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7/29/2019 Fidility Report
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OVERVIEW OF FEDILITY
INSURANCE
SUBMITTED FOR COURCE NUMBER (109)
OF MBA- INSURANCE MANAGEMENT AND
ACTUARIAL SCIENCE 2011-2012
FACULTY OF MANAGEMENT STUDIES
Guided By: Submitted By :
Shivam sing Sir Vipul bhatt
PIM 1nd
Semester
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Content-
Definition
Insurable interest
Scope of cover
Condition
Need
Importance
Types
Claim procedure
Contents of proposal form
Underwriting considerations
Rating
Period of insurance
Extensions
Court bonds & government bonds
Bibliography
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Fidelity guarantee
Definition
An agreement whereby, for a designated sum of money, one
party agrees to guarantee the loyalty and honesty of an agent,
officer, or employee of an employer by promising to compensate
the employer for losses incurred as a result of the disloyalty or
dishonesty of such individuals.
An insurance policy covering employers for any financial losses
they may sustain as a result of the dishonesty of employees.
Policies can be arranged to cover all employees or specific named
persons.
A Fidelity Guarantee as issued by the insurers is a contract of
insurance as also a contract of guarantee to which the general
principles of insurance apply. It does not guarantee the
employees honesty but it guarantees that if the employee suffers
any direct financial loss arising out of the employees dishonesty
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the insurers share indemnify the said loss to the employer within
the limitations prescribed by the contract.
Insurable Interest : The term Fidelity Guarantee Insurance
embraces Policies indemnifying employers against pecuniary
losses on account of forgery, defalcation (misappropriation of
money), embezzlement (diversion of money to ones use) and
fraudulent conversion by employees. The object is to provide
protection against losses arising out of the default of an individual
acting in some capacity such as Cashier, Accountant and Store-
keeper etc.
Scope of Cover : The captioned Policy covers the loss sustained
by the employer by reason of any act of forgery and/or fraud
and/or dishonesty of monies and/or goods of the employer on the
part of the employee Insured committed on or after the date of
commencement of the Policy during uninterrupted service with
the employer. The loss should be detected during the continuance
of the Policy or within 12 calendar months of the expiry of the
Policy and in the case of death, dismissal or retirement of the
employee within 12 calendar months of such death or dismissal or
retirement whichever is earlier.
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The cover may be required in respect of a single employee or a
group of employees. There are three types of Policies normally
issued by the Insurer for this clause of business namely Individual
Policy, Collective Policy and Floating Policy.
Conditions:-
The liability of the Company shall not exceed
i. (a) in respect of any employee the sum insured stated againsthis name or as declared herein.
(b) in respect of all claims under this policy, the total sum
insured.
ii. If this policy shall be continued in force for more than oneperiod of indemnity or if any liability shall exist on the part of
the Company under this Policy and also under any other Policy
in respect of fraud or dishonesty of the employee, the liability
of the Company hereunder shall not be accumulated or
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increased thereby but the aggregate liability of the Company
during any number of periods of indemnity and for any number
of acts of fraud or dishonesty committed by the employee shall
not exceed the sum insured hereunder or the sum insured
under any other such policy as aforesaid whichever is greater.
iii. The Company shall not be liable to pay more than one claim inrespect of the action of any one employee.
When do I need Fidelity/Crime Insurance?
Any business employer needs to be concerned with Employee
Dishonest business handing cash or securities needs protection
Because crime-related losses are not typically covered by most
property insurance policies, crime protection insurance is a
necessary component for any business. Unfortunately, the
majority of businesses dont purchase enough crime protection.
Why do I need Fidelity/Crime Insurance?
Fraud and embezzlement in the workplace is on the rise,
occurring in even the best work environments. These frauds can
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go on for years, and when discovered the ultimate impact can be
enormous. Smaller companies are especially vulnerable to such
crimes.
White collar crime can have serious financial consequences, even
threatening a private companys survival. Insure Hedge offers a
solution to handling crime losses committed by employees,
through Forefront Crime Liability Insurance Policy.
Fidelity Guarantee Insurance- Its Importance to
Employers.
In the organization the most valuable asset are their
employees. Every organization make sure that they employ best
talent for the job. Employers have to select person in short span
of time which actually not enough to know the person entirely.
Sometimes selection of particular employee can go wrong. The
successful functioning of any business is often based upon their
employees. An employee at times misuses the powers which are
given to them.
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Organizations are experiencing rise in the frauds and
dishonesty among the employee. Even the best of working
environment witnessing the frauds of employee. It has been seen
that employee who commits the frauds are working in the
organization for longer periods. The reasons which usually found
in the most cases are insufficient salary, emergency, etc. Often
frauds are happen on daily basis with smaller volumes. But
eventually when it discovered turns out to be big. Smaller
organizations are generally venerable to this kind of frauds.
