upon receipt of notice of loss
? Entered in claims register and claims form issued
? Insured submits an estimate
? Insurer accepts or asks for alternative quotes
? Independent surveyor /company personnel verifies cost and

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claim and submits report.
? Survey report is scrutinised and accepted. Letter issued to the
repairer. They are advised about money to be collected from
the insured
? Discharge voucher or receipt is obtained

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? Claim register and policy records are marked with claim
settlement details
Claim settlement in case of total loss
?When vehicle is beyond repairs or uneconomical
in nature surveyor negotiates with the insured for

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a total loss settlement. Settlement is done on the
basis of market value or insured value whichever
is lower.
?Insured is paid money and the salvage is taken
by the insurer and auctioned later

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?Insured hands over all documents like RC book
etc to the insurer
Claim settlement in case of theft
?Theft case is also settlement similar to total loss case
?FIR copy with SDE no or CR no is required to be quoted

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in the application.
?Police may trace the vehicle or issue non-traceable
certificate in 1-2 months
?RC book/duplicate RC book and non-user form with
RTO is also required.

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?Discharge form and indemnity bond are also required.
Insurance pricing
Insurance cost or premium
?MEANING:
? Consideration paid to the

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insurance company for
insurance protection for a given
time period is called premium.
This is the selling price and is the
cost of insurance to the insured.

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Insurance pricing - Objectives
?1. RATE ADEQUACY
?Rates adequate to fulfil promises made in the
policy
?2. RATE EQUITY

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?Charging premiums commensurate with
expected costs and losses insureds bring to the
business.
?3. RATES NOT EXCESSIVE
?Rates should not be excesive in relation to

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benefits promised by the policy
Factors affecting costs/Fair premium
Expected liability/claim:
? Claim cost would equal magnitude of claim and the probability of its occurrence.
Time value of money:

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? Premium is paid in advance and therefore can be discounted from the claim costs to
accommodate for the interest earned during that period. Present value of claim cost is
taken to calculate premiums
? PV = 1/(1+r)
n

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Cost of holding capital:
? companies hold idle capital to take care of investment in the business and emergency
pay-outs. Cost of such capital needs to be built-in while calculating cost or premium
Admin costs:
? Admin costs like marketing, administration, etc

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Riders chosen:
? Riders like DAB, critical illness etc will increase the premia
FAIR PREMIUM IS THAT REMIUM WHICH COVERS ALL THESE COSTS
Profit loading
?Amount added by the insurance company

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to pure insurance premium and other costs to
take care of required profits for the
organisation.
?Premium = cost of claims + other expenses +
Required profit

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?(Use explanations from the previous slide)
?Usually expressed as a percentage of claims
cost and other expenses.
Investment income
? Life Insurance companies sell two types of policies viz with profits and without

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profits. General insurance involves no profits (but they will still invest their funds)
? A without profits policy caters to pure insurance where no investment is done.
? In a with profits policy investment and returns are involved.
? Fund created for investment in life insurance business is called life fund
? Life fund is invested in Government bonds, safe securities and share market.

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? Returns are variable and not fixed
? Returns are distributed to policy holders as bonus, declared as Rs per thousand
of sum assured. Its not payable on a premiums paid basis.
? Bonus is reversionary and is payable at the end upon death or maturity.
? LIC pays the highest bonus while private insurers generally pay lower.

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? Investment income from insurers are generally lower as compared to other
forms of fixed investments like PPF, FD etc
Timing of claim settlement
? Involves 2 types, viz death claim and maturity claim settlement.
? Death claim settlement is payment of dues to the nominee of the

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policy holder upon happening of an event as mentioned in the
policy contract. A maturity claim settlement is payment to be
made to the policy holder upon maturity of the contarct.
? IRDA Policy holders? interest Regulations 2002, Regulation 8,
stipulates that the insurer has to settle claims within 30 days of

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receiving all document including clarifications to queries sought.
? If settlement involves investigation, it has to be completed within
6 months from receiving claim request
? In money back policies survival benefits are paid as per time
frame mentioned in the contract

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Capital Shocks
?Insurance capital is a matter of demand and
supply.
?Supply gets affected due to catastrophe or sudden
spurt in claims. Supply curve shifts to the left

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indicating an increase in price and decrease in
quantity. This is a HARD market.
?When profits increase with lower claims the supply
curve shifts to the right indicating an increase in
supply and reduction in price.

