Classification of Insurance Business

8/13/2019 Classification of Insurance Business

1/67

Classification of Insurance

BusinessShreenivasan K A

APSoM - SASTRA


2/67

Introduction

InsuranceBusiness

LongTerm LifeInsurance

Short

Term

General

Insurance


3/67

Long Term Life Assurance

Includes

Ordinary Life Insurance

Annunities

Industrial Life

Insured Pensions &

Permanent Health Cover


4/67

Short Term Insurance

Includes

General Insurance including

Fire

Business Interpretaion MarineCargo and Hull

AviationCargo and Hull

Engineering

Liability

including employers, Public, Product &

Profession Liability


5/67


6/67

Alternative Classification of

General Insurancea) Property Insurances

a) Fire,

b) Theft,

c) Engineering andd) Miscellaneous accident

b) Motor Insurances

c) Liability Insurancesa) Employersb) Public

c) Product

d) Professional


7/67

Alternative Classification of

General Insuranced) Pecuniary Insurances

a) Fidelity Guarantee

b) Credit Insurance

e) Personal Accident and Healthinsurances

f) Interruption insurances

a) Arising out of fire &b) Engineering risks


8/67

Personal & Commercial

Business Insurance Personal InsuranceCaters to the

needs of individuals and Families

Life insurance & Annuities

Pensions Permanent Health

Commercial InsuranceCaters to the

needs of the Business Fire

Marine

Other Insurances


9/67

Voluntary & Compulsory

Insurance Voluntary InsuranceLeft with the

option of the individual, firm or body

corporate.

Compulsory Insurance Motor Vehicles Act, 1988

Workmens Compensation Act,

Factories Act, 1948 Public liability Insurance Act. 1991


10/67

Social Insurance

From the goodness of Nation

National health and unemployment

Scheme

Pension fund protection etc.


11/67

Classification of General Insurance

business

The three broad classifications specified in theIndian Insurance Act, 1938, and adopted by theIndian insurance industry are [a] Fire Insurance,

[b] Marine Insurance and

[c] Miscellaneous Insurance.

Laws of other countries have different and longerlists of classes, for example, in the UK law; there isa list of 18 classes.

These actually are derived by subdividing the three

major class listed above.


12/67

Fire Insurance

The standard fire policy covers damages to the property caused byfire, lightening or explosion, where this explosion is brought about bygas or boilers not used for any industrial purpose. This is limited inscope as property can be damaged in other ways, and to meet thisneed, a number of extraneous perils, can be added on to the basicpolicy.

These perils are:

storm, tempest or flood burst pipes

earthquake

aircraft

riot, civil commotion

malicious damage

explosion

impact


13/67

Marine Insurance

Marine policies relate to three areas of risks, namely, the hull,

the cargo and

freight.

The risks against which these items are normally insured are

collectively termed perils of the sea and include fire, theft,collision and a wide range of other perils.

The word freight used above is the sum paid for transportinggoods or for the hire of a ship. When goods are lost bymarine perils then freight, or part of it, is lost, hence the needfor the cover.


14/67

Marine Cargo

Cargo is usually insured under amarine cargo policy on

a warehouse [of departure] to warehouse

[of arrival] basis and frequently coveringall risks.

Thus, carriage of goods by sea is also

accompanied by transportation ofgoods by land.


15/67

Marine Hull / Liabilities

Marine Hull cover is for damage to the ship due tothe marine perils.

The custom has been to provide insurance for

three quarters of the ship owners liability for

collisions at sea under the marine hull policy. Theremaining quarter and all other forms of liability are

catered to by associations set up for the purpose

by ship-owners, and known as Protection and

Indemnity Clubs [P and I Clubs].


16/67

Miscellaneous Insurance

Miscellaneous insurance is describedin the Insurance Act as any general

insurance business other than fire and

marine insurance business. This residual business covers a wide

range of insurances.


17/67

Motor Insurance

The minimum requirement by law is to provide insurance in respectof legal liability to pay damages arising out of injury caused to anyperson, unlimited in amount and several countries laws also providefor damage to property of other people subject to certain limits andexception. Broadly, there are three types of motor policies:

An Act only policy covers the minimum required by the law.

