Life Insurance Practices in India
Content
LIFE INSURANCE PRACTICES IN INDIA
Distribution system
• Distribution System is the relationship between distribution channels, market segments and also products is very important. • Insurance companies should continuously innovate and integrate the distribution channel, make them be the part of the occupying market and highly promoting the development of their own.
DISTRIBUTION SYSTEM IN INDIAN INSURANCE MARKET
• In present Indian insurance market, the challenge to insurers and intermediaries is twopronged: • Building faith about the company in the mind of the client • Intermediaries being able to build personal credibility with the clients Traditionally tied agents have been the primary channels for insurance distribution in the Indian market
Distribution system in Life insurance
• Need • Law requirements • Beliefs and cultural or religious backgrounds
Agents are necessary for the selling life insurance due to the following reasons: • Insurance is an idea that has to be explained and its usefulness clarified personally • Each prospective buyer has special needs and requires specialized solutions • Personalized guidance can be given only when there is a live interaction with the agent • Significant amount of money is to be set aside immediately and regularly for a long term in future for a benefit, which is vague and far away. • The insurer has to access the risk involved in every proposal for insurance for which the necessary information would include details on personal life styles, habits, family etc. The agent, who gets to meet the proposer closely, is in a position to provide some of this valuable information.
• The distinction of channels in the developed markets are personal distribution systems and direct response systems. • Personal distribution systems include all channels like agencies of different models and brokerages, banc assurance, and work site marketing. • Direct response distribution systems are the method whereby the client purchases the insurance directly. This segment, which utilizes various media such as the Internet, telemarketing, direct mail, call centers, etc., is just beginning to grow.
Multiple distribution channels
• Agents – Age, known people, gender • Banks – creditor insurance, banc assurance • Brokers • Work site marketing • Internet • Invisible insurer
Work site marketing
• This area needs to be tapped, as in any country one of the biggest markets is through the worksite. With changes in human resources management polices and compensation packages, group products or work site products do have a definite market that cannot be ignored. • Here the advantages would be:
– Captive customer base – Potential to sell individual insurance and group insurance – High trust factor – High hit ratio for the intermediaries The challenges would be the cost effectiveness, product customization and efficient post sales servicing, which would determine continued business. Technology has a key role to play in worksite marketing to ensure cost benefits. Banks and financial institutions have been successfully marketing credit cards and other financial products using this channel. If not an identical model a similar approach can be used for selling insurance.
TRENDS IN DISTRIBUTION CHANNELS
• Agency and brokerage systems are common and contribute maximum share of life insurance business in the developing countries. The Japanese life insurance industry depends entirely upon agents. Part-Time agents and lady agents form a good proportion of the agency force. • In European countries, notably France, Holland, Belgium and Spain distribution takes place also through banks. • Direct mailing is becoming increasing popular in developed countries. In a small way, this has started in India. The scope and the experience are being watched.
Differences between public and private sector insurance companies
• • • • • • • Public Sector Companies Identity is well established, but the perception of " poor service providers" is a stigma. Products are not attractive and flexible enough but expensive. To retain their creamy layer clientele who are the most likely to be wooed by the new companies Retain and attract good intermediaries Match the aura created by the new companies in the urban market
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Private Sector Companies Have to build their identity in a market where the public does not distinguish them. Remove the perception that anything that looks good is expensive Work against the people's mindset that they are not here for the long term Attract intermediaries especially agents with the requisite qualifications and attributes who can market the company and the product. Run the risk of tapping an already insured market for repeat insurance instead of tapping new virgin pockets in the market
Insurance Models
• Direct Marketing by the insurance company • Partner-agent model • De-linked model • Service Provider Model
Direct Marketing by the insurance company
• Identification of clients, selling of policies, collection of premium, receipts of claims and settlement of claims etc., all are done by the insurance companies • Outreach to provide insurance to poor through this model has been very limited
Partner-agent model
• Approved intermediary organisations act as insurance agents. • Identify the customers, negotiate with insurance companies about the adequacy of products and premium rates to be paid, collect the premium • Assist in clients in claim processing and settlement
De-linked model
• Community based insurance facility where NGO/MFI or federation of the groups act as insurer • Coverage of risk remains with the insurer • Sum insured, design and pricing of products, adverse selection, collection, claim verification and settlement data collection and maintenance, assessing client satisfaction etc are undertaken internally by the insurer
Service Provider Model
NGOs generally provide basic health care facilities to the rural population since necessary amenities were simply not present in their area of operation. Instead of premium, the service providers charge a membership fees to partly cover their costs
Challenges in Insurance Penetration
Designing of products suiting the rural market Using the right distribution channel mix to reach the potential customer Intermediaries being able to build personal credibility with the clients
Distribution Channels
• • • • • • • Agents Formal Banks Regional Rural Banks Cooperative Banks NGOs & MFIs Post Offices Internet & Rural Kiosks & Rural Knowledge Centers
Agents
• Prime channel for insurance distribution in urban areas • Trust of the company & customer must • Knowledge of different products • Postman,School teacher, shopkeeper, gram sevikas, gram sahayaks • Training & educating poses a challenge • Not an optimum channel as 42 % of 600,000 villages have population of less than 500
Formal Banks
• 27 PSBs have19, 104 rural branches and 30 Pvt.SBs 1,111 • Private banks are constrained by their lack of reach and meager branch strength • Banking sector has shown propensity towards the larger size accounts • Within the foreseeable future they will normally not be able to fully serve that market
Regional Rural Banks
• 177 RRBs together with14,150 branches cover 516 districts and serve a client base of close to 62.70 million • RBI has permitted RRBs to undertake insurance business as corporate agent without risk participation • Chitradurga Gramin Bank has -in close cooperation with the NABARD GTZ-Projectintroduced a new deposit scheme called “Rakshith” Savings Bank Scheme in tie up with LIC and UIICo. Ltd
NGOs and MFIs
• Large number of NGOs and MFIs are involved in social as well as financial services intermediation • Out of 61 sample MFIs studied by Sa-Dhan 34 were providing insurance services • While all 34 MFIs provided life insurance products, only 9 facilitated non life insurance products • The most significant range in amount of cover was in the category of Rs.10,000 and above
Challenges faced by NGO & MFIs
• Many of them are working as pure service provider particularly in health insurance, private insurer, intermediary • Poor live for the present and do not plan for the future. Given their fatalistic attitude, it is difficult to explain the concept of insurance to poor • Given this mindset, premium is seen as additional expenditure rather than risk cover • Without the availability of basic health infrastructure in rural areas, health insurance is difficult to sell
Challenges faced by NGO & MFIs
• Cooperation with the insurance company has not proved successful. Limited motivation on both sides to improve the cooperation • Delays in settling claims and complicated formalities • Challenge to pick up the necessary insurance techniques and adjust them to the needs of their members • No legal status as a private insurer. This complicates the matter further when it comes to reinsurance
Post Offices
• There are about 129,000 rural post offices. • Post Office itself is offering insurance products to the poor • Its efficacy as an intermediary channel needs to be explored
Internet, Rural kiosks & Knowledge Centers
• Using net for transactions has been catching up in urban areas. Many banks provide online banking • Most of the insurance companies have product information and/or illustrative tools on the web • In rural areas too rural knowledge centers are being set up to bring information close to the people. The insurance companies can use these centers to create awareness about insurance • Can only be enablers for the human channels
Appointment of agent
• • • Eligibility Life Insurance Corporation of India has eligibility requirements. You should be at least 18 years of age or above and the 12th standard pass. If you are an eligible candidate, try to locate a local branch office of LIC and schedule an appointment with the Development Officer. An interview will be conducted by the branch manager of LIC to determine if you can qualify to undergo training. The training will be conducted by the Divisional/Agency Training Center. The said training is conducted until the 100 hours is complete and it will cover the different aspects of life insurance and the business. Once you‟ve completed the training, you will be allowed to take the pre-licensing exam by IRDA (Insurance Regulatory and Development Authority). IRDA will give you a license if you pass the exam and you can now become an insurance agent. The branch office of LIC where you applied will already absorb you into their team of insurance agents. An LIC agent should be ambitious, outgoing, can handle different personalities, and treat clients as bosses. You are free to decide on your working hours so you can pick the most convenient time to work. The good thing about becoming an LIC agent is that you have a chance to earn unlimited income. LIC will provide the needed support which includes advertising, first-rate training, and in-house consultant.