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?Insolvency risk depends upon capital shock of
varying supply owing to uncertainty in claims.
Underwriting cycle
? The process of Underwriting undergoes a cycle of
hard and soft stance.

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? When underwriting makes profits many players
come in
? Increases supply and reduces premium
? Profits come down and capital erodes, some quit
? Price increases to protect capital and profitability

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improves, many players start coming in.
? DRAW A CIRCULAR PICTURE AND EXPLAIN EACH
STEP WITH DETAILS
Price Regulation
? Several regulations governing registration, agency, brokers,

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solvency, capital standards, rates, claim settlement etc.
? In the US certain stages have rate regulation and ertain states do
not have
? Objective is to be fair, not excessive, uniform
? In India, rates regulation is done by IRDA in the interest of general

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public
? 3P insurance under motor vehicle insurance is covered under price
regulation. Premium is fixed by the government.
? All other premiums are fixed y the companies on a market basis.
Distribution channels

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1. Insurance agents:
? Agents who represent the company; not employees
? Includes individual/companies
? They represent a single company
? Categorised as life, general.

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? Requires to pass IRDA exam and obtain a licence
? An agent must provide correct information both ways
? Provides a ?confidential Report? to the company on
matters affecting underwriting
? Assists policy related services to the policy holder like

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premium, nomination, claim settlement etc
DISTRIBUTION CHANNELS:
?Traditionally, the life insurers have been solely
depend on the agency distribution force.
?On the contrary the general insurance business

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has depended totally on the development offers.
?The scenario has been different for the general
insurers a no agency commission was payable for
writing business more than 10 lakh, thus prohibiting
brokers.

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TRADITIONAL CHANNEL OF DISTRIBUTION
AGENTS :
? Most of the life insurance companies in India follow the traditional route of
marketing through agents.
? In case of private players they are nomed as Insurance advisors/ planners.

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? The agent are trained to be sensitive to the dominant issues in any family?s life like
education and marriage of children.
Insurance Agents
?A person licenced by a state and generally employed
by an insurance company to sell insurance policies on

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company?s behalf.
?The agent generally receives a commission for this
service.
?He or she attempts to extract the maximum value for
the insurance company in all his or her dealings.

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? An insurance agent should not be confused with an
insurance broker or insurance underwriter?.

Type of insurance includes
?Property

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?Life
?Health
?Disability
?Long term care
? Every state (USA) requires insurance agent to be licensed.

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? They are required to obtain separate licenses to sell life and health
insurance or property.
? In most states, sales agents in order to become licensed, must
complete pre licensing course and pass state examination.
EVERY INSURANCE AGENT SHALL:

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? Identify himself and the insurance company of whom he is an insurance agent
? Disclose his license to the prospect on demand.
? Disclose the scale of commission in respect of the insurance product offered for
sale, if asked by prospect.
? Indicate the premium to be charged by the insurer for the insurance product

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offered for sale.
? The insurance agent should provide all the information required in the insurance
proposal.
? Inform promptly the prospect about the acceptance or rejection of the proposal
by the insurer.

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? The insurance agent should provide the information regarding the documents
required for the completion of insurance proposal.
? The insurance agent in the time of settlement of claims they should assist the
policy holder.
? The agent should provide all the information regarding nomination and also

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regarding the change of address.
Channels ? corporate agents
? It?s a company representing an insurance company
as an agent
? Usually a bank. Bank acting as an agent for selling

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insurance products is termed ?Bancassurance?
? Only one life and one general company can be
represented by a bank
? Bancassurance are generally cheaper than direct
purchase from an insurance company particularly

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with health insurance
? Service experience with Bancassurance is quite poor
? There are other corporate agents who sell insurance
like financial services companies
Various Channels in Insurance

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Corporate Agent SUBMITTED BY
SUDARSHAN SHETTY
Meaning of Corporate agent
Corporate Agents are the entities that are
empowered to function as agents for various types

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businesses or for government agency.
Every Licenced Corporate Agent shall abide by the code of conduct
specified below
v Be responsible for all the act of its corporate executive and every
specified person.