The third party only policies which cover the insureds liability in respect

to third party injury, death or property damage. A Third party fire and theft policy would additionally cover damage to the

car and its contents from fire or theft.

The comprehensive policy, which provides the widest and morecommon form of covers.

Motor policies are described by the types of vehicles insured.

There are separate policies for private cars, motor cycles, commercialvehicles [taxies, lorries, vans, hire cars and so on], and special types ofvehicles [like forklifts, mobile cranes, etc.]


18/67

Theft Insurance

Theft policy is similar to the standard fire policy in that itprovides reimbursement to the insured in the event of loss ofthe property damaged by theft.

The property to be insured, will be the same as under the firepolicy excepting for the buildings.

The theft policy will show a more detailed definition of thestock.

The commercial policy, known as burglary insurance policyrequires occurrence of force and violence either in breakinginto or out of the premises of the insured.

Theft insurance for individual householder is also available,under a Householders policy, but it normally does not includethe force and violence requirement as in the burglary policy.


19/67

All Risk Insurance

Uncertainty of loss in not restricted to events brought aboutby fire or theft, nor is it limited to events occurring on or aboutthe insureds premises. This realisation led to thedevelopments of a wider form of cover known as all risks.The all risks is unfortunate in the sense that it does notprovide cover against all risks, as there are number of

exceptions, but it is an improvement on the scope of coveravailable. The all risks policy can be taken out onparticularly expensive items such as jewellery, cameras andfur coats, and can also be arranged on unspecified goods fora lump sum. The twin objectives of such policies are toprovide cover for the whole range of accidental loss or

damage and to do so wherever the goods themselveshappen to be at the time of loss.


20/67


21/67

Goods-in-transit

This form of cover providescompensation to the owner of goods,

if the same are damaged or lost while

in transit. This policy may also be taken in

respect of goods sent by post or rail

and may also be effected by thecourier if he carries responsibility for

the safety of the goods being

transported.


22/67

Money Insurance

Money Insurance providesreimbursement to the insured in the

event of money being stolen either

from his business premises, his ownhome or while it is being carried from

or to the bank. It is important to any

business as large sums of money aredrawn from banks to pay the wages.


23/67

Personal Accident

The policy is to provide compensation in the event of an accident causingdeath or injury. What are termed as capital sums are paid in the event ofdeath or certain specified injuries, such as the loss of limbs or sight as maybe defined in the policy. A typical benefit schedule will be as under:

Death 100% of the sum insured

Loss of two hands or legs or eyes 100% of the sum insured

Loss of one hand or leg or eye 50% of the sum insured

Permanent total disablement 50% of the sum insured Permanent partial disablement As per a schedule depending upon the

level of disablement

Temporary total disablement A weekly benefit of 1% of the sum insuredup to a maximum of 104 weeks. Medicalbenefits Reimbursement up to a certainlimit.

Personal accident policies are issued for a maximum period of one year but

may be renewed from year to year.


24/67

Health Insurance

Health insurance provides reimbursement ofhospitalisation, surgical and medical expenses, the

policyholder may have to incurthe

reimbursement being made subject to the limits

provided in the policy, provided it is not for anexcluded disease. Group policies are mostly taken

by employers for the benefit of the employees.

Mediclaim policies are similar policies issued for

the individual families.


25/67

Engineering Insurance

Engineering insurance is intended to provide compensation tothe insured in the event of the machinery and plant insuredagainst being damaged by some extraneous cause or its ownbreak-down.

The cover is independent of fire insurance and is provided bya separate policy. Briefly engineering insurance covers

damage to or breakdown of specific items of plant and machinery;

an inspection service of those items;

cost of repair of those items;

legal liability for injury caused by (a);

legal liability for damage to property of others caused by (a).


26/67

Contractors all risk and Glass Insurance

Contractors all risks The policy provides compensation to the

contractor in the event of there beingdamage to the construction works from a

wide variety of perils.

Glass Insurance Cover is available against accidental

damage of plate glass in windows anddoors. In case of shops this is oftenextended to include damage done to shopwindow contents.