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REMUNERATION TO AGENTS
• Persons appointed by an insurer may be remuneration in any of the following ways:
– Payment of fixed monthly salary – Payment of commission related to the business done – Part payment of fixed salary and part payment of commission based on business done.
• Commission to agents is specified as a percentage of premiums paid. This percentage may vary between different plans of insurance. It may also vary from year to year, high in first year and lower in subsequent years. • Commission may be paid right through the term of the policy or may be paid only for a fixed number of years. • In India, provisions exist whereby agents who have performed certain qualifying levels of business during 10 years of the agency are entitled to receive commission for the rest of their lives under certain conditions. • Commission is also payable to the heirs after the agent‟s death. • Bonus commission is also payable on the first year premium as an incentive for higher performance. This is a percentage of the eligible first year commission increases.
• Agents of the LIC are entitled to term insurance and gratuity benefits. The amount of term insurance is linked to the average annual commission (renewal) earned in the three agency years preceding his death. The following other conditions also have to be fulfilled:
– The agent should not have completed 50 years on the date of appointment as an agent. – The death must take place before he has completed 60 years of service – He must have an insurance policy on his own life for at least Rs.5000 SA and the policy must have been in force at the time of his death. – He must have completed at least 3 years as an agent at the time of his death.
• An agent will be eligible for gratuity if he has worked continuously for 15 years or more and his agency is not terminated due to fraud, conviction on a charge of criminal misappropriation, criminal breach of trust, cheating or forgery, acting against the interests of the insurer, offering rebate or giving false information in the agency application form with a view to defraud the insurer. • The amount of gratuity is related to the renewal commission earned in the last 15 qualifying years preceding the date of claiming gratuity. 180th part of the aggregate of the qualifying year renewal commission is the eligible rate. • Gratuity is admissible at the eligible rate for each qualifying year for the first fifteen qualifying years and at half the eligible rate for the subsequent ten qualifying years subject to a maximum. Gratuity is paid only once in the agency career.
• Functions Of The Insurance Agent: • Life insurances agent has the unique role of such a person, who enjoys the trust of two parties - the prospect and the insurer simultaneously in the same transaction. • To simplify, functions of a life insurance agent could be divided into two parts, viz. 'Pre-sale functions'; • 'Post-sale functions'
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Function Before Sales: Contact prospects Study their insurance needs Completion of formalities for proposal of new insurance viz, Filling of form Arranging for Medical Examination Collection proofs of age and income Any other information required by the underwriters
• Function After Sales: • Ensure payment of renewal premiums. • Assist policyholder for nomination / or change thereof. • Assist the policyholder in case he wants to get loan against the policy assignment. • Assist the policyholder or the claimant to comply with the requirement for getting timely settlement of claims.
Plans of life insurance
• Life insurance products are usually referred to as „plans‟ of insurance. • These plans have two basic elements. One is „death cover‟ or „risk over‟, which provides for the benefit being paid on the death of the insured person within a specified period. • The other is the „survival benefit‟, which provides for the benefit being paid on survival of a specified period.
Understanding the Needs Levels
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Every possible adverse consequence that requires to be taken care of constitutes a need for insurance. The needs of people for life insurance can be classified as under: Stage 1 Family: Protection of the interests of the family against loss of income resulted because of the death of the bread-winner. Stage 2 Children: Provision for higher education, marriages, Start-in life. Stage 3 Old age: Post- retirement income for self and family/dependants. Stage 4 Special Needs: Disability, accidents, expenses for treatment of diseases. Loss of income as a result of sickness. Stage 5Avoiding the loss of wealth (assets) due to depreciation or inflation. Generally, all these needs exist simultaneously, but not in the same measures, for all persons. The variations between people will depend on the ages, size of families and dependants and the nature of other properties and incomes. Insurance plans of various kinds are designed to meet these one plan alone may not meet all the needs. All the needs can be met through a judicious mix of plans.
Basic elements of plans
• A plan of assurance will have the following features. By making changes in these features or adding and combining some of them, any number of plans can be developed. • Who can be insured? The various possibilities are (i) individual adults (ii) children (minors) (iii) two or more persons jointly under one policy. • What can be the SA? Some plans stipulate a minimum SA. There are maximum limits also for certain benefits, like accident benefits. • In what contingency would the SA be payable? Could be on death or on survival. • When would the SA be payable? On the contingency happening or some other dates. • How would the SA be payable? Could be in one lump sum of in installments. • What would be the term (duration) of the policy? This determines the period during which the specified event should occur for the SA to be payable. Some plans provide for benefits even beyond the term.
• When would the premium be payable? Variations are in the frequency of payment (monthly), quarterly, halfyearly or yearly), as well as the period during which it is payable. Some plans provide for premiums to be paid for a period less than the term. • Does the SA increase? This can happen because of participation in surpluses and bonus additions or because of guaranteed increases in S.A. • Does the SA reduce? This can also happen, if the plan is to meet reducing liabilities under a mortgage. • Are there additional benefits? These, also called supplementary benefits, may be provided by way of riders, in addition to the basic covers.