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v The corporate agents must ensure that the corporate executives and
specified person are well trained, skilled, and knowledgeable in the
insurance product they market
v Ensure that the corporate insurance executive and specified person
do not make any misrepresentation on the policy benefits as well as

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returns available under the policy to his customers
v Ensure that the customer or prospect are not forced to buy any
insurance product
? Give adequate advice to the insured before they buy the insurance
product as well as after they buy the insurance product

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? Extending help as well as cooperation to the insured in completion of
all the formalities and documentation in the event of claim
? Give due publicity that the corporate agents do not under write the
risk or act as an insurer. He acts as an agent between the insurer and
insured

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? enter into an agreement with the insurer in which the duties as well as
responsibilities of both insurer and corporate agent is defined or
mentioned.
Every corporate agent shall or a corporate insurance executive or specified person
shall also follow code of conduct specified below

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v Identify himself and insurance company of whom he is a
representative
v Disclose his license/certificate when demanded
v Give proper information about the insurance product offered by the
insurer and also take care the needs of the customer while

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recommending a specified insurance plan
v He must disclose the scale of commission in respect of insurance
product offered for sale if asked by the insured or or customer
? Indicate the premium to be charged by the insurer for the insurance
product offered for sale

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? He must explain the prospect or customer about the nature of
information that has to be given by the customer or prospect
? He must also explain the importance of submitting all the information in
the purchase of an insurance contract
? He must inform promptly to the customer about the acceptance or

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rejection of proposal by the insurer
? He must obtain the required document at the time of filing the
proposal with the insurer
? He must also obtain documents from the customer which is asked by
the insurer for the completion of proposal

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v He must give assistance to the policy holder or beneficiaries during the
settlement of claim by the insurer
v Provide advice to every individual policy holder when there is change
in the address or excise of options as the case may where ever
necessary

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No corporate agent/corporate insurance executive/ specified person shall:
? Shall run the business without holding a valid license/ certificate
? He should not induce the customer to omit (leave) any material
information in the proposal form
? He should induce (not make) the customer to submit wrong

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information in the proposal form or documents submitted to the insurer
for acceptance of proposal
? Behave equally with the customer or prospect without taking any
personal benefit
? He should not interfere with the proposal made by any other specified

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person
? He should not offer different rates, advantages, terms and conditions
other than those offered by the insurer
? He must not demand any benefits or share of proceeds from the
beneficiary under insurance contract

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? He should not force the policy holder to terminate the existing policy
and buy the new policy within 3 years from the date of such
termination
? He must apply for the fresh licence to act as an insurance business if
the licence is cancelled earlier

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? He should make sure that the policy holder pays the premiums within
the stipulated time by giving notice to the policyholder orally and
writing
Source: www.policyholder.gov.in/corporate _agents
www.irda.gov.in

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Channels of Insurance ? Brokers
SUBMISSION BY :
SWEEDAL CARDOZA
Brokers :
? IRDA?s Annual Report 2001-02 describes brokers ?

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Insurance brokers ,as professionals ,are expected to fill
the void in terms of providing for specific insurance needs
of the client ,by assessing the risk on behalf of the client
,advise on the mitigation of the specified risk , identifying
the optimal insurance policy structure ,bring together the

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insured and insurers ,carry out work preparatory to
insurance contracts and , where necessary ,assist in the
administration and performance of such contracts ,in
particular when claims arise ?.
?They are the professionals who assess the specific

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insurance needs of the client
?Then they evaluate the risk and suggest a suitable
insurance cover for clients
?IRDA has issued guidelines for the issue of licence
and regulation of affairs to insurance brokers and

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insurance consultants in 2002 .
? As per the guidelines ,the brokers sre divided into:
1. Category - Direct General Insurance Broker
2. Category - Direct Life Insurance broker
3. Category - Reinsurance broker

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4. Category - Composite broker
5. Category - Insurance Consultant
Provisions
?Guidelines provide the qualification norms and their
functions for various classes

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?Net worth requirement for brokers is Rs. 2.50 crores,
direct and reinsurance brokers is Rs. 50 lakh and Rs.
2.00 crores, Insurance Consultant Rs 5.00 lakhs
?Brokerage is determined by IRDA, its cannot exceed
30% of the premium

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?Solvancy margin has to be maintained ? Rs 25 lakh or
10% of the gross brokerage and fees received in the
PY .
?Books of accounts has to be maintained
by brokers , has to submit audited financial

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statement and report within 60 days from
the year end of accounting.
?The records should be kept atleast for 5
years
Benefits :

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?Improvement in customer service
?Transfer of technology and
managerial know-how
?Benefits to insurance Companies
?Foreign exchange considerations

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Channels of Insurance-Others
BY VARNA
Other channels
An increasing number of insurers are using
multiple distribution channels as they

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continue to balance the needs of
different groups of customers against the
cost of distributing their products and
services. When it comes to insurance
distribution channels, one size does not

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necessarily fit all.
The other distribution channels of insurance are:
Banks:
? Banks in india are all pervasive, especially the public sector banks.
Many insurance companies are selling the products through banks.