Frauds are generally happens with position where cash,
stocks are handled. Cashier, Accountants, Stock keepers are the
ones who are leading scoreboard in frauds. Frauds are of many
types like burglary, larceny, theft of money, securities, office
equipments etc. Other frauds which tend to occur like misuse of
confidential data which causes enormous losses. Organization
needs to have strong system, accountability which will help to
discover the loss in quick time.
Main factors considered for issuance of Fidelity Guarantee policy
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The extent of control over the work of the person to be
guaranteed necessarily to form the relation ship of master and
servant.
The record, standing and reputation of the employee.
The bonafides of the employer.
The system of checking of the accounts and general supervision
of the employee.
It is essential to obtain the Private Reference and/or Former
employers Report forms in addition to completed Employer and
Employees application form as appropriate.
It should be noted that
1. The cover granted is against a direct pecuniary loss and not a
consequential one.
2. The loss should be in respect of moneys or goods of the
insured.
3. The act should be committed in the course of the duties
specified.
4. If the employee guaranteed under the policy policy had left the
services of the employer and was re-engaged by him, no liability
attaches to the policy, unless the consent of the insurers was
obtained.
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5. No loss that may have been caused by bad accountancy is
payable: the loss must be supported by evidence of any of the
specified acts of dishonesty.
Types of Fidelity Guarantees
Individual Policy : This Policy covers an individual for astated amount.
Collective Policy : This Policy covers group of employees.The Insured decides the amount of guarantee required for
each individual according to his or her responsibility and
position. A schedule is included in the Policy.
Floater Policy : A single amount is shown in the Policywhich represent the Insurers liability in respect of any
one individual and its total liabilities in respect of all
the employees guaranteed who are individually named
in the schedule. Such type of Policies are granted
where the number of persons to be guaranteed are
not less than 5.
Blanket Policy : The Insurer in certain selected cases,issue Blanket Policies without the names of the
guaranteed persons being shown, in respect of all
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employees who are grouped according to categories.
e.g. employees handling cash, other clerical staff etc.
They are issued to large well established business
houses conducting business with sound practices. All
enquiries for this type of Policy must be referred to
Insurers Regional Office/Head Office for acceptance
and quotation.
In case the Policy is required to be issued without mentioning the
name of the employee/s i.e. on unnamed basis, then in such
circumstances all the employees dealing with the cash/goods,
whether permanently or temporarily or by rotation must be
covered.
Further the limit can be fixed for each employees separately or for
the group of the employee as the case may be and the liability of
the Insurer in case of the loss will be restricted to the same limit
irrespective of the sum insured. However, the wider limit in the
line of the sum insured can be considered by the Insurer
depending upon the requirement of the Insured after taking into
account other relevant factors.
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Position policy: This is similar to collective policy with thedifference that instead of using names,the position is
guaranteed for a specified amount ,so that a change in the
person holding the position does not affect the cover.It is to
be noted that the liability of the insurance in respect of each
position remains limited to amount guaranteed for the
position,irrespective of the number of persons acting in that
position.
Excess floating policy:This is a combination of collectivepolicy and floating policy.An employer may safeguard
himself against loss of an unforeen amount by reason of
default continuing for a long time by unusually ingenious
methods of concealment by having a floating guarantee for
any loss in excess of the individual amounts set out in the
schedule.
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Fidelity Guarantee Insurance Claim Procedure
- Insured should take immediate steps against the defaulting
employee for the recovery of cash/goods as the case may be and
also other disciplinary action required, depending on the case.
- Insured must establish the Act of Infidelity committed by the
particular employee covered under the Policy.
- The loss noticed at the time of stock taking in case of stock is not
covered.
- The Insurer shall not be liable, If at the time of any loss, any
other Security Guarantee or Insurance existing covering the same
loss.
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Content of proposal form
-legal status of the employer ,e.g. sole trader,partnership etc.
-amount of guarantee required.
-details of any other security held by the employer.
-references.
-details of past and present service.
-duties assigned to employees,and whether he has any outside
duties.
-whether the employees will have money in his possession during
his duty period.If so ,the manner in which he will make payments
and the likely amount that will remain with him.
-system of check and method of supervision.
-remuneration of employee.
-employees debt or liabilities,if any.
-employees previous defalcations,if any.
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Claims
A fedility guarantee claim form usually contains questions relating
to:
-name of the defaulting employee, and his last known address.
-date on which the loss was discovered.
-period for and the manner in which the embezzlement has been
carried on, and concealed.
-previous irregularity, if any, in the defaulting employees account.
-the extent of loss.
-whether the matter is reported to the police and if so, the date, t
ime and place of reporting.
-security held by the insured, in respect of the defaulting
employee.
-amount of salary, commission or other remuneration or
allowance that may be due from the insured to the defaulting
employee.
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-particulars of property, furniture or other effects belonging to
the defaulting employee.
Underwriting considerations
The main considerations are how far the system of check and
control measures are effective and what supervision is exercised
over the employees.