Whole Life Assurance
• • • • Ordinary whole life policy Limited Payment Whole Life Policy Single Premium Whole Life Policy Convertible whole Life Assurance Policy
Endowment Assurance
• Advantages :
– Compulsory savings – Old Age Provision – Accumulation of Fund Types of Endowment Policies – Ordinary Endowment Policy – Double Endowment – Pure Endowment Policy – Anticipated Endowment of Money back Policy – Triple Benefit Endowment Policy – Marriage Endowment Policy – Educational Endowment Policy
Other Life Insurance Plans
• • • • • • • Money Back Policy Family Income Assurance Limited payment plans Participating Plans Convertible Plans Joint Life Policies Children’s Plan – deferment period, deferment date, risk cover, vesting • Variable Insurance Plans • Plans covering handicapped
Policy Rider
• A rider is a clause or condition that is added on to a basic policy providing an additional benefit, at the choice of the proposer. • For example, a provision that in the event of death of the life assured by accident, the SA would be double can be a rider on an Endowment policy. This rider can be added on to a policy under any plan. The option to participate in valuation surplus can also be offered as a rider. • Insurers find it convenient to have a small number of basic, plans, with riders being offered as options, so that effectively the prospect has a number of options, to choose from each plan can be taken with any one or more of the riders.
• Some of the riders being offered by insurers in India are mentioned below:
– Increased death benefit, being twice or even more the survival benefit. – Accident benefits allowing double the SA if death happens due to accident. – Permanent disability benefits, covering loss of limbs, eyesight, hearing, speech, etc. – Premium waives which would be useful in the case of children‟s assurance, if the parent dies before vesting date or in the case of permanent disability and sickness. – Dreaded disease cover, providing additional payments (in or in installments), if the life insured requires medical attention because of specified conditions like cancer, cardiac or cardiovascular surgeries, stroke, kidney failure, major organ transplants, major burns, total blindness caused by illness or accident, etc. – Guaranteed increase in cover at specified periods or annually. – Cover to continue beyond maturity age for same SA or higher SA. – Option to increase cover within specified limits or dates.
• As per the regulations made by the IRDA in April 2002 and amended in October 2002. • The premium on all the riders relating to health or critical illnesses shall not exceed 100% of the basic premium of the main policy. • And the premium on all the other riders put together should not exceed 30% of the basic premium. • This virtually puts a limit n the number of riders that can be offered with any policy. It is possible that this limit of 30% may be changed from time to time.
ANNUITIES
• Annuity may be defined as the payment of amounts periodically during the life time of the annuitant in consideration of the payment of an agreed sum to insurance company”. • The Annuity is called the “up-side-down application of the life insurance principle”. When a person purchases a life insurance contract he agrees to make a series of payment (premiums) to the insurer in return for which the insurer agrees to pay a specified sum to the beneficiaries, in case of death of the life assured. • When a person buys an annuity contract, he pays the insurer a specified capital sum, may be in installments, in return for a promise from the insurer to make a series of payments to him as long as he lives.
Difference between Annuity and Insurance
• Insurance is a pooling arrangement whereby a group of individuals make contributions that the dependents of the unfortunate few, who die each year, may be indemnified for the loss of the bread winner‟s income. On the other hand, Annuity is pooling arrangements whereby those who die prematurely and do not need further cover make a contribution so that those who live beyond their expectancy may receive more income from their contribution alone would provide. Life insurance policy protects against the absence of income in the event of premature death or disability, whereas the annuity (policy) protects against the absence of income on the part of those affected with undue longevity. These two are extreme forms that assume protection to two unfortunate groups. “One dying too soon and the other living too long.”
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CLASSIFICATION OF ANNUITIES
• A. By Commencement of Income:
– Immediate Annuity. – Annuity Due. – Deferred Annuity.
• B. By Number of Lives Covered:
– Single Life Annuity. – Multiple Life Annuity.-Joint Life Annuity ; Last Survivor Annuity
• C. By Mode of Payment of Premium:
– Level Premium Annuities. – Single Premium Annuities.
• D. By Disposition of Proceeds:
– Life Annuity. – Guaranteed Premium Annuity.
• Group Insurance is a plan of insurance that provides cover to a large number of individuals under a single policy called the “master policy”. Group insurance schemes are used by the Government, as instruments of social welfare. • Group Gratuity Schemes are related to gratuity payments. Gratuity is paid to employees who retire or die and also to those who resign, after having put in specified periods of minimum service, usually 15 years. • The Group Superannuation Scheme is offered to employers in order to facilitate the funding and disbursement of pensions. Pensions are payable to employees who retire from service on attaining the age of superannuation or retirement.
REINSURANCE
• “Reinsurance is a contract of insurance whereby one insurer (called the reinsurer or assuming company) agrees, for a portion of the premium, to indemnify another insurer (called the reinsured or ceding company) for losses paid by the latter under insurance policies issued to its policyholders.”
TRANSFERRING RISK INSURANCE
RISK
Policyholder Insurance Co.
- Insured
- Underlying Insured
- Insurer
TRANSFERRING RISK
REINSURANCE
Risk
• Insurance Co. - Ceding Co. - Cedent - Primary Insurer
– Direct Company
Reinsurer -Assuming Co.
ELEMENTS OF REINSURANCE
• Reinsurance is a form of Insurance. • There are only two parties to the reinsurance contract - the Reinsurer and the Reinsured - both of whom are empowered to insure.
ELEMENTS OF REINSURANCE
(continued) • The subject matter of a reinsurance contract is the insurance liability the Reinsured has assumed under insurance policies issued to its own policyholders. • A reinsurance contract is an indemnity contract.
What Reinsurance Does
• It redistributes the risk of loss which a reinsured incurs under the policies it issues according to its own needs. • It redistributes the premiums received by the reinsured according to its own needs.
What Reinsurance Does Not Do!