27/67

Liability Insurance

Apart from liability insurance arising

under various branches of motor,

marine and aviation, and engineeringinsurances, there is what is

sometimes termed general liability,

which comprises employers liability,public liability, product liability covers

and professional indemnity insurance.


28/67

Employers liability / Workmens

compensation insurance

When an employer is held legally liable to pay damages to aninjured employee or the dependent of someone who fatally injured,he can claim against his employers liability insurance policy whichwill provide him with the required cover.

The policy is restricted to damages payable in respect of injury anddoes not apply where property of an employee is damaged.

Insurance is compulsory for all employers so that the injured

employee is ensured of compensation in the event of injury in courseof his employment.

In India, Employees State Insurance Scheme has taken over thebulk of the cover so that need for workmens compensationinsurance remains for any worker/employees who are not coveredby the scheme. As such, this type of business, which should haveformed a large portion of an insurance companys liability insurance

portfolio, is limited to only certain residual cover requirements of theemployer.


29/67

Public Liability Insurance

For Individualspersonal liability. Each individual owes aduty to his neighbor or any other person not to cause theminjury or damage to their property. Liability may arise out ofthe ownership of a house, a pet, out of sporting activities or

just in the simple act of crossing the road without looking.

Public liability policies have been designed to providecompensation for those who may have to pay damages andlegal costs for such injuries or for damage of property.

For Business risksEvery business organization is exposedto the risk of incurring legal liability due to its operations. Thepublic may be in contact with the firm in its office or on

various sites where manufacturing process is being carriedon. The policy will indemnify the insured for its liabilities thusincurred.


30/67

Directors and Officers

Liability The directors and officers liability policy will

provide cover for defense costs as well as the

amount of compensation for which a director or an

officer may be liable to pay for his negligence in

operating as a company. Directors are held responsible for the behavior of a

company and in this way, shareholders, creditors,

customers, employees and other can take action

against directors as individuals.


31/67

Products Liability Insurance

An exception on most business liability policies isone relating to liability arising our of defects in

goods sold.

This can be very onerous liability and one that

insurers would prefer to deal with separately. If aperson is injured by any product he purchase, food

stuffs or medicines for example, and can show that

the seller, or in some cases the manufacturer, was

to blame he could succeed in a claim for damages.


32/67

Professional Indemnity

Insurance. Another exception to the basic public liability policyis one relating to liability arising out of professional

negligence or more particularly a genuine error ofjudgment.

This can arise where lawyers, accountants,

doctors, architects, insurance brokers, actuariesand a whole range of professional people do or saythings, which result in other suffering in somesense.

The professional can effect professional liabilityinsurance, often known as professional indemnityinsurance, to meet the cost of an award againsthim.


33/67

Credit Insurance

Traders can sustain heavy losses by reason ofinsolvency or protracted default on the part of thebuyers of their goods, and credit insurance canafford them the necessary protection.

In overseas trade it may be impossible forcustomers to pay for the goods because of theoutbreak of war or government restrictions onremittance, and this so-called political risk can becovered together with the ordinary insolvency riskunder Export Credit Guarantee Insurance Scheme.


34/67

Fidelity Guarantee

This is another theft cover, which provides compensation to the employer inthe event of fraudulent theft of money by the employees from the business.

This class of Business provides insurance against loss by reason ofdishonesty of persons holding position of trust, which for some guaranteesthe protection goes dishonesty to cover loss caused by mistake, as, forinstance, where a liquidator mal-administers the affairs of a company beingwound-up, by making a mistake in law. The main divisions are as follows:

Commercial Guarantees

Local Government Bonds:

Court Bonds

Government Bonds

Insurance Rent


35/67

Interruption Insurance

This form of insurance was originally called time loss, thenloss of profits, or consequential loss, and now, interruptioninsurance. These losses come about because:

Certain overheads will remain at their full level even though salesare reduced;

Net profits will be reduced

There may be certain increases in cost incurred to keep thebusiness going in a temporary manner.

The most common interruption policies are those which coverloses arising from:

Fire and special perils

Engineering and machinery breakdown risks;

Computer damage and break down risk


36/67

Legal expense Insurance

Cover is available to privateindividuals and organizations, both of

whom now face an ever-increasing

possibility of legal action. Legal expenses insurance provides a

very useful cover in the light of

escalating costs of legal action.