-money should not be allowed to accumulate in the hands of any
one employee to an unreasonable extent.
-All moneys collected on behalf of the employer should be paid
over daily or at short intervals.
-Employees engaged in handling money should not also be
employed upon the books or records in which the money is
accounted.
-Employees collecting money should not to make any
disbursements there from.
-All payments should be made by crossed cheques only.
-Receipts of all money collected should be made on printed andnumbered forms out of a bookwith counter foils.
-The responsibility for the correctness of every payment should be
shared by atleast two persons.
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-Their should be continuous professional audit by a firm of
recognized standing.
-Their should be independent surprise check at regular and
frequent intervals,of all money transaction.
Rating
The premium under individual and collective policies is charged asa rate percent of the amount guaranteed ,subject to a minimum
premium.The factors ordinarily taken into consideration for
determining the rate of premium are the amount of guarantee
,the type of occupation,the system of check and the method of
supervision.The rate percent varies from risk to risk depending
upon merits of each case.Generally speaking ,it ranges from .20
percent to 1 percent.
The premium of a floating policy comprises a percent charge as
per capita charge.The percent charge is applied on the amount
guaranteed and the per capita charge on the number employees
to be guaranteed.
For example-
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If a floating policy has to be issued covering 200 employees for an
amount of Rs 200000 and the percentage charge is say one
percent and per capita charge Rs 5,the premium payable would
be Rs 3000 arrived at as shown below:
Percentage charge @1% of Rs 200000 2000
Per capita charge @ Rs 5 for 200 persons 1000
(200*5)
Total 3000
The minimum premium is always insisted upon because the
expenses for scrutiny of proposal,issue of policy,stationery cost
etc. would be same whether the cover be for Rs 1000 or Rs
100000.
Period of insurance
The policies are customarily,issued for a period of a 12
months.Short period covers are seldom issued,as insurers
consider such covers as a selection against them.Furthermore,the
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exposure of risk under short period policies is considerably higher
than that under annual policies.
Extensions
It is not unusual for employers to ask for extending the
conventional policy to cover negligence or lack of care on the part
of the employee.Government departments,the posts,and
telegraphs directorate,the Railways,and many public sector
institutions demand such extension.Since the terms negligence
and lack of care do not admit of precise definitions,it is not a safe
underwriting proposition to cover them.
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Court bonds
1.Administration bonds
When a person dies intestate, that is ,without making a will,or
when the will made by a person is not in order,or when an
executor named in a will is not in a position,or refuses,to
discharge his duties,the court appoints an administrator for
winding up the affairs of the deceased.The person who is
appointed as an administrator has to furnish a surety for the
proper accounting of the deceaseds estate.
The bond issued by insurers in favour of the court guaranteeing
the proper discharge of duties by the administrator and the
proper accounting of the estate of the deceased is known as an
administration bond.
2.Liquidators and receivership bonds
Estate which are under dispute and referred to the court for
adjudication are temporarily placed under the care of a receiver
during the pendency of the case.The receiver has to administerthe estate and render to the court,proper accounting of the
estate when under his care.A receiver may also be appointed to
administer the estate of a minor who is placed under the court of
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wards till he attains majority,or of a person who is pronounced
mentally incapable.
Liquidators are appointed by the court to deal with the estates of
persons who have filed insolvency petition before the court or are
declared insolvent by the courts.
Unlike the receivers,the liquidators have to meet the claims of the
insolvents estate from his debtor.The liquidator has to produce a
bond guaranteeing his honest and faithful accounting to the
estate.
Government bonds
1.Custom bonds- Customs bonds are to be executed by the
importer in favour of the controller of exports and imports
agreeing,inter alia ,to perform the conditions stipulated in the
import trade control regulations.
A representative list of importers who have to execute custom
bonds is given below:
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-persons or corporate bodies who are permitted to import motor
cars for their personal use.
-manufacturers who import essential raw materials on which a
confessional customs duty is levied provided they produce an end
use certificate that the imported materials have been consumed
in the production of goods originally declared by the
manufacturer.
-supplier of industrial chemicals imported in special containers
who have to export back the containers after using the contents.
2.Excise bonds- Excise bonds are to be executed by
manufacturers in the country in respect of finished products
assembled or produced in the country,which are dutiable.The
excise duty is to be paid to the excise department in lieu of which
a bond may be executed.Manufacturers of
alchol,sugar,textiles,automobiles,etc are required to execute the
bond.
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Bibliography
1..http://www.edocfind.com/
2. www.irdaindia.org
3. www.fidelityguaranteinsurance.com
Books:
Insurance Institute of IndiaIc-78.
http://www.edocfind.com/http://www.edocfind.com/http://www.edocfind.com/http://www.irdaindia.org/http://www.irdaindia.org/http://www.fidelityguaranteinsurance.com/http://www.fidelityguaranteinsurance.com/http://www.irdaindia.org/http://www.edocfind.com/