• Convert an uninsurable risk into an insurable one. • Make loss either more or less likely to happen • Make loss either greater or lesser in magnitude • Convert “bad” business into “good business”
Forms of Reinsurance
PROPORTIONAL
Quota Share Reinsurer covers the same percent on each risk Surplus Share Reinsurer’s share based on type or size of risk
EXCESS OR NON-PROPORTIONAL
Excess Each Risk/ Excess Each Per Risk Occurrence (Catastrophe) Aggregate Excess (Stop Loss)
Per Risk Excess of Loss Reinsurer covers excess of a predetermined amount; limits apply separately to each loss
Reinsurer covers Reinsurer over a covers over a predetermined predetermined aggregate limit amount or limit of loss or loss ratio for a for all losses specific arising out of period of one event or time occurrence Per Risk Aggregate Excess of Loss Reinsurer covers over aggregate claims for a risk in a specified period of time
FORMS OF REINSURANCE
• PROPORTIONAL (OR PRO-RATA)
– PAY PREMIUM ON A SHARE BASIS – COLLECT LOSSES ON SAME SHARE
• EXCESS OF LOSS
– PAY PREMIUM ON NEGOTIATED PRICE – COLLECT LOSSES ONLY WHEN RETENTION IS EXCEDED.
The Forms of Reinsurance
• Pro-Rata or Proportional:
– Reinsurer receives a percentage share of premium and pays that same percent of each loss. – Reinsurer pays cedent a Commission to Reimburse for Expenses • Can be Flat Percentage • Can Include Profit Commission • Can be “Swing-Rated”
The Forms of Reinsurance
• Pro-Rata or Proportional (cont.)
– Can be Quota Share or Surplus: – Quota Share • Reinsurer takes same % on each risk.
The Forms of Reinsurance
• Pro-Rata or Proportional (cont.)
– Surplus Share • Reinsurer‟s share varies for each risk based on type and/or size of risk. • Whatever that percentage share is, reinsurer receives same percent of premium and losses.
The Forms of Reinsurance
• EXCESS OR NON-PROPORTIONAL: – Per Risk (property), Per Occurrence (casualty) or Claims Made – Per Occurrence: Catastrophe
The Forms of Reinsurance
• Per Risk or Occurrence Excess – Responds to Losses Excess of a Predetermined Retention – No Proportional Sharing of Premium or Loss – Premium is Negotiated – Normally has Occurrence Limit – Reinstatements are Negotiated
Forms of Reinsurance
• Catastrophe Excess of Loss
– Covers all losses in an event – Occurrence is defined as a geographic area (flood and Riot) or a time period (wind, quake, fire and winter storm) – Usually Limited to two Occurrences • Additional Cover Needed – Sold in Layers – Usually has two risk warranty
Functions of Reinsurance
• Financing
• Stabilization • Capacity
• Catastrophe Protection
• Services
Financing
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is growing and needs additional surplus to maintain acceptable premium to surplus ratios.
• Unearned premium demands reduce surplus. • Marketing considerations dictate that an insurer enter new lines of business or new territories.
Stabilization
Marketing Consideration Policyholders and stockholders like to be identified with a stable and well managed company. Management Consideration Planning for long term growth and development requires a more stable environment than an insurance company‟s book of business is apt to provide.
Capacity
• Refers to an insurer‟s ability to provide a high limit of insurance for a single risk, often a requirement in today‟s market. • Reinsurance can help limit an insurer‟s loss from one risk to a level with which management and shareholders are comfortable.
Catastrophe Protection
• Objective is to limit adverse effects on P&L and surplus from a catastrophic event to a predetermined amount. • Covers multiple smaller losses from numerous policies issued by one primary insurer arising from one event.
Services
1. 2. 3. 4. 5. 6. 7. Claims Audit Underwriting Product Development Actuarial Review Financial Advice Accounting, EDP and other systems Engineering - Loss Prevention
Reinsurance is Provided Through
A. Treaty a. Covers classes or entire “books” of business b. Reinsurer accepts as written by insurer as to form, price and risk B. Facultative a. Single Policy/Risk b. Reinsurer evaluates each risk and establishes or agrees to acceptance, form and price c. Automatic or semi-automatic facilities
Types of Reinsurers 1. Professional Reinsurers
Specialize in Reinsurance Are Licensed in at Least One State Derive Majority of Their Premium Income From Reinsurance
2. Reinsurance Department of Primary Company 3. Pools
Special Purpose General Purpose
Marketing of Reinsurance
1. Broker (Intermediary) Market
• Reinsurance Intermediary
Provides Business for Reinsurers Brings Parties Together - Helps Negotiate Reinsurance Terms Acts as Agent of Ceding Company Compensated by Reinsurer
• Reinsurers Share Reinsurance Programs
Marketing of Reinsurance
2. Direct Writers
• Contact Primary Insurers Directly Through Salaried Employees • Frequently Assume 100% of Reinsurance Program
General Insurance Products
• • • • • • • • • Fire Health Motor Marine Industrial Liability Micro insurance Credit insurance Miscellaneous
– – – – – – – Social Rural Accident and hospitalization Travel Package Business Others
Reinstatement Value Policies
• It is agreed that in the event of the property insured being destroyed or damaged, the basis upon which the amount payable under interest insured (building, content) of the policy is to be calculated shall be the cost of replacing or reinstating on the same site property of the same kind or type but not superior to or more extensive than the insured property when new, subject to the following Special Provision and subject also to the terms and conditions of the policy except insofar as the same may be varied hereby.
Special Provisions
i. The work of replacement or reinstatement must be commenced and carried out with reasonable dispatch and in any case must be completed within 12 months after the destruction or damage or within such further time as the insurer may (during the said 12 months) in writing allow, otherwise no payment beyond the amount which would have been payable under the Policy. Until expenditure has been incurred by the insured in replacing or reinstating the property destroyed or damaged the insurer shall not be liable for any payment in excess of the amount which would have been payable under the policy if this memorandum had not been incorporated therein.
ii.
iii.
If at the time of replacement or reinstatement the sum representing the cost which would have been incurred in replacement or reinstatement if the whole of the property covered had been destroyed exceeds the sum insured thereon at the breaking out of any fire or at the commencement of any destruction of or damage to such property by any other peril insured against by this policy then the Insured shall be considered as being his own insurer for the excess and shall bear a rateable proportion of the loss accordingly. This memorandum shall be without force or effect if (a) The Insured fails to intimate to the Insurer within 6 months from the date of destruction or damage or such further time as the Insurer may in writing allow his intention to replace or reinstate the property destroyed or damaged. (b) The Insured is unable or unwilling to replace or reinstate the property destroyed or damaged on the same or another site.
iv.
Floating Policy
• Insurance cover for situations where the total insurable amount can be reasonably estimated but cannot be determined accurately-enough for computing correct premium, until the insurance policy comes to an end. For example, a trader will take a floating policy on a sum estimated to be large enough to cover shipments during a period (say, one year) and pays premium accordingly. As the shipments are sent out, the insurer is informed and the value of those shipments is deducted from the insured sum. This procedure is repeated until the insured sum is almost exhausted. The insurer then recomputes the premium according to the total value of the alreadysent shipments, and adjusts it against the premium paid by the trader. At this stage the trader takes another floating policy and whole process starts over again.