37/67

Livestock insurance

Insurance of cattle and horses arequite common where the insurance

policies provide cover against

mortality risks arising out of diseasesor accident.

Cattle insurance forms an important

part of rural insurances in India. Horse insurance refers mainly to

racing horses which are often very

highly valued.


38/67

Miscellaneous insurance

Whenever there is demand for aparticular cover and the criteria forinsurable risks have been met, theindustry will usually provide the coversnecessary.

For example, weather [rain andsunshine deficiency or an event, say,

a sports event, being washed out dueto rain], twins or multiple births, loss oflicense, kidnap and ransom, key-maninsurance and strikes.


39/67

Space risks

One modern development is the provision ofinsurance to those involved with satellites. Eversince the first SputnikI was launched in October1957, it was inevitable that the commercial use ofspace satellites would eventually follow.

These satellites are now used for a wide range oftelecommunications purposes. A number of riskscan now be covered in the marine market, the mainones being material damage, during testing orlaunch as well as while in orbit, and loss ofrevenue.


40/67

Combined and Comprehensive Policies

Many of the forms of cover already dealt with bothunder life and general insurance are required bythe same individual or business. A householderwho owns and occupies his own house will requirefire, special perils, loss of rent, additional living

costs if the house is damaged, theft, glass, moneyand liability insurances. Motor car insurance mayalso be included. The industrial purchaser mayrequire the same with the possible addition ofgoods-in transit, engineering, fidelity, credit and

interruption insurance.


41/67

Advantages of Comprehensive policies

The advantages of combining various forms ofinsurance into one policy are:

less costly from administrative point of view and as such, a

discount in premium payable would be possible;

Only one premium and one renewal date to worry about;

Less change of overlooking any cover;

Easier to market as product rather than several

independent policies.


42/67

Group Policies

Life assurance or annuity cover may be granted to a group ofpeople, for example, employees of a company or members ofan association. Actually, the cover is separately on eachmember of the group but for the sake of convenience onlyone master policy is issued. The insurer finds it convenientand less expensive to issue one policy and hence is able to

grant discount on the standard rates depending on thenumber of persons to be covered. Further, the insurer mayminimize the underwriting requirements for a group policydepending upon the number of members, type of cover andthe average age of the members to be covered.


43/67


44/67

Historical Classification of life

insurance Historically, however, life insurance

benefit patterns have fit into one or a

combination of three classes:

Term life insurance Whole life insurance

Endowment insurance


45/67

Term Assurance Plans - Nature

Protection for a limited number ofyears.

It terminates with no maturity value.

The policy is payable only if theinsureds death occurs during the

stipulated term.

Nothing is paid in case of survival. Issued for a short period but

customarily provides protection for at

least a set number of years, such as


46/67

Term Assurance Plans

Nature Initial premium rates are low

compared to other life products

because the period of protection is

limited. Term lapse rates are higher than other

policies because these are price

sensitive, easily replaceable and onlya few penalties for early termination.

T A Pl


47/67

Term Assurance Plans -

Features Renewability

continuation of the policy for another term without

reference to insureds insurability; premiums increase at

each interval.

Convertibility is an option to change over to a cash value policy [whole

life or endowment] without reference to insureds

insurability; conversion allowed on attained age method

or on original age method.

Re-entry is the facility to pay lower premium than otherwise if

insureds can demonstrate that they meet certain

continuing insurability conditions.

T A Pl


48/67


Features . Insurers use three types of mortality tables.

1. Select [mortality experience of newly insured

lives - generally exhibit lower mortality],

2. Ultimate [mortality experience beyond the

select yearsgenerally it exhibits highermortality], and

3. Aggregate [includes both select and ultimate]

mortality tables.

Traditional term premiums are based onaggregate mortality experience

Reentry term premiums are based on select

/ mortality split.

U d Li it ti f T


49/67

Uses and Limitations of Term

Insurance Can be useful for persons with low income and

high insurance needs.

To individuals at the threshold of careers or who

started new businesses.

To indemnify businesses on the death of keyemployees.

Supplement to an existing life insurance program

during the child rearing period.