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Companies which are bank owned, they are selling their products
through their parent bank.
? The public sector bank with their vast branch networks, are helpful to
the insurance companies. This channel of selling insurance is known
as bank assurance.

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Internet marketing:
? In this technological world internet is also a channels of selling
insurance. This can be as a direct marketing. Insurers are using the
internet to provide general information of financial services products
and planning involving the use of these products, to provide specific

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information about the company and its product lines to provide
administrative support to its policy holdres and to serve as a
prospecting and communication tool for its agent led channel.
? Internet helps to collect information for consumers. It is a two stage
process. The consumers first use the internet to collect information on

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product or services. They, then return to the agent to complete the
purchase. This behavior highlights the current role that the internet
plays in providing support to the agent led channel.
? Now a days, the advantage of technology allows insurers to
increase their reach in to the market. All insurers have websites

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which they provide information about the products and services.
Work site marketing:
It is the distribution method providing the voluntary insurance products
to employees at their work place with the sponsorship of their
employer, which is done on a deduction from their payroll. The contact

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for insurance is directly made with employee rather than the employer.
? In this channel life insurers send team to a target group and explain
the products either individual or group products suitable to them.
The target group may be employees of a particular company or an
educational institute.

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? One possible reason for insufficient development of this channel in
india is that employers generally expect some kind of incentives to
provide the facilities to the life insurers for making presentations and
making arrangements for deduction of premium from salaries.
Invisible insurer:

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In this model, the insurance company or its representative is not the
entity marketing the products. The insurance cover is sold by an
automobile/ credit card company as an add on product leveraging
the brand of the retailer. This risk is carried by the insurance company,
which underwrites it.

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Product like creditor insurance, automobile insurance, and credit card
related insurance could be distributed using this channel. This model
can be adopted in all market segments for the lines of business
mentioned. It is already prevalent in some areas like credit card
insurance and crop insurance for agricultural loans.

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Source:
www.general
insuranceassociation.org.sg
Critical success factors for Insurance players
Change in the attitude of population

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? Usually think as Tax benefit
? Lustre should wipe out once they implement
? Need to educate people
Open and Transparent Environment created under the IRDA
? Objective should be clearly communicate with customer

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? Customer should feel safe
? Otherwise there will be an air of uncertainty
Trained professionals to Build and sell the product
? Insurance agents are trained
? Excellent sales team is required to compete

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Rationale Approach to the Investment criteria
? IRDA provides guidelines for investment patterns
? For the interest of public
? Stringent Accounting practice to prevent Failures amongst the
Insurers

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? Insurers deal with masses hard-earned money
? Prevent from going burst
Well established Distribution network
? Distribution is the key area
? Public sector banks are one of the leaders

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Level playing field at all stages of Development in the
sector for all the players
? Providing an unbiased environment
? Responsibility of government
Financial literacy

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MARKETING
STRATEGIES &
TECHNIQUES
PRESENTING BY:
WILINDA D?SOUZA

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4MT15MBA80
Marketing strategy serves as the foundation of a marketing plan.
Marketing plan contains a list of specific actions required to
successfully implement a specific marketing strategy.
Marketing strategy techniques

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? Segmentation
? Positioning
? targeting
Segmentation:
Market segmentation is the process in

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marketing of grouping a market (customers)
into smaller sub-groups. It is not arbitrarily
imposed on society but it is derived from the
recognition that the total market is often made
up of sub-markets is called as segment.

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Market segmentation consists two main phases:
?Identification of broad, large markets.
?Segmentation of these markets in order to
select the most appropriate target markets
and develop marketing mixes accordingly.

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Positioning:
Positioning is how the target market
defines the insurer in relation to their
competitors. A good position is:
?What makes you unique?

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?This is considered a benefit by your target
market
Targeting:
? Targeting means breaking the market into segments and
then concentrating your marketing efforts on one or a few

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key segments.
? Target marketing can be the key to a small business?s
success.
? Target market makes the promotion, pricing & distribution
of products and services easier & more cost-effective

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? Target marketing provides a focus to all marketing activities.
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