Distribution system
• Distribution System is the relationship between distribution channels, market segments and also products is very important. • Insurance companies should continuously innovate and integrate the distribution channel, make them be the part of the occupying market and highly promoting the development of their own.
DISTRIBUTION SYSTEM IN INDIAN INSURANCE MARKET
• In present Indian insurance market, the challenge to insurers and intermediaries is twopronged: • Building faith about the company in the mind of the client • Intermediaries being able to build personal credibility with the clients Traditionally tied agents have been the primary channels for insurance distribution in the Indian market
Distribution system in Life insurance
• Need • Law requirements • Beliefs and cultural or religious backgrounds
Agents are necessary for the selling life insurance due to the following reasons: • Insurance is an idea that has to be explained and its usefulness clarified personally • Each prospective buyer has special needs and requires specialized solutions • Personalized guidance can be given only when there is a live interaction with the agent • Significant amount of money is to be set aside immediately and regularly for a long term in future for a benefit, which is vague and far away. • The insurer has to access the risk involved in every proposal for insurance for which the necessary information would include details on personal life styles, habits, family etc. The agent, who gets to meet the proposer closely, is in a position to provide some of this valuable information.
• The distinction of channels in the developed markets are personal distribution systems and direct response systems. • Personal distribution systems include all channels like agencies of different models and brokerages, banc assurance, and work site marketing. • Direct response distribution systems are the method whereby the client purchases the insurance directly. This segment, which utilizes various media such as the Internet, telemarketing, direct mail, call centers, etc., is just beginning to grow.
Multiple distribution channels
• Agents – Age, known people, gender • Banks – creditor insurance, banc assurance • Brokers • Work site marketing • Internet • Invisible insurer
Work site marketing
• This area needs to be tapped, as in any country one of the biggest markets is through the worksite. With changes in human resources management polices and compensation packages, group products or work site products do have a definite market that cannot be ignored. • Here the advantages would be:
– Captive customer base – Potential to sell individual insurance and group insurance – High trust factor – High hit ratio for the intermediaries The challenges would be the cost effectiveness, product customization and efficient post sales servicing, which would determine continued business. Technology has a key role to play in worksite marketing to ensure cost benefits. Banks and financial institutions have been successfully marketing credit cards and other financial products using this channel. If not an identical model a similar approach can be used for selling insurance.
TRENDS IN DISTRIBUTION CHANNELS
• Agency and brokerage systems are common and contribute maximum share of life insurance business in the developing countries. The Japanese life insurance industry depends entirely upon agents. Part-Time agents and lady agents form a good proportion of the agency force. • In European countries, notably France, Holland, Belgium and Spain distribution takes place also through banks. • Direct mailing is becoming increasing popular in developed countries. In a small way, this has started in India. The scope and the experience are being watched.
Differences between public and private sector insurance companies
• • • • • • • Public Sector Companies Identity is well established, but the perception of " poor service providers" is a stigma. Products are not attractive and flexible enough but expensive. To retain their creamy layer clientele who are the most likely to be wooed by the new companies Retain and attract good intermediaries Match the aura created by the new companies in the urban market
• • • • • •
Private Sector Companies Have to build their identity in a market where the public does not distinguish them. Remove the perception that anything that looks good is expensive Work against the people's mindset that they are not here for the long term Attract intermediaries especially agents with the requisite qualifications and attributes who can market the company and the product. Run the risk of tapping an already insured market for repeat insurance instead of tapping new virgin pockets in the market
Insurance Models
• Direct Marketing by the insurance company • Partner-agent model • De-linked model • Service Provider Model
Direct Marketing by the insurance company
• Identification of clients, selling of policies, collection of premium, receipts of claims and settlement of claims etc., all are done by the insurance companies • Outreach to provide insurance to poor through this model has been very limited
Partner-agent model
• Approved intermediary organisations act as insurance agents. • Identify the customers, negotiate with insurance companies about the adequacy of products and premium rates to be paid, collect the premium • Assist in clients in claim processing and settlement
De-linked model
• Community based insurance facility where NGO/MFI or federation of the groups act as insurer • Coverage of risk remains with the insurer • Sum insured, design and pricing of products, adverse selection, collection, claim verification and settlement data collection and maintenance, assessing client satisfaction etc are undertaken internally by the insurer
Service Provider Model
NGOs generally provide basic health care facilities to the rural population since necessary amenities were simply not present in their area of operation. Instead of premium, the service providers charge a membership fees to partly cover their costs
Challenges in Insurance Penetration
Designing of products suiting the rural market Using the right distribution channel mix to reach the potential customer Intermediaries being able to build personal credibility with the clients
Distribution Channels
• • • • • • • Agents Formal Banks Regional Rural Banks Cooperative Banks NGOs & MFIs Post Offices Internet & Rural Kiosks & Rural Knowledge Centers
Agents
• Prime channel for insurance distribution in urban areas • Trust of the company & customer must • Knowledge of different products • Postman,School teacher, shopkeeper, gram sevikas, gram sahayaks • Training & educating poses a challenge • Not an optimum channel as 42 % of 600,000 villages have population of less than 500
Formal Banks
• 27 PSBs have19, 104 rural branches and 30 Pvt.SBs 1,111 • Private banks are constrained by their lack of reach and meager branch strength • Banking sector has shown propensity towards the larger size accounts • Within the foreseeable future they will normally not be able to fully serve that market
Regional Rural Banks
• 177 RRBs together with14,150 branches cover 516 districts and serve a client base of close to 62.70 million • RBI has permitted RRBs to undertake insurance business as corporate agent without risk participation • Chitradurga Gramin Bank has -in close cooperation with the NABARD GTZ-Projectintroduced a new deposit scheme called “Rakshith” Savings Bank Scheme in tie up with LIC and UIICo. Ltd
NGOs and MFIs
• Large number of NGOs and MFIs are involved in social as well as financial services intermediation • Out of 61 sample MFIs studied by Sa-Dhan 34 were providing insurance services • While all 34 MFIs provided life insurance products, only 9 facilitated non life insurance products • The most significant range in amount of cover was in the category of Rs.10,000 and above
Challenges faced by NGO & MFIs
• Many of them are working as pure service provider particularly in health insurance, private insurer, intermediary • Poor live for the present and do not plan for the future. Given their fatalistic attitude, it is difficult to explain the concept of insurance to poor • Given this mindset, premium is seen as additional expenditure rather than risk cover • Without the availability of basic health infrastructure in rural areas, health insurance is difficult to sell
Challenges faced by NGO & MFIs
• Cooperation with the insurance company has not proved successful. Limited motivation on both sides to improve the cooperation • Delays in settling claims and complicated formalities • Challenge to pick up the necessary insurance techniques and adjust them to the needs of their members • No legal status as a private insurer. This complicates the matter further when it comes to reinsurance
Post Offices
• There are about 129,000 rural post offices. • Post Office itself is offering insurance products to the poor • Its efficacy as an intermediary channel needs to be explored
Internet, Rural kiosks & Knowledge Centers
• Using net for transactions has been catching up in urban areas. Many banks provide online banking • Most of the insurance companies have product information and/or illustrative tools on the web • In rural areas too rural knowledge centers are being set up to bring information close to the people. The insurance companies can use these centers to create awareness about insurance • Can only be enablers for the human channels
Appointment of agent
• • • Eligibility Life Insurance Corporation of India has eligibility requirements. You should be at least 18 years of age or above and the 12th standard pass. If you are an eligible candidate, try to locate a local branch office of LIC and schedule an appointment with the Development Officer. An interview will be conducted by the branch manager of LIC to determine if you can qualify to undergo training. The training will be conducted by the Divisional/Agency Training Center. The said training is conducted until the 100 hours is complete and it will cover the different aspects of life insurance and the business. Once you‟ve completed the training, you will be allowed to take the pre-licensing exam by IRDA (Insurance Regulatory and Development Authority). IRDA will give you a license if you pass the exam and you can now become an insurance agent. The branch office of LIC where you applied will already absorb you into their team of insurance agents. An LIC agent should be ambitious, outgoing, can handle different personalities, and treat clients as bosses. You are free to decide on your working hours so you can pick the most convenient time to work. The good thing about becoming an LIC agent is that you have a chance to earn unlimited income. LIC will provide the needed support which includes advertising, first-rate training, and in-house consultant.