Can be useful as a hedge against financial lossalready sustained.

For ensuring that the mortgage and other loans are

paid on the debtor/insureds death.

Vehicle for ensuring juvenile education in the case


50/67

Wh l lif d t


51/67

Whole life as endowment or

term insurance Terminal age in all mortality tables

100 years. The company pays the

policy face amount to those few

persons who live to the terminal ageas if they had died.

It is also referred as endowment at

age 100 policies.Actuarial principles same as term

insurance. Hence also called Term

toage100.


52/67

Whole life cash values

All whole life policies involve some prefunding of future mortality costs.

Cash values are available to the policy

owner at anytime by surrendering the

policy.

Loans can be obtained on interest. [ up to

the policys cash value]

Loan is deducted from the gross cash valuewhen death claim is payable.

Policy loan may, but need not, be repaid at

any time and is a source of policy flexibility.

With fit d ith t fit


53/67

With profit and without profit

whole life policies Most whole life insurance policies are

participating.

A significant proportion is non-participating,

but with some non-guaranteed element.

Dividends actually paid may exceed

illustrated dividends when investment

returns are high.

In India it is known as with and without profitpolicies.

T f h l lif i


54/67

Types of whole life insurance

policies

1. Ordinary life insurance2. Limited payment whole life insurance

3. Current assumption whole life insurance

4. Variable life insurance5. Modified life insurance

6. Enhanced ordinary life insurance

7.Graded premium whole life insurance

8. Single premium whole life insurance

9. Indexed whole life insurance

10. Special purpose life insurance

E d t I


55/67

Endowment Insurance

Concept 1. Mathematical concept Endowment Insurance = Term life

insurance + pure endowment [to pay

the face amount if the insured diesduring the period + to pay the maturity

amount only if the insured is living at

the end of a specific period, withnothing paid in case of prior death]


56/67

2. Economic concept Divides endowment insurance into two

parts:

a) Decreasing term insurance

b) Increasing savings

The savings part of the contract is available

to the policy owner through surrender of the

policy. The increasing savings feature is

supplemented by decreasing term

insurance, which, when added to the

savin s accumulation, e uals the olic s

ENDOWMENT POLICY


57/67

ENDOWMENT POLICY -

FEATURES It promise protection from risk in the event of death

of the insured during the policy term as well as an

assured sum upon the maturity of the policy.

The maturity of the policy is usually chosen to

coincide with the retirement of the person. These are issued for specific terms chosen by the

proposer who can choose the duration of the policy

which may be 10, 15, 20 or 30 years. Where the

duration is short the premium involved is higher. It is to be noted that whether the assured meets a

premature death or not the full amount of the policy

has to be paid by the insurance company provided

the premiums have been paid as stipulated in the

policy.

ENDOWMENT POLICY


58/67

The endowment amount at the end of the term canbe used to

- Purchase an annuity policy for getting a stream of

monthly pension for the rest of his life.

- For parking the money in some investment to generate

returns.

These policies are eligible for loans within the

surrender value of the policy.

If a person wants to meet expenditure like his

childrens education and marriage, he can go forthis plan since he is entitled to the proceeds under

the plan on maturity of the policy. The term can be

selected to suit these contingencies.

ENDOWMENT POLICY

FEATURES.


59/67

Types of endowment policies

Single premium endowment policies Retirement income policythe amount payable at

death is the face amount or cash value, which ever

is greater.

A semi endowment policypays upon survival. Modified endowment policyprovides for payment

periodically.

Deposit termfirst year premiums were set to be

higher than renewal premiums. Juvenile endowment policiesdesigned to cover

childs education, marriage, and independence.


60/67

Optional benefits and riders

1. Disability benefits A common practice is to attach riders that provide certain

benefits in the event of the insureds disability. The two most

common disability benefits are

l waiver of premium

l disability income

2. Accelerated death benefits This provision involves the payment of all or a portion of a life

insurance policys face amount prior to the insureds death

because of some specified, adverse medical condition of the

insured. It typically takes one of the three forms.

l terminal illness coverage

l catastrophic illness coverage

l Long-term care coverage.