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REMUNERATION TO AGENTS
• Persons appointed by an insurer may be remuneration in any of the following ways:
– Payment of fixed monthly salary – Payment of commission related to the business done – Part payment of fixed salary and part payment of commission based on business done.
• Commission to agents is specified as a percentage of premiums paid. This percentage may vary between different plans of insurance. It may also vary from year to year, high in first year and lower in subsequent years. • Commission may be paid right through the term of the policy or may be paid only for a fixed number of years. • In India, provisions exist whereby agents who have performed certain qualifying levels of business during 10 years of the agency are entitled to receive commission for the rest of their lives under certain conditions. • Commission is also payable to the heirs after the agent‟s death. • Bonus commission is also payable on the first year premium as an incentive for higher performance. This is a percentage of the eligible first year commission increases.
• Agents of the LIC are entitled to term insurance and gratuity benefits. The amount of term insurance is linked to the average annual commission (renewal) earned in the three agency years preceding his death. The following other conditions also have to be fulfilled:
– The agent should not have completed 50 years on the date of appointment as an agent. – The death must take place before he has completed 60 years of service – He must have an insurance policy on his own life for at least Rs.5000 SA and the policy must have been in force at the time of his death. – He must have completed at least 3 years as an agent at the time of his death.
• An agent will be eligible for gratuity if he has worked continuously for 15 years or more and his agency is not terminated due to fraud, conviction on a charge of criminal misappropriation, criminal breach of trust, cheating or forgery, acting against the interests of the insurer, offering rebate or giving false information in the agency application form with a view to defraud the insurer. • The amount of gratuity is related to the renewal commission earned in the last 15 qualifying years preceding the date of claiming gratuity. 180th part of the aggregate of the qualifying year renewal commission is the eligible rate. • Gratuity is admissible at the eligible rate for each qualifying year for the first fifteen qualifying years and at half the eligible rate for the subsequent ten qualifying years subject to a maximum. Gratuity is paid only once in the agency career.
• Functions Of The Insurance Agent: • Life insurances agent has the unique role of such a person, who enjoys the trust of two parties - the prospect and the insurer simultaneously in the same transaction. • To simplify, functions of a life insurance agent could be divided into two parts, viz. 'Pre-sale functions'; • 'Post-sale functions'
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Function Before Sales: Contact prospects Study their insurance needs Completion of formalities for proposal of new insurance viz, Filling of form Arranging for Medical Examination Collection proofs of age and income Any other information required by the underwriters
• Function After Sales: • Ensure payment of renewal premiums. • Assist policyholder for nomination / or change thereof. • Assist the policyholder in case he wants to get loan against the policy assignment. • Assist the policyholder or the claimant to comply with the requirement for getting timely settlement of claims.
Plans of life insurance
• Life insurance products are usually referred to as „plans‟ of insurance. • These plans have two basic elements. One is „death cover‟ or „risk over‟, which provides for the benefit being paid on the death of the insured person within a specified period. • The other is the „survival benefit‟, which provides for the benefit being paid on survival of a specified period.
Understanding the Needs Levels
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Every possible adverse consequence that requires to be taken care of constitutes a need for insurance. The needs of people for life insurance can be classified as under: Stage 1 Family: Protection of the interests of the family against loss of income resulted because of the death of the bread-winner. Stage 2 Children: Provision for higher education, marriages, Start-in life. Stage 3 Old age: Post- retirement income for self and family/dependants. Stage 4 Special Needs: Disability, accidents, expenses for treatment of diseases. Loss of income as a result of sickness. Stage 5Avoiding the loss of wealth (assets) due to depreciation or inflation. Generally, all these needs exist simultaneously, but not in the same measures, for all persons. The variations between people will depend on the ages, size of families and dependants and the nature of other properties and incomes. Insurance plans of various kinds are designed to meet these one plan alone may not meet all the needs. All the needs can be met through a judicious mix of plans.
Basic elements of plans
• A plan of assurance will have the following features. By making changes in these features or adding and combining some of them, any number of plans can be developed. • Who can be insured? The various possibilities are (i) individual adults (ii) children (minors) (iii) two or more persons jointly under one policy. • What can be the SA? Some plans stipulate a minimum SA. There are maximum limits also for certain benefits, like accident benefits. • In what contingency would the SA be payable? Could be on death or on survival. • When would the SA be payable? On the contingency happening or some other dates. • How would the SA be payable? Could be in one lump sum of in installments. • What would be the term (duration) of the policy? This determines the period during which the specified event should occur for the SA to be payable. Some plans provide for benefits even beyond the term.
• When would the premium be payable? Variations are in the frequency of payment (monthly), quarterly, halfyearly or yearly), as well as the period during which it is payable. Some plans provide for premiums to be paid for a period less than the term. • Does the SA increase? This can happen because of participation in surpluses and bonus additions or because of guaranteed increases in S.A. • Does the SA reduce? This can also happen, if the plan is to meet reducing liabilities under a mortgage. • Are there additional benefits? These, also called supplementary benefits, may be provided by way of riders, in addition to the basic covers.