61/67

3. Accidental death benefit [double indemnity] This provision may be added to most life insurance contracts,

which provides that double of the face amount is payable if the

insured dies as a result of an accident. The expression accidental

insists that both the cause and result of the death must be

accidental.

4. Guaranteed insurability option It was developed to permit young individuals to be certain that they

would be able to purchase additional insurance, as they grew

older, regardless of their insurability.

5. Cost of living rider [COLA] This rider can be useful when ones needs for insurance are

expected to change over time in approximately the same

proportion as changes in the cost of living.

6. Additional insurance coverage Attaching term riders to basic policies enhance the total death

benefit.

Optional benefits and riders


62/67

Available Life Insurance plans in the Indian Market

- Life Insurance Corporation of India

I. Basic Life Insurance Plans 1. Whole life Assurance (Table Nos. 2, 5 &

8)

2. LICs Jeevan Tarang (Table No. 178) 3. Endowment Assurance (Table No.s 14

& 48)

4. Jeevan Anand (Table No. 149)II.


1. Anmol Jeevan (Table No. 164)

2. Amulya jeevan (Table No. 177)


63/67

Cont

III. Specific Plans for children 1. Children Deferred Endowment

Assurance (Table Nos. 41 & 50)

2. Komal Jeevan (Table No.159) 3. Jeevan Kishore(Table No.102)

4. Jeevan Chhaya (Table No.103)

5. Child future plan (Table No.184)

6. Child career plan (Table No.185)


64/67

Cont

IV. Unit Linked Plans 1. Market Plus (Table No.181)

2. Fortune Plus (Table No.187)

3. Profit Plus (Table No.188)

V. Micro Insurance Plan

1. Jeevan Madhur (Table No.182)

VI. Plans for HandicappedDependants

1. Jeevan Aadhar (Table No. 114)

2. Jeevan Vishwas (Table No.136)


65/67

Cont

VII. Other plans 1. New Jana Raksha (Table No.91)

2. Fixed term (marriage) endowment/educational Annuity. (Table No. 90)

3. Jeevan Anurag (Table No.168)

4. Money Back Plans (Table Nos.75, 93)

5. Jeevan surabhi (Table Nos.106, 107 & 108)

6. LICs Bima Bachat (Table No.175)

7. Jeevan Saathi (Table No. 89)

8. Jeevan Mitra (Table Nos.88 & 133)

9. Jeevan Shree (Table No.162)

10. Jeevan Pramukh (Table No.167)

11. Jeevan Bharathi (Table No.160)

12. Jeevan Saral (Table No.165)

13. Bima Nivesh (Table No.171)

14. New Bima Gold (Table No.179)

15. Jeevan Amrit (Table No.186)

Ref: Date: 12 07 2013


66/67

Ref: Date: 12-07-2013

Updated list - Life Insurers1. Bajaj Allianz Life Insurance Company Limited.2. Birla Sun Life Insurance Co. Ltd

3. HDFC Standard Life Insurance Co. Ltd

4. ICICI Prudential Life Insurance Co. Ltd

5. ING Vysya Life Insurance Company Ltd.

6. Life Insurance Corporation of India

7. Max Life Insurance Co. Ltd

8. PNB Metlife India Insurance Co. Ltd.

9. Kotak Mahindra Old Mutual Life Insurance Limited

10. SBI Life Insurance Co. Ltd

11. Tata AIA Life Insurance Company Limited

12. Reliance Life Insurance Company Limited.


67/67

Life Insurers.

1. Aviva Life Insurance Company India Limited2. Sahara India Life Insurance Co, Ltd.

3. Shriram Life Insurance Co, Ltd.

4. Bharti AXA Life Insurance Company Ltd.

5. Future Generali India Life Insurance Company Limited

6. IDBI Federal Life Insurance Company Ltd.,

7. Canara HSBC Oriental Bank of Commerce Life Insurance

Company Ltd.

8. AEGON Religare Life Insurance Company Limited.

9. DLF Pramerica Life Insurance Co. Ltd.

10. Star Union Dai-ichi Life Insurance Co. Ltd.

11. IndiaFirst Life Insurance Company Limited

12. Edelweiss Tokio Life Insurance Co. Ltd.

Documents

Classification of Insurance Business