Whole Life Assurance
• • • • Ordinary whole life policy Limited Payment Whole Life Policy Single Premium Whole Life Policy Convertible whole Life Assurance Policy
Endowment Assurance
• Advantages :
– Compulsory savings – Old Age Provision – Accumulation of Fund Types of Endowment Policies – Ordinary Endowment Policy – Double Endowment – Pure Endowment Policy – Anticipated Endowment of Money back Policy – Triple Benefit Endowment Policy – Marriage Endowment Policy – Educational Endowment Policy
Other Life Insurance Plans
• • • • • • • Money Back Policy Family Income Assurance Limited payment plans Participating Plans Convertible Plans Joint Life Policies Children’s Plan – deferment period, deferment date, risk cover, vesting • Variable Insurance Plans • Plans covering handicapped
Policy Rider
• A rider is a clause or condition that is added on to a basic policy providing an additional benefit, at the choice of the proposer. • For example, a provision that in the event of death of the life assured by accident, the SA would be double can be a rider on an Endowment policy. This rider can be added on to a policy under any plan. The option to participate in valuation surplus can also be offered as a rider. • Insurers find it convenient to have a small number of basic, plans, with riders being offered as options, so that effectively the prospect has a number of options, to choose from each plan can be taken with any one or more of the riders.
• Some of the riders being offered by insurers in India are mentioned below:
– Increased death benefit, being twice or even more the survival benefit. – Accident benefits allowing double the SA if death happens due to accident. – Permanent disability benefits, covering loss of limbs, eyesight, hearing, speech, etc. – Premium waives which would be useful in the case of children‟s assurance, if the parent dies before vesting date or in the case of permanent disability and sickness. – Dreaded disease cover, providing additional payments (in or in installments), if the life insured requires medical attention because of specified conditions like cancer, cardiac or cardiovascular surgeries, stroke, kidney failure, major organ transplants, major burns, total blindness caused by illness or accident, etc. – Guaranteed increase in cover at specified periods or annually. – Cover to continue beyond maturity age for same SA or higher SA. – Option to increase cover within specified limits or dates.
• As per the regulations made by the IRDA in April 2002 and amended in October 2002. • The premium on all the riders relating to health or critical illnesses shall not exceed 100% of the basic premium of the main policy. • And the premium on all the other riders put together should not exceed 30% of the basic premium. • This virtually puts a limit n the number of riders that can be offered with any policy. It is possible that this limit of 30% may be changed from time to time.
ANNUITIES
• Annuity may be defined as the payment of amounts periodically during the life time of the annuitant in consideration of the payment of an agreed sum to insurance company”. • The Annuity is called the “up-side-down application of the life insurance principle”. When a person purchases a life insurance contract he agrees to make a series of payment (premiums) to the insurer in return for which the insurer agrees to pay a specified sum to the beneficiaries, in case of death of the life assured. • When a person buys an annuity contract, he pays the insurer a specified capital sum, may be in installments, in return for a promise from the insurer to make a series of payments to him as long as he lives.
Difference between Annuity and Insurance
• Insurance is a pooling arrangement whereby a group of individuals make contributions that the dependents of the unfortunate few, who die each year, may be indemnified for the loss of the bread winner‟s income. On the other hand, Annuity is pooling arrangements whereby those who die prematurely and do not need further cover make a contribution so that those who live beyond their expectancy may receive more income from their contribution alone would provide. Life insurance policy protects against the absence of income in the event of premature death or disability, whereas the annuity (policy) protects against the absence of income on the part of those affected with undue longevity. These two are extreme forms that assume protection to two unfortunate groups. “One dying too soon and the other living too long.”
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CLASSIFICATION OF ANNUITIES
• A. By Commencement of Income:
– Immediate Annuity. – Annuity Due. – Deferred Annuity.
• B. By Number of Lives Covered:
– Single Life Annuity. – Multiple Life Annuity.-Joint Life Annuity ; Last Survivor Annuity
• C. By Mode of Payment of Premium:
– Level Premium Annuities. – Single Premium Annuities.
• D. By Disposition of Proceeds:
– Life Annuity. – Guaranteed Premium Annuity.
• Group Insurance is a plan of insurance that provides cover to a large number of individuals under a single policy called the “master policy”. Group insurance schemes are used by the Government, as instruments of social welfare. • Group Gratuity Schemes are related to gratuity payments. Gratuity is paid to employees who retire or die and also to those who resign, after having put in specified periods of minimum service, usually 15 years. • The Group Superannuation Scheme is offered to employers in order to facilitate the funding and disbursement of pensions. Pensions are payable to employees who retire from service on attaining the age of superannuation or retirement.
REINSURANCE
• “Reinsurance is a contract of insurance whereby one insurer (called the reinsurer or assuming company) agrees, for a portion of the premium, to indemnify another insurer (called the reinsured or ceding company) for losses paid by the latter under insurance policies issued to its policyholders.”
TRANSFERRING RISK INSURANCE
RISK
Policyholder Insurance Co.
- Insured
- Underlying Insured
- Insurer
TRANSFERRING RISK
REINSURANCE
Risk
• Insurance Co. - Ceding Co. - Cedent - Primary Insurer
– Direct Company
Reinsurer -Assuming Co.
ELEMENTS OF REINSURANCE
• Reinsurance is a form of Insurance. • There are only two parties to the reinsurance contract - the Reinsurer and the Reinsured - both of whom are empowered to insure.
ELEMENTS OF REINSURANCE
(continued) • The subject matter of a reinsurance contract is the insurance liability the Reinsured has assumed under insurance policies issued to its own policyholders. • A reinsurance contract is an indemnity contract.
What Reinsurance Does
• It redistributes the risk of loss which a reinsured incurs under the policies it issues according to its own needs. • It redistributes the premiums received by the reinsured according to its own needs.
What Reinsurance Does Not Do!
• Convert an uninsurable risk into an insurable one. • Make loss either more or less likely to happen • Make loss either greater or lesser in magnitude • Convert “bad” business into “good business”
Forms of Reinsurance
PROPORTIONAL
Quota Share Reinsurer covers the same percent on each risk Surplus Share Reinsurer’s share based on type or size of risk
EXCESS OR NON-PROPORTIONAL
Excess Each Risk/ Excess Each Per Risk Occurrence (Catastrophe) Aggregate Excess (Stop Loss)
Per Risk Excess of Loss Reinsurer covers excess of a predetermined amount; limits apply separately to each loss
Reinsurer covers Reinsurer over a covers over a predetermined predetermined aggregate limit amount or limit of loss or loss ratio for a for all losses specific arising out of period of one event or time occurrence Per Risk Aggregate Excess of Loss Reinsurer covers over aggregate claims for a risk in a specified period of time
FORMS OF REINSURANCE
• PROPORTIONAL (OR PRO-RATA)
– PAY PREMIUM ON A SHARE BASIS – COLLECT LOSSES ON SAME SHARE
• EXCESS OF LOSS
– PAY PREMIUM ON NEGOTIATED PRICE – COLLECT LOSSES ONLY WHEN RETENTION IS EXCEDED.
The Forms of Reinsurance
• Pro-Rata or Proportional:
– Reinsurer receives a percentage share of premium and pays that same percent of each loss. – Reinsurer pays cedent a Commission to Reimburse for Expenses • Can be Flat Percentage • Can Include Profit Commission • Can be “Swing-Rated”
The Forms of Reinsurance
• Pro-Rata or Proportional (cont.)
– Can be Quota Share or Surplus: – Quota Share • Reinsurer takes same % on each risk.
The Forms of Reinsurance
• Pro-Rata or Proportional (cont.)
– Surplus Share • Reinsurer‟s share varies for each risk based on type and/or size of risk. • Whatever that percentage share is, reinsurer receives same percent of premium and losses.
The Forms of Reinsurance
• EXCESS OR NON-PROPORTIONAL: – Per Risk (property), Per Occurrence (casualty) or Claims Made – Per Occurrence: Catastrophe
The Forms of Reinsurance
• Per Risk or Occurrence Excess – Responds to Losses Excess of a Predetermined Retention – No Proportional Sharing of Premium or Loss – Premium is Negotiated – Normally has Occurrence Limit – Reinstatements are Negotiated
Forms of Reinsurance
• Catastrophe Excess of Loss
– Covers all losses in an event – Occurrence is defined as a geographic area (flood and Riot) or a time period (wind, quake, fire and winter storm) – Usually Limited to two Occurrences • Additional Cover Needed – Sold in Layers – Usually has two risk warranty
Functions of Reinsurance
• Financing
• Stabilization • Capacity
• Catastrophe Protection
• Services
Financing
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is growing and needs additional surplus to maintain acceptable premium to surplus ratios.
• Unearned premium demands reduce surplus. • Marketing considerations dictate that an insurer enter new lines of business or new territories.
Stabilization
Marketing Consideration Policyholders and stockholders like to be identified with a stable and well managed company. Management Consideration Planning for long term growth and development requires a more stable environment than an insurance company‟s book of business is apt to provide.
Capacity
• Refers to an insurer‟s ability to provide a high limit of insurance for a single risk, often a requirement in today‟s market. • Reinsurance can help limit an insurer‟s loss from one risk to a level with which management and shareholders are comfortable.
Catastrophe Protection
• Objective is to limit adverse effects on P&L and surplus from a catastrophic event to a predetermined amount. • Covers multiple smaller losses from numerous policies issued by one primary insurer arising from one event.
Services
1. 2. 3. 4. 5. 6. 7. Claims Audit Underwriting Product Development Actuarial Review Financial Advice Accounting, EDP and other systems Engineering - Loss Prevention
Reinsurance is Provided Through
A. Treaty a. Covers classes or entire “books” of business b. Reinsurer accepts as written by insurer as to form, price and risk B. Facultative a. Single Policy/Risk b. Reinsurer evaluates each risk and establishes or agrees to acceptance, form and price c. Automatic or semi-automatic facilities
Types of Reinsurers 1. Professional Reinsurers
Specialize in Reinsurance Are Licensed in at Least One State Derive Majority of Their Premium Income From Reinsurance
2. Reinsurance Department of Primary Company 3. Pools
Special Purpose General Purpose
Marketing of Reinsurance
1. Broker (Intermediary) Market
• Reinsurance Intermediary
Provides Business for Reinsurers Brings Parties Together - Helps Negotiate Reinsurance Terms Acts as Agent of Ceding Company Compensated by Reinsurer
• Reinsurers Share Reinsurance Programs
Marketing of Reinsurance
2. Direct Writers
• Contact Primary Insurers Directly Through Salaried Employees • Frequently Assume 100% of Reinsurance Program
General Insurance Products
• • • • • • • • • Fire Health Motor Marine Industrial Liability Micro insurance Credit insurance Miscellaneous
– – – – – – – Social Rural Accident and hospitalization Travel Package Business Others
Reinstatement Value Policies
• It is agreed that in the event of the property insured being destroyed or damaged, the basis upon which the amount payable under interest insured (building, content) of the policy is to be calculated shall be the cost of replacing or reinstating on the same site property of the same kind or type but not superior to or more extensive than the insured property when new, subject to the following Special Provision and subject also to the terms and conditions of the policy except insofar as the same may be varied hereby.
Special Provisions
i. The work of replacement or reinstatement must be commenced and carried out with reasonable dispatch and in any case must be completed within 12 months after the destruction or damage or within such further time as the insurer may (during the said 12 months) in writing allow, otherwise no payment beyond the amount which would have been payable under the Policy. Until expenditure has been incurred by the insured in replacing or reinstating the property destroyed or damaged the insurer shall not be liable for any payment in excess of the amount which would have been payable under the policy if this memorandum had not been incorporated therein.
ii.
iii.
If at the time of replacement or reinstatement the sum representing the cost which would have been incurred in replacement or reinstatement if the whole of the property covered had been destroyed exceeds the sum insured thereon at the breaking out of any fire or at the commencement of any destruction of or damage to such property by any other peril insured against by this policy then the Insured shall be considered as being his own insurer for the excess and shall bear a rateable proportion of the loss accordingly. This memorandum shall be without force or effect if (a) The Insured fails to intimate to the Insurer within 6 months from the date of destruction or damage or such further time as the Insurer may in writing allow his intention to replace or reinstate the property destroyed or damaged. (b) The Insured is unable or unwilling to replace or reinstate the property destroyed or damaged on the same or another site.
iv.
Floating Policy
• Insurance cover for situations where the total insurable amount can be reasonably estimated but cannot be determined accurately-enough for computing correct premium, until the insurance policy comes to an end. For example, a trader will take a floating policy on a sum estimated to be large enough to cover shipments during a period (say, one year) and pays premium accordingly. As the shipments are sent out, the insurer is informed and the value of those shipments is deducted from the insured sum. This procedure is repeated until the insured sum is almost exhausted. The insurer then recomputes the premium according to the total value of the alreadysent shipments, and adjusts it against the premium paid by the trader. At this stage the trader takes another floating policy and whole process starts over again.
